Ameriprise Financial, Inc. — FY2019 Form 10-K Summary
Business context and reporting period
Ameriprise Financial is a diversified financial-services holding company operating through Advice & Wealth Management, Asset Management, Annuities, Protection, and Corporate & Other segments. The filing covers the fiscal year ended December 31, 2019; fourth-quarter 2019 data are included in the annual filing. The company reported $973.4 billion of assets under management and administration, approximately 10,000 advisors, and approximately 12,500 employees at year-end.
Financial performance and key metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total net revenues | $12.967 billion | $12.835 billion | +1% |
| Pretax income | $2.232 billion | $2.484 billion | -10% |
| Net income | $1.893 billion | $2.098 billion | -10% |
| Diluted EPS | $13.92 | $14.20 | -2% |
| Adjusted operating earnings | $2.190 billion | $2.161 billion | +1% |
| Adjusted operating EPS | $16.10 | $14.63 | +10% |
| Operating cash flow | $2.341 billion | $2.597 billion | -10% |
Reported pretax and net margins were approximately 17.2% and 14.6%, respectively, compared with approximately 19.3% and 16.3% in 2018. The effective tax rate was 15.2%, versus 15.5% in 2018. Total comprehensive income was $2.446 billion, including $553 million of other comprehensive income.
Assets under management increased 19% to $778.1 billion, while assets under administration increased 16% to $195.3 billion. Total AUM and AUA increased 18% from $822.7 billion. Advice & Wealth Management adjusted operating earnings rose 9% to $1.509 billion, with a 22.9% adjusted operating margin. Asset Management earnings declined 9% to $661 million, Annuities were essentially flat at $497 million, Protection increased 2% to $261 million, and the Corporate & Other loss increased to $320 million.
Year-end cash and cash equivalents excluding consolidated investment entities were $3.7 billion, compared with $2.9 billion in 2018. The company had no borrowings under its $750 million unsecured revolving credit facility, which expires in October 2022, and had $1 million of outstanding letters of credit. Total debt was $3.298 billion, consisting of $3.097 billion of long-term debt and $201 million of short-term borrowings. Total assets were $151.8 billion and shareholders’ equity was $5.7 billion.
Ameriprise paid $518 million of dividends and repurchased 13.4 million shares for $1.9 billion during 2019. The remaining share-repurchase authorization was approximately $1.1 billion at year-end. The quarterly dividend declared in January 2020 was $0.97 per share.
Material changes versus the prior comparable period
- Ameriprise sold its Auto & Home Insurance business on October 1, 2019, receiving gross proceeds of $1.1 billion and recognizing a $213 million gain, net of a $100 million affinity-partner payment. The business contributed $827 million of premiums before the sale in 2019, compared with $1.0 billion for the full year in 2018.
- The company converted Ameriprise National Trust Bank into Ameriprise Bank, FSB in May 2019, began expanding banking products, and reported $3.8 billion of cash-sweep balances at year-end.
- Ameriprise issued $500 million of 3.00% senior notes due 2022 and repaid $300 million of 7.3% senior notes at maturity.
- Approximately 20% of the fixed-annuity block was reinsured in the first quarter, generating approximately $200 million of excess capital and creating a $1.5 billion deposit receivable.
- Advice & Wealth Management wrap-account assets increased 26% to $317.5 billion, supported by $17.6 billion of net flows and $48.4 billion of market appreciation.
- Asset Management managed assets increased 15% to $494.2 billion primarily from market appreciation, but the segment recorded $7.1 billion of net outflows and adjusted operating earnings declined 9%.
- The market impact on variable-annuity guaranteed benefits was a $579 million expense in 2019, compared with a $31 million expense in 2018. This was a major reason reported pretax income declined despite higher adjusted operating earnings.
Guidance, outlook, commentary, risks and unusual items
Management’s stated multi-year financial targets are adjusted operating diluted EPS growth of 12% to 15% and adjusted operating return on equity excluding AOCI above 30%. FY2019 adjusted operating EPS growth was approximately 10%, and adjusted operating ROE excluding AOCI was 38.3%.
Management expects continued strategic emphasis on Advice & Wealth Management and Asset Management, a shift toward lower-capital, fee-based businesses, expansion of banking capabilities, and continued investment in advisor productivity and growth. Fixed-annuity earnings are expected to trend downward as the existing block runs off and low interest rates limit new sales.
- Results remain highly sensitive to equity markets, interest rates, credit spreads, foreign exchange rates, asset flows, investment performance, and client behavior.
- Variable-annuity guarantees create material market and actuarial exposure. At year-end, variable-annuity account value was approximately $80.1 billion, including $48.8 billion with GMWB benefits; the GMWB reserve was a net liability of $1.5 billion.
- Long-term-care reserves totaled $5.302 billion. The 2019 annual review produced $8 million of loss recognition; future morbidity, persistency, interest-rate, premium-rate-increase, and benefit-reduction assumptions remain important.
- Ameriprise relies on reinsurance, including approximately $2.5 billion of LTC reinsurance recoverables from Genworth. Reinsurer insolvency or nonperformance could increase losses.
- Low interest rates may compress spreads, increase hedging costs, reduce reinvestment yields, and increase reserves. A 100-basis-point rate increase was estimated to have a net pretax impact of $37 million, while a 10% equity-price decline was estimated to have a net pretax impact of negative $90 million.
- The company faces regulatory and compliance changes involving Regulation Best Interest, fiduciary standards, banking supervision, Brexit, MiFID II, privacy and cybersecurity, and the transition away from LIBOR after 2021.
- Legal, regulatory, arbitration, and class-action matters arise in the ordinary course. The filing states that the ultimate outcome and potential losses for certain matters cannot be predicted or reasonably estimated.
- Critical audit matters included valuation of long-term-care reserves, embedded derivatives in variable-annuity riders, and guarantees accounted for as insurance liabilities, reflecting substantial modeling and assumption risk.
Important facts for investors to verify
- Reconcile GAAP net income and EPS with adjusted operating earnings and EPS, especially the $579 million variable-annuity market impact and the $213 million Auto & Home disposal gain.
- Review the sustainability of Advice & Wealth Management net inflows and whether Asset Management net outflows reverse.
- Assess the sensitivity of earnings, capital, and liquidity to equity-market declines, interest-rate changes, volatility, policyholder behavior, and hedge effectiveness.
- Review long-term-care reserve adequacy, approved and expected premium increases, benefit reductions, and Genworth reinsurance recoverability.
- Monitor subsidiary dividend capacity and regulatory capital, including RiverSource Life’s 487% company-action-level RBC ratio and Ameriprise Bank’s capital requirements.
- Evaluate debt maturities, including $750 million of senior notes due in 2020, and the company’s ability to fund dividends and repurchases from subsidiary distributions.
- Track implementation costs and potential business effects from Regulation Best Interest, banking regulation, LIBOR replacement, Brexit-related requirements, and privacy or cybersecurity rules.