Business Context and Reporting Period
Ameriprise Financial, Inc. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company provides financial planning and advice, asset management, retirement and protection products, insurance, banking, brokerage and related services through four reporting segments: Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other.
Assets under management and administration were $1.2 trillion at June 30, 2022, including $957.2 billion of assets under management and $212.9 billion of assets under administration.
Key Financial Metrics
| Metric | Three months ended June 30, 2022 | Year-over-year change | Six months ended June 30, 2022 | Year-over-year change |
|---|---|---|---|---|
| Total net revenues | $3.508 billion | 3% | $7.163 billion | 6% |
| Pretax income | $955 million | 32% | $1.878 billion | 55% |
| Net income | $756 million | 28% | $1.517 billion | 48% |
| Diluted EPS | $6.61 | 35% | $13.16 | 56% |
| Adjusted operating EPS | $5.81 | 10% | $11.80 | 10% |
| Operating cash flow | Not provided for the quarter | — | $1.818 billion | 95% |
GAAP net income margins were approximately 21.5% for the quarter and 21.2% for the first six months, compared with approximately 17.3% and 15.2%, respectively, in the prior-year periods. Pretax margins were approximately 27.2% for the quarter and 26.2% for the six months.
- Advice & Wealth Management adjusted operating earnings increased 16% to $492 million in the quarter and 15% to $932 million for the six months.
- Asset Management adjusted operating earnings decreased 12% to $222 million in the quarter but increased 5% to $507 million for the six months.
- Retirement & Protection Solutions adjusted operating earnings decreased 2% to $179 million in the quarter and increased 1% to $370 million for the six months.
- Corporate & Other reported adjusted operating losses of $53 million in the quarter and $129 million for the six months.
Cash Flow, Balance Sheet, Debt and Liquidity
- Cash and cash equivalents, excluding consolidated investment entities and other restricted cash, were $7.489 billion at June 30, 2022, compared with $7.127 billion at December 31, 2021.
- Cash and cash equivalents including restricted amounts were $9.382 billion, down from $9.569 billion at year-end 2021.
- Net cash provided by operating activities was $1.818 billion, while investing activities used $4.592 billion and financing activities provided $2.607 billion.
- Total assets were $158.497 billion and total equity was $4.304 billion, compared with $175.979 billion and $5.685 billion, respectively, at December 31, 2021. The reduction in assets and equity was substantially affected by market-related declines in separate account assets and accumulated other comprehensive income.
- Ameriprise had $3.024 billion of corporate debt and short-term borrowings at June 30, 2022, consisting of $2.824 billion of long-term debt and $200 million of FHLB advances.
- The company repaid $500 million of 3.0% senior notes in March 2022 and issued $500 million of 4.5% unsecured senior notes due in 2032 in May 2022.
- The company had no borrowings under its $1.0 billion unsecured revolving credit facility, other than $1 million of letters of credit, and remained in compliance with its covenants.
- Management estimated parent-company liquidity of approximately $1.9 billion at June 30, 2022, including cash, unencumbered liquid securities, an affiliate line of credit and a portion of the committed credit facility.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected the BMO Global Asset Management EMEA acquisition, continued wrap-account net inflows and higher performance fees. These benefits were partly offset by lower average equity markets, net outflows in asset management and unfavorable foreign exchange effects.
- Net income benefited materially from favorable market impacts on non-traditional long-duration products. The impact was a $305 million pretax benefit in the quarter and a $439 million benefit for the six months, compared with pretax expenses of $87 million and $483 million, respectively, in the prior-year periods.
- Mean reversion-related impacts were unfavorable, producing pretax expenses of $161 million for the quarter and $220 million for the six months, compared with prior-year benefits of $42 million and $98 million.
- General and administrative expense increased 8% for the quarter and 11% for the six months, primarily because of the acquired BMO business and integration expenses of $14 million in the quarter and $24 million year to date.
- Assets under management declined 2% year over year to $957.2 billion, while total AUM and AUA declined 3% to $1.1701 trillion. Market depreciation was the principal driver.
- Accumulated other comprehensive income declined to a $1.795 billion loss from $3 million of income at year-end 2021, primarily due to $1.629 billion of after-tax unrealized securities losses and $168 million of foreign-currency translation losses.
- The company recorded a $256 million net-of-tax out-of-period correction in OCI for the six months, including $140 million in the second quarter, related to a shadow unearned-revenue liability for universal life products. Management stated that the error was not material to current or prior financial statements.
- The company repurchased 3.2 million shares for $887 million during the six months and paid $275 million in dividends. It had $2.5 billion remaining under its share-repurchase authorization at June 30, 2022.
Guidance, Outlook, Commentary and Risks
Management reiterated long-term financial targets of 12% to 15% average annual adjusted operating earnings-per-diluted-share growth and adjusted operating return on equity excluding AOCI above 30%. The filing does not provide a specific quarterly or full-year 2022 earnings forecast.
- Management expects market performance, interest rates, inflation, foreign exchange, client behavior and geopolitical conditions to continue affecting asset-based fees, spread income, DAC and DSIC balances, guaranteed-benefit liabilities and hedge values.
- Ameriprise has discontinued new sales of substantially all variable annuities with living-benefit guarantees and had fully stopped issuing new contracts by June 30, 2022. It also discontinued new sales of certain universal life and fixed annuity products.
- A 10% equity-market decline was estimated to reduce pretax income by approximately $211 million, including hedge effects. A 100-basis-point parallel increase in interest rates was estimated to have a net pretax impact of approximately $7 million. Actual results may differ materially because of market volatility, hedging effectiveness and policyholder behavior.
- The company estimated that reducing its nonperformance credit spread adjustment to zero would reduce future net income by approximately $577 million after tax, based on June 30, 2022 conditions.
- The company expects to adopt the long-duration insurance accounting standard in the first quarter of 2023. As of June 30, 2022, it estimated a $200 million to $400 million reduction in total equity from the adoption under then-current market conditions, subject to change.
- Material risks include market and interest-rate volatility, credit and counterparty risk, reinsurance recoverability, insurance reserve adequacy, liquidity and regulatory capital requirements, legal and regulatory proceedings, cybersecurity and operational failures, acquisition integration, foreign exchange exposure and changes in accounting standards.
- The company stated that there were no material changes to the risk factors disclosed in its 2021 Form 10-K. It also reported that disclosure controls were effective at a reasonable level of assurance as of June 30, 2022.
Important Facts for Investors to Verify
- Reconcile GAAP EPS of $6.61 for the quarter and $13.16 year to date with adjusted operating EPS of $5.81 and $11.80, particularly the effect of market-impact and mean-reversion adjustments.
- Assess the sustainability of earnings given the significant favorable contribution from market impacts on variable annuity and other long-duration products.
- Monitor AUM, client flows and market sensitivity, including the 2022 decline in Advice & Wealth Management and Asset Management assets.
- Evaluate the effect of higher interest rates on bank deposits, brokerage cash, investment yields, policyholder crediting rates and guaranteed-benefit valuations.
- Review the estimated $200 million to $400 million equity reduction expected from adoption of the long-duration insurance accounting standard in the first quarter of 2023.
- Confirm liquidity, subsidiary dividend capacity, regulatory capital and the company’s ability to fund share repurchases and dividends during stressed markets.
- Track litigation, regulatory inquiries, reinsurance counterparty exposure and long-term-care insurance claims, including the company’s exposure to Genworth Life Insurance Company.