Business Context and Reporting Period
Ameriprise Financial, Inc. is a diversified financial services company providing financial advice, asset management, insurance, annuity, retirement, banking and related products. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Assets under management and administration were $1.206 trillion at September 30, 2021, up 21% from $998.6 billion a year earlier. The company reports four segments: Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other.
Financial Results and Key Metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total net revenues | $2.903 billion | $3.003 billion | $9.671 billion | $8.716 billion |
| Pretax income (loss) | $1.270 billion | $(184) million | $2.484 billion | $1.641 billion |
| Net income (loss) | $1.031 billion | $(140) million | $2.059 billion | $1.357 billion |
| Diluted EPS | $8.65 | $(1.14) | $17.03 | $10.73 |
| Adjusted operating earnings | $699 million | $184 million | $2.001 billion | $1.211 billion |
| Adjusted operating EPS | $5.86 | $1.47 | $16.55 | $9.57 |
GAAP net margin was approximately 35.5% in the third quarter and 21.3% for the first nine months. These margins were materially affected by investment gains, reinsurance-related items, market impacts on insurance guarantees and valuation assumption changes.
- Management and financial advice fees increased 25% year over year in both the quarter and nine-month period, reflecting higher equity markets, wrap-account growth and net inflows.
- Distribution fees increased 15% in the quarter and 10% year to date.
- Net investment income increased to $773 million in the quarter and $1.428 billion year to date, including significant realized investment gains.
- Distribution expenses rose 25% in both comparable periods, primarily due to higher advisor compensation and transaction activity.
- Effective tax rates were 18.8% in the quarter and 17.1% year to date.
Segment Performance
- Advice & Wealth Management: Third-quarter adjusted operating earnings increased 43% to $459 million; nine-month earnings increased 31% to $1.271 billion. The quarterly adjusted operating margin was 22.4%, compared with 19.2% in the prior-year quarter.
- Asset Management: Third-quarter adjusted operating earnings increased 44% to $285 million; nine-month earnings increased 54% to $766 million. Managed assets were $583.4 billion at quarter-end, up 17% year over year.
- Retirement & Protection Solutions: Third-quarter adjusted operating earnings were $187 million versus a $89 million loss in the prior-year quarter. Nine-month earnings increased 84% to $552 million.
- Corporate & Other: The adjusted operating loss narrowed to $81 million in the quarter and $179 million year to date, compared with $202 million and $309 million, respectively, in the prior-year periods.
Cash Flow, Balance Sheet, Debt and Liquidity
- Cash provided by operating activities was $1.774 billion for the first nine months, down from $5.639 billion in 2020, primarily due to lower changes in policyholder balances, higher realized gains and derivative collateral movements.
- Investing activities used $1.373 billion, compared with $2.421 billion used in the prior-year period. Financing activities provided $259 million, compared with $793 million in 2020.
- Cash and cash equivalents were $7.736 billion at September 30, 2021, versus $6.751 billion at December 31, 2020. Cash and cash equivalents including restricted amounts were $9.554 billion.
- Total assets were $170.726 billion and total equity was $5.707 billion at September 30, 2021.
- Debt consisted of $2.831 billion of long-term debt and $200 million of FHLB advances. The company had no borrowings under its $1.0 billion unsecured revolving credit facility, which expires in June 2026, and had $1.1 million of letters of credit outstanding.
- Management estimated parent-company liquidity of $3.7 billion, including cash, unencumbered liquid securities, an affiliate line of credit and a portion of the committed facility. The company stated that it remained in compliance with applicable covenants.
- The company paid $396 million in dividends and repurchased $1.467 billion of common stock during the first nine months. It repurchased 5.5 million shares under the program, with $932 million remaining authorized at September 30, 2021.
Material Changes, Unusual Items and Outlook
- RiverSource Life completed a transaction effective July 1, 2021 to reinsure approximately $7.0 billion of fixed deferred and immediate annuity policies. It transferred $7.8 billion of consideration and recognized an approximately $532 million net realized investment gain. The transaction generated a $521 million favorable pretax impact in adjusted-earnings reconciliation and included $1.2 billion of ceded premiums.
- The reinsurance transaction significantly reduced premiums, policy and contract charges and benefits and claims expenses, making reported revenue and expense comparisons less representative of underlying operations.
- Third-quarter unlocking of insurance and annuity valuation assumptions produced a $17 million favorable pretax impact, compared with a $454 million unfavorable impact in the prior-year quarter. The company also recorded a $3 million unfavorable long-term-care unlocking impact, versus $141 million of unfavorable unlocking and loss recognition in the prior year.
- The company continues to face earnings sensitivity to equity prices, interest rates, volatility, policyholder behavior, credit spreads, insurance reserves and hedge effectiveness. A hypothetical 10% equity decline was estimated to reduce pretax income by $182 million, while a hypothetical 100-basis-point parallel rate increase was estimated to increase pretax income by $87 million.
- Management’s longer-term financial targets are adjusted operating diluted EPS growth of 12% to 15% and adjusted operating return on equity excluding AOCI above 30%. The filing does not provide specific quarterly or full-year 2021 GAAP earnings guidance.
- The company completed the acquisition of BMO Financial Group’s European asset-management business on November 8, 2021, after the reporting date. Initial consideration was $829 million, plus an additional $138 million largely related to excess capital, and the acquisition was expected to add approximately $131 billion of EMEA assets under management.
- The company filed applications to convert Ameriprise Bank, FSB to a Utah-chartered industrial bank and to transition personal trust services to a limited-purpose national trust bank; approval outcomes remained pending at the filing date.
- Management identified COVID-19, market volatility, sustained low interest rates, counterparty and reinsurance risks, insurance reserve adequacy, regulatory and legal matters, cybersecurity and operational disruptions as significant risks.
Important Facts for Investors to Verify
- Separate the $532 million reinsurance-related investment gain and other market-sensitive items from recurring operating earnings.
- Review the sustainability of advice and asset-management fee growth, including the effect of market levels, net flows and advisor recruiting.
- Monitor variable-annuity guarantee liabilities, hedge effectiveness and sensitivity to equity markets, interest rates and volatility.
- Assess the effect of persistently low interest rates on portfolio yields, spread income, reserves and reinvestment returns.
- Verify parent-company liquidity, subsidiary dividend capacity, statutory capital and the remaining share-repurchase authorization.
- Review pending regulatory applications, the BMO acquisition integration and related purchase-price adjustments.
- Consider legal, regulatory, tax and reinsurance contingencies. The filing states that loss exposure from many proceedings cannot presently be estimated clearly.