Ameriprise Financial, Inc. 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; filed February 25, 2016. The filing also provides fourth-quarter 2015 data. Ameriprise is a diversified financial-services holding company operating through Advice & Wealth Management, Asset Management, Annuities, Protection, and Corporate & Other segments.
Business Context
- Primary businesses include financial planning and brokerage, global asset management under Columbia Threadneedle Investments, RiverSource annuities and insurance, and Ameriprise Auto & Home insurance.
- Assets under management and administration were $776.7 billion, down 4% from $806.2 billion at December 31, 2014.
- The company had approximately 9,800 advisors and 13,000 employees at year-end.
- Ameriprise launched the Columbia Threadneedle Investments global brand on March 30, 2015; the filing states that legal entities, investment teams, strategies, funds, and client mandates were unchanged.
Key Financial Metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total net revenues | $12.170 billion | $12.268 billion | Down 1% |
| Income from continuing operations | $1.687 billion | $2.002 billion | Down 16% |
| Net income attributable to Ameriprise | $1.562 billion | $1.619 billion | Down 4% |
| Diluted EPS | $8.48 | $8.30 | Up 2% |
| Operating earnings | $1.716 billion | $1.662 billion | Up 3% |
| Operating earnings per diluted share | $9.32 | $8.52 | Up 9% |
| Operating ROE excluding AOCI | 24.3% | 23.0% | Up 130 bps |
| Net cash from operating activities | $2.572 billion | $2.399 billion | Up $173 million |
| Cash and cash equivalents | $2.357 billion | $2.638 billion | Down $281 million |
| Long-term debt | $2.707 billion | $3.062 billion | Down $355 million |
| Total assets | $145.342 billion | $148.810 billion | Down 2% |
Reported results were affected by market-related valuation changes, consolidated investment entities, variable-annuity guarantees, foreign exchange, insurance claims, and low interest rates. Total expenses increased 3% to $10.028 billion, while pretax income from continuing operations declined 16% to $2.142 billion. The effective tax rate including noncontrolling interests was 21.3%.
Segment Performance
| Segment operating earnings | 2015 | 2014 | Change |
|---|---|---|---|
| Advice & Wealth Management | $859 million | $792 million | Up 8% |
| Asset Management | $761 million | $788 million | Down 3% |
| Annuities | $650 million | $633 million | Up 3% |
| Protection | $183 million | $246 million | Down 26% |
| Corporate & Other | $(199) million | $(230) million | Loss narrowed |
- Advice & Wealth Management: Operating earnings benefited from wrap-account growth and expense management. Wrap-account assets ended at $180.5 billion, including $11.1 billion of net flows, partly offset by $5.3 billion of market depreciation and other effects.
- Asset Management: Managed assets declined 7% to $471.9 billion, with $15.8 billion of net outflows, retail-fund distributions, and foreign-currency effects. Operating earnings benefited from higher performance fees and expense control.
- Annuities: Earnings benefited from favorable valuation-assumption unlocking, but fixed-annuity balances declined 12% to $10.7 billion because of low interest rates, limited new sales, and higher lapses. Management expects the fixed-annuity book to run off gradually.
- Protection: Earnings declined primarily because of higher auto and home loss provisions, higher life-insurance and long-term-care claims, and higher DAC amortization. Auto and home policies in force increased 3%.
Material Changes Versus 2014
- Management and financial advice fees increased 2% to $5.950 billion, while distribution fees declined 2% and net investment income declined 3%.
- Benefits, claims, losses, and settlement expenses increased 14% to $2.261 billion. Auto and home provisions increased by $106 million, including a $57 million increase in claims reserves primarily for 2014 and prior accident years.
- The market impact on variable-annuity guaranteed benefits, net of hedges and related amortization, was a $214 million expense in 2015 versus a $94 million expense in 2014.
- Annual valuation-assumption unlocking provided a $48 million pretax benefit in 2015 versus a $43 million pretax charge in 2014.
- Operating earnings benefited from a lower level of non-operating items, but GAAP earnings remained pressured by market impacts, lower consolidated investment-entity income, insurance claims, and foreign exchange.
- The company repurchased 13.9 million shares for approximately $1.7 billion and paid $474 million of common-stock dividends. The remaining share-repurchase authorization was approximately $2.6 billion at year-end.
- In November 2015, the company repaid $350 million of senior notes using cash and extinguished $49 million of junior subordinated notes in open-market transactions.
Liquidity, Capital, Debt, and Commitments
- Ameriprise reported $2.357 billion of cash and cash equivalents and had an undrawn unsecured revolving credit facility of up to $500 million, expandable to $750 million subject to approvals.
- Short-term borrowings were $200 million, consisting of $150 million of Federal Home Loan Bank advances and $50 million of repurchase agreements.
- Parent-company long-term debt was $2.707 billion. Scheduled parent-company long-term debt maturities total $2.655 billion, including $313 million in 2019 and $761 million in 2020.
- Insurance subsidiaries maintained capital well above regulatory company-action levels. RiverSource Life had $3.800 billion of statutory capital versus a $589 million RBC company-action level; IDS Property Casualty had $684 million versus $121 million.
- Contractual obligations totaled $54.479 billion, including $42.103 billion of insurance and annuity obligations, $2.655 billion of long-term debt, and $4.835 billion of investment certificates.
- The parent company received $1.6 billion of dividends or returns of capital from subsidiaries and contributed $271 million to subsidiaries during 2015.
Guidance, Outlook, and Management Commentary
- Management’s multi-year financial targets are operating total-revenue growth of 6% to 8%, operating diluted EPS growth of 12% to 15%, and operating ROE excluding AOCI of 19% to 23%.
- Management expects continued pressure from the low-interest-rate environment, including spread compression, lower investment yields, higher hedging costs, and potential increases in reserves or DAC and DSIC amortization.
- Management expects asset-management outflows associated with former parent-affiliated relationships to continue for the foreseeable future; the timing, amount, and margin impact are uncertain.
- Management states that the fixed-annuity book is expected to gradually run off and related earnings will trend downward under current conditions.
- The Department of Labor’s proposed fiduciary rule was under review as of the filing date. The company could not predict the final rule or its impact on compensation, products, advisor retention, and qualified-account business.
- The company adopted new consolidation guidance on January 1, 2016, resulting in deconsolidation of several CLOs and all property funds, reducing reported assets by approximately $6.2 billion, liabilities by $4.9 billion, and equity by $1.3 billion.
Principal Risks, Contingencies, and Unusual Items
- Results are highly sensitive to equity markets, interest rates, credit spreads, foreign exchange, asset flows, investment performance, and client behavior.
- A hypothetical 10% equity-price decline was estimated to reduce pretax income by $417 million after hedging; a hypothetical 100-basis-point interest-rate increase was estimated to increase pretax income by $170 million. These are scenario estimates, not forecasts.
- Variable-annuity guarantees expose the company to market, policyholder-behavior, mortality, persistency, volatility, and hedge-effectiveness risks. GMWB reserves were $1.057 billion at year-end; GMWB contract value was $40.419 billion.
- Insurance reserves depend on assumptions regarding claims, morbidity, mortality, persistency, interest rates, and policyholder behavior. Long-term-care and auto-injury claims remain notable sources of uncertainty.
- The company had approximately $3.3 billion of energy-sector exposure; 6% of invested assets were below investment grade, and 18% of the investment portfolio was relatively illiquid.
- Legal and regulatory matters include ongoing inquiries and examinations involving product sales, advisor supervision, insurance and annuity claims, client-information security, trading activity, and UK controls. A UK lawsuit involving Threadneedle alleges approximately $120 million of damages; the company stated that any loss could not reasonably be estimated.
- The company recorded a fourth-quarter capital lease correction for its headquarters, including a $70 million net lease asset, a $60 million obligation, and a $10 million pretax income increase; prior-period impact was not material.
Investor Verification Checklist
- Reconcile GAAP net income and diluted EPS with operating earnings and operating EPS, particularly the $214 million variable-annuity guarantee market impact and the $48 million unlocking benefit.
- Assess whether asset-management net outflows, foreign exchange, and former parent-affiliated account runoff are stabilizing or worsening.
- Monitor fixed-annuity runoff, crediting-rate spreads, reinvestment yields, and the effect of sustained low rates on reserves and DAC.
- Review auto and home loss ratios, prior-year reserve development, catastrophe losses, long-term-care claims, and reinsurance recoverables, including the $1.9 billion LTC recoverable from Genworth.
- Evaluate capital and dividend capacity at regulated subsidiaries and the parent company’s dependence on subsidiary distributions.
- Review variable-annuity hedge effectiveness, guaranteed-benefit reserves, nonperformance-risk assumptions, and sensitivity to equity prices, interest rates, and volatility.
- Track pending regulatory proceedings, the Department of Labor fiduciary rule, cybersecurity exposures, and the Threadneedle litigation.
- Adjust comparisons for the January 1, 2016 deconsolidation of CLOs and property funds when analyzing future reported assets, liabilities, equity, and revenue.