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 March 31, 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) |
(612) 671-3131
Registrant’s telephone number, including area code:
Not Applicable
Former name, former address and former fiscal year, if changed since last report:
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 o 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 (Do not check if a smaller reporting company) |
|
Smaller reporting company o |
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 April 24, 2009 |
|
Common Stock (par value $.01 per share) |
|
219,119,544 shares |
AMERIPRISE FINANCIAL, INC.
FORM 10-Q
2
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share amounts)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2009 |
|
2008 |
|
|||
|
Revenues |
|
|
|
|
|
|||
|
Management and financial advice fees |
|
$ |
554 |
|
$ |
791 |
|
|
|
Distribution fees |
|
311 |
|
433 |
|
|||
|
Net investment income |
|
421 |
|
401 |
|
|||
|
Premiums |
|
266 |
|
256 |
|
|||
|
Other revenues |
|
209 |
|
157 |
|
|||
|
Total revenues |
|
1,761 |
|
2,038 |
|
|||
|
Banking and deposit interest expense |
|
42 |
|
47 |
|
|||
|
Total net revenues |
|
1,719 |
|
1,991 |
|
|||
|
|
|
|
|
|
|
|||
|
Expenses |
|
|
|
|
|
|||
|
Distribution expenses |
|
383 |
|
532 |
|
|||
|
Interest credited to fixed accounts |
|
205 |
|
195 |
|
|||
|
Benefits, claims, losses and settlement expenses |
|
100 |
|
304 |
|
|||
|
Amortization of deferred acquisition costs |
|
286 |
|
154 |
|
|||
|
Interest and debt expense |
|
26 |
|
26 |
|
|||
|
General and administrative expense |
|
585 |
|
590 |
|
|||
|
Total expenses |
|
1,585 |
|
1,801 |
|
|||
|
Pretax income |
|
134 |
|
190 |
|
|||
|
Income tax provision |
|
18 |
|
4 |
|
|||
|
Net income |
|
116 |
|
186 |
|
|||
|
Less: Net loss attributable to noncontrolling interests |
|
(14 |
) |
(5 |
) |
|||
|
Net income attributable to Ameriprise Financial |
|
$ |
130 |
|
$ |
191 |
|
|
|
|
|
|
|
|
|
|||
|
Earnings per share attributable to Ameriprise Financial common shareholders |
|
|
|
|
|
|||
|
Basic |
|
$ |
0.58 |
|
$ |
0.84 |
|
|
|
Diluted |
|
0.58 |
|
0.82 |
|
|||
|
|
|
|
|
|
|
|||
|
Weighted average common shares outstanding |
|
|
|
|
|
|||
|
Basic |
|
222.3 |
|
228.4 |
|
|||
|
Diluted |
|
223.5 |
|
231.5 |
|
|||
|
|
|
|
|
|
|
|||
|
Cash dividends paid per common share |
|
$ |
0.17 |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|||
|
Supplemental Disclosures: |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
|
Net investment income: |
|
|
|
|
|
|||
|
Net investment income before impairment losses on securities |
|
$ |
456 |
|
|
|
||
|
Total other-than-temporary impairment losses on securities |
|
(38 |
) |
|
|
|||
|
Portion of loss recognized in other comprehensive income |
|
3 |
|
|
|
|||
|
Net impairment losses recognized in net investment income |
|
(35 |
) |
|
|
|||
|
Net investment income |
|
$ |
421 |
|
|
|
||
See Notes to Consolidated Financial Statements.
3
AMERIPRISE FINANCIAL, INC.
(in millions, except share amounts)
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
||
|
|
|
(unaudited) |
|
|
|
||
|
Assets |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
5,796 |
|
$ |
6,228 |
|
|
Investments |
|
30,738 |
|
27,522 |
|
||
|
Separate account assets |
|
42,014 |
|
44,746 |
|
||
|
Receivables |
|
3,579 |
|
3,887 |
|
||
|
Deferred acquisition costs |
|
4,237 |
|
4,383 |
|
||
|
Restricted and segregated cash |
|
1,811 |
|
1,883 |
|
||
|
Other assets |
|
6,406 |
|
6,928 |
|
||
|
Total assets |
|
$ |
94,581 |
|
$ |
95,577 |
|
|
|
|
|
|
|
|
||
|
Liabilities and Equity |
|
|
|
|
|
||
|
Liabilities: |
|
|
|
|
|
||
|
Future policy benefits and claims |
|
$ |
30,956 |
|
$ |
29,293 |
|
|
Separate account liabilities |
|
42,014 |
|
44,746 |
|
||
|
Customer deposits |
|
8,465 |
|
8,229 |
|
||
|
Debt |
|
1,922 |
|
2,027 |
|
||
|
Accounts payable and accrued expenses |
|
713 |
|
887 |
|
||
|
Other liabilities |
|
3,874 |
|
3,928 |
|
||
|
Total liabilities |
|
87,944 |
|
89,110 |
|
||
|
|
|
|
|
|
|
||
|
Equity: |
|
|
|
|
|
||
|
Ameriprise Financial: |
|
|
|
|
|
||
|
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 259,569,082 and 256,432,623, respectively) |
|
3 |
|
3 |
|
||
|
Additional paid-in capital |
|
4,719 |
|
4,688 |
|
||
|
Retained earnings |
|
4,817 |
|
4,592 |
|
||
|
Treasury shares, at cost (40,431,702 and 39,921,924 shares, respectively) |
|
(2,021 |
) |
(2,012 |
) |
||
|
Accumulated other comprehensive loss, net: |
|
|
|
|
|
||
|
Net unrealized securities losses |
|
(865 |
) |
(961 |
) |
||
|
Noncredit related impairments on securities |
|
(134 |
) |
— |
|
||
|
Net unrealized derivatives losses |
|
(8 |
) |
(8 |
) |
||
|
Foreign currency translation adjustments |
|
(88 |
) |
(85 |
) |
||
|
Defined benefit plans |
|
(39 |
) |
(39 |
) |
||
|
Total accumulated other comprehensive loss, net |
|
(1,134 |
) |
(1,093 |
) |
||
|
Total Ameriprise Financial shareholders’ equity |
|
6,384 |
|
6,178 |
|
||
|
Noncontrolling interests |
|
253 |
|
289 |
|
||
|
Total equity |
|
6,637 |
|
6,467 |
|
||
|
Total liabilities and equity |
|
$ |
94,581 |
|
$ |
95,577 |
|
See Notes to Consolidated Financial Statements.
4
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
|
|
|
Three Months Ended March 31, |
|
||||
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
|
||
|
Cash Flows from Operating Activities |
|
|
|
|
|
||
|
Net income |
|
$ |
116 |
|
$ |
186 |
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
||
|
Capitalization of deferred acquisition and sales inducement costs |
|
(229 |
) |
(188 |
) |
||
|
Amortization of deferred acquisition and sales inducement costs |
|
335 |
|
171 |
|
||
|
Depreciation and amortization |
|
53 |
|
45 |
|
||
|
Deferred income tax expense (benefit) |
|
82 |
|
(36 |
) |
||
|
Share-based compensation |
|
40 |
|
37 |
|
||
|
Net realized investment gains |
|
(51 |
) |
(8 |
) |
||
|
Other-than-temporary impairments recognized in net investment income and provision for loan losses |
|
39 |
|
33 |
|
||
|
Premium and discount amortization |
|
3 |
|
25 |
|
||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
Segregated cash |
|
77 |
|
42 |
|
||
|
Trading securities and equity method investments, net |
|
(344 |
) |
81 |
|
||
|
Future policy benefits and claims, net |
|
167 |
|
154 |
|
||
|
Receivables |
|
303 |
|
(95 |
) |
||
|
Brokerage deposits |
|
(151 |
) |
(42 |
) |
||
|
Accounts payable and accrued expenses |
|
(172 |
) |
(389 |
) |
||
|
Liability for derivatives collateral held |
|
(625 |
) |
106 |
|
||
|
Other, net |
|
(207 |
) |
47 |
|
||
|
Net cash (used in) provided by operating activities |
|
(564 |
) |
169 |
|
||
|
|
|
|
|
|
|
||
|
Cash Flows from Investing Activities |
|
|
|
|
|
||
|
Available-for-Sale securities: |
|
|
|
|
|
||
|
Proceeds from sales |
|
1,285 |
|
92 |
|
||
|
Maturities, sinking fund payments and calls |
|
1,207 |
|
983 |
|
||
|
Purchases |
|
(4,561 |
) |
(584 |
) |
||
|
Proceeds from sales and maturities of commercial mortgage loans |
|
52 |
|
61 |
|
||
|
Funding of commercial mortgage loans |
|
(34 |
) |
(73 |
) |
||
|
Proceeds from sales of other investments |
|
11 |
|
14 |
|
||
|
Purchase of other investments |
|
(10 |
) |
(102 |
) |
||
|
Purchase of land, buildings, equipment and software |
|
(15 |
) |
(44 |
) |
||
|
Change in policy loans, net |
|
7 |
|
(9 |
) |
||
|
Change in restricted cash |
|
(8 |
) |
150 |
|
||
|
Change in consumer banking loans and credit card receivables, net |
|
(15 |
) |
4 |
|
||
|
Other, net |
|
4 |
|
(1 |
) |
||
|
Net cash (used in) provided by investing activities |
|
(2,077 |
) |
491 |
|
||
See Notes to Consolidated Financial Statements.
5
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
(in millions)
|
|
|
Three Months Ended March 31, |
|
||||
|
|
|
2009 |
|
2008 |
|
||
|
Cash Flows from Financing Activities |
|
|
|
|
|
||
|
Investment certificates and banking time deposits: |
|
|
|
|
|
||
|
Proceeds from additions |
|
$ |
980 |
|
$ |
327 |
|
|
Maturities, withdrawals and cash surrenders |
|
(866 |
) |
(249 |
) |
||
|
Change in other banking deposits |
|
271 |
|
71 |
|
||
|
Policyholder and contractholder account values: |
|
|
|
|
|
||
|
Consideration received |
|
2,417 |
|
350 |
|
||
|
Net transfers from separate accounts |
|
284 |
|
14 |
|
||
|
Surrenders and other benefits |
|
(770 |
) |
(804 |
) |
||
|
Deferred premium options, net |
|
61 |
|
(13 |
) |
||
|
Proceeds from issuance of debt, net of issuance costs |
|
9 |
|
— |
|
||
|
Principal repayments of debt |
|
(113 |
) |
— |
|
||
|
Dividends paid to shareholders |
|
(37 |
) |
(34 |
) |
||
|
Repurchase of common shares |
|
(9 |
) |
(277 |
) |
||
|
Exercise of stock options |
|
— |
|
6 |
|
||
|
Excess tax benefits from share-based compensation |
|
1 |
|
3 |
|
||
|
Noncontrolling interests investments in subsidiaries |
|
1 |
|
19 |
|
||
|
Distributions to noncontrolling interests |
|
(18 |
) |
(5 |
) |
||
|
Net cash provided by (used in) financing activities |
|
2,211 |
|
(592 |
) |
||
|
|
|
|
|
|
|
||
|
Effect of exchange rate changes on cash |
|
(2 |
) |
— |
|
||
|
Net increase (decrease) in cash and cash equivalents |
|
(432 |
) |
68 |
|
||
|
Cash and cash equivalents at beginning of period |
|
6,228 |
|
3,836 |
|
||
|
Cash and cash equivalents at end of period |
|
$ |
5,796 |
|
$ |
3,904 |
|
|
|
|
|
|
|
|
||
|
Supplemental Disclosures: |
|
|
|
|
|
||
|
Interest paid on debt |
|
$ |
3 |
|
$ |
— |
|
|
Income taxes (received) paid, net |
|
(1 |
) |
30 |
|
||
See Notes to Consolidated Financial Statements.
6
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
Three Months Ended March 31, 2009 and 2008
(in millions, except share amounts)
|
|
|
|
|
Ameriprise Financial |
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|||||||
|
|
|
Number of |
|
|
|
Additional |
|
|
|
|
|
Comprehen- |
|
Non- |
|
|
|
|||||||
|
|
|
Outstanding |
|
Common |
|
Paid-In |
|
Retained |
|
Treasury |
|
sive 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) |
|
— |
|
— |
|
— |
|
191 |
|
— |
|
— |
|
(5 |
) |
186 |
|
|||||||
|
Other comprehensive loss, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Change in net unrealized securities losses |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(114 |
) |
— |
|
(114 |
) |
|||||||
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(6 |
) |
— |
|
(6 |
) |
|||||||
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|||||||
|
Dividends paid to shareholders |
|
— |
|
— |
|
— |
|
(34 |
) |
— |
|
— |
|
— |
|
(34 |
) |
|||||||
|
Noncontrolling interests investments in subsidiaries |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
19 |
|
19 |
|
|||||||
|
Distributions to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(5 |
) |
(5 |
) |
|||||||
|
Repurchase of common shares |
|
(5,675,599 |
) |
— |
|
— |
|
— |
|
(290 |
) |
— |
|
— |
|
(290 |
) |
|||||||
|
Share-based compensation plans |
|
1,322,998 |
|
— |
|
7 |
|
— |
|
47 |
|
— |
|
— |
|
54 |
|
|||||||
|
Balances at March 31, 2008 |
|
223,395,242 |
|
$ |
3 |
|
$ |
4,637 |
|
$ |
4,938 |
|
$ |
(1,710 |
) |
$ |
(287 |
) |
$ |
387 |
|
$ |
7,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
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) |
|
— |
|
— |
|
— |
|
130 |
|
— |
|
— |
|
(14 |
) |
116 |
|
|||||||
|
Other comprehensive income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Change in net unrealized securities losses |
|
— |
|
— |
|
— |
|
— |
|
— |
|
96 |
|
— |
|
96 |
|
|||||||
|
Change in noncredit related impairments on securities |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2 |
) |
— |
|
(2 |
) |
|||||||
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(3 |
) |
(5 |
) |
(8 |
) |
|||||||
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202 |
|
|||||||
|
Dividends paid to shareholders |
|
— |
|
— |
|
— |
|
(37 |
) |
— |
|
— |
|
— |
|
(37 |
) |
|||||||
|
Noncontrolling interests investments in subsidiaries |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
1 |
|
|||||||
|
Distributions to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(18 |
) |
(18 |
) |
|||||||
|
Repurchase of common shares |
|
(509,778 |
) |
— |
|
— |
|
— |
|
(9 |
) |
— |
|
— |
|
(9 |
) |
|||||||
|
Share-based compensation plans |
|
3,136,459 |
|
— |
|
31 |
|
— |
|
— |
|
— |
|
— |
|
31 |
|
|||||||
|
Balances at March 31, 2009 |
|
219,137,380 |
|
$ |
3 |
|
$ |
4,719 |
|
$ |
4,817 |
|
$ |
(2,021 |
) |
$ |
(1,134 |
) |
$ |
253 |
|
$ |
6,637 |
|
See Notes to Consolidated Financial Statements.
7
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
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.
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”).
Reclassifications
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. In the second quarter of 2008, the Company reclassified the changes in fair value of certain derivatives from net investment income to various expense lines where the changes in fair value of the related embedded derivatives reside. The changes in fair value of derivatives hedging variable annuity living benefits, equity indexed annuities and stock market certificates were reclassified to benefits, claims, losses and settlement expenses, interest credited to fixed accounts and banking and deposit interest expense, respectively.
2. Recent Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 provides 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 has significantly decreased relative to historical levels. FSP 157-4 requires entities to disclose in interim and annual periods 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 Statement of Financial Accounting Standards (“SFAS”) No. 115 “Accounting for Certain Investments in Debt and Equity Securities” shall be disclosed by major category. This FSP 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 FSP 157-4 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.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2”). FSP 115-2 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. FSP 115-2 requires presentation of both the credit and noncredit portions of other-than-temporary impairments on the financial statements and additional disclosures in interim and annual periods. This FSP 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 FSP 115-2 in the first quarter of 2009 and recorded a cumulative effect increase to the opening balance of retained earnings of $132 million, net of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) amortization, certain benefit reserves and income taxes, and a corresponding increase to accumulated other comprehensive loss, net of impacts to DAC, DSIC, certain benefit reserves and income taxes. See Note 3 for the Company’s updated accounting policy and disclosures required by this FSP.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”). FSP 107-1 requires interim disclosure on the fair value of financial instruments within the scope of SFAS No. 107 “Disclosures about Fair Value of Financial Instruments.” This FSP is effective for interim and annual reporting periods ending after
8
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company applied the disclosure requirements of FSP 107-1 in the first quarter of 2009. See Note 9 for disclosures required by this FSP.
In December 2008, the FASB issued FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP 132(R)-1”). FSP 132(R)-1 requires enhanced disclosure related to plan assets including information about inputs and techniques used to determine the fair value of plan assets. FSP 132(R)-1 is effective for the first fiscal year ending after December 15, 2009, with early adoption permitted. The Company will apply the disclosure requirements of FSP 132(R)-1 as of December 31, 2009.
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 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. FSP EITF 03-6-1 is effective for financial statements issued for periods beginning after December 15, 2008, with early adoption prohibited. FSP EITF 03-6-1 requires that all prior-period earnings per share data be adjusted retrospectively to conform with the FSP provisions. The Company adopted FSP EITF 03-6-1 as of January 1, 2009. The adoption did not have a material effect on the Company’s earnings per share.
In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities —an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 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. SFAS 161 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. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. The Company applied the disclosure requirements of SFAS 161 in the first quarter of 2009. See Note 10 for disclosures required by SFAS 161.
In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” (“SFAS 160”), which establishes the accounting and reporting for ownership interest in subsidiaries not attributable, directly or indirectly, to a parent. SFAS 160 requires that noncontrolling (minority) interests 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 be disclosed on the face of the consolidated statement of operations. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years with early adoption prohibited. The provisions of SFAS 160 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 SFAS 160 as of January 1, 2009. The adoption did not have a material effect on the Company’s consolidated results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. The provisions of SFAS 157 are required to be applied prospectively as of the beginning of the fiscal year in which SFAS 157 is initially applied, except for certain financial instruments as defined in SFAS 157 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 SFAS 157 effective January 1, 2008 and recorded a cumulative effect reduction to the opening balance of retained earnings of $30 million, net of DAC and 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. The Company initially recorded these derivatives in accordance with EITF Issue No. 02-3 “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (“EITF 02-3”). SFAS 157 nullifies the guidance in EITF 02-3 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 SFAS 157 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.
9
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
In accordance with FSP FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), the Company deferred the adoption of SFAS 157 until January 1, 2009 for all nonfinancial assets and nonfinancial liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis. See Note 9 for additional information regarding the fair values of the Company’s assets and liabilities.
3. Investments
The following is a summary of investments:
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
||
|
|
|
(in millions) |
|
||||
|
Available-for-Sale securities, at fair value |
|
$ |
25,762 |
|
$ |
22,873 |
|
|
Commercial mortgage loans, net |
|
2,852 |
|
2,887 |
|
||
|
Trading securities |
|
874 |
|
501 |
|
||
|
Policy loans |
|
722 |
|
729 |
|
||
|
Other investments |
|
528 |
|
532 |
|
||
|
Total |
|
$ |
30,738 |
|
$ |
27,522 |
|
Available-for-Sale Securities
Effective January 1, 2009, the Company early adopted FSP 115-2. This interpretation 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 it has i.) the intent to sell the security (made a decision to sell) or ii.) it is more likely than not it 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. In addition, for investments 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.
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: 1) the extent to which the market value is below amortized cost; 2) the duration of time in which there has been a significant decline in value; 3) fundamental analysis of the liquidity, business prospects and overall financial condition of the issuer; and 4) 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.
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 three months ended March 31, 2009, certain non-agency mortgage backed securities are deemed other-than
10
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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. 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:
|
|
|
March 31, 2009 |
|
||||||||||
|
Description of Securities |
|
Amortized Cost |
|
Gross Unrealized |
|
Gross Unrealized |
|
Fair Value |
|
||||
|
|
|
(in millions) |
|
||||||||||
|
Corporate debt securities |
|
$ |
13,909 |
|
$ |
101 |
|
$ |
(1,041 |
) |
$ |
12,969 |
|
|
Residential mortgage backed securities |
|
7,251 |
|
100 |
|
(631 |
) |
6,720 |
|
||||
|
Commercial mortgage backed securities |
|
3,547 |
|
53 |
|
(162 |
) |
3,438 |
|
||||
|
Asset backed securities |
|
1,393 |
|
21 |
|
(109 |
) |
1,305 |
|
||||
|
State and municipal obligations |
|
1,102 |
|
6 |
|
(161 |
) |
947 |
|
||||
|
U.S. government and agencies obligations |
|
179 |
|
9 |
|
— |
|
188 |
|
||||
|
Foreign government bonds and obligations |
|
96 |
|
13 |
|
(4 |
) |
105 |
|
||||
|
Common and preferred stocks |
|
52 |
|
7 |
|
(36 |
) |
23 |
|
||||
|
Other structured investments |
|
26 |
|
12 |
|
— |
|
38 |
|
||||
|
Other debt obligations |
|
29 |
|
— |
|
— |
|
29 |
|
||||
|
Total |
|
$ |
27,584 |
|
$ |
322 |
|
$ |
(2,144 |
) |
$ |
25,762 |
|
|
|
|
December 31, 2008 |
|
||||||||||
|
Description of Securities |
|
Amortized Cost |
|
Gross Unrealized |
|
Gross Unrealized |
|
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 |
|
At March 31, 2009 and December 31, 2008, fixed maturity securities comprised approximately 84% and 83%, respectively, of the Company’s total investments. These securities were rated by Moody’s Investors Service (“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”), except for approximately $1.2 billion of securities at both March 31, 2009 and December 31, 2008, which were rated by the Company’s internal analysts using criteria similar to Moody’s and S&P. Ratings on investment grade securities are presented using S&P’s convention and, if the two agencies’ ratings differ, the lower rating is used. A summary of fixed maturity securities by rating was as follows:
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
||||||||||||
|
Ratings |
|
Amortized |
|
Fair Value |
|
Percent of Total |
|
Amortized |
|
Fair Value |
|
Percent of Total |
|
||||
|
|
|
(in millions, except percentages) |
|
||||||||||||||
|
AAA |
|
$ |
10,913 |
|
$ |
10,690 |
|
42 |
% |
$ |
9,475 |
|
$ |
8,988 |
|
40 |
% |
|
AA |
|
1,570 |
|
1,426 |
|
6 |
|
1,698 |
|
1,571 |
|
7 |
|
||||
|
A |
|
4,208 |
|
3,913 |
|
15 |
|
4,689 |
|
4,396 |
|
19 |
|
||||
|
BBB |
|
8,602 |
|
8,025 |
|
31 |
|
7,299 |
|
6,707 |
|
29 |
|
||||
|
Below investment grade |
|
2,239 |
|
1,685 |
|
6 |
|
1,494 |
|
1,174 |
|
5 |
|
||||
|
Total fixed maturities |
|
$ |
27,532 |
|
$ |
25,739 |
|
100 |
% |
$ |
24,655 |
|
$ |
22,836 |
|
100 |
% |
11
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
At March 31, 2009 and December 31, 2008, approximately 38% 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:
|
|
|
March 31, 2009 |
|
||||||||||||||||
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
||||||||||||
|
Description of Securities |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
||||||
|
|
|
(in millions) |
|
||||||||||||||||
|
Corporate debt securities |
|
$ |
3,697 |
|
$ |
(267 |
) |
$ |
4,489 |
|
$ |
(774 |
) |
$ |
8,186 |
|
$ |
(1,041 |
) |
|
Residential mortgage backed securities |
|
1,831 |
|
(296 |
) |
665 |
|
(335 |
) |
2,496 |
|
(631 |
) |
||||||
|
Commercial mortgage backed securities |
|
755 |
|
(34 |
) |
1,210 |
|
(128 |
) |
1,965 |
|
(162 |
) |
||||||
|
Asset backed securities |
|
368 |
|
(32 |
) |
282 |
|
(77 |
) |
650 |
|
(109 |
) |
||||||
|
State and municipal obligations |
|
218 |
|
(14 |
) |
519 |
|
(147 |
) |
737 |
|
(161 |
) |
||||||
|
U.S. government and agencies obligations |
|
— |
|
— |
|
11 |
|
— |
|
11 |
|
— |
|
||||||
|
Foreign government bonds and obligations |
|
14 |
|
(4 |
) |
— |
|
— |
|
14 |
|
(4 |
) |
||||||
|
Other structured investments |
|
8 |
|
— |
|
— |
|
— |
|
8 |
|
— |
|
||||||
|
Common and preferred stocks |
|
— |
|
— |
|
14 |
|
(36 |
) |
14 |
|
(36 |
) |
||||||
|
Total |
|
$ |
6,891 |
|
$ |
(647 |
) |
$ |
7,190 |
|
$ |
(1,497 |
) |
$ |
14,081 |
|
$ |
(2,144 |
) |
|
|
|
December 31, 2008 |
|
||||||||||||||||
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
||||||||||||
|
Description of Securities |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
||||||
|
|
|
(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 |
) |
The following tables summarize the unrealized losses by ratio of fair value to amortized cost:
|
|
|
March 31, 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% |
|
320 |
|
$ |
4,237 |
|
$ |
(72 |
) |
153 |
|
$ |
2,262 |
|
$ |
(58 |
) |
473 |
|
$ |
6,499 |
|
$ |
(130 |
) |
|
90% - 95% |
|
112 |
|
1,245 |
|
(96 |
) |
129 |
|
1,529 |
|
(122 |
) |
241 |
|
2,774 |
|
(218 |
) |
||||||
|
80% - 90% |
|
79 |
|
642 |
|
(103 |
) |
192 |
|
1,728 |
|
(284 |
) |
271 |
|
2,370 |
|
(387 |
) |
||||||
|
Less than 80% |
|
98 |
|
767 |
|
(376 |
) |
227 |
|
1,671 |
|
(1,033 |
) |
325 |
|
2,438 |
|
(1,409 |
) |
||||||
|
Total |
|
609 |
|
$ |
6,891 |
|
$ |
(647 |
) |
701 |
|
$ |
7,190 |
|
$ |
(1,497 |
) |
1,310 |
|
$ |
14,081 |
|
$ |
(2,144 |
) |
12
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
|
|
|
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 increased unrealized losses in the first quarter of 2009 was related to the adoption of FSP 115-2. 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 impairment of Available-for-Sale securities previously recognized through earnings for factors other than credit.
The change in net unrealized securities gains (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 (holding gains (losses)); (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales and other-than-temporary impairments of Available-for-Sale securities (reclassification of realized gains (losses)); and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC, DSIC and annuity liabilities to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.
The following table presents the rollforward of the net unrealized securities losses, net of tax, included in accumulated other comprehensive loss:
|
|
|
2009 |
|
2008 |
|
||
|
|
|
(in millions) |
|
||||
|
Net unrealized securities losses at January 1 |
|
$ |
(961 |
) |
$ |
(168 |
) |
|
Change in accounting principles, net of tax of $73 and nil, respectively |
|
(137 |
) |
— |
|
||
|
Holding gains (losses), net of tax of $85 and $71, respectively |
|
157 |
|
(132 |
) |
||
|
Reclassification of realized (gains) losses, net of tax of $6 and $8, respectively |
|
(10 |
) |
16 |
|
||
|
DAC, DSIC and benefit reserves, net of tax of $26 and $1, respectively |
|
(48 |
) |
2 |
|
||
|
Net unrealized securities losses at March 31 |
|
$ |
(999 |
) |
$ |
(282 |
) |
The following table presents the amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses:
|
|
|
2009 |
|
|
|
|
|
(in millions) |
|
|
|
Beginning balance of credit losses on securities held as of January 1 for which a portion of other-than-temporary impairment was recognized in other comprehensive income |
|
$ |
258 |
|
|
Additional amount related to credit losses for which an other-than-temporary impairment was not previously recognized |
|
8 |
|
|
|
Additional increases to the amount related to credit losses for which an other-than-temporary impairment was previously recognized |
|
16 |
|
|
|
Ending balance of credit losses on securities held as of March 31 for which a portion of other-than-temporary impairment was recognized in other comprehensive income |
|
$ |
282 |
|
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 March 31, |
|
||||
|
|
|
2009 |
|
2008 |
|
||
|
|
|
(in millions) |
|
||||
|
Gross realized gains from sales |
|
$ |
52 |
|
$ |
10 |
|
|
Gross realized losses from sales |
|
(1 |
) |
(2 |
) |
||
|
Impairment losses |
|
(35 |
) |
(32 |
) |
||
13
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The $35 million of other-than-temporary impairments recognized in net investment income for the three months ended March 31, 2009 related to credit losses on non-agency residential mortgage backed securities, corporate debt securities primarily in the gaming industries and other structured investments.
Available-for-Sale securities by maturity as of March 31, 2009 were as follows:
|
|
|
Amortized Cost |
|
Fair Value |
|
||
|
|
|
(in millions) |
|
||||
|
Due within one year |
|
$ |
1,583 |
|
$ |
1,574 |
|
|
Due after one year through five years |
|
8,095 |
|
7,623 |
|
||
|
Due after five years through 10 years |
|
3,012 |
|
2,677 |
|
||
|
Due after 10 years |
|
2,625 |
|
2,364 |
|
||
|
|
|
15,315 |
|
14,238 |
|
||
|
Residential mortgage backed securities |
|
7,251 |
|
6,720 |
|
||
|
Commercial mortgage backed securities |
|
3,547 |
|
3,438 |
|
||
|
Asset backed securities |
|
1,393 |
|
1,305 |
|
||
|
Other structured investments |
|
26 |
|
38 |
|
||
|
Common and preferred stocks |
|
52 |
|
23 |
|
||
|
Total |
|
$ |
27,584 |
|
$ |
25,762 |
|
The expected payments on residential mortgage backed securities, commercial mortgage backed securities, asset backed securities and other structured investments may not coincide with their contractual maturities. As such, these securities, as well as common and preferred stocks, were not included in the maturities distribution.
4. Deferred Acquisition Costs and Deferred Sales Inducement Costs
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 |
|
207 |
|
164 |
|
||
|
Amortization |
|
(286 |
) |
(154 |
) |
||
|
Impact of change in net unrealized securities gains |
|
(67 |
) |
(1 |
) |
||
|
Balance at March 31 |
|
$ |
4,237 |
|
$ |
4,453 |
|
The balances of and changes in DSIC were as follows:
|
|
|
2009 |
|
2008 |
|
||
|
|
|
(in millions) |
|
||||
|
Balance at January 1 |
|
$ |
518 |
|
$ |
511 |
|
|
Cumulative effect of accounting change |
|
— |
|
9 |
|
||
|
Capitalization of sales inducements |
|
22 |
|
24 |
|
||
|
Amortization |
|
(49 |
) |
(17 |
) |
||
|
Impact of change in net unrealized securities gains |
|
(14 |
) |
— |
|
||
|
Balance at March 31 |
|
$ |
477 |
|
$ |
527 |
|
The Company adopted FSP 115-2 in the first quarter of 2009. The adoption had no net impact to DAC and DSIC.
Effective January 1, 2008, the Company adopted SFAS 157 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 SFAS 157.
14
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
5. Future Policy Benefits and Claims and Separate Account Liabilities
Future policy benefits and claims consisted of the following:
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
||
|
|
|
(in millions) |
|
||||
|
Fixed annuities |
|
$ |
15,659 |
|
$ |
14,058 |
|
|
Equity indexed annuities accumulated host values |
|
213 |
|
228 |
|
||
|
Equity indexed annuities embedded derivatives |
|
15 |
|
16 |
|
||
|
Variable annuities fixed sub-accounts |
|
5,918 |
|
5,623 |
|
||
|
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”) |
|
1,199 |
|
1,471 |
|
||
|
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) |
|
330 |
|
367 |
|
||
|
Other variable annuity guarantees |
|
65 |
|
67 |
|
||
|
Total annuities |
|
23,399 |
|
21,830 |
|
||
|
Variable universal life (“VUL”)/universal life insurance (“UL”) |
|
2,551 |
|
2,526 |
|
||
|
Other life, disability income and long term care insurance |
|
4,424 |
|
4,397 |
|
||
|
Auto, home and other insurance |
|
366 |
|
368 |
|
||
|
Policy claims and other policyholders’ funds |
|
216 |
|
172 |
|
||
|
Total |
|
$ |
30,956 |
|
$ |
29,293 |
|
Separate account liabilities consisted of the following:
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
||
|
|
|
(in millions) |
|
||||
|
Variable annuity variable sub-accounts |
|
$ |
35,550 |
|
$ |
37,657 |
|
|
VUL insurance variable sub-accounts |
|
3,795 |
|
4,091 |
|
||
|
Other insurance variable sub-accounts |
|
36 |
|
39 |
|
||
|
Threadneedle investment liabilities |
|
2,633 |
|
2,959 |
|
||
|
Total |
|
$ |
42,014 |
|
$ |
44,746 |
|
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 GGU benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. 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.
15
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table provides summary information related to all variable annuity guarantees for which the Company has established additional liabilities:
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
||||||||||||||||||
|
Variable annuity |
|
Total |
|
Contract |
|
Net amount |
|
Weighted |
|
Total |
|
Contract |
|
Net amount |
|
Weighted |
|
||||||
|
|
|
(in millions, except age) |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
GMDB: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Return of Premium |
|
$ |
21,867 |
|
$ |
19,603 |
|
$ |
5,857 |
|
61 |
|
$ |
22,249 |
|
$ |
20,153 |
|
$ |
4,873 |
|
61 |
|
|
Six-Year Reset |
|
11,719 |
|
8,982 |
|
3,258 |
|
61 |
|
12,719 |
|
10,063 |
|
2,802 |
|
61 |
|
||||||
|
One-Year Ratchet |
|
5,478 |
|
4,747 |
|
2,402 |
|
63 |
|
5,770 |
|
5,061 |
|
2,163 |
|
62 |
|
||||||
|
Five-Year Ratchet |
|
916 |
|
843 |
|
245 |
|
59 |
|
951 |
|
888 |
|
199 |
|
59 |
|
||||||
|
Other |
|
447 |
|
401 |
|
215 |
|
67 |
|
471 |
|
429 |
|
192 |
|
66 |
|
||||||
|
Total — GMDB |
|
$ |
40,427 |
|
$ |
34,576 |
|
$ |
11,977 |
|
61 |
|
$ |
42,160 |
|
$ |
36,594 |
|
$ |
10,229 |
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
GGU death benefit |
|
$ |
661 |
|
$ |
577 |
|
$ |
65 |
|
63 |
|
$ |
699 |
|
$ |
619 |
|
$ |
65 |
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
GMIB |
|
$ |
517 |
|
$ |
463 |
|
$ |
279 |
|
63 |
|
$ |
567 |
|
$ |
511 |
|
$ |
||||