Ameriprise Financial, Inc. 2021 Form 10-K Summary
Business context and reporting period
Ameriprise Financial is a diversified financial services holding company operating through Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other. The filing covers the fiscal year ended December 31, 2021; it is an annual filing rather than a standalone fourth-quarter report.
The company provides financial advice, brokerage and banking services, investment management, annuities, life insurance, disability insurance, and legacy long-term-care products. It had more than 10,000 advisors, approximately 12,000 global employees, and $1.4 trillion of assets under management and administration at year-end.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues | $13.443 billion | $11.958 billion | 12% |
| Total net revenues | $13.431 billion | $11.899 billion | 13% |
| Pretax income | $3.350 billion | $1.831 billion | 83% |
| Net income | $2.760 billion | $1.534 billion | 80% |
| Diluted EPS | $23.00 | $12.20 | 89% |
| Adjusted operating earnings | $2.724 billion | $1.770 billion | 54% |
| Adjusted operating EPS | $22.70 | $14.08 | 61% |
| Operating cash flow | $3.325 billion | $4.623 billion | Down $1.3 billion |
Net income represented approximately 20.5% of total net revenues, while pretax income represented approximately 24.9%. Adjusted operating return on equity excluding AOCI was 50.6%, compared with 30.2% in 2020. Management’s long-term targets are adjusted operating EPS growth of 12% to 15% and adjusted operating return on equity excluding AOCI above 30%.
- Management and financial advice fees increased 26% to $9.275 billion, driven by higher equity markets, wrap-account inflows, performance fees, and the BMO acquisition.
- Distribution fees increased 10% to $1.830 billion.
- Net investment income increased 35% to $1.683 billion, including $636 million of net realized investment gains versus a $10 million loss in 2020.
- Premiums, policy and contract charges fell 80% to $273 million, primarily because of ceded premiums related to the fixed-annuity reinsurance transaction.
- Distribution expenses increased 24% to $5.015 billion, while general and administrative expense increased 10% to $3.435 billion.
- Effective tax rate increased to 17.6% from 16.2%.
Liquidity, capital, debt, and balance sheet
- Cash and cash equivalents, excluding consolidated investment entities and other restricted cash, were $7.1 billion at December 31, 2021, compared with $6.8 billion in 2020.
- Parent-company cash, cash equivalents, and unencumbered liquid securities were $841 million. Estimated parent liquidity was $2.4 billion, including available credit sources.
- The company had a $1.0 billion unsecured revolving credit facility expiring in June 2026, with no borrowings and $1 million of letters of credit outstanding at year-end. Availability may be increased to $1.25 billion subject to approvals.
- Total long-term debt was $2.832 billion, including $500 million of senior notes maturing in 2022; short-term FHLB borrowings were $200 million.
- Total assets were $175.979 billion and total equity was $5.685 billion. Customer deposits increased to $20.227 billion from $17.641 billion.
- RiverSource Life and RiverSource Life of New York remained well above company-action-level RBC requirements, at 681% and 741%, respectively.
- The company paid $527 million of dividends and repurchased 7.1 million shares for approximately $1.8 billion during 2021. The remaining authorization at year-end was $432 million, and the board authorized an additional $3.0 billion of repurchases through March 31, 2024.
Segment performance
| Segment | 2021 adjusted operating earnings | 2020 | Change |
|---|---|---|---|
| Advice & Wealth Management | $1.743 billion | $1.321 billion | 32% |
| Asset Management | $1.096 billion | $697 million | 57% |
| Retirement & Protection Solutions | $735 million | $480 million | 53% |
| Corporate & Other | $(270) million | $(369) million | 27% improvement |
- Advice & Wealth Management adjusted operating margin was 21.7%, versus 19.8% in 2020. Wrap-account assets increased 22% to $464.7 billion, including $40.4 billion of net inflows.
- Asset Management managed assets increased 38% to $754.1 billion. Net flows were $42.9 billion, and the BMO transaction contributed approximately $136 billion of acquired assets.
- Retirement & Protection Solutions variable-annuity account value increased 8% to $92.3 billion. Variable-annuity sales increased 37% to $6.0 billion, with products without living-benefit guarantees representing 67% of sales.
- Corporate & Other includes closed long-term-care and fixed-annuity blocks. Long-term-care adjusted operating earnings improved to $52 million from a $95 million loss, while the fixed-annuity block remained loss-making.
Material changes versus the prior comparable period
- On November 8, 2021, Ameriprise acquired BMO Financial Group’s European asset-management business for approximately $973 million in cash, adding $136 billion of AUM. The acquisition generated $287 million of goodwill and $32 million of integration-related costs.
- Effective July 1, 2021, RiverSource Life reinsured approximately $7.0 billion of fixed deferred and immediate annuity policies with Commonwealth. The transaction transferred approximately $7.8 billion of assets and produced an approximately $532 million realized investment gain; the filing identifies a $521 million favorable pretax impact on adjusted operating reconciliation items.
- Ameriprise discontinued new sales of substantially all variable annuities with living-benefit guarantees at the end of 2021 and expects a full exit by mid-2022. It also discontinued new sales of certain universal-life products with secondary guarantees and single-pay fixed universal-life products with long-term-care riders.
- Operating cash flow declined because of higher income-tax payments and lower brokerage deposits, while investing cash usage increased because of the BMO acquisition, reinsurance-related deposit receivables, and investment activity.
- Other comprehensive income declined by $626 million, primarily from unrealized losses on securities, compared with $367 million of other comprehensive income in 2020.
Guidance, outlook, commentary, and risks
Management continues to pursue growth in advice and wealth management, expansion of global asset management, and a shift toward lower-capital, fee-based businesses and lower-risk insurance products. Management expects the BMO business to broaden EMEA scale and capabilities, but integration is expected to require substantial time and expense.
- Results remain sensitive to equity markets, interest rates, credit spreads, asset flows, client behavior, investment performance, and the value of assets generating management and distribution fees.
- COVID-19 continues to create uncertainty regarding economic conditions, market volatility, client activity, mortality and morbidity, operating costs, and counterparties.
- Long-term-care reserves and variable-annuity guarantees involve significant assumptions regarding morbidity, mortality, persistency, benefit utilization, investment returns, surrender behavior, and interest rates. The 2021 audit identified long-term-care reserves and variable-annuity guarantee valuations as critical audit matters.
- A 10% equity-market decline was estimated to reduce pretax income by approximately $190 million after hedging, including an estimated $361 million reduction in pretax adjusted operating income. A 100-basis-point increase in interest rates was estimated to have an $80 million net pretax impact.
- The company disclosed that eliminating the nonperformance-risk spread used in embedded-derivative valuation would reduce future net income by approximately $457 million, net of related offsets and tax, based on year-end 2021 spreads.
- Other material risks include reinsurance-counterparty default, regulatory and litigation exposure, cybersecurity and operational failures, competition for advisors and investment professionals, foreign-exchange risk, climate-related effects, liquidity constraints, and the transition away from LIBOR.
- Ameriprise Bank applications to convert to a Utah industrial bank and to establish a limited-purpose national trust bank remained pending at year-end.
- The company expects adoption of the FASB long-duration insurance accounting standard beginning in 2023 to have a material effect on consolidated results and financial condition.
Important facts for investors to verify
- Reconcile GAAP net income and EPS with adjusted operating earnings and EPS, particularly the effects of the annuity reinsurance transaction, market impacts, mean reversion, and integration costs.
- Assess the sustainability of earnings growth after unusually strong equity-market appreciation and the $532 million reinsurance-related realized gain.
- Monitor BMO Global Asset Management integration, acquired-asset retention, net flows, performance, and related expenses.
- Review long-term-care reserve adequacy, approved premium-rate increases, Genworth reinsurance protections, and potential future claims experience.
- Track variable-annuity living-benefit guarantee exposure, hedge effectiveness, surrender and utilization assumptions, and the planned exit from new sales.
- Verify parent liquidity, debt maturities, subsidiary dividend capacity, regulatory capital, and the ability to fund dividends and repurchases.
- Evaluate the impact of market declines, higher interest rates, credit deterioration, LIBOR transition, and the 2023 long-duration insurance accounting change.
- Review pending regulatory applications, legal proceedings, tax examinations, and contingencies because the filing does not provide a single quantified maximum exposure for all such matters.