AMP

Ameriprise Financial Inc. 10-Q Summary: Q3 2024

Business Context and Reporting Period

This report covers the quarterly period ended September 30, 2024. Ameriprise Financial is a diversified financial services firm providing financial planning, products, and services for cash management, asset accumulation, income, protection, and estate planning. The company operates through four segments: Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other. As of September 30, 2024, the company managed approximately $1.5 trillion in assets under management and administration.

Key Financial Metrics

Note: Q3 2023 Net Income was significantly impacted by a $20 million regulatory accrual in the prior year and favorable market impacts on non-traditional long-duration products.

Material Changes vs. Prior Period

• Revenue Growth: Total net revenues increased 12% in Q3 2024 compared to Q3 2023, driven by higher management and financial advice fees (+13%) and net investment income (+15%). This growth was supported by equity market appreciation and net inflows in wrap accounts.
• Profitability Decline: Pretax income decreased 42% to $645 million in Q3 2024 from $1.1 billion in Q3 2023. The primary driver was a $402 million expense from the market impact on non-traditional long-duration products (variable annuities and UL insurance), compared to a $211 million benefit in the prior year. This was largely due to changes in equity markets and interest rates affecting embedded derivatives and hedges.
• Expense Increases: Distribution expenses rose 19% due to higher transactional activity and market appreciation. Benefits, claims, and settlement expenses increased significantly ($310 million) primarily due to market impacts on structured variable annuity embedded derivatives.
• Assets Under Management (AUM): Total AUM increased 20% to $1.2 trillion, driven by a $124.5 billion increase in Advice & Wealth Management AUM and an $84.9 billion increase in Asset Management AUM, largely due to market appreciation.

Guidance, Outlook, and Risks

• Financial Targets: Management targets adjusted operating earnings per diluted share growth of 12% to 15% and an adjusted operating return on equity of over 30% on an on-average, over-time basis.
• Capital Return: The company repurchased 3.8 million shares for $1.6 billion in the first nine months of 2024. As of September 30, 2024, $1.5 billion remained under the share repurchase authorization. A quarterly dividend of $1.48 per share was declared for payment in November 2024.
• Market Risk: The company faces significant exposure to equity price and interest rate fluctuations. A hypothetical 10% decline in equity prices would result in a net negative impact to pretax income of approximately $549 million. A 100 basis point increase in interest rates would result in a net positive impact of approximately $605 million.
• Regulatory & Legal: In August 2024, the company settled a matter with the SEC regarding electronic communication recordkeeping, paying a $50 million civil penalty (accrued in 2023). The company is also subject to the Corporate Alternative Minimum Tax (CAMT) and is monitoring Pillar Two tax rules.
• Assumption Updates ("Unlocking"): Annual reviews of valuation assumptions resulted in a net pretax expense of $77 million in Q3 2024, primarily driven by lowered surrender assumptions on variable annuities with living benefits.

Key Facts for Investor Verification

• Market Impact Volatility: Verify the sensitivity of earnings to market movements, as the "market impact on non-traditional long-duration products" swung from a $211 million benefit in Q3 2023 to a $402 million expense in Q3 2024, significantly distorting GAAP pretax income trends.
• Adjusted Operating Earnings: Review the non-GAAP "Adjusted Operating Earnings" metric ($1.0 billion for Q3 2024), which excludes market impacts and realized gains/losses, to better assess core operational performance.
• Share Repurchase Capacity: Confirm the remaining $1.5 billion authorization and the company's commitment to returning capital via dividends and buybacks despite GAAP earnings volatility.
• Interest Rate Sensitivity: Assess the company's ability to manage spread income on fixed annuities and bank deposits as interest rates fluctuate, noting the positive sensitivity to rate increases in the current environment.
• Regulatory Settlements: Monitor for any additional regulatory inquiries or penalties, given the elevated regulatory environment and the recent SEC settlement.