Business Context and Reporting Period
Ameriprise Financial, Inc. filed its audited Form 10-K for the fiscal year ended December 31, 2013. The company is a diversified financial-services holding company operating through Advice & Wealth Management, Asset Management, Annuities, Protection, and Corporate & Other segments. It reported $771.3 billion of assets under management and administration at year-end, up from $681.0 billion in 2012.
Ameriprise had more than 9,700 advisors, 12,039 employees, and approximately 92% of net revenue generated in the United States. In January 2013, Ameriprise Bank was converted to a limited-powers national trust bank, ending deposit-taking and credit-origination activities.
Financial Performance and Key Metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total net revenues | $11.199 billion | $10.217 billion | +10% |
| Income from continuing operations | $1.478 billion | $903 million | +64% |
| Net income attributable to Ameriprise | $1.334 billion | $1.029 billion | +30% |
| Diluted EPS from continuing operations | $6.46 | $4.63 | +40% |
| Operating earnings | $1.460 billion | $1.245 billion | +17% |
| Operating diluted EPS | $7.05 | $5.59 | +26% |
| Operating return on equity, excluding AOCI | 19.7% | 16.2% | +3.5 points |
| Net cash from operating activities | $1.364 billion | $1.505 billion | -9% |
GAAP income from continuing operations before tax was $1.970 billion, compared with $1.238 billion in 2012. Total expenses increased 3% to $9.229 billion, while the pretax margin increased to approximately 17.6% from 12.1%. Net income attributable to Ameriprise represented approximately 11.9% of total net revenues.
- Management and financial advice fees rose 12% to $5.253 billion.
- Distribution fees increased 10% to $1.771 billion.
- Net investment income declined 2% to $1.889 billion, primarily because of low interest rates and the sale of the former bank investment portfolio.
- Benefits, claims, losses and settlement expenses increased 3% to $1.954 billion.
- Amortization of deferred acquisition costs declined 28% to $207 million.
Segment Results
| Segment | 2013 Operating Earnings | 2012 | Change |
|---|---|---|---|
| Advice & Wealth Management | $598 million | $443 million | +35% |
| Asset Management | $715 million | $557 million | +28% |
| Annuities | $686 million | $567 million | +21% |
| Protection | $365 million | $398 million | -8% |
| Corporate & Other loss | $(345) million | $(270) million | Loss increased |
Advice & Wealth Management benefited from wrap-account net inflows and market appreciation. Wrap assets increased 23% to $153.5 billion, including $13.1 billion of net inflows. Asset Management earnings benefited from market appreciation, pricing actions, and expense management, although managed-asset net outflows remained $6.6 billion. Protection earnings declined primarily because of weaker Auto & Home results and higher claims expenses.
Liquidity, Capital, Debt, and Shareholder Returns
- Cash and cash equivalents were $2.632 billion at December 31, 2013, compared with $2.371 billion at year-end 2012.
- Ameriprise had an undrawn $500 million unsecured revolving credit facility, expandable to $750 million subject to approvals; $2 million of letters of credit were outstanding.
- Corporate long-term debt was $2.720 billion, up from $2.403 billion. Total corporate debt, including short-term borrowings, was $3.220 billion.
- The company issued $750 million of 4.00% senior notes due 2023 and redeemed $350 million of 5.65% notes due 2015, recording a $19 million pretax redemption loss.
- Operating cash flow was $1.364 billion. Investing activities used $802 million, while financing activities used $306 million.
- Ameriprise paid $411 million of common dividends and repurchased 17.8 million shares for approximately $1.5 billion during 2013. The remaining repurchase authorization was $649 million at year-end.
- Insurance subsidiaries maintained capital well above regulatory action levels. RiverSource Life reported statutory capital of approximately $2.7 billion versus $591 million of company-action-level RBC.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by higher asset-based fees, market appreciation, stronger wrap-account flows, increased distribution activity, and higher variable-annuity guarantee fees.
- Operating earnings improved despite approximately $136 million of pretax adverse spread-compression impact from interest-sensitive products.
- The market impact on variable-annuity guarantees improved to a $170 million pretax expense from a $265 million expense in 2012.
- The 2013 annual assumption review and model changes produced an approximately $66 million pretax benefit, compared with a $38 million pretax charge in 2012, primarily reflecting expected higher interest rates and changes in policyholder behavior assumptions.
- Asset Management managed assets increased 10% to $500.8 billion, but Columbia experienced $8.3 billion of net outflows. Threadneedle had $1.8 billion of net inflows.
- Variable-annuity account balances increased 11% to $75.5 billion, while fixed-annuity balances declined 4% to $13.3 billion because of low interest rates and net outflows.
- Protection operating earnings declined 8%, reflecting increased Auto & Home claims and loss-cost trends, partially offset by lower catastrophe losses.
- Other comprehensive income declined by $574 million, largely due to net unrealized securities losses as interest rates rose.
Guidance, Outlook, Risks, and Unusual Items
Management’s stated multi-year financial targets are average operating total net revenue growth of 6% to 8%, operating diluted EPS growth of 12% to 15%, and operating return on equity excluding AOCI of 15% to 18%. The company did not provide a specific annual 2014 earnings forecast in the filing.
- Management expects low interest rates to continue pressuring spreads, investment income, DAC and DSIC assumptions, and earnings in interest-sensitive businesses. Lower renewal crediting rates on certain fixed annuities were expected primarily during the first half of 2014.
- Variable-annuity guarantees expose the company to equity-market, interest-rate, volatility, policyholder-behavior, and hedge-counterparty risk. The gross notional amount of derivatives supporting GMWB and GMAB hedging was $144.5 billion.
- A hypothetical 10% equity-market decline was estimated to reduce pretax income by approximately $389 million after hedge effects. A hypothetical 100-basis-point rate increase was estimated to have a net positive pretax effect of approximately $49 million; actual results could differ materially.
- Reinsurance credit exposure to Genworth related to long-term-care policies was approximately $1.7 billion. Reinsurance does not relieve Ameriprise of its direct obligations to policyholders.
- The company had $52.5 billion of contractual commitments, including insurance and annuity obligations, debt, investment certificates, leases, purchase obligations, and interest on debt. Actual insurance and annuity payments may differ from estimates.
- Legal and regulatory inquiries remain elevated, including matters involving product sales, advisor supervision, insurance claims, client-information security, UK controls, and unclaimed-property practices. Several lawsuits were unresolved and loss ranges were not reasonably estimable.
- Key risks include market and interest-rate volatility, spread compression, investment underperformance, asset outflows, reserve and DAC assumption changes, insurance and reinsurance counterparty risk, regulatory changes, litigation, cybersecurity, operational failures, and restrictions on subsidiary dividends.
Most Important Facts an Investor Should Verify
- Reconcile GAAP earnings of $1.334 billion attributable to Ameriprise with operating earnings of $1.460 billion, including variable-annuity market impacts, unlocking, CIE consolidation, and other adjustments.
- Assess the sustainability of AUM growth, separating market appreciation from net client flows and evaluating continued Columbia outflows.
- Review sensitivity to low interest rates, fixed-annuity spread compression, renewal crediting rates, and reinvestment yields.
- Evaluate variable-annuity guarantee reserves, hedge effectiveness, nonperformance-spread assumptions, and counterparty collateral requirements.
- Review insurance reserve assumptions, long-term-care exposure, the $1.7 billion Genworth reinsurance receivable, and regulatory capital levels.
- Confirm corporate liquidity, debt maturities, subsidiary dividend capacity, and the effect of share repurchases on capital and per-share results.
- Review the status and potential exposure of pending litigation, regulatory inquiries, tax examinations, and cybersecurity or operational incidents.
The filing states that management and the independent auditor concluded internal control over financial reporting was effective as of December 31, 2013. The source text does not provide a clear standalone fourth-quarter cash-flow or quarterly balance-sheet statement beyond the quarterly income and EPS data disclosed in Note 27.