filings.toolsItem 1. FINANCIAL STATEMENTS (UNAUDITED)
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Item 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 (1) | ||||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Management and financial advice fees | $ | 2,137 | $ | 2,459 | |||||||||||||||||||
| Distribution fees | 517 | 446 | |||||||||||||||||||||
| Net investment income | 698 | 261 | |||||||||||||||||||||
| Premiums, policy and contract charges | 362 | 338 | |||||||||||||||||||||
| Other revenues | 131 | 123 | |||||||||||||||||||||
| Total revenues | 3,845 | 3,627 | |||||||||||||||||||||
| Banking and deposit interest expense | 103 | 2 | |||||||||||||||||||||
| Total net revenues | 3,742 | 3,625 | |||||||||||||||||||||
| Benefits and expenses | |||||||||||||||||||||||
| Distribution expenses | 1,226 | 1,300 | |||||||||||||||||||||
| Interest credited to fixed accounts | 164 | 141 | |||||||||||||||||||||
| Benefits, claims, losses and settlement expenses | 301 | 32 | |||||||||||||||||||||
| Remeasurement (gains) losses of future policy benefit reserves | (5) | (6) | |||||||||||||||||||||
| Change in fair value of market risk benefits | 489 | 100 | |||||||||||||||||||||
| Amortization of deferred acquisition costs | 62 | 65 | |||||||||||||||||||||
| Interest and debt expense | 72 | 40 | |||||||||||||||||||||
| General and administrative expense | 937 | 947 | |||||||||||||||||||||
| Total benefits and expenses | 3,246 | 2,619 | |||||||||||||||||||||
| Pretax income | 496 | 1,006 | |||||||||||||||||||||
| Income tax provision | 79 | 181 | |||||||||||||||||||||
| Net income | $ | 417 | $ | 825 | |||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||
| Basic | $ | 3.86 | $ | 7.26 | |||||||||||||||||||
| Diluted | $ | 3.79 | $ | 7.10 |
(1) Certain prior period amounts have been restated. See Note 3 for more information.
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 (1) | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net income | $ | 417 | $ | 825 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Net unrealized gains (losses) on securities | 430 | (1,220) | |||||||||||||||||||||
| Net unrealized gains (losses) on derivatives | 2 | 1 | |||||||||||||||||||||
| Effect of changes in discount rate assumptions on certain long-duration contracts | (65) | 362 | |||||||||||||||||||||
| Effect of changes in instrument-specific credit risk on market risk benefits | 161 | 303 | |||||||||||||||||||||
| Foreign currency translation adjustment | 33 | (46) | |||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 561 | (600) | |||||||||||||||||||||
| Total comprehensive income (loss) | $ | 978 | $ | 225 |
(1) Certain prior period amounts have been restated. See Note 3 for more information.
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| March 31, 2023 | December 31, 2022 (1) | ||||||||||
| (in millions, except share amounts) | |||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 8,386 | $ | 6,964 | |||||||
| Cash of consolidated investment entities | 162 | 133 | |||||||||
| Investments (allowance for credit losses: 2023, $44; 2022, $39) | 48,608 | 44,524 | |||||||||
| Investments of consolidated investment entities, at fair value | 2,294 | 2,354 | |||||||||
| Market risk benefits | 990 | 1,015 | |||||||||
| Separate account assets | 75,941 | 73,962 | |||||||||
| Receivables (allowance for credit losses: 2023, $73; 2022, $75) | 15,378 | 15,595 | |||||||||
| Receivables of consolidated investment entities, at fair value | 23 | 20 | |||||||||
| Deferred acquisition costs | 2,754 | 2,777 | |||||||||
| Restricted and segregated cash, cash equivalents and investments | 1,984 | 2,229 | |||||||||
| Other assets | 10,119 | 9,277 | |||||||||
| Other assets of consolidated investment entities, at fair value | 1 | 2 | |||||||||
| Total assets | $ | 166,640 | $ | 158,852 | |||||||
| Liabilities and Equity | |||||||||||
| Liabilities: | |||||||||||
| Policyholder account balances, future policy benefits and claims | $ | 34,932 | $ | 34,132 | |||||||
| Market risk benefits | 2,123 | 2,118 | |||||||||
| Separate account liabilities | 75,941 | 73,962 | |||||||||
| Customer deposits | 33,944 | 30,775 | |||||||||
| Short-term borrowings | 201 | 201 | |||||||||
| Long-term debt | 3,560 | 2,821 | |||||||||
| Debt of consolidated investment entities, at fair value | 2,367 | 2,363 | |||||||||
| Accounts payable and accrued expenses | 2,027 | 2,242 | |||||||||
| Other liabilities | 7,315 | 6,316 | |||||||||
| Other liabilities of consolidated investment entities, at fair value | 86 | 119 | |||||||||
| Total liabilities | 162,496 | 155,049 | |||||||||
| Equity: | |||||||||||
| Common shares ($0.01 par value; shares authorized, 1,250,000,000; shares issued, 336,330,949 and 335,864,062, respectively) | 3 | 3 | |||||||||
| Additional paid-in capital | 9,612 | 9,517 | |||||||||
| Retained earnings | 20,197 | 19,918 | |||||||||
| Treasury shares, at cost (231,974,515 and 230,585,072 shares, respectively) | (23,683) | (23,089) | |||||||||
| Accumulated other comprehensive income (loss), net of tax | (1,985) | (2,546) | |||||||||
| Total equity | 4,144 | 3,803 | |||||||||
| Total liabilities and equity | $ | 166,640 | $ | 158,852 |
(1) Certain prior period amounts have been restated. See Note 3 for more information.
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
| Number of Outstanding Shares | Common Shares | Additional Paid-In Capital | Retained Earnings | Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||||||
| Balances at January 1, 2023 | 105,278,990 | $ | 3 | $ | 9,517 | $ | 19,918 | $ | (23,089) | $ | (2,546) | $ | 3,803 | ||||||||||
| Net income | — | — | — | 417 | — | — | 417 | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | 561 | 561 | ||||||||||||||||
| Dividends to shareholders | — | — | — | (138) | — | — | (138) | ||||||||||||||||
| Repurchase of common shares | (2,011,353) | — | — | — | (657) | — | (657) | ||||||||||||||||
| Share-based compensation plans | 1,088,797 | — | 95 | — | 63 | — | 158 | ||||||||||||||||
| Balances at March 31, 2023 | 104,356,434 | $ | 3 | $ | 9,612 | $ | 20,197 | $ | (23,683) | $ | (1,985) | $ | 4,144 | ||||||||||
| Balances at January 1, 2022 (1) | 110,861,010 | $ | 3 | $ | 9,220 | $ | 17,322 | $ | (21,066) | $ | (642) | $ | 4,837 | ||||||||||
| Net income | — | — | — | 825 | — | — | 825 | ||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | (600) | (600) | ||||||||||||||||
| Dividends to shareholders | — | — | — | (133) | — | — | (133) | ||||||||||||||||
| Repurchase of common shares | (1,930,235) | — | — | — | (579) | — | (579) | ||||||||||||||||
| Share-based compensation plans | 1,215,195 | — | 128 | — | 46 | — | 174 | ||||||||||||||||
| Balances at March 31, 2022 | 110,145,970 | $ | 3 | $ | 9,348 | $ | 18,014 | $ | (21,599) | $ | (1,242) | $ | 4,524 |
(1) Certain prior period amounts have been restated. See Note 3 for more information.
See Notes to Consolidated Financial Statements.
AMERIPRISE FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 (1) | ||||||||||
| (in millions) | |||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | 417 | $ | 825 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation, amortization and accretion, net | (35) | (12) | |||||||||
| Deferred income tax expense (benefit) | (48) | 171 | |||||||||
| Share-based compensation | 46 | 44 | |||||||||
| Net realized investment gains | (7) | (18) | |||||||||
| Net trading (gains) losses | (9) | — | |||||||||
| Loss from equity method investments | 11 | 12 | |||||||||
| Impairments and provision for loan and credit losses | 5 | — | |||||||||
| Net (gains) losses of consolidated investment entities | 6 | 3 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Restricted and segregated investments | (123) | (124) | |||||||||
| Deferred acquisition costs | 23 | 15 | |||||||||
| Policyholder account balances, future policy benefits and claims, and market risk benefits, net | 1,073 | (236) | |||||||||
| Derivatives, net of collateral | (242) | (4) | |||||||||
| Receivables | 256 | (96) | |||||||||
| Brokerage deposits | (314) | 120 | |||||||||
| Accounts payable and accrued expenses | (219) | (461) | |||||||||
| Current income tax, net | 80 | (27) | |||||||||
| Deferred taxes, net | 7 | 2 | |||||||||
| Other operating assets and liabilities of consolidated investment entities, net | (6) | 8 | |||||||||
| Other, net | 135 | 187 | |||||||||
| Net cash provided by (used in) operating activities | 1,056 | 409 | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Available-for-Sale securities: | |||||||||||
| Proceeds from sales | 313 | — | |||||||||
| Maturities, sinking fund payments and calls | 1,464 | 2,209 | |||||||||
| Purchases | (5,098) | (3,972) | |||||||||
| Proceeds from sales, maturities and repayments of mortgage loans | 41 | 32 | |||||||||
| Funding of mortgage loans | (52) | (51) | |||||||||
| Proceeds from sales, maturities and collections of other investments | 31 | 15 | |||||||||
| Purchase of other investments | (24) | (5) | |||||||||
| Purchase of investments by consolidated investment entities | (122) | (190) | |||||||||
| Proceeds from sales, maturities and repayments of investments by consolidated investment entities | 182 | 183 | |||||||||
| Purchase of land, buildings, equipment and software | (41) | (44) | |||||||||
| Cash paid for written options with deferred premiums | (59) | — | |||||||||
| Cash received from written options with deferred premiums | 24 | 12 | |||||||||
| Cash paid for deposit receivables | (10) | (12) | |||||||||
| Cash received for deposit receivables | 210 | 134 | |||||||||
| Other, net | (5) | 24 | |||||||||
| Net cash provided by (used in) investing activities | $ | (3,146) | $ | (1,665) | |||||||
| See Notes to Consolidated Financial Statements. |
AMERIPRISE FINANCIAL, INC.
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 (1) | ||||||||||
| (in millions) | |||||||||||
| Cash Flows from Financing Activities | |||||||||||
| Investment certificates: | |||||||||||
| Proceeds from additions | $ | 3,590 | $ | 733 | |||||||
| Maturities, withdrawals and cash surrenders | (1,822) | (835) | |||||||||
| Policyholder account balances: | |||||||||||
| Deposits and other additions | 339 | 285 | |||||||||
| Net transfers from (to) separate accounts | (19) | (57) | |||||||||
| Surrenders and other benefits | (569) | (328) | |||||||||
| Change in banking deposits, net | 1,702 | 1,802 | |||||||||
| Cash paid for purchased options with deferred premiums | (24) | (71) | |||||||||
| Cash received from purchased options with deferred premiums | 8 | 168 | |||||||||
| Issuance of long-term debt, net of issuance costs | 741 | — | |||||||||
| Repayments of long-term debt | (2) | (502) | |||||||||
| Dividends paid to shareholders | (134) | (129) | |||||||||
| Repurchase of common shares | (617) | (541) | |||||||||
| Repayments of debt by consolidated investment entities | (31) | (1) | |||||||||
| Other, net | — | (6) | |||||||||
| Net cash provided by (used in) financing activities | 3,162 | 518 | |||||||||
| Effect of exchange rate changes on cash | 11 | (20) | |||||||||
| Net increase (decrease) in cash and cash equivalents, including amounts restricted | 1,083 | (758) | |||||||||
| Cash and cash equivalents, including amounts restricted, at beginning of period | 8,755 | 9,569 | |||||||||
| Cash and cash equivalents, including amounts restricted, at end of period | $ | 9,838 | $ | 8,811 | |||||||
| Supplemental Disclosures: | |||||||||||
| Interest paid excluding consolidated investment entities | $ | 112 | $ | 27 | |||||||
| Interest paid by consolidated investment entities | 44 | 13 | |||||||||
| Income taxes paid, net | 33 | 34 | |||||||||
| Leased assets obtained in exchange for operating lease liabilities | 7 | 13 | |||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Reconciliation of cash and cash equivalents, including amounts restricted: | |||||||||||
| Cash and cash equivalents | $ | 8,386 | $ | 6,964 | |||||||
| Cash of consolidated investment entities | 162 | 133 | |||||||||
| Restricted and segregated cash, cash equivalents and investments | 1,984 | 2,229 | |||||||||
| Less: Restricted and segregated investments | (694) | (571) | |||||||||
| Total cash and cash equivalents including amounts restricted per consolidated statements of cash flows | $ | 9,838 | $ | 8,755 |
(1) Certain prior period amounts have been restated. See Note 3 for more information.
See Notes to Consolidated Financial Statements.
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, 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 foreign operations of Ameriprise Financial, Inc. are conducted primarily through Columbia Threadneedle Investments UK International Limited, TAM UK International Holdings Ltd and Ameriprise Asset Management Holdings Singapore (Pte.) Ltd and their respective subsidiaries (collectively, “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 and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). All intercompany transactions and balances 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 fair statement 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”). 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023 (“2022 10-K”).
The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions requiring recognition or disclosure were identified.
2. Summary of Significant Accounting Policies
The Company adopted accounting standard, Financial Services – Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts, on January 1, 2023. The significant accounting policies for market risk benefits (“MRB”); deferred acquisition costs (“DAC”); deferred sales inducement costs (“DSIC”); reinsurance; policyholder account balances, future policy benefits and claims; and unearned revenue liability were added or updated as a result of adopting the new accounting standard. See Note 3 for additional information related to the transition approach and adoption impact.
Amounts Based on Estimates and Assumptions
Accounting estimates are an integral part of the Consolidated Financial Statements. In part, they are based upon assumptions concerning future events. Among the more significant are those that relate to investment securities valuation and the recognition of credit losses or impairments, valuation of derivative instruments, litigation reserves, future policy benefits, market risk benefits, and income taxes and the recognition of deferred tax assets and liabilities. These accounting estimates reflect the best judgment of management and actual results could differ.
Market Risk Benefits
Market risk benefits are contracts or contract features that both provide protection to the contractholder from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk. Market risk benefits include certain contract features on variable annuity products that provide minimum guarantees to contractholders. Guarantees accounted for as market risk benefits include guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum accumulation benefits (“GMAB”). If a contract contains multiple market risk benefits, those market risk benefits are bundled together as a single compound market risk benefit.
Market risk benefits are measured at fair value, at the individual contract level, using a non-option-based valuation approach or an option-based valuation approach dependent upon the fee structure of the contract. Changes in fair value are recognized in net income each period with the exception of the portion of the change in fair value due to a change in the instrument-specific credit risk, which is recognized in other comprehensive income (“OCI”).
Deferred Acquisition Costs
The Company incurs costs in connection with acquiring new and renewal insurance and annuity businesses. The portion of these costs which are incremental and direct to the acquisition of a new or renewal insurance policy or annuity contract are deferred. Significant costs capitalized include sales based compensation related to the acquisition of new and renewal insurance policies and annuity contracts, medical inspection costs for successful sales, and a portion of employee compensation and benefit costs based upon the amount of time spent on successful sales. Sales based compensation paid to advisors and employees and third-party distributors is capitalized. Employee compensation and benefits costs which are capitalized relate primarily to sales efforts, underwriting and processing. All other costs which are not incremental direct costs of acquiring an insurance policy or annuity contract are expensed as incurred. The DAC associated with insurance policies or annuity contracts that are significantly modified or internally replaced with
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
another contract are accounted for as write-offs. These transactions are anticipated in establishing amortization periods and other valuation assumptions.
The Company monitors other DAC amortization assumptions, such as persistency, mortality, morbidity, and variable annuity benefit utilization each quarter and, when assessed independently, each could impact the Company’s DAC balances. Unamortized DAC is reduced for actual experience in excess of expected experience.
The analysis of DAC balances and the corresponding amortization considers all relevant factors and assumptions described previously. Unless the Company’s management identifies a significant deviation over the course of the quarterly monitoring, management reviews and updates these DAC amortization assumptions annually in the third quarter of each year.
DAC is amortized on a constant-level basis for the grouped contracts over the expected contract term to approximate straight-line amortization. Contracts are grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability for future policy benefits. DAC related to all long-duration product types (except for life contingent payout annuities) is grouped on a calendar-year annual basis for each legal entity. Further disaggregation is reported for any contracts that include an additional liability for death or other insurance benefit. DAC related to life contingent payout annuities is grouped on a calendar-year annual basis for each legal entity for policies issued prior to 2021 and on a quarterly basis for each legal entity thereafter.
DAC related to annuity products (including variable deferred annuities, structured variable annuities, fixed deferred annuities, and life contingent payout annuities) is amortized based on initial premium. DAC related to life insurance products (including universal life (“UL”) insurance, variable universal life (“VUL”) insurance, indexed universal life (“IUL”) insurance, term life insurance, and whole life insurance) are amortized based on original specified amount (i.e., face amount). DAC related to disability income (“DI”) insurance is amortized based on original monthly benefit.
The accounting contract term for annuity long-duration products (except for life contingent payout annuities) is over the projected accumulation period. Life contingent payout annuities are amortized over the period which annuity payments are expected to be paid. The accounting contract term for life insurance long-duration products is over the projected life of the contract. DI insurance is amortized over the projected life of the contract, including the claim paying period.
Deferred Sales Inducement Costs
Deferred sales inducements are contract features that are intended to attract new customers or to persuade existing customers to keep their current policy. Sales inducement costs consist of bonus interest credits and premium credits added to certain annuity contract and insurance policy values. These benefits are capitalized to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. DSIC is recorded in Other assets and amortization of DSIC is recorded in Benefits, claims, losses and settlement expenses.
Reinsurance
The Company cedes insurance risk to other insurers under reinsurance agreements.
Reinsurance premiums paid and benefits received are accounted for consistently with the basis used in accounting for the policies from which risk is reinsured and consistently with the terms of the reinsurance contracts. Reinsurance premiums paid for traditional life, long term care (“LTC”), DI and life contingent immediate annuities, net of the change in any prepaid reinsurance asset, are reported as a reduction of Premiums, policy and contract charges. Reinsurance recoveries are reported as components of Benefits, claims, losses and settlement expenses.
UL and VUL reinsurance premiums are reported as a reduction of Premiums, policy and contract charges. In addition, for UL and VUL insurance policies, the net cost of reinsurance ceded, which represents the discounted amount of the expected cash flows between the reinsurer and the Company, is classified as an asset and amortized based on estimated gross profits over the period the reinsured policies are in-force. Changes in the net cost of reinsurance are reflected as a component of Premiums, policy and contract charges.
Insurance liabilities are reported before the effects of reinsurance. Policyholder account balances, future policy benefits and claims recoverable under reinsurance contracts are recorded within Receivables, net of the allowance for credit losses. The Company evaluates the financial condition of its reinsurers prior to entering into new reinsurance contracts and on a periodic basis during the contract term. The allowance for credit losses related to reinsurance recoverable is based on applying observable industry data including insurer ratings, default and loss severity data to the Company’s reinsurance recoverable balances. Management evaluates the results of the calculation and considers differences between the industry data and the Company’s data. Such differences include that the Company has no actual history of losses and that industry data may contain non-life insurers. This evaluation is inherently subjective as it requires estimates, which may be susceptible to significant change given the long-term nature of these receivables. In addition, the Company has a reinsurance protection agreement that provides credit protections for its reinsured long term care
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
business. The allowance for credit losses on reinsurance recoverable is recorded through provisions charged to Benefits, claims, losses and settlement expenses.
The Company also assumes life insurance and fixed annuity risk from other insurers in limited circumstances. Reinsurance premiums received and benefits paid are accounted for consistently with the basis used in accounting for the policies from which risk is reinsured and consistently with the terms of the reinsurance contracts. Liabilities for assumed business are recorded within Policyholder account balances, future policy benefits and claims.
Policyholder Account Balances, Future Policy Benefits and Claims
The Company establishes reserves to cover the benefits associated with non-traditional and traditional long-duration products and short-duration products. Non-traditional long-duration products include variable and structured variable annuity contracts, fixed annuity contracts and UL and VUL policies. Traditional long-duration products include term life, whole life, DI and LTC insurance products.
Non-Traditional Long-Duration Products
The liabilities for non-traditional long-duration products include fixed account values on variable and fixed annuities and UL and VUL policies, non-life contingent payout annuities, liabilities for guaranteed benefits associated with variable annuities (including structured variable annuities) and embedded derivatives for structured variable annuities, indexed annuities, and IUL products.
Liabilities for fixed account values on variable annuities, structured variable annuities, fixed deferred annuities, and UL and VUL policies are equal to accumulation values, which are the cumulative gross deposits and credited interest less withdrawals and various charges. The liability for non-life contingent payout annuities is recognized as the present value of future payments using the effective yield at inception of the contract.
A portion of the Company’s UL and VUL policies have product features that result in profits followed by losses from the insurance component of the contract. These profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the contract. 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 liability for these future losses is determined at the reporting date by estimating the death benefits in excess of account value and recognizing the excess over the estimated life based on expected assessments (e.g. cost of insurance charges, contractual administrative charges, similar fees and investment margin). See Note 9 for information regarding the liability for contracts with secondary guarantees.
Liabilities for fixed deferred indexed annuity, structured variable annuity and IUL products are equal to the accumulation of host contract values, guaranteed benefits, and the fair value of embedded derivatives.
See Note 11 for information regarding variable annuity guarantees.
Embedded Derivatives
The fair value of embedded derivatives related to structured variable annuities, indexed annuities and IUL fluctuate based on equity markets and interest rates and the estimate of the Company’s nonperformance risk and is recorded in Policyholder Account balances, Future Policy Benefits and Claims Liabilities. See Note 13 for information regarding the fair value measurement of embedded derivatives.
Traditional Long-Duration Products
The liabilities for traditional long-duration products include cash flows related to unpaid amounts on reported claims, estimates of benefits payable on claims incurred but not yet reported and estimates of benefits that will become payable on term life, whole life, DI, LTC, and life contingent payout annuity policies as claims are incurred in the future. The claim liability (also referred to as disabled life reserves) is presented together as one liability for future policy benefits.
A liability for future policy benefits, which is the present value of estimated future policy benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of estimated future net premiums to be collected from policyholders, is accrued as premium revenue is recognized. Expected insurance benefits are accrued over the life of the contract in proportion to premium revenue recognized (referred to as the net premium approach). The net premium ratio reflects cash flows from contract inception to contract termination (i.e., through the claim paying period) and cannot exceed 100%.
Assumptions utilized in the net premium approach, including mortality, morbidity, and terminations, are reviewed as part of experience studies at least annually or more frequently if suggested by evidence. Expense assumptions and actual expenses are updated within the net premium calculation consistent with other policyholder assumptions.
The updated cash flows used in the calculation are discounted using a forward rate curve. The discount rate represents an upper-medium-grade (i.e., low credit risk) fixed-income instrument yield (i.e., an A rating) that reflects the duration characteristics of the liability. Discount rates will be locked in annually, at the end of each year for all products, except life contingent payout annuities, and
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
calculated as the monthly average discount rate curves for the year. For life contingent payout annuities, the discount rates will be locked in quarterly, at the end of each quarter based on the average of the three months for the quarter.
The liability for future policy benefits will be updated for actual experience at least on an annual basis and concurrent with changes to cash flow assumptions. When net premiums are updated for cash flow changes, the estimated cash flows over the entire life of a group of contracts are updated using historical experience and updated future cash flow assumptions.
The revised net premiums are used to calculate an updated liability for future policy benefits as of the beginning of the reporting period, discounted at the original locked in rate (i.e., contract issuance rate). The updated liability for future policy benefits as of the beginning of the reporting period is then compared with the carrying amount of the liability as of that date prior to updating cash flow assumptions to determine the current period remeasurement gain or loss reflected in current period earnings. The revised net premiums are then applied as of the beginning of the quarter to calculate the benefit expense for the current reporting period.
The difference between the updated carrying amount of the liability for future policy benefits measured using the current discount rate assumption and the original discount rate assumption is recognized in other comprehensive income. The interest accretion rate remains the original discount rate used at contract issue date.
If the updating of cash flow assumptions results in the present value of future benefits and expenses exceeding the present value of future gross premiums, a charge to net income is recorded for the current reporting period such that net premiums are set equal to gross premiums. In subsequent periods, the liability for future policy benefits is accrued with net premiums set equal to gross premiums.
Contracts (except for life contingent payout annuities sold subsequent to December 31, 2020) are grouped into cohorts by contract type and issue year, as well as by legal entity and reportable segment. Life contingent payout annuities sold in periods beginning in 2021 are grouped into quarterly cohorts.
See Note 9 for information regarding the liabilities for traditional long-duration products.
Deferred Profit Liability
For limited-payment products, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policy benefits, including discount rate, mortality, lapses and expenses.
The DPL is amortized and recognized as premium revenue in proportion to expected future benefit payments from annuity contracts. Interest is accreted on the balance of the DPL using the discount rate determined at contract issuance. The Company reviews and updates its estimate of cash flows from the DPL at the same time as the estimates of cash flows for the liability for future policy benefits. When cash flows are updated, the updated estimates are used to recalculate the DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, and any difference is recognized as either a charge or credit to premium revenue.
DPL is recorded in Policyholder account balances, future policy benefits and claims and included as a reconciling item within the disaggregated rollforwards.
Unearned Revenue Liability
The Company’s UL and VUL policies require payment of fees or other policyholder assessments in advance for services to be provided in future periods. These charges are deferred as unearned revenue and amortized consistent with DAC amortization factors. The unearned revenue liability is recorded in Other liabilities and the amortization is recorded in Premiums, policy and contract charges.
For clients who pay financial planning fees prior to the advisor’s delivery of the financial plan, the financial planning fees received in advance are deferred until the plan is delivered to the client.
3. Recent Accounting Pronouncements
Adoption of New Accounting Standards
Financial Instruments – Credit Losses – Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the Financial Accounting Standards Board (“FASB”) proposed amendments to Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). The update removes the recognition and measurement guidance for Troubled Debt Restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, and modifies the disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. Rather than applying the recognition and measurement for TDRs, an entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. The update also requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Instruments—Credit Losses—Measured at Amortized Cost. The amendments are to be applied prospectively, but entities may apply a modified retrospective transition for changes to the recognition and measurement of TDRs. For entities that have adopted Topic 326, the amendments are effective for interim and annual periods beginning after December 15, 2022. The Company adopted the standard on January 1, 2023. The adoption of this update did not have a material impact on the Company’s consolidated results of operations and financial condition and modifications to disclosures are immaterial in the current period.
Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB updated the accounting standards to require an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue for Contracts with Customers (“Topic 606”). At the acquisition date, an acquirer is required to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with GAAP). The amendments apply to all contract assets and contract liabilities acquired in a business combination that result from contracts accounted for under the principals of Topic 606. The standard is effective for interim and annual periods beginning after December 15, 2022. The Company adopted the standard on January 1, 2023. The adoption of this update did not have an impact on the Company’s consolidated results of operations and financial condition.
Financial Services – Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB updated the accounting standard related to long-duration insurance contracts (ASU 2018-12). The guidance changes elements of the measurement models and disclosure requirements for an insurer’s long-duration insurance contract benefits and acquisition costs by expanding the use of fair value accounting to certain contract benefits, requiring updates, if any, and at least annually, to assumptions used to measure liabilities for future policy benefits, and changing the amortization pattern of deferred acquisition costs to a constant level basis. Adoption of the accounting standard will not impact overall cash flows, insurance subsidiaries’ dividend capacity, or regulatory capital requirements.
When the Company adopted the standard as of January 1, 2021 (the “transition date”), opening equity was adjusted for the adoption impacts to retained earnings and accumulated other comprehensive income (loss) (“AOCI”) and prior periods presented (i.e. 2021 and 2022) were restated. The adoption impact as of January 1, 2021 was a reduction in total equity of $1.9 billion, of which $0.9 billion and $1.0 billion were reflected in retained earnings and AOCI, respectively.
The following table presents the effects of the adoption of the above new accounting standard to the Company’s previously reported Consolidated Balance Sheets:
| As Filed December 31, 2022 | Adjustment | Post adoption Post-adoption December 31, 2022 | As Filed December 31, 2021 | Adjustment | Post adoption Post-adoption December 31, 2021 | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Market risk benefits | $ | — | $ | 1,015 | $ | 1,015 | $ | — | $ | 539 | $ | 539 | |||||||||||||||||||||||
| Receivables (allowance for credit losses: 2022, $75; 2021, $55) | 15,779 | (184) | 15,595 | 16,205 | 927 | 17,132 | |||||||||||||||||||||||||||||
| Deferred acquisition costs | 3,160 | (383) | 2,777 | 2,782 | 62 | 2,844 | |||||||||||||||||||||||||||||
| Other assets | 9,341 | (64) | 9,277 | 11,375 | 297 | 11,672 | |||||||||||||||||||||||||||||
| Total assets | $ | 158,468 | $ | 384 | $ | 158,852 | $ | 175,910 | $ | 1,825 | $ | 177,735 | |||||||||||||||||||||||
| Liabilities and Equity | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Policyholder account balances, future policy benefits and claims | $ | 36,067 | $ | (1,935) | $ | 34,132 | $ | 35,750 | $ | (727) | $ | 35,023 | |||||||||||||||||||||||
| Market risk benefits | — | 2,118 | 2,118 | — | 3,440 | 3,440 | |||||||||||||||||||||||||||||
| Other liabilities | 6,305 | 11 | 6,316 | 8,641 | 216 | 8,857 | |||||||||||||||||||||||||||||
| Total liabilities | 154,855 | 194 | 155,049 | 169,969 | 2,929 | 172,898 | |||||||||||||||||||||||||||||
| Equity: | |||||||||||||||||||||||||||||||||||
| Retained earnings | 19,531 | 387 | 19,918 | 17,525 | (203) | 17,322 | |||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss), net of tax | (2,349) | (197) | (2,546) | 259 | (901) | (642) | |||||||||||||||||||||||||||||
| Total equity | 3,613 | 190 | 3,803 | 5,941 | (1,104) | 4,837 | |||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 158,468 | $ | 384 | $ | 158,852 | $ | 175,910 | $ | 1,825 | $ | 177,735 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables present the effects of the adoption of the above new accounting standard to the Company’s previously reported Consolidated Statements of Operations:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| As Filed 2022 | Adjustment | Post-adoption 2022 | As Filed 2021 | Adjustment | Post-adoption 2021 | ||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Premiums, policy and contract charges | $ | 368 | $ | (30) | $ | 338 | $ | 347 | $ | (9) | $ | 338 | |||||||||||||||||||||||
| Total revenues | 3,657 | (30) | 3,627 | 3,355 | (9) | 3,346 | |||||||||||||||||||||||||||||
| Total net revenues | 3,655 | (30) | 3,625 | 3,350 | (9) | 3,341 | |||||||||||||||||||||||||||||
| Benefits and expenses | |||||||||||||||||||||||||||||||||||
| Distribution expenses | 1,297 | 3 | 1,300 | 1,175 | 3 | 1,178 | |||||||||||||||||||||||||||||
| Benefits, claims, losses and settlement expenses | 211 | (179) | 32 | 653 | (413) | 240 | |||||||||||||||||||||||||||||
| Remeasurement gains and losses of future policy benefit reserves | — | (6) | (6) | — | (40) | (40) | |||||||||||||||||||||||||||||
| Change in fair value of market risk benefits | — | 100 | 100 | — | (887) | (887) | |||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 96 | (31) | 65 | 5 | 61 | 66 | |||||||||||||||||||||||||||||
| Total expenses | 2,732 | (113) | 2,619 | 2,857 | (1,276) | 1,581 | |||||||||||||||||||||||||||||
| Pretax income | 923 | 83 | 1,006 | 493 | 1,267 | 1,760 | |||||||||||||||||||||||||||||
| Income tax provision | 162 | 19 | 181 | 56 | 269 | 325 | |||||||||||||||||||||||||||||
| Net income | $ | 761 | $ | 64 | $ | 825 | $ | 437 | $ | 998 | $ | 1,435 | |||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||
| Basic | $ | 6.69 | $ | 0.57 | $ | 7.26 | $ | 3.65 | $ | 8.33 | $ | 11.98 | |||||||||||||||||||||||
| Diluted | $ | 6.55 | $ | 0.55 | $ | 7.10 | $ | 3.58 | $ | 8.16 | $ | 11.74 |
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| As Filed 2022 | Adjustment | Post-adoption 2022 | As Filed 2021 | Adjustment | Post-adoption 2021 | ||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Distribution fees | $ | 1,938 | $ | 1 | $ | 1,939 | $ | 1,830 | $ | (2) | $ | 1,828 | |||||||||||||||||||||||
| Premiums, policy and contract charges | 1,411 | (14) | 1,397 | 273 | (52) | 221 | |||||||||||||||||||||||||||||
| Total revenues | 14,347 | (13) | 14,334 | 13,443 | (54) | 13,389 | |||||||||||||||||||||||||||||
| Total net revenues | 14,271 | (13) | 14,258 | 13,431 | (54) | 13,377 | |||||||||||||||||||||||||||||
| Benefits and expenses | |||||||||||||||||||||||||||||||||||
| Distribution expenses | 4,923 | 12 | 4,935 | 5,015 | 13 | 5,028 | |||||||||||||||||||||||||||||
| Benefits, claims, losses and settlement expenses | 1,372 | (1,130) | 242 | 716 | (872) | (156) | |||||||||||||||||||||||||||||
| Remeasurement gains and losses of future policy benefit reserves | — | 1 | 1 | — | (52) | (52) | |||||||||||||||||||||||||||||
| Change in fair value of market risk benefits | — | 311 | 311 | — | (113) | (113) | |||||||||||||||||||||||||||||
| Amortization of deferred acquisition costs | 208 | 44 | 252 | 124 | 135 | 259 | |||||||||||||||||||||||||||||
| Total expenses | 11,089 | (762) | 10,327 | 10,081 | (889) | 9,192 | |||||||||||||||||||||||||||||
| Pretax income | 3,182 | 749 | 3,931 | 3,350 | 835 | 4,185 | |||||||||||||||||||||||||||||
| Income tax provision | 623 | 159 | 782 | 590 | 178 | 768 | |||||||||||||||||||||||||||||
| Net income | $ | 2,559 | $ | 590 | $ | 3,149 | $ | 2,760 | $ | 657 | $ | 3,417 | |||||||||||||||||||||||
| Earnings per share | |||||||||||||||||||||||||||||||||||
| Basic | $ | 22.99 | $ | 5.30 | $ | 28.29 | $ | 23.53 | $ | 5.60 | $ | 29.13 | |||||||||||||||||||||||
| Diluted | $ | 22.51 | $ | 5.19 | $ | 27.70 | $ | 23.00 | $ | 5.48 | $ | 28.48 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Future Adoption of New Accounting Standards
Leases – Common Control Arrangements
In March 2023, the FASB proposed amendments to ASU 2016-02, Leases (“Topic 842”). The update applicable to all entities provides requirements for leasehold improvements associated with common control leases to be amortized over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendment is to be applied either prospectively to all new leasehold improvements recognized on or after the date that the entity first applies the amendments, prospectively to all new and existing leasehold improvements recognized on or after the date that the entity first applies the amendments with any remaining unamortized balance of existing leasehold improvements amortized over their remaining useful life to the common control group determined at that date, or retrospectively to the beginning of the period in which the entity first applied Topic 842 with any leasehold improvements that otherwise would not have been amortized or impaired recognized through a cumulative-effect adjustment to the opening balance of retained earnings at the beginning of the earliest period presented in accordance with ASC 842. The amendment is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. The Company is in the process of evaluating the amendment and assessing the impact on its consolidated results of operations and financial condition.
4. Revenue from Contracts with Customers
The following tables present revenue disaggregated by segment on an adjusted operating basis with a reconciliation of segment revenues to those reported on the Consolidated Statements of Operations:
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Advice & Wealth Management | Asset Management | Retirement & Protection Solutions | Corporate & Other | Total Segments | Non-operating Revenue | Total | |||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Management and financial advice fees: | |||||||||||||||||||||||||||||||||||||||||
| Asset management fees: | |||||||||||||||||||||||||||||||||||||||||
| Retail | $ | — | $ | 491 | $ | — | $ | — | $ | 491 | $ | — | $ | 491 | |||||||||||||||||||||||||||
| Institutional | — | 152 | — | — | 152 | — | 152 | ||||||||||||||||||||||||||||||||||
| Advisory fees | 1,109 | — | — | — | 1,109 | — | 1,109 | ||||||||||||||||||||||||||||||||||
| Financial planning fees | 101 | — | — | — | 101 | — | 101 | ||||||||||||||||||||||||||||||||||
| Transaction and other fees | 89 | 48 | 14 | — | 151 | — | 151 | ||||||||||||||||||||||||||||||||||
| Total management and financial advice fees | 1,299 | 691 | 14 | — | 2,004 | — | 2,004 | ||||||||||||||||||||||||||||||||||
| Distribution fees: | |||||||||||||||||||||||||||||||||||||||||
| Mutual funds | 175 | 52 | — | — | 227 | — | 227 | ||||||||||||||||||||||||||||||||||
| Insurance and annuity | 211 | 38 | 80 | — | 329 | — | 329 | ||||||||||||||||||||||||||||||||||
| Off-balance sheet brokerage cash | 126 | — | — | — | 126 | — | 126 | ||||||||||||||||||||||||||||||||||
| Other products | 81 | — | — | — | 81 | — | 81 | ||||||||||||||||||||||||||||||||||
| Total distribution fees | 593 | 90 | 80 | — | 763 | — | 763 | ||||||||||||||||||||||||||||||||||
| Other revenues | 58 | 5 | — | — | 63 | — | 63 | ||||||||||||||||||||||||||||||||||
| Total revenue from contracts with customers | 1,950 | 786 | 94 | — | 2,830 | — | 2,830 | ||||||||||||||||||||||||||||||||||
| Revenue from other sources (1) | 418 | 13 | 730 | 130 | 1,291 | 47 | 1,338 | ||||||||||||||||||||||||||||||||||
| Total segment gross revenues | 2,368 | 799 | 824 | 130 | 4,121 | 47 | 4,168 | ||||||||||||||||||||||||||||||||||
| Banking and deposit interest expense | (103) | — | — | (4) | (107) | — | (107) | ||||||||||||||||||||||||||||||||||
| Total segment net revenues | 2,265 | 799 | 824 | 126 | 4,014 | 47 | 4,061 | ||||||||||||||||||||||||||||||||||
| Elimination of intersegment revenues | (201) | (17) | (102) | 4 | (316) | (3) | (319) | ||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 2,064 | $ | 782 | $ | 722 | $ | 130 | $ | 3,698 | $ | 44 | $ | 3,742 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Advice & Wealth Management | Asset Management | Retirement & Protection Solutions | Corporate & Other | Total Segments | Non-operating Revenue | Total | |||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Management and financial advice fees: | |||||||||||||||||||||||||||||||||||||||||
| Asset management fees: | |||||||||||||||||||||||||||||||||||||||||
| Retail | $ | — | $ | 644 | $ | — | $ | — | $ | 644 | $ | — | $ | 644 | |||||||||||||||||||||||||||
| Institutional | — | 195 | — | — | 195 | — | 195 | ||||||||||||||||||||||||||||||||||
| Advisory fees | 1,191 | — | — | — | 1,191 | — | 1,191 | ||||||||||||||||||||||||||||||||||
| Financial planning fees | 97 | — | — | — | 97 | — | 97 | ||||||||||||||||||||||||||||||||||
| Transaction and other fees | 92 | 55 | 16 | — | 163 | — | 163 | ||||||||||||||||||||||||||||||||||
| Total management and financial advice fees | 1,380 | 894 | 16 | — | 2,290 | — | 2,290 | ||||||||||||||||||||||||||||||||||
| Distribution fees: | |||||||||||||||||||||||||||||||||||||||||
| Mutual funds | 204 | 65 | — | — | 269 | — | 269 | ||||||||||||||||||||||||||||||||||
| Insurance and annuity | 221 | 46 | 95 | — | 362 | — | 362 | ||||||||||||||||||||||||||||||||||
| Off-balance sheet brokerage cash (2) | 16 | — | — | — | 16 | — | 16 | ||||||||||||||||||||||||||||||||||
| Other products | 88 | — | — | — | 88 | — | 88 | ||||||||||||||||||||||||||||||||||
| Total distribution fees | 529 | 111 | 95 | — | 735 | — | 735 | ||||||||||||||||||||||||||||||||||
| Other revenues | 53 | 5 | — | — | 58 | — | 58 | ||||||||||||||||||||||||||||||||||
| Total revenue from contracts with customers | 1,962 | 1,010 | 111 | — | 3,083 | — | 3,083 | ||||||||||||||||||||||||||||||||||
| Revenue from other sources (1) | 82 | 7 | 657 | 116 | 862 | 37 | 899 | ||||||||||||||||||||||||||||||||||
| Total segment gross revenues | 2,044 | 1,017 | 768 | 116 | 3,945 | 37 | 3,982 | ||||||||||||||||||||||||||||||||||
| Banking and deposit interest expense | (2) | — | — | — | (2) | — | (2) | ||||||||||||||||||||||||||||||||||
| Total segment net revenues | 2,042 | 1,017 | 768 | 116 | 3,943 | 37 | 3,980 | ||||||||||||||||||||||||||||||||||
| Elimination of intersegment revenues | (228) | (12) | (112) | — | (352) | (3) | (355) | ||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 1,814 | $ | 1,005 | $ | 656 | $ | 116 | $ | 3,591 | $ | 34 | $ | 3,625 |
(1) Revenues not included in the scope of the revenue from contracts with customers standard. The amounts primarily consist of revenue associated with insurance and annuity products or financial instruments.
(2) Prior to the fourth quarter of 2022, Off-balance sheet brokerage cash was included in Other products. Prior periods have been updated to be comparative.
The following discussion describes the nature, timing, and uncertainty of revenues and cash flows arising from the Company’s contracts with customers on a consolidated basis.
Management and Financial Advice Fees
Asset Management Fees
The Company earns revenue for performing asset management services for retail and institutional clients. The revenue is earned based on a fixed or tiered rate applied, as a percentage, to assets under management. Assets under management vary with market fluctuations and client behavior. The asset management performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Asset management fees are accrued, invoiced and collected on a monthly or quarterly basis.
The Company’s asset management contracts for Open Ended Investment Companies (“OEICs”) in the United Kingdom (“U.K.”) and Société d'Investissement à Capital Variable (“SICAVs”) in Europe include performance obligations for asset management and fund distribution services. The amounts received for these services are reported as Management and financial advice fees. The revenue recognition pattern is the same for both performance obligations as the fund distribution services revenue is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment) and not recognized until assets under management are known.
The Company may also earn performance-based management fees on institutional accounts, hedge funds, collateralized loan obligations (“CLOs”), OEICs, SICAVs and property and other funds based on a percentage of account returns in excess of either a benchmark index or a contractually specified level. This revenue is variable and impacted primarily by the performance of the assets being managed compared to the benchmark index or contractually specified level. The revenue is not recognized until it is probable that a significant reversal will not occur. Performance-based management fees are invoiced on a quarterly or annual basis.
Advisory Fees
The Company earns revenue for performing investment advisory services for certain brokerage customer’s discretionary and non-discretionary managed accounts. The revenue is earned based on a contractual fixed rate applied, as a percentage, to the market value
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
of assets held in the account. The investment advisory performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Advisory fees are billed on a monthly basis on the prior month end assets.
Financial Planning Fees
The Company earns revenue for providing financial plans to its clients. The revenue earned for each financial plan is either a fixed fee (received monthly, quarterly or annually) or a variable fee (received monthly) based on a contractual fixed rate applied, as a percentage, to the prior month end assets held in a client’s investment advisory account. The financial planning fee is based on the complexity of a client’s financial and life situation and his or her advisor’s experience. The performance obligation is satisfied at the time the financial plan is delivered to the customer. The Company records a contract liability for the unearned revenue when cash is received before the plan is delivered. The financial plan contracts with clients are annual contracts. Amounts recorded as a contract liability are recognized as revenue when the financial plan is delivered, which occurs within the annual contract period.
For fixed fee arrangements, revenue is recognized when the financial plan is delivered. The Company accrues revenue for any amounts that have not been received at the time the financial plan is delivered.
For variable fee arrangements, revenue is recognized for cash that has been received when the financial plan is delivered. The amount received after the plan is delivered is variably constrained due to factors outside the Company’s control including market volatility and client behavior. The revenue is recognized when it is probable that a significant reversal will not occur that is generally each month end as the advisory account balance uncertainty is resolved.
Contract liabilities for financial planning fees, which are included in Other liabilities, were $159 million and $160 million as of March 31, 2023 and December 31, 2022, respectively.
The Company pays sales commissions to advisors when a new financial planning contract is obtained or when an existing contract is renewed. The sales commissions paid to the advisors prior to financial plan delivery are considered costs to obtain a contract with a customer and are initially capitalized. When the performance obligation to deliver the financial plan is satisfied, the commission is recognized as distribution expense. Capitalized costs to obtain these contracts are reported in Other assets and were $127 million and $129 million as of March 31, 2023 and December 31, 2022, respectively.
Transaction and Other Fees
The Company earns revenue for providing customer support, shareholder and administrative services (including transfer agent services) for affiliated mutual funds and networking, sub-accounting and administrative services for unaffiliated mutual funds. The Company also receives revenue for providing custodial services and account maintenance services on brokerage and retirement accounts that are not included in an advisory relationship. Transfer agent and administrative revenue is earned based on either a fixed rate applied, as a percentage, to assets under management or an annual fixed fee for each fund position. Networking and sub-accounting revenue is earned based on either an annual fixed fee for each account or an annual fixed fee for each fund position. Custodial and account maintenance revenue is generally earned based on a quarterly or annual fixed fee for each account. Each of the customer support and administrative services performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Transaction and other fees (other than custodial service fees) are invoiced or charged to brokerage accounts on a monthly or quarterly basis. Custodial service fees are invoiced or charged to brokerage accounts on an annual basis. Contract liabilities for custodial service fees, which are included in Other liabilities, were $39 million and nil as of March 31, 2023 and December 31, 2022, respectively.
The Company earns revenue for providing trade execution services to franchise advisors. The trade execution performance obligation is satisfied at the time of each trade and the revenue is primarily earned based on a fixed fee per trade. These fees are invoiced and collected on a semi-monthly basis.
Distribution Fees
Mutual Funds and Insurance and Annuity Products
The Company earns revenue for selling affiliated and unaffiliated mutual funds, fixed and variable annuities and insurance products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment or holds the contract and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment, insurance policy or annuity contract). This ongoing revenue may be recognized for many years after the initial sale. The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue for providing unaffiliated partners an opportunity to educate the Company’s advisors or to support availability and distribution of their products on the Company’s platforms. These payments allow the outside parties to train and support the advisors, explain the features of their products and distribute marketing and educational materials, and support trading and
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
operational systems necessary to enable the Company’s client servicing and production distribution efforts. The Company earns revenue for placing and maintaining unaffiliated fund partners and insurance companies’ products on the Company’s sales platform (subject to the Company’s due diligence standards). The revenue is primarily earned based on a fixed fee or a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are invoiced and collected on monthly basis.
Off-Balance Sheet Brokerage Cash
The Company earns revenue for placing clients’ deposits in its brokerage sweep program with third-party banks. The amount received from the third-party banks is impacted by short-term interest rates. The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, to the deposits placed.
Other Products
The Company earns revenue for selling unaffiliated alternative products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment and is earned generally based on a fixed rate applied, as a percentage, to the market value of the investment. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment). The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue from brokerage clients for the execution of requested trades. The performance obligation is satisfied at the time of trade execution and amounts are received on the settlement date. The revenue varies for each trade based on various factors that include the type of investment, dollar amount of the trade and how the trade is executed (online or broker assisted).
Other Revenues
The Company earns revenue from fees charged to franchise advisors for providing various services the advisors need to manage and grow their practices. The primary services include: licensing of intellectual property and software, compliance supervision, insurance coverage, technology services and support, consulting and other services. The services are either provided by the Company or third- party providers. The Company controls the services provided by third parties as it has the right to direct the third parties to perform the services, is primarily responsible for performing the services and sets the prices the advisors are charged. The Company recognizes revenue for the gross amount of the fees received from the advisors. The fees are primarily collected monthly as a reduction of commission payments.
Intellectual property and software licenses, along with compliance supervision, insurance coverage, and technology services and support are primarily earned based on a monthly fixed fee. These services are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The consulting and other services performance obligations are satisfied as the services are delivered and revenue is earned based upon the level of service requested.
Contract Costs Asset
The Company has an asset of $31 million and $33 million as of March 31, 2023 and December 31, 2022, respectively, related to the transition of investment advisory services under an arrangement with BMO Financial Group for clients that elected to transfer U.S. retail and institutional assets to the Company.
Receivables
Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were $500 million and $537 million as of March 31, 2023 and December 31, 2022, respectively.
5. Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds and other private funds, property funds and certain non-U.S. series funds (such as OEICs and SICAVs) (collectively, “investment entities”), which are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates certain investment entities (collectively, “consolidated investment entities”) if the Company is deemed to be the primary beneficiary. The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its initial investment and existing future funding commitments, and the Company has not provided any other support to these entities. The Company has unfunded commitments related to consolidated CLOs of $28 million and $30 million as of March 31, 2023 and December 31, 2022, respectively.
CLOs
CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO’s debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO’s collateral pool. The Company earns management fees from the CLOs based on the value of the CLO’s collateral pool and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes and highly rated senior notes of certain CLOs. The Company consolidates certain CLOs where it is the primary beneficiary and has the power to direct the activities that most significantly impact the economic performance of the CLO.
The Company’s maximum exposure to loss with respect to non-consolidated CLOs is limited to its amortized cost, which was $1 million as of both March 31, 2023 and December 31, 2022. The Company classifies these investments as Available-for-Sale securities. See Note 6 for additional information on these investments.
Property Funds
The Company provides investment advice and related services to property funds, some of which are considered VIEs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not have a significant economic interest and is not required to consolidate any of the property funds. The Company’s maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in property funds is reflected in other investments and was $65 million and $57 million as of March 31, 2023 and December 31, 2022, respectively.
Hedge Funds and other Private Funds
The Company does not consolidate hedge funds and other private funds which are sponsored by the Company and considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services and the Company does not have a significant economic interest in any fund. The Company’s maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in these entities is reflected in other investments and was nil as of both March 31, 2023 and December 31, 2022.
Non-U.S. Series Funds
The Company manages non-U.S. series funds, which are considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not consolidate these funds and its maximum exposure to loss is limited to its carrying value. The carrying value of the Company’s investment in these funds is reflected in other investments and was $31 million and $25 million as of March 31, 2023 and December 31, 2022, respectively.
Affordable Housing Partnerships and Other Real Estate Partnerships
The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships.
A majority of the limited partnerships are VIEs. The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $85 million and $92 million as of March 31, 2023 and December 31, 2022, respectively. The Company had a liability of $7 million as of both March 31, 2023 and December 31, 2022, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the funding commitments.
Structured Investments
The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities and commercial and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its amortized cost. See Note 6 for additional information on these structured investments.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Fair Value of Assets and Liabilities
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 13 for the definition of the three levels of the fair value hierarchy.
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
| March 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | — | $ | 34 | $ | — | $ | 34 | |||||||||||||||
| Common stocks | — | 4 | — | 4 | |||||||||||||||||||
| Syndicated loans | — | 2,206 | 50 | 2,256 | |||||||||||||||||||
| Total investments | — | 2,244 | 50 | 2,294 | |||||||||||||||||||
| Receivables | — | 23 | — | 23 | |||||||||||||||||||
| Other assets | — | 1 | — | 1 | |||||||||||||||||||
| Total assets at fair value | $ | — | $ | 2,268 | $ | 50 | $ | 2,318 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Debt (1) | $ | — | $ | 2,367 | $ | — | $ | 2,367 | |||||||||||||||
| Other liabilities | — | 86 | — | 86 | |||||||||||||||||||
| Total liabilities at fair value | $ | — | $ | 2,453 | $ | — | $ | 2,453 |
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | — | $ | 35 | $ | — | $ | 35 | |||||||||||||||
| Common stocks | — | 3 | — | 3 | |||||||||||||||||||
| Syndicated loans | — | 2,191 | 125 | 2,316 | |||||||||||||||||||
| Total investments | — | 2,229 | 125 | 2,354 | |||||||||||||||||||
| Receivables | — | 20 | — | 20 | |||||||||||||||||||
| Other assets | — | 1 | 1 | 2 | |||||||||||||||||||
| Total assets at fair value | $ | — | $ | 2,250 | $ | 126 | $ | 2,376 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Debt (1) | $ | — | $ | 2,363 | $ | — | $ | 2,363 | |||||||||||||||
| Other liabilities | — | 119 | — | 119 | |||||||||||||||||||
| Total liabilities at fair value | $ | — | $ | 2,482 | $ | — | $ | 2,482 |
(1) The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.4 billion as of both March 31, 2023 and December 31, 2022.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables provide a summary of changes in Level 3 assets held by consolidated investment entities measured at fair value on a recurring basis:
| Syndicated Loans | Other Assets | ||||||||||||||||
| (in millions) | |||||||||||||||||
| Balance at January 1, 2023 | $ | 125 | $ | 1 | |||||||||||||
| Total gains (losses) included in: | |||||||||||||||||
| Net income | (1) | (1) | — | ||||||||||||||
| Purchases | 17 | — | |||||||||||||||
| Sales | (7) | — | |||||||||||||||
| Settlements | (15) | — | |||||||||||||||
| Transfers into Level 3 | 21 | — | |||||||||||||||
| Transfers out of Level 3 | (90) | (1) | |||||||||||||||
| Balance at March 31, 2023 | $ | 50 | $ | — | |||||||||||||
| Changes in unrealized gains (losses) included in net income relating to assets held at March 31, 2023 | $ | — | (1) | $ | — |
| Syndicated Loans | Other Assets | ||||||||||||||||
| (in millions) | |||||||||||||||||
| Balance at January 1, 2022 | $ | 64 | $ | 3 | |||||||||||||
| Total gains (losses) included in: | |||||||||||||||||
| Net income | (1) | (1) | — | ||||||||||||||
| Purchases | 15 | — | |||||||||||||||
| Sales | (1) | — | |||||||||||||||
| Transfers into Level 3 | 62 | — | |||||||||||||||
| Transfers out of Level 3 | (42) | (3) | |||||||||||||||
| Balance at March 31, 2022 | $ | 97 | $ | — | |||||||||||||
| Changes in unrealized gains (losses) included in net income relating to assets held at March 31, 2022 | $ | (1) | (1) | $ | — |
(1) Included in Net investment income.
Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote.
All Level 3 measurements as of March 31, 2023 and December 31, 2022 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Determination of Fair Value
Assets
Investments
The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company. See Note 13 for a description of the Company’s determination of the fair value of corporate debt securities, common stocks and other investments.
Receivables
For receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short-term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Liabilities
Debt
The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches for which market activity is limited and less transparent. As a result, the fair value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets and is classified as Level 2.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short-term. The fair value of these liabilities is classified as Level 2. Other liabilities also include accrued interest on CLO debt.
Fair Value Option
The Company has elected the fair value option for the financial assets and liabilities of the consolidated CLOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CLOs.
The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Syndicated loans | |||||||||||
| Unpaid principal balance | $ | 2,427 | $ | 2,525 | |||||||
| Excess unpaid principal over fair value | (171) | (209) | |||||||||
| Fair value | $ | 2,256 | $ | 2,316 | |||||||
| Fair value of loans more than 90 days past due | $ | — | $ | — | |||||||
| Fair value of loans in nonaccrual status | 22 | 23 | |||||||||
| Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both | 53 | 48 | |||||||||
| Debt | |||||||||||
| Unpaid principal balance | $ | 2,605 | $ | 2,636 | |||||||
| Excess unpaid principal over fair value | (238) | (273) | |||||||||
| Carrying value (1) | $ | 2,367 | $ | 2,363 |
(1) The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.4 billion as of both March 31, 2023 and December 31, 2022.
Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in Net investment income. Gains and losses related to the changes in fair value of investments and gains and losses on sales of investments are also recorded in Net investment income. Interest expense on debt is recorded in Interest and debt expense with gains and losses related to the changes in fair value of debt recorded in Net investment income.
Total net gains (losses) recognized in Net investment income related to the changes in fair value of investments the Company owns in the consolidated CLOs where it has elected the fair value option and collateralized financing entity accounting were immaterial for both the three months ended March 31, 2023 and 2022.
Debt of the consolidated investment entities and the stated interest rates were as follows:
| Carrying Value | Weighted Average Interest Rate | ||||||||||||||||||||||
| March 31, 2023 | December 31, 2022 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Debt of consolidated CLOs due 2028-2034 | $ | 2,367 | $ | 2,363 | 5.9 | % | 5.3 | % |
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from nil to 14.0%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
6. Investments
The following is a summary of Ameriprise Financial investments:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Available-for-Sale securities, at fair value | $ | 44,883 | $ | 40,811 | |||||||
| Mortgage loans (allowance for credit losses: 2023, $13; 2022, $12) | 1,997 | 1,987 | |||||||||
| Policy loans | 861 | 847 | |||||||||
| Other investments (allowance for credit losses: 2023, $6; 2022, $5) | 867 | 879 | |||||||||
| Total | $ | 48,608 | $ | 44,524 |
Other investments primarily reflect the Company’s interests in affordable housing partnerships, trading securities, equity securities, seed money investments in proprietary funds, syndicated loans, credit card receivables and certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days.
The following is a summary of Net investment income:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Investment income on fixed maturities | $ | 571 | $ | 214 | |||||||||||||||||||
| Net realized gains (losses) | 4 | 20 | |||||||||||||||||||||
| Affordable housing partnerships | (9) | (15) | |||||||||||||||||||||
| Consolidated investment entities | 42 | 19 | |||||||||||||||||||||
| Other | 90 | 23 | |||||||||||||||||||||
| Total | $ | 698 | $ | 261 |
Available-for-Sale securities distributed by type were as follows:
| March 31, 2023 | ||||||||||||||||||||||||||||||||
| Description of Securities | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Fair Value | |||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | 10,868 | $ | 287 | $ | (622) | $ | (23) | $ | 10,510 | ||||||||||||||||||||||
| Residential mortgage backed securities | 18,852 | 58 | (1,247) | — | 17,663 | |||||||||||||||||||||||||||
| Commercial mortgage backed securities | 6,859 | 12 | (406) | — | 6,465 | |||||||||||||||||||||||||||
| Asset backed securities | 7,366 | 11 | (133) | — | 7,244 | |||||||||||||||||||||||||||
| State and municipal obligations | 769 | 73 | (20) | (2) | 820 | |||||||||||||||||||||||||||
| U.S. government and agency obligations | 2,135 | 1 | — | — | 2,136 | |||||||||||||||||||||||||||
| Foreign government bonds and obligations | 30 | — | (2) | — | 28 | |||||||||||||||||||||||||||
| Other securities | 17 | — | — | — | 17 | |||||||||||||||||||||||||||
| Total | $ | 46,896 | $ | 442 | $ | (2,430) | $ | (25) | $ | 44,883 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Description of Securities | December 31, 2022 | |||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Fair Value | ||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | 10,361 | $ | 180 | $ | (823) | $ | (20) | $ | 9,698 | ||||||||||||||||||||||
| Residential mortgage backed securities | 17,056 | 37 | (1,390) | — | 15,703 | |||||||||||||||||||||||||||
| Commercial mortgage backed securities | 6,648 | 3 | (439) | — | 6,212 | |||||||||||||||||||||||||||
| Asset backed securities | 6,408 | 14 | (158) | — | 6,264 | |||||||||||||||||||||||||||
| State and municipal obligations | 773 | 53 | (27) | (2) | 797 | |||||||||||||||||||||||||||
| U.S. government and agency obligations | 2,079 | 1 | (1) | — | 2,079 | |||||||||||||||||||||||||||
| Foreign government bonds and obligations | 43 | — | (2) | — | 41 | |||||||||||||||||||||||||||
| Other securities | 16 | 1 | — | — | 17 | |||||||||||||||||||||||||||
| Total | $ | 43,384 | $ | 289 | $ | (2,840) | $ | (22) | $ | 40,811 |
As of March 31, 2023 and December 31, 2022, accrued interest of $262 million and $237 million, respectively, is excluded from the amortized cost basis of Available-for-Sale securities in the tables above and is recorded in Receivables.
As of both March 31, 2023 and December 31, 2022, investment securities with a fair value of $3.3 billion were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $175 million and $302 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
As of both March 31, 2023 and December 31, 2022, fixed maturity securities comprised approximately 92% of Ameriprise Financial investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. As of March 31, 2023 and December 31, 2022, the Company’s internal analysts rated $422 million and $270 million, respectively, of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
| Ratings | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Amortized Cost | Fair Value | Percent of Total Fair Value | Amortized Cost | Fair Value | Percent of Total Fair Value | |||||||||||||||||||||||||||||||||
| (in millions, except percentages) | ||||||||||||||||||||||||||||||||||||||
| AAA | $ | 33,517 | $ | 31,827 | 71 | % | $ | 30,900 | $ | 28,980 | 71 | % | ||||||||||||||||||||||||||
| AA | 1,420 | 1,470 | 3 | 1,219 | 1,249 | 3 | ||||||||||||||||||||||||||||||||
| A | 2,303 | 2,369 | 5 | 2,080 | 2,097 | 5 | ||||||||||||||||||||||||||||||||
| BBB | 9,051 | 8,661 | 20 | 8,524 | 7,890 | 19 | ||||||||||||||||||||||||||||||||
| Below investment grade (1) | 605 | 556 | 1 | 661 | 595 | 2 | ||||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 46,896 | $ | 44,883 | 100 | % | $ | 43,384 | $ | 40,811 | 100 | % |
(1) The amortized cost and fair value of below investment grade securities includes interest in non-consolidated CLOs managed by the Company of $1 million and $1 million, respectively, as of both March 31, 2023 and December 31, 2022. These securities are not rated but are included in below investment grade due to their risk characteristics.
As of both March 31, 2023 and December 31, 2022, approximately 30% of securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities, respectively. No holdings of any issuer were greater than 10% of the Company’s total shareholder’s equity as of both March 31, 2023 and December 31, 2022.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables summarize the fair value and gross unrealized losses on Available-for-Sale securities, aggregated by major investment type and the length of time that individual securities have been in a continuous unrealized loss position for which no allowance for credit losses has been recorded:
| Description of Securities | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except number of securities) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 270 | $ | 3,759 | $ | (155) | 244 | $ | 2,960 | $ | (467) | 514 | $ | 6,719 | $ | (622) | |||||||||||||||||||||||||||||||||||||||||
| Residential mortgage backed securities | 350 | 6,373 | (167) | 486 | 7,418 | (1,080) | 836 | 13,791 | (1,247) | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage backed securities | 98 | 1,936 | (37) | 243 | 3,571 | (369) | 341 | 5,507 | (406) | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset backed securities | 101 | 2,357 | (21) | 87 | 2,745 | (112) | 188 | 5,102 | (133) | |||||||||||||||||||||||||||||||||||||||||||||||
| State and municipal obligations | 17 | 72 | (5) | 51 | 110 | (15) | 68 | 182 | (20) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government bonds and obligations | 7 | 17 | (1) | 2 | 10 | (1) | 9 | 27 | (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | 843 | $ | 14,514 | $ | (386) | 1,113 | $ | 16,814 | $ | (2,044) | 1,956 | $ | 31,328 | $ | (2,430) |
| Description of Securities | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | Number of Securities | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except number of securities) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 457 | $ | 5,782 | $ | (458) | 108 | $ | 1,575 | $ | (365) | 565 | $ | 7,357 | $ | (823) | |||||||||||||||||||||||||||||||||||||||||
| Residential mortgage backed securities | 589 | 9,407 | (577) | 244 | 4,076 | (813) | 833 | 13,483 | (1,390) | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage backed securities | 249 | 3,857 | (220) | 101 | 1,802 | (219) | 350 | 5,659 | (439) | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset backed securities | 145 | 4,413 | (86) | 31 | 977 | (72) | 176 | 5,390 | (158) | |||||||||||||||||||||||||||||||||||||||||||||||
| State and municipal obligations | 48 | 134 | (16) | 27 | 60 | (11) | 75 | 194 | (27) | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agency obligations | 13 | 566 | (1) | — | — | — | 13 | 566 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government bonds and obligations | 11 | 37 | (2) | 1 | 1 | — | 12 | 38 | (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | 1,512 | $ | 24,196 | $ | (1,360) | 512 | $ | 8,491 | $ | (1,480) | 2,024 | $ | 32,687 | $ | (2,840) |
As part of the Company’s ongoing monitoring process, management determined that the decrease in total gross unrealized losses on its Available-for-Sale securities for which an allowance for credit losses has not been recognized during the three months ended March 31, 2023 is primarily attributable to the impact of lower interest rates partially offset by wider credit spreads given ongoing market volatility with no specific credit concerns. As of March 31, 2023, the Company did not recognize these unrealized losses in earnings because it was determined that such losses were due to non-credit factors. The Company does not intend to sell these securities and does not believe that it is more likely than not that the Company will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. As of March 31, 2023 and December 31, 2022, approximately 96% and 95%, respectively, of the total of Available-for-Sale securities with gross unrealized losses were considered investment grade.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following table presents rollforwards of the allowance for credit losses on Available-for-Sale securities:
| Corporate Debt Securities | State and Municipal Obligations | Total | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 20 | $ | 2 | $ | 22 | |||||||||||||||||
| Additional increases (decreases) on securities that had an allowance recorded in a previous period | 3 | — | 3 | ||||||||||||||||||||
| Charge-offs | — | — | — | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | 23 | $ | 2 | $ | 25 | |||||||||||||||||
| Balance at January 1, 2022 | $ | — | $ | 1 | $ | 1 | |||||||||||||||||
| Charge-offs | — | — | — | ||||||||||||||||||||
| Balance at March 31, 2022 | $ | — | $ | 1 | $ | 1 |
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, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Gross realized investment gains | $ | 10 | $ | 20 | |||||||||||||||||||
| Gross realized investment losses | (2) | — | |||||||||||||||||||||
| Credit losses | (3) | — | |||||||||||||||||||||
| Other impairments | (2) | — | |||||||||||||||||||||
| Total | $ | 3 | $ | 20 |
Credit losses for three months ended March 31, 2023 related to recording an allowance for credit losses on a corporate debt security in the communications industry. Other impairments for the three months ended March 31, 2023 related to Available-for-Sale securities which the Company intends to sell.
See Note 16 for rollforwards of net unrealized investment gains (losses) included in AOCI.
Available-for-Sale securities by contractual maturity as of March 31, 2023 were as follows:
| Amortized Cost | Fair Value | ||||||||||
| (in millions) | |||||||||||
| Due within one year | $ | 2,864 | $ | 2,859 | |||||||
| Due after one year through five years | 2,591 | 2,533 | |||||||||
| Due after five years through 10 years | 3,692 | 3,308 | |||||||||
| Due after 10 years | 4,672 | 4,811 | |||||||||
| 13,819 | 13,511 | ||||||||||
| Residential mortgage backed securities | 18,852 | 17,663 | |||||||||
| Commercial mortgage backed securities | 6,859 | 6,465 | |||||||||
| Asset backed securities | 7,366 | 7,244 | |||||||||
| Total | $ | 46,896 | $ | 44,883 |
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 and asset backed securities are not due at a single maturity date. As such, these securities were not included in the maturities distribution.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
7. Financing Receivables
Financing receivables are comprised of commercial loans, consumer loans and deposit receivables.
Allowance for Credit Losses
The following tables present a rollforward of the allowance for credit losses:
| Commercial Loans | Consumer Loans | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Balance at January 1, 2023 | $ | 54 | $ | 5 | $ | 59 | |||||||||||
| Provisions | (1) | 2 | 1 | ||||||||||||||
| Charge-offs | (1) | — | (1) | ||||||||||||||
| Balance at March 31, 2023 | $ | 52 | $ | 7 | $ | 59 | |||||||||||
| Balance at January 1, 2022 | $ | 47 | $ | 3 | $ | 50 | |||||||||||
| Provisions | (2) | — | (2) | ||||||||||||||
| Balance at March 31, 2022 | $ | 45 | $ | 3 | $ | 48 |
As of March 31, 2023 and December 31, 2022, accrued interest on commercial loans was $17 million, and is recorded in Receivables and excluded from the amortized cost basis of commercial loans.
Purchases and Sales
During the three months ended March 31, 2023 and 2022, the Company purchased $1 million and nil, respectively, of syndicated loans, and sold $1 million and nil, respectively, of syndicated loans.
During the three months ended March 31, 2023 and 2022, the Company purchased $43 million and $1 million, respectively, of residential mortgage loans, and sold nil and nil, respectively, of residential mortgage loans. The allowance for credit losses for residential mortgage loans was not material as of both March 31, 2023 and December 31, 2022.
The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.
Credit Quality Information
Nonperforming loans were $12 million and $11 million as of March 31, 2023 and December 31, 2022, respectively. All other loans were considered to be performing.
Commercial Loans
Commercial Mortgage Loans
The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Loan-to-value ratio is the primary credit quality indicator included in this review.
Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates when credit risk changes. Commercial mortgage loans which management has assigned its highest risk rating were less than 1% of total commercial mortgage loans as of both March 31, 2023 and December 31, 2022. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. There were no commercial mortgage loans past due as of March 31, 2023 and December 31, 2022, respectively.
The tables below present the amortized cost basis of commercial mortgage loans by the year of origination and loan-to-value ratio:
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Loan-to-Value Ratio | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| > 100% | $ | — | $ | — | $ | — | $ | 2 | $ | 2 | $ | 41 | $ | 45 | ||||||||||||||||||||||||||||||
| 80% - 100% | — | 7 | 6 | 2 | 19 | 38 | 72 | |||||||||||||||||||||||||||||||||||||
| 60% - 80% | 12 | 38 | 61 | 17 | 41 | 101 | 270 | |||||||||||||||||||||||||||||||||||||
| 40% - 60% | 3 | 33 | 101 | 56 | 89 | 464 | 746 | |||||||||||||||||||||||||||||||||||||
| < 40% | — | 33 | 27 | 35 | 58 | 575 | 728 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 15 | $ | 111 | $ | 195 | $ | 112 | $ | 209 | $ | 1,219 | $ | 1,861 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Loan-to-Value Ratio | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| > 100% | $ | — | $ | — | $ | 2 | $ | 2 | $ | 3 | $ | 39 | $ | 46 | ||||||||||||||||||||||||||||||
| 80% - 100% | 7 | 9 | 2 | 20 | 8 | 29 | 75 | |||||||||||||||||||||||||||||||||||||
| 60% - 80% | 39 | 87 | 17 | 52 | 9 | 107 | 311 | |||||||||||||||||||||||||||||||||||||
| 40% - 60% | 48 | 89 | 69 | 90 | 57 | 435 | 788 | |||||||||||||||||||||||||||||||||||||
| < 40% | 18 | 12 | 30 | 46 | 85 | 471 | 662 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 112 | $ | 197 | $ | 120 | $ | 210 | $ | 162 | $ | 1,081 | $ | 1,882 |
Loan-to-value ratio is based on income and expense data provided by borrowers at least annually and long-term capitalization rate assumptions based on property type. For the three months ended March 31, 2023, the Company did not have any write-offs of commercial mortgage loans.
In addition, the Company reviews the concentrations of credit risk by region and property type. Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
| Loans | Percentage | ||||||||||||||||||||||
| March 31, 2023 | December 31, 2022 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| East North Central | $ | 199 | $ | 201 | 11 | % | 11 | % | |||||||||||||||
| East South Central | 53 | 54 | 3 | 3 | |||||||||||||||||||
| Middle Atlantic | 114 | 114 | 6 | 6 | |||||||||||||||||||
| Mountain | 135 | 129 | 7 | 7 | |||||||||||||||||||
| New England | 23 | 23 | 1 | 1 | |||||||||||||||||||
| Pacific | 633 | 638 | 34 | 34 | |||||||||||||||||||
| South Atlantic | 465 | 479 | 25 | 25 | |||||||||||||||||||
| West North Central | 118 | 120 | 6 | 6 | |||||||||||||||||||
| West South Central | 121 | 124 | 7 | 7 | |||||||||||||||||||
| 1,861 | 1,882 | 100 | % | 100 | % | ||||||||||||||||||
| Less: allowance for credit losses | 11 | 11 | |||||||||||||||||||||
| Total | $ | 1,850 | $ | 1,871 |
Concentrations of credit risk of commercial mortgage loans by property type were as follows:
| Loans | Percentage | ||||||||||||||||||||||
| March 31, 2023 | December 31, 2022 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Apartments | $ | 489 | $ | 495 | 26 | % | 26 | % | |||||||||||||||
| Hotel | 14 | 14 | 1 | 1 | |||||||||||||||||||
| Industrial | 310 | 321 | 17 | 17 | |||||||||||||||||||
| Mixed use | 68 | 66 | 3 | 4 | |||||||||||||||||||
| Office | 256 | 259 | 14 | 14 | |||||||||||||||||||
| Retail | 581 | 594 | 31 | 31 | |||||||||||||||||||
| Other | 143 | 133 | 8 | 7 | |||||||||||||||||||
| 1,861 | 1,882 | 100 | % | 100 | % | ||||||||||||||||||
| Less: allowance for credit losses | 11 | 11 | |||||||||||||||||||||
| Total | $ | 1,850 | $ | 1,871 |
Syndicated Loans
The investment in syndicated loans as of March 31, 2023 and December 31, 2022 was $165 million and $175 million, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. There were no syndicated loans past due as of both March 31, 2023 and December 31, 2022. The Company assigns an internal risk rating to each syndicated loan in its portfolio ranging from 1 through 5, with 5 reflecting the lowest quality. For the three months ended March 31, 2023, the Company did not have any write-offs of syndicated loans.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The tables below present the amortized cost basis of syndicated loans by origination year and internal risk rating:
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Internal Risk Rating | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Risk 5 | $ | — | $ | 1 | $ | — | $ | — | $ | — | $ | 2 | $ | 3 | ||||||||||||||||||||||||||||||
| Risk 4 | — | — | — | 1 | 2 | — | 3 | |||||||||||||||||||||||||||||||||||||
| Risk 3 | — | — | 8 | 1 | 3 | 12 | 24 | |||||||||||||||||||||||||||||||||||||
| Risk 2 | — | 9 | 21 | 6 | 11 | 27 | 74 | |||||||||||||||||||||||||||||||||||||
| Risk 1 | 1 | 4 | 9 | 4 | 9 | 34 | 61 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 1 | $ | 14 | $ | 38 | $ | 12 | $ | 25 | $ | 75 | $ | 165 |
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Internal Risk Rating | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Risk 5 | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1 | ||||||||||||||||||||||||||||||
| Risk 4 | — | — | — | 2 | — | 2 | 4 | |||||||||||||||||||||||||||||||||||||
| Risk 3 | — | 9 | 1 | 6 | 5 | 8 | 29 | |||||||||||||||||||||||||||||||||||||
| Risk 2 | 8 | 21 | 7 | 12 | 5 | 28 | 81 | |||||||||||||||||||||||||||||||||||||
| Risk 1 | 6 | 9 | 4 | 6 | 13 | 22 | 60 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 15 | $ | 39 | $ | 12 | $ | 26 | $ | 23 | $ | 60 | $ | 175 |
Financial Advisor Loans
The Company offers loans to financial advisors for transitional cost assistance and practice operations. Repayment of the loan is highly dependent on the retention of the financial advisor. In the event a financial advisor is no longer affiliated with the Company, any unpaid balances become immediately due. Accordingly, the primary risk factor for advisor loans is termination status. The allowance for credit losses related to loans to advisors that have terminated their relationship with the Company was $7 million and $6 million as of March 31, 2023 and December 31, 2022, respectively. The write-offs of advisor loans was not material for the three months ended March 31, 2023.
The tables below present the amortized cost basis of advisor loans by origination year and termination status:
| March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Termination Status | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Active | $ | 108 | $ | 346 | $ | 170 | $ | 127 | $ | 95 | $ | 213 | $ | 1,059 | ||||||||||||||||||||||||||||||
| Terminated | — | — | 1 | 1 | 3 | 6 | 11 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 108 | $ | 346 | $ | 171 | $ | 128 | $ | 98 | $ | 219 | $ | 1,070 |
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Termination Status | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | |||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Active | $ | 359 | $ | 178 | $ | 133 | $ | 99 | $ | 76 | $ | 158 | $ | 1,003 | ||||||||||||||||||||||||||||||
| Terminated | — | 1 | 1 | 2 | 1 | 5 | 10 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 359 | $ | 179 | $ | 134 | $ | 101 | $ | 77 | $ | 163 | $ | 1,013 |
Consumer Loans
Credit Card Receivables
The credit cards are co-branded with Ameriprise Financial, Inc. and issued to the Company’s customers by a third party. FICO scores and delinquency rates are the primary credit quality indicators for the credit card portfolio. Delinquency rates are measured based on the number of days past due. Credit card receivables over 30 days past due were 1% of total credit card receivables as of both March 31, 2023 and December 31, 2022.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The table below presents the amortized cost basis of credit card receivables by FICO score:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| > 800 | $ | 28 | $ | 32 | |||||||
| 750 - 799 | 26 | 27 | |||||||||
| 700 - 749 | 27 | 28 | |||||||||
| 650 - 699 | 17 | 17 | |||||||||
| < 650 | 6 | 6 | |||||||||
| Total | $ | 104 | $ | 110 |
Policy Loans
Policy loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy loans, there is no allowance for credit losses.
Margin Loans
The margin loans balance was $1.1 billion and $1.2 billion as of March 31, 2023 and December 31, 2022, respectively. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As of both March 31, 2023 and December 31, 2022, there was no allowance for credit losses on margin loans.
Pledged Asset Lines of Credit
The pledged asset lines of credit balance was $546 million and $589 million as of March 31, 2023 and December 31, 2022, respectively. The Company monitors collateral supporting pledged asset lines of credit and requests additional collateral when necessary in order to mitigate the risk of loss. As of both March 31, 2023 and December 31, 2022, there was no allowance for credit losses on pledged asset lines of credit.
Deposit Receivables
Deposit receivables were $7.1 billion and $7.4 billion as of March 31, 2023 and December 31, 2022, respectively. Deposit receivables are collateralized by the fair value of the assets held in trusts. Based on management’s evaluation of the collateral value relative to the deposit receivables, the allowance for credit losses for deposit receivables was not material as of both March 31, 2023 and December 31, 2022.
Modifications with Borrowers Experiencing Financial Difficulty
There were no material modifications of financing receivables with borrowers experiencing financial difficulty by the Company during the three months ended March 31, 2023.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
8. Deferred Acquisition Costs and Deferred Sales Inducement Costs
The following tables summarize the balances of and changes in DAC, including the January 1, 2021 adoption of ASU 2018-12:
| Variable Annuities | Structured Variable Annuities | Fixed Annuities | Fixed Indexed Annuities | Universal Life Insurance | Variable Universal Life Insurance | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Pre-adoption balance at December 31, 2020 | $ | 1,690 | $ | 22 | $ | 43 | $ | 7 | $ | 100 | $ | 452 | |||||||||||||||||||||||
| Effect of shadow reserve adjustments | 42 | 4 | 18 | 1 | 31 | 53 | |||||||||||||||||||||||||||||
| Post-adoption balance at January 1, 2021 | 1,732 | 26 | 61 | 8 | 131 | 505 | |||||||||||||||||||||||||||||
| Capitalization of acquisition costs | 111 | 71 | — | — | 3 | 54 | |||||||||||||||||||||||||||||
| Amortization | (147) | (6) | (8) | (1) | (9) | (47) | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 1,696 | $ | 91 | $ | 53 | $ | 7 | $ | 125 | $ | 512 | |||||||||||||||||||||||
| Indexed Universal Life Insurance | Other Life Insurance | Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Total, All Products | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Pre-adoption balance at December 31, 2020 | $ | 108 | $ | (3) | $ | — | $ | 19 | $ | 89 | $ | 2,527 | |||||||||||||||||||||||
| Effect of shadow reserve adjustments | 149 | 6 | — | — | — | 304 | |||||||||||||||||||||||||||||
| Post-adoption balance at January 1, 2021 | 257 | 3 | — | 19 | 89 | 2,831 | |||||||||||||||||||||||||||||
| Capitalization of acquisition costs | 9 | — | 1 | 2 | 4 | 255 | |||||||||||||||||||||||||||||
| Amortization | (18) | — | — | (2) | (9) | (247) | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 248 | $ | 3 | $ | 1 | $ | 19 | $ | 84 | $ | 2,839 | |||||||||||||||||||||||
| Other broker dealer acquisition costs | 5 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 including broker dealer acquisition costs | $ | 2,844 |
| Variable Annuities | Structured Variable Annuities | Fixed Annuities | Fixed Indexed Annuities | Universal Life Insurance | Variable Universal Life Insurance | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 1,696 | $ | 91 | $ | 53 | $ | 7 | $ | 125 | $ | 512 | |||||||||||||||||||||||
| Capitalization of acquisition costs | 38 | 73 | — | — | 1 | 55 | |||||||||||||||||||||||||||||
| Amortization | (136) | (15) | (8) | (1) | (8) | (46) | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,598 | $ | 149 | $ | 45 | $ | 6 | $ | 118 | $ | 521 | |||||||||||||||||||||||
| Indexed Universal Life Insurance | Other Life Insurance | Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Total, All Products | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 248 | $ | 3 | $ | 1 | $ | 19 | $ | 84 | $ | 2,839 | |||||||||||||||||||||||
| Capitalization of acquisition costs | 5 | — | 1 | 1 | 4 | 178 | |||||||||||||||||||||||||||||
| Amortization | (17) | — | — | (2) | (9) | (242) | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 236 | $ | 3 | $ | 2 | $ | 18 | $ | 79 | $ | 2,775 | |||||||||||||||||||||||
| Other broker dealer acquisition costs | 2 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 including broker dealer acquisition costs | $ | 2,777 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Variable Annuities | Structured Variable Annuities | Fixed Annuities | Fixed Indexed Annuities | Universal Life Insurance | Variable Universal Life Insurance | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 1,598 | $ | 149 | $ | 45 | $ | 6 | $ | 118 | $ | 521 | |||||||||||||||||||||||
| Capitalization of acquisition costs | 6 | 18 | — | — | — | 11 | |||||||||||||||||||||||||||||
| Amortization | (33) | (5) | (3) | — | (2) | (12) | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,571 | $ | 162 | $ | 42 | $ | 6 | $ | 116 | $ | 520 | |||||||||||||||||||||||
| Indexed Universal Life Insurance | Other Life Insurance | Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Total, All Products | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 236 | $ | 3 | $ | 2 | $ | 18 | $ | 79 | $ | 2,775 | |||||||||||||||||||||||
| Capitalization of acquisition costs | 1 | — | 1 | — | 1 | 38 | |||||||||||||||||||||||||||||
| Amortization | (4) | — | — | — | (2) | (61) | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 233 | $ | 3 | $ | 3 | $ | 18 | $ | 78 | $ | 2,752 | |||||||||||||||||||||||
| Other broker dealer acquisition costs | 2 | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 including broker dealer acquisition costs | $ | 2,754 |
The following tables summarize the balances of and changes in DSIC, including the January 1, 2021 adoption of ASU 2018-12:
| Variable Annuities | Fixed Annuities | Total, All Products | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Pre-adoption balance at December 31, 2020 | $ | 175 | $ | 14 | $ | 189 | |||||||||||||||||
| Effect of shadow reserve adjustments | 8 | 8 | 16 | ||||||||||||||||||||
| Post-adoption balance at January 1, 2021 | 183 | 22 | 205 | ||||||||||||||||||||
| Capitalization of sales inducement costs | 1 | — | 1 | ||||||||||||||||||||
| Amortization | (18) | (3) | (21) | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | 166 | $ | 19 | $ | 185 |
| Variable Annuities | Fixed Annuities | Total, All Products | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 166 | $ | 19 | $ | 185 | |||||||||||||||||
| Capitalization of sales inducement costs | 1 | — | 1 | ||||||||||||||||||||
| Amortization | (16) | (3) | (19) | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | 151 | $ | 16 | $ | 167 |
| Variable Annuities | Fixed Annuities | Total, All Products | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 151 | $ | 16 | $ | 167 | |||||||||||||||||
| Amortization | (4) | (1) | (5) | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | 147 | $ | 15 | $ | 162 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
9. Policyholder Account Balances, Future Policy Benefits and Claims
Policyholder account balances, future policy benefits and claims consisted of the following:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Policyholder account balances | |||||||||||
| Policyholder account balances | $ | 25,545 | $ | 24,986 | |||||||
| Future policy benefits | |||||||||||
| Reserve for future policy benefits | 7,687 | 7,495 | |||||||||
| Deferred profit liability | 64 | 62 | |||||||||
| Additional liabilities for insurance guarantees | 1,224 | 1,186 | |||||||||
| Other insurance and annuity liabilities | 181 | 177 | |||||||||
| Total future policy benefits | 9,156 | 8,920 | |||||||||
| Policy claims and other policyholders’ funds | 231 | 226 | |||||||||
| Total policyholder account balances, future policy benefits and claims | $ | 34,932 | $ | 34,132 |
Variable Annuities
Purchasers of variable annuities can select from a variety of investment options and can elect to allocate a portion to a fixed account. A vast majority of the premiums received for variable annuity contracts are held in separate accounts where the assets are held for the exclusive benefit of those contractholders.
Most of the variable annuity contracts issued by the Company contain a GMDB. The Company previously offered contracts with GMAB, GMWB, and GMIB provisions. See Note 2 and Note 11 for additional information regarding the Company’s variable annuity guarantees. See Note 13 and Note 15 for additional information regarding the Company’s derivative instruments used to hedge risks related to these guarantees.
Structured Variable Annuities
Structured variable annuities provide contractholders the option to allocate a portion of their account value to an indexed account held in a non-insulated separate account with the contractholder’s rate of return, which may be positive or negative, tied to selected indices. The amount allocated by a contractholder to the indexed account creates an embedded derivative which is measured at fair value. The Company hedges the equity and interest rate risk related to the indexed account with freestanding derivative instruments.
Fixed Annuities
Fixed annuities include deferred, payout and fixed deferred indexed annuity contracts. In 2020, the Company discontinued sales of fixed deferred and fixed deferred indexed annuities.
Deferred contracts offer a guaranteed minimum rate of interest and security of the principal invested. Payout contracts guarantee a fixed income payment for life or the term of the contract. Liabilities for fixed annuities in a benefit or payout status are based on future estimated payments using established industry mortality tables and interest rates.
The Company’s fixed index annuity product is a fixed annuity that includes an indexed account. The rate of interest credited for funds allocated to the indexed account is linked to the performance of the specific index for the indexed account (subject to a cap). The amount allocated by a contractholder to the indexed account creates an embedded derivative which is measured at fair value. The Company hedges the interest credited rate including equity and interest rate risk related to the indexed account with freestanding derivative instruments.
See Note 15 for additional information regarding the Company’s derivative instruments used to hedge the risk related to indexed accounts.
Insurance Liabilities
Purchasers of UL accumulate cash value that increases by a fixed interest rate. Purchasers of VUL can select from a variety of investment options and can elect to allocate a portion of their account balance to a fixed account or a separate account. A vast majority of the premiums received for VUL policies are held in separate accounts where the assets are held for the exclusive benefit of those policyholders.
IUL is a UL policy that includes an indexed account. The rate of credited interest for funds allocated by a contractholder to the indexed account is linked to the performance of the specific index for the indexed account (subject to stated account parameters, which include a cap and floor, or a spread). The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account. The amount allocated by a contractholder to the indexed account creates an embedded derivative which is measured
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
at fair value. The Company hedges the interest credited rate including equity and interest rate risk related to the indexed account with freestanding derivative instruments. See Note 15 for additional information regarding the Company’s derivative instruments used to hedge the risk related to IUL.
The Company also offers term life insurance as well as DI products. The Company no longer offers standalone LTC products and whole life insurance but has in force policies from prior years.
Insurance liabilities include accumulation values, incurred but not reported claims, obligations for anticipated future claims, unpaid reported claims and claim adjustment expenses.
The balances of and changes in policyholder account balances were as follows:
| Variable Annuities | Structured Variable Annuities | Fixed Annuities | Fixed Indexed Annuities | Non-Life Contingent Payout Annuities | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 4,752 | $ | 6,410 | $ | 6,799 | $ | 312 | $ | 471 | |||||||||||||||||||
| Contract deposits | 17 | 656 | 13 | — | 22 | ||||||||||||||||||||||||
| Policy charges | (2) | — | — | — | — | ||||||||||||||||||||||||
| Surrenders and other benefits | (185) | (18) | (320) | (2) | (32) | ||||||||||||||||||||||||
| Net transfer from (to) separate account liabilities | (5) | — | — | — | — | ||||||||||||||||||||||||
| Other variable account adjustments | — | 333 | — | — | — | ||||||||||||||||||||||||
| Interest credited | 37 | — | 57 | — | (1) | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 4,614 | $ | 7,381 | $ | 6,549 | $ | 310 | $ | 460 | |||||||||||||||||||
| Weighted-average crediting rate | 3.2 | % | 1.3 | % | 3.5 | % | 1.9 | % | N/A | ||||||||||||||||||||
| Cash surrender value (1) | $ | 4,584 | $ | 6,911 | $ | 6,538 | $ | 278 | N/A | ||||||||||||||||||||
| Universal Life Insurance | Variable Universal Life Insurance | Indexed Universal Life Insurance | Other Life Insurance | Total, All Products | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 1,544 | $ | 1,520 | $ | 2,654 | $ | 524 | $ | 24,986 | |||||||||||||||||||
| Contract deposits | 31 | 54 | 49 | (1) | 841 | ||||||||||||||||||||||||
| Policy charges | (44) | (24) | (30) | — | (100) | ||||||||||||||||||||||||
| Surrenders and other benefits | (17) | (23) | (13) | (11) | (621) | ||||||||||||||||||||||||
| Net transfer from (to) separate account liabilities | — | (14) | — | — | (19) | ||||||||||||||||||||||||
| Other variable account adjustments | — | — | — | — | 333 | ||||||||||||||||||||||||
| Interest credited | 13 | 12 | 2 | 5 | 125 | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,527 | $ | 1,525 | $ | 2,662 | $ | 517 | $ | 25,545 | |||||||||||||||||||
| Weighted-average crediting rate | 3.5 | % | 3.9 | % | 2.0 | % | 4.0 | % | |||||||||||||||||||||
| Net amount at risk | $ | 9,080 | $ | 57,134 | $ | 14,874 | $ | 147 | |||||||||||||||||||||
| Cash surrender value (1) | $ | 1,369 | $ | 1,053 | $ | 2,162 | $ | 342 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Variable Annuities | Structured Variable Annuities | Fixed Annuities | Fixed Indexed Annuities | Non-Life Contingent Payout Annuities | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 4,972 | $ | 4,458 | $ | 7,251 | $ | 323 | $ | 527 | |||||||||||||||||||
| Contract deposits | 146 | 2,784 | 55 | — | 53 | ||||||||||||||||||||||||
| Policy charges | (8) | — | — | — | — | ||||||||||||||||||||||||
| Surrenders and other benefits | (450) | (41) | (744) | (17) | (124) | ||||||||||||||||||||||||
| Net transfer from (to) separate account liabilities | (60) | — | — | — | — | ||||||||||||||||||||||||
| Other variable account adjustments | — | (791) | — | — | — | ||||||||||||||||||||||||
| Interest credited | 152 | — | 237 | 6 | 15 | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 4,752 | $ | 6,410 | $ | 6,799 | $ | 312 | $ | 471 | |||||||||||||||||||
| Weighted-average crediting rate | 3.2 | % | 1.1 | % | 3.5 | % | 1.9 | % | N/A | ||||||||||||||||||||
| Cash surrender value (1) | $ | 4,720 | $ | 5,986 | $ | 6,786 | $ | 277 | N/A | ||||||||||||||||||||
| Universal Life Insurance | Variable Universal Life Insurance | Indexed Universal Life Insurance | Other Life Insurance | Total, All Products | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 1,602 | $ | 1,493 | $ | 2,534 | $ | 563 | $ | 23,723 | |||||||||||||||||||
| Contract deposits | 134 | 233 | 218 | (3) | 3,620 | ||||||||||||||||||||||||
| Policy charges | (178) | (91) | (116) | — | (393) | ||||||||||||||||||||||||
| Surrenders and other benefits | (67) | (70) | (50) | (56) | (1,619) | ||||||||||||||||||||||||
| Net transfer from (to) separate account liabilities | — | (102) | — | — | (162) | ||||||||||||||||||||||||
| Other variable account adjustments | — | — | — | — | (791) | ||||||||||||||||||||||||
| Interest credited | 53 | 57 | 68 | 20 | 608 | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,544 | $ | 1,520 | $ | 2,654 | $ | 524 | $ | 24,986 | |||||||||||||||||||
| Weighted-average crediting rate | 3.6 | % | 3.9 | % | 2.0 | % | 4.0 | % | |||||||||||||||||||||
| Net amount at risk | $ | 9,187 | $ | 57,354 | $ | 15,043 | $ | 149 | |||||||||||||||||||||
| Cash surrender value (1) | $ | 1,382 | $ | 1,054 | $ | 2,148 | $ | 348 |
(1) Cash surrender value represents the amount of the contractholder's account balances distributable at the balance sheet date less certain surrender charges. For variable annuities and VUL, the cash surrender value shown is the proportion of the total cash surrender value related to their fixed account liabilities.
Refer to Note 11 for the net amount at risk for market risk benefits associated with variable and structured variable annuities. Fixed, fixed indexed, and non-life contingent payout annuities do not have net amount at risk in excess of account value. Net amount at risk for insurance products is calculated as the death benefit amount in excess of applicable account values, host, embedded derivative, and separate account liabilities.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables present the account values of fixed deferred annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts by range of guaranteed minimum interest rates (“GMIRs”) and the range of the difference between rates credited to policyholders and contractholders as of March 31, 2023 and December 31, 2022 and the respective guaranteed minimums, as well as the percentage of account values subject to rate reset in the time period indicated. Rates are reset at management’s discretion, subject to guaranteed minimums.
| March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Account Values with Crediting Rates | |||||||||||||||||||||||||||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rates | At Guaranteed Minimum | 1-49 bps above Guaranteed Minimum | 50-99 bps above Guaranteed Minimum | 100-150 bps above Guaranteed Minimum | Greater than 150 bps above Guaranteed Minimum | Total | |||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed accounts of variable annuities | 1 | % | – | 1.99% | $ | 125 | $ | 130 | $ | 19 | $ | 2 | $ | — | $ | 276 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 167 | — | — | — | — | 167 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 2,513 | — | — | 1 | — | 2,514 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 1,598 | — | — | — | — | 1,598 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,403 | $ | 130 | $ | 19 | $ | 3 | $ | — | $ | 4,555 | |||||||||||||||||||||||||||||||||||
| Fixed accounts of structured variable annuities | 1 | % | – | 1.99% | $ | 8 | $ | 12 | $ | 3 | $ | 1 | $ | 2 | $ | 26 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 8 | $ | 12 | $ | 3 | $ | 1 | $ | 2 | $ | 26 | |||||||||||||||||||||||||||||||||||
| Fixed annuities | 1 | % | – | 1.99% | $ | 234 | $ | 538 | $ | 137 | $ | 31 | $ | 10 | $ | 950 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 63 | — | — | — | — | 63 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 3,196 | — | — | — | — | 3,196 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 2,322 | — | — | — | — | 2,322 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,815 | $ | 538 | $ | 137 | $ | 31 | $ | 10 | $ | 6,531 | |||||||||||||||||||||||||||||||||||
| Non-indexed accounts of fixed indexed annuities | 1 | % | – | 1.99% | $ | — | $ | 3 | $ | 7 | $ | 14 | $ | — | $ | 24 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 3 | $ | 7 | $ | 14 | $ | — | $ | 24 | |||||||||||||||||||||||||||||||||||
| Universal life insurance | 1 | % | – | 1.99% | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 54 | — | 4 | — | — | 58 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 877 | — | 3 | 2 | — | 882 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 556 | — | — | — | — | 556 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,487 | $ | — | $ | 7 | $ | 2 | $ | — | $ | 1,496 | |||||||||||||||||||||||||||||||||||
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Account Values with Crediting Rates | |||||||||||||||||||||||||||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rates | At Guaranteed Minimum | 1-49 bps above Guaranteed Minimum | 50-99 bps above Guaranteed Minimum | 100-150 bps above Guaranteed Minimum | Greater than 150 bps above Guaranteed Minimum | Total | |||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed accounts of variable universal life insurance | 1 | % | – | 1.99% | $ | — | $ | 4 | $ | 3 | $ | — | $ | 13 | $ | 20 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 26 | 3 | — | 1 | 4 | 34 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 131 | 1 | 2 | 2 | — | 136 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 639 | — | — | — | — | 639 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 796 | $ | 8 | $ | 5 | $ | 3 | $ | 17 | $ | 829 | |||||||||||||||||||||||||||||||||||
| Non-indexed accounts of indexed universal life insurance | 1 | % | – | 1.99% | $ | — | $ | — | $ | 3 | $ | — | $ | — | $ | 3 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 128 | — | — | — | — | 128 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 128 | $ | — | $ | 3 | $ | — | $ | — | $ | 131 | |||||||||||||||||||||||||||||||||||
| Other life insurance | 1 | % | – | 1.99% | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 32 | — | — | — | — | 32 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 309 | — | — | — | — | 309 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 341 | $ | — | $ | — | $ | — | $ | — | $ | 341 | |||||||||||||||||||||||||||||||||||
| Total | 1 | % | – | 1.99% | $ | 367 | $ | 687 | $ | 172 | $ | 48 | $ | 25 | $ | 1,299 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 438 | 3 | 4 | 1 | 4 | 450 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 6,749 | 1 | 5 | 5 | — | 6,760 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 5,424 | — | — | — | — | 5,424 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 12,978 | $ | 691 | $ | 181 | $ | 54 | $ | 29 | $ | 13,933 | |||||||||||||||||||||||||||||||||||
| Percentage of total account values that reset in: | |||||||||||||||||||||||||||||||||||||||||||||||
| Next 12 months | 99.9 | % | 96.6 | % | 97.5 | % | 100.0 | % | 100.0 | % | 99.7 | % | |||||||||||||||||||||||||||||||||||
| > 12 months to 24 months | — | 3.2 | 2.4 | — | — | 0.2 | |||||||||||||||||||||||||||||||||||||||||
| > 24 months | 0.1 | 0.2 | 0.1 | — | — | 0.1 | |||||||||||||||||||||||||||||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Account Values with Crediting Rates | |||||||||||||||||||||||||||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rates | At Guaranteed Minimum | 1-49 bps above Guaranteed Minimum | 50-99 bps above Guaranteed Minimum | 100-150 bps above Guaranteed Minimum | Greater than 150 bps above Guaranteed Minimum | Total | |||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed accounts of variable annuities | 1 | % | – | 1.99% | $ | 169 | $ | 102 | $ | 18 | $ | — | $ | — | $ | 289 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 177 | — | — | — | — | 177 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 2,611 | — | — | 1 | — | 2,612 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 1,611 | — | — | — | — | 1,611 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 4,568 | $ | 102 | $ | 18 | $ | 1 | $ | — | $ | 4,689 | |||||||||||||||||||||||||||||||||||
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Account Values with Crediting Rates | |||||||||||||||||||||||||||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rates | At Guaranteed Minimum | 1-49 bps above Guaranteed Minimum | 50-99 bps above Guaranteed Minimum | 100-150 bps above Guaranteed Minimum | Greater than 150 bps above Guaranteed Minimum | Total | |||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed accounts of structured variable annuities | 1 | % | – | 1.99% | $ | 12 | $ | 7 | $ | 3 | $ | 1 | $ | — | $ | 23 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 12 | $ | 7 | $ | 3 | $ | 1 | $ | — | $ | 23 | |||||||||||||||||||||||||||||||||||
| Fixed annuities | 1 | % | – | 1.99% | $ | 460 | $ | 402 | $ | 132 | $ | 33 | $ | 10 | $ | 1,037 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 67 | — | — | — | — | 67 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 3,344 | — | — | — | — | 3,344 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 2,333 | — | — | — | — | 2,333 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 6,204 | $ | 402 | $ | 132 | $ | 33 | $ | 10 | $ | 6,781 | |||||||||||||||||||||||||||||||||||
| Non-indexed accounts of fixed indexed annuities | 1 | % | – | 1.99% | $ | 1 | $ | 3 | $ | 7 | $ | 14 | $ | — | $ | 25 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 1 | $ | 3 | $ | 7 | $ | 14 | $ | — | $ | 25 | |||||||||||||||||||||||||||||||||||
| Universal life insurance | 1 | % | – | 1.99% | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 55 | — | 1 | — | — | 56 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 885 | 1 | 2 | — | — | 888 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 569 | — | — | — | — | 569 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,509 | $ | 1 | $ | 3 | $ | — | $ | — | $ | 1,513 | |||||||||||||||||||||||||||||||||||
| Fixed accounts of variable universal life insurance | 1 | % | – | 1.99% | $ | 4 | $ | 3 | $ | 2 | $ | — | $ | 9 | $ | 18 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 30 | — | 1 | 2 | 2 | 35 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 134 | 1 | 1 | 1 | — | 137 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 648 | — | — | — | — | 648 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 816 | $ | 4 | $ | 4 | $ | 3 | $ | 11 | $ | 838 | |||||||||||||||||||||||||||||||||||
| Non-indexed accounts of indexed universal life insurance | 1 | % | – | 1.99% | $ | — | $ | — | $ | 3 | $ | — | $ | — | $ | 3 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 126 | — | — | — | — | 126 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 126 | $ | — | $ | 3 | $ | — | $ | — | $ | 129 | |||||||||||||||||||||||||||||||||||
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Account Values with Crediting Rates | |||||||||||||||||||||||||||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rates | At Guaranteed Minimum | 1-49 bps above Guaranteed Minimum | 50-99 bps above Guaranteed Minimum | 100-150 bps above Guaranteed Minimum | Greater than 150 bps above Guaranteed Minimum | Total | |||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other life insurance | 1 | % | – | 1.99% | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 32 | — | — | — | — | 32 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 314 | — | — | — | — | 314 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 346 | $ | — | $ | — | $ | — | $ | — | $ | 346 | |||||||||||||||||||||||||||||||||||
| Total | 1 | % | – | 1.99% | $ | 646 | $ | 517 | $ | 165 | $ | 48 | $ | 19 | $ | 1,395 | |||||||||||||||||||||||||||||||
| 2 | % | – | 2.99% | 455 | — | 2 | 2 | 2 | 461 | ||||||||||||||||||||||||||||||||||||||
| 3 | % | – | 3.99% | 7,006 | 2 | 3 | 2 | — | 7,013 | ||||||||||||||||||||||||||||||||||||||
| 4 | % | – | 5.00% | 5,475 | — | — | — | — | 5,475 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 13,582 | $ | 519 | $ | 170 | $ | 52 | $ | 21 | $ | 14,344 | |||||||||||||||||||||||||||||||||||
| Percentage of total account values that reset in: | |||||||||||||||||||||||||||||||||||||||||||||||
| Next 12 months | 99.8 | % | 96.3 | % | 93.8 | % | 100.0 | % | 100.0 | % | 99.6 | % | |||||||||||||||||||||||||||||||||||
| > 12 months to 24 months | 0.1 | 3.0 | 5.8 | — | — | 0.3 | |||||||||||||||||||||||||||||||||||||||||
| > 24 months | 0.1 | 0.7 | 0.4 | — | — | 0.1 | |||||||||||||||||||||||||||||||||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
The following tables summarize the balances of and changes in the liability for future policy benefits, including the January 1, 2021 adoption of ASU 2018-12:
| Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Long Term Care Insurance | Total, All Products | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Pre-adoption balance at December 31, 2020 | $ | 1,536 | $ | 633 | $ | 530 | $ | 5,749 | $ | 8,448 | |||||||||||||||||||
| Effect of shadow reserve adjustments | (175) | — | — | (566) | (741) | ||||||||||||||||||||||||
| Adjustments for loss contracts (with premiums in excess of gross premiums) under the modified retrospective approach | 4 | — | — | 35 | 39 | ||||||||||||||||||||||||
| Effect of change in deferred profit liability | (43) | — | — | — | (43) | ||||||||||||||||||||||||
| Effect of remeasurement of the liability at the current single A discount rate | 215 | 265 | 238 | 1,965 | 2,683 | ||||||||||||||||||||||||
| Post-adoption balance at January 1, 2021 | 1,537 | 898 | 768 | 7,183 | 10,386 | ||||||||||||||||||||||||
| Less: reinsurance recoverable | — | 601 | 24 | 3,623 | 4,248 | ||||||||||||||||||||||||
| Post-adoption balance at January 1, 2021, after reinsurance recoverable | $ | 1,537 | $ | 297 | $ | 744 | $ | 3,560 | $ | 6,138 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Long Term Care Insurance | Total, All Products | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Present Value of Expected Net Premiums: | |||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | — | $ | 702 | $ | 238 | $ | 1,831 | $ | 2,771 | |||||||||||||||||||
| Beginning balance at original discount rate | — | 536 | 183 | 1,498 | 2,217 | ||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | — | — | — | (6) | (6) | ||||||||||||||||||||||||
| Effect of actual variances from expected experience | — | 56 | (35) | (61) | (40) | ||||||||||||||||||||||||
| Adjusted beginning of year balance | $ | — | $ | 592 | $ | 148 | $ | 1,431 | $ | 2,171 | |||||||||||||||||||
| Issuances | 38 | 78 | 18 | — | 134 | ||||||||||||||||||||||||
| Interest accrual | — | 29 | 9 | 73 | 111 | ||||||||||||||||||||||||
| Net premiums collected | (38) | (63) | (20) | (184) | (305) | ||||||||||||||||||||||||
| Derecognition (lapses) | — | — | — | — | — | ||||||||||||||||||||||||
| Ending balance at original discount rate | $ | — | $ | 636 | $ | 155 | $ | 1,320 | $ | 2,111 | |||||||||||||||||||
| Effect of changes in discount rate assumptions | — | 141 | 33 | 227 | 401 | ||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | — | $ | 777 | $ | 188 | $ | 1,547 | $ | 2,512 | |||||||||||||||||||
| Present Value of Future Policy Benefits: | |||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | 1,537 | $ | 1,600 | $ | 1,006 | $ | 9,014 | $ | 13,157 | |||||||||||||||||||
| Beginning balance at original discount rate | 1,321 | 1,169 | 714 | 6,716 | 9,920 | ||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | — | — | — | (8) | (8) | ||||||||||||||||||||||||
| Effect of actual variances from expected experience | (14) | 58 | (40) | (124) | (120) | ||||||||||||||||||||||||
| Adjusted beginning of year balance | $ | 1,307 | $ | 1,227 | $ | 674 | $ | 6,584 | $ | 9,792 | |||||||||||||||||||
| Issuances | 39 | 78 | 18 | — | 135 | ||||||||||||||||||||||||
| Interest accrual | 53 | 70 | 39 | 347 | 509 | ||||||||||||||||||||||||
| Benefit payments | (168) | (120) | (43) | (336) | (667) | ||||||||||||||||||||||||
| Derecognition (lapses) | — | — | — | — | — | ||||||||||||||||||||||||
| Ending balance at original discount rate | $ | 1,231 | $ | 1,255 | $ | 688 | $ | 6,595 | $ | 9,769 | |||||||||||||||||||
| Effect of changes in discount rate assumptions | 139 | 343 | 226 | 1,755 | 2,463 | ||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 1,370 | $ | 1,598 | $ | 914 | $ | 8,350 | $ | 12,232 | |||||||||||||||||||
| Adjustment due to reserve flooring | $ | — | $ | 1 | $ | — | $ | — | $ | 1 | |||||||||||||||||||
| Net liability for future policy benefits | $ | 1,370 | $ | 822 | $ | 726 | $ | 6,803 | $ | 9,721 | |||||||||||||||||||
| Less: reinsurance recoverable | 1,265 | 558 | 25 | 3,443 | 5,291 | ||||||||||||||||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 105 | $ | 264 | $ | 701 | $ | 3,360 | $ | 4,430 | |||||||||||||||||||
| Discounted expected future gross premiums | $ | — | $ | 2,005 | $ | 1,158 | $ | 1,623 | $ | 4,786 | |||||||||||||||||||
| Expected future gross premiums | $ | — | $ | 2,815 | $ | 1,395 | $ | 1,905 | $ | 6,115 | |||||||||||||||||||
| Expected future benefit payments | $ | 1,707 | $ | 2,159 | $ | 1,217 | $ | 11,568 | $ | 16,651 | |||||||||||||||||||
| Weighted average interest accretion rate | 4.2 | % | 6.5 | % | 5.9 | % | 5.3 | % | |||||||||||||||||||||
| Weighted average discount rate | 2.6 | % | 2.8 | % | 2.8 | % | 2.9 | % | |||||||||||||||||||||
| Weighted average duration of liability (in years) | 7 | 8 | 9 | 10 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Long Term Care Insurance | Total, All Products | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Present Value of Expected Net Premiums: | |||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | — | $ | 777 | $ | 188 | $ | 1,547 | $ | 2,512 | |||||||||||||||||||
| Beginning balance at original discount rate | — | 636 | 155 | 1,320 | 2,111 | ||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | — | 1 | 1 | 52 | 54 | ||||||||||||||||||||||||
| Effect of actual variances from expected experience | — | 47 | (22) | (48) | (23) | ||||||||||||||||||||||||
| Adjusted beginning of year balance | $ | — | $ | 684 | $ | 134 | $ | 1,324 | $ | 2,142 | |||||||||||||||||||
| Issuances | 42 | 57 | 12 | — | 111 | ||||||||||||||||||||||||
| Interest accrual | — | 34 | 7 | 65 | 106 | ||||||||||||||||||||||||
| Net premiums collected | (42) | (67) | (16) | (169) | (294) | ||||||||||||||||||||||||
| Derecognition (lapses) | — | — | — | — | — | ||||||||||||||||||||||||
| Ending balance at original discount rate | $ | — | $ | 708 | $ | 137 | $ | 1,220 | $ | 2,065 | |||||||||||||||||||
| Effect of changes in discount rate assumptions | — | (22) | (3) | (13) | (38) | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | — | $ | 686 | $ | 134 | $ | 1,207 | $ | 2,027 | |||||||||||||||||||
| Present Value of Future Policy Benefits: | |||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 1,370 | $ | 1,598 | $ | 914 | $ | 8,350 | $ | 12,232 | |||||||||||||||||||
| Beginning balance at original discount rate | 1,231 | 1,255 | 688 | 6,595 | 9,769 | ||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | — | (8) | 1 | 42 | 35 | ||||||||||||||||||||||||
| Effect of actual variances from expected experience | (13) | 52 | (28) | (36) | (25) | ||||||||||||||||||||||||
| Adjusted beginning of year balance | $ | 1,218 | $ | 1,299 | $ | 661 | $ | 6,601 | $ | 9,779 | |||||||||||||||||||
| Issuances | 42 | 57 | 12 | — | 111 | ||||||||||||||||||||||||
| Interest accrual | 49 | 73 | 38 | 336 | 496 | ||||||||||||||||||||||||
| Benefit payments | (154) | (116) | (42) | (368) | (680) | ||||||||||||||||||||||||
| Derecognition (lapses) | — | — | — | — | — | ||||||||||||||||||||||||
| Ending balance at original discount rate | $ | 1,155 | $ | 1,313 | $ | 669 | $ | 6,569 | $ | 9,706 | |||||||||||||||||||
| Effect of changes in discount rate assumptions | (90) | 6 | 27 | (130) | (187) | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,065 | $ | 1,319 | $ | 696 | $ | 6,439 | $ | 9,519 | |||||||||||||||||||
| Adjustment due to reserve flooring | $ | — | $ | 3 | $ | — | $ | — | $ | 3 | |||||||||||||||||||
| Net liability for future policy benefits | $ | 1,065 | $ | 636 | $ | 562 | $ | 5,232 | $ | 7,495 | |||||||||||||||||||
| Less: reinsurance recoverable | 949 | 443 | 19 | 2,649 | 4,060 | ||||||||||||||||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 116 | $ | 193 | $ | 543 | $ | 2,583 | $ | 3,435 | |||||||||||||||||||
| Discounted expected future gross premiums | $ | — | $ | 1,855 | $ | 926 | $ | 1,381 | $ | 4,162 | |||||||||||||||||||
| Expected future gross premiums | $ | — | $ | 3,183 | $ | 1,331 | $ | 1,908 | $ | 6,422 | |||||||||||||||||||
| Expected future benefit payments | $ | 1,595 | $ | 2,234 | $ | 1,169 | $ | 11,229 | $ | 16,227 | |||||||||||||||||||
| Weighted average interest accretion rate | 4.1 | % | 6.4 | % | 6.1 | % | 5.2 | % | |||||||||||||||||||||
| Weighted average discount rate | 5.2 | % | 5.5 | % | 5.4 | % | 5.4 | % | |||||||||||||||||||||
| Weighted average duration of liability (in years) | 6 | 7 | 8 | 9 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Life Contingent Payout Annuities | Term and Whole Life Insurance | Disability Insurance | Long Term Care Insurance | Total, All Products | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Present Value of Expected Net Premiums: | |||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | — | $ | 686 | $ | 134 | $ | 1,207 | $ | 2,027 | |||||||||||||||||||
| Beginning balance at original discount rate | — | 708 | 137 | 1,220 | 2,065 | ||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | — | 1 | — | (1) | — | ||||||||||||||||||||||||
| Effect of actual variances from expected experience | — | 3 | (6) | (21) | (24) | ||||||||||||||||||||||||
| Adjusted beginning of year balance | $ | — | $ | 712 | $ | 131 | $ | 1,198 | $ | 2,041 | |||||||||||||||||||
| Issuances | 31 | 13 | 3 | — | 47 | ||||||||||||||||||||||||
| Interest accrual | — | 8 | 2 | 15 | 25 | ||||||||||||||||||||||||
| Net premiums collected | (31) | (17) | (4) | (39) | (91) | ||||||||||||||||||||||||
| Derecognition (lapses) | — | — | — | — | — | ||||||||||||||||||||||||
| Ending balance at original discount rate | $ | — | $ | 716 | $ | 132 | $ | 1,174 | $ | 2,022 | |||||||||||||||||||
| Effect of changes in discount rate assumptions | — | (5) | — | 6 | 1 | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | — | $ | 711 | $ | 132 | $ | 1,180 | $ | 2,023 | |||||||||||||||||||
| Present Value of Future Policy Benefits: | |||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 1,065 | $ | 1,319 | $ | 696 | $ | 6,439 | $ | 9,519 | |||||||||||||||||||
| Beginning balance at original discount rate | 1,155 | 1,313 | 669 | 6,569 | 9,706 | ||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | — | 1 | — | (2) | (1) | ||||||||||||||||||||||||
| Effect of actual variances from expected experience | — | 3 | (9) | (23) | (29) | ||||||||||||||||||||||||
| Adjusted beginning of year balance | $ | 1,155 | $ | 1,317 | $ | 660 | $ | 6,544 | $ | 9,676 | |||||||||||||||||||
| Issuances | 31 | 13 | 3 | — | 47 | ||||||||||||||||||||||||
| Interest accrual | 12 | 18 | 9 | 83 | 122 | ||||||||||||||||||||||||
| Benefit payments | (40) | (37) | (10) | (97) | (184) | ||||||||||||||||||||||||
| Derecognition (lapses) | — | — | — | — | — | ||||||||||||||||||||||||
| Ending balance at original discount rate | $ | 1,158 | $ | 1,311 | $ | 662 | $ | 6,530 | $ | 9,661 | |||||||||||||||||||
| Effect of changes in discount rate assumptions | (68) | 36 | 43 | 33 | 44 | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,090 | $ | 1,347 | $ | 705 | $ | 6,563 | $ | 9,705 | |||||||||||||||||||
| Adjustment due to reserve flooring | $ | — | $ | 5 | $ | — | $ | — | $ | 5 | |||||||||||||||||||
| Net liability for future policy benefits | $ | 1,090 | $ | 641 | $ | 573 | $ | 5,383 | $ | 7,687 | |||||||||||||||||||
| Less: reinsurance recoverable | 943 | 447 | 21 | 2,724 | 4,135 | ||||||||||||||||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 147 | $ | 194 | $ | 552 | $ | 2,659 | $ | 3,552 | |||||||||||||||||||
| Discounted expected future gross premiums | $ | — | $ | 1,887 | $ | 932 | $ | 1,370 | $ | 4,189 | |||||||||||||||||||
| Expected future gross premiums | $ | — | $ | 3,165 | $ | 1,314 | $ | 1,857 | $ | 6,336 | |||||||||||||||||||
| Expected future benefit payments | $ | 1,603 | $ | 2,231 | $ | 1,153 | $ | 11,100 | $ | 16,087 | |||||||||||||||||||
| Weighted average interest accretion rate | 4.2 | % | 6.4 | % | 6.2 | % | 5.2 | % | |||||||||||||||||||||
| Weighted average discount rate | 5.0 | % | 5.1 | % | 5.1 | % | 5.1 | % | |||||||||||||||||||||
| Weighted average duration of liability (in years) | 6 | 7 | 8 | 9 |
The annual review of LTC future policy benefit reserves in the third quarter of 2022 resulted in assumption updates that decreased the net liability for future policy benefits by $10 million, partially offset by a $4 million decrease to reinsurance recoverable, primarily reflecting updates to morbidity, premium rate increase and benefit reduction assumptions.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Receivables included $4.3 billion and $4.2 billion of reinsurance recoverables as of March 31, 2023 and December 31, 2022, respectively, including $2.7 billion related to LTC risk ceded to Genworth as of both March 31, 2023 and December 31, 2022.
The balances of and changes in additional liabilities related to insurance guarantees were as follows:
| Universal Life Insurance | Variable Universal Life Insurance | Other Life Insurance | Total, All Products | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 1,100 | $ | 74 | $ | 12 | $ | 1,186 | |||||||||||||||
| Interest accrual | 8 | 1 | — | 9 | |||||||||||||||||||
| Benefit accrual | 33 | 2 | 1 | 36 | |||||||||||||||||||
| Benefit payments | (12) | (4) | (1) | (17) | |||||||||||||||||||
| Effect of actual variances from expected experience | (5) | — | (1) | (6) | |||||||||||||||||||
| Impact of change in net unrealized (gains) losses on securities | 12 | 1 | 3 | 16 | |||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,136 | $ | 74 | $ | 14 | $ | 1,224 | |||||||||||||||
| Weighted average interest accretion rate | 2.9 | % | 7.1 | % | 3.9 | % | |||||||||||||||||
| Weighted average discount rate | 3.2 | % | 7.1 | % | 4.0 | % | |||||||||||||||||
| Weighted average duration of reserves (in years) | 10 | 8 | 6 |
| Universal Life Insurance | Variable Universal Life Insurance | Other Life Insurance | Total, All Products | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 1,120 | $ | 76 | $ | 46 | $ | 1,242 | |||||||||||||||
| Interest accrual | 32 | 5 | 1 | 38 | |||||||||||||||||||
| Benefit accrual | 108 | 8 | — | 116 | |||||||||||||||||||
| Benefit payments | (43) | (14) | (4) | (61) | |||||||||||||||||||
| Effect of actual variances from expected experience | (19) | 2 | (2) | (19) | |||||||||||||||||||
| Impact of change in net unrealized (gains) losses on securities | (98) | (3) | (29) | (130) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,100 | $ | 74 | $ | 12 | $ | 1,186 | |||||||||||||||
| Weighted average interest accretion rate | 2.9 | % | 7.0 | % | 4.1 | % | |||||||||||||||||
| Weighted average discount rate | 3.2 | % | 7.1 | % | 4.0 | % | |||||||||||||||||
| Weighted average duration of reserves (in years) | 10 | 8 | 6 |
The amount of revenue and interest recognized in the Statement of Operations was as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| Gross Premiums | Interest Expense | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Life contingent payout annuities | $ | 33 | $ | 12 | |||||||||||||||||||
| Term and whole life insurance | 42 | 10 | |||||||||||||||||||||
| Disability insurance | 31 | 7 | |||||||||||||||||||||
| Long term care insurance | 45 | 68 | |||||||||||||||||||||
| Total | $ | 151 | $ | 97 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Years Ended December 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Gross Premiums | Interest Expense | Gross Premiums | Interest Expense | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Life contingent payout annuities | $ | 45 | $ | 49 | $ | 39 | $ | 53 | |||||||||||||||
| Term and whole life insurance | 169 | 39 | 166 | 41 | |||||||||||||||||||
| Disability insurance | 127 | 31 | 131 | 30 | |||||||||||||||||||
| Long term care insurance | 189 | 271 | 192 | 274 | |||||||||||||||||||
| Total | $ | 530 | $ | 390 | $ | 528 | $ | 398 |
The following tables summarize the balances of and changes in unearned revenue, including the January 1, 2021 adoption of ASU 2018-12:
| Universal Life Insurance | Variable Universal Life Insurance | Indexed Universal Life Insurance | Total, All Products | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Pre-adoption balance at December 31, 2020 | $ | 19 | $ | 76 | $ | — | $ | 95 | |||||||||||||||||||||
| Effect of shadow reserve adjustments | 5 | 10 | 153 | 168 | |||||||||||||||||||||||||
| Post-adoption balance at January 1, 2021 | 24 | 86 | 153 | 263 | |||||||||||||||||||||||||
| Deferral of revenue | 3 | 34 | 55 | 92 | |||||||||||||||||||||||||
| Amortization | (1) | (8) | (13) | (22) | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 26 | $ | 112 | $ | 195 | $ | 333 | |||||||||||||||||||||
| Balance at January 1, 2022 | $ | 26 | $ | 112 | $ | 195 | $ | 333 | |||||||||||||||||||||
| Deferral of revenue | 2 | 48 | 54 | 104 | |||||||||||||||||||||||||
| Amortization | (1) | (10) | (16) | (27) | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 27 | $ | 150 | $ | 233 | $ | 410 | |||||||||||||||||||||
| Balance at January 1, 2023 | $ | 27 | $ | 150 | $ | 233 | $ | 410 | |||||||||||||||||||||
| Deferral of revenue | — | 14 | 13 | 27 | |||||||||||||||||||||||||
| Amortization | — | (3) | (5) | (8) | |||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 27 | $ | 161 | $ | 241 | $ | 429 |
10. Separate Account Assets and Liabilities
Aggregate fair value of separate account assets, by major asset category, consisted of the following:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Mutual funds | $ | 72,844 | $ | 70,876 | |||||||
| Property/Real estate | 1,894 | 1,876 | |||||||||
| Equity securities | 706 | 679 | |||||||||
| Debt securities | 308 | 279 | |||||||||
| Cash and cash equivalents | 136 | 208 | |||||||||
| Other | 53 | 44 | |||||||||
| Total | $ | 75,941 | $ | 73,962 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The balances of and changes in separate account liabilities were as follows:
| Variable Annuities | Variable Universal Life | Threadneedle Investment Liabilities | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 63,223 | $ | 7,653 | $ | 3,086 | $ | 73,962 | |||||||||||||||
| Premiums and deposits | 204 | 111 | 68 | 383 | |||||||||||||||||||
| Policy charges | (331) | (71) | (2) | (404) | |||||||||||||||||||
| Surrenders and other benefits | (1,250) | (71) | (185) | (1,506) | |||||||||||||||||||
| Investment return | 2,963 | 407 | 69 | 3,439 | |||||||||||||||||||
| Net transfer from (to) general account | 5 | 1 | — | 6 | |||||||||||||||||||
| Other charges | — | — | 61 | 61 | |||||||||||||||||||
| Balance at March 31, 2023 | $ | 64,814 | $ | 8,030 | $ | 3,097 | $ | 75,941 | |||||||||||||||
| Cash surrender value | $ | 63,086 | $ | 7,560 | $ | 3,097 | $ | 73,743 |
| Variable Annuities | Variable Universal Life | Threadneedle Investment Liabilities | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 82,862 | $ | 9,376 | $ | 5,253 | $ | 97,491 | |||||||||||||||
| Premiums and deposits | 1,067 | 425 | 252 | 1,744 | |||||||||||||||||||
| Policy charges | (1,396) | (278) | (11) | (1,685) | |||||||||||||||||||
| Surrenders and other benefits | (4,923) | (286) | (1,548) | (6,757) | |||||||||||||||||||
| Investment return | (14,450) | (1,654) | (273) | (16,377) | |||||||||||||||||||
| Net transfer from (to) general account | 63 | 70 | — | 133 | |||||||||||||||||||
| Other charges | — | — | (587) | (587) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 63,223 | $ | 7,653 | $ | 3,086 | $ | 73,962 | |||||||||||||||
| Cash surrender value | $ | 61,461 | $ | 7,200 | $ | 3,086 | $ | 71,747 |
11. Market Risk Benefits
Market risk benefits are contracts or contract features that both provide protection to the contractholder from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk. Most of the variable annuity contracts issued by the Company contain a GMDB provision. The Company previously offered contracts containing GMWB, GMAB, or GMIB provisions.
The GMDB provisions provide a specified minimum return upon death of the contractholder. The death benefit payable is the greater of (i) the contract value less any purchase payment credits subject to recapture less a pro-rata portion of any rider fees, or (ii) the GMDB provisions specified in the contract. The Company has the following primary GMDB provisions:
-
Return of premium — provides purchase payments minus adjusted partial surrenders.
-
Reset — provides that the value resets to the account value every sixth contract anniversary minus adjusted partial surrenders. This provision was often provided in combination with the return of premium provision and is no longer offered.
-
Ratchet — provides that the value ratchets up to the maximum account value at specified anniversary intervals, plus subsequent purchase payments less adjusted partial surrenders.
The variable annuity contracts with GMWB riders typically have account values that are based on an underlying portfolio of mutual funds, the values of which fluctuate based on fund performance. At contract issue, the guaranteed amount is equal to the amount deposited but the guarantee may be increased annually to the account value (a “step-up”) in the case of favorable market performance or by a benefit credit if the contract includes this provision.
The Company has GMWB riders in force, which contain one or more of the following provisions:
-
Withdrawals at a specified rate per year until the amount withdrawn is equal to the guaranteed amount.
-
Withdrawals at a specified rate per year for the life of the contractholder (“GMWB for life”).
-
Withdrawals at a specified rate per year for joint contractholders while either is alive.
-
Withdrawals based on performance of the contract.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
-
Withdrawals based on the age withdrawals begin.
-
Credits are applied annually for a specified number of years to increase the guaranteed amount as long as withdrawals have not been taken.
Variable annuity contractholders age 79 or younger at contract issue could obtain a principal-back guarantee by purchasing the optional GMAB rider for an additional charge. The GMAB rider guarantees that, regardless of market performance at the end of the 10-year waiting period, the contract value will be no less than the original investment or a specified percentage of the highest anniversary value, adjusted for withdrawals. If the contract value is less than the guarantee at the end of the 10-year period, a lump sum will be added to the contract value to make the contract value equal to the guarantee value.
Individual variable annuity contracts may have both a death benefit and a living benefit. Net amount at risk is quantified for each benefit and a composite net amount at risk is calculated using the greater of the death benefit or living benefit for each individual contract. The net amount at risk for GMDB and GMAB is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB is defined as the greater of the present value of the minimum guaranteed annuity payments less the current contract value or zero. The net amount at risk for GMWB is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero.
The following tables summarize the balances of and changes in market risk benefits, including the January 1, 2021 adoption of ASU 2018-12:
| Pre-adoption balance at December 31, 2020 | $ | 3,084 | |||
| Effect of shadow reserve adjustments | (3) | ||||
| Adjustments for the cumulative effect of the changes in instrument-specific credit risk on market risk benefits between the original contract issuance date and the transition date | 670 | ||||
| Adjustments to the host contract for differences between previous carrying amount and fair value measurement for the market risk benefits under the option-based method of valuation | 20 | ||||
| Adjustments for the remaining difference (exclusive of the instrument-specific credit risk change and host contract adjustments) between previous carrying amount and fair value measurements for the market risk benefits | 1,058 | ||||
| Post-adoption balance at January 1, 2021 | $ | 4,829 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions, except age) | |||||||||||
| Balance at beginning of period | $ | 2,901 | $ | 4,829 | |||||||
| Issuances | 27 | 45 | |||||||||
| Interest accrual and time decay | (237) | (294) | |||||||||
| Reserve increase from attributed fees collected | 810 | 819 | |||||||||
| Reserve release for benefit payments and derecognition | (29) | (8) | |||||||||
| Effect of changes in interest rates and bond markets | (4,193) | (1,053) | |||||||||
| Effect of changes in equity markets and subaccount performance | 2,258 | (1,558) | |||||||||
| Effect of changes in equity index volatility | 205 | 73 | |||||||||
| Actual policyholder behavior different from expected behavior | 17 | 52 | |||||||||
| Effect of changes in other future expected assumptions | (139) | 123 | |||||||||
| Effect of changes in the instrument-specific credit risk on market risk benefits | (517) | (127) | |||||||||
| Balance at end of period | $ | 1,103 | $ | 2,901 | |||||||
| Reconciliation of the gross balances in an asset or liability position: | |||||||||||
| Asset position | $ | 1,015 | $ | 539 | |||||||
| Liability position | (2,118) | (3,440) | |||||||||
| Net asset (liability) position | $ | (1,103) | $ | (2,901) | |||||||
| Guaranteed benefit amount in excess of current account balances (net amount at risk): | |||||||||||
| Death benefits | $ | 2,781 | $ | 251 | |||||||
| Living benefits | $ | 3,364 | $ | 195 | |||||||
| Composite (greater of) | $ | 5,830 | $ | 441 | |||||||
| Weighted average attained age of contractholders | 68 | 68 | |||||||||
| Changes in unrealized (gains) losses in net income relating to liabilities held at end of period | $ | (2,044) | $ | (2,502) | |||||||
| Changes in unrealized (gains) losses in other comprehensive income relating to liabilities held at end of period | $ | (505) | $ | (102) |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except age) | |||||||||||||||||||||||
| Balance at beginning of period | $ | 1,103 | $ | 2,901 | |||||||||||||||||||
| Issuances | 4 | 8 | |||||||||||||||||||||
| Interest accrual and time decay | (26) | (86) | |||||||||||||||||||||
| Reserve increase from attributed fees collected | 189 | 199 | |||||||||||||||||||||
| Reserve release for benefit payments and derecognition | (9) | (3) | |||||||||||||||||||||
| Effect of changes in interest rates and bond markets | 504 | (1,454) | |||||||||||||||||||||
| Effect of changes in equity markets and subaccount performance | (392) | 586 | |||||||||||||||||||||
| Effect of changes in equity index volatility | (43) | 55 | |||||||||||||||||||||
| Actual policyholder behavior different from expected behavior | 7 | 20 | |||||||||||||||||||||
| Effect of changes in other future expected assumptions | — | — | |||||||||||||||||||||
| Effect of changes in the instrument-specific credit risk on market risk benefits | (204) | (385) | |||||||||||||||||||||
| Balance at end of period | $ | 1,133 | $ | 1,841 | |||||||||||||||||||
| Reconciliation of the gross balances in an asset or liability position: | |||||||||||||||||||||||
| Asset position | $ | 990 | $ | 742 | |||||||||||||||||||
| Liability position | (2,123) | (2,583) | |||||||||||||||||||||
| Net asset (liability) position | $ | (1,133) | $ | (1,841) | |||||||||||||||||||
| Guaranteed benefit amount in excess of current account balances (net amount at risk): | |||||||||||||||||||||||
| Death benefits | $ | 1,956 | $ | 714 | |||||||||||||||||||
| Living benefits | $ | 2,836 | $ | 586 | |||||||||||||||||||
| Composite (greater of) | $ | 4,596 | $ | 1,274 | |||||||||||||||||||
| Weighted average attained age of contractholders | 68 | 68 | |||||||||||||||||||||
| Changes in unrealized (gains) losses in net income relating to liabilities held at end of period | $ | 59 | $ | (868) | |||||||||||||||||||
| Changes in unrealized (gains) losses in other comprehensive income relating to liabilities held at end of period | $ | (204) | $ | (382) |
The following tables provide a summary of the significant inputs and assumptions used in the fair value measurements developed by the Company or reasonably available to the Company of market risk benefits:
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Fair Value | Valuation Technique | Significant Inputs and Assumptions | Range | Weighted Average | |||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Market risk benefits | $ | 1,133 | Discounted cash flow | Utilization of guaranteed withdrawals (1) | 0.0% | – | 48.0% | 11.1% | |||||||||||||||||||||||||||
| Surrender rate (2) | 0.2% | – | 45.6% | 3.6% | |||||||||||||||||||||||||||||||
| Market volatility (3) | 0.0% | – | 25.1% | 11.1% | |||||||||||||||||||||||||||||||
| Nonperformance risk (4) | 115 bps | 115 bps | |||||||||||||||||||||||||||||||||
| Mortality rate (5) | 0.0% | – | 41.6% | 1.5% | |||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Fair Value | Valuation Technique | Significant Inputs and Assumptions | Range | Weighted Average | |||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Market risk benefits | $ | 1,103 | Discounted cash flow | Utilization of guaranteed withdrawals (1) | 0.0% | – | 48.0% | 11.0% | |||||||||||||||||||||||||||
| Surrender rate (2) | 0.2% | – | 45.6% | 3.6% | |||||||||||||||||||||||||||||||
| Market volatility (3) | 0.0% | – | 26.6% | 12.1% | |||||||||||||||||||||||||||||||
| Nonperformance risk (4) | 95 bps | 95 bps | |||||||||||||||||||||||||||||||||
| Mortality rate (5) | 0.0% | – | 41.6% | 1.5% | |||||||||||||||||||||||||||||||
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(1) The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year. The weighted average utilization rate represents the average assumption, weighted based on the benefit base. The calculation excludes policies that have already started taking withdrawals.
(2) The weighted average surrender rate represents the average assumption weighted based on the account value of each contract.
(3) Market volatility represents the implied volatility of each contractholder’s mix of funds. The weighted average market volatility represents the average volatility across all contracts, weighted by the size of the guaranteed benefit.
(4) The nonperformance risk is the spread added to the U.S. Treasury curve.
(5) The weighted average mortality rate represents the average assumption weighted based on the account value of each contract.
Changes to Significant Inputs and Assumptions:
During the year ended December 31, 2022, the Company updated inputs and assumptions based on management’s review of experience studies. These updates resulted in the following notable changes in the fair value estimates of market risk benefits calculations:
-
Updates to utilization of guaranteed withdrawals assumptions resulted in a decrease to pre-tax income of $39 million.
-
Updates to surrender rates resulted in a decrease to pre-tax income of $200 million.
-
Updates to mortality rates resulted in a decrease to pre-tax income of $49 million.
Refer to the rollforward of market risk benefits for the impacts of changes to interest rate, equity market, volatility and nonperformance risk assumptions.
Uncertainty of Fair Value Measurements
Significant increases (decreases) in utilization and volatility used in the fair value measurement of market risk benefits in isolation would have resulted in a significantly higher (lower) liability value.
Significant increases (decreases) in nonperformance risk and surrender rates used in the fair value measurement of market risk benefits in isolation would have resulted in a significantly lower (higher) liability value.
Significant increases (decreases) in mortality rates used in the fair value measurement of the death benefit portion of market risk benefits in isolation would have resulted in a significantly higher (lower) liability value whereas significant increases (decreases) in mortality rates used in the fair values measurement of the life contingent portion of market risk benefits in isolation would have resulted in a significantly lower (higher) liability value.
Surrender rates, utilization rates and mortality rates vary with the type of base product, type of rider, duration of the policy, age of the contractholder, calendar year of the projection, previous withdrawal history, and the relationship between the value of the guaranteed benefit and the contract accumulation value.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
12. Debt
The balances and stated interest rates of outstanding debt of Ameriprise Financial were as follows:
| Outstanding Balance | Stated Interest Rate | ||||||||||||||||||||||
| March 31, 2023 | December 31, 2022 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||
| Senior notes due 2023 | $ | 750 | $ | 750 | 4.0 | % | 4.0 | % | |||||||||||||||
| Senior notes due 2024 | 550 | 550 | 3.7 | 3.7 | |||||||||||||||||||
| Senior notes due 2025 | 500 | 500 | 3.0 | 3.0 | |||||||||||||||||||
| Senior notes due 2026 | 500 | 500 | 2.9 | 2.9 | |||||||||||||||||||
| Senior notes due 2032 | 500 | 500 | 4.5 | 4.5 | |||||||||||||||||||
| Senior notes due 2033 | 750 | — | 5.2 | — | |||||||||||||||||||
| Finance lease liabilities | 28 | 30 | N/A | N/A | |||||||||||||||||||
| Other (1) | (18) | (9) | N/A | N/A | |||||||||||||||||||
| Total long-term debt | 3,560 | 2,821 | |||||||||||||||||||||
| Short-term borrowings: | |||||||||||||||||||||||
| Federal Home Loan Bank (“FHLB”) advances | 201 | 201 | 5.1 | % | 4.6 | % | |||||||||||||||||
| Total | $ | 3,761 | $ | 3,022 |
(1) Includes adjustments for net unamortized discounts, debt issuance costs and other lease obligations.
N/A Not Applicable
Long-Term Debt
The Company’s senior notes may be redeemed, in whole or in part, at any time prior to maturity at a price equal to the greater of the principal amount and the present value of remaining scheduled payments, discounted to the redemption date, plus accrued interest.
On March 9, 2023, the Company issued $750 million of 5.15% unsecured senior notes due May 15, 2033 and incurred debt issuance costs of $7 million. Interest payments are due semi-annually in arrears on May 15 and November 15, which commences on November 15, 2023.
Short-Term Borrowings
The Company’s life insurance and bank subsidiaries are members of the FHLB of Des Moines which provides access to collateralized borrowings. The Company has pledged Available-for-Sale securities consisting of commercial mortgage backed securities and residential mortgage backed securities as collateral to access these borrowings. The fair value of the securities pledged is recorded in Investments and was $1.2 billion of commercial mortgage backed securities as of both March 31, 2023 and December 31, 2022, and $495 million and $479 million of residential mortgage backed securities as of March 31, 2023 and December 31, 2022, respectively. The remaining maturity of outstanding FHLB advances was less than three months as of both March 31, 2023 and December 31, 2022. The stated interest rate of the FHLB advances is a weighted average annualized interest rate on the outstanding borrowings as of the balance sheet date.
In June 2021, the Company entered into an amended and restated credit agreement that provides for an unsecured revolving credit facility of up to $1.0 billion that expires in June 2026. Under the terms of the credit agreement for the facility, the Company may increase the amount of this facility up to $1.25 billion upon satisfaction of certain approval requirements. As of both March 31, 2023 and December 31, 2022, the Company had no borrowings outstanding and $1 million of letters of credit issued against the facility. The Company’s credit facility contains various administrative, reporting, legal and financial covenants. The Company was in compliance with all such covenants as of both March 31, 2023 and December 31, 2022.
American Enterprise Investment Services, Inc. (“AEIS”), a subsidiary of the Company, has credit agreements for uncommitted lines of credit with third party financial institutions, having a combined credit limit of $500 million. As of both March 31, 2023 and December 31, 2022, AEIS had no borrowings outstanding.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
13. 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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables present the balances of assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis (See Note 5 for the balances of assets and liabilities for consolidated investment entities):
| March 31, 2023 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash equivalents | $ | 1,421 | $ | 4,446 | $ | — | $ | 5,867 | ||||||||||||||||||
| Available-for-Sale securities: | ||||||||||||||||||||||||||
| Corporate debt securities | — | 10,070 | 440 | 10,510 | ||||||||||||||||||||||
| Residential mortgage backed securities | — | 17,663 | — | 17,663 | ||||||||||||||||||||||
| Commercial mortgage backed securities | — | 6,465 | — | 6,465 | ||||||||||||||||||||||
| Asset backed securities | — | 7,239 | 5 | 7,244 | ||||||||||||||||||||||
| State and municipal obligations | — | 820 | — | 820 | ||||||||||||||||||||||
| U.S. government and agency obligations | 2,136 | — | — | 2,136 | ||||||||||||||||||||||
| Foreign government bonds and obligations | — | 28 | — | 28 | ||||||||||||||||||||||
| Other securities | — | 17 | — | 17 | ||||||||||||||||||||||
| Total Available-for-Sale securities | 2,136 | 42,302 | 445 | 44,883 | ||||||||||||||||||||||
| Investments at net asset value (“NAV”) | 10 | (1) | ||||||||||||||||||||||||
| Trading and other securities | 222 | 16 | — | 238 | ||||||||||||||||||||||
| Separate account assets at NAV | 75,941 | (1) | ||||||||||||||||||||||||
| Investments and cash equivalents segregated for regulatory purposes | 694 | — | — | 694 | ||||||||||||||||||||||
| Market risk benefits | — | — | 990 | 990 | (2) | |||||||||||||||||||||
| Receivables: | ||||||||||||||||||||||||||
| Fixed deferred indexed annuity ceded embedded derivatives | — | — | 48 | 48 | ||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||
| Interest rate derivative contracts | 6 | 330 | — | 336 | ||||||||||||||||||||||
| Equity derivative contracts | 140 | 3,120 | — | 3,260 | ||||||||||||||||||||||
| Credit derivative contracts | — | 1 | — | 1 | ||||||||||||||||||||||
| Foreign exchange derivative contracts | 5 | 32 | — | 37 | ||||||||||||||||||||||
| Total other assets | 151 | 3,483 | — | 3,634 | ||||||||||||||||||||||
| Total assets at fair value | $ | 4,624 | $ | 50,247 | $ | 1,483 | $ | 132,305 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Policyholder account balances, future policy benefits and claims: | ||||||||||||||||||||||||||
| Fixed deferred indexed annuity embedded derivatives | $ | — | $ | 3 | $ | 44 | $ | 47 | ||||||||||||||||||
| IUL embedded derivatives | — | — | 771 | 771 | ||||||||||||||||||||||
| Structured variable annuity embedded derivatives | — | — | 142 | 142 | ||||||||||||||||||||||
| Total policyholder account balances, future policy benefits and claims | — | 3 | 957 | 960 | (3) | |||||||||||||||||||||
| Market risk benefits | — | — | 2,123 | 2,123 | (2) | |||||||||||||||||||||
| Customer deposits | — | 6 | — | 6 | ||||||||||||||||||||||
| Other liabilities: | ||||||||||||||||||||||||||
| Interest rate derivative contracts | 9 | 318 | — | 327 | ||||||||||||||||||||||
| Equity derivative contracts | 181 | 2,528 | — | 2,709 | ||||||||||||||||||||||
| Credit derivative contracts | — | 52 | — | 52 | ||||||||||||||||||||||
| Foreign exchange derivative contracts | — | 4 | — | 4 | ||||||||||||||||||||||
| Other | 215 | 3 | 70 | 288 | ||||||||||||||||||||||
| Total other liabilities | 405 | 2,905 | 70 | 3,380 | ||||||||||||||||||||||
| Total liabilities at fair value | $ | 405 | $ | 2,914 | $ | 3,150 | $ | 6,469 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| December 31, 2022 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash equivalents | $ | 1,268 | $ | 3,835 | $ | — | $ | 5,103 | ||||||||||||||||||
| Available-for-Sale securities: | ||||||||||||||||||||||||||
| Corporate debt securities | — | 9,293 | 405 | 9,698 | ||||||||||||||||||||||
| Residential mortgage backed securities | — | 15,703 | — | 15,703 | ||||||||||||||||||||||
| Commercial mortgage backed securities | — | 6,212 | — | 6,212 | ||||||||||||||||||||||
| Asset backed securities | — | 6,258 | 6 | 6,264 | ||||||||||||||||||||||
| State and municipal obligations | — | 797 | — | 797 | ||||||||||||||||||||||
| U.S. government and agency obligations | 2,079 | — | — | 2,079 | ||||||||||||||||||||||
| Foreign government bonds and obligations | — | 41 | — | 41 | ||||||||||||||||||||||
| Other securities | — | 17 | — | 17 | ||||||||||||||||||||||
| Total Available-for-Sale securities | 2,079 | 38,321 | 411 | 40,811 | ||||||||||||||||||||||
| Investments at NAV | 9 | (1) | ||||||||||||||||||||||||
| Trading and other securities | 211 | 16 | — | 227 | ||||||||||||||||||||||
| Separate account assets at NAV | 73,962 | (1) | ||||||||||||||||||||||||
| Investments and cash equivalents segregated for regulatory purposes | 646 | — | — | 646 | ||||||||||||||||||||||
| Market risk benefits | — | — | 1,015 | 1,015 | (2) | |||||||||||||||||||||
| Receivables: | ||||||||||||||||||||||||||
| Fixed deferred indexed annuity ceded embedded derivatives | — | — | 48 | 48 | ||||||||||||||||||||||
| Other assets: | ||||||||||||||||||||||||||
| Interest rate derivative contracts | 7 | 260 | — | 267 | ||||||||||||||||||||||
| Equity derivative contracts | 129 | 2,575 | — | 2,704 | ||||||||||||||||||||||
| Credit derivative contracts | — | 13 | — | 13 | ||||||||||||||||||||||
| Foreign exchange derivative contracts | — | 36 | — | 36 | ||||||||||||||||||||||
| Total other assets | 136 | 2,884 | — | 3,020 | ||||||||||||||||||||||
| Total assets at fair value | $ | 4,340 | $ | 45,056 | $ | 1,474 | $ | 124,841 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Policyholder account balances, future policy benefits and claims: | ||||||||||||||||||||||||||
| Fixed deferred indexed annuity embedded derivatives | $ | — | $ | 3 | $ | 44 | $ | 47 | ||||||||||||||||||
| IUL embedded derivatives | — | — | 739 | 739 | ||||||||||||||||||||||
| Structured variable annuity embedded derivatives | — | — | (137) | (137) | (4) | |||||||||||||||||||||
| Total policyholder account balances, future policy benefits and claims | — | 3 | 646 | 649 | (5) | |||||||||||||||||||||
| Market risk benefits | — | — | 2,118 | 2,118 | (2) | |||||||||||||||||||||
| Customer deposits | — | 4 | — | 4 | ||||||||||||||||||||||
| Other liabilities: | ||||||||||||||||||||||||||
| Interest rate derivative contracts | 4 | 351 | — | 355 | ||||||||||||||||||||||
| Equity derivative contracts | 139 | 2,238 | — | 2,377 | ||||||||||||||||||||||
| Credit derivative contracts | — | 2 | — | 2 | ||||||||||||||||||||||
| Foreign exchange derivative contracts | 6 | 8 | — | 14 | ||||||||||||||||||||||
| Other | 205 | 5 | 62 | 272 | ||||||||||||||||||||||
| Total other liabilities | 354 | 2,604 | 62 | 3,020 | ||||||||||||||||||||||
| Total liabilities at fair value | $ | 354 | $ | 2,611 | $ | 2,826 | $ | 5,791 |
(1) Amounts are comprised of certain financial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.
(2) See Note 11 for additional information related to market risk benefits, including the balances of and changes in market risk benefits as well as the significant inputs and assumptions used in the fair value measurements of market risk benefits.
(3) The Company’s adjustment for nonperformance risk resulted in a $200 million cumulative decrease to the embedded derivatives as of March 31, 2023.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(4) The fair value of the structured variable annuity embedded derivatives was a net asset as of December 31, 2022 and the amount is presented as a contra liability.
(5) The Company’s adjustment for nonperformance risk resulted in a $139 million cumulative decrease to the embedded derivatives as of December 31, 2022.
The following tables provide a summary of changes in Level 3 assets and liabilities of Ameriprise Financial measured at fair value on a recurring basis:
| Available-for-Sale Securities | Receivables | ||||||||||||||||||||||||||||||||||||||||||||||
| Corporate Debt Securities | Asset Backed Securities | Total | Fixed Deferred Indexed Annuity Ceded Embedded Derivatives | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 405 | $ | 6 | $ | 411 | $ | 48 | |||||||||||||||||||||||||||||||||||||||
| Total gains (losses) included in: | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 8 | — | 8 | — | |||||||||||||||||||||||||||||||||||||||||||
| Purchases | 55 | — | 55 | — | |||||||||||||||||||||||||||||||||||||||||||
| Settlements | (28) | (1) | (29) | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 440 | $ | 5 | $ | 445 | $ | 48 | |||||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at March 31, 2023 | $ | 8 | $ | — | $ | 8 | $ | — |
| Policyholder Account Balances, Future Policy Benefits and Claims | Other Liabilities | |||||||||||||||||||||||||||||||||||||
| Fixed Deferred Indexed Annuity Embedded Derivatives | IUL Embedded Derivatives | Structured Variable Annuity Embedded Derivatives | Total | |||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | 44 | $ | 739 | $ | (137) | (3) | $ | 646 | $ | 62 | |||||||||||||||||||||||||||
| Total (gains) losses included in: | ||||||||||||||||||||||||||||||||||||||
| Net income | 1 | (1) | 38 | (1) | 263 | (2) | 302 | — | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||
| Issues | — | 24 | 12 | 36 | 14 | |||||||||||||||||||||||||||||||||
| Settlements | (1) | (30) | 4 | (27) | (7) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 44 | $ | 771 | $ | 142 | $ | 957 | $ | 70 | ||||||||||||||||||||||||||||
| Changes in unrealized (gains) losses in net income relating to liabilities held at March 31, 2023 | $ | — | $ | 38 | (1) | $ | 263 | (2) | $ | 301 | $ | — |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Available-for-Sale Securities | Receivables | |||||||||||||||||||||||||||||||||||||
| Corporate Debt Securities | Commercial Mortgage Backed Securities | Asset Backed Securities | Total | Fixed Deferred Indexed Annuity Ceded Embedded Derivatives | ||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 502 | $ | 35 | $ | 7 | $ | 544 | $ | 59 | ||||||||||||||||||||||||||||
| Total gains (losses) included in: | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | (3) | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (22) | — | — | (22) | — | |||||||||||||||||||||||||||||||||
| Purchases | 23 | 112 | — | 135 | — | |||||||||||||||||||||||||||||||||
| Settlements | (6) | — | — | (6) | (1) | |||||||||||||||||||||||||||||||||
| Transfers out of Level 3 | — | (35) | — | (35) | — | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 497 | $ | 112 | $ | 7 | $ | 616 | $ | 55 | ||||||||||||||||||||||||||||
| Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at March 31, 2022 | $ | (21) | $ | — | $ | — | $ | (21) | $ | — |
| Policyholder Account Balances, Future Policy Benefits and Claims | Other Liabilities | |||||||||||||||||||||||||||||||||||||
| Fixed Deferred Indexed Annuity Embedded Derivatives | IUL Embedded Derivatives | Structured Variable Annuity Embedded Derivatives | Total | |||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 56 | $ | 905 | $ | 406 | $ | 1,367 | $ | 61 | ||||||||||||||||||||||||||||
| Total (gains) losses included in: | ||||||||||||||||||||||||||||||||||||||
| Net income | (3) | (1) | (32) | (1) | (124) | (2) | (159) | — | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (1) | |||||||||||||||||||||||||||||||||
| Issues | — | — | 4 | 4 | 8 | |||||||||||||||||||||||||||||||||
| Settlements | (1) | (25) | (6) | (32) | (6) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 52 | $ | 848 | $ | 280 | $ | 1,180 | $ | 62 | ||||||||||||||||||||||||||||
| Changes in unrealized (gains) losses in net income relating to liabilities held at March 31, 2022 | $ | — | $ | (32) | (1) | $ | — | $ | (32) | $ | — |
(1) Included in Interest credited to fixed accounts.
(2) Included in Benefits, claims, losses and settlement expenses.
(3) The fair value of the structured variable annuity embedded derivatives was a net asset as of January 1, 2023 and the amount is presented as a contra liability.
The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $57 million and $33 million, net of the reinsurance accrual, for the three months ended March 31, 2023 and 2022, respectively.
Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third-party pricing service with observable inputs or fair values that were included in an observable transaction with a market participant. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | |||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Corporate debt securities (private placements) | $ | 439 | Discounted cash flow | Yield/spread to U.S. Treasuries (1) | 1.0% | – | 2.8% | 1.4% | |||||||||||||||||||||||||||
| Asset backed securities | $ | 1 | Discounted cash flow | Annual short-term default rate (2) | 1.3% | 1.3% | |||||||||||||||||||||||||||||
| Annual long-term default rate (2) | 3.5% | 3.5% | |||||||||||||||||||||||||||||||||
| Discount rate | 27.0% | 27.0% | |||||||||||||||||||||||||||||||||
| Constant prepayment rate | 10.0% | 10.0% | |||||||||||||||||||||||||||||||||
| Loss recovery | 63.6% | 63.6% | |||||||||||||||||||||||||||||||||
| Fixed deferred indexed annuity ceded embedded derivatives | $ | 48 | Discounted cash flow | Surrender rate (3) | 0.0% | – | 66.8% | 1.4% | |||||||||||||||||||||||||||
| Fixed deferred indexed annuity embedded derivatives | $ | 44 | Discounted cash flow | Surrender rate (3) | 0.0% | – | 66.8% | 1.4% | |||||||||||||||||||||||||||
| Nonperformance risk (4) | 115 bps | 115 bps | |||||||||||||||||||||||||||||||||
| IUL embedded derivatives | $ | 771 | Discounted cash flow | Nonperformance risk (4) | 115 bps | 115 bps | |||||||||||||||||||||||||||||
| Structured variable annuity embedded derivatives | $ | 142 | Discounted cash flow | Surrender rate (3) | 2.4% | – | 49.5% | 2.8% | |||||||||||||||||||||||||||
| Nonperformance risk (4) | 115 bps | 115 bps | |||||||||||||||||||||||||||||||||
| Contingent consideration liabilities | $ | 70 | Discounted cash flow | Discount rate (5) | 0.0% | – | 10.5% | 2.9% |
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | |||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Corporate debt securities (private placements) | $ | 404 | Discounted cash flow | Yield/spread to U.S. Treasuries (1) | 1.1% | – | 2.3% | 1.4% | |||||||||||||||||||||||||||
| Asset backed securities | $ | 1 | Discounted cash flow | Annual short-term default rate (2) | 0.8% | 0.8% | |||||||||||||||||||||||||||||
| Annual long-term default rate (2) | 3.5% | 3.5% | |||||||||||||||||||||||||||||||||
| Discount rate | 27.0% | 27.0% | |||||||||||||||||||||||||||||||||
| Constant prepayment rate | 10.0% | 10.0% | |||||||||||||||||||||||||||||||||
| Loss recovery | 63.6% | 63.6% | |||||||||||||||||||||||||||||||||
| Fixed deferred indexed annuity ceded embedded derivatives | $ | 48 | Discounted cash flow | Surrender rate (3) | 0.0% | – | 66.8% | 1.4% | |||||||||||||||||||||||||||
| Fixed deferred indexed annuity embedded derivatives | $ | 44 | Discounted cash flow | Surrender rate (3) | 0.0% | – | 66.8% | 1.4% | |||||||||||||||||||||||||||
| Nonperformance risk (4) | 95 bps | 95 bps | |||||||||||||||||||||||||||||||||
| IUL embedded derivatives | $ | 739 | Discounted cash flow | Nonperformance risk (4) | 95 bps | 95 bps | |||||||||||||||||||||||||||||
| Structured variable annuity embedded derivatives | $ | (137) | (6) | Discounted cash flow | Surrender rate (3) | 0.8% | – | 40.0% | 0.9% | ||||||||||||||||||||||||||
| Nonperformance risk (4) | 95 bps | 95 bps | |||||||||||||||||||||||||||||||||
| Contingent consideration liabilities | $ | 62 | Discounted cash flow | Discount rate (5) | 0.0% | – | 10.5% | 3.3% |
(1) The weighted average for the yield/spread to U.S. Treasuries for corporate debt securities (private placements) is weighted based on the security’s market value as a percentage of the aggregate market value of the securities.
(2) The weighted average annual default rates of asset backed securities is weighted based on the security’s market value as a percentage of the aggregate market value of the securities.
(3) The weighted average surrender rate represents the average assumption weighted based on the account value of each contract.
(4) The nonperformance risk is the spread added to the U.S. Treasury curve.
(5) The weighted average discount rate represents the average discount rate across all contingent consideration liabilities, weighted based on the size of the contingent consideration liability.
(6) The fair value of the structured variable annuity embedded derivatives was a net asset as of December 31, 2022 and the amount is presented as a contra liability.
Level 3 measurements not included in the tables above are obtained from non-binding broker quotes where unobservable inputs
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
utilized in the fair value calculation are not reasonably available to the Company.
Uncertainty of Fair Value Measurements
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in the annual default rate and discount rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would have resulted in a significantly lower (higher) fair value measurement and significant increases (decreases) in loss recovery in isolation would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in the constant prepayment rate in isolation would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in the surrender rate used in the fair value measurement of the fixed deferred indexed annuity ceded embedded derivatives in isolation would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would have resulted in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurements of the fixed deferred indexed annuity embedded derivatives and structured variable annuity embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value.
Significant increases (decreases) in the discount rate used in the fair value measurement of the contingent consideration liability in isolation would have resulted in a significantly lower (higher) fair value measurement.
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 time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. U.S. Treasuries are also 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 (Available-for-Sale Securities, Equity Securities and Trading 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 third-party pricing services, non-binding broker quotes, or other model-based valuation techniques.
Level 1 securities primarily include trading securities and U.S. Treasuries.
Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, state and municipal obligations, foreign government securities and other securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third-party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. The fair value of securities included in an observable transaction with a market participant are also considered Level 2 when the market is not active.
Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities with fair value typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. The fair value of certain asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in certain asset backed securities is classified as Level 3.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
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 is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy.
Investments and Cash Equivalents Segregated for Regulatory Purposes
Investments and cash equivalents segregated for regulatory purposes includes U.S. Treasuries that are classified as Level 1.
Receivables
The Company reinsured its fixed deferred indexed annuity products which have an indexed account that is accounted for as an embedded derivative. The Company uses discounted cash flow models to determine the fair value of these ceded embedded derivatives. The fair value of fixed deferred indexed annuity ceded embedded derivatives includes significant observable interest rates, volatilities and equity index levels and significant unobservable surrender rates. Given the significance of the unobservable surrender rates, these embedded derivatives are classified as Level 3.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is 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 swaps, foreign currency forwards and the majority of options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of both March 31, 2023 and December 31, 2022. See Note 14 and Note 15 for further information on the credit risk of derivative instruments and related collateral.
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
There is no active market for the transfer of the Company’s embedded derivatives attributable to the provisions of fixed deferred indexed annuity, structured variable annuity and IUL products.
The Company uses a discounted cash flow model to determine the fair value of the embedded derivatives associated with the provisions of its equity index annuity product. The projected cash flows generated by this model are based on significant observable inputs related to interest rates, volatilities and equity index levels and, therefore, are classified as Level 2.
The Company uses discounted cash flow models to determine the fair value of the embedded derivatives associated with the provisions of its fixed deferred indexed annuity, structured variable annuity and IUL products. The structured variable annuity product is a limited flexible purchase payment annuity that offers 45 different indexed account options providing equity market exposure and a fixed account. Each indexed account includes a protection option (a buffer or a floor). If the index has a negative return, contractholder losses will be reduced by a buffer or limited to a floor. The portion allocated to an indexed account is accounted for as an embedded derivative. The fair value of fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and significant unobservable surrender rates and the estimate of the Company’s nonperformance risk. Given the significance of the unobservable surrender rates and the nonperformance risk assumption, the fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives are classified as Level 3.
The embedded derivatives attributable to these provisions are recorded in Policyholder account balances, future policy benefits and claims.
Customer Deposits
The Company uses Black-Scholes models to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates (“SMC”). The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels. As a result, these measurements are classified as Level 2.
Other Liabilities
Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
traded in less active OTC markets is 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 swaps, foreign currency forwards and the majority of options. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of both March 31, 2023 and December 31, 2022. See Note 14 and Note 15 for further information on the credit risk of derivative instruments and related collateral.
Securities sold but not yet purchased represent obligations of the Company to deliver specified securities that it does not yet own, creating a liability to purchase the security in the market at prevailing prices. 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, or other model-based valuation techniques such as the present value of cash flows. Level 1 securities sold but not yet purchased primarily include trading securities and U.S. Treasuries traded in active markets. Level 2 securities sold but not yet purchased primarily include corporate bonds.
Contingent consideration liabilities consist of earn-outs and/or deferred payments related to the Company’s acquisitions. Contingent consideration liabilities are recorded at fair value utilizing a discounted cash flow model using an unobservable input (discount rate). Given the use of a significant unobservable input, the fair value of contingent consideration liabilities is classified as Level 3 within the fair value hierarchy.
Fair Value on a Nonrecurring Basis
The Company assesses its investment in affordable housing partnerships for impairment. The investments that are determined to be impaired are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was $54 million and $58 million as of March 31, 2023 and December 31, 2022, respectively, and is classified as Level 3 in the fair value hierarchy.
Assets and Liabilities Not Reported at Fair Value
The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:
| March 31, 2023 | |||||||||||||||||||||||||||||
| Carrying Value | Fair Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Financial Assets | |||||||||||||||||||||||||||||
| Mortgage loans, net | $ | 1,997 | $ | — | $ | 137 | $ | 1,700 | $ | 1,837 | |||||||||||||||||||
| Policy loans | 861 | — | 861 | — | 861 | ||||||||||||||||||||||||
| Receivables | 9,985 | 162 | 1,657 | 7,003 | 8,822 | ||||||||||||||||||||||||
| Restricted and segregated cash | 1,290 | 1,290 | — | — | 1,290 | ||||||||||||||||||||||||
| Other investments and assets | 350 | — | 303 | 46 | 349 | ||||||||||||||||||||||||
| Financial Liabilities | |||||||||||||||||||||||||||||
| Policyholder account balances, future policy benefits and claims | $ | 14,828 | $ | — | $ | — | $ | 13,014 | $ | 13,014 | |||||||||||||||||||
| Investment certificate reserves | 11,096 | — | — | 11,033 | 11,033 | ||||||||||||||||||||||||
| Banking and brokerage deposits | 22,862 | 22,862 | — | — | 22,862 | ||||||||||||||||||||||||
| Separate account liabilities — investment contracts | 3,411 | — | 3,411 | — | 3,411 | ||||||||||||||||||||||||
| Debt and other liabilities | 3,964 | 208 | 3,663 | 7 | 3,878 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| December 31, 2022 | |||||||||||||||||||||||||||||
| Carrying Value | Fair Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Financial Assets | |||||||||||||||||||||||||||||
| Mortgage loans, net | $ | 1,987 | $ | — | $ | 105 | $ | 1,695 | $ | 1,800 | |||||||||||||||||||
| Policy loans | 847 | — | 847 | — | 847 | ||||||||||||||||||||||||
| Receivables | 10,287 | 199 | 1,742 | 6,996 | 8,937 | ||||||||||||||||||||||||
| Restricted and segregated cash | 1,583 | 1,583 | — | — | 1,583 | ||||||||||||||||||||||||
| Other investments and assets | 375 | — | 323 | 51 | 374 | ||||||||||||||||||||||||
| Financial Liabilities | |||||||||||||||||||||||||||||
| Policyholder account balances, future policy benefits and claims | $ | 14,450 | $ | — | $ | — | $ | 12,470 | $ | 12,470 | |||||||||||||||||||
| Investment certificate reserves | 9,310 | — | — | 9,253 | 9,253 | ||||||||||||||||||||||||
| Banking and brokerage deposits | 21,474 | 21,474 | — | — | 21,474 | ||||||||||||||||||||||||
| Separate account liabilities — investment contracts | 3,383 | — | 3,383 | — | 3,383 | ||||||||||||||||||||||||
| Debt and other liabilities | 3,242 | 234 | 2,909 | 7 | 3,150 |
Receivables include deposit receivables, brokerage margin loans, securities borrowed, pledged asset lines of credit and loans to financial advisors. Restricted and segregated cash includes cash segregated under federal and other regulations held in special reserve bank accounts for the exclusive benefit of the Company’s brokerage customers. Other investments and assets primarily include syndicated loans, credit card receivables, certificate of deposits with original or remaining maturities at the time of purchase of more than 90 days, the Company’s membership in the FHLB and investments related to the Community Reinvestment Act. See Note 7 for additional information on mortgage loans, policy loans, syndicated loans, credit card receivables and deposit receivables.
Policyholder account balances, future policy benefits and claims include fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed and structured variable annuity host contracts, and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 9 for additional information on these liabilities. Investment certificate reserves represent customer deposits for fixed rate certificates and stock market certificates. Banking and brokerage deposits are amounts payable to customers related to free credit balances, funds deposited by customers and funds accruing to customers as a result of trades or contracts. Separate account liabilities are primarily investment contracts in pooled pension funds offered by Threadneedle. Debt and other liabilities include the Company’s long-term debt, short-term borrowings, securities loaned and future funding commitments to affordable housing partnerships and other real estate partnerships. See Note 12 for further information on the Company’s long-term debt and short-term borrowings.
14. Offsetting Assets and Liabilities
Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets. The Company’s derivative instruments and securities borrowing and lending agreements are subject to master netting and collateral arrangements and qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. Securities borrowed and securities loaned result from transactions between the Company’s broker dealer subsidiary and other financial institutions and are recorded at the amount of cash collateral advanced or received. Securities borrowed and securities loaned are primarily equity securities. The Company’s securities borrowed and securities loaned transactions generally do not have a fixed maturity date and may be terminated by either party under customary terms. The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
| March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Amounts of Assets Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||||||||||||||||||||||||
| Financial Instruments (1) | Cash Collateral | Securities Collateral | |||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||||||||
| OTC | $ | 3,436 | $ | — | $ | 3,436 | $ | (2,715) | $ | (608) | $ | (77) | $ | 36 | |||||||||||||||||||||||||||
| OTC cleared | 105 | — | 105 | (47) | — | — | 58 | ||||||||||||||||||||||||||||||||||
| Exchange-traded | 93 | — | 93 | (90) | — | — | 3 | ||||||||||||||||||||||||||||||||||
| Total derivatives | 3,634 | — | 3,634 | (2,852) | (608) | (77) | 97 | ||||||||||||||||||||||||||||||||||
| Securities borrowed | 162 | — | 162 | (65) | — | (97) | — | ||||||||||||||||||||||||||||||||||
| Total | $ | 3,796 | $ | — | $ | 3,796 | $ | (2,917) | $ | (608) | $ | (174) | $ | 97 |
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Amounts of Assets Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||||||||||||||||||||||||
| Financial Instruments (1) | Cash Collateral | Securities Collateral | |||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||||||||
| OTC | $ | 2,900 | $ | — | $ | 2,900 | $ | (2,322) | $ | (568) | $ | (5) | $ | 5 | |||||||||||||||||||||||||||
| OTC cleared | 23 | — | 23 | (9) | — | — | 14 | ||||||||||||||||||||||||||||||||||
| Exchange-traded | 97 | — | 97 | (75) | — | — | 22 | ||||||||||||||||||||||||||||||||||
| Total derivatives | 3,020 | — | 3,020 | (2,406) | (568) | (5) | 41 | ||||||||||||||||||||||||||||||||||
| Securities borrowed | 199 | — | 199 | (31) | — | (164) | 4 | ||||||||||||||||||||||||||||||||||
| Total | $ | 3,219 | $ | — | $ | 3,219 | $ | (2,437) | $ | (568) | $ | (169) | $ | 45 |
(1) Represents the amount of assets that could be offset by liabilities with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
| March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Amounts of Liabilities Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||||||||||||||||||||||||
| Financial Instruments (1) | Cash Collateral | Securities Collateral | |||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||||||||
| OTC | $ | 2,909 | $ | — | $ | 2,909 | $ | (2,715) | $ | (54) | $ | (133) | $ | 7 | |||||||||||||||||||||||||||
| OTC cleared | 47 | — | 47 | (47) | — | — | — | ||||||||||||||||||||||||||||||||||
| Exchange-traded | 136 | — | 136 | (90) | — | (4) | 42 | ||||||||||||||||||||||||||||||||||
| Total derivatives | 3,092 | — | 3,092 | (2,852) | (54) | (137) | 49 | ||||||||||||||||||||||||||||||||||
| Securities loaned | 208 | — | 208 | (65) | — | (140) | 3 | ||||||||||||||||||||||||||||||||||
| Total | $ | 3,300 | $ | — | $ | 3,300 | $ | (2,917) | $ | (54) | $ | (277) | $ | 52 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Amounts of Liabilities Presented in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | Net Amount | |||||||||||||||||||||||||||||||||||||
| Financial Instruments (1) | Cash Collateral | Securities Collateral | |||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||||||||
| OTC | $ | 2,646 | $ | — | $ | 2,646 | $ | (2,322) | $ | (43) | $ | (277) | $ | 4 | |||||||||||||||||||||||||||
| OTC cleared | 9 | — | 9 | (9) | — | — | — | ||||||||||||||||||||||||||||||||||
| Exchange-traded | 93 | — | 93 | (75) | — | (17) | 1 | ||||||||||||||||||||||||||||||||||
| Total derivatives | 2,748 | — | 2,748 | (2,406) | (43) | (294) | 5 | ||||||||||||||||||||||||||||||||||
| Securities loaned | 235 | — | 235 | (31) | — | (197) | 7 | ||||||||||||||||||||||||||||||||||
| Total | $ | 2,983 | $ | — | $ | 2,983 | $ | (2,437) | $ | (43) | $ | (491) | $ | 12 |
(1) Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
In the tables above, the amount of assets or liabilities presented are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral. The actual collateral may be greater than amounts presented in the tables.
When the fair value of collateral accepted by the Company is less than the amount due to the Company, there is a risk of loss if the counterparty fails to perform or provide additional collateral. To mitigate this risk, the Company monitors collateral values regularly and requires additional collateral when necessary. When the value of collateral pledged by the Company declines, it may be required to post additional collateral.
Freestanding derivative instruments are reflected in Other assets and Other liabilities. Cash collateral pledged by the Company is reflected in Other assets and cash collateral accepted by the Company is reflected in Other liabilities. Securities borrowing and lending agreements are reflected in Receivables and Other liabilities, respectively. See Note 15 for additional disclosures related to the Company’s derivative instruments and Note 5 for information related to derivatives held by consolidated investment entities.
15. 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.
Certain of the Company’s freestanding derivative instruments are subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 14 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Generally, the Company uses derivatives as economic hedges and accounting hedges. The following table presents the notional value and gross fair value of derivative instruments, including embedded derivatives:
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Notional | Gross Fair Value | Notional | Gross Fair Value | ||||||||||||||||||||
| Assets (1) | Liabilities (2) | Assets (1) | Liabilities (2) | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||
| Equity contracts - cash flow hedges | $ | 4 | $ | — | $ | 1 | $ | 6 | $ | — | $ | 1 | |||||||||||
| Foreign exchange contracts – net investment hedges | 62 | — | — | 85 | — | — | |||||||||||||||||
| Total qualifying hedges | 66 | — | 1 | 91 | — | 1 | |||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||
| Interest rate contracts | 89,172 | 336 | 327 | 101,307 | 267 | 355 | |||||||||||||||||
| Equity contracts | 76,747 | 3,260 | 2,708 | 68,493 | 2,704 | 2,376 | |||||||||||||||||
| Credit contracts | 2,868 | 1 | 52 | 1,857 | 13 | 2 | |||||||||||||||||
| Foreign exchange contracts | 3,261 | 37 | 4 | 3,171 | 36 | 14 | |||||||||||||||||
| Total non-designated hedges | 172,048 | 3,634 | 3,091 | 174,828 | 3,020 | 2,747 | |||||||||||||||||
| Embedded derivatives | |||||||||||||||||||||||
| IUL | N/A | — | 771 | N/A | — | 739 | |||||||||||||||||
| Fixed deferred indexed annuities and deposit receivables | N/A | 48 | 47 | N/A | 48 | 47 | |||||||||||||||||
| Structured variable annuities (3) | N/A | — | 142 | N/A | — | (137) | |||||||||||||||||
| SMC | N/A | — | 6 | N/A | — | 4 | |||||||||||||||||
| Total embedded derivatives | N/A | 48 | 966 | N/A | 48 | 653 | |||||||||||||||||
| Total derivatives | $ | 172,114 | $ | 3,682 | $ | 4,058 | $ | 174,919 | $ | 3,068 | $ | 3,401 |
N/A Not applicable.
(1) The fair value of freestanding derivative assets is included in Other assets and the fair value of ceded embedded derivative assets related to deposit receivables is included in Receivables.
(2) The fair value of freestanding derivative liabilities is included in Other liabilities. The fair value of IUL, fixed deferred indexed annuity and structured variable annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims. The fair value of the SMC embedded derivative liability is included in Customer deposits.
(3) The fair value of the structured variable annuity embedded derivatives as of March 31, 2023 included $337 million of individual contracts in a liability position and $195 million of individual contracts in an asset position. The fair value of the structured variable annuity embedded derivatives as of December 31, 2022 included $194 million of individual contracts in a liability position and $331 million of individual contracts in an asset position.
See Note 13 for additional information regarding the Company’s fair value measurement of derivative instruments.
As of March 31, 2023 and December 31, 2022, investment securities with a fair value of $77 million and $14 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $77 million and $5 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both March 31, 2023 and December 31, 2022, the Company had sold, pledged or rehypothecated none of these securities. In addition, as of both March 31, 2023 and December 31, 2022, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.
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, including embedded derivatives, on the Consolidated Statements of Operations:
| Net Investment Income | Banking and Deposit Interest Expense | Distribution Expenses | Interest Credited to Fixed Accounts | Benefits, Claims, Losses and Settlement Expenses | Change in Fair Value of Market Risk Benefits | General and Administrative Expense | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | — | $ | — | $ | — | $ | 6 | $ | 247 | $ | — | ||||||||||||
| Equity contracts | (1) | 1 | 43 | 19 | 164 | (462) | 3 | |||||||||||||||||||
| Credit contracts | — | — | 1 | — | — | (33) | — | |||||||||||||||||||
| Foreign exchange contracts | — | — | — | — | — | (8) | 3 | |||||||||||||||||||
| IUL embedded derivatives | — | — | — | (8) | — | — | — | |||||||||||||||||||
| Fixed deferred indexed annuity and deposit receivables embedded derivatives | — | — | — | (1) | — | — | — | |||||||||||||||||||
| Structured variable annuity embedded derivatives | — | — | — | — | (263) | — | — | |||||||||||||||||||
| SMC embedded derivatives | — | (2) | — | — | — | — | — | |||||||||||||||||||
| Total gain (loss) | $ | (1) | $ | (1) | $ | 44 | $ | 10 | $ | (93) | $ | (256) | $ | 6 | ||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,118) | $ | — | ||||||||||||
| Equity contracts | 8 | — | (61) | (16) | 8 | 216 | (7) | |||||||||||||||||||
| Credit contracts | — | — | (1) | — | — | 97 | — | |||||||||||||||||||
| Foreign exchange contracts | (1) | — | — | — | — | 31 | — | |||||||||||||||||||
| IUL embedded derivatives | — | — | — | 57 | — | — | — | |||||||||||||||||||
| Fixed deferred indexed annuity and deposit receivables embedded derivatives | — | — | — | 1 | — | — | — | |||||||||||||||||||
| Structured variable annuity embedded derivatives | — | — | — | — | 123 | — | — | |||||||||||||||||||
| Total gain (loss) | $ | 7 | $ | — | $ | (62) | $ | 42 | $ | 131 | $ | (774) | $ | (7) |
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, credit and foreign currency exchange rate risk related to various products and transactions of the Company.
The deferred premium associated with certain of the above options is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options as of March 31, 2023:
| Premiums Payable | Premiums Receivable | ||||||||||
| (in millions) | |||||||||||
| 2023 (1) | $ | 29 | $ | 19 | |||||||
| 2024 | 132 | 23 | |||||||||
| 2025 | 121 | 21 | |||||||||
| 2026 | 248 | 88 | |||||||||
| 2027 | 20 | — | |||||||||
| 2028 - 2030 | 220 | — | |||||||||
| Total | $ | 770 | $ | 151 |
(1) 2023 amounts represent the amounts payable and receivable for the period from April 1, 2023 to December 31, 2023.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Actual timing and payment amounts may differ due to future settlements, modifications or exercises of the contracts prior to the full premium being paid or received.
Structured variable annuity, IUL 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 structured variable annuity, IUL and stock market certificate products will positively or negatively impact earnings over the life of these products. The equity component of structured variable annuity, IUL and stock market certificate product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into interest rate swaps, index options and futures contracts.
As discussed in Note 11, the Company issues variable annuity contracts that provide protection to contractholders from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk. The Company economically hedges its obligations under these market risk benefits using options, swaptions, swaps and futures,
The Company enters into futures, credit default swaps, commodity swaps, total return swaps and foreign currency forwards to manage its exposure to price risk arising from seed money investments in proprietary investment products. The Company enters into foreign currency forward contracts to economically hedge its exposure to certain foreign transactions. The Company enters into futures contracts, total return swaps and foreign currency forwards to economically hedge its exposure related to compensation plans. The Company enters into interest rate swaps to offset interest rate changes on unrealized gains or losses for certain investments.
Cash Flow Hedges
The Company has designated derivative instruments as a cash flow hedge for equity exposure of certain compensation-related liabilities and interest rate exposure on forecasted debt interest payments. For derivative instruments that qualify as cash flow hedges, the gains or losses on the derivative instruments are reported in AOCI and reclassified into earnings when the hedged item or transaction impacts earnings. The amount that is reclassified into earnings is presented within the same line item as the earnings impact of the hedged item in Interest and debt expense.
For both the three months ended March 31, 2023 and 2022, the amounts reclassified from AOCI to earnings related to cash flow hedges were immaterial. The estimated net amount recorded in AOCI as of March 31, 2023 that the Company expects to reclassify to earnings as a reduction to Interest and debt expense within the next twelve months is $0.8 million and as an increase to General and administrative expense is $0.6 million. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 13 years and relates to forecasted debt interest payments. See Note 16 for a rollforward of net unrealized gains (losses) on derivatives included in AOCI related to cash flow hedges.
Net Investment Hedges
The Company entered into, and designated as net investment hedges in foreign operations, forward contracts to hedge a portion of the Company’s foreign currency exchange rate risk associated with its investment in Threadneedle. As the Company determined that the forward contracts are effective, the change in fair value of the derivatives is recognized in AOCI as part of the foreign currency translation adjustment. For the three months ended March 31, 2023 and 2022, the Company recognized a loss of $2 million and a gain of $4 million, respectively, in OCI.
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 and collateral arrangements whenever practical. See Note 14 for additional information on the Company’s credit exposure related to derivative assets.
Certain of the Company’s derivative contracts 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. As of March 31, 2023 and December 31, 2022, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $146 million and $240 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of March 31, 2023 and December 31, 2022 was $145 million and $236 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of March 31, 2023 and December 31, 2022 were triggered, the aggregate fair value of additional assets that would be required to be posted as collateral or needed to settle the instruments immediately would have been $1 million and $4 million, respectively.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
16. Shareholders’ Equity
The following table presents the amounts related to each component of OCI:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Pretax | Income Tax Benefit (Expense) | Net of Tax | Pretax | Income Tax Benefit (Expense) | Net of Tax | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on securities: | |||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on securities arising during the period (1) | $ | 566 | $ | (124) | $ | 442 | $ | (1,592) | $ | 347 | $ | (1,245) | |||||||||||||||||||||||
| Reclassification of net (gains) losses on securities included in net income (2) | (3) | 1 | (2) | (20) | 4 | (16) | |||||||||||||||||||||||||||||
| Impact of benefit reserves and reinsurance recoverables | (12) | 2 | (10) | 50 | (9) | 41 | |||||||||||||||||||||||||||||
| Net unrealized gains (losses) on securities | 551 | (121) | 430 | (1,562) | 342 | (1,220) | |||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives: | |||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives arising during the period | 3 | (1) | 2 | 1 | — | 1 | |||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives | 3 | (1) | 2 | 1 | — | 1 | |||||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions on certain long-duration contracts | (83) | 18 | (65) | 460 | (98) | 362 | |||||||||||||||||||||||||||||
| Effect of changes in instrument-specific credit risk on MRBs | 204 | (43) | 161 | 385 | (82) | 303 | |||||||||||||||||||||||||||||
| Foreign currency translation | 42 | (9) | 33 | (58) | 12 | (46) | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | 717 | $ | (156) | $ | 561 | $ | (774) | $ | 174 | $ | (600) |
(1) Includes impairments on Available-for-Sale securities related to factors other than credit that were recognized in OCI during the period.
(2) Reclassification amounts are recorded in Net investment income.
Other comprehensive income (loss) related to net unrealized gains (losses) on securities includes three components: (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 due to the reclassification of noncredit losses to credit losses; and (iii) other adjustments primarily consisting of changes in insurance and annuity asset and liability balances, such as 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.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following table presents the changes in the balances of each component of AOCI, net of tax:
| Net Unrealized Gains (Losses) on Securities | Net Unrealized Gains (Losses) on Derivatives | Effect of Changes in Discount Rate Assumptions on Certain Long-Duration Contracts | Effect of Changes in Instrument-Specific Credit Risk on MRBs | Defined Benefit Plans | Foreign Currency Translation | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | (2,043) | $ | 3 | $ | (72) | $ | (20) | $ | (75) | $ | (338) | $ | (1) | $ | (2,546) | |||||||||||||||||||||||||||||||
| OCI before reclassifications | 432 | 2 | (65) | 161 | — | 33 | — | 563 | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | (2) | — | — | — | — | — | — | (2) | |||||||||||||||||||||||||||||||||||||||
| Total OCI | 430 | 2 | (65) | 161 | — | 33 | — | 561 | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | (1,613) | $ | 5 | $ | (137) | $ | 141 | $ | (75) | $ | (305) | $ | (1) | $ | (1,985) | |||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 1,033 | $ | 4 | $ | (933) | $ | (427) | $ | (151) | $ | (167) | $ | (1) | $ | (642) | |||||||||||||||||||||||||||||||
| OCI before reclassifications | (1,204) | 1 | 362 | 303 | — | (46) | — | (584) | |||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | (16) | — | — | — | — | — | — | (16) | |||||||||||||||||||||||||||||||||||||||
| Total OCI | (1,220) | 1 | 362 | 303 | — | (46) | — | (600) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | (187) | $ | 5 | $ | (571) | $ | (124) | $ | (151) | $ | (213) | $ | (1) | $ | (1,242) |
For the three months ended March 31, 2023 and 2022, the Company repurchased a total of 1.6 million shares and 1.4 million shares, respectively, of its common stock for an aggregate cost of $506 million and $429 million, respectively. In January 2022, the Company’s Board of Directors authorized an additional $3.0 billion for the repurchase of the Company’s common stock through March 31, 2024. As of March 31, 2023, the Company had $1.1 billion remaining under the share repurchase authorization.
The Company may also reacquire shares of its common stock under its share-based compensation plans related to restricted stock awards and certain option exercises. The holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligation. These vested restricted shares are reacquired by the Company and the Company’s payment of the holders’ income tax obligations are recorded as a treasury share purchase.
For the three months ended March 31, 2023 and 2022, the Company reacquired 0.3 million shares and 0.3 million shares, respectively, of its common stock through the surrender of shares upon vesting and paid in the aggregate $87 million and $89 million, respectively, related to the holders’ income tax obligations on the vesting date. Option holders may elect to net settle their vested awards resulting in the surrender of the number of shares required to cover the strike price and tax obligation of the options exercised. These shares are reacquired by the Company and recorded as treasury shares. For the three months ended March 31, 2023 and 2022, the Company reacquired 0.2 million shares and 0.2 million shares, respectively, of its common stock through the net settlement of options for an aggregate value of $63 million and $62 million, respectively.
During the three months ended March 31, 2023 and 2022, the Company reissued 0.6 million and 0.5 million, respectively, treasury shares for restricted stock award grants, performance share units and issuance of shares vested under advisor deferred compensation plans.
17. Income Taxes
The Company’s effective tax rate was 15.9% and 18.0% for the three months ended March 31, 2023 and 2022, respectively.
The effective tax rate for the three months ended March 31, 2023 was lower than the statutory tax rate as a result of tax preferred items including incentive compensation, foreign tax credits, dividend received deductions and low income housing tax credits, partially offset by state income taxes, net of federal benefit.
The effective tax rate for the three months ended March 31, 2022 was lower than the statutory tax rate as a result of tax preferred items including incentive compensation, foreign tax credits and low income housing tax credits, partially offset by state income taxes, net of federal benefit.
The lower effective tax rate for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily the result of lower pretax income, an increase in foreign tax credits net of addback, an increase in incentive compensation, partially offset by an increase in state income taxes net of federal benefit compared to the prior period.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $30 million, net of federal benefit, which will expire beginning December 31, 2023 and foreign net operating losses of $34 million.
The Company is required to establish a valuation allowance for any portion of its deferred tax assets that management believes will not be realized. 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. Consideration is given to, among other things in making this determination: (i) future taxable income exclusive of reversing temporary differences and carryforwards; (ii) future reversals of existing taxable temporary differences; (iii) taxable income in prior carryback years; and (iv) tax planning strategies. Based on analysis of the Company’s tax position as of March 31, 2023, management believes it is more likely than not that the Company will not realize certain state net operating losses of $29 million, state deferred tax assets of $2 million and foreign net operating losses of $34 million; therefore, a valuation allowance has been established. The valuation allowance was $65 million for both March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, the Company had $143 million and $138 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $110 million and $106 million, net of federal tax benefits, of unrecognized tax benefits as of March 31, 2023 and December 31, 2022, respectively, would affect the effective tax rate.
It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by approximately $48 million in the next 12 months primarily due to Internal Revenue Service (“IRS”) settlements and state exams.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net increase of $1 million in interest and penalties for both the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, the Company had a payable of $15 million and $14 million, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The federal statute of limitations are closed on years through 2015, except for one issue for 2014 and 2015 which was claimed on amended returns.The IRS is currently auditing the Company’s U.S. income tax returns for 2016 through 2020. The Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 2015 through 2020.
The Company expects to be an applicable corporation required to compute corporate alternative minimum tax (“CAMT”); however, based on current estimates the Company does not expect to be liable for the CAMT in 2023 and therefore a liability has not been recorded.
18. Contingencies
Contingencies
The Company and its subsidiaries are involved in the normal course of business in legal proceedings which include regulatory inquiries, arbitration and litigation, 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 legal proceedings arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions, heightened and sustained volatility in the financial markets and significant financial reform legislation 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 or claims by, the SEC, the Financial Industry Regulatory Authority, the OCC, the U.K. Financial Conduct Authority, the Federal Reserve Board, state insurance and securities regulators, state attorneys general and various other domestic and foreign governmental and quasi-governmental authorities on behalf of themselves or clients concerning the Company’s business activities and practices, and the practices of the Company’s financial advisors. The Company typically has numerous pending matters which include information requests, exams or inquiries regarding certain subjects, including from time to time: sales and distribution of mutual and other pooled funds, exchange traded funds, private funds, segregated accounts, annuities, equity and fixed income securities, real estate investment trusts, insurance products, banking products and financial advice offerings, including managed accounts; wholesaler activity; supervision of the Company’s financial advisors and other associated persons; administration of insurance and annuity claims; security of client information; trading activity and the Company’s monitoring and supervision of such activity; recordkeeping requirements; and transaction monitoring systems and controls. The Company has cooperated and will continue to cooperate with the applicable regulators.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
These matters are subject to uncertainties and, as such, it is inherently difficult to determine whether any loss is probable or even reasonably possible, or to reasonably estimate the amount of any loss. The Company cannot predict with certainty if, how, or when any such proceedings will be initiated or resolved. Matters frequently need to be more developed before a loss or range of loss can be reasonably estimated for any proceeding. An adverse outcome in any proceeding could result in an adverse judgment, a settlement, fine, penalty, or other sanction, and may lead to further claims, examinations, or adverse publicity each of which could have a material adverse effect on the Company’s consolidated results of operations, financial condition, or liquidity.
In accordance with applicable accounting standards, the Company establishes an accrued liability for contingent litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. The Company discloses the nature of the contingency when management believes there is at least a reasonable possibility that the outcome may be material to the Company’s consolidated financial statements and, where feasible, an estimate of the possible loss. In such cases, there still may be an exposure to loss in excess of any amounts reasonably estimated and accrued. When a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability, but continues to monitor, in conjunction with any outside counsel handling a matter, further developments that would make such loss contingency both probable and reasonably estimable. Once the Company establishes an accrued liability with respect to a loss contingency, the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established, and any appropriate adjustments are made each quarter.
Guaranty Fund Assessments
RiverSource Life and RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”) are required by law to be a member of the guaranty fund association in every state where they are licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations. The Company projects its cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations and the amount of its premiums written relative to the industry-wide premium in each state. The Company accrues the estimated cost of future guaranty fund assessments when it is considered probable that an assessment will be imposed, the event obligating the Company to pay the assessment has occurred and the amount of the assessment can be reasonably estimated.
The Company has a liability for estimated guaranty fund assessments and a related premium tax asset. As of March 31, 2023 and December 31, 2022, the estimated liability was $37 million and $12 million, respectively. As of March 31, 2023 and December 31, 2022, the related premium tax asset was $31 million and $10 million, respectively. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.
19. Earnings per Share
The computations of basic and diluted earnings per share were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 417 | $ | 825 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic: Weighted-average common shares outstanding | 107.9 | 113.7 | |||||||||||||||||||||
| Effect of potentially dilutive nonqualified stock options and other share-based awards | 2.1 | 2.5 | |||||||||||||||||||||
| Diluted: Weighted-average common shares outstanding | 110.0 | 116.2 | |||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 3.86 | $ | 7.26 | |||||||||||||||||||
| Diluted | $ | 3.79 | $ | 7.10 |
The calculation of diluted earnings per share excludes the incremental effect of 0.3 million and 0.2 million options for the three months ended March 31, 2023 and 2022, respectively, due to their anti-dilutive effect.
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
20. Segment Information
The Company’s four reporting segments are Advice & Wealth Management, Asset Management, Retirement & Protection Solutions and Corporate & Other.
The accounting policies of the segments are the same as those of the Company, except for operating adjustments defined below, the method of capital allocation, the accounting for gains (losses) from intercompany revenues and expenses and not providing for income taxes on a segment basis.
Management uses segment adjusted operating measures in goal setting, as a basis for determining employee compensation and in evaluating performance on a basis comparable to that used by some securities analysts and investors. Consistent with GAAP accounting guidance for segment reporting, adjusted operating earnings is the Company’s measure of segment performance. Adjusted operating earnings should not be viewed as a substitute for GAAP pretax income. The Company believes the presentation of segment adjusted operating earnings, as the Company measures it for management purposes, enhances the understanding of its business by reflecting the underlying performance of its core operations and facilitating a more meaningful trend analysis.
Effective in the third quarter of 2021, management has excluded the impacts of block transfer reinsurance transactions from the adjusted operating measures.
Adjusted operating earnings is defined as adjusted operating net revenues less adjusted operating expenses. Adjusted operating net revenues and adjusted operating expenses exclude net realized investment gains or losses (net of reinsurance accrual); the market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and UL insurance contracts), net of hedges and reinsurance accrual; mean reversion related impacts (the impact on VUL products for the difference between assumed and updated separate account investment performance on the reinsurance accrual and additional insurance benefit reserves); the market impact of hedges to offset interest rate and currency changes on unrealized gains or losses for certain investments; block transfer reinsurance transaction impacts; gain or loss on disposal of a business that is not considered discontinued operations; integration and restructuring charges; and the impact of consolidating CIEs. The market impact on non-traditional long-duration products includes changes in market risk benefits and embedded derivative values caused by changes in financial market conditions, net of changes in economic hedge values and unhedged items including the difference between assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and certain policyholder contract elections. The market impact also includes certain valuation adjustments made in accordance with FASB Accounting Standards Codification 820, Fair Value Measurements and Disclosures, including the impact on embedded derivative values of discounting projected benefits to reflect a current estimate of the Company’s life insurance subsidiary’s nonperformance spread.
Concurrent with the adoption of ASU 2018-12*,* management no longer excludes adjustments for DAC, DSIC and unearned revenue amortization. Amortization of DAC, DSIC, and unearned revenue for long-duration contracts are no longer impacted by markets and are now amortized on a constant-level basis.
The following tables summarize selected financial information by segment and reconcile segment totals to those reported on the consolidated financial statements:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Advice & Wealth Management | $ | 39,099 | $ | 35,132 | |||||||
| Asset Management | 7,768 | 7,967 | |||||||||
| Retirement & Protection Solutions | 102,337 | 98,901 | |||||||||
| Corporate & Other | 17,436 | 16,852 | |||||||||
| Total assets | $ | 166,640 | $ | 158,852 |
AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Adjusted operating net revenues: | |||||||||||||||||||||||
| Advice & Wealth Management | $ | 2,265 | $ | 2,042 | |||||||||||||||||||
| Asset Management | 799 | 1,017 | |||||||||||||||||||||
| Retirement & Protection Solutions | 824 | 768 | |||||||||||||||||||||
| Corporate & Other | 126 | 116 | |||||||||||||||||||||
| Elimination of segment revenues (1) | (316) | (352) | |||||||||||||||||||||
| Total segment adjusted operating net revenues | 3,698 | 3,591 | |||||||||||||||||||||
| Net realized gains (losses) | 3 | 16 | |||||||||||||||||||||
| Revenue attributable to consolidated investment entities | 41 | 17 | |||||||||||||||||||||
| Market impact on non-traditional long-duration products, net | — | 1 | |||||||||||||||||||||
| Total net revenues per consolidated statements of operations | $ | 3,742 | $ | 3,625 |
(1) Represents the elimination of intersegment revenues recognized for the three months ended March 31, 2023 and 2022 in each segment as follows: Advice & Wealth Management ($201 million and $228 million, respectively); Asset Management ($17 million and $12 million, respectively); Retirement & Protection Solutions ($102 million and $112 million, respectively); and Corporate & Other ($(4) million and nil, respectively).
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Adjusted operating earnings: | |||||||||||||||||||||||
| Advice & Wealth Management | $ | 693 | $ | 440 | |||||||||||||||||||
| Asset Management | 165 | 285 | |||||||||||||||||||||
| Retirement & Protection Solutions | 194 | 175 | |||||||||||||||||||||
| Corporate & Other | (74) | (82) | |||||||||||||||||||||
| Total segment adjusted operating earnings | 978 | 818 | |||||||||||||||||||||
| Net realized gains (losses) | 3 | 16 | |||||||||||||||||||||
| Net income (loss) attributable to consolidated investment entities | — | 2 | |||||||||||||||||||||
| Market impact on non-traditional long-duration products, net | (475) | 180 | |||||||||||||||||||||
| Integration and restructuring charges | (10) | (10) | |||||||||||||||||||||
| Pretax income per consolidated statements of operations | $ | 496 | $ | 1,006 |
AMERIPRISE FINANCIAL, INC.
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