Ameriprise Financial, Inc. 2009 Form 10-K Summary
Business context and reporting period
Ameriprise Financial is a diversified financial-services holding company serving mass-affluent and affluent clients through financial planning, investment management, brokerage, banking, annuity, life, disability, and property-casualty insurance businesses. Its operating segments are Advice & Wealth Management, Asset Management, Annuities, Protection, and Corporate & Other.
This filing reports the fiscal year ended December 31, 2009, with comparative results for 2008 and 2007. The filing was dated February 23, 2010. The business operated against the backdrop of the 2008–2009 financial crisis, although markets showed signs of recovery during 2009.
Key financial metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Net revenues | $7.805 billion | $6.916 billion | +13% |
| Pretax income (loss) | $920 million | $(425) million | +$1.345 billion |
| Net income | $737 million | $(92) million | +$829 million |
| Net income attributable to Ameriprise | $722 million | $(38) million | +$760 million |
| Diluted EPS | $2.95 | $(0.17) | Improved |
| Total expenses | $6.885 billion | $7.341 billion | -6% |
| Cash flow from operating activities | $(1.258) billion | $1.925 billion | Down $3.183 billion |
| Cash and cash equivalents | $3.097 billion | $6.228 billion | Down $3.131 billion |
| Total debt | $2.249 billion | $2.027 billion | +$222 million |
| Total assets | $113.774 billion | $95.577 billion | +19% |
Based on reported figures, the net margin attributable to Ameriprise was approximately 9.3% of net revenues, versus a loss margin in 2008. Pretax margin was approximately 11.8%. These calculated margins are not company-reported non-GAAP measures.
- Revenue composition included management and financial advice fees of $2.704 billion, distribution fees of $1.420 billion, net investment income of $2.002 billion, premiums of $1.098 billion, and other revenues of $722 million.
- Net investment income benefited from $53 million of net realized investment gains in 2009 versus $777 million of net realized investment losses in 2008. Credit-related other-than-temporary impairments declined to $93 million from $762 million.
- Owned, managed, and administered assets increased 23% to $457.8 billion from $372.1 billion. Managed assets rose 23% to $325.8 billion and administered assets rose 26% to $95.1 billion.
- Wrap account assets increased 30% to $94.9 billion, including $9.3 billion of net inflows and $12.8 billion of market appreciation.
- Segment pretax income attributable to Ameriprise was $648 million for Annuities, $496 million for Protection, $60 million for Asset Management, $(34) million for Advice & Wealth Management, and $(265) million for Corporate & Other.
Liquidity, capital, debt, and cash flow
Operating cash flow was negative $1.258 billion, primarily because net derivative collateral reduced operating cash by $1.914 billion. Investing activities used $6.433 billion, largely reflecting purchases of available-for-sale securities. Financing activities provided $4.545 billion, supported by policyholder and contractholder inflows, a $869 million common-stock issuance, and $491 million of net debt issuance.
Ameriprise had a $750 million unsecured revolving credit facility, expandable to $1.0 billion, expiring in September 2010. No borrowings were outstanding, and letters of credit totaled $2 million. The company stated that operating cash flows, cash balances, and revolver availability were expected to fund liquidity needs.
In 2009, Ameriprise issued $300 million of 7.30% senior notes due 2019 and $200 million of 7.75% senior notes due 2039. It repurchased or retired $460 million of 5.35% senior notes due 2010 and $135 million of junior notes. Debt maturities included $340 million due in 2010 and $1.528 billion due thereafter.
Insurance subsidiaries maintained capital above regulatory requirements. RiverSource Life had $3.5 billion of statutory capital versus $803 million of company-action-level RBC, or 430%. RiverSource Life of New York had 653% of company-action-level RBC; IDS Property Casualty had 305%; and Ameriprise Insurance Company had 2,300%.
Material changes versus the prior comparable period
- Results recovered sharply from the 2008 loss as investment markets stabilized, credit spreads tightened, investment impairments declined, and expenses were controlled.
- Net investment income increased $1.185 billion, while management and financial advice fees declined 7% and distribution fees declined 9% because of lower average equity-market levels and client activity.
- Amortization of deferred acquisition costs fell 77% to $217 million, compared with $933 million in 2008, reflecting market-related effects and updated valuation assumptions.
- Benefits, claims, losses, and settlement expenses increased 19% to $1.342 billion, driven mainly by variable-annuity living-benefit guarantees and higher Auto & Home volumes.
- The Annuities segment shifted from a $287 million pretax loss to $648 million of pretax income, while Protection pretax income increased 41% to $496 million.
- Advice & Wealth Management remained slightly loss-making at a $34 million pretax loss, although this improved from a $149 million loss in 2008.
- Accumulated other comprehensive income improved to $263 million from $(1.093) billion, primarily because of securities-market recovery.
- The company issued 36 million common shares for $869 million and suspended its stock-repurchase program. Approximately $1.3 billion remained under the repurchase authorization at year-end.
Guidance, outlook, commentary, risks, and unusual items
Management’s multi-year financial targets were net-revenue growth of 6% to 8%, diluted EPS growth of 12% to 15%, and return on equity of 12% to 15%. Management expected a challenging business climate to continue despite market stabilization.
Ameriprise announced the planned acquisition of Columbia Management Group’s long-term asset-management business for estimated consideration of $900 million to $1.2 billion, expected to close in spring 2010 and funded with cash on hand. The company incurred $7 million of pretax acquisition and integration costs in 2009 and expected an additional $130 million to $160 million through 2011.
- Third-quarter 2009 valuation-assumption reviews produced a $134 million pretax benefit, including a $119 million DAC amortization benefit. The company also recognized a $58 million gain from repurchasing junior notes.
- Variable-annuity guarantees remain a major market exposure. A hypothetical 10% equity-price decline was estimated to reduce pretax income by $287 million net of hedging; a 100-basis-point interest-rate increase was estimated to reduce pretax income by $75 million net of hedging.
- At year-end, variable-annuity contract values were $55.1 billion. Reserves were $204 million for GMWB, $100 million for GMAB, and $12 million for other variable-annuity guarantees.
- Key risks include equity-market and interest-rate volatility, credit losses, illiquid investments, derivative and reinsurance counterparty defaults, changes in policyholder behavior, inadequate reserves, regulatory reform, litigation, reputational damage, technology disruptions, and limitations on subsidiary dividends.
- Legal and regulatory matters included the Gallus excessive-mutual-fund-fee litigation, securities litigation and arbitrations involving Medical Capital and Provident Shale private placements sold by Securities America, and ongoing regulatory inquiries. The company could not estimate potential losses for these matters.
- The company periodically injected capital into certain RiverSource money-market funds during 2008 and 2009 but had not provided a formal capital-support agreement or net asset-value guarantee.
- Contractual commitments totaled $59.551 billion, including $47.922 billion of insurance and annuity obligations, $2.249 billion of debt, $1.121 billion of purchase obligations, and $1.826 billion of loan-funding commitments outside the contractual-obligation table.
Most important facts for an investor to verify
- Confirm the sustainability of the 2009 earnings recovery, particularly the contribution from investment gains, lower impairments, DAC assumption changes, and other unusual items.
- Review the full cash-flow statement and derivative-collateral movements to assess why operating cash flow was negative despite reported profitability.
- Evaluate liquidity after the planned $900 million to $1.2 billion Columbia acquisition and the September 2010 revolver expiration or renewal.
- Assess sensitivity to equity markets, interest rates, credit spreads, variable-annuity guarantees, and nonperformance-risk assumptions.
- Review investment portfolio credit quality, Level 3 valuations, unrealized losses, mortgage-backed securities exposure, and the 5% of invested assets rated below investment grade.
- Track legal, regulatory, and arbitration developments, especially the Gallus litigation and Securities America private-placement matters.
- Verify the ability of regulated subsidiaries to remit dividends, including the reported $810 million aggregate dividend capacity and the $264 million of subsidiary dividends received by the parent in 2009.
- Confirm the timing, consideration, integration costs, financing, and expected strategic benefits of the Columbia transaction.
- Review the independent auditor’s unqualified opinions and management’s conclusion that internal control over financial reporting was effective as of December 31, 2009.