Newswires
AMERIPRISE FINANCIAL INC – 10-Q – 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" that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management's Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission ("SEC") onFebruary 25, 2022 ("2021 10-K"), as well as our current reports on Form 8-K and other publicly available information. References below 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 Financial 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$1.3 trillion in assets under management and administration as ofMarch 31, 2022 . We offer a broad range of products and services designed to achieve individual and institutional clients' financial objectives. The coronavirus disease 2019 (''COVID-19'') pandemic has presented ongoing significant economic and societal disruption and market unpredictability, which has affected our business and operating environment driven by what has been a low interest rate environment and volatility and changes in the equity markets and the potential associated implications to client behavior. COVID-19 continues its ongoing impact and has been occurring in multiple waves, so there are still no reliable estimates of how long the implications from the pandemic will last, the effects current and other new variants will ultimately have, how many people are likely to be affected by it, or its impact on the overall economy. There is still significant uncertainty around the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, which depends on current and future developments, including the ultimate scope, duration and severity of the pandemic, success of worldwide vaccination efforts, multiple mutations of COVID-19 or similar diseases, the effectiveness of our office reopenings, the additional measures that may be taken by various governmental authorities in response to the outbreak, the actions of third parties in response to the pandemic, and the possible further impacts on the global economy. Given the ongoing impact of the pandemic, financial results may not be comparable to previous years and the results presented in this report may not necessarily be indicative of future operating results. For further information regarding the impact of the COVID-19 pandemic, and any potentially material effects, see Part 1 - Item 1A "Risk Factors" of our 2021 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. 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, "Risk Factors" in our 2021 10-K 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 fixed deferred annuities, fixed insurance, the fixed portion of variable annuities and variable insurance contracts and deposit products. Earnings, as well as adjusted operating earnings after tax, may be impacted by the ongoing low interest rate environment. Although interest rates could rise in the future, we continue to operate within a comparatively low interest rate environment. In addition to continuing spread compression in our interest sensitive product lines, a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may negatively impact our adjusted operating earnings after tax. For additional discussion on our interest rate risk, see Item 3. "Quantitative and Qualitative Disclosures About Market Risk" and the information set forth in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk." OnJune 2, 2021 , we filed an application to convertAmeriprise Bank , FSB to a state-chartered industrial bank regulated by theUtah Department of Financial Institutions and theFederal Deposit Insurance Corporation . We also filed an application to transition the FSB's personal trust services business to a new limited purpose national trust bank regulated by theOffice of the Comptroller of the Currency . If the applications are approved, the proposed changes are not expected to impact our long-term strategy for the bank and
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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 4 to our Consolidated Financial Statements. The results of operations
of the CIEs are reflected in the Corporate & Other segment. On a consolidated
basis, the management fees we earn for the services we provide to the CIEs and
the related general and administrative expenses are eliminated and the changes
in the fair value of assets and liabilities related to the CIEs, primarily
syndicated loans and debt, are reflected in net investment income. We include
the fees from these entities in the management and financial advice fees line
within our Asset Management segment.
While our consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles ("GAAP"), management believes that
adjusted operating measures, which exclude net realized investment gains or
losses, net of the related DSIC and DAC amortization, unearned revenue
amortization and the reinsurance accrual; the market impact on non-traditional
long-duration products (including variable and fixed deferred annuity contracts
and universal life ("UL") insurance contracts, net of hedges and the related
DSIC and DAC amortization, unearned revenue amortization and the reinsurance
accrual; mean reversion related impacts (the impact on variable annuity and
variable universal life ("VUL") products for the difference between assumed and
updated separate account investment performance on DAC, DSIC, unearned revenue
amortization, reinsurance accrual and additional insurance benefit reserves);
the market impact of hedges to offset interest rate and currency changes on
unrealized gains or losses for certain investments; block transfer reinsurance
transaction impact; gain or loss on disposal of a business that is not
considered discontinued operations; integration and restructuring charges;
income (loss) from discontinued operations; and the impact of consolidating
CIEs, best reflect the underlying performance of our core operations and
facilitate a more meaningful trend analysis. Management uses these non-GAAP
measures to evaluate our financial performance on a basis comparable to that
used by some securities analysts and investors. Also, certain of these non-GAAP
measures are taken into consideration, to varying degrees, for purposes of
business planning and analysis and for certain compensation-related matters.
Throughout our Management's Discussion and Analysis, these non-GAAP measures are
referred to as adjusted operating measures. These non-GAAP measures should not
be viewed as a substitute for U.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
Three Months Ended March 31, Three Months Ended March 31,
2022 2021 2022 2021
(in millions, except per share amounts)
Net income (loss) $ 761 $ 437 $ 6.55 $ 3.58
Less: Net realized investment gains (losses) (1) 16 55 0.14 0.45
Add: Market impact on non-traditional long-duration
products (1)
(134) 396 (1.15) 3.24 Add: Mean reversion related impacts (1) 59 (56) 0.51 (0.46) Add: Integration/restructuring charges (1) 10 - 0.09 - Less: Net income (loss) attributable to CIEs 2 (1) 0.02 (0.01) Tax effect of adjustments (2) 17 (60) 0.14 (0.49) Adjusted operating earnings$ 695 $ 663 $ 5.98$ 5.43 Weighted average common shares outstanding: Basic 113.7 119.8 Diluted 116.2 122.2 (1) Pretax adjusted operating adjustments. (2) Calculated using the statutory federal tax rate of 21%.
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The following table reconciles the trailing twelve months' sum of net income to
adjusted operating earnings and the five-point average of quarter-end equity to
adjusted operating equity:
Twelve Months Ended March 31,
2022 2021
(in millions)
Net income $ 3,084 $ (65)
Less: Adjustments (1) 328 (1,804)
Adjusted operating earnings 2,756 1,739
Total Ameriprise Financial, Inc. shareholders' equity 5,518 6,126
Less: AOCI, net of tax (3) 312
5,521 5,814 Less: Equity impacts attributable to CIEs 1 1 Adjusted operating equity$ 5,520 $ 5,813 Return on equity, excluding AOCI 55.9 %
(1.1) %
Adjusted operating return on equity, excluding AOCI (2) 49.9 % 29.9 %
(1) Adjustments reflect the sum of after-tax net realized investment gains/losses, net of DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; mean reversion related impacts; block transfer reinsurance transaction impacts; the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments; gain or loss on disposal of a business that is not considered discontinued operations; integration and restructuring charges; income (loss) from discontinued operations; and net income (loss) from consolidated investment entities. After-tax is calculated using the statutory tax rate of 21%. (2) Adjusted operating return on equity, excluding AOCI is calculated using adjusted operating earnings in the numerator, andAmeriprise Financial shareholders' equity, excluding AOCI and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator. After-tax is calculated using the statutory tax 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. These accounting policies are discussed in detail in "Management's Discussion and Analysis - Critical Accounting Estimates" in our 2021 10-K.
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 2 to our Consolidated Financial Statements.
Economic Environment
Global equity market conditions could materially affect our financial condition
and results of operations. The following table presents relevant market indices:
Three Months Ended March 31,
2022 2021 Change
S&P 500
Daily average 4,467 3,861 16%
Period end 4,530 3,973 14%
Weighted Equity Index ("WEI") (1)
Daily average 2,953 2,662 11%
Period end 2,979 2,725 9%
(1) Weighted Equity Index is an Ameriprise calculated proxy for equity market
movements calculated using a weighted average of the S&P 500, Russell 2000,
Russell Midcap and MSCI EAFE indices based on North America distributed equity
assets.
See our segment results of operations discussion below for additional
information on how changes in the economic environment have and may continue to
impact our results. For further information regarding the impact of the economic
environment on our financial condition and results of operations, and
potentially material effects, see Part 1 - Item 1A "Risk Factors" of our 2021
10-K.
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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 includes certain assets on our Consolidated Balance
Sheets for which we provide investment management services and recognize
management fees in our Asset Management segment, such as the assets of the
general account and the variable product funds held in the separate accounts of
our life insurance subsidiaries and CIEs.
Assets under administration ("AUA") include assets for which we provide
administrative services such as client assets invested in other companies'
products that we offer outside of our wrap accounts. These assets include those
held in clients' brokerage accounts. We generally record revenues received from
administered assets as distribution fees. We do not exercise management
discretion over these assets and do not earn a management fee. These assets are
not reported on our Consolidated Balance Sheets. AUA also includes certain
assets on our Consolidated Balance Sheets for which we do not provide investment
management services and do not recognize management fees, such as investments in
non-affiliated funds held in the separate accounts of our life insurance
subsidiaries.
AUM and AUA do not include assets under advisement, for which we provide
advisory services such as model portfolios but do not have full discretionary
investment authority.
The following table presents detail regarding our AUM and AUA:
March 31,
2022 2021
Change
(in billions)
Assets Under Management and Administration
Advice & Wealth Management AUM $ 443.5 $ 396.5 $ 47.0 12 %
Asset Management AUM 698.6 564.1 134.5 24
Corporate AUM 0.1 0.1 - -
Eliminations (42.0) (39.6) (2.4) (6)
Total Assets Under Management 1,100.2 921.1 179.1 19
Total Assets Under Administration 238.9 222.9 16.0 7
Total AUM and AUA $ 1,339.1 $ 1,144.0 $ 195.1 17 %
Total AUM increased $179.1 billion , or 19%, to $1.1 trillion as of March 31,
2022 compared to $921.1 billion as of March 31, 2021 due to a $47.0 billion
increase in Advice & Wealth Management AUM driven by wrap account net inflows
and market appreciation and a $134.5 billion increase in Asset Management AUM
driven by the acquisition of the BMO Global Asset Management (EMEA) business and
net inflows, partially offset by retail fund distributions. See our segment
results of operations discussion below for additional information on changes in
our AUM.
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AMERIPRISE FINANCIAL, INC.
Consolidated Results of Operations for the Three Months Ended
and 2021
The following table presents our consolidated results of operations:
Three Months Ended March 31,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 2,459 $ 2,102 $ 357 17 %
Distribution fees 446 458 (12) (3)
Net investment income 261 377 (116) (31)
Premiums, policy and contract charges 368 347 21 6
Other revenues 123 71 52 73
Total revenues 3,657 3,355 302 9
Banking and deposit interest expense 2 5 (3) (60)
Total net revenues 3,655 3,350 305 9
Expenses
Distribution expenses 1,297 1,175 122 10
Interest credited to fixed accounts 141 159 (18) (11)
Benefits, claims, losses and settlement expenses 211 653 (442) (68)
Amortization of deferred acquisition costs 96 5 91 NM
Interest and debt expense 40 42 (2) (5)
General and administrative expense 947 823 124 15
Total expenses 2,732 2,857 (125) (4)
Pretax income (loss) 923 493 430 87
Income tax provision 162 56 106 NM
Net income (loss) $ 761 $ 437 $ 324 74%
NM Not Meaningful.
Overall
Pretax income increased
31, 2022
significant drivers of the period-over-period change in pretax income:
•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 was a benefit of$134 million for the three months endedMarch 31, 2022 compared to an expense of$396 million for the prior year period.
•A favorable impact from higher average equity markets for the three months
ended
•A favorable impact from continued client net inflows from Advice & Wealth
Management.
•A
•The mean reversion related impact was an expense of$59 million for the three months endedMarch 31, 2022 compared to a benefit of$56 million for the prior year period.
•A
insurance claims in the current period compared to the benefit of COVID-19
related impacts in the year ago period.
Net Revenues
Management and financial advice fees increased$357 million , or 17%, for the three months endedMarch 31, 2022 compared to the prior year period reflecting higher average equity markets, revenue associated with the acquisition of the BMO Global Asset Management (EMEA) business, continued wrap account net inflows, and a$53 million increase in performance fees.
Distribution fees decreased
31, 2022
activity, partially offset by higher average equity markets.
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AMERIPRISE FINANCIAL, INC.
Net investment income decreased
following items:
•Net realized investment gains of$20 million for the three months endedMarch 31, 2022 compared to net realized investment gains of$69 million for the prior year period. Net realized investment gains included a$15 million gain on a strategic investment in the prior year period.
•The unfavorable impact of lower average invested assets due to the sale of
investments to a reinsurer as a result of the fixed deferred and immediate
annuity reinsurance transaction.
•A
•The unfavorable impact of continued low interest rates, including lower
investment yields on the investment portfolio supporting the certificate
products.
Premiums, policy and contract charges increased
three months ended
reflecting a favorable change in unearned revenue amortization and the
reinsurance accrual offset to the market impact on IUL benefits.
Other revenues increased$52 million , or 73%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting the yield on deposit receivables arising from reinsurance transactions.
Banking and deposit interest expense decreased
months ended
average crediting rates on certificates and lower average certificate balances.
Expenses
Distribution expenses increased
compensation primarily due to an increase in average wrap account balances,
partially offset by decreased transactional activity.
Interest credited to fixed accounts decreased
months ended
reflecting the following items:
•A$29 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The favorable impact of the nonperformance credit spread was$28 million for the three months endedMarch 31, 2022 compared to an unfavorable impact of$1 million for the prior year period. •A$14 million increase in expense from other market impacts on IUL benefits, net of hedges, which was an expense of$12 million for the three months endedMarch 31, 2022 compared to a benefit of$2 million for the prior year period. The increase in expense was primarily due to an increase in the IUL embedded derivative in the current period, which reflected higher option costs due to a higher new money rate.
Benefits, claims, losses and settlement expenses decreased
the three months ended
primarily reflecting the following items:
•A$207 million decrease in expense primarily reflecting the impact of year-over-year changes in the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The unfavorable impact of the nonperformance credit spread was$18 million for the three months endedMarch 31, 2022 compared to an unfavorable impact of$225 million for the prior year period. As the undiscounted embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread on benefits expenses is favorable (unfavorable). Additionally, as the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. •A$339 million decrease in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This decrease was the result of a favorable$1.3 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, partially offset by an unfavorable$950 million change in the market impact on variable annuity guaranteed living benefits reserves. 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 the three months ended
prior year period.
•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 the three months ended
year period.
•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 the three months endedMarch 31, 2022 compared to the prior year period. 56
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AMERIPRISE FINANCIAL, INC.
•Other unhedged items, including the difference between the assumed and actual
underlying separate account investment performance, fixed income credit
exposures, transaction costs and various behavioral items, were a net expense
for the three months ended March 31, 2022 compared to a net benefit for the
prior year period.
•The mean reversion related impact was an expense of $34 million for the three
months ended March 31, 2022 compared to a benefit of $34 million for the prior
year period.
•A
normalized levels compared to the prior year period which benefited from
COVID-19 related impacts.
Amortization of DAC increased
2022
•The DAC offset to the market impact on non-traditional long-duration products was an expense of$11 million for the three months endedMarch 31, 2022 compared to a benefit of$46 million for the prior year period. •The mean reversion related impact was an expense of$25 million for the three months endedMarch 31, 2022 compared to a benefit of$22 million for the prior year period.
•A decrease in amortization reflecting lower than expected client exit rates.
General and administrative expense increased$124 million , or 15%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting the operating expenses of the acquired BMO Global Asset Management (EMEA) business, higher performance fee related compensation, and$10 million of integration related expenses, partially offset by an unfavorable change in the mark-to-market impact on share-based compensation in the prior year period.
Income Taxes
Our effective tax rate was 17.6% for the three months endedMarch 31, 2022 compared to 11.3% for the prior year period. The higher effective tax rate for the three months endedMarch 31, 2022 compared toMarch 31, 2021 is primarily the result of higher pretax income and a decrease in low income housing tax credits, partially offset by an increase in incentive compensation in the current period compared to the prior period. See Note 15 to our Consolidated Financial Statements for additional discussion on income taxes.
Results of Operations by Segment for the Three Months Ended
and 2021
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 18 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:
Three Months Ended March 31,
2022 2021
(in millions)
Advice & Wealth Management
Net revenues $ 2,042 $ 1,879
Expenses 1,602 1,490
Adjusted operating earnings $ 440 $ 389
Asset Management
Net revenues $ 1,017 $ 828
Expenses 732 600
Adjusted operating earnings $ 285 $ 228
Retirement & Protection Solutions
Net revenues $ 772 $ 787
Expenses 581 604
Adjusted operating earnings $ 191 $ 183
Corporate & Other
Net revenues $ 116 $ 139
Expenses 192 160
Adjusted operating loss $ (76) $ (21)
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Advice & Wealth Management
The following table presents the changes in wrap account assets and average
balances for the three months ended
2022 2021
(in billions)
Beginning balance $ 464.7 $ 380.0
Net flows 8.7 10.4
Market appreciation (depreciation) and other (26.4) 9.4
Ending balance
$ 447.0 $ 399.8
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 three months ended
Wrap account assets decreased
ended
offset by net inflows of
increased
reflecting net inflows, along with market appreciation.
The following table presents the results of operations of our Advice & Wealth
Management segment on an adjusted operating basis:
Three Months Ended March 31,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 1,380 $ 1,205 $ 175 15 %
Distribution fees 529 559 (30) (5)
Net investment income 78 64 14 22
Other revenues 57 56 1 2
Total revenues 2,044 1,884 160 8
Banking and deposit interest expense 2 5 (3) (60)
Total net revenues 2,042 1,879 163 9
Expenses
Distribution expenses 1,232 1,135 97 9
Interest and debt expense 2 3 (1) (33)
General and administrative expense 368 352 16 5
Total expenses 1,602 1,490 112 8
Adjusted operating earnings $ 440 $ 389 $ 51 13 %
Our Advice & Wealth Management segment pretax adjusted operating earnings, which
exclude net realized investment gains or losses, increased $51 million , or 13%,
for the three months ended March 31, 2022 compared to the prior year period
primarily reflecting higher average wrap account balances due to net inflows,
market appreciation, and increased bank profitability. Pretax adjusted operating
margin was 21.5% for the three months ended March 31, 2022 compared to 20.7% for
the prior year period. Cash balances increased $5.3 billion to $45.7 billion
contrary to normal seasonal patterns in the first quarter.
Ameriprise Bank , FSB is continuing its deposit growth trend, with cash sweep
balances increasing $5.2 billion from the prior year period to $13.2 billion and
brokerage client pledged asset lines of credit increasing to $520 million as of
March 31, 2022 .
Net Revenues
Management and financial advice fees increased $175 million , or 15%, for the
three months ended March 31, 2022 compared to the prior year period primarily
due to growth in average wrap account assets. Average advisory wrap account
assets increased $66.4 billion , or 18%, compared to the prior year period
reflecting net inflows and market appreciation.
Distribution fees decreased $30 million , or 5%, for the three months ended March
31, 2022 compared to the prior year period reflecting decreased transactional
activity, partially offset by higher average equity markets.
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Net investment income, which excludes net realized investment gains or losses,
increased $14 million , or 22%, for the three months ended March 31, 2022
compared to the prior year period primarily due to higher average invested
assets due to increased bank deposits, partially offset by lower certificate
balances and the unfavorable impact of continued low interest rates, including
lower investment yields on the investment portfolio supporting the certificate
products.
Banking and deposit interest expense decreased $3 million , or 60%, for the three
months ended March 31, 2022 compared to the prior year period primarily due to
lower average crediting rates on certificates and lower average certificate
balances.
Expenses
Distribution expenses increased$97 million , or 9%, for the three months endedMarch 31, 2022 compared to the prior year period reflecting higher asset-based advisor compensation from higher wrap account assets, partially offset by decreased transactional activity.
General and administrative expense increased
months ended
reflecting higher volume related expenses.
Asset Management
The following tables present the mutual fund performance of our retail ColumbiaThreadneedle Investments funds, including recently acquired BMO branded funds, as ofMarch 31, 2022 : Retail Fund Rankings in Top 2 Quartiles or Above Index Benchmark - Asset Weighted(1) 1 year 3 year 5 year 10 year Equity 28% 81% 85% 88% Fixed Income 53% 90% 94% 91% Asset Allocation 45% 80% 86% 91% 4- or 5-star Morningstar rated funds(2) Overall 3 year 5 year 10 year Number of rated funds 129 108 104 104 Percent of rated assets 69% 62% 62% 72% (1)Retail Fund performance rankings for each fund is measured on a consistent basis against the most appropriate peer group or index. Peer Groupings are defined by either Lipper, IA, or Morningstar and based primarily on the Institutional Share Class, Net of Fees. Comparisons to Index are measured Gross of Fees. To calculate asset weighted performance, the sum of the total assets of the funds with above median ranking are divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
Aggregated Asset Allocation Funds may include funds that invest in other
Columbia or Threadneedle branded mutual funds included in both equity and fixed
income.
(2) Columbia funds are available for purchase byU.S. customers. Out of 95 Columbia funds (Institutional shares) rated, 13 received a 5-star Overall Rating and 39 received a 4-star Overall Rating. Out of 92 Threadneedle funds (highest rated share class) rated, 18 received a 5-star Overall Rating and 32 received a 4-star Overall Rating. Out of 63 BMO branded funds (highest rated share class) rated, 6 received a 5-star Overall Rating and 21 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 global managed assets by type: Average (1) As of March 31, Three Months Ended March 31, 2022 2021 Change 2022 2021 Change (in billions) Equity$ 367.1 $ 319.4 $ 47.7 15 %$ 379.6 $ 308.8 $ 70.8 23 % Fixed income 256.5 194.3 62.2 32 267.2 195.2 72.0 37 Money market 12.9 5.8 7.1 NM 11.8 5.9 5.9 NM Alternative 40.2 22.9 17.3 76 40.1 22.7 17.4 77 Hybrid and other 21.9 21.7 0.2 1 22.5 20.9 1.6 8
Total managed assets(2)
24 %$ 721.2 $ 553.5 $ 167.7 30 % 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. Prior periods have been restated to reflect this
change.
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The following table presents the changes in global managed assets:
Three Months Ended March 31,
2022 2021
(in billions)
Global Retail Funds (1)
Beginning assets $ 409.4 $ 323.5
Inflows 21.8 22.5
Outflows (23.2) (17.6)
Net VP/VIT fund flows (1.1) (1.0)
Net new flows (2) (2.5) 3.9
Reinvested dividends 0.6 0.7
Net flows (1.9) 4.6
Distributions (0.8) (0.9)
Market appreciation (depreciation) and other (25.8) 13.2
Foreign currency translation (3) (0.9) (0.2)
Total ending assets 380.0 340.2
Global Institutional (1)
Beginning assets 344.7 223.1
Inflows (4) 12.7 7.8
Outflows (4) (11.5) (7.5)
Net flows (2) 1.2 0.3
Market appreciation (depreciation) and other (5) (21.7) 0.2
Foreign currency translation (3) (5.6) 0.3
Total ending assets 318.6 223.9
Total managed assets $ 698.6 $ 564.1
Total net flows $ (0.7) $ 4.9
Legacy insurance partners net flows (6) $
(0.7)
(1) The beginning balances as ofJanuary 1, 2022 for Global Retail Funds and Global Institutional were corrected by$8.9 billion due to a reclassification of assets. Total AUM as ofJanuary 1, 2022 remained unchanged. (2) Included in the first quarter 2022 net flows are$2.5 billion of retail and$0.1 billion of institutional net flows from the US asset transfer from the BMO acquisition.
(3) Amounts represent local currency to US dollar translation for reporting
purposes.
(4) Global Institutional inflows and outflows include net flows from our
RiverSource Structured Annuity product and
(5) 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 , FSB. (6) Legacy insurance partners assets and net flows are included in the rollforwards above. 60
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Total segment AUM decreased $55.5 billion , or 7%, during the three months ended
March 31, 2022 . Net outflows were $0.7 billion in the first quarter of 2022, a
$5.6 billion decrease compared to the prior year period. Global retail net
outflows were $1.9 billion . Global institutional net inflows were $1.2 billion
and included $0.7 billion of outflows from legacy insurance partners assets.
The following table presents the results of operations of our Asset Management
segment on an adjusted operating basis:
Three Months Ended March 31,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 898 $ 713 $ 185 26 %
Distribution fees 111 114 (3) (3)
Net investment income 4 1 3 NM
Other revenues 4 - 4 -
Total revenues 1,017 828 189 23
Banking and deposit interest expense - - - -
Total net revenues 1,017 828 189 23
Expenses
Distribution expenses 277 268 9 3
Amortization of deferred acquisition costs 3 3 - -
Interest and debt expense 1 1 - -
General and administrative expense 451 328 123 38
Total expenses 732 600 132 22
Adjusted operating earnings $ 285 $ 228 $ 57 25 %
NM Not Meaningful.
Our Asset Management segment pretax adjusted operating earnings, which exclude
net realized investment gains or losses, increased $57 million , or 25%, for the
three months ended March 31, 2022 compared to the prior year period primarily
due to a higher level of average AUM from the acquisition of the BMO Global
Asset Management (EMEA) business, equity market appreciation and cumulative net
inflows, as well as higher performance fees.
Net Revenues
Management and financial advice fees increased$185 million , or 26%, for the three months endedMarch 31, 2022 compared to the prior year period primarily due to the acquired BMO Global Asset Management (EMEA) business,$53 million of higher performance fees, higher average equity markets, and the cumulative impact from net inflows.
Expenses
Distribution expenses increased$9 million , or 3%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting higher average equity markets. General and administrative expense increased$123 million , or 38%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting the operating expenses of the acquired BMO Global Asset Management (EMEA) business and higher performance fee related compensation expenses.
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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:
Three Months Ended March 31,
2022 2021 Change
(in millions)
Revenues
Management and financial advice fees $ 218 $ 222 $ (4) (2) %
Distribution fees 112 116 (4) (3)
Net investment income 114 126 (12) (10)
Premiums, policy and contract charges 325 323 2 1
Other revenues 3 - 3 -
Total revenues 772 787 (15) (2)
Banking and deposit interest expense - - - -
Total net revenues 772 787 (15) (2)
Expenses
Distribution expenses 119 129 (10) (8)
Interest credited to fixed accounts 96 96 - -
Benefits, claims, losses and settlement expenses 230 234 (4) (2)
Amortization of deferred acquisition costs 53 63 (10) (16)
Interest and debt expense 9 10 (1) (10)
General and administrative expense 74 72 2 3
Total expenses 581 604 (23) (4)
Adjusted operating earnings $ 191 $ 183 $ 8 4 %
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 amortization and the
reinsurance accrual), mean reversion related impacts, and block transfer
reinsurance transaction impacts increased $8 million , or 4%, for the three
months ended March 31, 2022 compared to prior year period.
Variable annuity account balances decreased 1% to $85.8 billion as of March 31,
2022 compared to the prior year period due to net outflows of $1.9 billion ,
partially offset by market appreciation. Variable annuity sales decreased 27%
compared to the prior year period 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 60%
as of March 31, 2022 compared to 63% a year ago. This trend is expected to
continue and meaningfully shift the mix of business away from products with
living benefit guarantees over time.
We continue to optimize our risk profile and shift our business mix to lower
risk offerings. During the fourth quarter of 2021, we made the decision to
discontinue new sales of substantially all of our variable annuities with living
benefit guarantees at the end of 2021, with a full exit by mid-2022. In
addition, we discontinued new sales of our universal life insurance with
secondary guarantees and our single-pay fixed universal life with a long term
care rider products at the end of 2021.
Net Revenues
Net investment income, which excludes net realized investment gains or losses,
decreased
compared to the prior year period primarily due to lower yields on the
investment portfolio.
Expenses
Distribution expenses decreased$10 million , or 8%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting decreased variable annuity sales. Amortization of DAC, which excludes mean reversion related impacts, the DAC offset to the market impact on variable annuity contracts and IUL contracts and the DAC offset to net realized investment gains or losses, decreased$10 million for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting lower than expected client exit rates.
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Corporate & Other
The following table presents the results of operations of our Corporate & Other
segment on an adjusted operating basis:
Three Months Ended March 31,
2022 2021 Change
(in millions)
Revenues
Net investment income $ 33 $ 100 $ (67) (67) %
Premiums, policy and contract charges 24 24 - -
Other revenues 59 15 44 NM
Total revenues 116 139 (23) (17)
Banking and deposit interest expense - - - -
Total net revenues 116 139 (23) (17)
Expenses
Distribution expenses (1) (2) 1 50
Interest credited to fixed accounts 61 61 - -
Benefits, claims, losses and settlement expenses 54 13 41 NM
Amortization of deferred acquisition costs 3 4 (1) (25)
Interest and debt expense 16 15 1 7
General and administrative expense 59 69 (10) (14)
Total expenses 192 160 32 20
Adjusted operating loss $ (76) $ (21) $ (55) NM
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$55 million , for the three months endedMarch 31, 2022 compared to the prior year period. LTC insurance had a pretax adjusted operating earnings of$1 million for the three months endedMarch 31, 2022 compared to pretax adjusted operating earnings of$46 million for the prior year period reflecting the return to more normalized results compared to the COVID-19 related impacts in the year ago period. FA business had a pretax adjusted operating loss of$5 million for the three months endedMarch 31, 2022 compared to a pretax adjusted operating loss of$4 million . Fixed deferred annuity account balances declined 4% to$7.5 billion as ofMarch 31, 2022 compared to the prior year period as policies continue to lapse and the discontinuance of new sales of fixed deferred annuities. 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, block transfer reinsurance transaction impacts, integration and restructuring charges, and the impact of consolidating CIEs, decreased$67 million , or 67%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting lower average invested assets due to the sale of investments to a 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 period. Other revenues increased$44 million to$59 million for the three months endedMarch 31, 2022 compared to the prior year period 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$41 million , for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting more normalized claims on LTC insurance, which benefited from COVID-19 related impacts in the prior year period. General and administrative expense decreased$10 million , or 14%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting the unfavorable mark-to-market impact on share-based compensation expense in the prior year period.
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 insurance,
brokerage client cash balances, banking deposits, face-amount certificate
products, fixed portion of our variable annuities and variable insurance
contracts, the value of DAC and DSIC assets, the value of liabilities for
guaranteed benefits associated with our variable annuities and the value of
derivatives held to hedge these benefits.
Our earnings from fixed insurance, the fixed portion of variable annuities and
variable insurance contracts, and fixed deferred annuities are based upon the
spread between rates earned on assets held and the rates at which interest is
credited to accounts. We primarily invest in fixed rate securities to fund the
rate credited to clients. We guarantee an interest rate to the holders of these
products. Investment assets and client liabilities generally differ as it
relates to basis, repricing or maturity characteristics. Rates credited to
clients' accounts generally reset at shorter intervals than the yield on the
underlying investments. Therefore, in an increasing interest rate environment,
higher interest rates may be reflected in crediting rates to clients sooner than
in rates earned on invested assets, which could result in a reduced spread
between the two rates, reduced earned income and a negative impact on pretax
income. However, the current low interest rate environment is resulting in
interest rates below the level of some of our liability guaranteed minimum
interest rates ("GMIRs"). Hence, a modest rise in interest rates would not
necessarily result in changes to all the liability credited rates while
projected asset purchases would capture the full increase in interest rates.
This dynamic would result in widening spreads under a modestly rising rate
scenario given the current relationship between the current level of interest
rates and the underlying GMIRs on the business.
As a result of the current interest rate environment, our reinvestment yields
are generally lower than the current portfolio yield. We expect our portfolio
income yields to continue to decline in future periods should interest rates
remain comparatively low. The carrying value and weighted average yield of
non-structured fixed maturity securities and commercial mortgage loans that may
generate proceeds to reinvest through March 31, 2024 due to prepayment, maturity
or call activity at the option of the issuer, excluding securities with a
make-whole provision, were $2.5 billion and 1.9%, respectively, as of March 31,
2022 . In addition, residential mortgage backed securities, which could be
subject to prepayment risk if the low interest rate environment continues,
totaled $11.7 billion and had a weighted average yield of 1.8% as of March 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 three months ended March 31, 2022 was approximately 2.4%.
The reinvestment of proceeds from maturities, calls and prepayments at rates
below the current portfolio yield, which may be below the level of some
liability GMIRs, will have a negative impact to future operating results. To
mitigate the unfavorable impact that the low interest rate environment has on
our spread income, we assess reinvestment risk in our investment portfolio and
monitor this risk in accordance with our asset/liability management framework.
In addition, we may reduce the crediting rates on our fixed products when
warranted, subject to guaranteed minimums.
In addition to the fixed rate exposures noted above, 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
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AMERIPRISE FINANCIAL, INC.
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.
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) $ (339) $ 4 $ (335)
DAC and DSIC amortization (2)(3) (27) - (27)
Variable annuities:
GMDB and GMIB (3) (12) - (12)
GMWB (3) (499) 556 57
GMAB (27) 28 1
Structured variable annuities 397 (365) 32
DAC and DSIC amortization (4) N/A N/A (12)
Total variable annuities (141) 219 66
Macro hedge program (5) - 119 119
Certificates - - -
IUL insurance 66 (71) (5)
Total $ (441) $ 271 $ (182) (6)
N/A Not Applicable.
Interest Rate Exposure to Pretax Income
Interest Rate Increase 100 Basis Points Before Hedge Impact Hedge Impact Net Impact
(in millions)
Asset-based management and distribution fees (1) $ (63) $ - $ (63)
Variable annuities:
GMWB 1,031 (1,263) (232)
GMAB 9 (12) (3)
Structured variable annuities (20) 117 97
DAC and DSIC amortization (4) N/A N/A 21
Total variable annuities 1,020 (1,158) (117)
Macro hedge program (5) - (1) (1)
Fixed annuities, fixed insurance and fixed portion of variable annuities
and variable insurance products
53 - 53 Banking deposits 57 - 57 Brokerage client cash balances 230 - 230 Certificates 12 - 12 IUL insurance 19 2 21 Total$ 1,328 $ (1,157) $ 192 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. 65
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AMERIPRISE FINANCIAL, INC.
(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 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 approximately
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 ofMarch 31, 2022 compared toDecember 31, 2021 was driven by variable annuity riders, specifically GMWB, primarily due to changes in market rates. 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 will 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.
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 11 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 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 the LIBOR swap curve as ofMarch 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 the LIBOR swap curve, the reduction to future net income would be approximately$420 million , net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 21%), based onMarch 31, 2022 credit spreads.
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the three months ended
2022
billion
restricted cash on a consolidated basis.
AtMarch 31, 2022 andDecember 31, 2021 , the parent company had$316 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 in a volatile and uncertain economic environment as ofMarch 31, 2022 was$1.5 billion which includes cash, cash equivalents, unencumbered liquid securities, the line of credit with an affiliate and a portion of the committed credit facility.
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Under the terms of the committed credit facility, we can increase the
availability to $1.25 billion upon satisfaction of certain approval
requirements. Available borrowings under this facility are reduced by any
outstanding letters of credit. At March 31, 2022 , we had no outstanding
borrowings under this credit facility and had $1 million of outstanding letters
of credit. Our credit facility contains various administrative, reporting, legal
and financial covenants. We remain in compliance with all such covenants at
March 31, 2022 .
In addition, we have access to collateralized borrowings, which may include
repurchase agreements and Federal Home Loan Bank ("FHLB") advances. Our
subsidiaries, RiverSource Life Insurance Company ("RiverSource Life"), and
Ameriprise Bank , FSB are members of the FHLB of Des Moines , which provides
access to collateralized borrowings. As of March 31, 2022 and December 31, 2021 ,
we had $8.2 billion and $8.1 billion , respectively, under the FHLB facilities,
of which $200 million was outstanding as of both March 31, 2022 and December 31,
2021 , and is collateralized with commercial mortgage backed securities and
residential mortgage backed securities. We believe cash flows from operating
activities, available cash balances and our availability of revolver borrowings
will be sufficient to fund our operating liquidity needs and stress
requirements.
There have been no material changes to our contractual obligations disclosed in
our 2021 10-K.
We repaid$500 million principal amount of its 3.0% senior notes at maturity onMarch 22, 2022 . See Note 10 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 and dividends from our subsidiaries will be sufficient to fund our short-term and long-term operating liquidity needs and stress requirements. We continue to monitor and respond to the ongoing COVID-19 pandemic. Our risk management strategy is designed to provide proactive protection during stress events such as the current pandemic. We believe our process is working as intended, and our liquidity and capital resources have remained a source of balance sheet strength during the three months endedMarch 31, 2022 .
Dividends from Subsidiaries
Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly-owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary,Ameriprise Certificate Company ("ACC"),AMPF Holding Corporation , which is the parent company of our retail introducing broker-dealer subsidiary,Ameriprise Financial Services, LLC ("AFS") and our clearing broker-dealer subsidiary,American Enterprise Investment Services, Inc. ("AEIS"), our transfer agent subsidiary,Columbia Management Investment Services Corp. , our investment advisory company,Columbia Management Investment Advisers, LLC ,TAM UK International Holdings Ltd , which includes Threadneedle Asset Management Holdings Sàrl andAmeriprise International Holdings GmbH within its organizational structure, andColumbia Threadneedle Investments UK International Ltd. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements.
Actual capital and regulatory capital requirements for our wholly owned
subsidiaries subject to regulatory capital requirements were as follows:
Actual Capital Regulatory Capital Requirements
March 31, December 31, 2021 March 31, 2022 December 31, 2021
2022
(in millions)
RiverSource Life (1)(2) $ 3,131 $ 3,419 N/A $ 502
RiverSource Life of NY (1)(2) 273 310 N/A 42
ACC (4)(5) 299 304 $ 278 283
TAM UK International Holdings Ltd (6) 321 330 241 248
Ameriprise Bank, FSB (4) (7) 985 853 674 589
AFS (3)(4) 128 103 #
#
Ameriprise Captive Insurance Company (3) 38 39 13 10 Ameriprise Trust Company (3) 49 47 42 44 AEIS (3)(4) 162 155 30 29 RiverSource Distributors, Inc. (3)(4) 11 10 #
#
Columbia Management Investment Distributors, Inc. (3)(4) 19 14 #
#
Ltd.
337 348 165 170
N/A Not applicable as only required to be calculated annually.
# Amounts are less than
(1) Actual capital is determined on a statutory basis.
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(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
(8) Actual capital and regulatory capital requirements are determined in
accordance with
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 three months endedMarch 31, 2022 , the parent holding company received cash dividends or a return of capital from its subsidiaries of$777 million (including$300 million from RiverSource Life) and contributed cash to its subsidiaries of$129 million (including$95 million toAmeriprise Bank , FSB). During the three months endedMarch 31, 2021 , the parent holding company received cash dividends or a return of capital from its subsidiaries of$621 million (including$250 million from RiverSource Life) and contributed cash to its subsidiaries of$34 million . 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$133 million and$129 million for the three months endedMarch 31, 2022 and 2021, respectively. OnApril 25, 2022 , we announced a quarterly dividend of$1.25 per common share. The dividend will be paid onMay 20, 2022 to our shareholders of record at the close of business onMay 9, 2022 . InAugust 2020 , the Company's Board of Directors authorized us to repurchase up to$2.5 billion of our common stock throughSeptember 30, 2022 . InJanuary 2022 , the Company's Board of Directors authorized an additional$3.0 billion for the repurchase of the Company's common stock throughMarch 31, 2024 . As ofMarch 31, 2022 , we had$3.0 billion remaining under these share repurchase authorizations. 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 three months endedMarch 31, 2022 , we repurchased a total of 1.4 million shares of our common stock at an average price of$299.14 per share.
Cash Flows
Cash flows of CIEs and restricted and segregated cash and cash equivalents 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 and cash equivalents 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$1.4 billion to$409 million for the three months endedMarch 31, 2022 compared to net cash used in operating activities of$1.0 billion for the prior year period primarily reflecting a$882 million increase in policyholder account balances, future policy benefits and claims, net, a$324 million increase in net income and a$222 million increase in cash related to brokerage deposits.
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Investing Activities
Our investing activities primarily relate to our Available-for-Sale investment portfolio. Further, this activity is significantly affected by the net flows of our investment certificate, fixed annuity and universal life products reflected in financing activities. Net cash used in investing activities increased$856 million to$1.7 billion for the three months endedMarch 31, 2022 compared to$809 million for the prior year period primarily reflecting a$755 million decrease in proceeds from maturities, sinking fund payments and calls of Available-for-Sale securities, a$727 million increase in cash used for purchases of Available-for-Sale securities, partially offset by a$490 million decrease in net cash flows used related to investments of consolidated investment entities.
Financing Activities
Net cash provided by financing activities increased$85 million to$518 million for the three months endedMarch 31, 2022 compared to$433 million for the prior year period primarily reflecting a$1.2 billion increase in banking deposits, a$399 million reduction in net cash outflows from investment certificates, partially offset by a$797 million decrease in borrowings by CIEs and a$500 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 opportunities; •statements of the Company's position, future performance and ability to pursue business strategy relative to the spread and impact of the COVID-19 pandemic and the related market, economic, client, governmental and healthcare system response;
•statements about the expected trend in the shift to lower-risk products,
including the exit from variable annuities with living benefit riders and the
discontinuance of new sales of universal life insurance with secondary
guarantees;
•statements about the outcomes from the application to convertAmeriprise Bank , FSB 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" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.
Such factors include, but are not limited to:
•the impacts on our business of the COVID-19 pandemic and the related economic,
client, governmental and healthcare system responses;
•market fluctuations and general economic and political factors, including
volatility in the
volatility in the markets for our products;
•changes in interest rates and periods of low interest rates;
•adverse capital and credit market conditions or any downgrade in our credit
ratings;
•effects of competition and our larger competitors' economies of scale;
•declines in our investment management performance;
•our ability to compete in attracting and retaining talent, including financial
advisors;
•impairment, negative performance or default by financial institutions or other
counterparties;
•the ability to maintain our unaffiliated third-party distribution channels and
the impacts of sales of unaffiliated products;
•changes in valuation of securities and investments included in our assets;
•the determination of the amount of allowances taken on loans and investments;
•the illiquidity of our investments;
•effects of the elimination of LIBOR on, and value of, securities and other
assets and liabilities tied to LIBOR;
•failures by other insurers that lead to higher assessments we owe to state
insurance guaranty funds;
•failures or defaults by counterparties to our reinsurance arrangements;
•inadequate reserves for future policy benefits and claims or for future
redemptions and maturities;
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•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 cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Management undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the "Risk Factors" discussion included in Part I, Item 1A of our 2021 10-K.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 .
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