AMERIPRISE FINANCIAL INC quarterly report, Q3 FY2022

Ameriprise Financial, Inc. 2022 Q3 SEC Filing Summary

Business Context and Reporting Period

Ameriprise Financial is a diversified financial services company providing financial planning, advice, asset management, insurance, annuity, banking and related products. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.

Assets under management and administration were $1.1 trillion at September 30, 2022, down 9% from $1.2 trillion a year earlier, primarily because of equity and bond market depreciation and foreign currency translation. The company operates through Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other.

Financial Performance and Key Metrics

Metric	Q3 2022	Q3 2021	9M 2022	9M 2021
Total net revenues	$3.491 billion	$2.903 billion	$10.654 billion	$9.671 billion
Pretax income	$685 million	$1.270 billion	$2.563 billion	$2.484 billion
Net income	$548 million	$1.031 billion	$2.065 billion	$2.059 billion
Diluted EPS	$4.86	$8.65	$18.05	$17.03
Adjusted operating earnings	$591 million	$699 million	$1.951 billion	$2.001 billion
Adjusted operating EPS	$5.24	$5.86	$17.05	$16.55

Reported Q3 net income margin was approximately 15.7%, versus 35.5% in the prior-year quarter. The nine-month net income margin was approximately 19.4%, versus 21.3% in the prior-year period. Reported results were heavily affected by market-sensitive insurance and investment items.

Q3 management and financial advice fees declined 8% to $2.172 billion, while distribution fees increased 10% to $506 million.
Q3 net investment income declined 55% to $349 million, reflecting $87 million of net realized investment losses versus $546 million of gains in the prior-year quarter.
Nine-month net income was broadly stable year over year despite higher revenues, as benefits, claims and settlement expenses and DAC amortization increased materially.
Advice & Wealth Management Q3 adjusted operating earnings rose 30% to $595 million, with margin increasing to 27.8% from 22.4%.
Asset Management Q3 adjusted operating earnings declined 33% to $191 million; Retirement & Protection Solutions declined 83% to $31 million.
Operating cash flow for the nine months was $3.190 billion, compared with $1.774 billion in 2021.
Investing activities used $9.241 billion, while financing activities provided $6.213 billion. Cash and cash equivalents, including restricted amounts, ended at $9.615 billion.

Balance Sheet, Debt and Liquidity

Total assets were $153.354 billion at September 30, 2022, down from $175.979 billion at December 31, 2021, primarily reflecting lower separate-account assets.
Cash and cash equivalents excluding consolidated investment entities and other restricted cash were $7.8 billion, compared with $7.1 billion at year-end 2021.
Parent-company liquidity was estimated at $2.0 billion, including cash, unencumbered liquid securities, an affiliate line of credit and a portion of the committed revolving facility.
Long-term debt was $2.822 billion and short-term borrowings were $201 million. The company repaid $500 million of 3.0% notes at maturity and issued $500 million of 4.5% senior notes due 2032.
The company had no borrowings under its $1.0 billion unsecured revolving credit facility, which expires in June 2026, and was in compliance with its covenants.
The company paid $416 million of dividends during the first nine months and repurchased approximately 5.0 million shares for $1.4 billion. Approximately $2.1 billion remained under the repurchase authorization at September 30, 2022.

Material Changes Versus the Prior Comparable Period

Q3 reported pretax income fell 46% and net income fell 47%, largely because Q3 2021 included a $521 million pretax benefit from a block-transfer reinsurance transaction.
Q3 2022 included a $161 million unfavorable impact from actuarial and valuation “unlocking,” compared with a $17 million favorable impact in Q3 2021. The primary drivers included updated mortality, surrender, equity volatility and correlation assumptions for variable annuities.
Market impacts on non-traditional long-duration products were favorable by $132 million in Q3 2022, compared with an unfavorable $94 million in Q3 2021.
Nine-month adjusted operating earnings declined 2% to $1.951 billion, despite a 20% increase in adjusted operating EPS to $17.05 because of lower diluted share count.
Advice & Wealth Management benefited from higher short-term interest rates, bank deposits and wrap-account inflows. Q3 wrap-account net inflows were $6.4 billion, but market depreciation was $20.5 billion.
Asset Management was pressured by lower markets, net outflows and foreign exchange effects, partially offset by the BMO Global Asset Management EMEA acquisition.
Retirement & Protection Solutions was pressured by variable annuity market effects, unlocking and lower sales. The company stopped issuing new contracts with substantially all variable annuity living-benefit guarantees by June 30, 2022.
Accumulated other comprehensive loss increased to $2.794 billion from $3 million at year-end 2021, primarily because of $2.502 billion of after-tax unrealized securities losses and $295 million of foreign currency translation losses.

Guidance, Outlook, Commentary and Risks

Management’s stated multi-year financial targets are adjusted operating diluted EPS growth of 12% to 15% on average over time and adjusted operating return on equity excluding AOCI above 30%. The filing does not provide a specific quarterly or full-year earnings forecast.

Management expects higher short-term rates to support banking, brokerage cash and spread income, although faster increases in credited rates could compress spreads.
The company is shifting its insurance mix toward lower-risk offerings and away from variable annuities with living-benefit riders and certain universal-life products with secondary guarantees.
Long-duration insurance contract accounting adoption is planned for the first quarter of 2023. The estimated transition effect remains subject to change; the company estimated a $1.8 billion to $2.1 billion reduction in opening total equity as of the transition date, while the estimated effect as of September 30, 2022 had become a $400 million to $600 million increase because of subsequent market conditions.
Available-for-sale securities had $3.075 billion of gross unrealized losses at September 30, 2022, primarily attributed to higher interest rates and wider credit spreads. Management reported no specific broad credit concerns and did not expect to be required to sell these securities before recovery.
A hypothetical 10% equity-market decline was estimated to reduce pretax income by $154 million, net of hedges. A hypothetical 100-basis-point rate increase was estimated to reduce pretax income by $61 million; these scenarios are not forecasts.
Key risks include equity and interest-rate volatility, credit and counterparty deterioration, insurance reserve and guarantee assumptions, reinsurance recoverability, liquidity and capital requirements, foreign exchange movements, regulatory and legal proceedings, cyber and operational risks, acquisition integration, and changes in accounting or tax rules.
The company disclosed ongoing regulatory inquiries and legal proceedings in the ordinary course. It stated that losses cannot generally be predicted or estimated, and an adverse outcome could materially affect results, financial condition or liquidity.
Management concluded that disclosure controls were effective at a reasonable level of assurance as of September 30, 2022, and reported no material changes in internal control over financial reporting.

Most Important Facts for Investors to Verify

Reconcile reported GAAP earnings with adjusted operating earnings, particularly the effects of reinsurance, unlocking, mean reversion, market impacts and realized investment losses.
Monitor the size and performance of the variable annuity guarantee portfolio, hedge effectiveness and assumptions for mortality, surrenders, utilization and volatility.
Assess the impact of 2023 long-duration contract accounting adoption on equity, AOCI, earnings volatility, regulatory capital and dividend capacity.
Review the quality, duration and unrealized-loss profile of the fixed-income portfolio, including exposure to rising rates and credit spreads.
Track AUM and AUA flows, market sensitivity, foreign exchange effects and the integration and profitability of the BMO Global Asset Management EMEA acquisition.
Evaluate parent-company liquidity, subsidiary dividend capacity, debt maturities, collateralized borrowings and share repurchase funding.
Follow regulatory, tax and legal matters, including the IRS audit, state examinations, guaranty-fund assessments and the potential effects of the Inflation Reduction Act.