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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 "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$1.2 trillion in assets under management and administration as ofDecember 31, 2022 . 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 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. We operate our business in the broader context of the macroeconomic forces around us, including the global andU.S. economies, the coronavirus disease 2019 ("COVID-19") pandemic, changes in interest and inflation rates, financial market volatility, fluctuations in foreign exchange rates, geopolitical strain, the competitive environment, client and customer activities and preferences, and the various regulatory and legislative developments. 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 deferred acquisition costs ("DAC") and deferred sales inducement costs ("DSIC") assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits and the "spread" income generated on our deposit products, fixed insurance, the fixed portion of variable annuities and variable insurance contracts and fixed deferred annuities. We have been operating in a historically low interest rate environment but have recently experienced a substantial increase in rates with uncertainty about where rates will go in the future. A higher (lower) interest rate environment may result in decreases (increases) to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may impact our adjusted operating earnings after tax. 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 future policy benefit reserve adequacy for our long term care ("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 2022 and 2021 results. For a discussion of our 2020 results and for a comparison of results for 2021 and 2020, 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, 2021 , which was filed with theSEC onFebruary 25, 2022 . OnJune 2, 2021 , we filed an application to convertAmeriprise Bank , FSB ("Ameriprise Bank ") 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 theAmeriprise Bank's personal trust services business to a new limited purpose national trust bank regulated by theOffice of the Comptroller of the Currency . If the 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. 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 fair value of assets and liabilities related to the CIEs, primarily syndicated 31
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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 impacts; 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%.
The following tables reconcile our GAAP measures to adjusted operating measures:
Per Diluted Share
Years Ended December 31, Years Ended December 31,
2022 2021 2022 2021
(in millions, except per share amounts)
Net income $ 2,559 $ 2,760 $ 22.51 $ 23.00
Less: Net realized investment gains (losses) (1) (97) 87 (0.85) 0.73
Add: Market impact on non-traditional long-duration products (1) (211) 656 (1.86) 5.47
Add: Mean reversion related impacts (1) 268 (152) 2.36 (1.27)
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) 50 32 0.44 0.27
Less: Net income (loss) attributable to CIEs (4) (3) (0.04) (0.03)
Add: Tax effect of adjustments (2) (43) 11 (0.38) 0.09
Adjusted operating earnings $ 2,724 $ 2,724 $ 23.96 $ 22.70
Weighted average common shares outstanding:
Basic 111.3 117.3
Diluted 113.7 120.0
(1) Pretax adjusted operating adjustments.
(2) Calculated using the statutory tax rate of 21%.
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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,
2022 2021
(in millions)
Net income $ 2,559 $ 2,760
Less: Adjustments (1) (165) 36
Adjusted operating earnings $ 2,724 $ 2,724
Total Ameriprise Financial, Inc. shareholders' equity (2) $ 4,453 $ 5,944
Less: AOCI, net of tax (2) (1,487) 556
5,940 5,388 Less: Equity impacts attributable to CIEs - 2 Adjusted operating equity$ 5,940 $ 5,386 Return on equity, excluding AOCI 43.1 % 51.2 % Adjusted operating return on equity, excluding AOCI (3) 45.9 % 50.6 % (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) We revised prior period Consolidated Financial Statements to correct shadow unearned revenue liability balances associated with universal life insurance products. See Note 28 to our Consolidated Financial Statements for a summary of the revision. (3) 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%.
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.
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.
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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 AOCI on the Consolidated Balance
Sheets.
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 5.6% 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.
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
$
(32)
Decrease in future near-term equity fund growth returns by 100
basis points
$
(31)
Decrease in future long-term equity fund growth returns by 100
basis points
(19) (41) (60)
Decrease in future near- and long-term equity fund growth
returns by 100 basis points
$
(50)
(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 reporting 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
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.
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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 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$74 billion of variable annuity account value that has been issued over a period of more than 50 years. The diversified variable annuity block consists of$32 billion of account value with no living benefit guarantees and$42 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. We discontinued most new sales of GMWB and GMAB by the end of 2021 and new sales were completely discontinued as of mid-2022. We also previously 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
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fluctuates 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 fluctuates 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 theU.S. Treasury curve as of the balance sheet date. As our estimate of this spread over theU.S. Treasury curve 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. 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. Distribution fees also include revenue for placing clients' deposits in its brokerage sweep program with third-party banks as well as revenue from brokerage clients for the execution of requested trades.
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
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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.
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.
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Economic Environment
Global equity market conditions and fluctuations affect our results of
operations and financial condition. The following table presents relevant market
indices:
Years Ended December 31,
2022 2021 Change
S&P 500
Daily average 4,100 4,270 (4)%
Period end 3,840 4,766 (19)%
Weighted Equity Index ("WEI") (1)
Daily average 2,699 2,894 (7)%
Period end 2,549 3,152 (19)%
(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 results of operations and financial condition, and
potentially material effects, see Part 1 - Item 1A "Risk Factors" of this Annual
Report on Form 10-K.
Assets Under Management and Administration
Assets under management ("AUM") include external client assets for which we
provide investment management services, such as the assets of the Columbia
Threadneedle Investments funds, 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 include certain assets on our Consolidated Balance
Sheets for which we provide investment management services and recognize
management fees in our Asset Management segment, such as the assets of the
general account and 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 include certain assets
on our Consolidated Balance Sheets for which we do not provide investment
management services and do not recognize management fees, such as investments in
non-affiliated funds held in the separate accounts of our life insurance
subsidiaries.
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,
2022 2021
Change
(in billions)
Assets Under Management and Administration
Advice & Wealth Management AUM $ 409.0 $ 460.9 $ (51.9) (11) %
Asset Management AUM 584.0 754.1 (170.1) (23)
Corporate AUM 0.2 0.1 0.1 NM
Eliminations (36.9) (44.1) 7.2 16
Total Assets Under Management 956.3 1,171.0 (214.7) (18)
Total Assets Under Administration 222.0 246.9 (24.9) (10)
Total AUM and AUA $ 1,178.3 $ 1,417.9 $ (239.6) (17) %
NM Not Meaningful.
Total AUM decreased $214.7 billion , or 18%, to $956.3 billion as of December 31,
2022 compared to $1.2 trillion as of December 31, 2021 due to a $51.9 billion
decrease in Advice & Wealth Management AUM driven by market depreciation,
partially offset by wrap account net inflows, and a $170.1 billion decrease in
Asset Management AUM primarily driven by equity and bond market depreciation and
an unfavorable foreign currency translation impact. 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,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 9,033 $ 9,275 $ (242) (3) %
Distribution fees 1,938 1,830 108 6
Net investment income 1,474 1,683 (209) (12)
Premiums, policy and contract charges 1,411 273 1,138 NM
Other revenues 491 382 109 29
Total revenues 14,347 13,443 904 7
Banking and deposit interest expense 76 12 64 NM
Total net revenues 14,271 13,431 840 6
Expenses
Distribution expenses 4,923 5,015 (92) (2)
Interest credited to fixed accounts 665 600 65 11
Benefits, claims, losses and settlement expenses 1,372 716 656 92
Amortization of deferred acquisition costs 208 124 84 68
Interest and debt expense 198 191 7 4
General and administrative expense 3,723 3,435 288 8
Total expenses 11,089 10,081 1,008 10
Pretax income 3,182 3,350 (168) (5)
Income tax provision 623 590 33 6
Net income $ 2,559 $ 2,760 $ (201) (7) %
NM Not Meaningful.
Overall
Pretax income decreased
prior year. The following impacts were significant drivers of the year-over-year
change in pretax income:
•The prior year impact of the block transfer reinsurance transaction resulted in$521 million of pretax income for 2021 primarily reflecting the net realized gains on investments sold to the reinsurer.
•The mean reversion related impact was an expense of
compared to a benefit of
•A negative impact from lower average equity markets compared to the prior year. Our average WEI, which is a proxy for equity movements on AUM, decreased 7% in 2022 compared to the prior year. The average S&P 500 index was 4% lower for 2022 compared to the prior year.
•The unfavorable impact of unlocking was
favorable impact of unlocking of
•A favorable impact from the continued increase in short-term interest rates
compared to the prior year.
•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 a benefit of$211 million for 2022 compared to an expense of$656 million for the prior year.
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The following table presents the total pretax impacts on our revenues and expenses attributable to unlocking for the years endedDecember 31 : Pretax Increase (Decrease) 2022 2021 (in millions) Distribution fees $ -$ 2 Premiums, policy and contract charges 1
17
Total revenues 1
19
Benefits, claims, losses and settlement expenses: LTC unlocking -
3
Unlocking impact, excluding LTC 170
59
Total benefits, claims, losses and settlement expenses 170 62 Amortization of DAC (8) (60) Total expenses 162 2 Pretax income (1)$ (161) $ 17 (1) Includes an$8 million net benefit and a$25 million net benefit related to the market impact on non-traditional long-duration products for 2022 and 2021, 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 include the following
items:
•Mortality assumption on variable annuities with living benefit guarantees
resulted in a higher expense in the 2022 compared to the prior year.
•Equity market volatility and correlation assumptions on variable annuities resulted in an unfavorable impact in 2022 compared to a favorable impact in the prior year. Net Revenues Management and financial advice fees decreased$242 million , or 3%, for 2022 compared to the prior year primarily reflecting market depreciation, an unfavorable foreign exchange impact, and a decrease in performance fees of$39 million , partially offset by revenue associated with the acquisition of the BMO Global Asset Management (EMEA) business and continued wrap account net inflows. Distribution fees increased$108 million , or 6%, for 2022 compared to the prior year due to$264 million of higher fees on off-balance sheet brokerage cash primarily due to an increase in short-term interest rates, partially offset by lower average equity markets and decreased transactional activity.
Net investment income decreased
prior year primarily due to the following impacts:
•Net realized investment losses of$87 million for 2022 compared to net realized investment gains of$636 million for the prior year period. Net realized losses for 2022 were primarily driven by the fixed maturity investment portfolio repositioning in the fourth quarter of 2022. 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.
•The favorable impact of the recent trend in rising interest rates on the
investment portfolio yield, including the fourth quarter of 2022 impact of
portfolio repositioning.
•The favorable impact of growth inAmeriprise Bank and certificate businesses as a result of the market environment and our strategic decision to invest in these businesses. •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 in the prior year.
•The
currency changes on certain investments in the prior year.
Premiums, policy and contract charges increased$1.1 billion for 2022 compared to the prior year primarily reflecting ceded premiums of$1.2 billion associated with the reinsurance transaction for life contingent immediate annuity policies in the prior year.
Other revenues increased
year primarily reflecting the yield on deposit receivables arising from
reinsurance transactions.
Banking and deposit interest expense increased$64 million for 2022 compared to the prior year primarily due to higher average crediting rates on certificates and bank cash deposits and increased cash deposits at the bank.
40
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Expenses
Distribution expenses decreased
prior year primarily reflecting lower average equity markets and decreased
transactional activity.
Interest credited to fixed accounts increased
compared to the prior year primarily reflecting the following items:
•An$23 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The favorable impact of the nonperformance credit spread was$13 million for 2022 compared to an unfavorable impact of$10 million for the prior year. •A$105 million increase in expense from other market impacts on IUL benefits, net of hedges, which was an expense of$51 million for 2022 compared to a benefit of$54 million for the prior year. The increase in expense was primarily due to an increase in the IUL embedded derivative in the current year period, which reflected higher option costs due to a higher new money rate, compared to a decrease in the IUL embedded derivative in the prior year period, which reflected lower option costs due to higher discount rates.
Benefits, claims, losses and settlement expenses increased
for 2022 compared to the prior year primarily reflecting the following items:
•A
for life contingent immediate annuity policies in the prior year.
•A
year-over-year changes in the unhedged nonperformance credit spread risk
adjustment on variable annuity guaranteed benefits.
•A$1.0 billion 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 decrease was the result of a favorable$1.2 billion change in the market impact on variable annuity guaranteed living benefits reserves, partially offset by an unfavorable$127 million 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
benefit for 2022 compared to an expense in 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 a
higher expense for 2022 compared to 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 2022 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 lower net benefit for 2022 compared to the prior year.
•The impact of unlocking was an expense of
expense of
•The mean reversion related impact was an expense of
compared to a benefit of
Amortization of DAC increased
prior year primarily reflecting the following items:
•The mean reversion related impact was an expense of
compared to a benefit of
•The impact of unlocking in 2022 was a benefit of
benefit of
•The DAC offset to the market impact on non-traditional long-duration
products was a benefit of
•A decrease in amortization reflecting lower than expected client exit rates.
General and administrative expense increased
compared to the prior year primarily reflecting the operating expenses of the
acquired BMO Global Asset Management (EMEA) business and higher integration
related expenses, partially offset by disciplined expense management and
reengineering, lower performance fee related compensation and a favorable
foreign exchange impact.
Income Taxes
Our effective tax rate was 19.6% for 2022 compared to 17.6% for the prior year.
See Note 23 to our Consolidated Financial Statements for additional discussion
on income taxes.
41
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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 27 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,
2022 2021
(in millions)
Advice & Wealth Management
Net revenues $ 8,461 $ 8,021
Expenses 6,269 6,278
Adjusted operating earnings $ 2,192 $ 1,743
Asset Management
Net revenues $ 3,506 $ 3,682
Expenses 2,662 2,586
Adjusted operating earnings $ 844 $ 1,096
Retirement & Protection Solutions
Net revenues $ 3,134 $ 3,244
Expenses 2,504 2,509
Adjusted operating earnings $ 630 $ 735
Corporate & Other
Net revenues $ 479 $ 487
Expenses 754 757
Adjusted operating loss $ (275) $ (270)
The following table presents the segment pretax adjusted operating impacts on
our revenues and expenses attributable to unlocking for the years ended December
31 :
2022 2021
Retirement & Retirement &
Segment Pretax Adjusted Operating Protection Protection
Increase (Decrease) Solutions Corporate Solutions Corporate
(in millions)
Distribution fees $ - $ - $ 2 $ -
Premiums, policy and contract charges 3 (2) 17 -
Total revenues 3 (2) 19 -
Benefits, claims, losses and settlement
expenses:
LTC unlocking - - - 3
Unlocking, excluding LTC 180 (1) 89 -
Total benefits, claims, losses and
settlement expenses 180 (1) 89 3
Amortization of DAC (5) (4) (65) -
Total expenses 175 (5) 24 3
Pretax income (loss) $ (172) $ 3 $ (5) $ (3)
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Advice & Wealth Management
The following table presents the changes in wrap account assets and average
balances for the years ended
2022 2021
(in billions)
Beginning balance $ 464.7 $ 380.0
Net flows 27.5 40.4
Market appreciation (depreciation) and other (80.1) 44.3
Ending balance
$ 412.1 $ 464.7
Advisory wrap account assets ending balance (1)
Average advisory wrap account assets (2)
(1) Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee.
(2) Average ending balances are calculated using an average of the prior
period's ending balance and all months in the current period excluding the most
recent month for the twelve months ended
Wrap account assets decreased$52.6 billion , or 11%, during 2022 primarily due to market depreciation of$80.1 billion , partially offset by net inflows of$27.5 billion . Average advisory wrap account assets increased$4.6 billion , or 1%, compared to the prior year primarily reflecting continued net inflows, partially offset by market depreciation.
The following table presents the results of operations of our Advice & Wealth
Management segment on an adjusted operating basis:
Years Ended December 31,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 5,308 $ 5,297 $ 11 - %
Distribution fees 2,249 2,253 (4) -
Net investment income 748 257 491 NM
Other revenues 232 226 6 3
Total revenues 8,537 8,033 504 6
Banking and deposit interest expense 76 12 64 NM
Total net revenues 8,461 8,021 440 5
Expenses
Distribution expenses 4,719 4,842 (123) (3)
Interest and debt expense 10 10 - -
General and administrative expense 1,540 1,426 114 8
Total expenses 6,269 6,278 (9) -
Adjusted operating earnings $ 2,192 $ 1,743 $ 449 26 %
NM Not Meaningful.
Our Advice & Wealth Management segment pretax adjusted operating earnings, which
exclude net realized investment gains or losses, increased $449 million , or 26%,
for 2022 compared to the prior year primarily reflecting the benefit from higher
interest rates and client net inflows, partially offset by market depreciation
and decreased transactional activity. Pretax adjusted operating margin was 25.9%
for 2022 compared to 21.7% for the prior year. Adjusted operating net revenue
per advisor increased to $827,000 for 2022, up 4%, from $796,000 for the prior
year.
Ameriprise Bank is continuing its deposit growth trend, with cash sweep balances
increasing $6.9 billion from the prior year period to $18.3 billion and
brokerage client pledged asset lines of credit increasing $122 million from the
prior year to $589 million as of December 31, 2022 .
Net Revenues
Management and financial advice fees increased$11 million for 2022 compared to the prior year primarily due to an increase in financial planning fees, partially offset by lower advisory fees. Average advisory wrap account assets increased$4.6 billion , or 1%, compared to the prior year reflecting net inflows, partially offset by market depreciation.
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Distribution fees decreased
primarily reflecting lower average equity markets and decreased transactional
activity mostly offset by
brokerage cash due to an increase in short-term interest rates.
Net investment income increased$491 million for 2022 compared to the prior year primarily due to higher average invested assets due to increased bank deposits and higher investment yields on the investment portfolio supporting the bank and certificate products. Banking and deposit interest expense increased$64 million for 2022 compared to the prior year primarily due to higher average crediting rates on certificates and bank cash deposits and increased cash deposits at the bank.
Expenses
Distribution expenses decreased
prior year reflecting market depreciation and decreased transactional activity.
General and administrative expense increased$114 million , or 8%, for 2022 compared to the prior year primarily due to higher volume related expenses and investments for business growth as well as lower staffing levels and limited travel and entertainment expenses in the prior year.
Asset Management
The following tables present the mutual fund performance of our retail Columbia
Threadneedle Investments funds as of
Retail Fund Rankings in Top 2 Quartiles or Above Index
Benchmark - Asset Weighted (1)
1 year 3 year 5 year 10 year Equity 56% 75% 75% 90% Fixed Income 39% 52% 56% 86% Asset Allocation 22% 61% 70% 90% 4- or 5-star Morningstar Rated Funds (2) Overall 3 year 5 year 10 year Number of rated funds 131 91 86 99 Percent of rated assets 55% 43% 45% 57% (1)Retail Fund performance rankings for each fund are measured on a consistent basis against the most appropriate peer group or index. Peer groupings ofColumbia funds are defined by Lipper category and are based on the Primary Share Class (i.e., Institutional if available, otherwise Advisor or Instl3 share class) net of fees. Peer groupings of Threadneedle funds are defined by either IA or Morningstar index and based on the Primary Share Class. 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
income.
(2)Columbia funds are available for purchase byU.S. customers. Out of 104Columbia funds rated (based on primary share class), 15 received a 5-star Overall Rating and 35 received a 4-star Overall Rating. Out of 157 Threadneedle funds rated (based on highest-rated share class), 27 received a 5-star Overall Rating and 54 received a 4-star Overall 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,
2022 2021 Change 2022 2021 Change
(in billions) (in billions)
Equity $ 301.2 $ 402.9 $ (101.7) (25) % $ 333.1 $ 338.3 $ (5.2) (2) %
Fixed income 210.0 277.0 (67.0) (24) 232.0 211.8 20.2 10
Money market 21.9 10.1 11.8 NM 17.1 6.5 10.6 NM
Alternative 33.7 39.9 (6.2) (16) 37.3 25.8 11.5 45
Hybrid and other 17.2 24.2 (7.0) (29) 19.8 22.6 (2.8) (12)
Total managed assets (2) $ 584.0 $ 754.1 $ (170.1) (23) % $ 639.3 $ 605.0 $ 34.3 6 %
NM Not Meaningful
(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.
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The following table presents the changes in global managed assets:
Years Ended December 31,
2022 2021
(in billions)
Global Retail Funds (1)
Beginning assets $ 409.4 $ 323.5
Inflows 60.9 78.5
Outflows (84.7) (68.8)
Net VP/VIT fund flows (4.3) (4.2)
Net new flows (2) (28.1) 5.5
Reinvested dividends 11.4 19.0
Net flows (16.7) 24.5
Distributions (12.9) (21.5)
Acquired assets (3) - 37.0
Market appreciation (depreciation) and other (65.6)
47.5
Foreign currency translation (4) (4.9) (1.6) Total ending assets 309.3 409.4 Global Institutional (1) Beginning assets 344.7 223.1 Inflows (5) 59.1 50.9 Outflows (5) (49.0) (32.5) Net flows (2) 10.1 18.4 Acquired assets (3) - 99.2 Market appreciation (depreciation) and other (6) (65.0)
6.7
Foreign currency translation (4) (15.1) (2.7) Total ending assets 274.7 344.7 Total managed assets$ 584.0 $ 754.1 Total net flows$ (6.6) $ 42.9 Legacy insurance partners net flows (7)$ (4.6)
(1) The 2021 rollforwards for Global Retail Funds and Global Institutional were
restated for a reclass between retail and institutional. Total AUM as of
(2) Included in net flows are the amounts from theU.S. asset transfer from the BMO acquisition of$2.6 billion ($2.5 billion retail and$0.1 billion institutional) in 2022 and$16.9 billion ($2.9 billion retail and$14.0 billion institutional) in 2021.
(3) Reflects the acquisition of the BMO Global Asset Management (EMEA) business
that closed on
(4) Amounts represent local currency to
purposes.
(5) Global Institutional inflows and outflows include net flows from our
structured variable annuity product and
(6) 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 andAmeriprise Bank . (7) Legacy insurance partners assets and net flows are included in the rollforwards above. Total segment AUM decreased$170.1 billion , or 23%, during 2022 primarily driven by equity and bond market depreciation and an unfavorable foreign exchange impact. Net outflows were$6.6 billion for 2022, compared to net inflows of$42.9 billion in the prior year which 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.
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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,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 3,086 $ 3,202 $ (116) (4) %
Distribution fees 397 471 (74) (16)
Net investment income 9 6 3 50
Other revenues 14 3 11 NM
Total revenues 3,506 3,682 (176) (5)
Banking and deposit interest expense - - - -
Total net revenues 3,506 3,682 (176) (5)
Expenses
Distribution expenses 995 1,132 (137) (12)
Amortization of deferred acquisition costs 9 12 (3) (25)
Interest and debt expense 5 5 - -
General and administrative expense 1,653 1,437 216 15
Total expenses 2,662 2,586 76 3
Adjusted operating earnings $ 844 $ 1,096 $ (252) (23) %
NM Not Meaningful.
Our Asset Management segment pretax adjusted operating earnings, which exclude
net realized investment gains or losses, decreased $252 million , or 23%, for
2022 compared to the prior year primarily due to market depreciation, an
unfavorable foreign exchange impact and the cumulative impact of net outflows.
Net Revenues
Management and financial advice fees decreased$116 million , or 4%, for 2022 compared to the prior year primarily driven by lower average markets, the cumulative impact of net outflows, the impact of foreign exchange rates and a decrease in performance fees, partially offset by revenue associated with the acquired BMO Global Asset Management (EMEA) business. Distribution fees decreased$74 million , or 16%, for 2022 compared to the prior year primarily due to lower average markets and the cumulative impact from net outflows.
Other revenues increased
primarily due to the acquired BMO Global Asset Management (EMEA) business.
Expenses
Distribution expenses decreased$137 million , or 12%, for 2022 compared to the prior year primarily due to market depreciation and the cumulative impact of net outflows. General and administrative expense increased$216 million , or 15%, for 2022 compared to the prior year primarily reflecting the operating expenses of the acquired BMO Global Asset Management (EMEA) business, partially offset by the impact of foreign exchange rates and$17 million in lower performance fee related compensation. 46
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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,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 788 $ 932 $ (144) (15) %
Distribution fees 417 487 (70) (14)
Net investment income 569 480 89 19
Premiums, policy and contract charges 1,348 1,338 10 1
Other revenues 12 7 5 71
Total revenues 3,134 3,244 (110) (3)
Banking and deposit interest expense - - - -
Total net revenues 3,134 3,244 (110) (3)
Expenses
Distribution expenses 436 531 (95) (18)
Interest credited to fixed accounts 386 389 (3) (1)
Benefits, claims, losses and settlement expenses 1,130 1,042 88 8
Amortization of deferred acquisition costs 204 208 (4) (2)
Interest and debt expense 39 37 2 5
General and administrative expense 309 302 7 2
Total expenses 2,504 2,509 (5) -
Adjusted operating earnings $ 630 $ 735 $ (105) (14) %
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), mean reversion related impacts, and block transfer
reinsurance transaction impacts decreased $105 million , or 14%, for 2022
compared to the prior year.
Variable annuity account balances decreased 19% to $74.4 billion as of December
31, 2022 compared to the prior year due to market depreciation and net outflows
of $2.1 billion . Variable annuity sales decreased 33% to $4.0 billion for 2022
compared to the prior year reflecting a decrease in sales of variable annuities
with living benefit guarantees. The risk profile of our in force block continues
to improve, with account values with living benefit riders down to 57% as of
December 31, 2022 compared to 61% 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 our variable annuities with living benefit guarantees
at the end of 2021, and have stopped issuing new contracts as of 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 decreased$144 million , or 15%, for 2022 compared to the prior year primarily reflecting lower average equity markets and variable annuity net outflows.
Distribution fees decreased
year reflecting lower average equity markets and lower sales.
Net investment income, which excludes net realized investment gains or losses, increased$89 million , or 19%, for 2022 compared to the prior year reflecting higher fixed maturity investment yields and increased volume of invested assets partially driven by our portfolio repositioning in the fourth quarter.
Expenses
Distribution expenses decreased$95 million , or 18%, for 2022 compared to the prior year primarily reflecting lower variable annuity and insurance sales and market depreciation.
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, increased
47
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$88 million , or 8%, for 2022 compared to the prior year primarily due to the impact of unlocking. The unlocking impact for 2022 was an expense of$180 million primarily reflecting continued lower surrender rates and updated mortality assumptions for variable annuities with living benefits compared to an expense of$89 million for the prior year which was also driven by lower surrender rates.
Corporate & Other
The following table presents the results of operations of our Corporate & Other
segment on an adjusted operating basis:
Years Ended December 31,
2022 2021 Change
(in millions)
Revenues
Distribution fees $ - $ 1 $ (1) NM
Net investment income 155 242 (87) (36) %
Premiums, policy and contract charges 99 100 (1) (1)
Other revenues 230 146 84 58
Total revenues 484 489 (5) (1)
Banking and deposit interest expense 5 2 3 NM
Total net revenues 479 487 (8) (2)
Expenses
Distribution expenses (10) (9) (1) 11
Interest credited to fixed accounts 242 250 (8) (3)
Benefits, claims, losses and settlement expenses 223 179 44 25
Amortization of deferred acquisition costs 3 9 (6) (67)
Interest and debt expense 70 63 7 11
General and administrative expense 226 265 (39) (15)
Total expenses 754 757 (3) -
Adjusted operating loss $ (275) $ (270) $ (5) (2) %
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 increased$5 million , or 2%, for 2022 compared to the prior year. LTC insurance had pretax adjusted operating earnings of$15 million for 2022 compared to pretax adjusted operating earnings of$52 million for the prior year period primarily reflecting the favorable impacts in 2021 from COVID-19 effects on policyholder expenses.
FA business had a pretax adjusted operating loss of
compared to a pretax adjusted operating loss of
Fixed deferred annuity account balances declined 6% to
continue. During the third quarter of 2021, we closed on a transaction to
reinsure RiverSource Life's fixed deferred and immediate annuity policies.
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$87 million , or 36%, for 2022 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 and a$15 million gain on a strategic investment in the prior year.
Other revenues increased
year primarily reflecting the yield on deposit receivables arising from
reinsurance transactions.
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Expenses
Benefits, claims, losses and settlement expenses, which excludes DSIC offset to net realized investment gains or losses, increased$44 million , or 25%, for 2022 compared to the prior year primarily reflecting more normalized claims on LTC insurance, which benefited from COVID-19 related impacts in the prior year. General and administrative expense, which excludes integration and restructuring charges and expenses attributable to CIEs, decreased$39 million , or 15%, for 2022 compared to the prior year primarily due to a larger unfavorable change in the mark-to-market impact on share-based compensation expense in the prior year due to share price appreciation.
As ofDecember 31, 2022 , our nursing home indemnity LTC block had approximately$71 million in gross in force annual premium and future policyholder benefits and claim reserves of approximately$1.3 billion , net of reinsurance, which was 51% 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, 2022 , our comprehensive reimbursement LTC block had approximately$114 million in gross in force annual premium and future policyholder benefits and claim reserves of approximately$1.3 billion , net of reinsurance. This block has higher premiums per policy than the nursing home indemnity LTC policies. The average attained age is 79 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 237% on our nursing home indemnity LTC block and 135% on our comprehensive reimbursement LTC block as ofDecember 31, 2022 . Second, we have a reserving process that reflects the policy features and risk characteristics of our blocks. As ofDecember 31, 2022 , we had 41,000 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 86,000 as ofDecember 31, 2022 , at a very granular level by issue year, attained age and benefit features. Our statutory reserves are$374 million higher than our GAAP reserves and include margins on key assumptions for morbidity and mortality, as well as$345 million in asset adequacy reserves as ofDecember 31, 2022 . Lastly, we have prudently managed our investment portfolio primarily through a liquid, investment grade portfolio. 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 current market estimate of our nonperformance risk. The nonperformance 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 theU.S. Treasury curve as ofDecember 31, 2022 . 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 theU.S. Treasury curve, the reduction to future net income would be approximately$359 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, 2022 credit spreads. 49
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Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the year endedDecember 31, 2022 . AtDecember 31, 2022 and 2021, we had$7.0 billion and$7.1 billion , respectively, in cash and cash equivalents excluding CIEs and other restricted cash on a consolidated basis. AtDecember 31, 2022 and 2021, the parent company had$389 million and$841 million , 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$729 million 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 as ofDecember 31, 2022 was$1.6 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
requirements. Available borrowings under this facility are reduced by any
outstanding letters of credit. At
borrowings under this credit facility and had
issued against the facility. Our credit facility contains various
administrative, reporting, legal and financial covenants. We remain in
compliance with all such covenants at
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 are members of the FHLB ofDes Moines , which provides access to collateralized borrowings. As ofDecember 31, 2022 and 2021, we had an estimated maximum borrowing capacity of$8.0 billion and$8.1 billion , respectively, under the FHLB facilities, of which$201 million and$200 million was outstanding as ofDecember 31, 2022 and 2021, respectively, and is collateralized with commercial mortgage backed securities and residential mortgage backed securities.
Short-term contractual obligations for the year 2023 include investment
certificate maturities of
benefits of
long-term debt in
obligations for years after 2023 include estimated insurance and annuity
benefits of
We repaid$500 million principal amount of our 3.0% senior notes at maturity onMarch 22, 2022 . We issued$500 million of 4.5% unsecured senior notes onMay 13, 2022 . See Note 14 to our Consolidated Financial Statements for further information about our long-term debt maturities. We believe cash flows from operating activities, available cash balances, our availability of revolver borrowings, access to debt markets, and dividends from our subsidiaries will be sufficient to fund our short-term and long-term operating liquidity needs and stress requirements. OnAugust 16, 2022 , federal legislation commonly referred to as the Inflation Reduction Act of 2022 ("IRA") was enacted. We have evaluated the tax provisions of the IRA, the most significant of which are the corporate alternative minimum tax ("CAMT") and the share repurchase excise tax. Both the CAMT and share repurchase tax are effective beginning in 2023. We expect to be an applicable corporation required to compute the CAMT; however, we have not determined if we will be liable for the CAMT in 2023. We will be a covered corporation subject to the share repurchase excise tax. As the Internal Revenue Service issues additional guidance related to the IRA, we will continue to evaluate any impact to our consolidated financial statements.
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, LLC , 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 includesAmeriprise 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,
2022 2021 2022 2021
(in millions)
RiverSource Life (1)(2) $ 3,103 $ 3,419 $ 571 $ 502
RiverSource Life of NY (1)(2) 320 310 40 42
ACC (4)(5) 534 304 496 283
TAM UK International Holdings Ltd.(6) 437 330 214 248
Ameriprise Bank (4)(7) 1,542 853 999 589
AFS (3)(4) 90 103 # #
Ameriprise Captive Insurance Company (3) 38 39 10 10
Ameriprise Trust Company (3) 54 47 38 44
AEIS (3)(4) 208 155 26 29
RiverSource Distributors, Inc. (3)(4) 12 10 # #
Columbia Management Investment Distributors, Inc. (3)(4) 17 14 # #
348 152 170 # Amounts are less than$1 million .
(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
(7) Regulatory capital requirement is based on minimum requirements for well
capitalized banks in accordance with the
Currency
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, 2022 , the parent holding company received cash dividends or a return of capital from its subsidiaries of$2.7 billion and contributed cash to its subsidiaries of$743 million . 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 included a$973 million contribution toColumbia Threadneedle Investments UK International Ltd. andAmeriprise Asset Management Holdings Singapore Ltd. for the acquisition of the BMO Global Asset Management (EMEA) business. 51
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The table below presents the historical subsidiary capacity for dividends and return of capital to the parent holding company in each of the years endedDecember 31 : 2022 2021 2020 (in millions) RiverSource Life (1)$ 600 $ 1,900 $ 1,505 Ameriprise Bank 359 78 74 ACC (2) 39 129 97 CMIA (3) 613 674 381 CMIS (3) 27 20 14 TAM UK International Holdings Ltd. 223 355 N/A Ameriprise International Holdings GmbH N/A N/A 254 Ameriprise Trust Company 15 3 - Ameriprise Captive Insurance Company 28 34 48 RiverSource Distributors, Inc. 11 - 12 AMPF Holding, LLC 1,606 1,469 1,116 Columbia Threadneedle Investments UK International Ltd. (4) 178 178 N/A Total capacity$ 3,699 $ 4,840 $ 3,501 N/A Not applicable. (1) RiverSource Life payments in excess of statutory unassigned funds require advanced 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 advanced 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 : 2022 2021 2020 (in millions) RiverSource Life$ 600 $ 1,900 $ 800 Ameriprise Bank (395) (142) (300) ACC (168) 109 72 CMIA 480 510 324 TAM UK International Holdings Ltd. - 256 N/A Ameriprise Advisor Capital, LLC 78 (172) (102) Ameriprise Captive Insurance Company - 5 15 AMPF Holding, LLC 1,375 1,284 924 Ameriprise Trust Company - - (4) Ameriprise India 6 2 4 RiverSource Distributors, Inc. - (3) -
- Ameriprise Asset Management Holdings Singapore Ltd. - (7) - Total$ 1,976 $ 2,776 $ 1,733 N/A Not applicable. 52
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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$553 million and$527 million for the years endedDecember 31, 2022 and 2021, respectively. OnJanuary 25, 2023 , we announced a quarterly dividend of$1.25 per common share. The dividend will be paid onFebruary 28, 2023 to our shareholders of record at the close of business onFebruary 10, 2023 . InJanuary 2022 , our Board of Directors authorized us to repurchase up to$3.0 billion for the repurchase of our common stock throughMarch 31, 2024 . As ofDecember 31, 2022 , we had$1.6 billion remaining under this share repurchase authorization. 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, 2022 , we repurchased a total of 6.6 million shares of our common stock at an average price of$282.33 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 increased$1.1 billion to$4.4 billion for the year endedDecember 31, 2022 compared to$3.3 billion for the prior year primarily reflecting a$885 million increase in derivatives, net of collateral, and a$564 million increase in receivables, partially offset by a$653 million decrease in policyholder account balances, future policy benefits and claims, net. 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 brokerage cash and certificates businesses, fixed annuity and universal life products reflected in financing activities. Net cash used in investing activities increased$9.2 billion to$13.6 billion for the year endedDecember 31, 2022 compared to$4.4 billion for the prior year primarily reflecting a$7.3 billion increase in cash used for purchases of Available-for-Sale securities and a$3.9 billion decrease in proceeds from maturities, sinking fund payments and calls of Available-for-Sale securities.
Financing Activities
Net cash provided by financing activities increased$6.7 billion to$8.4 billion for the year endedDecember 31, 2022 compared to$1.7 billion for the prior year primarily reflecting a$5.5 billion increase in net cash flows from investment certificates, a$2.9 billion increase in banking deposits, a$491 million increase in issuance of long-term debt and a$1.1 billion increase in repayments of debt by CIEs, partially offset by a$1.4 billion decrease in borrowings by CIEs, a$1.0 billion decrease due to lower deferred premium derivative transactions, and a$501 million increase in repayments of long-term debt.
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
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
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opportunities;
•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 outcomes from the application to convertAmeriprise Bank to a state-chartered bank and national trust bank or the anticipated deposit growth or impacts from possible future interest rate increases; •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", "appear", "expand" 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:
•market fluctuations and general economic and political factors, including
volatility in the
volatility in the markets for our products;
•changes in 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;
• 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
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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, 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
annuities, 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) $ (285) $ 2 $ (283)
DAC and DSIC amortization (2)(3) (43) - (43)
Variable annuities:
GMDB and GMIB (3) (33) - (33)
GMWB (3) (534) 489 (45)
GMAB (31) 31 -
Structured variable annuities 494 (463) 31
DAC and DSIC amortization (4) N/A N/A (4)
Total variable annuities (104) 57 (51)
Macro hedge program (5) - 230 230
Certificates 1 (1) -
IUL insurance 15 (30) (15)
Total $ (416) $ 258 $ (162) (6)
N/A Not Applicable
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) $ (53) $ - $ (53)
Variable annuities:
GMWB 702 (766) (64)
GMAB 1 (1) -
Structured variable annuities (29) 183 154
DAC and DSIC amortization (4) N/A N/A (18)
Total variable annuities 674 (584) 72
Macro hedge program (5) - (313) (313)
Fixed annuities, fixed insurance and fixed portion of variable annuities and
variable insurance products 57 - 57
Banking deposits 28 - 28
Brokerage client cash balances 146 - 146
Certificates (9) - (9)
IUL insurance 18 2 20
Total $ 861 $ (895) $ (52)
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$190 million related to a 10% equity price decline and an estimated positive net impact to pretax income of$80 million related to a 100 basis point increase in interest rates as ofDecember 31, 2021 . The change in interest rate exposure as ofDecember 31, 2022 compared to prior year-end was primarily driven by additional downside rate protection added in the macro hedge program.
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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 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, 2022 , the value of our assets under management was$1.0 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, 2022 was$74.4 billion . These contract values include GMWB and GMAB contracts which were$41.1 billion and$1.4 billion , respectively, as ofDecember 31, 2022 . As ofDecember 31, 2022 , reserves for GMWB were net liabilities of$1.9 billion and reserves for GMAB were net assets of$35 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, 2022 , the reserve for GMDB and GMIB was a net liability of$56 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. The changes in 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, 2022 , we had$6.6 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. While interest rates under the current environment have relieved some pressure from the liability guaranteed minimum interest rates ("GMIRs"), there are still some GMIRs above current levels. Hence, liability credited rates will move more slowly under a modest rise in interest 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$36.1 billion in Policyholder account balances, future policy benefits and claims as ofDecember 31, 2022 ,$24.9 billion is related to liabilities created by these products. We do not hedge this exposure. As a result of the current market environment, reinvestment yields are becoming more aligned with the current portfolio yield. We would expect the recent decline in our portfolio income yields to slow and begin to stabilize in future periods if the current environment continues. The carrying value and weighted average yield of non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through 2024 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were$4.0 billion and 4.1%, respectively, as ofDecember 31, 2022 . In addition, residential mortgage backed securities, which can be subject to prepayment risk under a low interest rate environment, totaled$15.7 billion and had a weighted average yield of 3.5% as ofDecember 31, 2022 . 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, 2022 was approximately 4.3%. The reinvestment of proceeds from maturities, calls and prepayments at rates near the current portfolio yield will have a limited impact to future operating results. In this volatile rate environment, we assess reinvestment risk in our investment portfolio and monitor this risk in accordance with our asset/liability management framework. In addition, we may update 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, 2022 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% $ 0.6 $ 0.5 $ 0.2 $ 0.1 $ 1.4
2% - 2.99% 0.5 - - - 0.5
3% - 3.99% 7.0 - - - 7.0
4% - 5.00% 5.5 - - - 5.5
Total $ 13.6 $ 0.5 $ 0.2 $ 0.1 $ 14.4
Percentage of Account Values That
Reset In:
Next 12 months (1) 100 % 95 % 93 % 100 % 100 %
> 12 months to 24 months (2) - 4 6 - -
> 24 months (2) - 1 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, 2022 , we had $16 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, 2022 .
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$30.8 billion in customer deposits as ofDecember 31, 2022 ,$9.1 billion related to reserves for our fixed rate certificate products. 59
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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. As ofDecember 31, 2022 , we had$221 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, 2022 . 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, 2022 , we had$2.5 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 £1.4 billion as ofDecember 31, 2022 . 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, 2022 , 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, 2022 , 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. 61
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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)
63 Consolidated Statements of Operations - Years ended December 31, 202 2 , 202 1 and 20 20 66
Consolidated Statements of Comprehensive Income - Years ended
202 1 and 20 20
66
Consolidated Balance Sheets -
67
Consolidated Statements of Equity - Years ended
20 20
68
Consolidated Statements of Cash Flows - Years ended December 31, 202 2 , 202 1
and 20 20 69
Notes to Consolidated Financial Statements 71
1. Basis of Presentation 71
2. Summary of Significant Accounting Policies 71
3. Recent Accounting Pronouncements 80
4. Revenue from Contracts with Customers 82
5. Variable Interest Entities 86
6. Investments 91
7. Financing Receivables 95
8. Reinsurance 98
9. Goodwill and Other Intangible Assets 99
10. Deferred Acquisition Costs and Deferred Sales Inducement Costs 100
Policyholder Account Balances, Future Policy Benefits and
Claims and Separate
11. Account Liabilities 101
12. Variable Annuity and Insurance Guarantees 103
13. Customer Deposits 105
14. Debt 106
15. Fair Values of Assets and Liabilities 107
16. Offsetting Assets and Liabilities 118
17. Derivatives and Hedging Activities 119
18. Leases 124
19. Share-Based Compensation 125
20. Shareholders' Equity 128
21. Earnings per Share 131
22. Regulatory Requirements 131
23. Income Taxes 133
24. Retirement Plans and Profit Sharing Arrangements 135
25. Commitments, Guarantees and Contingencies 139
26. Related Party Transactions 140
27. Segment Information 140
28. Revision of Prior Period Financial Statements 144
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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, 2022 and 2021, 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, 2022 , 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, 2022 , 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2022 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, 2022 , 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.
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. 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.
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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 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, 2022 , the net embedded derivative liability in certain variable annuity riders was$608 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 used 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 used to determine 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 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 used 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 used to determine 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
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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 23, 2023
We have served as the Company's auditor since 2010.
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Consolidated Statements of Operations
Years Ended December 31,
2022 2021 2020
(in millions, except per share amounts)
Revenues
Management and financial advice fees $ 9,033 $ 9,275 $ 7,368
Distribution fees 1,938 1,830 1,661
Net investment income 1,474 1,683 1,251
Premiums, policy and contract charges 1,411 273 1,395
Other revenues 491 382 283
Total revenues 14,347 13,443 11,958
Banking and deposit interest expense 76 12 59
Total net revenues 14,271 13,431 11,899
Expenses
Distribution expenses 4,923 5,015 4,059
Interest credited to fixed accounts 665 600 644
Benefits, claims, losses and settlement expenses 1,372 716 1,806
Amortization of deferred acquisition costs 208 124 277
Interest and debt expense 198 191 162
General and administrative expense 3,723 3,435 3,120
Total expenses 11,089 10,081 10,068
Pretax income 3,182 3,350 1,831
Income tax provision 623 590 297
Net income $ 2,559 $ 2,760 $ 1,534
Earnings per share
Basic $ 22.99 $ 23.53 $ 12.39
Diluted $ 22.51 $ 23.00 $ 12.20
See Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
Years Ended December 31,
2022 2021 2020
(in millions)
Net income $ 2,559 $ 2,760 $ 1,534
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities (2,512) (673) 489
Net unrealized gains (losses) on derivatives (1) (1) (1)
Defined benefit plans 76 53 (66)
Foreign currency translation adjustment (171)
(13) 27
Total other comprehensive income (loss), net of tax (2,608) (634) 449
Total comprehensive income (loss)
$ (49) $
2,126
See Notes to Consolidated Financial Statements.
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Ameriprise Financial, Inc. Consolidated Balance SheetsDecember 31, 2022 2021 (in millions, except share amounts)
Assets
Cash and cash equivalents$ 6,964 $ 7,127 Cash of consolidated investment entities 133 121 Investments (allowance for credit losses: 2022,$39 ; 2021,$18 ) 44,524 35,810 Investments of consolidated investment entities, at fair value 2,354 2,184 Separate account assets 73,962 97,491 Receivables (allowance for credit losses: 2022,$75 ; 2021,$55 ) 15,779 16,205 Receivables of consolidated investment entities, at fair value 20 17 Deferred acquisition costs 3,160 2,782 Restricted and segregated cash, cash equivalents and investments 2,229 2,795 Other assets 9,341 11,375 Other assets of consolidated investment entities, at fair value 2 3 Total assets
Liabilities and Equity Liabilities: Policyholder account balances, future policy benefits and claims$ 36,067 $ 35,750 Separate account liabilities 73,962 97,491 Customer deposits 30,775 20,227 Short-term borrowings 201 200 Long-term debt 2,821 2,832 Debt of consolidated investment entities, at fair value 2,363 2,164 Accounts payable and accrued expenses 2,242 2,527 Other liabilities 6,305 8,641
Other liabilities of consolidated investment entities, at fair value
119 137 Total liabilities 154,855 169,969 Equity:
Common shares (
issued, 335,864,062 and 334,828,117, respectively)
3 3 Additional paid-in capital 9,517 9,220 Retained earnings 19,531 17,525
(23,089) (21,066) Accumulated other comprehensive income (loss), net of tax (2,349) 259 Total equity 3,613 5,941 Total liabilities and equity
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Equity
Accumulated Other
Number of Outstanding Additional Retained Treasury Comprehensive
Shares Common Shares Paid-In Capital Earnings Shares Income (Loss) Total
(in millions, except share data)
Balances at January 1, 2020 123,939,234 $ 3 $ 8,461 $ 14,279 $ (17,276) $ 444 $ 5,911
Cumulative effect of adoption of
current expected credit losses
guidance - - - (9) - - (9)
Net income - - - 1,534 - - 1,534
Other comprehensive income, net of
tax - - - - - 449 449
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) 893 6,131
Net income - - - 2,760 - - 2,760
Other comprehensive loss, net of
tax - - - - - (634) (634)
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 at December 31, 2021 110,861,010 3 9,220 17,525 (21,066) 259 5,941
Net income - - - 2,559 - - 2,559
Other comprehensive loss, net of
tax - - - - - (2,608) (2,608)
Dividends to shareholders - - - (553) - - (553)
Repurchase of common shares (7,371,332) - - - (2,095) - (2,095)
Share-based compensation plans 1,789,312 - 297 - 72 - 369
Balances at December 31, 2022 105,278,990 $
3
$ (2,349)
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
Years Ended December 31,
2022 2021 2020
(in millions)
Cash Flows from Operating Activities
Net income $ 2,559 $ 2,760 $ 1,534
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation, amortization and accretion, net (40) 98 207
Deferred income tax expense (benefit) (4) (87) (321)
Share-based compensation 170 152 146
Net realized investment (gains) losses (1) (632) (22)
Net trading (gains) losses 16 5 (10)
Loss from equity method investments 36 75 66
Impairments and provision for loan and credit losses 98 4 24
Net (gains) losses of consolidated investment entities 17 (20) 7
Changes in operating assets and liabilities
Restricted and segregated investments (96) 25 (500)
Deferred acquisition costs 11 (156) 49
Policyholder account balances, future policy benefits and claims,
net
1,433 2,086 3,054 Derivatives, net of collateral 315 (570) (141) Receivables 44 (520) (648) Brokerage deposits (345) 26 346 Accounts payable and accrued expenses (219) 300 129 Current income tax, net 116 (308) 25 Deferred taxes, net 4 4 334
Other operating assets and liabilities of consolidated investment
entities, net
2 20 (15) Other, net 291 63 359 Net cash provided by (used in) operating activities 4,407 3,325 4,623 Cash Flows from Investing Activities Available-for-Sale securities: Proceeds from sales 1,306 556 1,708 Maturities, sinking fund payments and calls 7,621 11,501 9,554 Purchases
(22,034) (14,718) (13,525)
Proceeds from sales, maturities and repayments of mortgage loans 169
299 217 Funding and purchases of mortgage loans (207) (263) (165)
Proceeds from sales, maturities and collections of other investments 96
173 198 Purchase of other investments (99) (97) (284) Purchase of investments by consolidated investment entities (961) (1,603) (957)
Proceeds from sales, maturities and repayments of investments by
consolidated investment entities
615 1,047 606 Purchase of land, buildings, equipment and software (182) (120) (147) Cash paid for written options with deferred premiums (619) (552) (338) Cash received from written options with deferred premiums 204 106 133
Cash returned (paid) for acquisition of business, net of cash
acquired
34 (576) - Cash paid for deposit receivables (45) (377) (4) Cash received for deposit receivables 550 254 93 Other, net (31) (10) 17 Net cash provided by (used in) investing activities$ (13,583) $ (4,380) $ (2,894) See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows (Continued)
Years Ended December 31,
2022 2021 2020
(in millions)
Cash Flows from Financing Activities
Investment certificates:
Proceeds from additions $ 8,343 $ 2,733 $ 4,259
Maturities, withdrawals and cash surrenders (4,339) (4,190) (5,016)
Policyholder account balances:
Deposits and other additions 1,169 1,553 1,649
Net transfers from (to) separate accounts (162) (273) (125)
Surrenders and other benefits (1,459) (1,365) (1,357)
Change in banking deposits, net 6,885 4,016 3,616
Cash paid for purchased options with deferred premiums (197) (156) (211)
Cash received from purchased options with deferred premiums 378 1,350 40
Issuance of long-term debt, net of issuance costs 495 4 496
Repayments of long-term debt (510) (9) (762)
Dividends paid to shareholders (534) (511) (497)
Repurchase of common shares (1,978) (2,030) (1,441)
Exercise of stock options - 1 3
Borrowings of consolidated investment entities 341 1,756 382
Repayments of debt by consolidated investment entities (4) (1,142) (74)
Other, net 2 (14) (10)
Net cash provided by (used in) financing activities 8,430 1,723 952
Effect of exchange rate changes on cash (68) (2) 9
Net increase (decrease) in cash and cash equivalents, including
amounts restricted
(814) 666 2,690
Cash and cash equivalents, including amounts restricted at
beginning of period
9,569 8,903 6,213
Cash and cash equivalents, including amounts restricted at end
of period
$ 8,755
Supplemental Disclosures: Interest paid excluding consolidated investment entities$ 152 $ 113 $ 168 Interest paid by consolidated investment entities 75 90 55 Income taxes paid, net 500 986 236
Leased assets obtained in exchange for finance lease liabilities -
4 -
Leased assets obtained in exchange for operating lease
liabilities
47 109 76
Non-cash investing activities:
Investments transferred in connection with fixed annuity
reinsurance transaction
- 7,513 -
Exchange of an investment that resulted in a realized gain and
an increase to amortized cost
- 17 -
December 31,
2022 2021
(in millions)
Reconciliation of cash and cash equivalents, including amounts restricted:
Cash and cash equivalents
$ 6,964 $ 7,127 Cash of consolidated investment entities 133 121 Restricted and segregated cash, cash equivalents and investments 2,229 2,795 Less: Restricted and segregated investments (571) (474)
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. During 2022, the Company identified an error related to the shadow unearned revenue liability balance associated with universal life insurance products. The Company evaluated the error and determined that the impact was not material to the Company's results for any prior period, but that correcting the cumulative impact of the error in the current period would be material to total comprehensive income for the year endedDecember 31, 2022 . Accordingly, and for comparability, the Company revised the prior period Consolidated Financial Statements and related disclosures impacted. A summary of the revision to the Company's previously reported Consolidated Financial Statements is presented in Note 28. 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. 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 19 and Note 22, no other subsequent events or transactions requiring recognition or disclosure were identified.
2. Summary of Significant Accounting Policies
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.
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 potential significant losses of the VIE or the right to receive potential significant 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
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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 tax provision 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 (i.e., 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.
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 generally 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
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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, retention purposes, practice operations, and
growth strategies. 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 ("Ameriprise Bank ") 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. 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 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
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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 ("TDR"). Modifications to loan terms do not
automatically result in 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 costs to sell, if applicable. 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.
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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, 2022 and 2021, land, buildings, equipment and software were$630 million and$590 million , respectively, net of accumulated depreciation of$1.9 billion and$2.0 billion , respectively. Depreciation and amortization expense for the years endedDecember 31, 2022 , 2021 and 2020 was$142 million ,$144 million and$153 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.
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
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under the same master netting arrangement. The accounting for changes in 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 the changes in 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, the changes in
fair value of the derivatives, as well as the changes in 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.
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
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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.
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 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
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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 LTC 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.
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).
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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 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.
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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 23 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.
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.
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
Future Adoption of New Accounting Standards
Financial Instruments - Credit Losses - Troubled Debt Restructurings and Vintage
Disclosures
In March 2022, theFinancial Accounting Standards Board ("FASB") proposed amendments to Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("Topic 326"). The update removes the recognition and measurement guidance for TDRs by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, and modifies the disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. Rather than applying the recognition and measurement for TDRs, an entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. The update also requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The amendments are to be applied prospectively, but entities may apply a modified retrospective transition for changes to the recognition and measurement of TDRs. For entities that have adopted Topic 326, the amendments are effective for interim and annual periods beginning after December 15, 2022. Early adoption is permitted for entities that have adopted Topic 326,
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including adoption in an interim period. The Company adopted the standard on
January 1, 2023. The adoption of this update did not have an impact on the
Company's consolidated results of operations and financial condition.
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 Company
adopted the standard on January 1, 2023. The adoption of this update did not
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 (ASU 2018-12). The guidance changes elements
of the measurement models and disclosure requirements for an insurer's
long-duration insurance contract benefits and acquisition costs by expanding the
use of fair value accounting to certain contract benefits, requiring updates, if
any, to assumptions used to measure liabilities for future policy benefit, and
changing the amortization pattern of deferred acquisition costs to a constant
level basis. Adoption of the accounting standard will not impact overall cash
flows, insurance subsidiaries' dividend capacity, or regulatory capital
requirements.
When the Company adopts the standard as of January 1, 2021 (the "transition
date"), opening equity will be adjusted for the adoption impacts to retained
earnings and AOCI and prior periods presented (i.e. 2021 and 2022) will be
restated. The Company estimates the adoption impact as of January 1, 2021 to be
a reduction in total equity of $1.8 billion to $2.1 billion, of which a
significant portion will be reflected in AOCI. However, as of December 31, 2022,
the impact on total equity is estimated to be an increase of $400 million to
$600 million as a result of changes in the equity, credit, and rate environment
subsequent to the transition date.
The Company utilizes a governance framework to guide our adoption process and is
managing a detailed implementation plan to support the timely application of the
standard in the first quarter of 2023. The Company continues to refine its
internal controls environment. These activities include, but are not limited to,
execution of controls surrounding actuarial valuations, and accounting and
financial reporting controls. The estimated adoption impact at transition date
and the impact to periods subsequent to transition date is subject to change as
the Company completes its adoption process by the first quarter of 2023
reporting.
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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, 2022
Retirement &
Advice & Wealth Protection Corporate & Total
Management Asset Management Solutions Other Segments Non-operating Revenue Total
(in millions)
Management and financial advice
fees:
Asset management fees:
Retail $ - $ 2,179 $ - $ - $ 2,179 $ - $ 2,179
Institutional - 678 - - 678 - 678
Advisory fees 4,526 - - - 4,526 - 4,526
Financial planning fees 410 - - - 410 - 410
Transaction and other fees 372 210 59 - 641 - 641
Total management and financial
advice fees 5,308 3,067 59 - 8,434 - 8,434
Distribution fees:
Mutual funds 741 231 - - 972 - 972
Insurance and annuity 845 166 348 - 1,359 - 1,359
Off-balance sheet brokerage cash 324 - - - 324 - 324
Other products 339 - - - 339 - 339
Total distribution fees 2,249 397 348 - 2,994 - 2,994
Other revenues 211 10 - - 221 - 221
Total revenue from contracts with
customers 7,768 3,474 407 - 11,649 - 11,649
Revenue from other sources (1) 769 32 2,727 484 4,012 17 4,029
Total segment gross revenues 8,537 3,506 3,134 484 15,661 17 15,678
Banking and deposit interest
expense (76) - - (5) (81) - (81)
Total segment net revenues 8,461 3,506 3,134 479 15,580 17 15,597
Elimination of intersegment
revenues (847) (52) (420) 3 (1,316) (10) (1,326)
Total net revenues $ 7,614 $ 3,454 $ 2,714 $ 482 $ 14,264 $ 7 $ 14,271
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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 Off-balance sheet brokerage cash (2) 60 - - - 60 - 60 Other products 341 - - - 341 - 341 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
Off-balance sheet brokerage cash
(2) 117 - - - 117 - 117
Other products 313 - - - 313 - 313
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
(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.
(2) Prior to the fourth quarter of 2022, Off-balance sheet brokerage cash was
included in Other products. Prior periods presented have been updated to be
comparative.
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.
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 and 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, were $160 million and $157 million as of December 31, 2022 and
2021, 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, and were $129 million and $126 million as of December 31, 2022 and 2021, 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.
Off-Balance Sheet Brokerage Cash
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 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).
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
The Company has an asset of $33 million and $39 million as of December 31, 2022 and 2021, respectively, 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 $537 million and $668 million as of December 31, 2022 and 2021, 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 $30 million and $27 million as of December 31, 2022 and 2021, respectively. See Note 25 for information on future funding commitments of other VIEs. See Note 2 for further discussion of the Company's accounting policy on consolidation. 86
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CLOs
CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO's debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO's collateral pool. The Company earns management fees from the CLOs based on the 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 as of both December 31, 2022 and 2021. 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 $57 million and $44 million as of December 31, 2022 and 2021, 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, 2022 and 2021.
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 $25 million and $43 million as of December 31, 2022 and 2021, 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 $92 million
and $138 million as of December 31, 2022 and 2021, respectively. The Company had
a liability of $7 million and $8 million as of December 31, 2022 and 2021,
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, 2022
Level 1 Level 2 Level 3 Total
(in millions)
Assets
Investments:
Corporate debt securities $ - $ 35 $ - $ 35
Common stocks - 3 - 3
Syndicated loans - 2,191 125 2,316
Total investments - 2,229 125 2,354
Receivables - 20 - 20
Other assets - 1 1 2
Total assets at fair value $ - $ 2,250 $ 126 $ 2,376
Liabilities
Debt (1) $ - $ 2,363 $ - $ 2,363
Other liabilities - 119 - 119
Total liabilities at fair value $ - $ 2,482 $ - $ 2,482
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
(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 $2.4 billion and
$2.2 billion as of December 31, 2022 and 2021, 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:
Common Stocks Syndicated Loans Other Assets
(in millions)
Balance at January 1, 2022 $ - $ 64 $ 3
Total gains (losses) included in:
Net income - (11) (1) -
Purchases - 69 -
Sales - (4) -
Settlements - (8) -
Transfers into Level 3 2 218 1
Transfers out of Level 3 (2) (203) (3)
Balance at December 31, 2022 $ - $ 125 $ 1
Changes in unrealized gains (losses) included in net income (1)
relating to assets held at December 31, 2022 $ - $ (10) $ -
Syndicated Loans Other Assets
(in millions)
Balance at 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 at 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 at 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 at December 31, 2020 $ 92 $ 2
Changes in unrealized gains (losses) included in net income relating
(1) to assets held at December 31, 2020 $ (2) $ -
(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, 2022 and 2021 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,
2022 2021
(in millions)
Syndicated loans
Unpaid principal balance $ 2,525 $ 2,233
Excess unpaid principal over fair value (209) (52)
Fair value $
2,316 $ 2,181
Fair value of loans more than 90 days past due $ - $ - Fair value of loans in nonaccrual status 23 13
Difference between fair value and unpaid principal of loans more than
90 days past due, loans in nonaccrual status or both
48 10 Debt Unpaid principal balance $ 2,636 $ 2,296 Excess unpaid principal over fair value (273) (132) Carrying value (1) $ 2,363 $ 2,164 (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 $2.4 billion and $2.2 billion as of December 31, 2022 and 2021, respectively.
During the third quarter of 2022, the Company launched one new CLO and issued
debt of $352 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 the changes in 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 the changes in 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, 2022, 2021 and 2020.
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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,
2022 2021 2022 2021
(in millions)
Debt of consolidated CLOs due 2028-2034 $ 2,363 $ 2,164
5.3 % 1.7 %
The debt of the consolidated CLOs has both fixed and floating interest rates,
which range from nil to 13.6%. 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,
2022 2021
(in millions)
Available-for-Sale securities, at fair value $ 40,811 $ 32,050
Mortgage loans (allowance for credit losses: 2022, $12; 2021, $12) 1,987 1,953
Policy loans 847 835
Other investments (allowance for credit losses: 2022, $5; 2021, $5)
879 972 Total $ 44,524 $ 35,810 Other investments primarily reflect the Company's interests in affordable housing partnerships, trading securities, equity securities, seed money investments in proprietary funds, 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,
2022 2021 2020
(in millions)
Investment income on fixed maturities $ 1,320 $ 933 $ 1,161
Net realized gains (losses)
(87) 636
(10)
Affordable housing partnerships (48) (71)
(66)
Other 187 70
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Consolidated investment entities 102 115 77 Total $ 1,474 $ 1,683 $ 1,251
Available-for-Sale securities distributed by type were as follows:
December 31, 2022
Gross
Amortized Gross Unrealized Unrealized Allowance for
Description of Securities Cost Gains Losses Credit Losses Fair Value
(in millions)
Corporate debt securities $ 10,361 $ 180 $ (823) $ (20) $ 9,698
Residential mortgage backed securities 17,056 37 (1,390) -
15,703
Commercial mortgage backed securities 6,648 3 (439) - 6,212 Asset backed securities 6,408 14 (158) - 6,264 State and municipal obligations 773 53 (27) (2)
797
U.S. government and agency obligations 2,079 1 (1) -
2,079
Foreign government bonds and obligations 43 - (2) - 41
Other securities 16 1 - - 17
Total $ 43,384 $ 289 $ (2,840) $ (22) $ 40,811
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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
As of December 31, 2022 and 2021, accrued interest of $237 million and
$140 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, 2022 and 2021, investment securities with a fair value of $3.3 billion and $3.1 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $302 million and $314 million, respectively, may be sold, pledged or rehypothecated by the counterparty. As of December 31, 2022 and 2021, fixed maturity securities comprised approximately 92% and 89%, 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") and Fitch Ratings Ltd. ("Fitch"). The Company uses the median of available ratings from Moody's, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody's, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. As of December 31, 2022 and 2021, the Company's internal analysts rated $270 million and $400 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, 2022 December 31, 2021
Percent of Percent of
Amortized Total Fair Amortized Total Fair
Ratings Cost Fair Value Value Cost Fair Value Value
(in millions, except percentages)
AAA $ 30,900 $ 28,980 71 % $ 20,563 $ 20,625 64 %
AA 1,219 1,249 3 727 898 3
A 2,080 2,097 5 1,775 2,129 7
BBB 8,524 7,890 19 6,495 7,268 23
Below investment grade (1) 661 595 2 981 1,130 3
Total fixed maturities $ 43,384 $ 40,811 100 % $ 30,541 $ 32,050
100 %
(1) The amortized cost of below investment grade securities includes interest in non-consolidated CLOs managed by the Company of $1 million as of both December 31, 2022 and 2021 The fair value of below investment grade securities includes interest in non-consolidated CLOs managed by the Company of $1 million and $2 million as of December 31, 2022 and 2021, respectively. These securities are not rated but are included in below investment grade due to their risk characteristics. As of both December 31, 2022 and 2021, approximately 30% of securities ratedAAA were GNMA,FNMA and FHLMC mortgage backed securities. No holdings of any issuer were greater than 10% of the Company's total equity as of both December 31, 2022 and 2021. 92
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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, 2022
Less than 12 months 12 months or more Total
Fair Unrealized Number of Fair Unrealized Fair Unrealized
Description of Securities Number of Securities Value Losses Securities Value Losses Number of Securities Value Losses
(in millions, except number of securities)
Corporate debt securities 457
$ 5,782 $ (458) 108 $ 1,575 $ (365) 565 $ 7,357 $ (823) Residential mortgage backed securities 589 9,407 (577) 244 4,076 (813) 833 13,483
(1,390)
Commercial mortgage backed securities 249 3,857 (220) 101 1,802 (219) 350 5,659 (439) Asset backed securities 145 4,413 (86) 31 977 (72) 176 5,390 (158) State and municipal obligations 48 134 (16) 27 60 (11) 75 194
(27)
U.S. government and agency obligations 13 566 (1) - - - 13 566 (1) Foreign government bonds and obligations 11 37 (2) 1 1 - 12 38 (2) Total 1,512 $ 24,196 $ (1,360) 512 $ 8,491 $ (1,480) 2,024 $ 32,687 $ (2,840) December 31, 2021 Less than 12 months 12 months or more Total Fair Unrealized Number of Fair Unrealized Fair
Unrealized
Description of Securities Number of 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)
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, 2022 is primarily attributable to the impact of higher
interest rates and wider credit spreads driven by continued market volatility,
with no specific credit concerns. 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, 2022 and 2021, approximately
95% and 96%, respectively, of the total of Available-for-Sale securities with
gross unrealized losses were considered investment grade.
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The following table presents 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, 2020 $ - $ - $ - $ -
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 Additions for which credit losses were not previously recorded - - 1 1 Charge-offs (10) (1) - (11) Balance at December 31, 2021 - - 1 1 Additions for which credit losses were not previously recorded 20 - - 20
Additional increases (decreases) on securities that had an
allowance recorded in a previous period
- - 1 1
Balance at December 31, 2022 $ 20 $ - $ 2 $ 22
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,
2022 2021 2020
(in millions)
Gross realized investment gains $ 28 $ 582 $ 25
Gross realized investment losses (22) (7) (3)
Credit losses (21) (1) (11)
Other impairments (70) (13) -
Total $ (85) $ 561 $ 11
Credit losses for the year ended December 31, 2022 primarily related to
recording an allowance for credit losses on a corporate debt security in the
communications industry. Credit losses for the year ended December 31, 2021
primarily related to recording an allowance for credit losses on certain state
and municipal securities. Credit losses for the year ended December 31, 2020
primarily related to recording an allowance for credit losses on certain
corporate debt securities, primarily in the oil and gas industry. Other
impairments for the years ended December 31, 2022 and 2021 related to
Available-for-Sale securities which the Company intended to sell.
See Note 20 for a rollforward of net unrealized investment gains (losses)
included in AOCI.
Available-for-Sale securities by contractual maturity as of December 31, 2022
were as follows:
Amortized Cost Fair Value
(in millions)
Due within one year $ 2,576 $ 2,573
Due after one year through five years 2,506 2,424
Due after five years through 10 years 3,609 3,105
Due after 10 years 4,581 4,530
13,272 12,632
Residential mortgage backed securities 17,056 15,703
Commercial mortgage backed securities 6,648 6,212
Asset backed securities 6,408 6,264
Total $ 43,384 $ 40,811
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.
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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 table presents a rollforward of the allowance for credit losses:
Commercial Loans Consumer Loans Total
(in millions)
Balance at December 31, 2019 (1) $ 51 $ - $ 51
Cumulative effect of adoption of current expected credit
losses guidance 2 3 5
Balance at January 1, 2020 53 3 56
Provisions 19 2 21
Charge-offs (6) (3) (9)
Balance at December 31, 2020 66 2 68
Provisions (13) 2 (11)
Charge-offs (8) (2) (10)
Recoveries - 1 1
Other 2 - 2
Balance at December 31, 2021 47 3 50
Provisions 10 3 13
Charge-offs (3) (1) (4)
Balance at December 31, 2022 $ 54 $ 5 $ 59
(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.
The decrease in the allowance for credit losses provision for commercial loans
in 2021 reflected the sale of certain commercial mortgage loans and syndicated
loans in conjunction with the fixed deferred and immediate annuity reinsurance
transaction in 2021.
As of December 31, 2022 and 2021, accrued interest on commercial loans was $17
million and $13 million, respectively, and is recorded in Receivables and
excluded from the amortized cost basis of commercial loans.
Purchases and Sales
There were no commercial mortgage loans sold for the years ended December 31, 2022 and 2020. During the year ended December 31, 2021, the Company sold $746 million of commercial mortgage loans. During the years ended December 31, 2022, 2021 and 2020, the Company purchased $67 million, $37 million and $173 million, respectively, of syndicated loans, and sold $1 million, $354 million and $17 million, respectively, of syndicated loans. During the years ended December 31, 2022, 2021 and 2020, the Company purchased $72 million, $33 million and $22 million, respectively, of residential mortgage loans, and sold nil, $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, 2022 and 2021.
The Company has not acquired any loans with deteriorated credit quality as of
the acquisition date.
Credit Quality Information
Nonperforming loans were $11 million and $9 million as of December 31, 2022 and
2021, 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, 2022 and
2021. 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. There were no commercial mortgage loans
past due as of both December 31, 2022 and 2021.
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The tables below present the amortized cost basis of commercial mortgage loans
by the year of origination and loan-to-value ratio:
December 31, 2022
2022 2021 2020 2019 2018 Prior Total
Loan-to-Value Ratio (in millions)
> 100% $ - $ - $ 2 $ 2 $ 3 $ 39 $ 46
80% - 100% 7 9 2 20 8 29 75
60% - 80% 39 87 17 52 9 107 311
40% - 60% 48 89 69 90 57 435 788
< 40% 18 12 30 46 85 471 662
Total $ 112 $ 197 $ 120 $ 210 $ 162 $ 1,081 $ 1,882
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
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.
In addition, the Company reviews the concentrations of credit risk by region and
property type. Concentrations of credit risk of commercial mortgage loans by
U.S. region were as follows:
Loans Percentage
December 31, December 31,
2022 2021 2022 2021
(in millions)
East North Central $ 201 $ 194 11 % 10 %
East South Central 54 57 3 3
Middle Atlantic 114 122 6 6
Mountain 129 119 7 6
New England 23 28 1 2
Pacific 638 627 34 33
South Atlantic 479 497 25 26
West North Central 120 141 6 7
West South Central 124 131 7 7
1,882 1,916 100 % 100 %
Less: allowance for credit losses 11 12
Total $ 1,871 $ 1,904
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Concentrations of credit risk of commercial mortgage loans by property type were
as follows:
Loans Percentage
December 31, December 31,
2022 2021 2022 2021
(in millions)
Apartments $ 495 $ 496 26 % 26 %
Hotel 14 14 1 1
Industrial 321 319 17 17
Mixed use 66 68 4 3
Office 259 271 14 14
Retail 594 617 31 32
Other 133 131 7 7
1,882 1,916 100 % 100 %
Less: allowance for credit losses 11 12
Total $ 1,871 $ 1,904
Syndicated Loans
The recorded investment in syndicated loans as of December 31, 2022 and 2021 was
$175 million and $149 million, respectively. The Company's syndicated loan
portfolio is diversified across industries and issuers. There were no syndicated
loans past due as of both December 31, 2022 and 2021. 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, 2022
2022 2021 2020 2019 2018 Prior Total
Internal Risk Rating (in millions)
Risk 5 $ 1 $ - $ - $ - $ - $ - $ 1
Risk 4 - - - 2 - 2 4
Risk 3 - 9 1 6 5 8 29
Risk 2 8 21 7 12 5 28 81
Risk 1 6 9 4 6 13 22 60
Total $ 15 $ 39 $ 12 $ 26 $ 23 $ 60 $ 175
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
Financial Advisor Loans
The Company offers loans to financial advisors for transitional cost assistance
and practice operations. 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 $6 million and $5 million as
of December 31, 2022 and 2021, respectively.
The tables below present the amortized cost basis of advisor loans by
origination year and termination status:
December 31, 2022
2022 2021 2020 2019 2018 Prior Total
Termination Status (in millions)
Active $ 359 $ 178 $ 133 $ 99 $ 76 $ 158 $ 1,003
Terminated - 1 1 2 1 5 10
Total $ 359 $ 179 $ 134 $ 101 $ 77 $ 163 $ 1,013
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December 31, 2021
2021 2020 2019 2018 2017 Prior Total
Termination Status (in millions)
Active $ 231 $ 184 $ 120 $ 89 $ 116 $ 113 $ 853
Terminated 1 1 - - - 6 8
Total $ 232 $ 185 $ 120 $ 89 $ 116 $ 119 $ 861
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, 2022 and 2021.
The table below presents the amortized cost basis of credit card receivables by
FICO score:
December 31,
2022 2021
(in millions)
> 800 $ 32 $ 30
750 - 799 27 24
700 - 749 28 25
650 - 699 17 14
< 650 6 5
Total $ 110 $ 98
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.
Margin Loans
The margin loans balance was $1.2 billion as of both December 31, 2022 and 2021.
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, 2022 and 2021, there was no allowance for credit losses on margin
loans.
Pledged Asset Lines of Credit
The pledged asset lines of credit balance was $589 million and $467 million as
of December 31, 2022 and 2021, 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 both December 31, 2022
and 2021, there was no allowance for credit losses on pledged asset lines of
credit.
Deposit Receivables
Deposit receivables were $7.4 billion and $7.9 billion as of December 31, 2022
and 2021, respectively. Deposit receivables are collateralized by the fair value
of the assets held in trusts. Based on management's evaluation of the collateral
value relative to the deposit receivables, the allowance for credit losses for
deposit receivables was not material as of both December 31, 2022 and 2021.
Troubled Debt Restructurings
There were no loans accounted for as a troubled debt restructuring by the
Company during the years ended December 31, 2022, 2021 and 2020. 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.RiverSource Life Insurance Company ("RiverSource Life") reinsures 100% of its insurance risk associated with its life contingent immediate annuity policies in force as of June 30, 2021 through a reinsurance agreement with Commonwealth. Policies issued on or after July 1, 2021 and policies issued by RiverSource Life of NY are not subject to this reinsurance agreement. Reinsurance contracts do not relieve the Company from its primary obligation to policyholders. 98
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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 Insurance Co. of New York
("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.
As of December 31, 2022 and 2021, traditional life and UL insurance policies in
force were $198.9 billion and $198.6 billion, respectively, of which
$146.2 billion and $145.1 billion as of December 31, 2022 and 2021 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,
2022 2021 2020
(in millions)
Direct premiums $ 530 $ 490 $ 565
Reinsurance ceded (224) (1,361) (224)
Net premiums $ 306 $ (871) $ 341
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 $165 million, $152 million and $140 million for the years
ended December 31, 2022, 2021 and 2020, respectively.
The amount of claims recovered through reinsurance on all contracts was $435
million, $404 million and $400 million for the years ended December 31, 2022,
2021 and 2020, respectively.
Receivables included $4.4 billion and $4.5 billion of reinsurance recoverables
as of December 31, 2022 and 2021, respectively, including $2.7 billion and
$2.6 billion related to LTC risk ceded to Genworth, respectively.
Policyholder account balances, future policy benefits and claims include $388 million and $413 million related to previously assumed reinsurance arrangements as of December 31, 2022 and 2021, respectively.
9.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are instead subject to impairment tests. There were nil, nil and $2 million of impairments of indefinite-lived intangible assets recorded for the years ended December 31, 2022, 2021 and 2020, respectively.
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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, 2021 $ 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
Foreign currency translation - (59) - (59)
Other adjustments - (10) - (10)
Balance at December 31, 2022 $ 279 $ 1,019 $ 91 $ 1,389
On November 8, 2021, the Company completed its acquisition of the European-based
asset management business of BMO 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. 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. During the fourth quarter of 2022, the Company finalized its purchase
accounting and measurement period adjustments, reported within Other adjustments
above.
In addition to our annual impairment evaluation for goodwill as of July 1, we
evaluated goodwill for impairment in the fourth quarter 2022 due to the current
macroeconomic conditions and concluded our goodwill was not impaired.
The carrying amount of indefinite-lived intangible assets consisted of the
following:
December 31,
2022 2021
(in millions)
Customer contracts $ 837 $ 848
Trade names 67 69
Total $ 904 $ 917
Definite-lived intangible assets consisted of the following:
December 31, 2022 December 31, 2021
Accumulated Net Carrying Accumulated Net Carrying
Gross Carrying Amount Amortization Amount Gross Carrying Amount Amortization Amount
(in millions)
Customer relationships $ 265 $ (174) $ 91 $ 254 $ (163) $ 91
Contracts 222 (210) 12 235 (217) 18
Other 295 (206) 89 272 (188) 84
Total $ 782 $ (590) $ 192 $ 761 $ (568) $ 193
The aggregate amortization expense for definite-lived intangible assets during
the years ended December 31, 2022, 2021 and 2020 was $45 million, $34 million
and $31 million, respectively. In 2022, 2021 and 2020, the Company did not
record any impairment charges on definite-lived intangible assets.
Estimated intangible amortization expense as of December 31, 2022 for the next
five years is as follows:
(in millions)
2023 $ 42
2024 31
2025 26
2026 21
2027 13
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, 2022 primarily
reflected a $49 million increase from lower
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surrenders on variable annuities with living benefits and UL and VUL insurance products partially offset by a $27 million decrease from updating mortality assumptions for variable annuities and a $13 million decrease from updating the discount rate for variable annuities. 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 balances of and changes in DAC were as follows:
2022 2021 2020
(in millions)
Balance at January 1 $ 2,782 $ 2,532 $ 2,698
Capitalization of acquisition costs 197 280 228
Amortization (216) (184) (177)
Amortization, impact of valuation assumptions review 8 60 (100)
Impact of change in net unrealized (gains) losses on
securities 389 94 (117)
Balance at December 31 $ 3,160 $ 2,782 $ 2,532
The balances of and changes in DSIC, which is included in Other assets, were as
follows:
2022 2021 2020
(in millions)
Balance at January 1 $ 189 $ 189 $ 218
Capitalization of sales inducement costs 1 1 1
Amortization (24) (16) (13)
Amortization, impact of valuation assumptions review 2 2 (16)
Impact of change in net unrealized (gains) losses on securities 15 13 (1)
Balance at December 31 $ 183 $ 189 $ 189
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,
2022 2021
(in millions)
Policyholder account balances
Fixed annuities(1) $ 7,596 $ 8,117
Variable annuity fixed sub-accounts 4,779 4,990
UL/VUL insurance 3,070 3,103
IUL insurance 2,654 2,534
Structured variable annuities 6,383 4,440
Other life insurance 524 563
Total policyholder account balances 25,006 23,747
Future policy benefits
Variable annuity GMWB 1,853 2,336
Variable annuity GMAB(2) 35 (23)
Other annuity liabilities(3) 267 67
Fixed annuity life contingent liabilities 1,205 1,278
Life and DI insurance 1,096 1,139
LTC insurance 5,173 5,664
UL/VUL and other life insurance additional liabilities 1,169 1,291
Total future policy benefits 10,798 11,752
Policy claims and other policyholders' funds 263 251
Total policyholder account balances, future policy benefits and claims $ 36,067 $ 35,750
(1) Includes fixed deferred annuities, non-life contingent fixed payout
annuities and fixed deferred indexed annuity host contracts.
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(2) Includes the fair value of GMAB embedded derivatives that was a net asset as
of December 31, 2021 reported as a contra liability.
(3) Includes the fair value of the structured variable annuity embedded
derivatives that was a net asset as of December 31, 2022 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, 2022, depending on year of issue, with an average rate of
approximately 3.62%. 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. 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 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.
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. See Note 2 and Note 12 for information regarding the Company's variable annuity guarantees. 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. The Company does not currently hedge its risk under the GGU and GMIB provisions.
Structured Variable Annuities
The Company offers structured variable annuities which give 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. The portion of the policy allocated to the indexed account is accounted for as an embedded derivative.
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 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
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whole life ranged from 2.25% to 10% as of December 31, 2022. Anticipated
interest rates for DI policies ranged from 4% to 7.5% as of December 31, 2022
and for LTC policies ranged from 5% to 5.7% as of December 31, 2022.
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, 2022. 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.
Separate Account Liabilities
Separate account liabilities consisted of the following:
December 31,
2022 2021
(in millions)
Variable annuity $ 63,223 $ 82,862
VUL insurance 7,628 9,343
Other insurance 25 33
Threadneedle investment liabilities 3,086 5,253
Total
$ 73,962 $ 97,491
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 GMDB or GGU provisions. The Company discontinued most new sales of GMWB and GMAB by the end of 2021 and new sales were completely discontinued as of mid-2022. The Company also 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 could
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.
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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.
The following table provides information related to variable annuity guarantees
for which the Company has established additional liabilities:
December 31, 2022 December 31, 2021
Variable Annuity Guarantees by
Contract Value in Separate Net Amount Weighted Average Total Contract
Contract Value in Separate Net Amount at
Weighted Average
Benefit Type (1) Total Contract Value Accounts at Risk Attained Age Value Accounts Risk Attained Age
(in millions, except age)
GMDB:
Return of premium $ 53,608 $ 51,993 $ 886 69 $ 70,020 $ 68,145 $ 6 69
Five/six-year reset 6,776 4,165 178 69 8,309 5,612 6 68
One-year ratchet 4,782 4,486 784 72 6,177 5,858 13 71
Five-year ratchet 1,096 1,048 70 68 1,438 1,386 1 68
Other 996 982 244 75 1,302 1,286 38 74
Total - GMDB $ 67,258 $ 62,674 $ 2,162 69 $ 87,246 $ 82,287 $ 64 69
GGU death benefit $ 1,016 $ 961 $ 140 72 $ 1,260 $ 1,198 $ 184 72
GMIB $ 134 $ 121 $ 13 72 $ 184 $ 170 $ 4 71
GMWB:
GMWB $ 1,386 $ 1,382 $ 25 75 $ 1,900 $ 1,895 $ 1 75
GMWB for life 39,720 39,717 3,099 69 52,387 52,334 187 69
Total - GMWB $ 41,106 $ 41,099 $ 3,124 69 $ 54,287 $ 54,229 $ 188 69
GMAB $ 1,388 $ 1,388 $ 126 62 $ 2,005 $ 2,005 $ - 62
(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, 2022 December 31, 2021
Net Amount Weighted Average Net Amount Weighted Average
at Risk Attained Age at Risk Attained Age
(in millions, except age)
UL secondary guarantees $ 6,456 69 $ 6,564 68
Structured variable annuity GMDB $ 446 64 $ 3 63
The net amount at risk for UL secondary guarantees and structured variable
annuity GMDB is defined as the current guaranteed death benefit amount in excess
of the current policyholder account balance.
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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, 2020 $ 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
Incurred claims 36 1 (483) 58 127
Paid claims (22) - - - (51)
Balance at December 31, 2022 $ 50 $ 6 $ 1,853 $ 35 $ 1,096
(1) The incurred claims for GMWB and GMAB include the change in the fair value
of the liabilities (contra liabilities) less paid claims.
The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by
asset type for variable annuity contracts providing guaranteed benefits:
December 31,
2022 2021
(in millions)
Mutual funds:
Equity $ 36,800 $ 49,183
Bond 19,946 24,998
Other 5,947 8,316
Total mutual funds $ 62,693 $ 82,497
No gains or losses were recognized on assets transferred to separate accounts
for the years ended December 31, 2022, 2021 and 2020.
13. Customer Deposits
Customer deposits consisted of the following:
December 31,
2022 2021
(in millions)
Fixed rate certificates $ 9,080 $ 4,995
Stock market certificates 217 287
Stock market embedded derivatives 4
4
Other 12
15
Less: accrued interest classified in Other liabilities (12)
(5)
Total investment certificate reserves 9,301
5,296
Banking and brokerage deposits 21,474 14,931
Total $ 30,775 $ 20,227
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 $2.2 billion and $2.7 billion as of December 31, 2022 and
2021, respectively. The Company generally invests the proceeds from investment
certificates in fixed and variable rate securities. The interest paid to
certificate owners is included in Banking and deposit interest expense.
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%
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participation plus fixed interest with a combined total up to the cap. Current first term certificates have maximum returns of 0.85% to 4.40%, 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. 14. Debt The balances and stated interest rates of outstanding debt ofAmeriprise Financial were as follows: Outstanding Balance Stated Interest Rate December 31, December 31, 2022 2021 2022 2021 (in millions) Long-term debt: Senior notes due 2022 $ - $ 500 - % 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 Senior notes due 2032 500 - 4.5 - Finance lease liabilities 30 40 N/A N/A Other (1) (9) (8) N/A N/A Total long-term debt 2,821 2,832 Short-term borrowings: Federal Home Loan Bank ("FHLB") advances 201 200 4.6 % 0.3 % Total $ 3,022 $ 3,032
(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.
The Company repaid $500 million principal amount of its 3.0% senior notes at
maturity on March 22, 2022.
On May 13, 2022, the Company issued $500 million of 4.5% unsecured senior notes
due May 13, 2032 and incurred debt issuance costs of $5 million. Interest
payments are due semi-annually in arrears on May 13 and November 13, which
commenced on November 13, 2022.
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 of commercial mortgage backed securities as of both December 31, 2022 and 2021, and $479 million and $581 million of residential mortgage backed securities as of December 31, 2022 and 2021, respectively. The remaining maturity of outstanding FHLB advances was less than three months as of both December 31, 2022 and 2021. 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. In June 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, 2022 and 2021, 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, 2022 and 2021. 106
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American Enterprise Investment Services, Inc. ("AEIS"), a subsidiary of the Company, has credit agreements for uncommitted lines of credit with third party financial institutions, having a combined credit limit of $500 million. As of both December 31, 2022 and 2021, AEIS had no borrowings outstanding.
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
the balances of assets and liabilities for consolidated investment entities):
December 31, 2022
Level 1 Level 2 Level 3 Total
(in millions)
Assets
Cash equivalents $ 1,268 $ 3,835 $ - $ 5,103
Available-for-Sale securities:
Corporate debt securities - 9,293 405 9,698
Residential mortgage backed securities - 15,703 - 15,703
Commercial mortgage backed securities - 6,212 - 6,212
Asset backed securities - 6,258 6 6,264
State and municipal obligations - 797 - 797
U.S. government and agency obligations 2,079 - - 2,079
Foreign government bonds and obligations - 41 - 41
Other securities - 17 - 17
Total Available-for-Sale securities 2,079 38,321 411 40,811
Investments at net asset value ("NAV") 9 (1)
Trading and other securities 211 16 - 227
Separate account assets at NAV 73,962 (1)
Investments and cash equivalents segregated for regulatory
purposes
646 - - 646
Receivables:
Fixed deferred indexed annuity ceded embedded derivatives - - 48 48 Other assets: Interest rate derivative contracts 7 260 - 267 Equity derivative contracts 129 2,575 - 2,704 Credit derivative contracts - 13 - 13 Foreign exchange derivative contracts - 36 - 36 Total other assets 136 2,884 - 3,020 Total assets at fair value $ 4,340 $ 45,056 $ 459 $ 123,826 Liabilities
Policyholder account balances, future policy benefits and
claims:
Fixed deferred indexed annuity embedded derivatives
$ - $ 3 $ 44 $ 47
IUL embedded derivatives - - 739 739
GMWB and GMAB embedded derivatives - - 608 608 (2)
Structured variable annuity embedded derivatives - - (137) (137) (3)
Total policyholder account balances, future policy benefits (4)
and claims - 3 1,254 1,257
Customer deposits - 4 - 4
Other liabilities:
Interest rate derivative contracts 4 351 - 355
Equity derivative contracts 139 2,238 - 2,377
Credit derivative contracts - 2 - 2
Foreign exchange derivative contracts 6 8 - 14
Other 205 5 62 272
Total other liabilities 354 2,604 62 3,020
Total liabilities at fair value $ 354 $ 2,611 $ 1,316 $ 4,281
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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 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 (5) Structured variable annuity embedded derivatives - - 406 406 Total policyholder account balances, future policy benefits (6) 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
(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 $911
million of individual contracts in a liability position and $303 million of
individual contracts in an asset position (recorded as a contra liability) as of
December 31, 2022.
(3) The fair value of the structured variable annuity embedded derivatives was a
net asset as of December 31, 2022 and the amount is presented as a contra
liability.
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(4) The Company's adjustment for nonperformance risk resulted in a $510 million
cumulative decrease to the embedded derivatives as of December 31, 2022.
(5) 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.
(6) The Company's adjustment for nonperformance risk resulted in a $598 million
cumulative decrease to the embedded derivatives as of December 31, 2021.
The following tables provide a summary of changes in Level 3 assets and
liabilities of
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, 2022 $ 502 $ - $ 35 $ 7 $ 544 $ 59
Total gains (losses) included in:
Net income (1) - - - (1) (1) (8)
Other comprehensive income (loss) (44) (4) - (1) (49) -
Purchases 39 389 112 32 572 -
Settlements (91) - - - (91) (3)
Transfers out of Level 3 - (385) (147) (32) (564) -
Balance at December 31, 2022 $ 405 $ - $ - $ 6 $ 411 $ 48
Changes in unrealized gains
(losses) in net income relating to
(1)
assets held at December 31, 2022 $ (1) $ - $ - $ - $ (1) $ -
Changes in unrealized gains
(losses) in other comprehensive
income (loss) relating to assets
held at December 31, 2022 $ (42) $ - $ - $ (1) $ (43) $ -
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, 2022 $ 56 $ 905 $ 1,486 $ 406 $ 2,853 $ 61
Total (gains) losses included in:
Net income (9) (2) (105) (2) (1,127) (3) (633) (3) (1,874) - (4)
Other comprehensive income (loss) - - - - - (3)
Issues - 51 350 90 491 37
Settlements (3) (112) (101) - (216) (33)
Balance at December 31, 2022 $ 44 $ 739 $ 608 $ (137) (5) $ 1,254 $ 62
Changes in unrealized (gains)
losses in net income relating to (2) (3) (3)
liabilities held at December 31,
2022 $ - $ (105) $ (1,098) $ (633) $ (1,836) $ -
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Available-for-Sale Securities Receivables
Commercial Fixed Deferred
Residential Mortgage Indexed Annuity
Mortgage Backed Backed Asset Backed Ceded 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
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
(1)
held 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 $ -
(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) The fair value of the structured variable annuity embedded derivatives was a
net asset as of December 31, 2022 and the amount is presented as a contra
liability.
The increase (decrease) to pretax income of the Company's adjustment for
nonperformance risk on the fair value of its embedded derivatives was $(50)
million, $(92) million and $196 million, net of DAC, DSIC, unearned revenue
amortization and the reinsurance accrual, for the years ended December 31, 2022,
2021 and 2020, respectively.
Securities transferred from Level 3 primarily represent securities with fair
values that are now obtained from a third-party pricing service with observable
inputs 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.
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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, 2022
Weighted
Fair Value Valuation Technique Unobservable Input Range Average
(in millions)
Corporate debt securities (private
placements) $ 404 Discounted cash flow Yield/spread to U.S. Treasuries (1) 1.1% - 2.3% 1.4%
Asset backed securities $ 1 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 27.0% 27.0%
Constant prepayment rate 10.0% 10.0%
Loss recovery 63.6% 63.6%
Fixed deferred indexed annuity
ceded embedded derivatives $ 48 Discounted cash flow Surrender rate (3) 0.0% - 66.8% 1.4%
Fixed deferred indexed annuity
embedded derivatives $ 44 Discounted cash flow Surrender rate (3) 0.0% - 66.8% 1.4%
Nonperformance risk (4) 95 bps 95 bps
IUL embedded derivatives $ 739 Discounted cash flow Nonperformance risk (4) 95 bps 95 bps
Utilization of guaranteed withdrawals
GMWB and GMAB embedded derivatives $ 608 Discounted cash flow (5) (6) 0.0% - 48.0% 11.0%
Surrender rate (3) 0.1% - 55.7% 3.4%
Market volatility (7) (8) 5.0% - 17.4% 11.7%
Nonperformance risk (4) 95 bps 95 bps
Structured variable annuity
embedded derivatives $ (137) (10) Discounted cash flow Surrender rate (3) 0.8% - 40.0% 0.9%
Nonperformance risk (4) 95 bps 95 bps
Contingent consideration
liabilities $ 62 Discounted cash flow Discount rate (9) 0.0 % - 10.5% 3.3%
December 31, 2021
Weighted
Fair Value Valuation Technique Unobservable Input Range Average
(in millions)
Corporate debt securities (private
placements) $ 502 Discounted cash flow Yield/spread to U.S. Treasuries (1) 0.8% - 2.4% 1.1%
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
ceded embedded derivatives $ 59 Discounted cash flow Surrender rate (3) 0.0% - 66.8% 1.4%
Fixed deferred indexed annuity
embedded derivatives $ 56 Discounted cash flow Surrender rate (3) 0.0% - 66.8% 1.4%
Nonperformance risk (4) 65 bps 65 bps
IUL embedded derivatives $ 905 Discounted cash flow Nonperformance risk (4) 65 bps 65 bps
Utilization of guaranteed withdrawals
GMWB and GMAB embedded derivatives $ 1,486 Discounted cash flow (5) (6) 0.0% - 48.0% 10.6%
Surrender rate (3) 0.1% - 55.7% 3.6%
Market volatility (7) (8) 4.3% - 16.8% 10.8%
Nonperformance risk (4) 65 bps 65 bps
Structured variable annuity
embedded derivatives $ 406 Discounted cash flow Surrender rate (3) 0.8% - 40.0% 0.9%
Nonperformance risk (4) 65 bps 65 bps
Contingent consideration
liabilities $ 61 Discounted cash flow Discount rate (9) 0.0 % - 0.0% 0.0%
(1) The weighted average for the yield/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.
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(3) 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.
(4) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives. During the third quarter of 2022, the Company changed to using aU.S. Treasury curve as its observable discount rate curve reflecting the evolution of LIBOR discontinuation as an observable reference rate used by market participants.
(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.
(10) The fair value of the structured variable annuity embedded derivatives was
a net asset as of December 31, 2022 and the amount is presented as a contra
liability.
Level 3 measurements not included in the tables 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 toU.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. 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,
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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 trading 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, foreign government securities and other 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.
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
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.
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 both December 31, 2022 and 2021. 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.
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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 Black-Scholes models 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 immaterial as of both December 31, 2022 and 2021. 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 trading 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 $58 million and
$93 million as of December 31, 2022 and 2021, respectively, and is classified as
Level 3 in the fair value hierarchy.
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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, 2022
Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
(in millions)
Financial Assets
Mortgage loans, net $ 1,987 $ - $ 105 $ 1,695 $ 1,800
Policy loans 847 - 847 - 847
Receivables 10,287 199 1,742 6,996 8,937
Restricted and segregated cash 1,583 1,583 - - 1,583
Other investments and assets 375 - 323 51 374
Financial Liabilities
Policyholder account balances, future policy
benefits and claims $ 14,518 $
- $ - $ 12,521 $ 12,521
Investment certificate reserves
9,310 - - 9,253 9,253
Banking and brokerage deposits 21,474 21,474 - - 21,474
Separate account liabilities - investment contracts 3,383 - 3,383 - 3,383
Debt and other liabilities 3,242 234 2,909 7 3,150
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
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.
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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 securities loaned result from transactions between the Company's broker dealer subsidiary and other financial institutions and are recorded at the amount of cash collateral advanced or received. Securities borrowed and securities loaned are primarily equity securities. The Company's securities borrowed and securities loaned transactions generally do not have a fixed maturity date and may be terminated by either party under customary terms. The Company's policy is to recognize amounts subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company's
assets subject to master netting arrangements:
December 31, 2022
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 $ 2,900 $ - $ 2,900 $ (2,322) $ (568) $ (5) $ 5
OTC cleared 23 - 23 (9) - - 14
Exchange-traded 97 - 97 (75) - - 22
Total derivatives 3,020 - 3,020 (2,406) (568) (5) 41
Securities borrowed 199 - 199 (31) - (164) 4
Total $ 3,219 $ - $ 3,219 $ (2,437) $ (568) $ (169) $ 45
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
(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.
The following tables present the gross and net information about the Company's
liabilities subject to master netting arrangements:
December 31, 2022
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 $ 2,646 $ - $ 2,646 $ (2,322) $ (43) $ (277) $ 4
OTC cleared 9 - 9 (9) - - -
Exchange-traded 93 - 93 (75) - (17) 1
Total derivatives 2,748 - 2,748 (2,406) (43) (294) 5
Securities loaned 235 - 235 (31) - (197) 7
Total $ 2,983 $ - $ 2,983 $ (2,437) $ (43) $ (491) $ 12
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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
(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, 2022 December 31, 2021
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 $ 6 $ - $ 1 $ 19 $ - $ - Foreign exchange contracts - net investment hedges 85 - - 58 - - Total qualifying hedges 91 - 1 77 - - Derivatives not designated as hedging instruments Interest rate contracts 101,307 267 355 79,468 1,252 468 Equity contracts 68,493 2,704 2,376 61,142 4,293 3,754 Credit contracts 1,857 13 2 1,748 9 - Foreign exchange contracts 3,171 36 14 2,380 20 1 Total non-designated hedges 174,828 3,020 2,747 144,738 5,574
4,223
Embedded derivatives GMWB and GMAB (4) N/A - 608 N/A - 1,486 IUL N/A - 739 N/A - 905 Fixed deferred indexed annuities and deposit receivables N/A 48 47 N/A 59 61 Structured variable annuities (5) N/A - (137) N/A - 406 SMC N/A - 4 N/A - 4 Total embedded derivatives N/A 48 1,261 N/A 59 2,862 Total derivatives $ 174,919 $ 3,068 $ 4,009 $ 144,815 $ 5,633 $ 7,085 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 $1.6 billion and $3.2 billion as of December 31, 2022 and 2021, 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, 2022 included $911 million of individual contracts in a liability position and $303 million of individual contracts in an asset position. 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. (5) The fair value of the structured variable annuity embedded derivatives as of December 31, 2022 included $194 million of individual contracts in a liability position and $331 million of individual contracts in an asset position. The fair value of the structured variable annuity embedded derivatives as of December 31, 2021 included $409 million of individual contracts in a liability position and $3 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, 2022 and 2021, investment securities with a fair value of $14
million and $123 million, respectively, were received as collateral to meet
contractual obligations under derivative contracts, of which $5 million and $123
million, respectively, may be sold, pledged or rehypothecated by the Company. As
of both December 31, 2022 and 2021, the Company had sold, pledged or
rehypothecated none of these securities. In addition, as of both December 31,
2022 and 2021, 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 Interest and General and
Income Expense Expenses to Fixed Accounts Expenses Debt Expense Administrative Expense
(in millions)
Year Ended December 31,
2022
Interest rate contracts $ 1 $ - $ (3) $ - $ (2,900) $ (1) $ -
Equity contracts 8 (1) (177) (126) 735 - (23)
Credit contracts - - (4) - 279 - -
Foreign exchange contracts 2 - - - 105 - (7)
GMWB and GMAB embedded
derivatives - - - - 870 - -
IUL embedded derivatives - - - 217 - - -
Fixed deferred indexed
annuity and deposit
receivables embedded
derivatives - - - 4 - - -
Structured variable
annuity embedded
derivatives - - - - 633 - -
Total gain (loss) $ 11 $ (1) $ (184) $ 95 $ (278) $ (1) $ (30)
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
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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 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 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 as of December 31, 2022:
Premiums Payable Premiums Receivable
(in millions)
2023 $ 50 $ 43
2024 132 23
2025 121 21
2026 251 88
2027 19 -
2028 - 2029 59 -
Total $ 632 $ 175
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, total return 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 gains or losses 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, 2022, 2021 and 2020, 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, 2022 that the Company expects to
reclassify within the next twelve months to earnings as a reduction to Interest
and debt expense is $0.6 million and as an increase to General and
administrative expense is $0.6 million. Currently, the longest period of time
over which the Company is hedging exposure to the
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variability in future cash flows is 13 years and relates to forecasted debt
interest payments. See Note 20 for a rollforward of net unrealized gains
(losses) on derivatives 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. 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
(in millions)
Total Interest and debt expense
$ 162
Gains (losses) on interest rate contracts designated as fair value hedges:
Hedged items
$ 1 Derivatives designated as fair value hedges (1)
Gains (losses) on interest rate contracts designated as cash flow hedges:
Amount of gains (losses) reclassified from AOCI into income
$ 1 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, 2022, 2021 and 2020 , the Company recognized a gain of $15 million, a loss of $1 million and a gain of $1 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, 2022 and 2021, the aggregate fair value of
derivative contracts in a net liability position containing such credit
contingent provisions was $240 million and $383 million, respectively. The
aggregate fair value of assets posted as collateral for such instruments as of
December 31, 2022 and 2021 was $236 million and $383 million, respectively. If
the credit contingent provisions of derivative contracts in a net liability
position as of December 31, 2022 and 2021 were triggered, the aggregate fair
value of additional assets that would be required to be posted as collateral or
needed to settle the instruments immediately would have been $4 million and nil,
respectively.
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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 2022 2021
(in millions)
Assets
Operating lease assets Other assets $ 268 $ 291
Finance lease assets Other assets 28 38
Total lease assets $ 296 $ 329
Liabilities
Operating lease liabilities Other liabilities $ 317 $ 341
Finance lease liabilities Long-term debt 30 40
Total lease liabilities $ 347 $ 381
The following table presents the components of lease cost:
Years Ended December 31,
Lease Cost Income Statement Classification 2022 2021 2020
(in millions)
General and administrative
Operating lease cost expense $ 61 $ 57 $ 57
Finance lease cost:
General and administrative
Amortization of ROU assets expense 10 13 10
Interest on lease liabilities Interest and debt expense 1 2 2
Total lease cost $ 72 $ 72 $ 69
The following table presents the weighted-average lease term and
weighted-average discount rate related to operating and finance leases:
December 31, 2022 December 31, 2021
Lease Term and Discount Rate Finance Leases
Operating Leases Finance Leases Operating Leases
Weighted-average remaining lease term (years)
2.8 6.7 3.8 7.2 Weighted-average discount rate 3.4 % 2.1 % 3.4 % 2.1 %
The following table presents supplemental cash flow information related to
operating and finance leases:
Years Ended December 31,
Supplemental Cash Flow Information 2022 2021 2020
(in millions)
Operating cash flows:
Cash paid for amounts included in measurement of
operating lease liabilities $ 65 $ 50 $ 65
Cash paid for amounts included in measurement of
finance lease liabilities 1 2 2
Financing cash flows:
Cash paid for amounts included in measurement of
finance lease liabilities $ 10 $ 9 $ 12
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The following table presents the maturities of lease liabilities:
December 31, 2022
Maturity of Lease Liabilities Finance Leases Operating Leases
(in millions)
2023 $ 11 $ 69
2024 11 58
2025 10 51
2026 - 45
2027 - 34
Thereafter - 81
Total lease payments 32 338
Less: interest 2 21
Present value of lease liabilities $ 30 $ 317
19. 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
and the Ameriprise Advisor Group Deferred Compensation Plan.
The components of the Company's share-based compensation expense, net of
forfeitures, were as follows:
Years Ended December 31,
2022 2021 2020
(in millions)
Stock option $ 16 $ 20 $ 23
Restricted stock 27 24 24
Restricted stock units 127 108 99
Liability awards 44 92 67
Total $ 214 $ 244 $ 213
For the years ended December 31, 2022, 2021 and 2020, total income tax benefit
recognized by the Company related to share-based compensation expense was $45
million, $51 million and $45 million, respectively.
As of December 31, 2022, there was $186 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. Effective February 23, 2023, the 2008 Plan has
been terminated by the Company and shares may no longer be issued under the 2008
Plan.
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.
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The following weighted average assumptions were used for stock option grants:
2022 2021 2020
Dividend yield 2.0 % 2.5 % 2.5 %
Expected volatility 35 % 36 % 27 %
Risk-free interest rate 1.7 % 0.4 % 1.4 %
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 2022, 2021
and 2020 was $80.48, $48.48 and $31.53, respectively.
A summary of the Company's stock option activity for 2022 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 3.3 $ 145.79 6.3 $ 518
Granted 0.2 298.09
Exercised (0.7) 127.48
Outstanding at December 31 2.8 160.57 5.8 419
Exercisable at December 31 2.2 145.10 5.2 368
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 $130 million, $219 million and $139
million during the years ended December 31, 2022, 2021 and 2020, 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.
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Ameriprise Financial Franchise Advisor Deferred Compensation Plan
The Franchise Advisor Deferred Compensation Plan (the "AFG Deferral Plan") is an unfunded, non-qualified deferred compensation plan that provides benefits to certain advisors and leaders associated with the Company. The AFG Deferral Plan has not been approved by the Company's shareholders, and it is a value-neutral plan (as that term is used by proxy advisory firms) and there will be no additional premium or matching contributions. Under the AFG Deferral Plan, a maximum of 12.5 million Company shares may be issued. The AFG Deferral Plan allows participants to voluntarily defer a portion of their cash commissions and elect crediting rate alternatives that includes a fund based on Ameriprise Financial stock or other investment options in lieu of receiving the applicable cash compensation. Amounts a participant chooses to invest in the fund tracking Ameriprise Financial stock will be settled in Ameriprise shares; all voluntary deferrals invested in other investment options will be settled in cash. From 2006-2010, the Company provided advisors with a matching contribution with respect to these voluntary deferred amounts; however, the Company has not provided a match since 2010 and has amended the AFG Deferral Plan to remove any matching contributions. There are approximately 123,000 shares outstanding under this prior matching contribution. Other than this historical matching contribution, the Company does not provide any additional premium in connection with the deferred compensation. In addition to the voluntary deferral of cash commissions, certain participants are eligible to earn amounts in recognition of certain performance achievements that vest ratably over three or four years. When earned, award amounts are credited to a participant's account and receive a crediting rate based on Ameriprise Financial stock, and a participant elects (when an award is granted) whether to receive payout of these awards in cash or stock. The Company does not provide any additional premium or matching contribution in connection with the deferred compensation. 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.
Ameriprise Advisor Group Deferred Compensation Plan
The Advisor Group Deferred Compensation Plan (the "AAG Deferral Plan") was
established in 2009 as an unfunded, non-qualified deferred compensation plan
that provides benefits to certain employee advisors and field leaders of the
Company. The AAG Deferral Plan was not approved by the Company's shareholders
and is considered a value-neutral plan (as that term is used by proxy advisory
firms) and there will be no additional premium or matching contributions. Under
the AAG Deferral Plan, a maximum of 3.0 million Company shares may be issued.
The AAG Deferral Plan allows eligible employees to voluntarily defer a portion
of their base salary, bonus and/or commissions and elect crediting rate
alternatives that include a fund based on Ameriprise Financial stock or other
investment options in lieu of receiving the applicable cash compensation. Such
deferrals are fully vested and not subject to future service requirements or
forfeitures and the Company does not provide any additional premium or matching
contribution in connection with the deferred compensation. Amounts a participant
chooses to invest in the fund tracking Ameriprise Financial stock will be
settled in Ameriprise shares; all voluntary deferrals invested in other
investment options will be settled in cash.
In addition to the voluntary deferral component, participants may earn amounts
in recognition of certain performance achievements. These amounts receive a
crediting rate based on Ameriprise Financial stock or other investment options,
at the participant's election where applicable. For amounts allocated in the
fund that tracks the performance of Ameriprise Financial stock, a participant
elects (when an award is granted) whether to receive payout of these awards in
cash or Company shares. For amounts allocated to other options, the participant
receives payout in cash. These award types are subject to future service
requirements and forfeitures, and the Company does not provide any additional
premium or matching contribution in connection with the deferred compensation.
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.
BMO Share Plans
As part of the acquisition of the BMO Global Asset Management (EMEA) business in
2021, the Company maintains 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, 2022 and 2021,
the liability related to these awards was $26 million and $48 million,
respectively, and is included in Other liabilities.
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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 2022 is presented
below (shares in millions):
Weighted Average
Grant-date
Shares Fair Value
Non-vested shares at January 1 1.3 $ 170.91
Granted 0.6 289.60
Deferred 0.1 281.31
Vested (0.6) 210.30
Forfeited - 225.29
Non-vested shares at December 31 1.4
214.78
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, 2022, 2021 and 2020 was $191 million, $139 million and $124 million,
respectively.
The weighted average grant date fair value for restricted shares, restricted stock units and deferred share units during 2022, 2021 and 2020 was $296.50, $207.49 and $163.54, respectively. The weighted average grant date fair value for franchise advisor and advisor group deferrals during 2022, 2021 and 2020 was $280.49, $241.34 and $147.96, 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, 2022, 2021 and 2020
was 0.3 million, 0.4 million and 0.4 million, respectively. The PSUs are
liability awards. During the years ended December 31, 2022, 2021 and 2020, the
value of shares settled for PSU awards was $85 million, $47 million and $34
million, respectively.
20. Shareholders' Equity
The following tables provide the amounts related to each component of OCI:
Year Ended December 31, 2022
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)
$
(4,146) $ 918 $ (3,228)
Reclassification of net (gains) losses on securities included
in net income (2)
85 (18) 67
Impact of DAC, DSIC, unearned revenue, benefit reserves and
reinsurance recoverables
821 (172) 649 Net unrealized gains (losses) on securities (3,240) 728 (2,512)
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 (1) - (1)
Net gains (losses) 97 (20) 77
Defined benefit plans 96 (20) 76
Foreign currency translation (216) 45 (171)
Total other comprehensive income (loss) $ (3,361) $ 753 $ (2,608)
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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(4)
322 (67) 255 Net unrealized gains (losses) on securities (861) 188 (673)
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) $
(811) $ 177 $ (634)
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(4)
(274) 57 (217) Net unrealized gains (losses) on securities 622 (133) 489
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) $ 568
$ (119) $ 449
(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 $1 million pretax gain reclassified to Interest and debt expense and nil pretax loss reclassified to Net investment income for the years ended December 31, 2022, 2021 and 2020, respectively.
(4) See Note 28 for a summary of the revision to the Company's previously
reported Consolidated Financial Statements.
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 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.
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The following table presents the changes in the balances of each component of
AOCI, net of tax:
Net Unrealized Net Unrealized
Gains (Losses) on Gains (Losses) Defined Foreign Currency
Securities on Derivatives Benefit Plans Translation Other Total
(in millions)
Balance at January 1, 2020 $ 758 $ 6 $ (138) $ (181) $ (1) $ 444 OCI before reclassifications 498 - (66) 27 - 459 Amounts reclassified from AOCI (9) (1) - - - (10) Total OCI 489 (1) (66) 27 - 449 Balance at December 31, 2020 1,247 5 (204) (154) (1) 893 OCI before reclassifications (230) - 36 (13) - (207) Amounts reclassified from AOCI (443) (1) 17 - - (427) Total OCI (673) (1) 53 (13) - (634) Balance at December 31, 2021 574 4 (151) (167) (1) 259 OCI before reclassifications (2,579) - 61 (171) - (2,689) Amounts reclassified from AOCI 67 (1) 15 - - 81 Total OCI (2,512) (1) 76 (171) - (2,608) Balance at December 31, 2022 $ (1,938) $
3 $ (75) $ (338) $ (1)
$ (2,349)
For the years ended December 31, 2022, 2021 and 2020, the Company repurchased a
total of 6.6 million shares, 7.1 million shares and 8.4 million shares,
respectively, of its common stock for an aggregate cost of $1.9 billion, $1.8
billion and $1.3 billion, respectively. 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, which was exhausted in the
second quarter of 2022. In January 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. As of December 31, 2022, the Company had $1.6
billion remaining under this share repurchase authorization.
The Company may also reacquire shares of its common stock under its share-based
compensation plans related to restricted stock awards and certain option
exercises. The holders of restricted shares may elect to surrender a portion of
their shares on the vesting date to cover their income tax obligation. These
vested restricted shares are reacquired by the Company and the Company's payment
of the holders' income tax obligations are recorded as a treasury share
purchase.
For the years ended December 31, 2022, 2021 and 2020, 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 $99 million, $69 million and $52 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, 2022, 2021 and 2020, the Company
reacquired 0.5 million shares, 1.3 million shares and 1.5 million shares,
respectively, of its common stock through the net settlement of options for an
aggregate value of $145 million, $306 million and $263 million, respectively.
For the years ended December 31, 2022, 2021 and 2020, the Company reissued 0.8
million, 0.4 million and 0.5 million, respectively, treasury shares for
restricted stock award grants, performance share units, and issuance of shares
vested under advisor deferred compensation plans.
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21. Earnings per Share
The computations of basic and diluted earnings per share were as follows:
Years Ended December 31,
2022 2021 2020
(in millions, except per share amounts)
Numerator:
Net income $ 2,559 $ 2,760 $ 1,534
Denominator:
Basic: Weighted-average common shares outstanding 111.3 117.3 123.8
Effect of potentially dilutive nonqualified stock options and other
share-based awards
2.4 2.7 1.9 Diluted: Weighted-average common shares outstanding 113.7 120.0 125.7 Earnings per share attributable to Ameriprise Financial, Inc. common shareholders: Basic $ 22.99 $ 23.53 $ 12.39 Diluted $ 22.51 $ 23.00 $ 12.20 The calculation of diluted earnings per share excludes the incremental effect of 0.2 million, nil and nil options for the years ended December 31, 2022, 2021 and 2020, respectively, due to their anti-dilutive effect.
22. Regulatory Requirements
Restrictions on the transfer of funds exist under regulatory requirements
applicable to certain of the Company's subsidiaries. As of December 31, 2022,
the aggregate amount of unrestricted net assets was approximately $1.3 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 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.
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 (deficit)/surplus was $(679) million and $175
million as of December 31, 2022 and 2021, 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 $3.1 billion and $3.4 billion as of
December 31, 2022 and 2021, respectively. On February 17, 2023, RiverSource
Life's Board of Directors declared a cash dividend of up to $200 million to
Ameriprise Financial, Inc., payable on or after March 20, 2023.
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Statutory net gain from operations and net income are summarized as follows:
Years Ended December 31,
2022 2021 2020
(in millions)
RiverSource Life
Statutory net gain from operations $ 1,615 $ 1,366 $ 1,393
Statutory net income 1,769 253 1,582
Government debt securities of $4 million and $5 million as of December 31, 2022
and 2021, 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 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. Financial Industry Regulatory Authority ("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.
The following table presents the net capital position of both AEIS and AFS:
December 31,
2022 2021
(in millions, except percentages)
AEIS
Net capital as a percent of aggregate debit items 15.76 % 10.58 %
Net capital $ 208 $ 155
Less: required net capital 26 29
Excess net capital $ 182 $ 126
AFS
Net capital $ 90 $ 103
Less: required net capital - -
Excess net capital $ 90 $ 103
On February 15, 2023, AEIS and AFS paid cash dividends of $60 million and
$30 million, respectively, to AMPF Holding, LLC.
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 is subject to regulation by the Office of the Comptroller of the
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, 2022, 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:
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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, 2022
Common equity Tier 1 capital $ 1,542 30.18 % $ 230 4.50 % $ 332 6.50 %
Tier 1 capital 1,542 30.18 307 6.00 409 8.00
Total capital 1,546 30.26 409 8.00 511 10.00
Tier 1 leverage 1,542 7.72 799 4.00 999 5.00
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
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 $9.3 billion and $5.3 billion as
of December 31, 2022 and 2021, respectively. ACC had qualified assets of $9.9
billion and $5.7 billion as of December 31, 2022 and 2021, 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 Columbia Threadneedle Investments UK International Ltd. is
predominantly based on the requirements specified by its regulator, the
Financial Conduct Authority ("FCA"), under its Capital Adequacy Requirements for
investment firms.
23. Income Taxes
The components of income tax provision attributable to continuing operations
were as follows:
Years Ended December 31,
2022 2021 2020
(in millions)
Current income tax
Federal $ 509 $ 551 $ 527
State and local 93 79 63
Foreign 25 47 28
Total current income tax 627 677 618
Deferred income tax
Federal (1) (62) (309)
State and local 3 (3) (16)
Foreign (6) (22) 4
Total deferred income tax (4) (87) (321)
Total income tax provision $ 623 $ 590 $ 297
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The geographic sources of pretax income from continuing operations were as
follows:
Years Ended December 31,
2022 2021 2020
(in millions)
United States $ 3,075 $ 3,126 $ 1,685
Foreign 107 224 146
Total $ 3,182 $ 3,350 $ 1,831
The principal reasons that the aggregate income tax provision attributable to
continuing operations is different from that computed by using the U.S.
statutory rate of 21% were as follows:
Years Ended December 31,
2022 2021 2020
Tax at U.S. statutory rate 21.0 % 21.0 % 21.0 %
Changes in taxes resulting from:
State taxes, net of federal benefit 2.4 1.8
2.1
Low income housing tax credits (1.4) (2.0)
(4.3)
Incentive compensation (1.3) (1.6)
(1.4)
Dividends received deduction (1.1) (1.0) (2.1)
Other, net - (0.6) 0.9
Income tax provision 19.6 % 17.6 % 16.2 %
The increase in the Company's effective tax rate for the year ended December 31,
2022 compared to 2021 is primarily the result of a decrease in low income
housing tax credits and an increase in state taxes, net of federal benefit, and
various other adjustments.
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, 2022 and 2021. 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,
2022 2021
(in millions)
Deferred income tax assets
Liabilities for policyholder account balances, future policy benefits
and claims $ 2,397 $ 1,996
Net unrealized losses on Available-for-Sale securities 542 -
Deferred compensation 477 586
Other 198 179
Gross deferred income tax assets 3,614 2,761
Less: valuation allowance 65 32
Total deferred income tax assets 3,549 2,729
Deferred income tax liabilities
Investment related 924 565
Deferred acquisition costs 463 481
Intangible assets 216 209
Goodwill 85 77
Net unrealized gains on Available-for-Sale securities(1) - 182
Other 160 196
Gross deferred income tax liabilities 1,848 1,710
Net deferred income tax assets $
1,701 $ 1,019
(1) See Note 28 for a summary of the revision to the Company's previously
reported Consolidated Financial Statements.
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Included in the Company's deferred income tax assets are tax benefits related to
state net operating losses of $30 million, net of federal benefit, which will
expire beginning December 31, 2023 and foreign net operating losses of $34
million. Based on analysis of the Company's tax position as of December 31,
2022, management believes it is more likely than not that the Company will not
realize certain state net operating losses of $29 million, state deferred tax
assets of $2 million and foreign net operating losses of $34 million; therefore,
a valuation allowance of $65 million has been established.
A reconciliation of the beginning and ending amount of gross unrecognized tax
benefits was as follows:
2022 2021 2020
(in millions)
Balance at January 1 $ 125 $ 110 $ 100
Additions based on tax positions related to the current year 12 21 11
Reductions based on tax positions related to the current year (1) (1) (1)
Additions for tax positions of prior years 5 5 10
Reductions for tax positions of prior years (1) (8) (4)
Reductions due to lapse of statute of limitations - (1) (5)
Audit settlements (2) (1) (1)
Balance at December 31 $ 138 $ 125 $ 110
If recognized, approximately $106 million, $95 million and $80 million, net of
federal tax benefits, of unrecognized tax benefits as of December 31, 2022, 2021
and 2020, 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 approximately $58 million in
the next 12 months primarily 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 a
net increase of $4 million, nil and a net increase of $2 million in interest and
penalties for the years ended December 31, 2022, 2021 and 2020, respectively. As
of December 31, 2022 and 2021, the Company had a payable of $14 million and $10
million, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns in the
U.S. federal jurisdiction and various state and foreign jurisdictions. 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 2020.
24. 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% and maximum crediting rate of
10%. 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.
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
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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, 2022, 2021 and 2020. 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. 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.
All components of the net periodic benefit cost are recorded in General and
administrative expense and were as follows:
Years Ended December 31,
2022 2021 2020
(in millions)
Service cost $ 43 $ 45 $ 45
Interest cost 39 21 29
Expected return on plan assets (70) (57)
(55)
Amortization of prior service credits (1) (2) (2)
Amortization of net loss 18 23 15
Other 3 5 7
Net periodic benefit cost $ 32 $ 35 $ 39
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
2022 2021 2022 2021
(in millions)
Benefit obligation at January 1 $ 1,815 $ 1,271 $ 13 $ 14
Service cost 43 45 - -
Interest cost 39 21 - -
Plan change - 7 - -
Benefits paid (21) (12) (1) (1)
Actuarial (gain) loss (520) 16 (1) -
Acquisitions - 498 - -
Settlements (27) (27) - -
Foreign currency rate changes (73) (4) - -
Benefit obligation at December 31 $ 1,256 $ 1,815 $ 11 $ 13
The actuarial (gain) loss for pension plans were primarily due to changes in the
discount rate assumption as of December 31, 2022 and 2021, respectively.
The following table provides a reconciliation of changes in the fair value of
assets:
Pension Plans
2022 2021
(in millions)
Fair value of plan assets, January 1 $ 1,583 $ 905
Actual return on plan assets (365) 121
Employer contributions 56 14
Benefits paid (21) (12)
Acquisitions - 586
Settlements (27) (27)
Foreign currency rate changes (84) (4)
Fair value of plan assets, December 31 $ 1,142 $ 1,583
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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
2022 2021 2022 2021
(in millions)
Benefit liability $ (215) $ (339) $ (11) $ (13)
Benefit asset 101 107 - -
Net amount recognized $ (114) $ (232) $ (11)
$ (13)
The accumulated benefit obligation for all pension plans as of December 31, 2022
and 2021 was $1.2 billion and $1.8 billion, respectively. The following table
provides information for pension plans with benefit obligations in excess of
plan assets:
December 31,
2022 2021
(in millions)
Pension plans with accumulated benefit obligations in excess of plan
assets
Accumulated benefit obligation $ 874 $ 1,769
Fair value of plan assets 688 1,583
Pension plans with projected benefit obligations in excess of plan
assets
Projected benefit obligation $ 903 $ 1,815
Fair value of plan assets 688 1,583
The weighted average assumptions used to determine benefit obligations were as
follows:
Pension Plans Other Postretirement Plans
2022 2021 2022 2021
Discount rates 5.30 % 2.46 % 5.41 % 2.01 %
Rates of increase in compensation levels 3.72 3.72 N/A N/A
Interest crediting rates for cash balance plans 5.00 5.00 N/A N/A
N/A Not Applicable
The weighted average assumptions used to determine net periodic benefit cost of
pension plans were as follows:
2022 2021 2020 Discount rates 2.46 % 2.33 % 2.97 % Rates of increase in compensation levels 3.69 5.21
4.01
Expected long-term rates of return on assets 4.82 6.58 7.14
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 and certain
collective funds described below, 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. Actual
allocations will generally be within 5% of these targets. In addition, assets in
pooled pension funds and certain collective funds reflect allocations between
growth and liability matching portfolios and may shift based on manager
discretion. These funds invest primarily in debt securities, equity securities,
and certain derivatives, either directly or through other collective funds. As
of December 31, 2022 and 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 plans assets measured at fair
value on a recurring basis:
December 31, 2022
Asset Category Level 1 Level 2 Level 3 Total
(in millions)
Equity securities:
U.S. small cap stocks $ 76 $ 6 $ - $ 82
Registered investment companies 80 - - 80
Insurance contracts - - 19 19
Cash equivalents at NAV 6 (1)
Collective investment funds at NAV 758 (1)
Real estate investment trusts at NAV 29 (1)
Hedge funds at NAV 16 (1)
Pooled pension funds at NAV 152 (1)
Total $ 156 $ 6 $ 19 $ 1,142
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
(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. Cash equivalents consist of
holdings in a money market fund that seeks to equal the return of the three
month U.S. Treasury bill. 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.
The fair value of equity securities classified as Level 1 use quoted prices in
active markets and the fair value of equity securities classified as Level 2 is
determined based on a market approach using observable inputs. Level 1
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 support certain non-U.S plans and are classified as Level 3.
The amounts recognized in AOCI, net of tax, as of December 31, 2022 but not
recognized as components of net periodic benefit cost included an unrecognized
actuarial loss of $80 million and an unrecognized prior service credit 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 $1 million as of December 31, 2022. See
Note 20 for a rollforward of AOCI related to the Company's defined benefit
plans.
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The Company's pension plans expect to make benefit payments to retirees as
follows:
Other
Pension Plans Postretirement Plans
(in millions)
2023 $ 77 $ 2
2024 80 1
2025 79 1
2026 80 1
2027 84 1
2028-2032 465 5
The Company expects to contribute $4 million and nil to its pension plans and
other postretirement plans, respectively, in 2023.
Defined Contribution Plans
The Company's U.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 $67 million, $59 million and $55 million for the years ended December 31, 2022, 2021 and 2020, 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, $8 million and $7 million for the years ended December 31, 2022, 2021 and 2020, respectively.
25. Commitments, Guarantees and Contingencies
Commitments
The following table presents the Company's funding commitments as of December
31:
2022 2021
(in millions)
Commercial mortgage loans $ 1 $ 48
Affordable housing and other real estate partnerships 8 9
Property funds 26
38
Pledged asset lines of credit 1,448 919 Total funding commitments $ 1,483 $ 1,014 Guarantees
The Company's annuity and life products all have minimum interest rate
guarantees in their fixed accounts. As of December 31, 2022, 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, 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 and foreign governmental and quasi-
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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 and other pooled funds, exchange traded funds, private funds, segregated accounts, annuities, equity and fixed income securities, real estate investment trusts, insurance products, banking 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 matters 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 any proceeding could result in an adverse judgment, a settlement, fine, penalty, or other sanction, and may lead to further claims, examinations, or adverse publicity each of which could have a material adverse effect on the Company's consolidated results of operations, financial condition, 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, 2022 and 2021, the estimated liability was $12 million. As of both December 31, 2022 and 2021, 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.
26. 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.
27. 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 &
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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, which represents the combined
capabilities, resources and reach of Columbia Management Investment
Advisers, LLC ("Columbia Management") and Threadneedle, which is continuing to
integrate the BMO Global Asset Management (EMEA) business acquired in 2021.
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 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 blocks of long term care insurance and fixed
annuity and fixed indexed annuity business. The Corporate & Other segment also
includes revenues and expenses of consolidated investment entities, which are
excluded on an operating basis. Revenues for the Company's fixed deferred
annuity products are primarily earned as net
141
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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.
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 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 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); 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; integration and restructuring
charges; 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,
2022 2021
(in millions)
Advice & Wealth Management $ 35,132 $ 24,986
Asset Management 7,967 10,990
Retirement & Protection Solutions 98,530 119,400
Corporate & Other 16,839 20,534
Total assets $ 158,468 $ 175,910
142
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Years Ended December 31,
2022 2021 2020
(in millions)
Adjusted operating net revenues:
Advice & Wealth Management $ 8,461 $ 8,021 $ 6,675
Asset Management 3,506 3,682 2,891
Retirement & Protection Solutions 3,134 3,244 3,094
Corporate & Other 479 487 546
Elimination of intersegment revenues (1) (1,316) (1,573) (1,377)
Total segment adjusted operating net revenues 14,264 13,861 11,829
Net realized gains (losses) (107) 90 (11)
Revenue attributable to consolidated investment entities 99 107 71
Market impact on non-traditional long-duration products, net 16 38 10
Mean reversion related impacts (1) 1 -
Market impact of hedges on investments - (22) -
Block transfer reinsurance transaction impacts - (644) -
Total net revenues per consolidated statements of operations $ 14,271
$ 13,431 $ 11,899
(1) Represents the elimination of intersegment revenues recognized for the years
ended December 31, 2022, 2021 and 2020 in each segment as follows: Advice and
Wealth Management ($847, $1,043 and $893, respectively); Asset Management ($52,
$50 and $53, respectively); Retirement & Protection Solutions ($420, $478 and
$433, respectively); and Corporate & Other ($(3), $2 and $(2), respectively).
Years Ended December 31,
2022 2021 2020
(in millions)
Adjusted operating earnings:
Advice & Wealth Management $ 2,192 $ 1,743 $ 1,321
Asset Management 844 1,096 697
Retirement & Protection Solutions 630 735 480
Corporate & Other (275) (270) (369)
Total segment adjusted operating earnings 3,391 3,304 2,129
Net realized gains (losses) (97) 87 (10)
Net income (loss) attributable to consolidated investment entities (5)
(4) 4
Market impact on non-traditional long-duration products, net 211 (656) (375)
Mean reversion related impacts (268) 152 87
Market impact of hedges on investments - (22) -
Block transfer reinsurance transaction impacts - 521 -
Integration and restructuring charges (50) (32) (4)
Pretax income per consolidated statements of operations $ 3,182 $ 3,350 $ 1,831
143
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28. Revision of Prior Period Financial Statements
The Company revised prior period Consolidated Financial Statements to correct shadow unearned revenue liability balances associated with universal life insurance products for which the error began prior to the periods presented below. See Note 1 for additional information. A summary of the revision to our previously reported Consolidated Financial Statements is presented below:
Revised Consolidated Balance Sheet
December 31, 2021
Impact of
As Reported Revision As Revised
(in millions)
Other assets $ 11,444 $ (69) $ 11,375
Total assets 175,979 (69) 175,910
Other liabilities 8,966 (325) 8,641
Total liabilities 170,294 (325) 169,969
Accumulated other comprehensive income (loss), net of tax 3 256 259
Total equity 5,685 256 5,941
Total liabilities and equity 175,979 (69) 175,910
Revised Consolidated Statements of Comprehensive Income
Years Ended December 31,
2021 2020
Impact of Impact of
As Reported Revision As Revised As Reported Revision As Revised
(in millions)
Net unrealized gains (losses) on
securities $ (665) $ (8)
$ (673) $ 407 $ 82 $
489
Total other comprehensive income (loss), net of tax (626) (8) (634) 367 82
449
Total comprehensive income (loss) 2,134 (8) 2,126 1,901 82
1,983
Revised Consolidated Statements of Equity
As Reported As Revised
Accumulated Other Accumulated Other
Comprehensive Impact of Comprehensive
Income (Loss) Total Equity Revision Income (Loss) Total Equity
(in millions)
Balances at January 1, 2020 $ 262 $ 5,729
$ 182 $ 444 $ 5,911
Other comprehensive income, net of
tax
367 367 82 449 449 Balances at December 31, 2020 629 5,867 264 893 6,131 Other comprehensive loss, net of tax (626) (626) (8) (634) (634) Balances at December 31, 2021 3 5,685 256 259 5,941
SiriusPoint Reports Significant Progress Made During 2022 and Aims to Achieve Double-Digit Return on Average Common Equity by 2024
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