Ameriprise Financial, Inc. 2016 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, Annuities, Protection, and Corporate & Other segments. The filing covers the fiscal year ended December 31, 2016, including fourth-quarter results. The company had approximately 9,700 advisors, more than 13,000 employees, and $787.4 billion of assets under management and administration at year-end.
Financial performance and key metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total net revenues | $11.696 billion | $12.170 billion | Down 4% |
| Pretax income | $1.592 billion | $2.142 billion | Down 26% |
| Net income attributable to Ameriprise | $1.314 billion | $1.562 billion | Down 16% |
| Diluted EPS | $7.81 | $8.48 | Down 8% |
| Operating earnings | $1.427 billion | $1.716 billion | Down 17% |
| Operating earnings per diluted share | $8.48 | $9.32 | Down 9% |
| Operating ROE, excluding AOCI | 22.2% | 24.3% | Down 2.1 points |
| Net cash from operating activities | $1.971 billion | $2.572 billion | Down $601 million |
- Fourth-quarter 2016 net revenues were $3.062 billion, pretax income was $469 million, net income attributable to Ameriprise was $400 million, and diluted EPS was $2.46.
- Year-end total assets were $139.821 billion, including $35.834 billion of investments and $80.210 billion of separate-account assets.
- Cash and cash equivalents, excluding consolidated investment entities, were approximately $2.3 billion. Total Ameriprise long-term debt was $2.917 billion and short-term borrowings were $200 million.
- The company issued $500 million of unsecured senior notes due 2026 and repaid its remaining $245 million of junior subordinated notes due 2066.
- The company maintained a $500 million unsecured revolving credit facility, expandable to $750 million subject to approval, with no borrowings outstanding and $1 million of letters of credit at year-end.
- Cash dividends paid to shareholders were $489 million. The company repurchased 17.5 million shares during 2016 for approximately $1.7 billion and had $929 million remaining under its repurchase authorization at year-end.
Material changes versus the prior comparable period
- Advice & Wealth Management operating earnings increased 6% to $911 million. Wrap-account assets increased 11% to $201.1 billion, supported by $10.2 billion of net inflows and market appreciation.
- Asset Management operating earnings declined 18% to $621 million. Managed assets fell 4% to $454.4 billion, reflecting $18.6 billion of net outflows and a $12.6 billion negative foreign-currency translation impact in institutional assets.
- Annuities operating earnings fell 49% to $329 million. Results were pressured by the annual valuation-assumption review, low interest rates, lower investment yields, and fixed-annuity runoff. Variable annuity account balances rose 1% to $74.8 billion, while fixed-annuity balances declined 6% to $10.0 billion.
- Protection operating earnings decreased 4% to $176 million. Higher long-term-care reserves and DAC amortization offset improved auto and home loss performance and higher premiums.
- Corporate & Other operating loss increased to $272 million from $199 million, primarily due to higher corporate expenses, fiduciary-rule implementation costs, and a legacy legal matter.
- Total assets under management and administration increased 1% to $787.4 billion. Total AUM was essentially flat at $629.6 billion, while assets under administration increased 7% to $157.8 billion.
- Effective January 1, 2016, adoption of consolidation guidance resulted in the deconsolidation of several CLOs and all previously consolidated property funds. This reduced reported assets, liabilities, and noncontrolling interests and limits direct comparability with 2015.
Guidance, outlook, management commentary, risks and unusual items
- Management’s multi-year financial targets are operating total-net-revenue growth of 6% to 8%, operating diluted-EPS growth of 12% to 15%, and operating ROE excluding AOCI of 19% to 23%. The filing does not provide specific 2017 earnings guidance.
- Management expects low interest rates to continue compressing spreads, reducing investment yields, increasing hedging costs, and potentially increasing reserves and DAC amortization.
- The third-quarter 2016 valuation-assumption review produced an unfavorable pretax “unlocking” impact of $219 million for the year, primarily from low interest rates and higher persistency on living-benefit contracts. Management expects approximately $40 million of ongoing annual variable-annuity earnings pressure from related assumption changes.
- The review of the closed long-term-care business resulted in $31 million of loss recognition, including a $58 million DAC impairment, due to low interest rates, higher morbidity, and higher reinsurance expenses.
- Auto and home catastrophe losses increased to $104 million from $72 million. The company also recorded a $23 million expense related to resolving a legacy hedge-fund legal matter and incurred $30 million of incremental costs to plan and implement the Department of Labor fiduciary standard.
- Major risks include equity-market declines, interest-rate movements, spread compression, variable-annuity guarantee exposure, insurance reserve and persistency assumptions, reinsurance-counterparty risk, credit losses, asset-management outflows, foreign-exchange volatility, regulatory change, litigation, cybersecurity, operational failures, and restrictions on subsidiary dividends.
- A hypothetical 10% equity-price decline was estimated to reduce pretax income by $490 million after hedging. A hypothetical 100-basis-point interest-rate increase was estimated to increase pretax income by $297 million; actual outcomes may differ materially.
- Insurance subsidiaries maintained capital well above regulatory company-action-level requirements. RiverSource Life had statutory capital of $3.052 billion, or 504% of its company-action-level RBC requirement.
- The filing identifies a pending English High Court matter involving a Threadneedle affiliate in which claimants allege approximately $106 million of harm; the company states that any potential loss cannot reasonably be estimated at this stage.
Most important facts for investors to verify
- Reconcile GAAP results with operating earnings and understand the effect of the $219 million unlocking charge, variable-annuity guarantee impacts, and other non-GAAP adjustments.
- Assess whether Advice & Wealth Management inflows can offset persistent Asset Management outflows and foreign-currency pressure.
- Review the sustainability of annuity and insurance earnings under prolonged low rates, higher guarantee utilization, adverse persistency, morbidity, or mortality experience.
- Evaluate liquidity, debt maturities, subsidiary dividend capacity, insurance statutory capital, and the company’s reliance on regulated subsidiaries to fund corporate obligations and shareholder returns.
- Review the assumptions underlying DAC, insurance reserves, variable-annuity guarantees, reinsurance recoverables, and fair-value measurements, including the $287 million after-tax sensitivity to removal of the nonperformance-risk spread.
- Monitor Department of Labor fiduciary-rule developments, Brexit and other regulatory changes, pending litigation, cybersecurity exposure, and the effect of accounting changes and deconsolidation on period-to-period comparability.