Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2009

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from              to            

 

Commission File No. 1-32525

 

AMERIPRISE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3180631

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1099 Ameriprise Financial Center, Minneapolis, Minnesota

 

55474

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (612) 671-3131

 

Former name, former address and former fiscal year, if changed since last report:  Not Applicable

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer  x

 

Accelerated Filer  o

 

 

 

Non-Accelerated Filer  o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at October 23, 2009

Common Stock (par value $.01 per share)

 

255,003,596 shares

 

 

 



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

FORM 10-Q

 

INDEX

 

Part I.

Financial Information:

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Consolidated Statements of Operations – Three months and nine months ended September 30, 2009 and 2008

3

 

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2009 and December 31, 2008

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Nine months ended September 30, 2009 and 2008

5

 

 

 

 

 

 

Consolidated Statements of Equity – Nine months ended September 30, 2009 and 2008

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

67

 

 

 

 

 

Item 4.

Controls and Procedures

67

 

 

 

 

Part II.

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

68

 

 

 

 

 

Item 1A.

Risk Factors

68

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

 

 

 

 

 

Item 6.

Exhibits

68

 

 

 

 

 

Signatures

69

 

 

 

 

Exhibit Index

E-1

 

2


 


Table of Contents

 

AMERIPRISE FINANCIAL, INC.

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

 689

 

$

 721

 

$

 1,849

 

$

 2,292

 

Distribution fees

 

367

 

376

 

1,029

 

1,231

 

Net investment income

 

542

 

62

 

1,477

 

856

 

Premiums

 

276

 

264

 

811

 

777

 

Other revenues

 

109

 

249

 

493

 

564

 

Total revenues

 

1,983

 

1,672

 

5,659

 

5,720

 

Banking and deposit interest expense

 

33

 

43

 

113

 

132

 

Total net revenues

 

1,950

 

1,629

 

5,546

 

5,588

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

466

 

461

 

1,274

 

1,499

 

Interest credited to fixed accounts

 

232

 

200

 

674

 

587

 

Benefits, claims, losses and settlement expenses

 

306

 

196

 

993

 

794

 

Amortization of deferred acquisition costs

 

(64

)

240

 

97

 

538

 

Interest and debt expense

 

45

 

27

 

99

 

81

 

General and administrative expense

 

625

 

681

 

1,820

 

1,843

 

Total expenses

 

1,610

 

1,805

 

4,957

 

5,342

 

Pretax income (loss)

 

340

 

(176

)

589

 

246

 

Income tax provision (benefit)

 

80

 

(92

)

126

 

(61

)

Net income (loss)

 

260

 

(84

)

463

 

307

 

Less: Net loss attributable to noncontrolling interests

 

 

(14

)

(22

)

(24

)

Net income (loss) attributable to Ameriprise Financial

 

$

 260

 

$

 (70

)

$

 485

 

$

 331

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to Ameriprise Financial  common shareholders

 

 

 

 

 

 

 

 

 

Basic

 

$

 1.00

 

$

 (0.32

)

$

 2.05

 

$

 1.48

 

Diluted

 

1.00

 

(0.32

)(1)

2.04

 

1.46

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

258.7

 

219.1

 

236.6

 

223.6

 

Diluted

 

260.7

 

221.7

 

238.0

 

226.4

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid per common share

 

$

 0.17

 

$

 0.17

 

$

 0.51

 

$

 0.47

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

 

Net investment income before impairment losses on securities

 

$

 561

 

 

 

$

 1,562

 

 

 

Total other-than-temporary impairment losses on securities

 

(18

)

 

 

(68

)

 

 

Portion of loss recognized in other comprehensive income

 

(1

)

 

 

(17

)

 

 

Net impairment losses recognized in net investment income

 

(19

)

 

 

(85

)

 

 

Net investment income

 

$

 542

 

 

 

$

 1,477

 

 

 

 


(1) Diluted shares used in this calculation represent basic shares due to the net loss. Using actual diluted shares would result in anti-dilution.

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

3,580

 

$

6,228

 

Investments

 

36,847

 

27,522

 

Separate account assets

 

55,576

 

44,746

 

Receivables

 

4,247

 

3,887

 

Deferred acquisition costs

 

4,323

 

4,383

 

Restricted and segregated cash

 

1,822

 

1,883

 

Other assets

 

4,806

 

6,928

 

Total assets

 

$

111,201

 

$

95,577

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Future policy benefits and claims

 

$

31,042

 

$

29,293

 

Separate account liabilities

 

55,576

 

44,746

 

Customer deposits

 

9,028

 

8,229

 

Debt

 

2,076

 

2,027

 

Accounts payable and accrued expenses

 

765

 

887

 

Other liabilities

 

3,320

 

3,928

 

Total liabilities

 

101,807

 

89,110

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Ameriprise Financial:

 

 

 

 

 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 295,679,166 and 256,432,623, respectively)

 

3

 

3

 

Additional paid-in capital

 

5,699

 

4,688

 

Retained earnings

 

5,091

 

4,592

 

Treasury shares, at cost (40,619,335 and 39,921,924 shares, respectively)

 

(2,021

)

(2,012

)

Accumulated other comprehensive income (loss), net

 

277

 

(1,093

)

Total Ameriprise Financial shareholders' equity

 

9,049

 

6,178

 

Noncontrolling interests

 

345

 

289

 

Total equity

 

9,394

 

6,467

 

Total liabilities and equity

 

$

111,201

 

$

95,577

 

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

463

 

$

307

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Capitalization of deferred acquisition and sales inducement costs

 

(560

)

(543

)

Amortization of deferred acquisition and sales inducement costs

 

95

 

599

 

Depreciation, amortization and accretion, net

 

101

 

214

 

Deferred income tax expense (benefit)

 

103

 

(187

)

Share-based compensation

 

138

 

114

 

Net realized investment gains

 

(132

)

(5

)

Other-than-temporary impairments recognized in net investment income and provision for loan losses

 

107

 

380

 

Changes in operating assets and liabilities:

 

 

 

 

 

Segregated cash

 

82

 

(663

)

Trading securities and equity method investments, net

 

253

 

115

 

Future policy benefits and claims, net

 

294

 

341

 

Receivables

 

(207

)

(588

)

Brokerage deposits

 

23

 

834

 

Accounts payable and accrued expenses

 

(128

)

(413

)

Liability for derivatives collateral held

 

(1,659

)

(102

)

Other, net

 

89

 

(214

)

Net cash (used in) provided by operating activities

 

(938

)

189

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Available-for-Sale securities:

 

 

 

 

 

Proceeds from sales

 

3,910

 

316

 

Maturities, sinking fund payments and calls

 

4,375

 

2,864

 

Purchases

 

(14,497

)

(2,393

)

Proceeds from sales and maturities of commercial mortgage loans

 

235

 

265

 

Funding of commercial mortgage loans

 

(83

)

(88

)

Proceeds from sales of other investments

 

47

 

40

 

Purchase of other investments

 

(14

)

(345

)

Purchase of land, buildings, equipment and software

 

(56

)

(100

)

Change in policy loans, net

 

9

 

(26

)

Change in restricted cash

 

16

 

151

 

Change in consumer banking loans and credit card receivables, net

 

(107

)

(60

)

Other, net

 

 

3

 

Net cash (used in) provided by investing activities

 

(6,165

)

627

 

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2009

 

2008

 

Cash Flows from Financing Activities

 

 

 

 

 

Investment certificates and banking time deposits:

 

 

 

 

 

Proceeds from additions

 

$

2,141

 

$

1,813

 

Maturities, withdrawals and cash surrenders

 

(2,515

)

(1,033

)

Change in other banking deposits

 

1,157

 

(87

)

Policyholder and contractholder account values:

 

 

 

 

 

Consideration received

 

4,386

 

1,569

 

Net transfers from separate accounts

 

174

 

 

Surrenders and other benefits

 

(1,587

)

(2,223

)

Deferred premium options, net

 

(38

)

(40

)

Proceeds from issuance of common stock, net of issuance costs

 

869

 

 

Proceeds from issuance of debt, net of issuance costs

 

553

 

73

 

Repayments of debt

 

(550

)

(6

)

Dividends paid to shareholders

 

(118

)

(105

)

Repurchase of common shares

 

(9

)

(636

)

Exercise of stock options

 

1

 

9

 

Excess tax benefits from share-based compensation

 

12

 

7

 

Noncontrolling interests investments in subsidiaries

 

7

 

108

 

Distributions to noncontrolling interests

 

(42

)

(33

)

Other, net

 

(2

)

(1

)

Net cash provided by (used in) financing activities

 

4,439

 

(585

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

16

 

(24

)

Net increase (decrease) in cash and cash equivalents

 

(2,648

)

207

 

Cash and cash equivalents at beginning of period

 

6,228

 

3,836

 

Cash and cash equivalents at end of period

 

$

3,580

 

$

4,043

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Interest paid on debt

 

$

84

 

$

61

 

Income taxes paid, net

 

13

 

165

 

 

See Notes to Consolidated Financial Statements.

 

6



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

 

Nine Months Ended September 30, 2009 and 2008

(in millions, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Number of

 

 

 

Additional

 

 

 

 

 

Comprehensive

 

Non-

 

 

 

 

 

Outstanding

 

Common

 

Paid-In

 

Retained

 

Treasury

 

Income

 

controlling

 

 

 

 

 

Shares

 

Shares

 

Capital

 

Earnings

 

Shares

 

(Loss)

 

Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2008

 

227,747,843

 

$

3

 

$

4,630

 

$

4,811

 

$

(1,467

)

$

(167

)

$

378

 

$

8,188

 

Change in accounting principle, net

 

 

 

 

(30

)

 

 

 

(30

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

331

 

 

 

(24

)

307

 

Other comprehensive loss, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities losses

 

 

 

 

 

 

(778

)

 

(778

)

Change in net unrealized derivatives losses

 

 

 

 

 

 

(2

)

 

(2

)

Foreign currency translation adjustment

 

 

 

 

 

 

(26

)

(37

)

(63

)

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(536

)

Dividends paid to shareholders

 

 

 

 

(105

)

 

 

 

(105

)

Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

108

 

108

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

(33

)

(33

)

Repurchase of common shares

 

(13,293,913

)

 

 

 

(636

)

 

 

(636

)

Share-based compensation plans

 

2,189,349

 

 

74

 

(3

)

82

 

 

 

153

 

Balances at September 30, 2008

 

216,643,279

 

$

3

 

$

4,704

 

$

5,004

 

$

(2,021

)

$

(973

)

$

392

 

$

7,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2009

 

216,510,699

 

$

3

 

$

4,688

 

$

4,592

 

$

(2,012

)

$

(1,093

)

$

289

 

$

6,467

 

Change in accounting principle, net

 

 

 

 

132

 

 

(132

)

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

485

 

 

 

(22

)

463

 

Other comprehensive income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities losses

 

 

 

 

 

 

1,411

 

 

1,411

 

Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities

 

 

 

 

 

 

41

 

 

41

 

Change in net unrealized derivative losses

 

 

 

 

 

 

(1

)

 

(1

)

Foreign currency translation adjustment

 

 

 

 

 

 

51

 

24

 

75

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,989

 

Issuance of common stock

 

36,000,000

 

 

869

 

 

 

 

 

869

 

Dividends paid to shareholders

 

 

 

 

(118

)

 

 

 

(118

)

Noncontrolling interests investments in subsidiaries

 

 

 

 

 

 

 

96

 

96

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

(42

)

(42

)

Repurchase of common shares

 

(697,411

)

 

 

 

(9

)

 

 

(9

)

Share-based compensation plans

 

3,246,543

 

 

142

 

 

 

 

 

142

 

Balances at September 30, 2009

 

255,059,831

 

$

3

 

$

5,699

 

$

5,091

 

$

(2,021

)

$

277

 

$

345

 

$

9,394

 

 

See Notes to Consolidated Financial Statements.

 

7



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.  Basis of Presentation

 

Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning and products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The Company’s foreign operations in the United Kingdom are conducted through its subsidiary, Threadneedle Asset Management Holdings Sàrl (“Threadneedle”).

 

The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest, variable interest entities (“VIEs”) in which it is the primary beneficiary and certain limited partnerships for which it is the general partner (collectively, the “Company”). Noncontrolling interests are the ownership interests in subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc. and are classified as equity within the Consolidated Balance Sheets. The Company excluding noncontrolling interests (“Ameriprise Financial”) includes ownership interests in subsidiaries that are attributable, directly or indirectly, to Ameriprise Financial, Inc. All material intercompany transactions and balances between or among Ameriprise Financial, Inc. and its subsidiaries and affiliates have been eliminated in consolidation.

 

The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. All adjustments made were of a normal recurring nature.

 

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain reclassifications of prior period amounts have been made to conform to the current presentation. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission (“SEC”) on March 2, 2009.

 

The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through November 2, 2009, the date the financial statements were issued.

 

2.  Recent Accounting Pronouncements

 

Adoption of New Accounting Standards

 

The Hierarchy of GAAP

 

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards CodificationTM (“Codification”) as the single source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity with GAAP. The Codification supersedes existing nongrandfathered, non-SEC accounting and reporting standards. The Codification did not change GAAP but rather organized it into a hierarchy where all guidance within the Codification carries an equal level of authority. The Codification became effective on July 1, 2009. The Codification did not have a material effect on the Company’s consolidated results of operations and financial condition.

 

Subsequent Events

 

In May 2009, the FASB updated the accounting standards on the recognition and disclosure of subsequent events. The standard also requires the disclosure of the date through which subsequent events were evaluated. The standard is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted the standard in the second quarter of 2009. The adoption did not have a material effect on the Company’s consolidated results of operations and financial condition.

 

Fair Value

 

In April 2009, the FASB updated the accounting standards to provide guidance on estimating the fair value of a financial asset or liability when the trade volume and level of activity for the asset or liability have significantly decreased relative to historical levels. The standard requires entities to disclose the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, debt and equity securities as defined by GAAP shall be disclosed by major category. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and is to be applied prospectively. The Company early adopted the standard in the first quarter of 2009. The adoption did not have a material effect on the Company’s consolidated results of operations and financial condition.

 

8



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

In April 2009, the FASB updated the accounting standards to require interim disclosures about the fair value of in-scope financial instruments that are not reported at fair value. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company applied the disclosure requirements of the standard in the first quarter of 2009. See Note 9 for the required disclosures.

 

In September 2006, the FASB updated the accounting standards to define fair value, establish a framework for measuring fair value and expand disclosures about fair value measurements. The new standard applies under other accounting standards that require or permit fair value measurements. Accordingly, the standard does not require any new fair value measurements. The provisions of the standard are required to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for certain financial instruments as defined in the standard that require retrospective application. Any retrospective application will be recognized as a cumulative effect adjustment to the opening balance of retained earnings for the fiscal year of adoption. The Company adopted the standard effective January 1, 2008 and recorded a cumulative effect reduction to the opening balance of retained earnings of $30 million, net of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) amortization and income taxes. This reduction to retained earnings was related to adjusting the fair value of certain derivatives the Company uses to hedge its exposure to market risk related to certain variable annuity riders. Prior to January 1, 2009, the Company recorded these derivatives in accordance with accounting guidance for derivative contracts held for trading purposes and contracts involved in energy trading and risk management activities. The new standard nullifies the previous guidance and requires these derivatives to be marked to the price the Company would receive to sell the derivatives to a market participant (an exit price). The adoption of the standard also resulted in adjustments to the fair value of the Company’s embedded derivative liabilities associated with certain variable annuity riders. Since there is no market for these liabilities, the Company considered the assumptions participants in a hypothetical market would make to determine an exit price. As a result, the Company adjusted the valuation of these liabilities by updating certain policyholder assumptions, adding explicit margins to provide for profit, risk, and expenses, and adjusting the rate used to discount expected cash flows to reflect a current market estimate of the Company’s risk of nonperformance specific to these liabilities. These adjustments resulted in an adoption impact of a $4 million increase in earnings, net of DAC and DSIC amortization and income taxes, at January 1, 2008. The nonperformance risk component of the adjustment is specific to the risk of RiverSource Life Insurance Company (“RiverSource Life”) and RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”) (collectively, “RiverSource Life companies”) not fulfilling these liabilities. As the Company’s estimate of this credit spread widens or tightens, the liability will decrease or increase.

 

Recognition and Presentation of Other-Than-Temporary Impairment

 

In April 2009, the FASB updated the accounting standards for the recognition and presentation of other-than-temporary impairments. The standard amends existing guidance on other-than-temporary impairments for debt securities and requires that the credit portion of other-than-temporary impairments be recorded in earnings and the noncredit portion of losses be recorded in other comprehensive income. The standard requires separate presentation of both the credit and noncredit portions of other-than-temporary impairments on the financial statements and additional disclosures. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. At the date of adoption, the portion of previously recognized other-than-temporary impairments that represent the noncredit related loss component shall be recognized as a cumulative effect of adoption with an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income (loss). The Company adopted the standard in the first quarter of 2009 and recorded a cumulative effect increase to the opening balance of retained earnings of $132 million, net of DAC and DSIC amortization, certain benefit reserves and income taxes, and a corresponding increase to accumulated other comprehensive loss, net of impacts to DAC and DSIC amortization, certain benefit reserves and income taxes. See Note 3 for the Company’s updated accounting policy and disclosures required by this standard.

 

Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities

 

In June 2008, the FASB updated the accounting standards for determining whether instruments granted in share-based payment transactions are participating securities. The standard clarifies that unvested share-based payment awards with nonforfeitable rights to dividends or dividend equivalents are considered participating securities and should be included in the calculation of earnings per share pursuant to the two-class method. The standard is effective for financial statements issued for periods beginning after December 15, 2008, with early adoption prohibited. The standard requires that all prior-period earnings per share data be adjusted retrospectively to conform with the provisions of the new standard. The Company adopted the new standard as of January 1, 2009. The adoption did not have a material effect on the Company’s earnings per share.

 

9



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Disclosures about Derivative Instrument and Hedging Activities

 

In March 2008, the FASB updated the accounting standards for disclosures about derivative instruments and hedging activities. The standard intends to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures about their impact on an entity’s financial position, financial performance, and cash flows. The standard requires disclosures regarding the objectives for using derivative instruments, the fair value of derivative instruments and their related gains and losses, and the accounting for derivatives and related hedged items. The standard is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. The Company applied the new disclosure requirements in the first quarter of 2009. See Note 10 for the required disclosures.

 

Noncontrolling Interests in Consolidated Financial Statements

 

In December 2007, the FASB updated the accounting standards for noncontrolling interests in consolidated financial statements to establish the accounting and reporting for ownership interest in subsidiaries not attributable, directly or indirectly, to a parent. The standard requires noncontrolling (minority) interests to be classified as equity (instead of as a liability) within the consolidated balance sheet, and net income (loss) attributable to both the parent and the noncontrolling interests to be disclosed on the face of the consolidated statement of operations. The standard is effective for fiscal years beginning after December 15, 2008, and interim periods within those years with early adoption prohibited. The provisions of the standard are to be applied prospectively, except for the presentation and disclosure requirements which are to be applied retrospectively to all periods presented. The Company adopted the new standard as of January 1, 2009. The adoption did not have a material effect on the Company’s consolidated results of operations and financial condition.

 

Future Adoption of New Accounting Standards

 

Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)

 

In September 2009, the FASB updated the accounting standards to allow for net asset value (“NAV”) to be used as a practical expedient in estimating the fair value of alternative investments without readily determinable fair values. The standard also requires additional disclosure by major category of investment related to restrictions on the investor’s ability to redeem the investment as of the measurement date, unfunded commitments and the investment strategies of the investees. The disclosures are required for all investments within the scope of the standard regardless of whether the fair value of the investment is measured using the NAV or another method.  The standard is effective for interim and annual periods ending after December 15, 2009, with early adoption permitted. The Company does not expect the adoption to have a material effect on its consolidated results of operations and financial condition.

 

Measuring Liabilities at Fair Value

 

In August 2009, the FASB updated the accounting standards to provide additional guidance on estimating the fair value of a liability in a hypothetical transaction where the liability is transferred to a market participant. The standard is effective for the first reporting period, including interim periods, beginning after issuance. The Company does not expect the adoption to have a material effect on the Company’s consolidated results of operations and financial condition.

 

Consolidation of Variable Interest Entities

 

In June 2009, the FASB updated the accounting standards related to the consolidation of variable interest entities. The standard amends current consolidation guidance and requires additional disclosures about an enterprise’s involvement in VIEs. The standard is effective for interim and annual reporting periods beginning after November 15, 2009, with early adoption prohibited. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

 

Accounting for Transfers of Financial Assets

 

In June 2009, the FASB updated the accounting standards related to accounting for transfers of financial assets. The standard improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The standard is effective for interim and annual reporting periods beginning after November 15, 2009, with early adoption prohibited, and must be applied to transfers of financial assets occurring on or after the effective date. The adoption of the standard is not expected to have a material effect on the Company’s consolidated results of operations and financial condition.

 

10



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Employer’s Disclosures about Postretirement Benefit Plan Assets

 

In December 2008, the FASB updated the accounting standards to require enhanced disclosure related to postretirement benefit plan assets, including information about inputs and techniques used to determine the fair value of plan assets. The standard is effective for the first fiscal year ending after December 15, 2009, with early adoption permitted. The Company will apply the disclosure requirements of this standard as of December 31, 2009.

 

3.  Investments

 

The following is a summary of investments:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(in millions)

 

Available-for-Sale securities, at fair value

 

$

32,625

 

$

22,873

 

Commercial mortgage loans, net

 

2,706

 

2,887

 

Trading securities

 

313

 

501

 

Policy loans

 

719

 

729

 

Other investments

 

484

 

532

 

Total

 

$

36,847

 

$

27,522

 

 

Available-for-Sale Securities

 

Effective January 1, 2009, the Company early adopted an accounting standard that significantly changed the Company’s accounting policy regarding the timing and amount of other-than temporary impairments for Available-for-Sale securities as follows. When the fair value of an investment is less than its amortized cost, the Company assesses whether or not: (i) it has the intent to sell the security (made a decision to sell) or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If either of these conditions are met, the Company must recognize an other-than-temporary impairment for the difference between the investment’s amortized cost basis and its fair value through earnings. For securities that do not meet the above criteria, and the Company does not expect to recover a security’s amortized cost basis, the security is considered other-than temporarily impaired. For these securities, the Company separates the total impairment into the credit loss component and the amount of the loss related to other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of impacts to DAC, DSIC, certain benefit reserves and income taxes. For Available-for-Sale securities that have recognized an other-than-temporary impairment through earnings, if through subsequent evaluation there is a significant increase in the cash flow expected, the difference between the amortized cost basis and the cash flows expected to be collected is accreted as interest income. Subsequent increases and decreases in the fair value of Available-for-Sale securities are included in other comprehensive income. The Company’s Consolidated Statements of Equity present all changes in other comprehensive income associated with Available-for-Sale debt securities that have been other-than-temporarily impaired on a separate line from fair value changes recorded in other comprehensive income from all other securities.

 

The Company provides a supplemental disclosure on the face of its Consolidated Statements of Operations that presents: (i) total other-than-temporary impairment losses recognized during the period and (ii) the portion of other-than-temporary impairment losses recognized in other comprehensive income. The sum of these amounts represents the credit-related portion of other-than-temporary impairments that were recognized in earnings during the period. The portion of other-than-temporary losses recognized in other comprehensive income includes: (i) the portion of other-than-temporary impairment losses related to factors other than credit recognized during the period and (ii) reclassifications of other-than-temporary impairment losses previously determined to be related to factors other than credit that are determined to be credit-related in the current period. The amount presented on the Consolidated Statements of Operations as the portion of other-than-temporary losses recognized in other comprehensive income excludes subsequent increases and decreases in the fair value of these securities.

 

For all securities that are considered temporarily impaired, the Company does not intend to sell these securities (has not made a decision to sell) and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. The Company believes that it will collect all principal and interest due on all investments that have amortized cost in excess of fair value that are considered only temporarily impaired.

 

Corporate debt securities

 

Factors the Company considers in determining whether declines in the fair value of fixed maturity securities are other-than-temporary include: (i) the extent to which the market value is below amortized cost; (ii) the duration of time in which there has been a significant decline in value; (iii) fundamental analysis of the liquidity, business prospects and overall financial

 

11



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

condition of the issuer; and (iv) market events that could impact credit ratings, economic and business climate, litigation and government actions, and similar external business factors. In order to determine the amount of the credit loss component for corporate debt securities considered other-than-temporarily impaired, a best estimate of the present value of cash flows expected to be collected discounted at the security’s effective interest rate is compared to the amortized cost basis of the security. The significant inputs to cash flow projections consider potential debt restructuring terms, projected cash flows available to pay creditors and the Company’s position in the debtor’s overall capital structure.

 

Structured investments

 

For structured investments (e.g., residential mortgage backed securities, commercial mortgage backed securities, asset backed securities and other structured investments), the Company also considers factors such as overall deal structure and its position within the structure, quality of underlying collateral, delinquencies and defaults, loss severities, recoveries, prepayments and cumulative loss projections in assessing potential other-than-temporary impairments of these investments. Based upon these factors, securities that have indicators of potential other-than-temporary impairment are subject to detailed review by management. Securities for which declines are considered temporary continue to be carefully monitored by management. For the nine months ended September 30, 2009, certain non-agency mortgage backed securities were deemed other-than temporarily impaired. Generally, the credit loss component for the non-agency mortgage backed securities is determined as the amount the amortized cost basis exceeds the present value of the projected cash flows expected to be collected. Significant inputs considered in these projections are consistent with the factors considered in assessing potential other-than-temporary impairment for these investments. Forward interest rates are considered in the cash flow projections and are used to calculate the discount rate used to determine the present value of the expected cash flows when structures are supported by variable rate securities. Current effective interest rates are used to discount cash flows supported by fixed rate securities.

 

Available-for-Sale securities distributed by type were as follows:

 

 

 

September 30, 2009

 

Description of Securities

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

 

(in millions)

 

Corporate debt securities

 

$

15,662

 

$

962

 

$

(137

)

$

16,487

 

Residential mortgage backed securities

 

8,311

 

236

 

(498

)

8,049

 

Commercial mortgage backed securities

 

4,188

 

208

 

(23

)

4,373

 

Asset backed securities

 

1,837

 

79

 

(70

)

1,846

 

State and municipal obligations

 

1,332

 

46

 

(56

)

1,322

 

U.S. government and agencies obligations

 

303

 

9

 

 

312

 

Foreign government bonds and obligations

 

93

 

16

 

 

109

 

Common and preferred stocks

 

53

 

7

 

(12

)

48

 

Other structured investments

 

23

 

32

 

 

55

 

Other debt obligations

 

24

 

 

 

24

 

Total

 

$

31,826

 

$

1,595

 

$

(796

)

$

32,625

 

 

 

 

December 31, 2008

 

Description of Securities

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

 

(in millions)

 

Corporate debt securities

 

$

13,687

 

$

86

 

$

(1,174

)

$

12,599

 

Residential mortgage backed securities

 

5,616

 

71

 

(452

)

5,235

 

Commercial mortgage backed securities

 

2,880

 

36

 

(183

)

2,733

 

Asset backed securities

 

1,055

 

4

 

(101

)

958

 

State and municipal obligations

 

1,024

 

4

 

(155

)

873

 

U.S. government and agencies obligations

 

257

 

14

 

 

271

 

Foreign government bonds and obligations

 

95

 

17

 

(5

)

107

 

Common and preferred stocks

 

53

 

6

 

(22

)

37

 

Other structured investments

 

31

 

19

 

 

50

 

Other debt obligations

 

10

 

 

 

10

 

Total

 

$

24,708

 

$

257

 

$

(2,092

)

$

22,873

 

 

12



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

At September 30, 2009 and December 31, 2008, fixed maturity securities comprised approximately 88% and 83%, respectively, of the Company’s total investments. These securities were rated by Moody’s Investors Service (“Moody’s”), Standard & Poor’s Rating Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”), except for approximately $1.2 billion of securities at both September 30, 2009 and December 31, 2008, which were rated by the Company’s internal analysts using criteria similar to Moody’s, S&P and Fitch. Ratings on fixed maturity securities are presented using the median of ratings from Moody’s, S&P and Fitch. If only two of the ratings are available, the lower rating is used. A summary of fixed maturity securities by rating was as follows:

 

 

 

September 30, 2009

 

December 31, 2008

 

Ratings

 

Amortized
Cost

 

Fair Value

 

Percent of Total
Fair Value

 

Amortized
Cost

 

Fair Value

 

Percent of Total
Fair Value

 

 

 

(in millions, except percentages)

 

AAA

 

$

12,892

 

$

13,356

 

41

%

$

9,475

 

$

8,988

 

40

%

AA

 

1,401

 

1,394

 

4

 

1,698

 

1,571

 

7

 

A

 

4,930

 

5,085

 

16

 

4,689

 

4,396

 

19

 

BBB

 

10,152

 

10,755

 

33

 

7,299

 

6,707

 

29

 

Below investment grade

 

2,398

 

1,987

 

6

 

1,494

 

1,174

 

5

 

Total fixed maturities

 

$

31,773

 

$

32,577

 

100

%

$

24,655

 

$

22,836

 

100

%

 

At September 30, 2009 and December 31, 2008, approximately 28% and 45%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of Ameriprise Financial shareholders’ equity.

 

The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:

 

 

 

September 30, 2009

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

Description of Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

 

 

(in millions)

 

Corporate debt securities

 

$

351

 

$

(5

)

$

2,157

 

$

(132

)

$

2,508

 

$

(137

)

Residential mortgage backed securities

 

914

 

(33

)

958

 

(465

)

1,872

 

(498

)

Commercial mortgage backed securities

 

102

 

(1

)

514

 

(22

)

616

 

(23

)

Asset backed securities

 

126

 

(5

)

230

 

(65

)

356

 

(70

)

State and municipal obligations

 

1

 

 

397

 

(56

)

398

 

(56

)

Foreign government bonds and obligations

 

 

 

4

 

 

4

 

 

Common and preferred stocks

 

 

 

38

 

(12

)

38

 

(12

)

Total

 

$

1,494

 

$

(44

)

$

4,298

 

$

(752

)

$

5,792

 

$

(796

)

 

 

 

December 31, 2008

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

Description of Securities

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

Fair Value

 

Unrealized
Losses

 

 

 

(in millions)

 

Corporate debt securities

 

$

6,250

 

$

(396

)

$

3,544

 

$

(778

)

$

9,794

 

$

(1,174

)

Residential mortgage backed securities

 

765

 

(164

)

786

 

(288

)

1,551

 

(452

)

Commercial mortgage backed securities

 

473

 

(27

)

997

 

(156

)

1,470

 

(183

)

Asset backed securities

 

373

 

(52

)

231

 

(49

)

604

 

(101

)

State and municipal obligations

 

438

 

(64

)

295

 

(91

)

733

 

(155

)

U.S. government and agencies obligations

 

 

 

11

 

 

11

 

 

Foreign government bonds and obligations

 

20

 

(5

)

 

 

20

 

(5

)

Common and preferred stocks

 

 

 

27

 

(22

)

27

 

(22

)

Total

 

$

8,319

 

$

(708

)

$

5,891

 

$

(1,384

)

$

14,210

 

$

(2,092

)

 

13



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The following tables summarize gross unrealized losses by ratio of fair value to amortized cost:

 

 

 

September 30, 2009

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

Ratio of Fair Value

 

Number of

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

to Amortized Cost

 

Securities

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

 

 

(in millions, except number of securities)

 

95% - 100%

 

94

 

$

1,335

 

$

(13

)

228

 

$

2,174

 

$

(48

)

322

 

$

3,509

 

$

(61

)

90% - 95%

 

10

 

100

 

(7

)

72

 

574

 

(47

)

82

 

674

 

(54

)

80% - 90%

 

5

 

24

 

(4

)

68

 

576

 

(87

)

73

 

600

 

(91

)

Less than 80%

 

6

 

35

 

(20

)

145

 

974

 

(570

)

151

 

1,009

 

(590

)

Total

 

115

 

$

1,494

 

$

(44

)

513

 

$

4,298

 

$

(752

)

628

 

$

5,792

 

$

(796

)

 

 

 

December 31, 2008

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

Ratio of Fair Value

 

Number of

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

to Amortized Cost

 

Securities

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

 

 

(in millions, except number of securities)

 

95% - 100%

 

328

 

$

4,717

 

$

(100

)

105

 

$

1,392

 

$

(30

)

433

 

$

6,109

 

$

(130

)

90% - 95%

 

169

 

1,980

 

(152

)

64

 

1,117

 

(96

)

233

 

3,097

 

(248

)

80% - 90%

 

162

 

974

 

(156

)

124

 

1,624

 

(297

)

286

 

2,598

 

(453

)

Less than 80%

 

108

 

648

 

(300

)

281

 

1,758

 

(961

)

389

 

2,406

 

(1,261

)

Total

 

767

 

$

8,319

 

$

(708

)

574

 

$

5,891

 

$

(1,384

)

1,341

 

$

14,210

 

$

(2,092

)

 

As part of the Company’s ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to changes in credit spreads across sectors. The primary driver of lower unrealized losses in 2009 compared to 2008 was the tightening of credit spreads across sectors. A portion of the decrease in unrealized losses was offset by an increase due to the adoption of a new accounting standard effective January 1, 2009. The Company recorded a cumulative effect increase to the amortized cost of previously other-than-temporarily impaired investments that increased the gross unrealized losses on Available-for-Sale securities by $211 million. This impact is due to the impairment of Available-for-Sale securities recognized in other comprehensive income previously recognized through earnings for factors other than credit.

 

The following table presents the amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 2009

 

September 30, 2009

 

 

 

(in millions)

 

Beginning balance of credit losses on securities held for which a portion of other-than-temporary impairment was recognized in other comprehensive income

 

$

310

 

$

258

 

Additional amount related to credit losses for which an other-than-temporary impairment was not previously recognized

 

 

8

 

Reductions for securities sold during the period (realized)

 

(17

)

(20

)

Additional increases to the amount related to credit losses for which an other-than-temporary impairment was previously recognized

 

3

 

50

 

Ending balance of credit losses on securities held as of September 30 for which a portion of other-than-temporary impairment was recognized in other comprehensive income

 

$

296

 

$

296

 

 

The change in net unrealized securities losses in other comprehensive income (loss) includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC, DSIC, benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates. As a result of the adoption of a new accounting standard effective January 1, 2009, net unrealized investment gains (losses) arising during the period also includes

 

14



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income during the period. Additionally, reclassification of (gains) losses included in net income contains noncredit other-than-temporary impairment losses that were previously unrealized, but have been recognized in current period net income due to their reclassification as credit losses.

 

The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

Accumulated Other

 

 

 

Net

 

 

 

Comprehensive Income

 

 

 

Unrealized

 

 

 

(Loss) Related to Net

 

 

 

Investment

 

Deferred

 

Unrealized Investment

 

 

 

Gains (Losses)

 

Income Tax

 

Gains (Losses)

 

 

 

 

 

(in millions)

 

 

 

Balance at January 1, 2008

 

$

(258

)

$

90

 

$

(168

)

Net unrealized investment losses arising during the period

 

(1,568

)

549

 

(1,019

)

Reclassification of losses included in net income

 

368

 

(129

)

239

 

Impact of net unrealized investment gains on DAC, DSIC and benefit reserves

 

3

 

(1

)

2

 

Balance at September 30, 2008

 

$

(1,455

)

$

509

 

$

(946

)

 

 

 

 

 

 

 

 

Balance at January 1, 2009

 

$

(1,478

)

$

517

 

$

(961

)

Cumulative effect of accounting change

 

(203

)(1)

71

 

(132

)

Net unrealized investment gains arising during the period

 

2,892

 

(1,012

)

1,880

 

Reclassification of gains included in net income

 

(47

)

16

 

(31

)

Impact of net unrealized investment losses on DAC, DSIC, benefit reserves and reinsurance recoverables

 

(611

)

214

 

(397

)

Balance at September 30, 2009

 

$

553

 

$

(194

)

$

359

(2)

 


(1)

Amount represents the cumulative effect of adopting a new accounting standard on January 1, 2009, net of DAC and DSIC amortization and certain benefit reserves. See Note 2 for additional information on the adoption impact.

(2)

At September 30, 2009, Accumulated Other Comprehensive Income Related to Net Unrealized Investment Gains included $(91) million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities.

 

Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in net investment income were as follows:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in millions)

 

(in millions)

 

Gross realized gains from sales

 

$

56

 

$

4

 

$

165

 

$

15

 

Gross realized losses from sales

 

(21

)

(8

)

(33

)

(10

)

Impairment losses

 

(19

)

(313

)

(85

)

(373

)

 

The $19 million of other-than-temporary impairments recognized in net investment income for the three months ended September 30, 2009 were related primarily to the Company’s decision to sell certain corporate debt securities in the banking and finance industries. The $85 million of other-than-temporary impairments recognized in net investment income for the nine months ended September 30, 2009 were related to credit losses on non-agency residential mortgage backed securities, corporate debt securities primarily in the gaming, banking and finance industries and other structured investments.

 

15



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Available-for-Sale securities by contractual maturity as of September 30, 2009 were as follows:

 

 

 

Amortized Cost

 

Fair Value

 

 

 

(in millions)

 

Due within one year

 

$

1,329

 

$

1,348

 

Due after one year through five years

 

7,794

 

8,020

 

Due after five years through 10 years

 

4,739

 

5,027

 

Due after 10 years

 

3,552

 

3,859

 

 

 

17,414

 

18,254

 

 

 

 

 

 

 

Residential mortgage backed securities

 

8,311

 

8,049

 

Commercial mortgage backed securities

 

4,188

 

4,373

 

Asset backed securities

 

1,837

 

1,846

 

Other structured investments

 

23

 

55

 

Common and preferred stocks

 

53

 

48

 

Total

 

$

31,826

 

$

32,625

 

 

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities, asset backed securities and other structured investments are not due at a single maturity date. As such, these securities, as well as common and preferred stocks, were not included in the maturities distribution.

 

Trading Securities

 

Net recognized gains related to trading securities held at September 30, 2009 were $14 million and $33 million, respectively, for the three months and nine months then ended. Net recognized losses related to trading securities held at September 30, 2008 were $30 million and $48 million, respectively, for the three months and nine months then ended.

 

4.  Deferred Acquisition Costs and Deferred Sales Inducement Costs

 

During the third quarter of 2009 and 2008, the Company completed the annual detailed review of valuation assumptions for RiverSource Life products. In addition, during the third quarter of 2008, the Company converted to a new industry standard valuation system that provides enhanced modeling capabilities.

 

The total pretax impacts on the Company’s assets and liabilities attributable to the review of valuation assumptions during the third quarter of 2009 and 2008 and the valuation system conversion during the third quarter of 2008 were as follows:

 

 

 

 

 

 

 

 

 

Future Policy

 

 

 

 

 

 

 

 

 

 

 

Other

 

Benefits and

 

Other

 

 

 

Balance Sheet Impact Debit (Credit)

 

Receivables

 

DAC

 

Assets

 

Claims

 

Liabilities

 

Total

 

 

 

(in millions)

 

2009 period

 

$

(65

)

$

119

 

$

9

 

$

71

 

$

 

$

134

 

2008 period

 

92

 

(81

)

(5

)

95

 

5

 

106

 

 

The total pretax impacts on the Company’s revenues and expenses attributable to the review of the valuation assumptions for the three and nine months ended September 30, 2009 and 2008 and the valuation system conversion for the three and nine months ended September 30, 2008 were as follows:

 

 

 

 

 

 

 

 

 

Benefits,

 

 

 

 

 

 

 

 

 

 

 

 

 

Claims, Losses

 

 

 

 

 

 

 

 

 

Other

 

Distribution

 

and Settlement

 

Amortization

 

 

 

Pretax Benefit (Charge)

 

Premiums

 

Revenues

 

Expenses

 

Expenses

 

of DAC

 

Total

 

 

 

(in millions)

 

2009 period

 

$

 

$

(65

)

$

 

$

80

 

$

119

 

$

134

 

2008 period

 

2

 

95

 

1

 

89

 

(81

)

106

 

 

16



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The balances of and changes in DAC were as follows:

 

 

 

2009

 

2008

 

 

 

(in millions)

 

Balance at January 1

 

$

4,383

 

$

4,408

 

Cumulative effect of accounting change

 

 

36

 

Capitalization of acquisition costs

 

499

 

479

 

Amortization, excluding impacts of valuation assumptions review and valuation system conversion

 

(216

)

(457

)

Amortization, impact of valuation assumptions review and valuation system conversion

 

119

 

(81

)

Impact of change in net unrealized securities losses

 

(462

)

(11

)

Balance at September 30

 

$

4,323

 

$

4,374

 

 

The balances of and changes in DSIC, included in other assets on the Consolidated Balance Sheets, were as follows:

 

 

 

2009

 

2008

 

 

 

(in millions)

 

Balance at January 1

 

$

518

 

$

511

 

Cumulative effect of accounting change

 

 

9

 

Capitalization of sales inducement costs

 

61

 

64

 

Amortization, excluding impacts of valuation assumptions review and valuation system conversion

 

(7

)

(55

)

Amortization, impact of valuation assumptions review and valuation system conversion

 

9

 

(6

)

Impact of change in net unrealized securities losses

 

(67

)

 

Balance at September 30

 

$

514

 

$

523

 

 

The Company adopted a new accounting standard on the recognition and presentation of other-than-temporary impairments in the first quarter of 2009. The adoption had no net impact to DAC and DSIC.

 

Effective January 1, 2008, the Company adopted a new accounting standard on fair value measurements and recorded as a cumulative change in accounting principle a pretax increase of $36 million and $9 million to DAC and DSIC, respectively. See Note 2 and Note 9 for additional information regarding the Company’s adoption of fair value accounting standards.

 

5.  Future Policy Benefits and Claims and Separate Account Liabilities

 

Future policy benefits and claims consisted of the following:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(in millions)

 

Fixed annuities

 

$

16,551

 

$

14,058

 

Equity indexed annuities accumulated host values

 

183

 

228

 

Equity indexed annuities embedded derivatives

 

13

 

16

 

Variable annuities fixed sub-accounts

 

6,040

 

5,623

 

Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)

 

468

 

1,471

 

Variable annuity guaranteed minimum accumulation benefits (“GMAB”)

 

151

 

367

 

Other variable annuity guarantees

 

16

 

67

 

Total annuities

 

23,422

 

21,830

 

Variable universal life (“VUL”)/universal life (“UL”) insurance

 

2,584

 

2,526

 

Other life, disability income and long term care insurance

 

4,548

 

4,397

 

Auto, home and other insurance

 

373

 

368

 

Policy claims and other policyholders’ funds

 

115

 

172

 

Total

 

$

31,042

 

$

29,293

 

 

Separate account liabilities consisted of the following:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(in millions)

 

Variable annuity variable sub-accounts

 

$

46,959

 

$

37,657

 

VUL insurance variable sub-accounts

 

5,033

 

4,091

 

Other insurance variable sub-accounts

 

45

 

39

 

Threadneedle investment liabilities

 

3,539

 

2,959

 

Total

 

$

55,576

 

$

44,746

 

 

17



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

6.  Variable Annuity and Insurance Guarantees

 

The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB provisions. The Company suspended sales of contracts with GMAB provisions June 1, 2009. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.

 

Certain universal life contracts offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

 

The following table provides summary information related to all variable annuity guarantees for which the Company has established additional liabilities:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

 

 

Contract

 

 

 

Weighted

 

 

 

Contract

 

 

 

Weighted

 

Variable annuity

 

Total

 

value in

 

Net

 

average

 

Total

 

value in

 

Net

 

average

 

guarantees by

 

contract

 

separate

 

amount

 

attained

 

contract

 

separate

 

amount

 

attained

 

benefit type(1)

 

value

 

accounts

 

at risk(2)

 

age

 

value

 

accounts

 

at risk(2)

 

age

 

 

 

(in millions, except age)

 

GMDB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return of Premium

 

$

29,238

 

$

26,816

 

$

1,445

 

61

 

$

22,249

 

$

20,153

 

$

4,873

 

61

 

Six-Year Reset

 

13,805

 

11,098

 

1,185

 

61

 

12,719

 

10,063

 

2,802

 

61

 

One-Year Ratchet

 

6,883

 

6,189

 

1,082

 

63

 

5,770

 

5,061

 

2,163

 

62

 

Five-Year Ratchet

 

1,197

 

1,119

 

56

 

59

 

951

 

888

 

199

 

59

 

Other

 

566

 

525

 

112

 

67

 

471

 

429

 

192

 

66

 

Total — GMDB

 

$

51,689

 

$

45,747

 

$

3,880

 

61

 

$

42,160

 

$

36,594

 

$

10,229

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GGU death benefit

 

$

824

 

$

745

 

$

69

 

63

 

$

699

 

$

619

 

$

65

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMIB

 

$

626

 

$

578

 

$

145

 

63

 

$

567

 

$

511

 

$

245

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB

 

$

4,110

 

$

3,994

 

$

591

 

63

 

$

3,513

 

$

3,409

 

$

1,312

 

63

 

GMWB for life

 

13,770

 

13,189

 

1,077

 

63

 

9,194

 

8,764

 

2,704

 

63

 

Total — GMWB

 

$

17,880

 

$

17,183

 

$

1,668

 

63

 

$

12,707

 

$

12,173

 

$

4,016

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMAB

 

$

2,813

 

$

2,743

 

$

220

 

56

 

$

2,006

 

$

1,937

 

$

608

 

56

 

 


(1)    Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals account value are not shown in this table.

(2)    Represents the current guaranteed benefit amount in excess of the current contract value. GMIB, GMWB and GMAB benefits are subject to waiting periods and payment periods specified in the contract.

 

Changes in additional liabilities were as follows:

 

 

 

GMDB & GGU

 

GMIB

 

GMWB

 

GMAB

 

UL

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability balance at January 1, 2008

 

$

24

 

$

3

 

$

136

 

$

33

 

$

4

 

Incurred claims

 

1

 

3

 

94

 

70

 

4

 

Paid claims

 

(7

)

 

 

 

(2

)

Liability balance at September 30, 2008

 

$

18

 

$

6

 

$

230

 

$

103

 

$

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability balance at January 1, 2009

 

$

55

 

$

12

 

$

1,471

 

$

367

 

$

7

 

Incurred claims

 

7

 

(5

)

(1,003

)

(216

)

5

 

Paid claims

 

(53

)

 

 

 

 

Liability balance at September 30, 2009

 

$

9

 

$

7

 

$

468

 

$

151

 

$

12

 

 

18



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

7.  Customer Deposits

 

Customer deposits consisted of the following:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(in millions)

 

Fixed rate certificates

 

$

3,549

 

$

3,909

 

Stock market based certificates

 

854

 

909

 

Stock market embedded derivative reserve

 

28

 

5

 

Other

 

60

 

62

 

Less: accrued interest classified in other liabilities

 

(39

)

(11

)

Total investment certificate reserves

 

4,452

 

4,874

 

Brokerage deposits

 

2,011

 

1,988

 

Banking deposits

 

2,565

 

1,367

 

Total

 

$

9,028

 

$

8,229

 

 

8.  Debt

 

Debt and the stated interest rates were as follows:

 

 

 

Outstanding Balance

 

Stated Interest Rate

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in millions)

 

 

 

 

 

Senior notes due 2010

 

$

340

 

$

800

 

5.4

%

5.4

%

Senior notes due 2015

 

700

 

700

 

5.7

 

5.7

 

Senior notes due 2019

 

300

 

 

7.3

 

 

Senior notes due 2039

 

200

 

 

7.8

 

 

Junior subordinated notes due 2066

 

322

 

457

 

7.5

 

7.5

 

Floating rate revolving credit borrowings due 2013

 

135

 

64

 

4.6

 

3.6

 

Floating rate revolving credit borrowings due 2014

 

73

 

 

5.2

 

 

Municipal bond inverse floater certificates due 2021

 

6

 

6

 

0.4

 

2.2

 

Total

 

$

2,076

 

$

2,027

 

 

 

 

 

 

In July 2009, the Company purchased $450 million aggregate principal amount of its 5.35% senior notes due November 15, 2010, pursuant to a cash tender offer. The tender offer consideration per $1,000 principal amount of these notes accepted for purchase was $1,000, with an early tender payment of $30. Payments for these notes purchased pursuant to the tender offer included accrued and unpaid interest from the last interest payment date to, but not including, the settlement date. The Company also repurchased $10 million of these notes in the second quarter of 2009 in open market transactions.

 

On June 8, 2009, the Company issued $300 million of unsecured senior notes which mature June 28, 2019 and carry a fixed interest rate of 7.30%. Interest payments are due semi-annually in arrears on June 28 and December 28, commencing December 28, 2009.

 

On June 3, 2009, the Company issued $200 million of unsecured senior notes which mature June 15, 2039 and carry a fixed interest rate of 7.75%. Interest payments are due quarterly in arrears on March 15, June 15, September 15 and December 15, commencing September 15, 2009.

 

In 2009, the Company extinguished $135 million of its 7.5% junior subordinated notes due June 1, 2066 in open market transactions.

 

The floating rate revolving credit borrowings due in 2013 and 2014 are non-recourse debt related to certain consolidated property funds. The debt will be extinguished with the cash flows from the sale of the investments held within the partnerships.

 

19



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

9.  Fair Values of Assets and Liabilities

 

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.

 

Valuation Hierarchy

 

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

 

Level 1               Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

 

Level 2               Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

Level 3               Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Determination of Fair Value

 

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

 

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

 

Assets

 

Cash Equivalents

 

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

 

Investments (Trading Securities and Available-for-Sale Securities)

 

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from nationally-recognized pricing services, broker quotes, or other model-based valuation techniques such as the present value of cash flows. Level 1 securities include U.S. Treasuries and seed money in funds traded in active markets. Level 2 securities include agency mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate bonds, U.S. and foreign government and agency securities, and seed money and other investments in certain hedge funds. Level 3 securities include non-agency residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, and corporate bonds.

 

Through the Company’s own experience transacting in the marketplace and through discussions with its pricing vendors, the Company believes that the market for non-agency residential mortgage backed securities is inactive. Indicators of inactive markets include: pricing services’ reliance on brokers or discounted cash flow analyses to provide prices, an increase in the disparity between prices provided by different pricing services for the same security, unreasonably large bid-offer spreads and a significant decrease in the volume of trades relative to historical levels. In certain cases, this market inactivity has resulted in the Company applying valuation techniques that rely more on an income approach (discounted cash flows using market rates) than on a market approach (prices from pricing services). The Company considers market observable yields for other asset classes it considers to be of similar risk which includes nonperformance and liquidity for individual securities to set the discount rate for applying the income approach to certain non-agency residential mortgage backed securities.

 

20



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Separate Account Assets

 

The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV represents the exit price for the separate account. Separate account assets are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information.

 

Derivatives

 

Derivatives that are measured using quoted prices in active markets, such as foreign exchange forwards, or derivatives that are exchanged-traded are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include interest rate swaps and options. Derivatives that are valued using pricing models that have significant unobservable inputs are classified as Level 3 measurements. Structured derivatives that are used by the Company to hedge its exposure to market risk related to certain variable annuity riders are classified as Level 3. As of September 30, 2009, the Company had no structured derivatives.

 

Consolidated Property Funds

 

The Company records the fair value of the properties held by its consolidated property funds within other assets. The fair value of these assets is determined using discounted cash flows and market comparables. Given the significance of the unobservable inputs to these measurements, the assets are classified as Level 3.

 

Liabilities

 

Embedded Derivatives

 

Variable Annuity Riders – GMAB and GMWB

 

The Company values the embedded derivative liability attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk, and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value of these embedded derivatives also reflects a current estimate of the Company’s nonperformance risk specific to these liabilities. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivative liability attributable to these provisions is recorded in future policy benefits and claims.

 

Equity Indexed Annuities and Stock Market Certificates

 

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its equity indexed annuities and stock market certificates. The inputs to these calculations are primarily market observable. As a result, these measurements are classified as Level 2. The embedded derivative liability attributable to the provisions of the Company’s equity indexed annuities and stock market certificates is recorded in future policy benefits and claims and customer deposits, respectively.

 

21



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:

 

 

 

September 30, 2009

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 60

 

$

 3,224

 

$

 —

 

$

 3,284

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

15,268

 

1,219

 

16,487

 

Residential mortgage backed securities

 

 

4,209

 

3,840

 

8,049

 

Commercial mortgage backed securities

 

 

4,304

 

69

 

4,373

 

Asset backed securities

 

 

1,493

 

353

 

1,846

 

State and municipal obligations

 

 

1,322

 

 

1,322

 

U.S. government and agencies obligations

 

65

 

247

 

 

312

 

Foreign government bonds and obligations

 

 

109

 

 

109

 

Common and preferred stocks

 

 

38

 

10

 

48

 

Other structured investments

 

 

 

55

 

55

 

Other debt obligations

 

2

 

22

 

 

24

 

Total Available-for-Sale securities

 

67

 

27,012

 

5,546

 

32,625

 

Trading securities

 

106

 

186

 

18

 

310

 

Separate account assets

 

 

55,576

 

 

55,576

 

Other assets

 

3

 

986

 

476

 

1,465

 

Total assets at fair value

 

$

236

 

$

 86,984

 

$

 6,040

 

$

 93,260

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Future policy benefits and claims

 

$

 —

 

$

 13

 

$

 610

 

$

 623

 

Customer deposits

 

 

28

 

 

28

 

Other liabilities

 

1

 

785

 

 

786

 

Total liabilities at fair value

 

$

 1

 

$

 826

 

$

 610

 

$

 1,437

 

 

 

 

December 31, 2008

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in millions)

 

Assets

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 504

 

$

 5,446

 

$

 —

 

$

 5,950

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

11,479

 

1,120

 

12,599

 

Residential mortgage backed securities

 

 

4,027

 

1,208

 

5,235

 

Commercial mortgage backed securities

 

 

2,730

 

3

 

2,733

 

Asset backed securities

 

 

736

 

222

 

958

 

State and municipal obligations

 

 

873

 

 

873

 

U.S. government and agencies obligations

 

32

 

239

 

 

271

 

Foreign government bonds and obligations

 

 

107

 

 

107

 

Common and preferred stocks

 

 

27

 

10

 

37

 

Other structured investments

 

 

 

50

 

50

 

Other debt obligations

 

 

10

 

 

10

 

Total Available-for-Sale securities

 

32

 

20,228

 

2,613

 

22,873

 

Trading securities

 

224

 

244

 

30

 

498

 

Separate account assets

 

 

44,746

 

 

44,746

 

Other assets

 

1

 

2,308

 

487

 

2,796

 

Total assets at fair value

 

$

 761

 

$

 72,972

 

$

 3,130

 

$

 76,863

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Future policy benefits and claims

 

$

 —

 

$

 16

 

$

 1,832

 

$

 1,848

 

Customer deposits

 

 

5

 

 

5

 

Other liabilities

 

7

 

673

 

 

680

 

Total liabilities at fair value

 

$

 7

 

$

 694

 

$

 1,832

 

$

 2,533

 

 

22



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:

 

 

 

 

 

Total Gains (Losses)

 

Purchases,

 

 

 

 

 

 

 

 

 

Included in

 

Sales,

 

 

 

 

 

 

 

Balance,

 

 

 

Other Com-

 

Issuances

 

Transfers

 

Balance,

 

 

 

July 1,

 

Net

 

prehensive

 

and Settle-

 

In/(Out) of

 

September 30,

 

 

 

2009

 

Income

 

Income

 

ments, Net

 

Level 3

 

2009

 

 

 

(in millions)

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 1,178

 

$

 —

 

$

 94

 

$

 (7

)

$

 (46

)

$

 1,219

 

Residential mortgage backed securities

 

3,451

 

30

 

148

 

211

 

 

3,840

 

Commercial mortgage backed securities

 

64

 

 

5

 

 

 

69

 

Asset backed securities

 

379

 

5

 

14

 

(36

)

(9

)

353

 

Common and preferred stocks

 

10

 

 

 

 

 

10

 

Other structured investments

 

49

 

 

 

7

 

(1

)

 

55

 

Other debt obligations

 

 

 

 

 

 

 

Total Available-for-Sale securities

 

5,131

 

35

(1)

268

 

167

 

(55

)(4)

5,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

23

 

(1

)(1)

(1

)

(3

)

 

18

 

Other assets

 

342

 

(10

)(2)

(10

)

154

 

 

476

 

Future policy benefits and claims

 

(759

)

166

(3)

 

(17

)

 

(610

)

 


(1)    Included in net investment income in the Consolidated Statements of Operations.

(2)    Included in other revenues in the Consolidated Statements of Operations.

(3)    Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

(4)    Represents two securities with a fair value of $64 million that were transferred to Level 2 as the fair value of the securities is now obtained from a nationally-recognized pricing service and one security with a fair value of $9 million that was transferred to Level 3 as the fair value of the security is now based on broker quotes.

 

 

 

 

 

Total Gains (Losses)

 

Purchases,

 

 

 

 

 

 

 

 

 

Included in

 

Sales,

 

 

 

 

 

 

 

Balance,

 

 

 

Other Com-

 

Issuances

 

Transfers

 

Balance,

 

 

 

July 1,

 

Net

 

prehensive

 

and Settle-

 

In/(Out) of

 

September 30,

 

 

 

2008

 

Income

 

Income

 

ments, Net

 

Level 3

 

2008

 

 

 

(in millions)

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 1,257

 

$

 (1

)

$

 (42

)

$

 7

 

$

 

$

 1,221

 

Residential mortgage backed securities

 

1,080

 

(85

)

103

 

(43

)

 

1,055

 

Commercial mortgage backed securities

 

4

 

 

 

(1

)

 

3

 

Asset backed securities

 

249

 

(10

)

10

 

(9

)

 

240

 

Common and preferred stocks

 

10

 

 

 

 

 

10

 

Other structured investments

 

38

 

1

 

 

(3

)

 

36

 

Total Available-for-Sale securities

 

2,638

 

(95

)(1)

71

 

(49

)

 

2,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

44

 

(2

)(1)

(5

)

 

 

37

 

Other assets

 

437

 

3

(2)

(38

)

77

 

 

479

 

Future policy benefits and claims

 

(154

)

(159

)(3)

 

(18

)

 

(331

)

Other liabilities

 

(4

)

(1

)(3)

 

 

 

(5

)

 


(1)    Included in net investment income in the Consolidated Statements of Operations.

(2)    Represents a $21 million gain included in benefits, claims, losses and settlement expenses and a $18 million loss included in other revenues in the Consolidated Statements of Operations.

(3)    Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

 

23



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The following table presents the changes in unrealized gains (losses) included in net income related to Level 3 assets and liabilities held at September 30 for the three months then ended:

 

 

 

2009

 

2008

 

 

 

Net
Investment
Income

 

Other
Revenue

 

Benefits,
Claims,
Losses and
Settlement
Expenses

 

Net
Investment
Income

 

Other
Revenue

 

Benefits,
Claims,
Losses and
Settlement
Expenses

 

 

 

(in millions)

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

 

$

 

$

1

 

$

 

$

 

Residential mortgage backed securities

 

28

 

 

 

(86

)

 

 

Commercial mortgage backed securities

 

 

 

 

 

 

 

Asset backed securities

 

3

 

 

 

(10

)

 

 

Other structured investments

 

 

 

 

 

 

 

Other debt obligations

 

 

 

 

 

 

 

Total Available-for-Sale securities

 

31

 

 

 

(95

)

 

 

Trading securities

 

(1

)

 

 

2

 

 

 

Other assets

 

 

(12

)

 

 

(18

)

21

 

Future policy benefits and claims

 

 

 

165

 

 

 

(158

)

Other liabilities

 

 

 

 

 

 

(1

)

 

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:

 

 

 

 

 

Total Gains (Losses)

 

Purchases,

 

 

 

 

 

 

 

 

 

Included in

 

Sales,

 

 

 

 

 

 

 

Balance,

 

 

 

Other Com-

 

Issuances

 

Transfers

 

Balance,

 

 

 

January 1,

 

Net

 

prehensive

 

and Settle-

 

In/(Out) of

 

September 30,

 

 

 

2009

 

Income

 

Income

 

ments, Net

 

Level 3

 

2009

 

 

 

(in millions)

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 1,120

 

$

 —

 

$

 173

 

$

 (13

)

$

 (61

)

$

 1,219

 

Residential mortgage backed securities

 

1,208

 

37

 

63

 

2,532

 

 

3,840

 

Commercial mortgage backed securities

 

3

 

 

6

 

60

 

 

69

 

Asset backed securities

 

222

 

13

 

 

127

 

(9

)

353

 

Common and preferred stocks

 

10

 

 

 

 

 

10

 

Other structured investments

 

50

 

(3

)

13

 

(5

)

 

55

 

Other debt obligations

 

 

 

 

 

 

 

Total Available-for-Sale securities

 

2,613

 

47

(1)

255

 

2,701

 

(70

)(4)

5,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

30

 

(6

)(1)

2

 

(8

)

 

18

 

Other assets

 

487

 

(81

)(2)

23

 

47

 

 

476

 

Future policy benefits and claims

 

(1,832

)

1,268

(3)

 

(46

)

 

(610

)

 


(1)    Included in net investment income in the Consolidated Statements of Operations.

(2)    Represents a $37 million loss included in benefits, claims, losses and settlement expenses and a $44 million loss included in other revenues in the Consolidated Statements of Operations.

(3)    Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

(4)    Represents three securities with a fair value of $79 million that were transferred to Level 2 as the fair value of the securities is now obtained from a nationally-recognized pricing service and one security with a fair value of $9 million that was transferred to Level 3 as the fair value of the security is now based on broker quotes.

 

24



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

 

 

 

 

Total Gains (Losses)

 

Purchases,

 

 

 

 

 

 

 

 

 

Included in

 

Sales,

 

 

 

 

 

 

 

Balance,

 

 

 

Other Com-

 

Issuances

 

Transfers

 

Balance,

 

 

 

January 1,

 

Net

 

prehensive

 

and Settle-

 

In/(Out) of

 

September 30,

 

 

 

2008

 

Income

 

Income

 

ments, Net

 

Level 3

 

2008

 

 

 

(in millions)

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 1,339

 

$

 (1

)

$

 (73

)

$

 (44

)

$

 —

 

$

 1,221

 

Residential mortgage backed securities

 

1,267

 

(143

)

(142

)

73

 

 

1,055

 

Commercial mortgage backed securities

 

5

 

 

 

(2

)

 

3

 

Asset backed securities

 

242

 

(9

)

(10

)

17

 

 

240

 

Common and preferred stocks

 

9

 

 

1

 

 

 

10

 

Other structured investments

 

46

 

3

 

 

(13

)

 

36

 

Total Available-for-Sale securities

 

2,908

 

(150

)(1)

(224

)

31

 

 

2,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

44

 

(2

)

(5

)

 

 

37

 

Other assets

 

629

 

6

(2)

(37

)

(119

)

 

479

 

Future policy benefits and claims

 

(158

)

(125

)(3)

 

(48

)

 

(331

)

Other Liabilities

 

 

(1

)(3)

 

(4

)

 

(5

)

 


(1)    Included in net investment income in the Consolidated Statements of Operations.

(2)    Represents a $44 million gain included in benefits, claims, losses and settlement expenses and a $38 million loss included in other revenues in the Consolidated Statements of Operations.

(3)    Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

 

The following table presents the changes in unrealized gains (losses) included in net income related to Level 3 assets and liabilities held at September 30 for the nine months then ended:

 

 

 

2009

 

2008

 

 

 

Net
Investment
Income

 

Other
Revenue

 

Benefits,
Claims,
Losses and
Settlement
Expenses

 

Net
Investment
Income

 

Other
Revenue

 

Benefits,
Claims,
Losses and
Settlement
Expenses

 

 

 

(in millions)

 

Available-for-Sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

$

 

$

 

$

 

$

 

$

 

Residential mortgage backed securities

 

15

 

 

 

(142

)

 

 

Commercial mortgage backed securities

 

 

 

 

 

 

 

Asset backed securities

 

7

 

 

 

(9

)

 

 

Other structured investments

 

(3

)

 

 

(2

)

 

 

Other debt obligations

 

 

 

 

 

 

 

Total Available-for-Sale securities

 

19

 

 

 

(153

)

 

 

Trading securities

 

(1

)

 

 

(2

)

 

 

Other assets

 

 

(40

)

 

 

(38

)

21

 

Future policy benefits and claims

 

 

 

1,244

 

 

 

(123

)

Other liabilities

 

 

 

 

 

 

(1

)

 

During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

 

25



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The following table provides the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included in the table above with balances of assets and liabilities measured at fair value on a recurring basis.

 

 

 

September 30, 2009

 

 

 

Carrying Value

 

Fair Value

 

 

 

(in millions)

 

Financial Assets

 

 

 

 

 

Commercial mortgage loans, net

 

$

2,706

 

$

2,616

 

Policy loans

 

719

 

800

 

Receivables

 

1,324

 

1,025

 

Restricted and segregated cash

 

1,822

 

1,822

 

Other investments and assets

 

473

 

496

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Future policy benefits and claims

 

$

15,517

 

$

15,429

 

Investment certificate reserves

 

4,424

 

4,424

 

Banking and brokerage customer deposits

 

4,576

 

4,576

 

Separate account liabilities

 

3,940

 

3,940

 

Debt and other liabilities

 

2,245

 

2,224

 

 

Investments

 

The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan.

 

The fair value of policy loans is determined using discounted cash flows.

 

Receivables

 

The fair value of consumer banking loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, severity and credit loss estimates, with discount rates based on the Company’s estimate of current market conditions.

 

Loans held for sale are measured at the lower of cost or market and fair value is based on what secondary markets are currently offering for loans with similar characteristics.

 

Brokerage margin loans are measured at outstanding balances, which are a reasonable estimate of fair value because of the sufficiency of the collateral and short term nature of these loans.

 

Restricted and segregated cash

 

Restricted and segregated cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.

 

Amounts segregated under federal and other regulations reflect resale agreements and are measured at the cost at which the securities will be sold. This measurement is a reasonable estimate of fair value because of the short time between entering into the transaction and its expected realization and the reduced risk of credit loss due to pledging U.S. government-backed securities as collateral.

 

Other investments and assets

 

Other investments and assets primarily consist of syndicated loans. The fair value of syndicated loans is obtained from a nationally-recognized pricing service.

 

Future policy benefits and claims

 

The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit, expense and risk margins and for the Company’s non-performance risk specific to these liabilities. The fair value of other liabilities including non-life contingent fixed annuities in payout status, equity indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner.

 

26



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Customer deposits

 

The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and the Company’s non-performance risk specific to these liabilities.

 

Banking and brokerage customer deposits are liabilities with no defined maturities and fair value is the amount payable on demand at the reporting date.

 

Separate account liabilities

 

Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. Carrying value is a reasonable estimate of the fair value as it represents the exit value as evidenced by withdrawal transactions between contractholders and the Company. A non-performance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize non-performance risk.

 

Debt and other liabilities

 

Debt fair value is based on quoted prices in active markets, when available. If quoted prices are not available, fair value is obtained from nationally-recognized pricing services, broker quotes, or other model-based valuation techniques such as present value of cash flows.

 

10.  Derivatives and Hedging Activities

 

Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.

 

The Company uses derivatives as economic hedges and occasionally holds derivatives designated for hedge accounting. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives, by type of derivative and product at September 30, 2009:

 

Derivatives not designated as
hedging instruments

 

Balance
Sheet Location

 

Asset

 

Balance
Sheet Location

 

Liability

 

 

 

 

 

(in millions)

 

 

 

(in millions)

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

GMWB and GMAB

 

Other assets

 

$

240

 

Other liabilities

 

$

231

 

Equity contracts

 

 

 

 

 

 

 

 

 

GMWB and GMAB

 

Other assets

 

572

 

Other liabilities

 

399

 

GMDB

 

 

 

 

Other liabilities

 

1

 

Equity indexed annuities

 

Other assets

 

2

 

 

 

 

Equity indexed annuities embedded derivatives

 

 

 

 

Future policy benefits and claims

 

13

 

Stock market certificates

 

Other assets

 

152

 

Other liabilities

 

124

 

Stock market certificates embedded derivatives

 

 

 

 

Customer deposits

 

28

 

Foreign exchange contracts

 

 

 

 

 

 

 

 

 

Seed money

 

Other assets

 

2

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

GMWB and GMAB embedded derivatives(1)

 

 

 

 

Future policy benefits and claims

 

610

 

Total

 

 

 

$

968

 

 

 

$

1,406

 

 


(1)

The fair values of GMWB and GMAB embedded derivatives fluctuate primarily based on changes in equity, interest rate and credit markets.

 

See Note 9 for additional information regarding the Company’s fair value measurement of derivative instruments.

 

27



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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Derivatives Not Designated as Hedges

 

The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operations:

 

 

 

 

 

Amount of Gain (Loss)
on Derivatives
Recognized in Income

 

 

 

 

 

Three

 

Nine

 

 

 

 

 

Months Ended

 

Months Ended

 

Derivatives not designated

 

Location of Gain (Loss) on Derivatives

 

September 30,

 

September 30,

 

as hedging instruments

 

Recognized in Income

 

2009

 

2009

 

 

 

 

 

(in millions)

 

Interest rate contracts

 

 

 

 

 

 

 

GMWB and GMAB

 

Benefits, claims, losses and settlement expenses

 

$

63

 

$

(322

)

Interest rate lock commitments

 

Other revenues

 

(1

)

 

Equity contracts

 

 

 

 

 

 

 

GMWB and GMAB

 

Benefits, claims, losses and settlement expenses

 

(266

)

(1,078

)

GMDB

 

Benefits, claims, losses and settlement expenses

 

(7

)

(7

)

Equity indexed annuities

 

Interest credited to fixed accounts

 

3

 

1

 

Equity indexed annuities embedded derivatives

 

Interest credited to fixed accounts

 

2

 

3

 

Stock market certificates

 

Banking and deposit interest expense

 

9

 

10

 

Stock market certificates embedded derivatives

 

Banking and deposit interest expense

 

(12

)

(23

)

Seed money

 

Net investment income

 

(10

)

(10

)

Foreign exchange contracts

 

 

 

 

 

 

 

Seed money

 

General and administrative expense

 

3

 

2

 

Other

 

 

 

 

 

 

 

GMWB and GMAB embedded derivatives

 

Benefits, claims, losses and settlement expenses

 

149

 

1,222

 

Total

 

 

 

$

(67

)

$

(202

)

 

The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate and foreign currency exchange rate risk related to various products and transactions of the Company.

 

The majority of the Company’s annuity contracts contain GMDB provisions, which may result in a death benefit payable that exceeds the contract accumulation value when market values of customers’ accounts decline. Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of considerations received at the beginning of the contract period, after a specified holding period, respectively. The Company economically hedges the exposure related to non-life contingent GMWB and GMAB provisions using various equity futures, equity options, total return swaps, interest rate swaptions and interest rate swaps. In the third quarter of 2009, the Company entered into a limited number of derivative contracts to economically hedge equity exposure related to GMDB provisions on variable annuity contracts written previously in 2009. At September 30, 2009, the gross notional amount of these contracts was $37.2 billion and $75 million for the Company’s GMWB and GMAB provisions and GMDB provisions, respectively. The premium associated with certain of the above options is paid or received semi-annually over the life of the option contract.

 

The following is a summary of the payments the Company is scheduled to make and receive for these options:

 

 

 

Premiums Payable

 

Premiums Receivable

 

 

 

(in millions)

 

2009(1)

 

$

(55

)

$

3

 

2010

 

(189

)

5

 

2011

 

(181

)

4

 

2012

 

(165

)

3

 

2013

 

(153

)

2

 

2014-2023

 

(511

)

5

 

 


(1) 2009 amounts represent the amounts payable and receivable for the period from October 1, 2009 to December 31, 2009.

 

Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options prior to the full premium being paid or received.

 

28



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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Equity indexed annuities and stock market certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to equity indexed annuities and stock market certificate products will positively or negatively impact earnings over the life of these products. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and occasionally enters into futures contracts. The gross notional amount of these derivative contracts was $1.7 billion at September 30, 2009.

 

The Company enters into futures and total return swaps to manage its exposure to price risk arising from seed money investments made in proprietary mutual funds. The gross notional amount of these contracts was $195 million at September 30, 2009.

 

The Company enters into foreign currency forward contracts to hedge its exposure to certain receivables and obligations denominated in non-functional currencies. The gross notional amount of these contracts was $9 million at September 30, 2009.

 

Embedded Derivatives

 

Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In addition, the equity component of the equity indexed annuity and stock market investment certificate product obligations are also considered embedded derivatives. As captured in the tables above, embedded derivatives are bifurcated from their host contracts and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As noted above, the Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.

 

Cash Flow Hedges

 

The Company has amounts classified in accumulated other comprehensive income related to gains and losses associated with the effective portion of previously designated cash flow hedges. The Company reclassifies these amounts into income as the forecasted transactions impact earnings. During the nine months ended September 30, 2009, the Company held no derivatives that were designated as cash flow hedges. The following table shows the impact of the Company’s previously designated cash flow hedges on the Consolidated Statements of Operations:

 

 

 

Location of Gain (Loss)

 

Amount of Gain (Loss)
Reclassified from Accumulated Other
Comprehensive Income into Income

 

Derivatives designated

 

Reclassified from Accumulated Other

 

Three Months Ended

 

Nine Months Ended

 

as hedging instruments

 

Comprehensive Income into Income

 

September 30, 2009

 

September 30, 2009

 

 

 

 

 

(in millions)

 

Cash flow hedges

 

 

 

 

 

 

 

Interest on debt

 

Interest and debt expense

 

$

2

 

$

6

 

Fixed annuity products

 

Net investment income

 

(2

)

(5

)

Total

 

 

 

$

 

$

1

 

 

At September 30, 2009, the Company expects to reclassify $2 million of net pretax gains on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months. The $2 million net pretax gain is made up of an $8 million deferred gain related to interest rate swaps that will be recorded as a reduction to interest and debt expense, partially offset by a $6 million deferred loss related to interest rate swaptions that will be recorded in net investment income. For any hedge relationships that are discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related amounts previously recorded in accumulated other comprehensive income are recognized in earnings immediately. No hedge relationships were discontinued during the nine months ended September 30, 2009 due to forecasted transactions no longer expected to occur according to the original hedge strategy.

 

Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 26 years and relates to forecasted debt interest payments.

 

Credit Risk

 

Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements wherever practical. As of September 30, 2009, the Company held $222 million in cash and cash equivalents and recorded a corresponding liability in other liabilities for collateral the Company is obligated to return to counterparties. As of September 30, 2009, the Company’s maximum credit exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was approximately $68 million.

 

29



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Certain of the Company’s derivative instruments contain provisions that adjust the level of collateral the Company is required to post based on the Company’s debt rating (or based on the financial strength of the Company’s life insurance subsidiaries for contracts in which those subsidiaries are the counterparty). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company’s debt does not maintain a specific credit rating (generally an investment grade rating) or the Company’s life insurance subsidiary does not maintain a specific financial strength rating. If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. At September 30, 2009, the aggregate fair value of all derivative instruments containing such credit risk features was $75 million. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2009 was $43 million. If the credit risk features of derivative contracts that were in a net liability position at September 30, 2009 were triggered, the additional fair value of assets needed to settle these derivative liabilities would have been $32 million.

 

11.  Income Taxes

 

The Company’s effective tax rates were 23.7% and 21.5% for the three months and nine months ended September 30, 2009, respectively. The Company’s effective tax rates were 52.5% and (24.9)% for the three months and nine months ended September 30, 2008, respectively. The effective tax rate for the three months ended September 30, 2008 included a $14 million tax benefit from finalizing prior period tax returns. The effective tax rate for the nine months ended September 30, 2008 included $79 million in tax benefits related to changes in the status of current audits and closed audits, tax planning initiatives, and the finalization of prior year tax returns.

 

The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, a) future taxable income exclusive of reversing temporary differences and carryforwards, b) future reversals of existing taxable temporary differences, c) taxable income in prior carryback years, and d) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable the Company to utilize all of its deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of September 30, 2009 and December 31, 2008.

 

Included in the Company’s deferred income tax assets are net operating loss carryforwards of $125 million which will expire beginning December 31, 2025 as well as tax credit carryforwards of $144 million which will expire beginning December 31, 2025. The Company also has $20 million of foreign tax credit carryforwards which will expire beginning December 31, 2016.

 

As of September 30, 2009 and December 31, 2008, the Company had $44 million and $56 million of gross unrecognized tax expense, respectively. If recognized, approximately $81 million and $62 million, net of federal tax benefits, of unrecognized tax benefits as of September 30, 2009 and December 31, 2008, respectively, would affect the effective tax rate.

 

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net reduction of $1 million in interest and penalties for the nine months ended September 30, 2009. At September 30, 2009 and December 31, 2008, the Company had a receivable of $14 million and $13 million, respectively, related to accrued interest and penalties.

 

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. However, there are a number of open audits and quantification of a range cannot be made at this time.

 

The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1997. The Internal Revenue Service (“IRS”), as part of the overall examination of the American Express Company consolidated return, completed its field examination of the Company’s U.S. income tax returns for 1997 through 2002 during 2008 and completed its field examination of 2003 through 2004 in the third quarter of 2009. However, for federal income tax purposes these years continue to remain open as a consequence of certain issues under appeal.  In the fourth quarter of 2008, the IRS commenced an examination of the Company’s U.S. income tax returns for 2005 through 2007. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2006.

 

30



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that the Company receives. Management believes that it is likely that any such regulations would apply prospectively only.

 

12.  Contingencies

 

Owing to prevailing conditions in the credit markets and the isolated defaults of unaffiliated structured investment vehicles (“SIVs”) held in the portfolios of money market funds advised by its RiverSource Investments LLC subsidiary (the “2a-7 Funds”), the Company continues to monitor the net asset value of the 2a-7 Funds and as circumstances warrant from time to time inject capital to one or more of the 2a-7 Funds. Management expects this to have an immaterial impact in subsequent periods. The Company has not provided a formal capital support agreement or net asset value guarantee to any of the 2a-7 Funds.

 

The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions heightened volatility in the financial markets, such as those which have been experienced for over the past year, and significant regulatory reform proposals may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally.

 

As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. From time to time, the Company receives requests for information from, and/or has been subject to examination by, the SEC, Financial Industry Regulatory Authority (“FINRA”), Office of Thrift Supervision (“OTS”), state insurance and securities regulators, state attorneys general and various other governmental and quasi-governmental authorities concerning the Company’s business activities and practices, and the practices of the Company’s financial advisors. Pending matters about which the Company has recently received information requests include: sales and product or service features of, or disclosures pertaining to, mutual funds, annuities, equity and fixed income securities, insurance products, brokerage services, financial plans and other advice offerings; supervision of the Company’s financial advisors; supervisory practices in connection with financial advisors’ outside business activities; sales practices and supervision associated with the sale of fixed and variable annuities; the delivery of financial plans and the suitability of particular trading strategies, investments and product selection processes. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including Ameriprise Financial. The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.

 

These legal and regulatory proceedings and disputes are subject to uncertainties and, as such, the Company is unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the Company’s consolidated financial condition or results of operations.

 

Certain legal and regulatory proceedings are described below.

 

In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona, and was later transferred to the United States District Court for the District of Minnesota. The plaintiffs alleged that they were investors in several of the Company’s mutual funds and they purported to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs alleged that fees allegedly paid to the defendants by the funds for investment advisory and administrative services were excessive. On July 6, 2007, the Court granted the Company’s motion for summary judgment, dismissing all claims with prejudice. Plaintiffs appealed the Court’s decision, and on April 8, 2009, the U.S. Court of Appeals for the Eighth Circuit reversed the district court’s decision, and remanded the case for further proceedings. The Company filed with the United States Supreme Court a Petition for Writ of Certiorari to review the judgment of the Court of Appeals in this case on August 6, 2009.

 

31



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

Relevant to market conditions since the latter part of 2007, a large client claimed a breach of certain contractual investment guidelines. In April 2009, the client presented a formal Request for Arbitration. The parties subsequently submitted to mediation and have agreed to a structure for a comprehensive settlement of the dispute. Subject to ongoing discussions, execution of a definitive settlement agreement is expected before the end of the year.

 

In July 2009, two issuers of private placement interests (Medical Capital Holdings, Inc./Medical Capital Corporation and affiliated corporations and Provident Shale Royalties, LLC and affiliated corporations) sold by our subsidiary Securities America, Inc. (“SAI”) were placed into receivership, which has resulted in several putative class action lawsuits naming both SAI and Ameriprise Financial as well as related regulatory inquiries. The class actions generally allege violations of state and/or federal securities laws in connection with SAI’s sales of these private placement interests. The actions were commenced in and around September 2009 and are all in their earliest procedural stages.

 

13.  Guarantees

 

An unaffiliated third party is providing liquidity to clients of Securities America, Inc. (“SAI”) registered representatives that have assets in the Reserve Primary Fund that have been blocked from redemption and frozen by the Reserve Fund since September 16, 2008. The Company has agreed to indemnify the unaffiliated third party up to $10 million until April 15, 2015, for costs incurred as a result of an arbitration or litigation initiated against the unaffiliated third party by clients of SAI registered representatives. In the event that a client defaults in the repayment of an advance, SAI has recourse to collect from the defaulting client.

 

Certain property fund limited partnerships that the Company consolidates have floating rate revolving credit borrowings of $208 million as of September 30, 2009. Certain Threadneedle subsidiaries guarantee the repayment of outstanding borrowings up to the value of the assets of the partnerships. The debt is secured by the assets of the partnerships and there is no recourse to Ameriprise Financial.

 

14.  Pending Transaction

 

On September 30, 2009, the Company announced a definitive agreement to acquire the long-term asset management business of Columbia Management. The total consideration to be paid will be between $900 million and $1.2 billion based on net asset flows at Columbia Management before closing. The acquisition is expected to be funded through the use of cash on hand and is expected to close in the spring of 2010, subject to regulatory review and approval.

 

15.  Earnings per Share Attributable to Ameriprise Financial Common Shareholders

 

The computations of basic and diluted earnings per share attributable to Ameriprise Financial common shareholders are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in millions, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Ameriprise Financial

 

$

260

 

$

(70

)

$

485

 

$

331

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic: Weighted-average common shares outstanding

 

258.7

 

219.1

 

236.6

 

223.6

 

Effect of potentially dilutive nonqualified stock options and other share-based awards

 

2.0

 

2.6

 

1.4

 

2.8

 

Diluted: Weighted-average common shares outstanding

 

260.7

 

221.7

 

238.0

 

226.4

 

Earnings (loss) per share attributable to Ameriprise Financial common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.00

 

$

(0.32

)

$

2.05

 

$

1.48

 

Diluted

 

1.00

 

(0.32

)(1)

2.04

 

1.46

 

 


(1)

Diluted shares used in this calculation represent basic shares due to the net loss. Using actual diluted shares would result in anti-dilution.

 

Basic weighted average common shares for the three months and nine months ended September 30, 2009 included 4.6 million and 4.7 million, respectively, of non-vested restricted stock awards and restricted stock units that are forfeitable but receive nonforfeitable dividends and 3.4 million vested nonforfeitable restricted stock units for both periods. Potentially dilutive securities include nonqualified stock options and other share-based awards. Basic weighted average common shares for the three months and the nine months ended September 30, 2008 included 1.9 million and 2.2 million, respectively, of vested, nonforfeitable restricted stock units and 3.2 million non-vested restricted stock awards and restricted stock units that are forfeitable but receive nonforfeitable dividends for both periods.

 

16.  Variable Interest Entities

 

The Company consolidates all VIEs for which it is considered to be the primary beneficiary. The determination as to whether an entity is a VIE is based on the amount and nature of the Company’s equity investment in the entity. The Company also considers other characteristics such as the ability to influence the decision making about the entity’s activities and how the entity is financed. The determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual return or both.

 

32



Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

The Company consolidates a VIE for which it is considered the primary beneficiary. The Company had investments of $10 million and non-recourse debt of $6 million on the Consolidated Balance Sheets as of both September 30, 2009 and December 31, 2008, respectively, related to this entity.

 

The Company has variable interests for which it is not the primary beneficiary and, therefore, does not consolidate. The Company’s maximum exposure to loss as a result of its investment in these entities is limited to its carrying value. The Company has no obligation to provide further financial or other support to the VIEs nor has the Company provided any additional support to the VIEs other than services it is separately compensated for through management agreements. The Company had no liabilities recorded as of September 30, 2009 and December 31, 2008 related to these entities.

 

The Company is a limited partner in affordable housing partnerships which qualify for government sponsored low income housing tax credit programs. In most cases, the Company has less than 50% interest in the partnerships sharing in benefits and risks with other limited partners in proportion to the Company’s ownership interest. In the limited cases in which the Company has a greater than 50% interest in affordable housing partnerships, it was determined that the relationship with the general partner is an agent relationship and the general partner was most closely related to the partnership as it is the key decision maker and controls the operations. The carrying values of the affordable housing partnerships are reflected in investments and were $33 million and $54 million as of September 30, 2009 and December 31, 2008, respectively.

 

For the collateralized debt obligations (“CDOs”) managed by the Company, the Company has evaluated its variability in losses and returns considering its investment levels, which are less than 50% of the residual tranches, and the fees received from managing the structures and has determined that consolidation is not required. The carrying values of the CDOs are reflected in investments and were $55 million and $50 million as of September 30, 2009 and December 31, 2008, respectively. The Company manages $6.6 billion of underlying collateral consisting primarily of below investment grade syndicated bank loans within the CDOs.

 

17.  Segment Information

 

The Company’s five segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other.

 

The following is a summary of assets by segment:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(in millions)

 

Advice & Wealth Management

 

$

11,705

 

$

10,624

 

Asset Management

 

6,369

 

5,363

 

Annuities

 

74,850

 

63,659

 

Protection

 

16,520

 

14,270

 

Corporate & Other

 

1,757

 

1,661

 

Total assets

 

$

111,201

 

$

95,577

 

 

The following is a summary of segment operating results:

 

 

 

Three Months Ended September 30, 2009

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

(in millions)

 

Revenue from external customers

 

$

666

 

$

321

 

$

571

 

$

434

 

$

(9

)

$

 

$

1,983

 

Intersegment revenue

 

199

 

11

 

20

 

16

 

 

(246

)

 

Total revenues

 

865

 

332

 

591

 

450

 

(9

)

(246

)

1,983

 

Banking and deposit interest expense

 

29

 

2

 

 

 

2

 

 

33

 

Net revenues

 

836

 

330

 

591

 

450

 

(11

)

(246

)

1,950

 

Pretax income (loss)

 

$

12

 

$

10

 

$

268

 

$

145

 

$

(95

)

$

 

340

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

80

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

260

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

260

 

 

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Table of Contents

 

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

 

 

Three Months Ended September 30, 2008

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

(in millions)

 

Revenue from external customers

 

$

540

 

$

302

 

$

317

 

$

522

 

$

(9

)

$

 

$

1,672

 

Intersegment revenue

 

215

 

5

 

19

 

20

 

 

(259

)

 

Total revenues

 

755

 

307

 

336

 

542

 

(9

)

(259

)

1,672

 

Banking and deposit interest expense

 

43

 

2

 

 

 

 

(2

)

43

 

Net revenues

 

712

 

305

 

336

 

542

 

(9

)

(257

)

1,629

 

Pretax income (loss)

 

$

(77

)

$

1

 

$

(34

)

$

104

 

$

(170

)

$

 

(176

)

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

(92

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(84

)

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

Net loss attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(70

)

 

 

 

 

 

 

Nine Months Ended September 30, 2009

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

(in millions)

 

Revenue from external customers

 

$

1,819

 

$

836

 

$

1,593

 

$

1,398

 

$

13

 

$

 

$

5,659

 

Intersegment revenue

 

642

 

32

 

52

 

45

 

1

 

(772

)

 

Total revenues

 

2,461

 

868

 

1,645

 

1,443

 

14

 

(772

)

5,659

 

Banking and deposit interest expense

 

108

 

5

 

 

 

1

 

(1

)

113

 

Net revenues

 

2,353

 

863

 

1,645

 

1,443

 

13

 

(771

)

5,546

 

Pretax income (loss)

 

$

(52

)

$

(32

)

$

491

 

$

367

 

$

(185

)

$

 

589

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

 

126

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

463

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

(22

)

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2008

 

 

 

Advice &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth

 

Asset

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

Management

 

Management

 

Annuities

 

Protection

 

& Other

 

Eliminations

 

Consolidated

 

 

 

(in millions)

 

Revenue from external customers

 

$

1,999

 

$

1,012

 

$

1,242

 

$

1,457

 

$

10

 

$

 

$

5,720

 

Intersegment revenue

 

672

 

17

 

66

 

48

 

5

 

(808

)

 

Total revenues

 

2,671

 

1,029

 

1,308

 

1,505

 

15

 

(808

)

5,720

 

Banking and deposit interest expense

 

132

 

5

 

 

1

 

1

 

(7

)

132

 

Net revenues

 

2,539

 

1,024

 

1,308

 

1,504

 

14

 

(801

)

5,588

 

Pretax income (loss)

 

$

38

 

$

51

 

$

85

 

$

319

 

$

(247

)

$

 

246

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

(61

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

307

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

Net income attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

$

331

 

 

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Table of Contents

 

AMERIPRISE FINANCIAL, INC.

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission (“SEC”) on March 2, 2009 (“2008 10-K”), as well as our current reports on Form 8-K and other publicly available information.

 

Overview

 

We are engaged in providing financial planning, products and services that are designed to be utilized as solutions for our clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. As of September 30, 2009, we had a network of more than 12,300 financial advisors and registered representatives (“affiliated financial advisors”). In addition to serving clients through our affiliated financial advisors, our asset management, annuity, and auto and home protection products are distributed through third-party advisors and affinity relationships.

 

We deliver solutions to our clients through an approach focused on building long term personal relationships between our advisors and clients. We offer financial planning and advice that are responsive to our clients’ evolving needs and help them achieve their identified financial goals by recommending actions and a range of product “solutions” consisting of investment, annuities, insurance, banking and other financial products that help them attain over time a return or form of protection while accepting what they determine to be an appropriate range and level of risk. The financial product solutions we offer through our affiliated advisors include both our own products and services and products of other companies. Our financial planning and advisory process is designed to provide comprehensive advice, when appropriate, to address our clients’ cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. We believe that our focus on personal relationships, together with our strengths in financial planning and product development, allows us to better address our clients’ financial needs, including the financial needs of our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000. This focus also puts us in a strong position to capitalize on significant demographic and market trends, which we believe will continue to drive increased demand for our financial planning and other financial services. Deep client-advisor relationships are central to the ability of our business model to succeed through market cycles.

 

We have four main operating segments: Advice & Wealth Management, Asset Management, Annuities and Protection, as well as our Corporate & Other segment. Our four main operating segments are aligned with the financial solutions we offer to address our clients’ needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly impacted by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships.

 

Equity market, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the “spread” income generated on our annuities, banking and deposit products and universal life (“UL”) insurance products, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) assets associated with variable annuity and variable UL products, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits. For additional information regarding our sensitivity to equity risk and interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk.”

 

It is management’s priority to increase shareholder value over a multi-year horizon by achieving our on-average, over-time financial targets. Our financial targets are:

 

·                  Net revenue growth of 6% to 8%,

 

·                  Earnings per diluted share growth of 12% to 15%, and

 

·                  Return on equity of 12% to 15%.

 

Net revenues for the three months ended September 30, 2009 were $2.0 billion, an increase of $321 million, or 20%, from the prior year period. Revenue growth reflects the year-over-year improvement in net investment income, primarily driven by net investment losses in the prior-year period. Net revenues for the nine months ended September 30, 2009 were $5.5 billion, a decrease of $42 million, or 1%, from the prior year period.

 

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Net income attributable to Ameriprise Financial for the three months ended September 30, 2009 was $260 million compared to a net loss attributable to Ameriprise Financial of $70 million for the three months ended September 30, 2008. Net income attributable to Ameriprise Financial for the nine months ended September 30, 2009 was $485 million, an increase of $154 million from $331 million for the nine months ended September 30, 2008. Earnings per diluted share for the three months ended September 30, 2009 were $1.00, compared to loss per share of $0.32 for the three months ended September 30, 2008. Earnings per diluted share for the nine months ended September 30, 2009 were $2.04, compared to $1.46 for the nine months ended September 30, 2008.

 

We continue to establish Ameriprise Financial as a financial services leader as we focus on meeting the financial needs of the mass affluent and affluent, as evidenced by our continued leadership in financial planning and our strong corporate foundation. Total advisors increased 8% compared to the third quarter of 2008, reflecting acquisitions, experienced advisor recruiting and continued strong advisor retention rates. Our franchisee advisor and client retention rates were 91% and 93%, respectively, as of September 30, 2009.

 

On September 30, 2009, we announced a definitive agreement to acquire the long-term asset management business of Columbia Management from an affiliate of Bank of America Corporation. The total consideration to be paid will be between $900 million and $1.2 billion based on net asset flows at Columbia Management before closing and is expected to be funded through the use of cash on hand. The transaction is expected to close in the spring of 2010, subject to regulatory review and approval. Related to the transaction, we incurred $4 million of pretax non-recurring acquisition and integration costs during the three months ended September 30, 2009, and expect to incur between $130 million and $160 million through 2011. These costs include system integration costs, proxy and other regulatory filing costs, employee reduction and retention costs, and investment banking, legal and other acquisition costs.

 

Critical Accounting Policies

 

Valuation of Investments

 

Effective January 1, 2009, we early adopted an accounting standard that significantly changed our accounting policy regarding the timing and amount of other-than temporary impairments for Available-for-Sale securities. For information regarding the changes to our accounting policy, see Note 3 to our Consolidated Financial Statements.

 

Deferred Acquisition Costs and Deferred Sales Inducement Costs

 

For our annuity and life, disability income and long term care insurance products, our DAC and DSIC balances at any reporting date are supported by projections that show management expects there to be adequate premiums or estimated gross profits after that date to amortize the remaining DAC and DSIC balances. These projections are inherently uncertain because they require management to make assumptions about financial markets, anticipated mortality and morbidity levels and policyholder behavior over periods extending well into the future. Projection periods used for our annuity products are typically 10 to 25 years, while projection periods for our life, disability income and long term care insurance products are often 50 years or longer. Management regularly monitors financial market conditions and actual policyholder behavior experience and compares them to its assumptions.

 

For annuity and universal life insurance products, the assumptions made in projecting future results and calculating the DAC balance and DAC amortization expense are management’s best estimates. Management is required to update these assumptions whenever it appears that, based on actual experience or other evidence, earlier estimates should be revised. When assumptions are changed, the percentage of estimated gross profits used to amortize DAC might also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in a decrease in the DAC balance and an increase in DAC amortization expense, while a decrease in amortization percentage will result in an increase in the DAC balance and a decrease in DAC amortization expense. The impact on results of operations of changing assumptions can be either positive or negative in any particular period and is reflected in the period in which such changes are made. For products with associated DSIC, the same policy applies in calculating the DSIC balance and periodic DSIC amortization.

 

For other life, disability income and long term care insurance products, the assumptions made in calculating our DAC balance and DAC amortization expense are consistent with those used in determining the liabilities and, therefore, are intended to provide for adverse deviations in experience and are revised only if management concludes experience will be so adverse that DAC are not recoverable. If management concludes that DAC are not recoverable, DAC are reduced to the amount that is recoverable based on best estimate assumptions and there is a corresponding expense recorded in our consolidated results of operations.

 

For annuity and life, disability income and long term care insurance products, key assumptions underlying these long-term projections include interest rates (both earning rates on invested assets and rates credited to contractholder and policyholder accounts), equity market performance, mortality and morbidity rates and the rates at which policyholders are expected to surrender their contracts, make withdrawals from their contracts and make additional deposits to their contracts. Assumptions about earned and credited interest rates are the primary factors used to project interest margins, while assumptions about equity and bond market performance are the primary factors used to project client asset value growth rates, and assumptions about surrenders, withdrawals and deposits comprise projected persistency rates. Management must also make assumptions to project maintenance expenses associated with servicing our annuity and insurance businesses during the DAC amortization period.

 

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Table of Contents

 

The client asset value growth rates are the rates at which variable annuity and variable universal life insurance contract values invested in separate accounts are assumed to appreciate in the future. The rates used vary by equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions with respect to client asset value growth rates on a regular basis. We typically use a five-year mean reversion process as a guideline in setting near-term equity asset growth rates based on a long-term view of financial market performance as well as recent actual performance. The suggested near-term growth rate is reviewed to ensure consistency with management’s assessment of anticipated equity market performance. For the nine months ended September 30, 2009, management elected to follow the mean reversion guideline, decreasing near-term equity asset growth rates to reflect the positive market on a year-to-date basis. At recent equity market levels, increasing the annualized equity market return projected during the five-year mean reversion period by 100 basis points reduces DAC amortization and other impacted expenses by $15-$20 million after tax.

 

We monitor other principal DAC and DSIC amortization assumptions, such as persistency, mortality, morbidity, interest margin and maintenance expense levels each quarter and, when assessed independently, each could impact our DAC and DSIC balances.

 

The analysis of DAC and DSIC balances and the corresponding amortization is a dynamic process that considers all relevant factors and assumptions described previously. Unless management identifies a significant deviation over the course of the quarterly monitoring, management reviews and updates these DAC and DSIC amortization assumptions annually in the third quarter of each year. An assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results.

 

Recent Accounting Pronouncements

 

For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations or financial condition, see Note 2 to our Consolidated Financial Statements.

 

Owned, Managed and Administered Assets

 

Owned assets include certain assets on our Consolidated Balance Sheets for which we do not provide investment management services, such as investments in non-proprietary funds held in the separate accounts of our life insurance subsidiaries, as well as restricted and segregated cash and receivables.

 

Managed assets include managed external client assets and managed owned assets. Managed external client assets include client assets for which we provide investment management services, such as the assets of the RiverSource family of mutual funds and Seligman family of mutual funds, assets of institutional clients and client assets held in wrap accounts. Managed external client assets also include assets managed by sub-advisors selected by us. Managed external client assets are not reported on our Consolidated Balance Sheets. Managed owned assets include certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees in our Asset Management segment, such as the assets of the general account and RiverSource Variable Product funds held in the separate accounts of our life insurance subsidiaries.

 

Administered assets include assets for which we provide administrative services such as client assets invested in other companies’ products that we offer outside of our wrap accounts. These assets include those held in clients’ brokerage accounts. We do not exercise management discretion over these assets and do not earn a management fee. These assets are not reported on our Consolidated Balance Sheets.

 

We earn management fees on our owned separate account assets based on the market value of assets held in the separate accounts. We record the income associated with our owned investments, including net realized gains and losses associated with these investments and other-than-temporary impairments related to credit losses on these investments, as net investment income. For managed assets, we receive management fees based on the value of these assets. We generally report these fees as management and financial advice fees. We may also receive distribution fees based on the value of these assets. We generally record fees received from administered assets as distribution fees.

 

Fluctuations in our owned, managed and administered assets impact our revenues. Our owned, managed and administered assets are impacted by net flows of client assets, market movements and foreign exchange rates. Owned assets are also affected by changes in our capital structure.

 

Our owned, managed and administered assets increased to $439.9 billion at September 30, 2009, a net increase of 12% from September 30, 2008, primarily due to strong product flows, bond market appreciation and our 2008 acquisitions, partially offset by the 9% decline in the S&P 500 Index compared to the prior year period.

 

Total annuity net inflows in the third quarter of 2009 were $527 million, comprised almost entirely of variable annuity net inflows, compared to $384 million in the prior year period consisting of $568 million in variable annuity net inflows partially

 

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offset by $184 million in fixed annuity net outflows. Wrap account net inflows of $2.7 billion and market appreciation in the third quarter of 2009 increased total wrap account assets to $90 billion, a 7% increase compared to the prior year period.

 

Fixed annuities had total net inflows of $2.0 billion for the nine months ended September 30, 2009 compared to net outflows of $1.1 billion in the prior year period. Variable annuities had net inflows of $1.4 billion for the nine months ended September 30, 2009 compared to $2.2 billion in the prior year period. Wrap account assets had net inflows of $6.8 billion for the nine months ended September 30, 2009 compared to $4.9 billion in the prior year period.

 

Total Asset Management net inflows were $2.3 billion in the third quarter of 2009, reflecting improved Domestic and International flows, compared to net outflows of $9.6 billion in the prior year period. Domestic managed assets net outflows were $152 million in the third quarter of 2009 compared to $5.5 billion in the prior year period, an improvement of $5.3 billion. The 13% increase in Domestic managed assets compared to the prior year period also reflects market appreciation. International managed assets net inflows were $2.5 billion in the third quarter of 2009 compared to net outflows of $4.2 billion in the prior year period. Market appreciation of international managed assets was $10.8 billion in the third quarter of 2009 compared to market depreciation of $7.2 billion in the prior year period. The negative impact on International managed assets due to changes in foreign currency exchange rates was $2.7 billion in the third quarter of 2009 compared to $12.5 billion in the prior year period.

 

Total Asset Management net inflows were $2.2 billion for the nine months ended September 30, 2009 compared to net outflows of $19.3 billion for the prior year period. Domestic managed assets net outflows were $402 million for the 2009 period compared to $10.2 billion in the prior year period. Market appreciation also contributed to the 13% increase in Domestic managed assets compared to the prior year period. International managed assets net inflows were $2.6 billion for the nine months ended September 30, 2009 compared to net outflows of $9.2 billion in the prior year period. Market appreciation of International managed assets was $6.8 billion for the 2009 period compared to market depreciation of $17.8 billion in the prior year period. The positive impact on International managed assets due to changes in foreign currency exchange rates was $6.2 billion for the nine months ended September 30, 2009 compared to a negative impact of $12.1 billion in the prior year period.

 

The following table presents detail regarding our owned, managed and administered assets:

 

 

 

September 30,

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in billions, except percentages)

 

Owned Assets

 

$

36.0

 

$

34.4

 

5

%

Managed Assets(1):

 

 

 

 

 

 

 

Domestic

 

145.8

 

128.7

 

13

 

International

 

93.7

 

97.9

 

(4

)

Wrap account assets

 

89.6

 

84.1

 

7

 

Eliminations(2)

 

(13.7

)

(12.4

)

(10

)

Total Managed Assets

 

315.4

 

298.3

 

6

 

Administered Assets

 

88.5

 

60.8

 

46

 

Total Owned, Managed and Administered Assets

 

$

439.9

 

$

393.5

 

12

%

 


(1)

Includes managed external client assets and managed owned assets.

(2)

Includes eliminations for RiverSource mutual fund assets included in wrap account assets and RiverSource assets sub-advised by Threadneedle.

 

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Table of Contents

 

Consolidated Results of Operations for the Three Months Ended September 30, 2009 and 2008
 

The following table presents our consolidated results of operations for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

689

 

$

721

 

$

(32

)

(4

)%

Distribution fees

 

367

 

376

 

(9

)

(2

)

Net investment income

 

542

 

62

 

480

 

NM

 

Premiums

 

276

 

264

 

12

 

5

 

Other revenues

 

109

 

249

 

(140

)

(56

)

Total revenues

 

1,983

 

1,672

 

311

 

19

 

Banking and deposit interest expense

 

33

 

43

 

(10

)

(23

)

Total net revenues

 

1,950

 

1,629

 

321

 

20

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

466

 

461

 

5

 

1

 

Interest credited to fixed accounts

 

232

 

200

 

32

 

16

 

Benefits, claims, losses and settlement expenses

 

306

 

196

 

110

 

56

 

Amortization of deferred acquisition costs

 

(64

)

240

 

(304

)

NM

 

Interest and debt expense

 

45

 

27

 

18

 

67

 

General and administrative expense

 

625

 

681

 

(56

)

(8

)

Total expenses

 

1,610

 

1,805

 

(195

)

(11

)

Pretax income (loss)

 

340

 

(176

)

516

 

NM

 

Income tax provision (benefit)

 

80

 

(92

)

172

 

NM

 

Net income (loss)

 

260

 

(84

)

344

 

NM

 

Less: Net loss attributable to noncontrolling interests

 

 

(14

)

14

 

100

 

Net income (loss) attributable to Ameriprise Financial

 

$

260

 

$

(70

)

$

330

 

NM

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

 

Net investment income before impairment losses on securities

 

$

561

 

 

 

 

 

 

 

Total other-than-temporary impairment losses on securities

 

(18

)

 

 

 

 

 

 

Portion of loss recognized in other comprehensive income

 

(1

)

 

 

 

 

 

 

Net impairment losses recognized in net investment income

 

(19

)

 

 

 

 

 

 

Net investment income

 

$

542

 

 

 

 

 

 

 

 

NM Not Meaningful.

 

Overall

 

Net income attributable to Ameriprise Financial for the three months ended September 30, 2009 was $260 million compared to a net loss attributable to Ameriprise Financial of $70 million for the prior year period, primarily due to unfavorable market impacts in the third quarter of 2008. The impact of lower equity markets and the cost of maintaining high liquidity levels in the third quarter of 2009 was substantially offset by growth in spread products and re-engineering benefits.

 

Our annual review of valuation assumptions for RiverSource Life Insurance Company (“RiverSource Life”) products in the third quarter of 2009 resulted in a net pretax benefit of $134 million, consisting of a decrease in expenses primarily from updating product mortality assumptions for certain life insurance products and from the impact of updating product spreads and expense assumptions, partially offset by a decrease in revenues related to the reinsurance impacts from updating product mortality assumptions. Third quarter 2008 results included a $106 million pretax benefit resulting from our review of valuation assumptions and our conversion to a new industry standard valuation system that provides enhanced modeling capabilities. The review of valuation assumptions in the third quarter of 2008 resulted in a decrease in expenses primarily from updating mortality and expense assumptions for certain life insurance products and from updating fund mix and policyholder behavior assumptions for variable annuities with guaranteed benefits. The valuation system conversion also resulted in an increase in revenue primarily from improved modeling of the expected value of existing reinsurance agreements and a decrease in expense from modeling annuity amortization periods at the individual policy level.

 

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Third quarter 2009 results included a $27 million pretax benefit from the market’s impact on DAC and DSIC for RiverSource Life products compared to a pretax expense of $44 million in the third quarter of 2008.

 

The total pretax impacts on our revenues and expenses for the third quarter of 2009 attributable to the review of valuation assumptions for RiverSource Life products and the impact of markets were as follows:

 

 

 

 

 

 

 

 

 

Benefits,

 

 

 

 

 

 

 

 

 

 

 

 

 

Claims, Losses

 

 

 

 

 

 

 

 

 

Other

 

Distribution

 

and Settlement

 

Amortization

 

 

 

Segment Pretax Benefit (Charge)

 

Premiums

 

Revenues

 

Expenses

 

Expenses

 

of DAC

 

Total

 

 

 

(in millions)

 

Review of valuation assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

 

$

 

$

47

 

$

64

 

$

111

 

Protection

 

 

(65

)

 

33

 

55

 

23

 

Total

 

$

 

$

(65

)

$

 

$

80

 

$

119

 

$

134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market impacts:

 

 

 

 

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

 

$

 

$

4

 

$

22

 

$

26

 

Protection

 

 

 

 

 

1

 

1

 

Total

 

$

 

$

 

$

 

$

4

 

$

23

 

$

27

 

 

The total pretax impacts on our revenues and expenses for the third quarter of 2008 attributable to the review of valuation assumptions for RiverSource Life products, the valuation system conversion and the impact of markets were as follows:

 

 

 

 

 

 

 

 

 

Benefits,

 

 

 

 

 

 

 

 

 

 

 

 

 

Claims, Losses

 

 

 

 

 

 

 

 

 

Other

 

Distribution

 

and Settlement

 

Amortization

 

 

 

Segment Pretax Benefit (Charge)

 

Premiums

 

Revenues

 

Expenses

 

Expenses

 

of DAC

 

Total

 

 

 

(in millions)

 

Review of valuation assumptions and valuation system conversion:

 

 

 

 

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

 

$

1

 

$

46

 

$

9

 

$

56

 

Protection

 

2

 

95

 

 

43

 

(90

)

50

 

Total

 

$

2

 

$

95

 

$

1

 

$

89

 

$

(81

)

$

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market impacts:

 

 

 

 

 

 

 

 

 

 

 

 

 

Annuities

 

$

 

$

 

$

 

$

(5

)

$

(35

)

$

(40

)

Protection

 

 

 

 

 

(4

)

(4

)

Total

 

$

 

$

 

$

 

$

(5

)

$

(39

)

$

(44

)

 

Net Revenues

 

Net revenues increased $321 million, or 20%, to $2.0 billion for the three months ended September 30, 2009 compared to $1.6 billion for the prior year period. This increase reflects the year-over-year improvement in net investment income, primarily driven by net investment losses in the prior year period. The impact of lower equity markets on fee revenue was more than offset by increased net investment income from growth in spread products and revenues from our 2008 acquisitions.

 

Management and financial advice fees decreased $32 million, or 4%, to $689 million for the three months ended September 30, 2009 compared to $721 million for the prior year period driven by a 21% decline in the daily average S&P 500 Index on a year-over-year basis. Wrap account assets increased $5.5 billion, or 7%, compared to the prior year period due to net inflows, including an increase in wrap account assets due to the acquisition of H&R Block Financial Advisors, Inc. in the fourth quarter of 2008, partially offset by market depreciation. Total Asset Management account assets increased $12.6 billion, or 6%, compared to the prior year period primarily due to bond market appreciation and an increase in managed assets due to the acquisition of J. & W. Seligman & Co. Incorporated (“Seligman”) in the fourth quarter of 2008, partially offset by net outflows and the impact of changes in foreign currency exchange rates.

 

Distribution fees decreased $9 million, or 2%, to $367 million for the three months ended September 30, 2009 compared to $376 million in the prior year period primarily due to lower activity levels and lower asset-based fees driven by lower equity markets, partially offset by revenues from our 2008 acquisitions.

 

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Net investment income increased $480 million to $542 million for the three months ended September 30, 2009 compared to $62 million in the prior year period primarily due to an increase of $109 million in investment income on fixed maturity securities and $14 million in net realized investment gains for the third quarter of 2009 compared to $317 million in net realized investment losses for the third quarter of 2008. The increase in investment income earned on fixed maturity securities was driven by higher invested asset levels, primarily from spread product net inflows and higher yields on the longer-term investments in our investment portfolio. In the third quarter of 2009, net realized gains from sales of Available-for-Sale securities were $35 million and other-than-temporary impairments on corporate bonds and previously impaired non-agency residential mortgage-backed securities were $19 million. In the third quarter of 2008, net realized losses from sales of Available-for-Sale securities were $4 million and other-than-temporary impairments were $313 million.

 

Premiums increased $12 million, or 5%, to $276 million for the three months ended September 30, 2009, primarily due to growth in Auto and Home premiums compared to the prior year period, as the business continues to increase sales through our advisor channel. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues decreased $140 million, or 56%, to $109 million for the three months ended September 30, 2009 compared to $249 million in the prior year period primarily due to a $65 million negative impact from updating valuation assumptions in the third quarter of 2009 compared to a $95 million benefit from updating valuation assumptions and converting to a new valuation system for RiverSource Life products in the third quarter of 2008. Revenues related to certain consolidated limited partnerships increased $16 million from the prior year period.

 

Banking and deposit interest expense decreased $10 million, or 23%, to $33 million for the three months ended September 30, 2009 compared to $43 million in the prior year period primarily due to lower crediting rates on certificates and deposit products, partially offset by a 17% year-over-year increase in on-balance sheet deposits.

 

Expenses

 

Total expenses decreased $195 million, or 11%, to $1.6 billion for the three months ended September 30, 2009 compared to $1.8 billion for the three months ended September 30, 2008, primarily due to a benefit of $199 million from updating valuation assumptions in the third quarter of 2009 compared to a $9 million benefit from updating valuation assumptions and converting to a new valuation system in the prior year period. Ongoing and integration expenses related to the 2008 acquisitions and higher average crediting rates on fixed accounts compared to the prior year period were offset by the impact of updating valuation assumptions and cost controls.

 

Distribution expenses increased $5 million, or 1%, to $466 million for the three months ended September 30, 2009 compared to $461 million in the prior year period reflecting our 2008 acquisitions, partially offset by lower activity levels.

 

Interest credited to fixed accounts increased $32 million, or 16%, to $232 million for the three months ended September 30, 2009 compared to $200 million for the three months ended September 30, 2008, primarily due to higher average fixed annuity account balances and higher average fixed annuity crediting rates compared to the prior year period. Average fixed annuities contract accumulation values increased $2.8 billion, or 24%, compared to the prior year period. The average fixed annuity crediting rate excluding capitalized interest increased to 4.0% in the third quarter of 2009 compared to 3.7% in the same period a year ago.

 

Benefits, claims, losses and settlement expenses increased $110 million, or 56%, to $306 million for the three months ended September 30, 2009 compared to $196 million for the three months ended September 30, 2008. Benefits, claims, losses and settlement expenses for the third quarter of 2009 were impacted by $52 million in variable annuity death and living benefit expenses, net of hedges and DSIC, which included $116 million in expenses from the non-cash impact of the nonperformance spread on the fair value of living benefit liabilities. Benefits, claims, losses and settlement expenses in the third quarter of 2008 included a $27 million benefit related to variable annuity guaranteed death and living benefits, net of hedges, of which $117 million was related to the nonperformance spread. Benefits, claims, losses and settlement expenses in the third quarter of 2009 included a benefit of $80 million from updating valuation assumptions compared to a benefit of $89 million in the prior year period from updating valuation assumptions and converting to a new valuation system. The increase to benefits, claims, losses and settlement expenses compared to the prior year period was also due to increased auto and home benefits from higher business volumes. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the third quarter of 2009 decreased DSIC amortization by $4 million compared to an expense of $5 million in the third quarter of 2008.

 

Amortization of DAC was a net benefit of $64 million for the three months ended September 30, 2009 compared to expense of $240 million in the prior year period primarily due to a $119 million benefit from updating valuation assumptions in the third quarter of 2009 compared to an expense of $81 million from updating valuation assumptions and converting to a new valuation system in the prior year period. In addition, DAC amortization for the three months ended September 30, 2009 included a benefit of $53 million offsetting higher variable annuity benefit expenses compared to a $13 million expense for the three months ended September 30, 2008. The impact of higher policyholder account balances as a result of equity and fixed

 

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Table of Contents

 

income market performance in the third quarter of 2009 decreased DAC amortization by $23 million compared to an expense of $39 million in the third quarter of 2008.

 

Interest and debt expense increased $18 million, or 67%, to $45 million for the three months ended September 30, 2009 compared to $27 million in the prior year period primarily due to an expense of $13 million related to the early retirement of $450 million of our 5.35% senior notes due 2010.

 

General and administrative expense decreased $56 million, or 8%, to $625 million for the three months ended September 30, 2009 compared to $681 million in the prior year period, primarily reflecting re-engineering benefits and cost controls. General and administrative expense in the third quarter of 2009 included integration costs and ongoing expenses from our 2008 acquisitions, as well as $10 million of support costs related to various 2a-7 money market mutual funds managed by our subsidiary, RiverSource Investments, LLC and a $10 million reserve related to a previously disclosed client mediation in the third quarter of 2009. General and administrative expense in the third quarter of 2008 included a $77 million expense related to the mark-to-market of Lehman Brothers securities that we purchased from various 2a-7 money market mutual funds managed by RiverSource Investments, LLC and $36 million in costs related to guaranteeing specific client holdings in an unaffiliated money market mutual fund.

 

Income Taxes

 

Our effective tax rate on net income attributable to Ameriprise Financial decreased to 23.7% for the three months ended September 30, 2009, compared to 52.5% for the three months ended September 30, 2008. Our effective tax rate for the third quarter of 2008 reflects a pretax loss in relation to a net tax benefit which included $14 million of tax benefit from finalizing prior year tax returns.

 

On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that we receive. Management believes that it is likely that any such regulations would apply prospectively only.

 

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Table of Contents

 

Results of Operations by Segment for the Three Months Ended September 30, 2009 and 2008
 

The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 17 to our Consolidated Financial Statements for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

Percent

 

 

 

Percent

 

 

 

 

 

Share of

 

 

 

Share of

 

 

 

2009

 

Total

 

2008

 

Total

 

 

 

(in millions, except percentages)

 

Total net revenues

 

 

 

 

 

 

 

 

 

Advice & Wealth Management

 

$

836

 

44

%

$

712

 

44

%

Asset Management

 

330

 

17

 

305

 

19

 

Annuities

 

591

 

30

 

336

 

21

 

Protection

 

450

 

23

 

542

 

33

 

Corporate & Other

 

(11

)

(1

)

(9

)

(1

)

Eliminations

 

(246

)

(13

)

(257

)

(16

)

Total net revenues

 

$

1,950

 

100

%

$

1,629

 

100

%

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

 

 

 

 

 

 

 

Advice & Wealth Management

 

$

824

 

51

%

$

789

 

44

%

Asset Management

 

320

 

20

 

304

 

17

 

Annuities

 

323

 

20

 

370

 

20

 

Protection

 

305

 

19

 

438

 

24

 

Corporate & Other

 

84

 

5

 

161

 

9

 

Eliminations

 

(246

)

(15

)

(257

)

(14

)

Total expenses

 

$

1,610

 

100

%

$

1,805

 

100

%

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

Asset Management

 

$

 

100

%

$

(14

)

100

%

 

 

 

 

 

 

 

 

 

 

Pretax income (loss) attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

Advice & Wealth Management

 

$

12

 

3

%

$

(77

)

47

%

Asset Management

 

10

 

3

 

15

 

(9

)

Annuities

 

268

 

79

 

(34

)

21

 

Protection

 

145

 

43

 

104

 

(64

)

Corporate & Other

 

(95

)

(28

)

(170

)

105

 

Pretax income attributable to Ameriprise Financial

 

$

340

 

100

%

$

(162

)

100

%

 

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Table of Contents

 

Advice & Wealth Management
 

Our Advice & Wealth Management segment provides financial planning and advice, as well as full service brokerage and banking services, primarily to retail clients, through our financial advisors. Our affiliated advisors utilize a diversified selection of both proprietary and non-proprietary products to help clients meet their financial needs.

 

The following table presents the results of operations of our Advice & Wealth Management segment for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

319

 

$

328

 

$

(9

)

(3

)%

Distribution fees

 

432

 

457

 

(25

)

(5

)

Net investment income (loss)

 

95

 

(46

)

141

 

NM

 

Other revenues

 

19

 

16

 

3

 

19

 

Total revenues

 

865

 

755

 

110

 

15

 

Banking and deposit interest expense

 

29

 

43

 

(14

)

(33

)

Total net revenues

 

836

 

712

 

124

 

17

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

508

 

515

 

(7

)

(1

)

General and administrative expense

 

316

 

274

 

42

 

15

 

Total expenses

 

824

 

789

 

35

 

4

 

Pretax income (loss)

 

12

 

(77

)

89

 

NM

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax income (loss) attributable to Ameriprise Financial

 

$

12

 

$

(77

)

$

89

 

NM

 

 

NM Not Meaningful.

 

Our Advice & Wealth Management segment pretax income was $12 million for the three months ended September 30, 2009 compared to pretax loss of $77 million for the three months ended September 30, 2008.

 

Net Revenues

 

Net revenues were $836 million for the three months ended September 30, 2009 compared to $712 million in the prior year period, an increase of $124 million, or 17%, driven by an increase in net investment income, partially offset by decreases in management and financial advice fees and distribution fees.

 

Management and financial advice fees decreased $9 million, or 3%, to $319 million for the three months ended September 30, 2009, primarily due to lower equity markets. On a year-over-year basis, the daily average S&P 500 Index decreased 21%. Wrap account assets increased $5.5 billion, or 7%, compared to the prior year period due to net inflows and the acquisition of H&R Block Financial Advisors, Inc. in the fourth quarter of 2008, partially offset by market depreciation. Net inflows from September 30, 2008 to September 30, 2009 positively impacted wrap account assets by $5.7 billion, whereas market depreciation during the same period was $2.2 billion.

 

Distribution fees decreased $25 million, or 5%, to $432 million for the three months ended September 30, 2009, primarily due to lower equity markets and client activity. Partially offsetting this decrease was a $12 million provision for uncollectible distribution fees recorded in the third quarter of 2008 and revenues from our 2008 acquisitions.

 

Net investment income was $95 million for the three months ended September 30, 2009 compared to net investment loss of $46 million for the prior year period. Net realized investment gains were $5 million in the third quarter of 2009 compared to net realized investment losses of $118 million for the prior year period due to impairments recorded on non-agency, residential mortgage-backed securities and financial services securities in the third quarter of 2008. Investment income on fixed maturity securities increased $12 million driven by higher invested asset levels, primarily from spread product net inflows and higher yields on the longer-term investments in our investment portfolio.

 

Banking and deposit interest expense decreased $14 million, or 33%, to $29 million for the three months ended September 30, 2009, due to lower crediting rates on certificates and deposit products, partially offset by a 17% year-over-year increase in on-balance sheet deposits.

 

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Table of Contents

 

Expenses

 

Total expenses increased $35 million, or 4%, to $824 million for the three months ended September 30, 2009, primarily driven by costs associated with our 2008 acquisition of H&R Block Financial Advisors, Inc.

 

Distribution expenses decreased $7 million, or 1%, to $508 million for the three months ended September 30, 2009, reflecting lower activity levels.

 

General and administrative expense increased $42 million, or 15%, from the prior year period due to integration costs and ongoing expenses from our acquisition of H&R Block Financial Advisors, Inc. in the fourth quarter of 2008, partially offset by lower expenses due to expense controls.

 

Asset Management

 

Our Asset Management segment provides investment advice and investment products to retail and institutional clients.

 

The following table presents the results of operations of our Asset Management segment for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

270

 

$

268

 

$

2

 

1

%

Distribution fees

 

55

 

58

 

(3

)

(5

)

Net investment income (loss)

 

4

 

(9

)

13

 

NM

 

Other revenues

 

3

 

(10

)

13

 

NM

 

Total revenues

 

332

 

307

 

25

 

8

 

Banking and deposit interest expense

 

2

 

2

 

 

 

Total net revenues

 

330

 

305

 

25

 

8

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

97

 

101

 

(4

)

(4

)

Amortization of deferred acquisition costs

 

5

 

6

 

(1

)

(17

)

General and administrative expense

 

218

 

197

 

21

 

11

 

Total expenses

 

320

 

304

 

16

 

5

 

Pretax income

 

10

 

1

 

9

 

NM

 

Less: Net loss attributable to noncontrolling interests

 

 

(14

)

14

 

100

 

Pretax income attributable to Ameriprise Financial

 

$

10

 

$

15

 

$

(5

)

(33

)%

 

NM Not Meaningful.

 

Our Asset Management segment pretax income attributable to Ameriprise Financial was $10 million for the three months ended September 30, 2009 compared to $15 million in the prior year period.

 

Net Revenues

 

Net revenues increased $25 million, or 8%, to $330 million for the three months ended September 30, 2009, primarily due to increases in net investment income and other revenues.

 

Management and financial advice fees increased $2 million, or 1%, to $270 million for the three months ended September 30, 2009, driven by an increase in managed assets primarily due to our 2008 acquisitions, partially offset by the 21% year-over-year decline in the daily average S&P 500 Index and the negative impact of foreign currency translation. Total Asset Management account assets increased $12.6 billion, or 6%, compared to the prior year period primarily due to bond market appreciation and an increase in managed assets due to the acquisition of J. & W. Seligman & Co. (“Seligman”) in the fourth quarter of 2008, partially offset by net outflows and the impact of changes in foreign currency exchange rates.

 

Distribution fees decreased $3 million, or 5%, to $55 million for the three months ended September 30, 2009, primarily due to lower 12b-1 fees driven by lower average assets.

 

Net investment income was $4 million for the three months ended September 30, 2009 compared to net investment loss of $9 million for the prior year period primarily due to losses related to mark-to-market adjustments on seed money investments in the third quarter of 2008.

 

Other revenues increased $13 million to $3 million for the three months ended September 30, 2009 due to an increase of $16 million in revenues related to certain consolidated limited partnerships compared to the prior year period.

 

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Table of Contents

 

Expenses

 

Total expenses increased $16 million, or 5%, to $320 million for the three months ended September 30, 2009, primarily due to costs associated with our 2008 acquisition of Seligman.

 

Distribution expenses decreased $4 million from the prior year period primarily due to decreased mutual fund sales volume.

 

General and administrative expense increased $21 million, or 11%, to $218 million for the three months ended September 30, 2009, primarily due to integration costs and ongoing expenses from our acquisition of Seligman in the fourth quarter of 2008 and a $10 million reserve related to a previously disclosed client mediation in the third quarter of 2009, partially offset by a positive impact of foreign currency translation. The positive impact of foreign currency translation on general and administrative expense partially offset the negative impact of foreign currency translation on management and financial advice fees.

 

Annuities

 

Our Annuities segment provides variable and fixed annuity products of RiverSource Life and RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”), collectively RiverSource Life companies, to our retail clients primarily through our Advice & Wealth Management segment and to the retail clients of unaffiliated advisors through third-party distribution.

 

The following table presents the results of operations of our Annuities segment for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

118

 

$

124

 

$

(6

)

(5

)%

Distribution fees

 

64

 

71

 

(7

)

(10

)

Net investment income

 

343

 

86

 

257

 

NM

 

Premiums

 

25

 

21

 

4

 

19

 

Other revenues

 

41

 

34

 

7

 

21

 

Total revenues

 

591

 

336

 

255

 

76

 

Banking and deposit interest expense

 

 

 

 

 

Total net revenues

 

591

 

336

 

255

 

76

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

49

 

50

 

(1

)

(2

)

Interest credited to fixed accounts

 

196

 

163

 

33

 

20

 

Benefits, claims, losses and settlement expenses

 

93

 

9

 

84

 

NM

 

Amortization of deferred acquisition costs

 

(64

)

96

 

(160

)

NM

 

General and administrative expense

 

49

 

52

 

(3

)

(6

)

Total expenses

 

323

 

370

 

(47

)

(13

)

Pretax income (loss)

 

268

 

(34

)

302

 

NM

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax income (loss) attributable to Ameriprise Financial

 

$

268

 

$

(34

)

$

302

 

NM

 

 

NM Not Meaningful.

 

Our Annuities segment pretax income was $268 million for the three months ended September 30, 2009 compared to a pretax loss of $34 million in the prior year period.

 

Net Revenues

 

Net revenues increased $255 million, or 76%, to $591 million for the three months ended September 30, 2009, primarily driven by an increase in net investment income.

 

Management and financial advice fees decreased $6 million, or 5%, to $118 million due to lower fees on variable annuities. Average variable annuities contract accumulation values decreased $3.8 billion or 8% from the prior year period primarily due to equity market declines, partially offset by net inflows.

 

Distribution fees decreased $7 million, or 10%, to $64 million for the three months ended September 30, 2009, primarily due to lower fees on variable annuities.

 

Net investment income increased $257 million to $343 million for the three months ended September 30, 2009, primarily due to an increase of $92 million in investment income on fixed maturity securities compared to the prior year period and net realized

 

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Table of Contents

 

investment losses of $156 million in the third quarter of 2008 primarily due to impairments of financial services securities. The increase in investment income on fixed maturity securities was driven by higher invested asset levels primarily due to fixed and variable annuity net inflows and higher yields on the longer-term investments in our investment portfolio.

 

Other revenues increased $7 million, or 21%, to $41 million for the three months ended September 30, 2009, primarily due to an increase in our guaranteed benefit rider fees on variable annuities.

 

Expenses

 

Total expenses decreased $47 million, or 13%, to $323 million for the three months ended September 30, 2009, primarily due to our annual review of valuation assumptions for RiverSource Life products, partially offset by growth in fixed annuity interest credited expense and market impacts on variable annuity guarantees.

 

Interest credited to fixed accounts increased $33 million, or 20%, to $196 million for the three months ended September 30, 2009, primarily driven by higher average fixed annuity account balances and higher average fixed annuity crediting rates compared to the prior year period. Average fixed annuities contract accumulation values increased $2.8 billion, or 24%, compared to the prior year period. The average fixed annuity crediting rate excluding capitalized interest increased to 4.0% in the third quarter of 2009 compared to 3.7% in the same period a year ago.

 

Benefits, claims, losses and settlement expenses increased $84 million to $93 million for the three months ended September 30, 2009 compared to $9 million in the prior year period. Benefits, claims, losses and settlement expenses for the third quarter of 2009 were impacted by $52 million in variable annuity death and living benefit expenses, net of hedges and DSIC, which included $116 million in expenses from the non-cash impact of the nonperformance spread on the fair value of living benefit liabilities. Benefits, claims, losses and settlement expenses in the third quarter of 2008 included a $27 million benefit related to variable annuity guaranteed death and living benefits, net of hedges, of which $117 million was related to the nonperformance spread. Benefits, claims, losses and settlement expenses in the third quarter of 2009 included a benefit of $47 million from updating valuation assumptions compared to a benefit of $46 million in the prior year period from updating valuation assumptions and converting to a new valuation system. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the third quarter of 2009 decreased DSIC amortization by $4 million compared to an expense of $5 million in the third quarter of 2008.

 

Amortization of DAC was a net benefit of $64 million for the three months ended September 30, 2009 compared to expense of $96 million in the prior year period primarily due to a $64 million benefit from updating valuation assumptions in the third quarter of 2009 compared to a $9 million benefit from updating valuation assumptions and converting to a new valuation system in the prior year period. In addition, DAC amortization for the three months ended September 30, 2009 included a benefit of $53 million offsetting higher variable annuity benefit expenses compared to a $13 million expense for the three months ended September 30, 2008. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the third quarter of 2009 decreased DAC amortization by $22 million compared to an expense of $35 million in the third quarter of 2008.

 

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 Table of Contents

 

Protection

 

Our Protection segment offers a variety of protection products to address the identified protection and risk management needs of our retail clients including life, disability income and property-casualty insurance.

 

The following table presents the results of operations of our Protection segment for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

13

 

$

14

 

$

(1

)

(7

)%

Distribution fees

 

24

 

26

 

(2

)

(8

)

Net investment income

 

112

 

42

 

70

 

NM

 

Premiums

 

257

 

251

 

6

 

2

 

Other revenues

 

44

 

209

 

(165

)

(79

)

Total revenues

 

450

 

542

 

(92

)

(17

)

Banking and deposit interest expense

 

 

 

 

 

Total net revenues

 

450

 

542

 

(92

)

(17

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

4

 

4

 

 

 

Interest credited to fixed accounts

 

36

 

37

 

(1

)

(3

)

Benefits, claims, losses and settlement expenses

 

213

 

187

 

26

 

14

 

Amortization of deferred acquisition costs

 

(5

)

138

 

(143

)

NM

 

General and administrative expense

 

57

 

72

 

(15

)

(21

)

Total expenses

 

305

 

438

 

(133

)

(30

)

Pretax income

 

145

 

104

 

41

 

39

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax income attributable to Ameriprise Financial

 

$

145

 

$

104

 

$

41

 

39

%

 

NM Not Meaningful.

 

Our Protection segment pretax income was $145 million for the three months ended September 30, 2009, an increase of $41 million, or 39%, from $104 million in the prior year period.

 

Net Revenues

 

Net revenues decreased $92 million, or 17%, from the prior year period due to a decrease in other revenues, partially offset by an increase in net investment income.

 

Net investment income increased $70 million to $112 million for the three months ended September 30, 2009, primarily due to net realized investment gains on Available-for-Sale securities of $7 million for the third quarter of 2009 compared to net realized investment losses on Available-for-Sale securities of $44 million for the prior year period related to impairments of financial services securities. In addition, investment income earned on fixed maturity securities increased $17 million compared to the prior year period driven by higher yields on the longer-term investments in our investment portfolio.

 

Premiums increased $6 million, or 2%, to $257 million for the three months ended September 30, 2009, primarily due to growth in Auto and Home premiums compared to the prior year period, as the business continues to increase sales through our advisor channel. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues decreased $165 million, or 79%, to $44 million for the three months ended September 30, 2009, due to a $65 million expense from updating valuation assumptions in the third quarter of 2009 compared to a $95 million benefit from updating valuation assumptions and converting to a new valuation system for RiverSource Life products in the third quarter of 2008.

 

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Table of Contents

 

Expenses

 

Benefits, claims, losses and settlement expenses increased $26 million, or 14%, to $213 million for the three months ended September 30, 2009, primarily due to volume-driven increases in Auto and Home reserves compared to the prior year period and a $33 million benefit from updating valuation assumptions in the third quarter of 2009 compared to a $43 million benefit from updating valuation assumptions and implementing a new valuation system in the third quarter of 2008.

 

Amortization of DAC decreased $143 million to a benefit of $5 million for the three months ended September 30, 2009 compared to an expense of $138 million for the three months ended September 30, 2008, primarily due to a benefit of $55 million from updating valuation assumptions in the third quarter of 2009 compared to an expense of $90 million from updating valuation assumptions and converting to a new valuation system in the prior year period.

 

General and administrative expense decreased $15 million, or 21%, to $57 million for the three months ended September 30, 2009, primarily due to the write-off of certain capitalized software costs in the third quarter of 2008 and lower premium taxes compared to the prior year period.

 

Corporate & Other

 

The following table presents the results of operations of our Corporate & Other segment for the three months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Net investment loss

 

$

(11

)

$

(9

)

$

(2

)

(22

)%

Other revenues

 

2

 

 

2

 

NM

 

Total revenues

 

(9

)

(9

)

 

 

Banking and deposit interest expense

 

2

 

 

2

 

NM

 

Total net revenues

 

(11

)

(9

)

(2

)

(22

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Interest and debt expense

 

45

 

27

 

18

 

67

 

General and administrative expense

 

39

 

134

 

(95

)

(71

)

Total expenses

 

84

 

161

 

(77

)

(48

)

Pretax loss

 

(95

)

(170

)

75

 

44

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax loss attributable to Ameriprise Financial

 

$

(95

)

$

(170

)

$

75

 

44

%

 

NM Not Meaningful.

 

Our Corporate & Other segment pretax loss for the three months ended September 30, 2009 was $95 million compared to $170 million in the prior year period. Interest and debt expense for the three months ended September 30, 2009 included a $13 million expense related to the early retirement of $450 million of our 5.35% senior notes due 2010. General and administrative expense for the third quarter of 2009 included $10 million of support costs of various 2a-7 money market mutual funds managed by our subsidiary, RiverSource Investments, LLC, as well as $4 million of one-time costs associated with our acquisition of Columbia Management. General and administrative expense for the third quarter of 2008 included $77 million related to the mark-to-market of Lehman Brothers securities that we purchased from various 2a-7 money market mutual funds managed by our subsidiary, RiverSource Investments, LLC and $36 million for the cost of guaranteeing specific client holdings in an unaffiliated money market mutual fund.

 

49



Table of Contents

 

Consolidated Results of Operations for the Nine Months Ended September 30, 2009 and 2008
 

The following table presents our consolidated results of operations for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

1,849

 

$

2,292

 

$

(443

)

(19

)%

Distribution fees

 

1,029

 

1,231

 

(202

)

(16

)

Net investment income

 

1,477

 

856

 

621

 

73

 

Premiums

 

811

 

777

 

34

 

4

 

Other revenues

 

493

 

564

 

(71

)

(13

)

Total revenues

 

5,659

 

5,720

 

(61

)

(1

)

Banking and deposit interest expense

 

113

 

132

 

(19

)

(14

)

Total net revenues

 

5,546

 

5,588

 

(42

)

(1

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

1,274

 

1,499

 

(225

)

(15

)

Interest credited to fixed accounts

 

674

 

587

 

87

 

15

 

Benefits, claims, losses and settlement expenses

 

993

 

794

 

199

 

25

 

Amortization of deferred acquisition costs

 

97

 

538

 

(441

)

(82

)

Interest and debt expense

 

99

 

81

 

18

 

22

 

General and administrative expense

 

1,820

 

1,843

 

(23

)

(1

)

Total expenses

 

4,957

 

5,342

 

(385

)

(7

)

Pretax income

 

589

 

246

 

343

 

NM

 

Income tax provision (benefit)

 

126

 

(61

)

187

 

NM

 

Net income

 

463

 

307

 

156

 

51

 

Less: Net loss attributable to noncontrolling interests

 

(22

)

(24

)

2

 

8

 

Net income attributable to Ameriprise Financial

 

$

485

 

$

331

 

$

154

 

47

%

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

 

Net investment income before impairment losses on securities

 

$

1,562

 

 

 

 

 

 

 

Total other-than-temporary impairment losses on securities

 

(68

)

 

 

 

 

 

 

Portion of loss recognized in other comprehensive income

 

(17

)

 

 

 

 

 

 

Net impairment losses recognized in net investment income

 

(85

)

 

 

 

 

 

 

Net investment income

 

$

1,477

 

 

 

 

 

 

 

 

NM Not Meaningful.

 

Overall

 

Net income attributable to Ameriprise Financial for the nine months ended September 30, 2009 was $485 million, up $154 million, or 47%, from $331 million for the prior year period. Results for the 2009 period reflect the impacts from a 32% decline in the daily average S&P 500 Index on a period-over-period basis, the costs of integrating our 2008 acquisitions and the ongoing operating expenses of those acquisitions offset by re-engineering expense savings and cost controls, net realized gains on sales of Available-for-Sale securities and an increase in investment income on fixed maturity securities. Results for the 2008 period were impacted by market dislocation in the third quarter of 2008, including pretax net realized investment losses and money market support costs. Asset-based fee revenues in the 2009 period were negatively impacted by the period-over-period market declines, partially offset by a decrease in distribution expenses. The market performance in the 2009 period had a favorable impact to DAC and DSIC amortization and an unfavorable impact to variable annuity death and living benefits, net of hedges, DAC and DSIC amortization. The market performance in the 2008 period had a negative impact to DAC and DSIC amortization and a favorable impact to variable annuity death and living benefits, net of hedges and DAC amortization.

 

Our annual review of valuation assumptions for RiverSource Life products in the third quarter of 2009 resulted in a net pretax benefit of $134 million compared to a net pretax benefit of $106 million in the prior year period resulting from our review of valuation assumptions and our conversion to a new industry standard valuation system that provides enhanced modeling capabilities.

 

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Table of Contents

 

Net Revenues

 

Net revenues decreased $42 million, or 1%, to $5.5 billion for the nine months ended September 30, 2009 compared to $5.6 billion for the prior year period. The decrease in net revenues was driven by lower management and financial advice fees and distribution fees, primarily due to lower average asset levels attributable to the decline in equity markets, and the impact of updating valuation assumptions, partially offset by an increase in net investment income and revenues from our 2008 acquisitions.

 

Management and financial advice fees decreased $443 million, or 19%, to $1.8 billion for the nine months ended September 30, 2009 compared to $2.3 billion for the prior year period driven by a 32% decline in the daily average S&P 500 Index on a period-over-period basis, as well as the negative impact of foreign currency translation. Wrap account assets increased $5.5 billion, or 7%, compared to the prior year period due to net inflows, including an increase in wrap account assets due to the acquisition of H&R Block Financial Advisors, Inc. in the fourth quarter of 2008, partially offset by market depreciation. Total Asset Management account assets increased $12.6 billion, or 6%, compared to the prior year period primarily due to bond market appreciation and an increase in managed assets due to the acquisition of J. & W. Seligman & Co. (“Seligman”) in the fourth quarter of 2008, partially offset by net outflows and the impact of changes in foreign currency exchange rates.

 

Distribution fees decreased $202 million, or 16%, to $1.0 billion for the nine months ended September 30, 2009 compared to $1.2 billion in the prior year period primarily due to lower activity levels and lower asset-based fees driven by lower equity markets, partially offset by revenues from our 2008 acquisitions.

 

Net investment income increased $621 million, or 73%, to $1.5 billion for the nine months ended September 30, 2009 compared to $856 million in the prior year period, primarily due to $35 million in net realized investment gains for the nine months ended September 30, 2009 compared to $368 million in net realized investment losses for the nine months ended September 30, 2008 and an increase of $163 million in investment income on fixed maturity securities. For the nine months ended September 30, 2009, net realized gains from sales of Available-for-Sale securities were $132 million and other-than-temporary impairments recognized in earnings were $85 million. For the nine months ended September 30, 2008, net realized gains from sales of Available-for-Sale securities were $5 million and other-than-temporary impairments recognized in earnings were $373 million. The increase in investment income earned on fixed maturity securities was driven by higher invested asset levels, primarily from spread product net inflows and higher yields on the longer-term investments in our investment portfolio.

 

Premiums increased $34 million, or 4%, to $811 million for the nine months ended September 30, 2009 primarily due to growth in Auto and Home premiums compared to the prior year period driven by higher volumes. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues decreased $71 million, or 13%, to $493 million for the nine months ended September 30, 2009 compared to $564 million in the prior year period primarily due to a $65 million negative impact from updating valuation assumptions in the third quarter of 2009 compared to a $95 million benefit from updating valuation assumptions and converting to a new valuation system for RiverSource Life products in the third quarter of 2008, partially offset by a $58 million gain on the repurchase of $135 million of our 7.5% junior subordinated notes due 2066, an increase in our guaranteed benefit rider fees on variable annuities and an increase in revenues related to certain consolidated limited partnerships.

 

Banking and deposit interest expense decreased $19 million, or 14%, to $113 million for the nine months ended September 30, 2009 compared to $132 million in the prior year period primarily due to lower crediting rates on certificates and deposit products, partially offset by a 17% year-over-year increase in on-balance sheet deposits.

 

Expenses

 

Total expenses decreased $385 million, or 7%, to $5.0 billion for the nine months ended September 30, 2009 compared to $5.3 billion for the nine months ended September 30, 2008. The decrease in expenses was primarily due to a decrease in distribution expenses, the impact of updating valuation assumptions and cost controls, partially offset by ongoing and integration expenses related to our 2008 acquisitions and higher interest credited to fixed accounts compared to the prior year period.

 

Distribution expenses decreased $225 million, or 15%, to $1.3 billion for the nine months ended September 30, 2009 compared to $1.5 billion in the prior year period reflecting lower equity markets and activity levels, partially offset by our 2008 acquisitions.

 

Interest credited to fixed accounts increased $87 million, or 15%, to $674 million for the nine months ended September 30, 2009 compared to $587 million for the nine months ended September 30, 2008, primarily due to higher average fixed annuity account balances and higher average fixed annuity crediting rates compared to the prior year period. Average fixed annuities contract accumulation values increased $1.8 billion, or 15%, compared to the prior year period. The average fixed annuity crediting rate excluding capitalized interest increased to 4.0% in the 2009 period compared to 3.7% in the prior year period.

 

Benefits, claims, losses and settlement expenses increased $199 million, or 25%, to $993 million for the nine months ended September 30, 2009 compared to $794 million for the prior year period, primarily driven by an increase in expenses from variable annuity living benefit guarantees. Benefits, claims, losses and settlement expenses in the 2009 period were impacted by $136 million in variable annuity living benefit expenses, net of hedges and DSIC, which included $517 million in expenses from the non-cash impact of the nonperformance spread on the fair value of living benefit liabilities. Benefits,

 

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Table of Contents

 

claims, losses and settlement expenses in the 2008 period included a $32 million benefit related to variable annuity guaranteed living benefits, net of hedges, of which $140 million was related to the nonperformance spread. Benefits, claims, losses and settlement expenses in the 2009 period included a benefit of $80 million from updating valuation assumptions compared to a benefit of $89 million in the prior year period from updating valuation assumptions and converting to a new valuation system. The increase to benefits, claims, losses and settlement expenses compared to the prior year period was also due to increased auto and home benefits from higher business volumes. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the 2009 period decreased DSIC amortization by $4 million compared to an expense of $9 million in the prior year period.

 

Amortization of DAC decreased $441 million, or 82%, to $97 million for the nine months ended September 30, 2009 compared to $538 million in the prior year period. DAC amortization for the 2009 period included a $119 million benefit from updating valuation assumptions in the third quarter of 2009 compared to an expense of $81 million from updating valuation assumptions and converting to a new valuation system in the prior year period. In addition, DAC amortization for the 2009 period included a benefit of $113 million offsetting higher variable annuity benefit expenses compared to a $15 million expense for the prior year period. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the 2009 period decreased DAC amortization by $22 million compared to an expense of $73 million in the prior year period.

 

General and administrative expense decreased $23 million, or 1%, to $1.8 billion for the nine months ended September 30, 2009. General and administrative expense for the 2009 period included re-engineering saves offset by integration costs of $76 million and ongoing costs from our 2008 acquisitions, as well as support costs related to various 2a-7 money market funds managed by our subsidiary, RiverSource Investments, LLC and an increase in legal expenses. General and administrative expense for the 2008 period included a $77 million expense related to the mark-to-market of Lehman Brothers securities that we purchased from various 2a-7 money market mutual funds managed by RiverSource Investments, LLC and $36 million in costs related to guaranteeing specific client holdings in an unaffiliated money market mutual fund. The positive impact of foreign currency translation on general and administrative expense in the 2009 period partially offset the negative impact of foreign currency translation on management and financial advice fees.

 

Income Taxes

 

Our effective tax rate on net income attributable to Ameriprise Financial increased to 21.5% for the nine months ended September 30, 2009, compared to (24.9)% for the nine months ended September 30, 2008. Our effective tax rate for the nine months ended September 30, 2008 reflects the level of pretax income relative to tax advantaged items and $79 million in tax benefits related to changes in the status of current audits and closed audits, tax planning initiatives, and the finalization of prior year tax returns.

 

52



Table of Contents

 

Results of Operations by Segment for the Nine Months Ended September 30, 2009 and 2008

 

The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 17 to our Consolidated Financial Statements for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

Percent

 

 

 

Percent

 

 

 

 

 

Share of

 

 

 

Share of

 

 

 

2009

 

Total

 

2008

 

Total

 

 

 

(in millions, except percentages)

 

Total net revenues

 

 

 

 

 

 

 

 

 

Advice & Wealth Management

 

$

2,353

 

42

%

$

2,539

 

46

%

Asset Management

 

863

 

16

 

1,024

 

18

 

Annuities

 

1,645

 

30

 

1,308

 

23

 

Protection

 

1,443

 

26

 

1,504

 

27

 

Corporate & Other

 

13

 

 

14

 

 

Eliminations

 

(771

)

(14

)

(801

)

(14

)

Total net revenues

 

$

5,546

 

100

%

$

5,588

 

100

%

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

 

 

 

 

 

 

 

Advice & Wealth Management

 

$

2,405

 

49

%

$

2,501

 

47

%

Asset Management

 

895

 

18

 

973

 

18

 

Annuities

 

1,154

 

23

 

1,223

 

23

 

Protection

 

1,076

 

22

 

1,185

 

22

 

Corporate & Other

 

198

 

4

 

261

 

5

 

Eliminations

 

(771

)

(16

)

(801

)

(15

)

Total expenses

 

$

4,957

 

100

%

$

5,342

 

100

%

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

Asset Management

 

$

(22

)

100

%

$

(24

)

100

%

 

 

 

 

 

 

 

 

 

 

Pretax income (loss) attributable to Ameriprise Financial

 

 

 

 

 

 

 

 

 

Advice & Wealth Management

 

$

(52

)

(8

)%

$

38

 

14

%

Asset Management

 

(10

)

(2

)

75

 

28

 

Annuities

 

491

 

80

 

85

 

31

 

Protection

 

367

 

60

 

319

 

118

 

Corporate & Other

 

(185

)

(30

)

(247

)

(91

)

Pretax income attributable to Ameriprise Financial

 

$

611

 

100

%

$

270

 

100

%

 

53



Table of Contents

 

Advice & Wealth Management

 

Our Advice & Wealth Management segment provides financial planning and advice, as well as full service brokerage and banking services, primarily to retail clients, through our financial advisors. Our affiliated advisors utilize a diversified selection of both proprietary and non-proprietary products to help clients meet their financial needs.

 

The following table presents the results of operations of our Advice & Wealth Management segment for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

882

 

$

1,047

 

$

(165

)

(16

)%

Distribution fees

 

1,286

 

1,482

 

(196

)

(13

)

Net investment income

 

234

 

87

 

147

 

NM

 

Other revenues

 

59

 

55

 

4

 

7

 

Total revenues

 

2,461

 

2,671

 

(210

)

(8

)

Banking and deposit interest expense

 

108

 

132

 

(24

)

(18

)

Total net revenues

 

2,353

 

2,539

 

(186

)

(7

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

1,440

 

1,664

 

(224

)

(13

)

General and administrative expense

 

965

 

837

 

128

 

15

 

Total expenses

 

2,405

 

2,501

 

(96

)

(4

)

Pretax income (loss)

 

(52

)

38

 

(90

)

NM

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax income (loss) attributable to Ameriprise Financial

 

$

(52

)

$

38

 

$

(90

)

NM

 

 

NM Not Meaningful.

 

Our Advice & Wealth Management segment pretax loss was $52 million for the nine months ended September 30, 2009 compared to pretax income of $38 million for the nine months ended September 30, 2008.

 

Net Revenues

 

Net revenues were $2.4 billion for the nine months ended September 30, 2009 compared to $2.5 billion in the prior year period, a decrease of $186 million, or 7%, primarily driven by decreases in management and financial advice fees and distribution fees, partially offset by an increase in net investment income.

 

Management and financial advice fees decreased $165 million, or 16%, to $882 million for the nine months ended September 30, 2009, driven by a 32% decline in the daily average S&P 500 Index on a period-over-period basis. Wrap account assets increased $5.5 billion, or 7%, compared to the prior year period due to net inflows, including an increase in wrap account assets due to the acquisition of H&R Block Financial Advisors, Inc. in the fourth quarter of 2008, partially offset by market depreciation. Financial planning fees were lower for the nine months ended September 30, 2009 compared to the prior year period resulting from accelerated financial plan delivery standards in the 2008 period.

 

Distribution fees decreased $196 million, or 13%, to $1.3 billion for the nine months ended September 30, 2009, primarily due to lower activity levels and lower asset-based fees driven by lower equity markets, partially offset by revenues from our 2008 acquisitions.

 

Net investment income increased $147 million to $234 million for the nine months ended September 30, 2009. Net realized investment losses were $13 million in the 2009 period compared to $139 million for the prior year period due to impairments recorded on non-agency, residential mortgage-backed securities and financial services securities. Investment income on fixed maturity securities increased $24 million driven by higher invested asset levels, primarily from spread product net inflows and higher yields on the longer-term investments in our investment portfolio.

 

Banking and deposit interest expense decreased $24 million, or 18%, to $108 million for the nine months ended September 30, 2009, due to lower crediting rates on certificates and deposit products, partially offset by a 17% period-over-period increase in on-balance sheet deposits.

 

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Expenses

 

Total expenses decreased $96 million, or 4%, to $2.4 billion for the nine months ended September 30, 2009, due to a decrease in distribution expenses partially offset by an increase in general and administrative expense.

 

Distribution expenses decreased $224 million, or 13%, to $1.4 billion for the nine months ended September 30, 2009, reflecting lower equity markets and activity levels, partially offset by our 2008 acquisitions.

 

General and administrative expense increased $128 million, or 15%, from the prior year period primarily due to integration costs and ongoing expenses from our acquisition of H&R Block Financial Advisors, Inc. in the fourth quarter of 2008, partially offset by lower expenses due to expense controls.

 

Asset Management

 

Our Asset Management segment provides investment advice and investment products to retail and institutional clients.

 

The following table presents the results of operations of our Asset Management segment for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

709

 

$

859

 

$

(150

)

(17

)%

Distribution fees

 

156

 

198

 

(42

)

(21

)

Net investment income (loss)

 

11

 

(6

)

17

 

NM

 

Other revenues

 

(8

)

(22

)

14

 

64

 

Total revenues

 

868

 

1,029

 

(161

)

(16

)

Banking and deposit interest expense

 

5

 

5

 

 

 

Total net revenues

 

863

 

1,024

 

(161

)

(16

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

264

 

330

 

(66

)

(20

)

Amortization of deferred acquisition costs

 

17

 

19

 

(2

)

(11

)

General and administrative expense

 

614

 

624

 

(10

)

(2

)

Total expenses

 

895

 

973

 

(78

)

(8

)

Pretax income (loss)

 

(32

)

51

 

(83

)

NM

 

Less: Net loss attributable to noncontrolling interests

 

(22

)

(24

)

2

 

8

 

Pretax income (loss) attributable to Ameriprise Financial

 

$

(10

)

$

75

 

$

(85

)

NM

 

 

NM Not Meaningful.

 

Our Asset Management segment pretax loss attributable to Ameriprise Financial was $10 million for the nine months ended September 30, 2009 compared to pretax income attributable to Ameriprise Financial of $75 million in the prior year period.

 

Net Revenues

 

Net revenues decreased $161 million, or 16%, to $863 million for the nine months ended September 30, 2009, primarily due to declines in management and financial advice fees and distribution fees.

 

Management and financial advice fees decreased $150 million, or 17%, to $709 million for the nine months ended September 30, 2009, driven by a 32% decline in the daily average S&P 500 Index on a period-over-period basis, as well as the negative impact of foreign currency translation. Total Asset Management account assets increased $12.6 billion, or 6%, compared to the prior year period primarily due to bond market appreciation and an increase in managed assets due to the acquisition of J. & W. Seligman & Co. (“Seligman”) in the fourth quarter of 2008, partially offset by net outflows and the impact of changes in foreign currency exchange rates.

 

Distribution fees decreased $42 million, or 21%, to $156 million for the nine months ended September 30, 2009, primarily due to lower 12b-1 fees driven by lower average assets, as well as decreased mutual fund sales volume.

 

Net investment income was $11 million for the nine months ended September 30, 2009 compared to net investment loss of $6 million for the prior year period primarily due to losses related to mark-to-market adjustments on seed money investments in the 2008 period.

 

Other revenues increased $14 million compared to the prior year period due to an increase in revenues related to certain consolidated limited partnerships.

 

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Table of Contents

 

Expenses

 

Total expenses decreased $78 million, or 8%, to $895 million for the nine months ended September 30, 2009, primarily due to decreases in distribution expenses and general and administrative expense.

 

Distribution expenses decreased $66 million, or 20%, to $264 million for the nine months ended September 30, 2009, primarily due to decreased mutual fund sales volume.

 

General and administrative expense decreased $10 million, or 2%, to $614 million for the nine months ended September 30, 2009, primarily due to expense controls and a positive impact of foreign currency translation, partially offset by integration costs and ongoing expenses from our acquisition of Seligman in the fourth quarter of 2008 and an increase in legal expenses. The positive impact of foreign currency translation on general and administrative expense partially offset the negative impact of foreign currency translation on management and financial advice fees.

 

Annuities

 

Our Annuities segment provides variable and fixed annuity products of our RiverSource Life companies to our retail clients primarily through our Advice & Wealth Management segment and to the retail clients of unaffiliated advisors through third-party distribution.

 

The following table presents the results of operations of our Annuities segment for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

312

 

$

380

 

$

(68

)

(18

)%

Distribution fees

 

179

 

213

 

(34

)

(16

)

Net investment income

 

971

 

560

 

411

 

73

 

Premiums

 

72

 

60

 

12

 

20

 

Other revenues

 

111

 

95

 

16

 

17

 

Total revenues

 

1,645

 

1,308

 

337

 

26

 

Banking and deposit interest expense

 

 

 

 

 

Total net revenues

 

1,645

 

1,308

 

337

 

26

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

154

 

142

 

12

 

8

 

Interest credited to fixed accounts

 

566

 

479

 

87

 

18

 

Benefits, claims, losses and settlement expenses

 

315

 

156

 

159

 

NM

 

Amortization of deferred acquisition costs

 

(27

)

281

 

(308

)

NM

 

General and administrative expense

 

146

 

165

 

(19

)

(12

)

Total expenses

 

1,154

 

1,223

 

(69

)

(6

)

Pretax income

 

491

 

85

 

406

 

NM

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax income attributable to Ameriprise Financial

 

$

491

 

$

85

 

$

406

 

NM

 

 

NM Not Meaningful.

 

Our Annuities segment pretax income was $491 million for the nine months ended September 30, 2009, up $406 million from $85 million in the prior year period.

 

Net Revenues

 

Net revenues increased $337 million, or 26%, to $1.6 billion for the nine months ended September 30, 2009, primarily driven by an increase in net investment income, partially offset by decreases in management and financial advice fees and distribution fees.

 

Management and financial advice fees decreased $68 million, or 18%, to $312 million for the nine months ended September 30, 2009, due to lower fees on variable annuities. Average variable annuities contract accumulation values decreased $9.8 billion or 19.8% from the prior year period primarily due to equity market declines, partially offset by net inflows.

 

Distribution fees decreased $34 million, or 16%, to $179 million for the nine months ended September 30, 2009, primarily due to lower fees on variable annuities driven by the equity market decline.

 

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Table of Contents

 

Net investment income increased $411 million, or 73%, to $971 million for the nine months ended September 30, 2009, primarily due to an increase of $167 million in investment income on fixed maturity securities compared to the prior year period and net realized investment gains of $28 million in the 2009 period compared to net realized investment losses of $181 million in the 2008 period primarily due to impairments of financial services securities. The increase in investment income on fixed maturity securities was driven by higher invested asset levels primarily due to fixed and variable annuity net inflows and higher yields on the longer-term investments in our investment portfolio.

 

Premiums increased $12 million to $72 million for the nine months ended September 30, 2009, due to higher sales of immediate annuities with life contingencies.

 

Other revenues increased $16 million to $111 million for the nine months ended September 30, 2009, primarily due to an increase in guaranteed benefit rider fees on variable annuities.

 

Expenses

 

Total expenses decreased $69 million, or 6%, to $1.2 billion for the nine months ended September 30, 2009, primarily due to a decrease in DAC amortization, partially offset by increases in benefits, claims, losses and settlement expenses and interest credited to fixed accounts.

 

Distribution expenses increased $12 million, or 8%, to $154 million for the nine months ended September 30, 2009, primarily due to higher non-deferred distribution-related costs driven by higher sales of fixed annuities.

 

Interest credited to fixed accounts increased $87 million, or 18%, to $566 million for the nine months ended September 30, 2009, primarily due to higher average fixed annuity account balances and higher average fixed annuity crediting rates compared to the prior year period. Average fixed annuities contract accumulation values increased $1.8 billion, or 15%, compared to the prior year period. The average fixed annuity crediting rate excluding capitalized interest increased to 4.0% in the 2009 period compared to 3.7% in the same period a year ago.

 

Benefits, claims, losses and settlement expenses increased $159 million to $315 million for the nine months ended September 30, 2009, primarily driven by an increase in expenses from variable annuity living benefit guarantees. Benefits, claims, losses and settlement expenses in the 2009 period were impacted by $136 million in variable annuity living benefit expenses, net of hedges and DSIC, which included $517 million in expenses from the non-cash impact of the nonperformance spread on the fair value of living benefit liabilities. Benefits, claims, losses and settlement expenses in the 2008 period included a $32 million benefit related to variable annuity guaranteed living benefits, net of hedges, of which $140 million was related to the nonperformance spread. Benefits, claims, losses and settlement expenses in the 2009 period included a benefit of $47 million from updating valuation assumptions compared to a benefit of $46 million in the prior year period from updating valuation assumptions and converting to a new valuation system. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the 2009 period decreased DSIC amortization by $4 million compared to an expense of $9 million in the prior year period.

 

Amortization of DAC decreased $308 million to a net benefit of $27 million for the nine months ended September 30, 2009 compared to an expense of $281 million in the prior year period. DAC amortization for the 2009 period included a $64 million benefit from updating valuation assumptions in the 2009 period compared to a $9 million benefit from updating valuation assumptions and converting to a new valuation system in the prior year period. In addition, DAC amortization for the 2009 period included a benefit of $113 million offsetting higher variable annuity benefit expenses compared to a $15 million expense for the prior year period. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the 2009 period decreased DAC amortization by $20 million compared to an expense of $66 million in the prior year period. Variable annuity amortization decreased for the nine months ended September 30, 2009 compared to the prior year period driven by lower period-over-period account values and associated asset fees.

 

General and administrative expense decreased $19 million, or 12%, to $146 million for the nine months ended September 30, 2009, primarily due to expense controls.

 

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Table of Contents

 

Protection

 

Our Protection segment offers a variety of protection products to address the identified protection and risk management needs of our retail clients including life, disability income and property-casualty insurance.

 

The following table presents the results of operations of our Protection segment for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Management and financial advice fees

 

$

34

 

$

45

 

$

(11

)

(24

)%

Distribution fees

 

72

 

78

 

(6

)

(8

)

Net investment income

 

309

 

210

 

99

 

47

 

Premiums

 

758

 

740

 

18

 

2

 

Other revenues

 

270

 

432

 

(162

)

(38

)

Total revenues

 

1,443

 

1,505

 

(62

)

(4

)

Banking and deposit interest expense

 

 

1

 

(1

)

(100

)

Total net revenues

 

1,443

 

1,504

 

(61

)

(4

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

15

 

15

 

 

 

Interest credited to fixed accounts

 

108

 

108

 

 

 

Benefits, claims, losses and settlement expenses

 

678

 

638

 

40

 

6

 

Amortization of deferred acquisition costs

 

107

 

238

 

(131

)

(55

)

General and administrative expense

 

168

 

186

 

(18

)

(10

)

Total expenses

 

1,076

 

1,185

 

(109

)

(9

)

Pretax income

 

367

 

319

 

48

 

15

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax income attributable to Ameriprise Financial

 

$

367

 

$

319

 

$

48

 

15

%

 

Our Protection segment pretax income was $367 million for the nine months ended September 30, 2009, up $48 million, or 15%, from $319 million in the prior year period.

 

Net Revenues

 

Net revenues decreased $61 million, or 4%, to $1.4 billion for the nine months ended September 30, 2009, primarily due to a decrease in other revenues related to updating valuation assumptions, partially offset by an increase in net investment income and premiums.

 

Management and financial advice fees decreased $11 million, or 24%, to $34 million for the nine months ended September 30, 2009, primarily driven by lower equity markets.

 

Net investment income increased $99 million, or 47%, to $309 million for the nine months ended September 30, 2009, primarily due to net realized investment gains on Available-for-Sale securities of $14 million for the 2009 period compared to net realized investment losses on Available-for-Sale securities of $48 million for the prior year period related to impairments of financial services securities. In addition, investment income earned on fixed maturity securities increased $28 million compared to the prior year period driven by higher yields on the longer-term investments in our investment portfolio.

 

Premiums increased $18 million, or 2%, to $758 million for the nine months ended September 30, 2009, primarily due to growth in Auto and Home premiums compared to the prior year period driven by higher volumes. Auto and Home policy counts increased 8% period-over-period.

 

Other revenues decreased $162 million, or 38%, to $270 million for the nine months ended September 30, 2009, due to a $65 million expense from updating valuation assumptions in the 2009 period compared to a $95 million benefit from updating valuation assumptions and converting to a new valuation system for RiverSource Life products in the 2008 period.

 

Expenses

 

Total expenses decreased $109 million, or 9%, to $1.1 billion for the nine months ended September 30, 2009, primarily due to a decrease in amortization of DAC.

 

Benefits, claims, losses and settlement expenses increased $40 million, or 6%, to $678 million for the nine months ended September 30, 2009, primarily due to volume-driven increases in Auto and Home reserves compared to the prior year period

 

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and a $33 million benefit from updating valuation assumptions in the 2009 period compared to a $43 million benefit from updating valuation assumptions and implementing a new valuation system in the 2008 period.

 

Amortization of DAC decreased $131 million, or 55%, to $107 million for the nine months ended September 30, 2009, primarily due to a benefit of $55 million from updating valuation assumptions in the 2009 period compared to an expense of $90 million from updating valuation assumptions and converting to a new valuation system in the prior year period. The impact of higher policyholder account balances as a result of equity and fixed income market performance in the 2009 period decreased DAC amortization by $2 million compared to an expense of $7 million in the prior year period.

 

General and administrative expense decreased $18 million, or 10%, to $168 million for the nine months ended September 30, 2009, primarily due to the write-off of certain capitalized software costs in the 2008 period and lower premium taxes compared to the prior year period.

 

Corporate & Other

 

The following table presents the results of operations of our Corporate & Other segment for the nine months ended September 30, 2009 and 2008:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

2009

 

2008

 

Change

 

 

 

(in millions, except percentages)

 

Revenues

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

$

(47

)

$

11

 

$

(58

)

NM

 

Other revenues

 

61

 

4

 

57

 

NM

 

Total revenues

 

14

 

15

 

(1

)

(7

)%

Banking and deposit interest expense

 

1

 

1

 

 

 

Total net revenues

 

13

 

14

 

(1

)

(7

)

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Distribution expenses

 

2

 

1

 

1

 

100

 

Interest and debt expense

 

99

 

81

 

18

 

22

 

General and administrative expense

 

97

 

179

 

(82

)

(46

)

Total expenses

 

198

 

261

 

(63

)

(24

)

Pretax loss

 

(185

)

(247

)

62

 

25

 

Less: Net loss attributable to noncontrolling interests

 

 

 

 

 

Pretax loss attributable to Ameriprise Financial

 

$

(185

)

$

(247

)

$

62

 

25

%

 


NM Not Meaningful.

 

Our Corporate & Other segment pretax loss was $185 million for the nine months ended September 30, 2009 compared to $247 million in the prior year period.

 

Net revenues decreased $1 million compared to the prior year period. Net investment loss for the nine months ended September 30, 2009 reflects the transfer priced interest income allocated to the Annuities and Protection segments for maintaining excess liquidity and the period-over-period decline in short-term interest rates. The increase in other revenues compared to the prior year period was due to a $58 million gain on the repurchase of $135 million of our 7.5% junior subordinated notes due 2066.

 

Total expenses decreased $63 million, or 24%, to $198 million for the nine months ended September 30, 2009. Interest and debt expense for the nine months ended September 30, 2009 included a $13 million expense related to the early retirement of $450 million of our 5.35% senior notes due 2010. General and administrative expense decreased $82 million, or 46%, compared to the prior year period due to money market support costs incurred in the 2008 period, including $77 million related to the mark-to-market of Lehman Brothers securities that we purchased from various 2a-7 money market mutual funds managed by our subsidiary, RiverSource Investments, LLC and $36 million for the cost of guaranteeing specific client holdings in an unaffiliated money market mutual fund, partially offset by higher legal expenses and money market support costs in the 2009 period.

 

Market Risk

 

Equity market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the spread income generated on our annuities, banking, and face amount certificate products and UL insurance products, the value of DAC and DSIC assets associated with variable annuity and variable UL products, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.

 

The guaranteed benefits associated with our variable annuities are guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum death benefits (“GMDB”) and guaranteed

 

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Table of Contents

 

minimum income benefits (“GMIB”) options. Each of these guaranteed benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying investment assets.

 

To evaluate interest rate and equity market risk we perform sensitivity testing which measures the impact on pretax income from the sources listed below for a 12 month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity markets. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity market risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, equity indexed annuities, stock market certificates and the associated hedge assets, we assumed no change in implied market volatility despite the 10% drop in equity markets.

 

The numbers below show our estimates of the pretax impacts on income from these hypothetical market movements, net of hedging, as of September 30, 2009.

 

 

 

Equity Market Exposure to Pretax Income

 

Equity Market Decline 10%

 

Before Hedge Impact

 

Hedge Impact

 

Net Impact

 

 

 

(in millions)

 

Asset-based management and distribution fees

 

$

(154

)

$

 

$

(154

)

DAC and DSIC amortization(1)

 

(149

)

 

(149

)

Variable annuity riders:

 

 

 

 

 

 

 

GMDB and GMIB

 

(63

)

3

 

(60

)

GMWB

 

(104

)

108

 

4

 

GMAB

 

(32

)

20

 

(12

)

DAC and DSIC amortization(2)

 

N/A

 

N/A

 

(2

)

Total variable annuity riders

 

(199

)

131

 

(70

)

Equity indexed annuities

 

1

 

(1

)

 

Stock market certificates

 

7

 

(7

)

 

Total

 

$

(494

)

$

123

 

$

(373

)

 

 

 

Interest Rate Exposure to Pretax Income

 

Interest Rate Increase 100 Basis Points

 

Before Hedge Impact

 

Hedge Impact

 

Net Impact

 

 

 

(in millions)

 

Asset-based management and distribution fees

 

$

(17

)

$

 

$

(17

)

Variable annuity riders:

 

 

 

 

 

 

 

GMWB

 

214

 

(313

)

(99

)

GMAB

 

41

 

(14

)

27

 

DAC and DSIC amortization(2)

 

N/A

 

N/A

 

22

 

Total variable annuity riders

 

255

 

(327

)

(50

)

Fixed annuities, fixed portion of variable annuities and fixed insurance products

 

(9

)

 

(9

)

Flexible savings and other fixed rate savings products

 

(3

)

 

(3

)

Total

 

$

226

 

$

(327

)

$

(79

)

 


N/A Not Applicable.

(1) Market impact on DAC and DSIC amortization resulting from lower projected profits.

(2) Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.

 

In evaluating equity market risk, the estimated impact on DAC and DSIC amortization resulting from lower projected profits as a result of the equity market decline is shown separately from the estimated impact on DAC and DSIC amortization resulting from changes in the values of GMWB and GMAB riders net of hedges. In estimating the impact on DAC and DSIC amortization resulting from lower projected profits, we have not changed our assumed equity asset growth rates. This is a significantly more conservative estimate than if we assumed management follows its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. See Critical Accounting Policies for additional discussion on our DAC and DSIC accounting policies. We make this same conservative assumption in estimating the impact from GMDB and GMIB riders.

 

Net impacts shown in the above table from GMWB and GMAB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with key policyholder behavior assumptions loaded to provide risk margins and with discount rates increased to reflect a current market estimate of

 

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our risk of nonperformance specific to these liabilities. Management has elected to hedge based on best estimate policyholder assumptions and explicitly does not hedge nonperformance spread risk. Net impacts shown in the above table from GMDB and GMIB reflect the fact that these guaranteed benefits are primarily retained by us and not hedged. In the third quarter of 2009, we entered into a limited number of derivative contracts to economically hedge equity exposure related to GMDB provisions on variable annuity contracts written previously in 2009.

 

Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity values fall by 10%, that management does not increase assumed equity asset growth rates to anticipate recovery of the drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, we have not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor have we tried to anticipate actions management might take to increase revenues or reduce expenses in these scenarios.

 

The selection of a 100 basis point interest rate increase as well as a 10% equity market decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.

 

Credit Risk

 

We are exposed to credit risk within our investment portfolio, including our loan portfolio, and through our derivative and reinsurance activities. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the financial instrument or contract. We consider our total potential credit exposure to each counterparty and its affiliates to ensure compliance with pre-established credit guidelines at the time we enter into a transaction which would potentially increase our credit risk. These guidelines and oversight of credit risk are managed through a comprehensive enterprise risk management program that includes members of senior management.

 

We manage the risk of credit-related losses in the event of nonperformance by counterparties by applying disciplined fundamental credit analysis and underwriting standards, prudently limiting exposures to lower-quality, higher-yielding investments, and diversifying exposures by issuer, industry, region and underlying investment type. We remain exposed to occasional adverse cyclical economic downturns during which default rates may be significantly higher than the long-term historical average used in pricing.

 

We manage our credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting arrangements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Generally, our current credit exposure on over-the-counter derivative contracts is limited to a derivative counterparty’s net positive fair value of derivative contracts after taking into consideration the existence of netting arrangements and any collateral received. This exposure is monitored and managed to an acceptable threshold level.

 

Because exchange-traded futures are effected through regulated exchanges, and positions are marked to market and generally cash settled on a daily basis, we have minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.

 

We manage our credit risk related to reinsurance treaties by evaluating the financial condition of reinsurance counterparties prior to entering into new reinsurance treaties. In addition, we regularly evaluate their financial strength during the terms of the treaties. As of September 30, 2009, our largest reinsurance credit risk is related to a long term care coinsurance treaty with a life insurance subsidiary of Genworth Financial, Inc.

 

Fair Value Measurements

 

We report certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives, properties held by our consolidated property funds, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions. Generally accepted accounting principles (“GAAP”) do not require the use of market prices that are the result of a forced liquidation or distressed sale. We include actual market prices or observable inputs in our fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. We validate prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors.

 

Inactive Markets

 

Through our own experience transacting in the marketplace and through discussions with our pricing vendors, we believe that the market for non-agency residential mortgage backed securities is inactive. Indicators of inactive markets include: pricing services’ reliance on brokers or discounted cash flow analyses to provide prices, an increase in the disparity between prices provided by different pricing services for the same security, unreasonably large bid-offer spreads and a significant decrease in the volume of trades relative to historical levels. In certain cases, this market inactivity has resulted in our applying valuation techniques that rely more on an income approach (discounted cash flows using market rates) than on a market approach (prices from pricing services).

 

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We consider market observable yields for other asset classes of similar risk which includes nonperformance and liquidity for individual securities to set the discount rate for applying the income approach to certain non-agency residential mortgage backed securities. The discount rates used for the fair value of these securities at September 30, 2009 ranged from 11% to 22%.

 

Non-agency Residential Mortgage Backed Securities Backed by Subprime, Alt-A or Prime Collateral

 

Subprime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above subprime but may not conform to government-sponsored standards. Prime mortgage lending is the origination of residential mortgage loans to customers with good credit profiles. We have exposure to these types of loans predominantly through mortgage backed and asset backed securities. The slow down in the U.S. housing market, combined with relaxed underwriting standards by some originators, has recently led to higher delinquency and loss rates for some of these investments. Recent market conditions have increased the likelihood of other-than-temporary impairments for certain non-agency residential mortgage backed securities. As a part of our risk management process, an internal rating system is used in conjunction with market data as the basis of analysis to assess the likelihood that we will not receive all contractual principal and interest payments for these investments. For the investments that are more at risk for impairment, we perform our own assessment of projected cash flows incorporating assumptions about default rates, prepayment speeds, loss severity, and geographic concentrations to determine if an other-than-temporary impairment should be recognized.

 

The following table presents, as of September 30, 2009, our non-agency residential mortgage backed and asset backed securities backed by subprime, Alt-A or prime mortgage loans by credit rating and vintage year (in millions):

 

 

 

AAA

 

AA

 

A

 

BBB

 

BB & Below

 

Total

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Cost

 

Value

 

Subprime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 & prior

 

$

2

 

$

1

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

2

 

$

1

 

2004

 

15

 

13

 

7

 

3

 

9

 

9

 

 

 

11

 

6

 

42

 

31

 

2005

 

60

 

57

 

48

 

42

 

13

 

12

 

1

 

1

 

19

 

11

 

141

 

123

 

2006

 

1

 

1

 

10

 

9

 

8

 

8

 

23

 

22

 

56

 

35

 

98

 

75

 

2007

 

 

 

 

 

7

 

7

 

 

 

6

 

2

 

13

 

9

 

2008

 

 

 

7

 

6

 

 

 

 

 

 

 

7

 

6

 

Re-Remic(1)

 

21

 

21

 

 

 

 

 

22

 

22

 

 

 

43

 

43

 

Total Subprime

 

$

99

 

$

93

 

$

72

 

$

60

 

$

37

 

$

36

 

$

46

 

$

45

 

$

92

 

$

54

 

$

346

 

$

288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alt-A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 & prior

 

$

22

 

$

22

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

22

 

$

22

 

2004

 

16

 

14

 

67

 

56

 

27

 

19

 

5

 

3

 

18

 

9

 

133

 

101

 

2005

 

5

 

3

 

61

 

36

 

33

 

18

 

13

 

8

 

273

 

179

 

385

 

244

 

2006

 

 

 

 

 

9

 

8

 

 

 

205

 

134

 

214

 

142

 

2007

 

 

 

 

 

 

 

 

 

228

 

124

 

228

 

124

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Alt-A

 

$

43

 

$

39

 

$

128

 

$

92

 

$

69

 

$

45

 

$

18

 

$

11

 

$

724

 

$

446

 

$

982

 

$

633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003 & prior

 

$

192

 

$

189

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

192

 

$

189

 

2004

 

66

 

62

 

50

 

44

 

38

 

32

 

13

 

7

 

4

 

2

 

171

 

147

 

2005

 

17

 

20

 

61

 

62

 

84

 

80

 

75

 

60

 

137

 

72

 

374

 

294

 

2006

 

22

 

24

 

 

 

6

 

3

 

36

 

35

 

5

 

4

 

69

 

66

 

2007

 

33

 

34

 

 

 

 

 

 

 

15

 

12

 

48

 

46

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Re-Remic(1)

 

2,343

 

2,441

 

 

 

 

 

 

 

 

 

2,343

 

2,441

 

Total Prime

 

$

2,673

 

$

2,770

 

$

111

 

$

106

 

$

128

 

$

115

 

$

124

 

$

102

 

$

161

 

$

90

 

$

3,197

 

$

3,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grand Total

 

$

2,815

 

$

2,902

 

$

311

 

$

258

 

$

234

 

$

196

 

$

188

 

$

158

 

$

977

 

$

590

 

$

4,525

 

$

4,104

 

 


(1) Re-Remics of mortgage backed securities are prior vintages with cash flows structured into senior and subordinated bonds. Credit enhancement on senior bonds is increased through the Re-Remic process. Total exposure to subordinate tranches was nil as of September 30, 2009.

 

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Fair Value of Liabilities and Nonperformance Risk

 

GAAP also requires companies to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price). Since there is not a market for our obligations of our variable annuity riders, we consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust the valuation of variable annuity riders by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of our nonperformance risk. The nonperformance risk adjustment is based on broker quotes for credit default swaps that are adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of September 30, 2009. As our estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be approximately $40 million, net of DAC and DSIC amortization and income taxes, based on September 30, 2009 credit spreads.

 

Liquidity and Capital Resources

 

Overview

 

We maintained substantial liquidity during the nine months ended September 30, 2009. At September 30, 2009, we had $3.6 billion in cash and cash equivalents compared to $6.2 billion at December 31, 2008. Excluding collateral received from derivative counterparties, cash and cash equivalents were $3.4 billion and $4.4 billion at September 30, 2009 and December 31, 2008, respectively. We have additional liquidity available through an unsecured revolving credit facility for $750 million that expires in September 2010. Under the terms of the underlying credit agreement, we can increase this facility to $1.0 billion. Available borrowings under this facility are reduced by any outstanding letters of credit. We have had no borrowings under this credit facility and had $2 million of outstanding letters of credit at September 30, 2009.

 

In June 2009, we issued $200 million of 7.75% senior notes due 2039 and $300 million of 7.30% senior notes due 2019 (collectively, “senior notes”). In July 2009, we used the proceeds from the issuance of our senior notes to repurchase $450 million aggregate principal amount of our 5.35% senior notes due 2010 pursuant to a cash tender offer. In addition, in June 2009, we received cash of $869 million from the issuance and sale of 36 million shares of our common stock. In September 2009, we announced the all-cash acquisition of the long-term asset management business of Columbia Management, which is expected to close in the spring of 2010. The total consideration to be paid will be between $900 million and $1.2 billion, which is expected to be funded through the use of cash on hand. In 2009, our subsidiaries, Ameriprise Bank, FSB and RiverSource Life, became members of the Federal Home Loan Bank of Des Moines (“FHLB of Des Moines”), which provides these subsidiaries with access to collateralized borrowings. As of September 30, 2009, we had no borrowings from the FHLB of Des Moines. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs.

 

Various ratings organizations publish financial strength ratings, which measure an insurance company’s ability to meet contractholder and policyholder obligations, and credit ratings. The following table summarizes the ratings for Ameriprise Financial, Inc. and certain of its insurance subsidiaries as of the date of this filing:

 

 

 

A.M. Best
Company, Inc.

 

Standard &
Poor’s Ratings
Services

 

Moody’s
Investors
Service

 

Fitch Ratings
Ltd.

 

Financial Strength Ratings

 

 

 

 

 

 

 

 

 

RiverSource Life

 

A+

 

AA-

 

Aa3

 

AA-

 

IDS Property Casualty Insurance Company

 

A

 

N/R

 

N/R

 

N/R

 

Credit Ratings

 

 

 

 

 

 

 

 

 

Ameriprise Financial, Inc.

 

a-

 

A

 

A3

 

A-

 

 

On September 30, 2009, A.M. Best Company, Inc., Standard & Poor’s Ratings Services, Moody’s Investors Service and Fitch Ratings Ltd. affirmed the ratings of Ameriprise Financial, Inc. and RiverSource Life and indicated their outlooks on Ameriprise Financial, Inc. and RiverSource Life remained negative. For information on how changes in our financial strength or credit ratings could affect our financial condition and results of operations, see the “Risk Factors” discussion included in Part 1, Item 1A of our 2008 10-K.

 

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Dividends from Subsidiaries
 

Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary, Ameriprise Certificate Company (“ACC”), our retail introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc. (“AFSI”), our clearing broker-dealer subsidiary, American Enterprise Investment Services Inc. (“AEIS”), our auto and home insurance subsidiary, IDS Property Casualty Insurance Company (“IDS Property Casualty”), doing business as Ameriprise Auto & Home Insurance, Threadneedle Asset Management Holdings Sàrl (“Threadneedle”), RiverSource Service Corporation and our investment advisory company, RiverSource Investments, LLC. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements.

 

Actual capital and regulatory capital requirements for our wholly owned subsidiaries subject to regulatory capital requirements were as follows:

 

 

 

Actual Capital

 

Regulatory Capital Requirements

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in millions)

 

RiverSource Life(1)(2)

 

$

2,925

 

$

2,722

 

551

 

$

551

 

RiverSource Life of NY(1)(2)

 

247

 

229

 

58

 

58

 

IDS Property Casualty(1)(3)

 

435

 

436

 

130

 

124

 

Ameriprise Insurance Company(1)(3)

 

48

 

47

 

2

 

2

 

ACC(4)(5)

 

307

 

243

 

252

 

264

 

Threadneedle(6)

 

247

 

227

 

153

 

140

 

Ameriprise Bank, FSB(7)

 

255

 

113

 

230

 

123

 

AFSI(3)(4)

 

120

 

132

 

1

 

#

 

Ameriprise Captive Insurance Company(3)

 

26

 

20

 

14

 

9

 

Ameriprise Trust Company(3)

 

35

 

35

 

31

 

28

 

AEIS(3)(4)

 

98

 

74

 

5

 

4

 

Securities America, Inc.(3)(4)

 

16

 

17

 

#

 

#

 

RiverSource Distributors, Inc.(3)(4)

 

37

 

41

 

#

 

#

 

RiverSource Fund Distributors, Inc.(3)(4)

 

11

 

7

 

#

 

1

 

RiverSource Services, Inc.(8)

 

 

1

 

 

#

 

Ameriprise Advisor Services, Inc.(3)(4)

 

69

 

22

 

6

 

5

 

 


#

Amounts are less than $1 million.

(1)

Actual capital is determined on a statutory basis.

(2)

Regulatory capital requirement is based on the statutory risk-based capital filing as of December 31, 2008.

(3)

Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of September 30, 2009 and December 31, 2008.

(4)

Actual capital is determined on an adjusted GAAP basis.

(5)

ACC is required to hold capital in compliance with the Minnesota Department of Commerce and SEC capital requirements. As of

December 31, 2008, ACC’s capital dropped to 4.61% and 4.97% per the Minnesota Department of Commerce and SEC capital requirements, respectively. Ameriprise Financial promptly provided additional capital to ACC in January 2009 to bring capital back above the 5% requirement.

(6)

Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation.

(7)

Ameriprise Bank is required to hold capital in compliance with the Office of Thrift Supervision (“OTS”) regulations and policies, which currently require a Tier 1 (core) capital ratio of not less than 8%. As of December 31, 2008, Ameriprise Bank’s Tier 1 core capital dropped to 7.36%, Ameriprise Financial promptly provided additional capital to Ameriprise Bank in January 2009 to bring the Tier 1 core capital back above the 8% de novo requirement.

(8)

De-registered as of June 30, 2009.

 

In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our company from our subsidiaries, and in deciding to use cash to make capital contributions to our subsidiaries. During the nine months ended September 30, 2009, Ameriprise Financial, Inc. received cash dividends from and made cash contributions to subsidiaries of $94 million and $224 million, respectively. During the nine months ended September 30, 2008, Ameriprise Financial, Inc. received cash dividends from and made cash contributions to subsidiaries of $1.1 billion and $137 million, respectively. Of the dividends received during the nine months ended September 30, 2008, $775 million came from RiverSource Life.

 

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Share Repurchases, Debt Repurchases and Dividends Paid to Shareholders

 

We have a share repurchase program in place to return excess capital to shareholders. In light of the current market environment, we have temporarily suspended our stock repurchase program. We may resume activity under our stock repurchase program and begin repurchasing shares in the open market or in privately negotiated transactions from time to time without notice. We reserve the right to suspend any such repurchases and to resume later repurchasing at any time, and expressly disclaim any obligation to maintain or lift any such suspension.

 

During the nine months ended September 30, 2009, we extinguished $460 million principal amount of our 5.35% senior notes due 2010 and $135 million principal amount of our 7.5% junior subordinated notes due 2066. In the future, we may from time to time seek to retire or purchase additional outstanding debt through cash purchases in open market purchases, privately negotiated transactions or otherwise, without prior notice. Such repurchases, if any, will depend upon market conditions and other factors. The amounts involved could be material.

 

We paid regular quarterly cash dividends to our shareholders totaling $118 million for the nine months ended September 30, 2009. On October 21, 2009, our Board of Directors declared a quarterly cash dividend of $0.17 per common share. The dividend will be paid on November 16, 2009 to our shareholders of record at the close of business on November 2, 2009.

 

Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2009 was $938 million compared to net cash provided by operating activities of $189 million for the nine months ended September 30, 2008, a decrease of $1.1 billion. The decrease was driven by a $1.6 billion reduction in collateral held related to derivative instruments during the nine months ended September 30, 2009. Partially offsetting this decrease, was an increase in cash for the nine months ended September 30, 2009 due to repayments of funds advanced to clients in the 2008 period to fund their liquidity needs following the freeze of funds in the Reserve’s Primary Fund and Government Fund.

 

Investing Activities

 

Our investing activities primarily relate to our Available-for-Sale investment portfolio. Further, this activity is significantly affected by the net flows of our investment certificate, fixed annuity and universal life products reflected in financing activities.

 

Net cash used in investing activities for the nine months ended September 30, 2009 was $6.2 billion compared to net cash provided by investing activities of $627 million for the nine months ended September 30, 2008, a decrease of $6.8 billion. Cash used for purchases of Available-for-Sale securities increased $12.1 billion and proceeds from sales and maturities, sinking fund payments and calls of Available-for-Sale securities increased $5.1 billion compared to the prior year period, resulting in a $7.0 billion decrease to cash.

 

Financing Activities

 

Net cash provided by financing activities for the nine months ended September 30, 2009 was $4.4 billion compared to net cash used in financing activities of $585 million for the nine months ended September 30, 2008, an increase in cash of $5.0 billion. Cash received from the issuance of our senior notes and common stock in June 2009, net of issuance costs, was $491 million and $869 million, respectively. Net cash received from policyholder and contractholder account values increased $3.6 billion compared to the prior year period primarily due to higher net flows of fixed annuities. Cash used for the repurchase of our common stock decreased $627 million compared to the prior year period due to the temporary suspension of our repurchase program in light of the current market environment. These increases to cash were offset by $550 million of cash used to extinguish $135 million of our 7.5% junior subordinated notes due 2066 and $460 million of our 5.35% senior notes due 2010 during the nine months ended September 30, 2009.

 

Contractual Commitments

 

There have been no material changes in our contractual obligations disclosed in our 2008 10-K.

 

Off-Balance Sheet Arrangements

 

There have been no material changes in our off-balance sheet arrangements disclosed in our 2008 10-K.

 

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Forward-Looking Statements
 

This report contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. The Company has made various forward-looking statements in this report. Examples of such forward-looking statements include:

·                  statements of the Company’s plans, intentions, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, client retention, financial advisor retention, recruiting and enrollments, general and administrative costs; consolidated tax rate, and excess capital position;

·                  other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and

·                  statements of assumptions underlying such statements.

 

The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.

 

Such factors include, but are not limited to:

·                  changes in the valuations, liquidity and volatility in the interest rate, credit default, equity market, and foreign exchange environments;

·                  changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation;

·                  investment management performance and consumer acceptance of the Company’s products;

·                  effects of competition in the financial services industry and changes in product distribution mix and distribution channels;

·                  the Company’s capital structure, including indebtedness, limitations on subsidiaries to pay dividends, and the extent, manner, terms and timing of any share or debt repurchases management may effect as well as the opinions of rating agencies and other analysts and the reactions of market participants or the Company’s regulators, advisors, distribution partners or customers in response to any change or prospect of change in any such opinion;

·                  risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge derivative, insurance or reinsurance arrangements or by manufacturers of products the Company distributes, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the reactions of other market participants or the Company’s regulators, advisors, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;

·                  experience deviations from the Company’s assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products, or from assumptions regarding market returns assumed in valuing DAC and DSIC or market volatility underlying our valuation and hedging of guaranteed living benefit annuity riders;

·                  changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;

·                  the impacts of the Company’s efforts to improve distribution economics and to grow third-party distribution of its products;

·                  the ability to complete the acquisition opportunities the Company negotiates;

·                  the Company’s ability to realize the financial, operating and business fundamental benefits or to obtain regulatory approvals regarding integrations we plan for the acquisitions we have completed or have contracted to complete, as well as the amount and timing of integration expenses;

·                  the ability and timing to realize savings and other benefits from re-engineering and tax planning;

·                  changes in the capital markets and competitive environments induced or resulting from the partial or total ownership or other support by central governments of certain financial services firms or financial assets; and

·                  general economic and political factors, including consumer confidence in the economy, the ability and inclination of consumers generally to invest as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and publicly-held firms, and regulatory rulings and pronouncements.

 

Management cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that management is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Management undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion included in Part 1, Item 1A of our 2008 10-K.

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information set forth in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk” in this report is incorporated herein by reference. These disclosures should be read in conjunction with the “Quantitative and Qualitative Disclosures About Market Risk” discussion included as Part II, Item 7A of our Annual Report on Form 10-K for 2008 filed with the SEC on March 2, 2009.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, our company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2009.

 

Changes in Internal Control Over Financial Reporting

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

 

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AMERIPRISE FINANCIAL, INC.

PART II.  OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

The information set forth in Note 12 to Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

 

ITEM 1A.  RISK FACTORS

 

There have been no material changes in the risk factors provided in Part I, Item 1A of our 2008 10-K.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table presents the information with respect to purchases made by or on behalf of Ameriprise Financial, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the third quarter of 2009:

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

Period

 

Total Number
of Shares
Purchased

 

Price Paid Per
Share

 

Total Number of Shares
Purchased as part of
Publicly Announced
Plans or Programs
(1)

 

Approximate Dollar Value
of Shares that May Yet
Be Purchased Under
the Plans or Programs
(1)

 

July 1 to July 31, 2009

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

 

$

 

 

$

1,304,819,604

 

Employee transactions(2)

 

1,987

 

$

24.50

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

August 1 to August 31, 2009

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

 

$

 

 

$

1,304,819,604

 

Employee transactions(2)

 

285

 

$

28.66

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

September 1 to September 30, 2009

 

 

 

 

 

 

 

 

 

Share repurchase program(1)

 

 

$

 

 

$

1,304,819,604

 

Employee transactions(2)

 

364

 

$

29.16

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

 

 

 

 

Share repurchase program

 

 

$

 

 

 

 

Employee transactions

 

2,636

 

$

25.60

 

N/A

 

 

 

 

 

2,636

 

 

 

 

 

 

 


(1) On April 22, 2008, we announced that our Board of Directors authorized us to repurchase up to $1.5 billion worth of our common stock through April 22, 2010. The share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through block trades or other means. In light of the current market environment, we have temporarily suspended our stock repurchase program. We may resume activity under our stock repurchase program and begin repurchasing shares in the open market or in privately negotiated transactions from time to time without notice. The Company reserves the right to suspend any such repurchases and to resume later repurchasing at any time, and expressly disclaims any obligation to maintain or lift any such suspension.

(2) Restricted shares withheld pursuant to the terms of awards under the amended and restated Ameriprise Financial 2005 Incentive Compensation Plan (the “Plan”) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Plan provides that the value of the shares withheld shall be the closing price of common stock of Ameriprise Financial, Inc. on the date the relevant transaction occurs.

 

ITEM 6.  EXHIBITS

 

The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

AMERIPRISE FINANCIAL, INC.

 

 

(Registrant)

 

 

 

 

 

 

Date: November 2, 2009

By

/s/ Walter S. Berman

 

 

Walter S. Berman

 

 

Executive Vice President and

 

 

Chief Financial Officer

 

 

 

 

 

 

Date: November 2, 2009

By

/s/ David K. Stewart

 

 

David K. Stewart

 

 

Senior Vice President and Controller

 

 

(Principal Accounting Officer)

 

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EXHIBIT INDEX

 

Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this Quarterly Report on Form 10-Q. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.

 

The following exhibits are filed as part of this Quarterly Report on Form 10-Q. The exhibit numbers followed by an asterisk (*) indicate exhibits electronically filed herewith. All other exhibit numbers indicate exhibits previously filed and are hereby incorporated herein by reference.

 

Exhibit

 

Description

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, File No. 1-32525, filed on October 4, 2005).

 

 

 

3.2

 

Amended and Restated Bylaws of Ameriprise Financial, Inc., as amended on November 28, 2006 (incorporated by reference to Exhibit 3.2 of the Annual Report on Form 10-K, file No. 1-32525, filed on February 27, 2007).

 

 

 

4.1

 

Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Form 10 Registration Statement, File No. 1-32525, filed on August 19, 2005).

 

 

 

 

 

Other instruments defining rights of holders of long-term debt securities of the registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant agrees to furnish copies of these instruments to the SEC upon request.

 

 

 

10.1

 

Ameriprise Advisor Group Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8, File No. 333-159025, filed on May 7, 2009).

 

 

 

31.1*

 

Certification of James M. Cracchiolo pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

 

 

 

31.2*

 

Certification of Walter S. Berman pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

 

 

 

32*

 

Certification of James M. Cracchiolo and Walter S. Berman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

E-1