10-Q 1 amp09302015.htm 10-Q 10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2015

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

For the Transition Period from_______________________to_______________________

Commission File No. 1-32525 

AMERIPRISE FINANCIAL, INC.
(Exact name of registrant as specified in its charter) 
Delaware
 
13-3180631
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1099 Ameriprise Financial Center, Minneapolis, Minnesota
55474
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:  (612) 671-3131 
Former name, former address and former fiscal year, if changed since last report:  Not Applicable 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       Yes x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
Accelerated Filer  o
Non-Accelerated Filer   o
(Do not check if a smaller reporting company)
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes o    No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at October 23, 2015
Common Stock (par value $.01 per share)
 
174,111,562 shares

 


AMERIPRISE FINANCIAL, INC. 


FORM 10-Q
 
INDEX 
 
 
 
 
 
Consolidated Statements of Operations — Three months and nine months ended September 30, 2015 and 2014
3

 
 
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2015 and 2014
4

 
 
Consolidated Balance Sheets — September 30, 2015 and December 31, 2014
5

 
 
Consolidated Statements of Equity — Nine months ended September 30, 2015 and 2014
6

 
 
Consolidated Statements of Cash Flows — Nine months ended September 30, 2015 and 2014
7

 
 
Notes to Consolidated Financial Statements
9

 
Management's Discussion and Analysis of Financial Condition and Results of Operations
55

 
Quantitative and Qualitative Disclosures About Market Risk
96

 
Controls and Procedures
96

 
 
 
 
 
 
Legal Proceedings
97

 
Risk Factors
97

 
Unregistered Sales of Equity Securities and Use of Proceeds
97

 
Exhibits
97

 
Signatures
98

 
Exhibit Index
E-1


2

AMERIPRISE FINANCIAL, INC. 


PART I. FINANCIAL INFORMATION 

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share amounts) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 

 
 

 
 

 
 
Management and financial advice fees
$
1,465

 
$
1,483

 
$
4,451

 
$
4,321

Distribution fees
451

 
464

 
1,389

 
1,410

Net investment income
321

 
428

 
1,228

 
1,332

Premiums
360

 
351

 
1,081

 
1,026

Other revenues
296

 
392

 
939

 
1,111

Total revenues
2,893

 
3,118

 
9,088

 
9,200

Banking and deposit interest expense
7

 
7

 
21

 
21

Total net revenues
2,886

 
3,111

 
9,067

 
9,179

Expenses
 

 
 

 
 

 
 

Distribution expenses
806

 
813

 
2,460

 
2,409

Interest credited to fixed accounts
171

 
168

 
503

 
529

Benefits, claims, losses and settlement expenses
471

 
458

 
1,547

 
1,414

Amortization of deferred acquisition costs
133

 
116

 
302

 
281

Interest and debt expense
98

 
79

 
271

 
237

General and administrative expense
744

 
757

 
2,288

 
2,320

Total expenses
2,423

 
2,391

 
7,371

 
7,190

Income from continuing operations before income tax provision
463

 
720

 
1,696

 
1,989

Income tax provision
111

 
155

 
389

 
441

Income from continuing operations
352

 
565

 
1,307

 
1,548

Loss from discontinued operations, net of tax
—

 
—

 
—

 
(1
)
Net income
352

 
565

 
1,307

 
1,547

Less: Net income (loss) attributable to noncontrolling interests
(45
)
 
145

 
102

 
353

Net income attributable to Ameriprise Financial
$
397

 
$
420

 
$
1,205

 
$
1,194

 
 
 
 
 
 
 
 
Earnings per share attributable to Ameriprise Financial, Inc. common shareholders
Basic
 

 
 

 
 

 
 

Income from continuing operations
$
2.20

 
$
2.21

 
$
6.57

 
$
6.20

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
2.20

 
$
2.21

 
$
6.57

 
$
6.19

Diluted
 

 
 

 
 

 
 

Income from continuing operations
$
2.17

 
$
2.17

 
$
6.48

 
$
6.09

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
2.17

 
$
2.17

 
$
6.48

 
$
6.08

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.67

 
$
0.58

 
$
1.92

 
$
1.68

 
 
 
 
 
 
 
 
Supplemental Disclosures:
 

 
 

 
 

 
 

Total other-than-temporary impairment losses on securities
$
(7
)
 
$
(5
)
 
$
(8
)
 
$
(6
)
Portion of loss recognized in other comprehensive income (before taxes)
—

 
—

 
—

 
—

Net impairment losses recognized in net investment income
$
(7
)
 
$
(5
)
 
$
(8
)
 
$
(6
)
See Notes to Consolidated Financial Statements.


3

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
352

 
$
565

 
$
1,307

 
$
1,547

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Foreign currency translation adjustment
(65
)
 
(84
)
 
(50
)
 
(31
)
Net unrealized gains (losses) on securities:
 

 
 

 
 

 
 

Net unrealized securities gains (losses) arising during the period
(76
)
 
(137
)
 
(365
)
 
341

Reclassification of net securities (gains) losses included in net income
6

 
(4
)
 
(4
)
 
(8
)
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables
51

 
(1
)
 
183

 
(168
)
Total net unrealized gains (losses) on securities
(19
)
 
(142
)
 
(186
)
 
165

Net unrealized gains on derivatives:
 

 
 

 
 

 
 

Reclassification of net derivative losses included in net income
1

 
1

 
1

 
1

Total net unrealized gains on derivatives
1

 
1

 
1

 
1

Total other comprehensive income (loss), net of tax
(83
)
 
(225
)
 
(235
)
 
135

Total comprehensive income
269

 
340

 
1,072

 
1,682

Less: Comprehensive income (loss) attributable to noncontrolling interests
(89
)
 
94

 
68

 
337

Comprehensive income attributable to Ameriprise Financial
$
358

 
$
246

 
$
1,004

 
$
1,345

See Notes to Consolidated Financial Statements.


4

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share amounts)
 
September 30, 2015
 
December 31, 2014
Assets
 

 
 

Cash and cash equivalents
$
2,780

 
$
2,638

Cash of consolidated investment entities
790

 
390

Investments
34,746

 
35,582

Investments of consolidated investment entities, at fair value
6,977

 
6,148

Separate account assets
78,636

 
83,256

Receivables
5,187

 
4,887

Receivables of consolidated investment entities (includes $65 and $49, respectively, at fair value)
102

 
140

Deferred acquisition costs
2,634

 
2,608

Restricted and segregated cash and investments
2,703

 
2,614

Other assets
8,625

 
8,611

Other assets of consolidated investment entities (includes $2,129 and $1,936, respectively, at fair value)
2,140

 
1,936

Total assets
$
145,320

 
$
148,810

 
 
 
 
Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Policyholder account balances, future policy benefits and claims
$
30,046

 
$
30,350

Separate account liabilities
78,636

 
83,256

Customer deposits
8,046

 
7,664

Short-term borrowings
200

 
200

Long-term debt
3,019

 
3,062

Debt of consolidated investment entities (includes $6,976 and $6,030, respectively, at fair value)
7,926

 
6,867

Accounts payable and accrued expenses
1,435

 
1,482

Accounts payable and accrued expenses of consolidated investment entities
62

 
41

Other liabilities
6,567

 
6,357

Other liabilities of consolidated investment entities (includes $529 and $193, respectively, at fair value)
562

 
226

Total liabilities
136,499

 
139,505

Equity:
 

 
 

Ameriprise Financial, Inc.:
 

 
 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 322,742,143 and 320,990,255, respectively)
3

 
3

Additional paid-in capital
7,557

 
7,345

Retained earnings
9,319

 
8,469

Appropriated retained earnings of consolidated investment entities
174

 
234

Treasury shares, at cost (147,720,668 and 137,880,746 shares, respectively)
(9,885
)
 
(8,589
)
Accumulated other comprehensive income, net of tax
461

 
662

Total Ameriprise Financial, Inc. shareholders’ equity
7,629

 
8,124

Noncontrolling interests
1,192

 
1,181

Total equity
8,821

 
9,305

Total liabilities and equity
$
145,320

 
$
148,810

See Notes to Consolidated Financial Statements.


5

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(in millions, except share data) 
 
Ameriprise Financial, Inc.
 
 
 
 
 
Number of
Outstanding
Shares
 
Common
Shares
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Appropriated
Retained
Earnings of
Consolidated
Investment
Entities
 
Treasury
Shares
 
Accumulated
Other Com-
prehensive
Income
 
Total
Ameriprise
Financial,
Inc. Share-
holders’
Equity
 
Non-controlling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at
January 1, 2014
192,118,307

 
$
3

 
$
6,929

 
$
7,289

 
$
337

 
$
(6,961
)
 
$
595

 
$
8,192

 
$
1,040

 
$
9,232

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
1,194

 
—

 
—

 
—

 
1,194

 
353

 
1,547

Other comprehensive income (loss), net of tax
—

 
—

 
—

 
—

 
—

 
—

 
151

 
151

 
(16
)
 
135

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,345

 
337

 
1,682

Net income reclassified to appropriated retained earnings
—

 
—

 
—

 
—

 
(29
)
 
—

 
—

 
(29
)
 
29

 
—

Dividends to shareholders
—

 
—

 
—

 
(326
)
 
—

 
—

 
—

 
(326
)
 
—

 
(326
)
Noncontrolling interests investments in subsidiaries
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
113

 
113

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(448
)
 
(448
)
Repurchase of common shares
(11,505,559
)
 
—

 
—

 
—

 
—

 
(1,309
)
 
—

 
(1,309
)
 
—

 
(1,309
)
Share-based compensation plans
4,780,391

 
—

 
303

 
(5
)
 
—

 
89

 
—

 
387

 
9

 
396

Balances at
September 30, 2014
185,393,139

 
$
3

 
$
7,232

 
$
8,152

 
$
308

 
$
(8,181
)
 
$
746

 
$
8,260

 
$
1,080

 
$
9,340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at
January 1, 2015
183,109,509

 
$
3

 
$
7,345

 
$
8,469

 
$
234

 
$
(8,589
)
 
$
662

 
$
8,124

 
$
1,181

 
$
9,305

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
1,205

 
—

 
—

 
—

 
1,205

 
102

 
1,307

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
(201
)
 
(201
)
 
(34
)
 
(235
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,004

 
68

 
1,072

Net income reclassified to appropriated retained earnings
—

 
—

 
—

 
—

 
(60
)
 
—

 
—

 
(60
)
 
60

 
—

Dividends to shareholders
—

 
—

 
—

 
(355
)
 
—

 
—

 
—

 
(355
)
 
—

 
(355
)
Noncontrolling interests investments in subsidiaries
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
225

 
225

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(342
)
 
(342
)
Repurchase of common shares
(10,882,885
)
 
—

 
—

 
—

 
—

 
(1,362
)
 
—

 
(1,362
)
 
—

 
(1,362
)
Share-based compensation plans
2,794,851

 
—

 
212

 
—

 
—

 
66

 
—

 
278

 
—

 
278

Balances at
September 30, 2015
175,021,475

 
$
3

 
$
7,557

 
$
9,319

 
$
174

 
$
(9,885
)
 
$
461

 
$
7,629

 
$
1,192

 
$
8,821

See Notes to Consolidated Financial Statements.


6

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
 
Nine Months Ended September 30,
 
2015
 
2014
 
 
 
 
Cash Flows from Operating Activities
 
 
 
Net income
$
1,307

 
$
1,547

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion, net
185

 
193

Deferred income tax benefit
(23
)
 
(75
)
Share-based compensation
108

 
97

Net realized investment gains
(14
)
 
(18
)
Net trading gains
(5
)
 
(6
)
Loss from equity method investments
22

 
10

Other-than-temporary impairments and provision for loan losses
9

 
8

Net gains of consolidated investment entities
(85
)
 
(337
)
Changes in operating assets and liabilities:
 
 
 
Restricted and segregated cash and investments
(88
)
 
(23
)
Deferred acquisition costs
38

 
28

Other investments, net
61

 
(152
)
Policyholder account balances, future policy benefits and claims, net
681

 
516

Derivatives, net of collateral
(180
)
 
(485
)
Receivables
(294
)
 
(346
)
Brokerage deposits
51

 
202

Accounts payable and accrued expenses
(41
)
 
52

Cash held by consolidated investment entities
(394
)
 
149

Investment properties of consolidated investment entities
(126
)
 
177

Other operating assets and liabilities of consolidated investment entities, net
54

 
39

Other, net
637

 
405

Net cash provided by operating activities
1,903

 
1,981

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Available-for-Sale securities:
 
 
 
Proceeds from sales
151

 
435

Maturities, sinking fund payments and calls
3,453

 
2,856

Purchases
(3,340
)
 
(2,513
)
Proceeds from maturities and repayments of mortgage loans
481

 
419

Funding of mortgage loans
(427
)
 
(375
)
Proceeds from sales and collections of other investments
198

 
153

Purchase of other investments
(249
)
 
(334
)
Purchase of investments by consolidated investment entities
(2,063
)
 
(2,368
)
Proceeds from sales, maturities and repayments of investments by consolidated investment entities
1,429

 
1,643

Purchase of land, buildings, equipment and software
(109
)
 
(89
)
Other, net
29

 
1

Net cash used in investing activities
(447
)
 
(172
)
See Notes to Consolidated Financial Statements.

7

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
(in millions)
 
Nine Months Ended September 30,
 
2015
 
2014
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Investment certificates:
 
 
 
Proceeds from additions
$
2,182

 
$
1,894

Maturities, withdrawals and cash surrenders
(1,853
)
 
(1,646
)
Policyholder account balances:
 
 
 
Deposits and other additions
1,514

 
1,526

Net transfers to separate accounts
(141
)
 
(167
)
Surrenders and other benefits
(2,169
)
 
(1,896
)
Cash paid for purchased options with deferred premiums
(305
)
 
(318
)
Cash received from purchased options with deferred premiums
8

 
54

Issuance of debt, net of issuance costs
—

 
543

Repayments of debt
(41
)
 
(200
)
Change in short-term borrowings, net
—

 
(301
)
Dividends paid to shareholders
(348
)
 
(319
)
Repurchase of common shares
(1,293
)
 
(1,191
)
Exercise of stock options
14

 
25

Excess tax benefits from share-based compensation
70

 
133

Borrowings by consolidated investment entities
1,583

 
1,559

Repayments of debt by consolidated investment entities
(405
)
 
(918
)
Noncontrolling interests investments in subsidiaries
225

 
113

Distributions to noncontrolling interests
(342
)
 
(448
)
Other, net
(1
)
 
(1
)
Net cash used in financing activities
(1,302
)
 
(1,558
)
Effect of exchange rate changes on cash
(12
)
 
(7
)
Net increase in cash and cash equivalents
142

 
244

Cash and cash equivalents at beginning of period
2,638

 
2,632

Cash and cash equivalents at end of period
$
2,780

 
$
2,876

 
 
 
 
Supplemental Disclosures:
 
 

Interest paid excluding consolidated investment entities
$
122

 
$
123

Interest paid by consolidated investment entities
175

 
140

Income taxes paid, net
245

 
345

Non-cash investing activity:
 
 
 
Affordable housing partnership commitments not yet remitted
9

 
—

See Notes to Consolidated Financial Statements.


8

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 its subsidiary, Threadneedle Asset Management Holdings Sàrl (“Threadneedle”).
The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). The income or loss generated by consolidated entities which will not be realized by the Company’s shareholders is attributed to noncontrolling interests in the Consolidated Statements of Operations. Noncontrolling interests are the ownership interests in subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc. and are classified as equity within the Consolidated Balance Sheets. The Company, excluding noncontrolling interests, is defined as “Ameriprise Financial.” All intercompany transactions and balances have been eliminated in consolidation. See Note 3 for additional information related to VIEs.
The results of Securities America Financial Corporation and its subsidiaries (collectively, “Securities America”) have been presented as discontinued operations for all periods presented. The Company completed the sale of Securities America in the fourth quarter of 2011.
The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. All adjustments made were of a normal recurring nature.
The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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, 2014, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2015.
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.
 
2.  Recent Accounting Pronouncements
Adoption of New Accounting Standards
Transfers and Servicing
In June 2014, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to transfers and servicing. The update requires repurchase-to-maturity transactions and linked repurchase financings to be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. The standard requires disclosures related to transfers of financial assets accounted for as sales in transactions that are similar to repurchase agreements. The standard also requires disclosures on the remaining contractual maturity of the agreements, disaggregation of the gross obligation by class of collateral pledged and potential risks associated with the agreements and the related collateral pledged in repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings. The standard is effective for interim and annual periods beginning after December 15, 2014, except for the disclosure requirements for repurchase agreements, security lending transactions and repurchase-to-maturity transactions accounted for as secured borrowings which are effective for interim periods beginning after March 15, 2015. The standard requires entities to present changes in accounting for transactions outstanding at the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of the standard did not have any effect on the Company’s consolidated results of operations and financial condition. See Note 9 and Note 11 for the required disclosures.
Receivables – Troubled Debt Restructuring by Creditors 
In January 2014, the FASB updated the accounting standard related to recognizing residential real estate obtained through a repossession or foreclosure from a troubled debtor. The update clarifies the criteria for derecognition of the loan receivable and recognition of the real estate property. The standard is effective for interim and annual periods beginning after December 15, 2014 and can be applied under a modified retrospective transition method or a prospective transition method. The adoption of the standard did not have any effect on the Company’s consolidated results of operations and financial condition.

9

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Investments – Equity Method and Joint Ventures
In January 2014, the FASB updated the accounting standard related to investments in qualified affordable housing projects. The update allows for an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the investment in a qualified affordable housing project is amortized in proportion to the tax credits and other tax benefits received. The net investment performance is recognized as a component of income tax expense (benefit). The standard is effective for interim and annual periods beginning after December 15, 2014 and should be applied retrospectively to all periods presented. The Company did not elect the proportional amortization method.
Future Adoption of New Accounting Standards
Insurance – Disclosure about Short-Duration Contracts
In May 2015, the FASB updated the accounting standard for short-duration insurance contracts. The update requires enhanced disclosures about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, methodologies and judgements in estimating claims and the timing, frequency and severity of claims. The standard is effective for annual periods beginning after December 15, 2015 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The disclosures should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. There will be no impact of the standard to the Company’s consolidated results of operations and financial condition.
Fair Value Measurement – Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
In May 2015, the FASB updated the accounting standards related to fair value measurement. The update applies to investments that are measured at net asset value (“NAV”). The standard eliminates the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share as a practical expedient. In addition, the update limits disclosures to investments for which the entity elected to measure the fair value using the practical expedient rather than all eligible investments. The standard is effective for interim and annual periods beginning after December 15, 2015. The standard should be applied retrospectively to all periods presented and early adoption is permitted. There will be no impact of the standard to the Company’s consolidated results of operations and financial condition.
Interest – Imputation of Interest
In April 2015, the FASB updated the accounting standards related to debt issuance costs. The update requires that debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of debt. The update does not impact the measurement or recognition of debt issuance costs. In August 2015, the FASB updated the guidance to allow companies to make a policy election to exclude debt issuance costs for line-of-credit arrangements from the standard. The standard is effective for interim and annual periods beginning after December 15, 2015. The standard is to be applied on a retrospective basis to all periods presented. Early adoption of the standard is permitted. The Company does not expect the reclassification to have a material impact on its consolidated financial condition. There will be no impact of the standard to the Company’s consolidated results of operations.
Consolidation
In February 2015, the FASB updated the accounting standard for consolidation. The update changes the accounting for the consolidation model for limited partnerships and VIEs and excludes certain money market funds from the consolidation analysis. Specific to the consolidation analysis of a VIE, the update clarifies consideration of fees paid to a decision maker and amends the related party guidance. The standard is effective for periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The standard may be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption or applied retrospectively. The Company plans to adopt the standard on January 1, 2016 using the modified retrospective approach. The adoption will result in the deconsolidation of several collateralized loan obligations (“CLOs”) and all property funds with an estimated decrease of approximately $7.0 billion of assets, $5.6 billion of liabilities and $1.4 billion of equity (noncontrolling interests and appropriated retained earnings of consolidated investment entities). The actual impact to assets, liabilities and equity related to the deconsolidation may change depending upon the fair value of consolidated assets and liabilities and any additional CLOs or property funds that may be consolidated or liquidated before January 1, 2016. The Company does not expect the adoption to have a material impact to its consolidated results of operations.

10

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


In August 2014, the FASB updated the accounting standard related to consolidation of collateralized financing entities. The update applies to reporting entities that consolidate a collateralized financing entity and measures all financial assets and liabilities of the collateralized financing entity at fair value. The update provides a measurement alternative which would allow an entity to measure both the financial assets and financial liabilities at the fair value of the more observable of the fair value of the financial assets or financial liabilities. When the measurement alternative is elected, the reporting entity’s net income should reflect its own economic interests in the collateralized financing entity, including changes in the fair value of the beneficial interests retained by the reporting entity and beneficial interests that represent compensation for services. If the measurement alternative is not elected, the financial assets and financial liabilities should be measured separately in accordance with the requirements of the fair value topic. Any difference in the fair value of the assets and liabilities would be recorded to net income attributable to the reporting entity. The standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted as of the beginning of an annual period. The adoption of the standard is not expected to have a material impact on the Company’s consolidated results of operations and financial condition after the deconsolidation of several CLOs noted above.
Presentation of Financial Statements – Going Concern
In August 2014, the FASB updated the accounting standard related to an entity’s assessment of its ability to continue as a going concern. The standard requires that management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In situations where there is substantial doubt about an entity’s ability to continue as a going concern, disclosure should be made so that a reader can understand the conditions that raise substantial doubt, management’s assessment of those conditions and any plan management has to mitigate those conditions. The standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. There will be no impact of the standard to the Company’s consolidated results of operations and financial condition.
Compensation – Stock Compensation
In June 2014, the FASB updated the accounting standards related to stock compensation. The update clarifies the accounting for share-based payments with a performance target that could be achieved after the requisite service period. The update specifies the performance target should not be reflected in estimating the grant-date fair value of the award. Instead, the probability of achieving the performance target should impact vesting of the award. The standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The adoption of the standard is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.
Revenue from Contracts with Customers
In May 2014, the FASB updated the accounting standards for revenue from contracts with customers. The update provides a five step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract. In addition, the standard requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB updated the accounting standards to defer the effective date by one year. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is prohibited. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

3.  Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds, property funds (pooled investment vehicles) and private equity funds (collectively, “investment entities”), which are sponsored by the Company. The Company consolidates certain CLOs and property funds (collectively, “consolidated investment entities”). In addition, the Company invests in structured investments and affordable housing partnerships which are considered VIEs which the Company does not consolidate.
Non-Consolidated VIEs
The Company has determined that consolidation is not required for hedge funds and private equity funds which are sponsored by the Company. 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 was $89 million at both September 30, 2015 and December 31, 2014.

11

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The Company manages one CLO which it does not consolidate. The Company manages the CLO and earns management fees and incentive fees from the CLO based on the CLO’s collateral pool. Unlike the consolidated CLOs, the Company has no investment in the CLO and no exposure to loss.
The Company has variable interests in affordable housing partnerships for which it is not the primary beneficiary and therefore does not consolidate. The Company’s maximum exposure to loss as a result of its investments in affordable housing partnerships is limited to the carrying value of these investments. The carrying value is reflected in other investments and was $486 million and $504 million as of September 30, 2015 and December 31, 2014, respectively.
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, commercial mortgage backed securities 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 carrying value. See Note 4 for additional information about these structured investments.
The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its investment nor has the Company provided any support to these entities. The carrying value of the Company’s investment in these entities is included in investments on the consolidated balance sheets.
Consolidated VIEs
The consolidated CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds and stocks. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk 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 generally earns management fees from the CLOs based on the CLO’s collateral pool and, in certain instances, may also receive incentive fees. The Company has invested in a portion of the unrated, junior subordinated notes of certain CLOs. For certain of the CLOs, the Company has determined that consolidation is required as it has power over the CLOs as collateral manager and holds a variable interest in the CLOs for which the Company has the potential to receive benefits or the potential obligation to absorb losses that could be significant to the CLO.
The Company provides investment advice and related services to property funds, certain 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 Company has determined that consolidation is required for certain property funds managed by the Company.
During the nine months ended September 30, 2015, the Company consolidated two new CLOs with assets of approximately $1.3 billion and liquidated no CLOs. During the nine months ended September 30, 2014, the Company consolidated two new CLOs with assets of approximately $1.1 billion and liquidated one CLO resulting in the sale of approximately $315 million in assets.
During the nine months ended September 30, 2015, the Company consolidated three new property funds with assets of approximately $452 million. During the nine months ended September 30, 2014, the Company consolidated one new property fund with assets of approximately $206 million. The Company terminated one property fund during each of the nine months ended September 30, 2015 and 2014. The liquidation of properties may occur over several years until the fund is terminated. See the summary of changes in Level 3 assets and liabilities for gross sales and purchases of properties, within the other assets caption, for the three months and nine months ended September 30, 2015 and 2014.

12

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 10 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:
 
September 30, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$
—

 
$
199

 
$
—

 
$
199

Common stocks
123

 
43

 
6

 
172

Other investments
4

 
25

 
—

 
29

Syndicated loans
—

 
6,123

 
454

 
6,577

Total investments
127

 
6,390

 
460

 
6,977

Receivables
—

 
65

 
—

 
65

Other assets
—

 
—

 
2,129

 
2,129

Total assets at fair value
$
127

 
$
6,455

 
$
2,589

 
$
9,171

Liabilities
 

 
 

 
 

 
 

Debt
$
—

 
$
—

 
$
6,976

 
$
6,976

Other liabilities
—

 
529

 
—

 
529

Total liabilities at fair value
$
—

 
$
529

 
$
6,976

 
$
7,505

 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$
—

 
$
171

 
$
—

 
$
171

Common stocks
130

 
40

 
7

 
177

Other investments
4

 
25

 
—

 
29

Syndicated loans
—

 
5,287

 
484

 
5,771

Total investments
134

 
5,523

 
491

 
6,148

Receivables
—

 
49

 
—

 
49

Other assets
—

 
1

 
1,935

 
1,936

Total assets at fair value
$
134

 
$
5,573

 
$
2,426

 
$
8,133

Liabilities
 

 
 

 
 

 
 

Debt
$
—

 
$
—

 
$
6,030

 
$
6,030

Other liabilities
—

 
193

 
—

 
193

Total liabilities at fair value
$
—

 
$
193

 
$
6,030

 
$
6,223


13

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance, July 1, 2015
$
11

 
$
457

 
$
1,979

 
$
(6,487
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
Net income
—

 
(8
)
(1) 
24

(2) 
67

(1) 
Other comprehensive income
—

 
—

 
(61
)
 
—

 
Purchases
—

 
101

 
193

 
—

 
Sales
—

 
(5
)
 
(6
)
 
—

 
Issues
—

 
—

 
—

 
(699
)
 
Settlements
—

 
(32
)
 
—

 
143

 
Transfers into Level 3
—

 
136

 
—

 
—

 
Transfers out of Level 3
(5
)
 
(195
)
 
—

 
—

 
Balance, September 30, 2015
$
6

 
$
454

 
$
2,129

 
$
(6,976
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2015
$
—

(1) 
$
(9
)
(1) 
$
26

(2) 
$
67

(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
 
Corporate Debt Securities
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance, July 1, 2014
$
—

 
$
7

 
$
427

 
$
2,389

 
$
(5,511
)
 
Total gains (losses) included in:
 
 
 

 
 

  
 

  
 

  
Net income
—


—


(1
)
(1) 
144

(2) 
(7
)
(1) 
Other comprehensive loss
—

 
—

 
—

 
(151
)
 
—

 
Purchases
—

 
—

 
41

 
23

 
—

 
Sales
—

 
—

 
(14
)
 
(388
)
 
—

 
Settlements
—

 
—

 
(38
)
 
—

 
52

 
Transfers into Level 3
—

 
1

 
84

 
—

 
—

 
Transfers out of Level 3
—

 
(1
)
 
(185
)
 
—

 
—

 
Balance, September 30, 2014
$
—

 
$
7

 
$
314

 
$
2,017

 
$
(5,466
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2014
$
—


$
—


$
(1
)
(1) 
$
95

(2) 
$
(7
)
(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.

14

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance, January 1, 2015
$
7

 
$
484

 
$
1,935

 
$
(6,030
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
Net income
(1
)
(1) 
(8
)
(1) 
122

(2) 
96

(1) 
Other comprehensive income
—

 
—

 
(54
)
 
—

 
Purchases
—

 
257

 
539

 
—

 
Sales
—

 
(23
)
 
(413
)
 
—

 
Issues
—

 
—

 
—

 
(1,268
)
 
Settlements
—

 
(105
)
 
—

 
226

 
Transfers into Level 3
5

 
523

 
—

 
—

 
Transfers out of Level 3
(5
)
 
(674
)
 
—

 
—

 
Balance, September 30, 2015
$
6

 
$
454

 
$
2,129

 
$
(6,976
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2015
$
—


$
(11
)
(1) 
$
26

(2) 
$
96

(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
 
Corporate Debt Securities
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance, January 1, 2014
$
2

 
$
14

 
$
368

 
$
1,936

 
$
(4,804
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
Net income
1

(1) 
2

(1) 
5

(1) 
330

(2) 
(32
)
(1) 
Other comprehensive loss
—

 
—

 
—

 
(84
)
 
—

 
Purchases
2

 
—

 
280

 
282

 
—

 
Sales
(9
)
 
(2
)
 
(42
)
 
(458
)
 
—

 
Issues
—

 
—

 
—

 
—

 
(1,064
)
 
Settlements
—

 
—

 
(76
)
 
—

 
434

 
Transfers into Level 3
10

 
12

 
328

 
11

 
—

 
Transfers out of Level 3
(6
)
 
(19
)
 
(549
)
 
—

 
—

 
Balance, September 30, 2014
$
—

 
$
7

 
$
314

 
$
2,017

 
$
(5,466
)
 
Changes in unrealized gains included in income relating to assets and liabilities held at September 30, 2014
$
—

 
$
1

(1) 
$
1

(1) 
$
280

(2) 
$
3

(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
Securities and loans transferred from Level 2 to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. Securities and loans transferred from Level 3 to Level 2 represent assets with fair values that are now obtained from a third party pricing service with observable inputs or priced in active markets. During the reporting periods, there were no transfers between Level 1 and Level 2.

15

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 held by consolidated investment entities:
 
September 30, 2015
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
Other assets (property funds)
$
2,124

 
Discounted cash flow/ market comparables
 
Equivalent yield
 
2.8
%
–
11.6%
 
5.9
%
 
 

 
 
 
Expected rental value (per square foot)
 
$5
–
$173
 
$50
CLO debt
$
6,976

 
Discounted cash flow
 
Annual default rate
 
2.5%
 


 
 

 
 
 
Discount rate
 
1.7
%
–
9.0%
 
2.9
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
–
10.0%
 
9.8
%
 
 

 
 
 
Loss recovery
 
36.4
%
–
63.6%
 
62.7
%
 
December 31, 2014
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
Other assets (property funds)
$
1,935

 
Discounted cash flow/ market comparables
 
Equivalent yield
 
4.4
%
–
12.0%
 
6.5
%
 
 

 
 
 
Expected rental value (per square foot)
 
$3
–
$94
 
$34
CLO debt
$
6,030

 
Discounted cash flow
 
Annual default rate
 
2.5%
 


 
 

 
 
 
Discount rate
 
1.2
%
–
8.3%
 
2.4
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
–
10.0%
 
9.8
%
 
 
 
 
 
Loss recovery
 
36.4
%
–
63.6%
 
62.7
%
Level 3 measurements not included in the tables above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to the Company.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Generally, a significant increase (decrease) in the expected rental value used in the fair value measurement of properties held by consolidated investment entities in isolation would result in a significantly higher (lower) fair value measurement and a significant increase (decrease) in the equivalent yield in isolation would result in a significantly lower (higher) fair value measurement.
Generally, a significant increase (decrease) in the annual default rate and discount rate used in the fair value measurement of the CLO’s debt in isolation would result in a significantly lower (higher) fair value measurement and a significant increase (decrease) in loss recovery in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the constant prepayment rate in isolation would result in a significantly higher (lower) fair value measurement.
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.
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 loans 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 the third party pricing services. The Company’s due diligence procedures include assessing the vendor’s

16

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


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.
See Note 10 for a description of the Company’s determination of the fair value of corporate debt securities, U.S. government and agencies obligations, 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.
Other Assets
Other assets consist primarily of properties held in consolidated pooled investment vehicles managed by Threadneedle. The fair value of these properties is calculated by a third party appraisal service by discounting future cash flows generated by the expected market rental value for the property using the equivalent yield of a similar investment property. Inputs used in determining the equivalent yield and expected rental value of the property may include: rental cash flows, current occupancy, historical vacancy rates, tenant history and assumptions regarding how quickly the property can be occupied and at what rental rates. Management reviews the valuation report and assumptions used to ensure that the valuation was performed in accordance with applicable independence, appraisal and valuation standards. Given the significance of the unobservable inputs to these measurements, these assets are classified as Level 3.
The CLOs hold an immaterial amount of warrants recorded in other assets. Loans within the CLOs may default and go through a restructuring that can result in the CLO receiving warrants for the issuer’s equity securities. Warrants are classified as Level 2 when the price is derived from observable market data. Warrants from an issuer whose securities are not priced in active markets are classified as Level 3.
Liabilities
Debt
The fair value of the CLOs’ debt is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about default, discount, prepayment and recovery rates of the CLOs’ underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the CLOs’ debt is classified as Level 3.
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.
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.

17

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
 
September 30, 2015
 
December 31, 2014
 
(in millions)
Syndicated loans
 

 
 

Unpaid principal balance
$
6,816

 
$
5,871

Excess unpaid principal over fair value
(239
)
 
(100
)
Fair value
$
6,577

 
$
5,771

Fair value of loans more than 90 days past due
$
30

 
$
32

Fair value of loans in nonaccrual status
30

 
32

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
62

 
25

Debt
 

 
 

Unpaid principal balance
$
7,302

 
$
6,248

Excess unpaid principal over fair value
(326
)
 
(218
)
Fair value
$
6,976

 
$
6,030

Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the 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 changes in the fair value of debt recorded in net investment income.
Total net losses recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $61 million and $16 million for the three months ended September 30, 2015 and 2014, respectively. Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $(32) million and $4 million for the nine months ended September 30, 2015 and 2014, respectively. The majority of the syndicated loans and debt have floating rates; as such, changes in their fair values are primarily attributable to changes in credit spreads.
Debt of the consolidated investment entities and the stated interest rates were as follows:
 
Carrying Value
 
Weighted Average
Interest Rate
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
 
(in millions)
 
 
 
 
Debt of consolidated CLOs due 2016-2026
$
6,976

 
$
6,030

 
1.5
%
 
1.3
%
Floating rate revolving credit borrowings due 2016-2020
950

 
837

 
2.8

 
2.7

Total
$
7,926

 
$
6,867

 
 

 
 

The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0% to 9.2%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and current interest rates. The carrying value of the debt of the consolidated CLOs represents the fair value of the aggregate debt. The carrying value of the floating rate revolving credit borrowings represents the outstanding principal amount of debt of certain consolidated pooled investment vehicles managed by Threadneedle. The fair value of this debt was $950 million and $837 million as of September 30, 2015 and December 31, 2014, respectively. The property funds have entered into interest rate swaps and collars to manage the interest rate exposure on the floating rate revolving credit borrowings. The fair value of these derivative instruments is recorded gross and was a liability of $10 million at both September 30, 2015 and December 31, 2014. The overall effective interest rate reflecting the impact of the derivative contracts was 3.1% at both September 30, 2015 and December 31, 2014.


18

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


4.  Investments
The following is a summary of Ameriprise Financial investments:
 
September 30, 2015
 
December 31, 2014
 
(in millions)
Available-for-Sale securities, at fair value
$
29,286

 
$
30,027

Mortgage loans, net
3,382

 
3,440

Policy and certificate loans
824

 
806

Other investments
1,254

 
1,309

Total
$
34,746

 
$
35,582

The following is a summary of net investment income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Investment income on fixed maturities
$
346

 
$
365

 
$
1,055

 
$
1,114

Net realized gains (losses)
(10
)
 
4

 
5

 
10

Affordable housing partnerships
(7
)
 
(8
)
 
(25
)
 
(20
)
Other
(10
)
 
26

 
32

 
70

Consolidated investment entities
2

 
41

 
161

 
158

Total net investment income
$
321

 
$
428

 
$
1,228

 
$
1,332

 
Available-for-Sale securities distributed by type were as follows:
 
 
September 30, 2015
Description of Securities
 
Amortized
Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
 
Noncredit
OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
15,931

 
$
1,135

 
$
(168
)
 
$
16,898

 
$
3

Residential mortgage backed securities
 
5,925

 
136

 
(53
)
 
6,008

 
(13
)
Commercial mortgage backed securities
 
2,395

 
107

 
(3
)
 
2,499

 
—

Asset backed securities
 
1,259

 
48

 
(5
)
 
1,302

 
—

State and municipal obligations
 
2,083

 
204

 
(28
)
 
2,259

 
—

U.S. government and agencies obligations
 
69

 
3

 
—

 
72

 
—

Foreign government bonds and obligations
 
223

 
18

 
(11
)
 
230

 
—

Common stocks
 
8

 
11

 
(1
)
 
18

 
5

Total
 
$
27,893

 
$
1,662

 
$
(269
)
 
$
29,286

 
$
(5
)

19

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
 
December 31, 2014
Description of Securities
 
Amortized
Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
 
Noncredit
OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
15,742

 
$
1,482

 
$
(59
)
 
$
17,165

 
$
3

Residential mortgage backed securities
 
6,099

 
168

 
(60
)
 
6,207

 
(15
)
Commercial mortgage backed securities
 
2,513

 
120

 
(3
)
 
2,630

 
—

Asset backed securities
 
1,417

 
59

 
(6
)
 
1,470

 
—

State and municipal obligations
 
2,008

 
257

 
(26
)
 
2,239

 
—

U.S. government and agencies obligations
 
43

 
4

 
—

 
47

 
—

Foreign government bonds and obligations
 
236

 
21

 
(6
)
 
251

 
—

Common stocks
 
8

 
10

 
—

 
18

 
5

Total
 
$
28,066

 
$
2,121

 
$
(160
)
 
$
30,027

 
$
(7
)
(1) 
Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income (“AOCI”). Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.
As of September 30, 2015 and December 31, 2014, investment securities with a fair value of $0.9 billion and $1.3 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $398 million and $769 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
At both September 30, 2015 and December 31, 2014, fixed maturity securities comprised approximately 84% 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. At both September 30, 2015 and December 31, 2014, the Company’s internal analysts rated $1.4 billion of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
 
 
September 30, 2015
 
December 31, 2014
Ratings
 
Amortized Cost
 
Fair Value
 
Percent of Total
Fair Value
 
Amortized Cost
 
Fair Value
 
Percent of Total
Fair Value
 
 
(in millions, except percentages)
AAA
 
$
7,052

 
$
7,282

 
25
%
 
$
7,500

 
$
7,776

 
26
%
AA
 
1,696

 
1,902

 
6

 
1,581

 
1,799

 
6

A
 
5,468

 
5,935

 
20

 
6,028

 
6,668

 
22

BBB
 
12,175

 
12,735

 
44

 
11,187

 
12,025

 
40

Below investment grade
 
1,494

 
1,414

 
5

 
1,762

 
1,741

 
6

Total fixed maturities
 
$
27,885

 
$
29,268

 
100
%
 
$
28,058

 
$
30,009

 
100
%
At September 30, 2015 and December 31, 2014, approximately 54% and 52%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of total equity.

20

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
 
 
September 30, 2015
 
 
Less than 12 months
 
12 months or more
 
Total
Description of Securities
 
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
262

 
$
3,645

 
$
(133
)
 
32

 
$
301

 
$
(35
)
 
294

 
$
3,946

 
$
(168
)
Residential mortgage backed securities
85

 
1,190

 
(7
)
 
152

 
1,330

 
(46
)
 
237

 
2,520

 
(53
)
Commercial mortgage backed securities
23

 
234

 
(2
)
 
4

 
50

 
(1
)
 
27

 
284

 
(3
)
Asset backed securities
27

 
221

 
(2
)
 
14

 
253

 
(3
)
 
41

 
474

 
(5
)
State and municipal obligations
61

 
180

 
(3
)
 
3

 
102

 
(25
)
 
64

 
282

 
(28
)
Foreign government bonds and obligations
8

 
46

 
(2
)
 
14

 
23

 
(9
)
 
22

 
69

 
(11
)
Common stocks
3

 
1

 
(1
)
 
—

 
—

 
—

 
3

 
1

 
(1
)
Total
469

 
$
5,517

 
$
(150
)
 
219

 
$
2,059

 
$
(119
)
 
688

 
$
7,576

 
$
(269
)
 
 
December 31, 2014
 
 
Less than 12 months
 
12 months or more
 
Total
Description of Securities
 
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
182

 
$
2,165

 
$
(41
)
 
40

 
$
689

 
$
(18
)
 
222

 
$
2,854

 
$
(59
)
Residential mortgage backed securities
73

 
879

 
(7
)
 
138

 
1,387

 
(53
)
 
211

 
2,266

 
(60
)
Commercial mortgage backed securities
15

 
173

 
—

 
12

 
131

 
(3
)
 
27

 
304

 
(3
)
Asset backed securities
17

 
201

 
(2
)
 
14

 
238

 
(4
)
 
31

 
439

 
(6
)
State and municipal obligations
11

 
29

 
(1
)
 
10

 
115

 
(25
)
 
21

 
144

 
(26
)
Foreign government bonds and obligations
4

 
10

 
(1
)
 
14

 
27

 
(5
)
 
18

 
37

 
(6
)
Total
302

 
$
3,457

 
$
(52
)
 
228

 
$
2,587

 
$
(108
)
 
530

 
$
6,044

 
$
(160
)
As part of Ameriprise Financial’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is primarily attributable to a widening of credit spreads.
The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Beginning balance
$
85

 
$
148

 
$
98

 
$
147

Credit losses for which an other-than-temporary impairment was previously recognized
—

 
—

 
1

 
1

Reductions for securities sold during the period (realized)
—

 
(50
)
 
(14
)
 
(50
)
Ending balance
$
85

 
$
98

 
$
85

 
$
98


21

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The change in net unrealized securities gains (losses) in other comprehensive income (loss) includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (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 other-than-temporary impairment losses to credit losses; and (iii) other adjustments primarily consisting of changes in insurance and annuity asset and liability balances, such as deferred acquisition costs (“DAC”), deferred sales inducement costs (“DSIC”), unearned revenue, 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.
The following table presents a rollforward of the net unrealized securities gains on Available-for-Sale securities included in AOCI:
 
Net Unrealized
Securities Gains
 
Deferred
Income Tax
 
AOCI Related to 
Net Unrealized
Securities Gains
 
 
(in millions)
  
Balance at January 1, 2014
$
1,016

 
$
(361
)
 
$
655

  
Net unrealized securities gains arising during the period (1)
526

 
(185
)
 
341

  
Reclassification of net securities gains included in net income
(12
)
 
4

 
(8
)
 
Impact of other adjustments
(258
)
 
90

 
(168
)
 
Balance at September 30, 2014
$
1,272

 
$
(452
)
 
$
820

(2) 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
1,216

 
$
(430
)
 
$
786

  
Net unrealized securities losses arising during the period (1)
(562
)
 
197

 
(365
)
 
Reclassification of net securities gains included in net income
(6
)
 
2

 
(4
)
 
Impact of other adjustments
281

 
(98
)
 
183

  
Balance at September 30, 2015
$
929

 
$
(329
)
 
$
600

(2) 
(1) Includes other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.
(2) Includes $6 million and $5 million of noncredit related impairments on securities and net unrealized securities gains on previously impaired securities at September 30, 2015 and 2014, respectively.
Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Gross realized gains
$
1

 
$
12

 
$
24

 
$
23

Gross realized losses
(4
)
 
(1
)
 
(10
)
 
(5
)
Other-than-temporary impairments
(7
)
 
(5
)
 
(8
)
 
(6
)
Total
$
(10
)
 
$
6

 
$
6

 
$
12

Other-than-temporary impairments for the three months and nine months ended September 30, 2015 primarily related to credit losses on corporate debt securities. Other-than-temporary impairments for the three months and nine months ended September 30, 2014 primarily related to credit losses on corporate debt securities and non-agency residential mortgage backed securities.

22

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Available-for-Sale securities by contractual maturity at September 30, 2015 were as follows:
 
Amortized Cost
 
Fair Value
 
(in millions)
Due within one year
$
1,834

 
$
1,853

Due after one year through five years
6,570

 
6,985

Due after five years through 10 years
5,313

 
5,397

Due after 10 years
4,589

 
5,224

 
18,306

 
19,459

Residential mortgage backed securities
5,925

 
6,008

Commercial mortgage backed securities
2,395

 
2,499

Asset backed securities
1,259

 
1,302

Common stocks
8

 
18

Total
$
27,893

 
$
29,286

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, as well as common stocks, were not included in the maturities distribution.
 
5.  Financing Receivables
The Company’s financing receivables include commercial mortgage loans, syndicated loans, consumer loans, policy loans, certificate loans and margin loans. Commercial mortgage loans, syndicated loans, consumer loans, policy loans and certificate loans are reflected in investments. Margin loans are recorded in receivables.
Allowance for Loan Losses
Policy and certificate loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy and certificate loans, the Company does not record an allowance for loan losses. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As there is minimal risk of loss related to margin loans, the allowance for loan losses is immaterial.
The following table presents a rollforward of the allowance for loan losses for commercial mortgage loans, syndicated loans and consumer loans for the nine months ended and the ending balance of the allowance for loan losses by impairment method:
 
September 30,
 
2015
 
2014
 
(in millions)
Beginning balance
$
35

 
$
37

Charge-offs
(3
)
 
(4
)
Provisions
1

 
2

Ending balance
$
33

 
$
35

 
 
 
 
Individually evaluated for impairment
$
6

 
$
9

Collectively evaluated for impairment
27

 
26


23

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The recorded investment in commercial mortgage loans, syndicated loans and consumer loans by impairment method was as follows:
 
September 30, 2015
 
December 31, 2014
 
(in millions)
Individually evaluated for impairment
$
39

 
$
42

Collectively evaluated for impairment
3,923

 
3,951

Total
$
3,962

 
$
3,993

As of September 30, 2015 and December 31, 2014, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $20 million and $13 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to the Company’s total loan balance.
During the three months ended September 30, 2015 and 2014, the Company purchased $93 million and $96 million, respectively, and sold $9 million and $1 million, respectively, of syndicated loans. During the nine months ended September 30, 2015 and 2014, the Company purchased $134 million and $186 million, respectively, and sold $16 million and $11 million, respectively, consisting primarily of syndicated loans.
The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.
Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were $10 million and $12 million as of September 30, 2015 and December 31, 2014, respectively. All other loans were considered to be performing.
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. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 1% of total commercial mortgage loans at both September 30, 2015 and December 31, 2014. 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. 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
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
 
(in millions)
 
 
 
 
East North Central
$
202

 
$
238

 
7
%
 
9
%
East South Central
76

 
62

 
3

 
2

Middle Atlantic
210

 
217

 
8

 
8

Mountain
247

 
245

 
9

 
9

New England
130

 
140

 
5

 
5

Pacific
755

 
694

 
27

 
25

South Atlantic
773

 
740

 
28

 
27

West North Central
231

 
233

 
8

 
9

West South Central
133

 
160

 
5

 
6

 
2,757

 
2,729

 
100
%
 
100
%
Less: allowance for loan losses
22

 
25

 
 

 
 

Total
$
2,735

 
$
2,704

 
 

 
 

 

24

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 
Loans
 
Percentage
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
 
(in millions)
 
 
 
 
Apartments
$
509

 
$
500

 
18
%
 
18
%
Hotel
35

 
34

 
1

 
1

Industrial
482

 
461

 
18

 
17

Mixed use
36

 
45

 
1

 
2

Office
542

 
545

 
20

 
20

Retail
953

 
988

 
35

 
36

Other
200

 
156

 
7

 
6

 
2,757

 
2,729

 
100
%
 
100
%
Less: allowance for loan losses
22

 
25

 
 

 
 

Total
$
2,735

 
$
2,704

 
 

 
 

Syndicated Loans
The recorded investment in syndicated loans at September 30, 2015 and December 31, 2014 was $545 million and $511 million, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at September 30, 2015 and December 31, 2014 were $6 million and $4 million, respectively.
Consumer Loans
The recorded investment in consumer loans at September 30, 2015 and December 31, 2014 was $660 million and $753 million, respectively. The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration in determining the allowance for loan losses for consumer loans. At a minimum, management updates FICO scores and LTV ratios semiannually.
As of September 30, 2015 and December 31, 2014, approximately 4% and 6%, respectively, of consumer loans had FICO scores below 640. As of both September 30, 2015 and December 31, 2014, approximately 2% of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for consumer loans is in California representing 37% of the portfolio as of both September 30, 2015 and December 31, 2014. No other state represents more than 10% of the total consumer loan portfolio.
Troubled Debt Restructurings
The recorded investment in restructured loans was not material as of September 30, 2015 and December 31, 2014. The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for the three months and nine months ended September 30, 2015 and 2014. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.


25

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


6.  Deferred Acquisition Costs and Deferred Sales Inducement Costs
In the third quarter of the year, management conducts its annual review of insurance and annuity valuation assumptions relative to current experience and management expectations. To the extent that expectations change as a result of this review, management updates valuation assumptions. The impact in the third quarter of 2015 primarily reflected the difference between the Company’s previously assumed interest rates versus the continued low interest rate environment, partially offset by improved persistency. The impact in the third quarter of 2014 primarily reflected the difference between the Company’s assumed interest rates, partially offset by improved persistency and mortality experience and a benefit from updating the Company's variable annuity living benefit withdrawal utilization assumption.
The balances of and changes in DAC were as follows:
 
2015
 
2014
 
(in millions)
Balance at January 1
$
2,608

 
$
2,663

Capitalization of acquisition costs
264

 
253

Amortization, excluding the impact of valuation assumptions review
(296
)
 
(274
)
Amortization, impact of valuation assumptions review
(6
)
 
(7
)
Impact of change in net unrealized securities losses (gains)
64

 
(30
)
Balance at September 30
$
2,634

 
$
2,605

The balances of and changes in DSIC, which are included in other assets, were as follows:
 
2015
 
2014
 
(in millions)
Balance at January 1
$
362

 
$
409

Capitalization of sales inducement costs
3

 
4

Amortization, excluding the impact of valuation assumptions review
(44
)
 
(39
)
Amortization, impact of valuation assumptions review
1

 
(2
)
Impact of change in net unrealized securities losses (gains)
10

 
(3
)
Balance at September 30
$
332

 
$
369



26

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


7.  Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
Policyholder account balances, future policy benefits and claims consisted of the following:
 
September 30, 2015
 
December 31, 2014
 
 
(in millions)
 
Policyholder account balances
 
 
 
 
Fixed annuities
$
11,446

 
$
12,700

 
Variable annuity fixed sub-accounts
4,914

 
4,860

 
Variable universal life (“VUL”)/universal life (“UL”) insurance
2,884

 
2,856

 
Indexed universal life (“IUL”) insurance
727

 
534

 
Other life insurance
804

 
840

 
Total policyholder account balances
20,775

 
21,790

 
 
 
 
 
 
Future policy benefits
 
 
 
 
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)
1,273

 
693

 
Variable annuity guaranteed minimum accumulation benefits (“GMAB”)
31

 
(41
)
(1) 
Other annuity liabilities
73

 
115

 
Fixed annuities life contingent liabilities
1,502

 
1,511

 
Equity indexed annuities (“EIA”)
27

 
29

 
Life, disability income and long term care insurance
5,150

 
5,106

 
VUL/UL and other life insurance additional liabilities
444

 
437

 
Total future policy benefits
8,500

 
7,850

 
Policy claims and other policyholders’ funds
771

 
710

 
Total policyholder account balances, future policy benefits and claims
$
30,046

 
$
30,350

 
(1) 
Includes the value of GMAB embedded derivatives that was a net asset at December 31, 2014 reported as a contra liability.
Separate account liabilities consisted of the following:
 
September 30, 2015
 
December 31, 2014
 
(in millions)
Variable annuity
$
67,930

 
$
72,125

VUL insurance
6,483

 
7,016

Other insurance
34

 
37

Threadneedle investment liabilities
4,189

 
4,078

Total
$
78,636

 
$
83,256

 
8.  Variable Annuity and Insurance Guarantees
The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.
Certain UL policies offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

27

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:
 
 
September 30, 2015
 
December 31, 2014
Variable Annuity Guarantees by Benefit Type (1)
 
Total Contract Value
 
Contract Value in Separate Accounts
 
Net Amount at Risk
 
Weighted Average Attained Age
 
Total Contract Value
 
Contract Value in Separate Accounts
 
Net Amount at Risk
 
Weighted Average Attained Age
 
 
(in millions, except age)
GMDB:
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
Return of premium
 
$
53,360

 
$
51,507

 
$
417

 
65
 
$
55,378

 
$
53,565

 
$
24

 
64
Five/six-year reset
 
9,293

 
6,730

 
131

 
65
 
10,360

 
7,821

 
28

 
64
One-year ratchet
 
6,724

 
6,351

 
396

 
67
 
7,392

 
7,006

 
39

 
66
Five-year ratchet
 
1,611

 
1,553

 
31

 
63
 
1,773

 
1,717

 
2

 
63
Other
 
859

 
841

 
92

 
71
 
959

 
941

 
38

 
70
Total — GMDB
 
$
71,847

 
$
66,982

 
$
1,067

 
65
 
$
75,862

 
$
71,050

 
$
131

 
64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GGU death benefit
 
$
1,040

 
$
987

 
$
114

 
67
 
$
1,072

 
$
1,019

 
$
123

 
67
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMIB
 
$
274

 
$
253

 
$
14

 
68
 
$
343

 
$
321

 
$
9

 
67
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMWB:
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
GMWB
 
$
3,163

 
$
3,152

 
$
2

 
69
 
$
3,671

 
$
3,659

 
$
1

 
68
GMWB for life
 
36,130

 
35,997

 
361

 
66
 
36,843

 
36,735

 
95

 
65
Total — GMWB
 
$
39,293

 
$
39,149

 
$
363

 
66
 
$
40,514

 
$
40,394

 
$
96

 
65
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMAB
 
$
3,988

 
$
3,972

 
$
42

 
58
 
$
4,247

 
$
4,234

 
$
2

 
58
(1) Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table.
The net amount at risk for GMDB, GGU and GMAB guarantees is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB and GMWB guarantees is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero. The present value is calculated using a discount rate that is consistent with assumptions embedded in the Company’s annuity pricing models.
The following table provides information related to insurance guarantees for which the Company has established additional liabilities:
 
September 30, 2015
 
December 31, 2014
 
Net Amount at Risk
 
Weighted Average Attained Age
 
Net Amount at Risk
 
Weighted Average Attained Age
 
(in millions, except age)
UL secondary guarantees
$
6,413

 
63
 
$
6,076

 
62
The net amount at risk for UL secondary guarantees is defined as the current guaranteed death benefit amount in excess of the current policyholder value.

28

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Changes in additional liabilities (contra liabilities) for variable annuity and insurance guarantees were as follows:
 
GMDB & GGU
 
GMIB
 
GMWB (1)
 
GMAB (1)
 
UL
 
(in millions)
Balance at January 1, 2014
$
4

 
$
6

 
$
(383
)
 
$
(62
)
 
$
206

Incurred claims
8

 
1

 
528

 
7

 
54

Paid claims
(3
)
 
—

 
—

 
—

 
(13
)
Balance at September 30, 2014
$
9

 
$
7

 
$
145

 
$
(55
)
 
$
247

 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
9

 
$
7

 
$
693

 
$
(41
)
 
$
263

Incurred claims
9

 
—

 
580

 
72

 
70

Paid claims
(3
)
 
—

 
—

 
—

 
(19
)
Balance at September 30, 2015
$
15

 
$
7

 
$
1,273

 
$
31

 
$
314

(1) The incurred claims for GMWB and GMAB represent the total change in the liabilities (contra liabilities).
The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:
 
September 30, 2015
 
December 31, 2014
 
(in millions)
Mutual funds:
 

 
 

Equity
$
38,571

 
$
41,403

Bond
23,760

 
25,060

Other
4,997

 
4,490

Total mutual funds
$
67,328

 
$
70,953


9.  Debt
The balances and the stated interest rates of outstanding debt of Ameriprise Financial were as follows: 
 
Outstanding Balance
 
Stated Interest Rate
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
 
(in millions)
 
 

 
 

Long-term debt:
 

 
 

 
 

 
 

Senior notes due 2015
$
351

(1) 
$
358

(1) 
5.6
%
 
5.7
%
Senior notes due 2019
328

(1) 
326

(1) 
7.3

 
7.3

Senior notes due 2020
789

(1) 
786

(1) 
5.3

 
5.3

Senior notes due 2023
750

 
750

 
4.0

 
4.0

Senior notes due 2024
548

 
548

 
3.7

 
3.7

Junior subordinated notes due 2066
253

 
294

 
7.5

 
7.5

Total long-term debt
3,019

 
3,062

 
 

 
 

Short-term borrowings:
 

 
 

 
 

 
 

Federal Home Loan Bank (“FHLB”) advances
150

 
150

 
0.3

 
0.3

Repurchase agreements
50

 
50

 
0.5

 
0.4

Total short-term borrowings
200

 
200

 
 

 
 

Total
$
3,219

 
$
3,262

 
 

 
 

(1) Amounts include adjustments for fair value hedges on the Company’s long-term debt. See Note 12 for information on the Company’s fair value hedges.

29

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The amounts included in the table above are net of any unamortized discount and premium associated with issuing these notes.
The Company has an unsecured revolving credit facility for up to $500 million. Under the terms of the underlying credit agreement for the facility, the Company may increase the amount of this facility up to $750 million upon satisfaction of certain approval requirements. Available borrowings under the agreement are reduced by any outstanding letters of credit. The Company had no borrowings outstanding under this facility and outstanding letters of credit issued against this facility were $1 million as of September 30, 2015. On May 1, 2015, the Company amended the underlying credit agreement for the facility to extend the expiration to May 2020.
The Company’s junior subordinated notes due 2066 and credit facility contain various administrative, reporting, legal and financial covenants. The Company was in compliance with all such covenants at both September 30, 2015 and December 31, 2014.
In August 2015, the Company extinguished $41 million of its junior subordinated notes due 2066 in open market transactions and recognized a gain of less than $1 million.
Short-term Borrowings
The Company enters into repurchase agreements in exchange for cash, which it accounts for as secured borrowings and has pledged Available-for-Sale securities to collateralize its obligations under the repurchase agreements. As of September 30, 2015 and December 31, 2014, the Company has pledged $26 million and $18 million, respectively, of agency residential mortgage backed securities and $26 million and $34 million, respectively, of commercial mortgage backed securities. The remaining maturity of outstanding repurchase agreements was less than two months as of September 30, 2015 and less than four months as of December 31, 2014. The stated interest rate of the repurchase agreements is a weighted average annualized interest rate on repurchase agreements held as of the balance sheet date.
The Company’s life insurance subsidiary is a member 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 to collateralize its obligation under these borrowings. The fair value of the securities pledged is recorded in investments and was $295 million and $298 million at September 30, 2015 and December 31, 2014, respectively. The remaining maturity of outstanding FHLB advances was less than three months as of September 30, 2015 and less than two months as of December 31, 2014. 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.

10.  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.

30

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: 
 
September 30, 2015
  
 
Level 1
 
Level 2
 
Level 3
 
Total
  
 
(in millions)
  
Assets
 

 
 

 
 

 
 

  
Cash equivalents
$
82

 
$
2,306

 
$
—

 
$
2,388

  
Available-for-Sale securities:
 

 
 

 
 

 
 

  
Corporate debt securities
—

 
15,359

 
1,539

 
16,898

  
Residential mortgage backed securities
—

 
5,722

 
286

 
6,008

  
Commercial mortgage backed securities
—

 
2,494

 
5

 
2,499

  
Asset backed securities
—

 
1,180

 
122

 
1,302

  
State and municipal obligations
—

 
2,259

 
—

 
2,259

  
U.S. government and agencies obligations
37

 
35

 
—

 
72

  
Foreign government bonds and obligations
—

 
230

 
—

 
230

  
Common stocks
4

 
9

 
5

 
18

  
Total Available-for-Sale securities
41

 
27,288

 
1,957

 
29,286

  
Trading securities
5

 
27

 
—

 
32

  
Separate account assets
—

 
78,636

 
—

 
78,636

  
Investments segregated for regulatory purposes
325

 
—

 
—

 
325

 
Other assets:
 
 
 
 
 
 
 
 
Interest rate derivative contracts
—

 
2,314

 
—

 
2,314

  
Equity derivative contracts
285

 
1,447

 
—

 
1,732

  
Foreign exchange derivative contracts
5

 
36

 
—

 
41

  
Other derivative contracts
—

 
6

 
—

 
6

  
Total other assets
290

 
3,803

 
—

 
4,093

  
Total assets at fair value
$
743

 
$
112,060

 
$
1,957

 
$
114,760

  
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Policyholder account balances, future policy benefits and claims:
 

 
 

 
 

 
 

  
EIA embedded derivatives
$
—

 
$
5

 
$
—

 
$
5

  
IUL embedded derivatives
—

 
—

 
317

 
317

  
GMWB and GMAB embedded derivatives
—

 
—

 
1,107

 
1,107

(1) 
Total policyholder account balances, future policy benefits and claims
—

 
5

 
1,424

 
1,429

(2) 
Customer deposits
—

 
2

 
—

 
2

  
Other liabilities:
 

 
 

 
 

 
 

  
Interest rate derivative contracts
—

 
1,200

 
—

 
1,200

  
Equity derivative contracts
265

 
1,742

 
—

 
2,007

  
Credit derivative contracts
—

 
5

 
—

 
5

  
Foreign exchange derivative contracts
—

 
6

 
—

 
6

 
Other derivative contracts
—

 
92

 
—

 
92

 
Other
4

 
11

 
—

 
15

  
Total other liabilities
269

 
3,056

 
—

 
3,325

  
Total liabilities at fair value
$
269

 
$
3,063

 
$
1,424

 
$
4,756

  
(1) The fair value of the GMWB and GMAB embedded derivatives included $1.2 billion of individual contracts in a liability position and $112 million of individual contracts in an asset position.
(2) 
The Company’s adjustment for nonperformance risk resulted in a $497 million cumulative decrease to the embedded derivatives.


31

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
December 31, 2014
  
 
Level 1
 
Level 2
 
Level 3
 
Total
  
 
(in millions)
  
Assets
 

 
 

 
 

 
 

  
Cash equivalents
$
27

 
$
1,930

 
$
—

 
$
1,957

  
Available-for-Sale securities:
 

 
 

 
 

 
 

  
Corporate debt securities
—

 
15,647

 
1,518

 
17,165

  
Residential mortgage backed securities
—

 
6,001

 
206

 
6,207

  
Commercial mortgage backed securities
—

 
2,539

 
91

 
2,630

  
Asset backed securities
—

 
1,301

 
169

 
1,470

  
State and municipal obligations
—

 
2,239

 
—

 
2,239

  
U.S. government and agencies obligations
12

 
35

 
—

 
47

  
Foreign government bonds and obligations
—

 
251

 
—

 
251

  
Common stocks
5

 
7

 
6

 
18

  
Total Available-for-Sale securities
17

 
28,020

 
1,990

 
30,027

  
Trading securities
54

 
28

 
1

 
83

  
Separate account assets
—

 
83,256

 
—

 
83,256

  
Other assets:
 

 
 

 
 

 
 

  
Interest rate derivative contracts
—

 
2,031

 
—

 
2,031

  
Equity derivative contracts
282

 
1,757

 
—

 
2,039

  
Foreign exchange derivative contracts
1

 
29

 
—

 
30

  
Other derivative contracts
—

 
1

 
—

 
1

  
Total other assets
283

 
3,818

 
—

 
4,101

  
Total assets at fair value
$
381

 
$
117,052

 
$
1,991

 
$
119,424

  
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

  
Policyholder account balances, future policy benefits and claims:
 

 
 

 
 

 
 

  
EIA embedded derivatives
$
—

 
$
6

 
$
—

 
$
6

  
IUL embedded derivatives
—

 
—

 
242

 
242

  
GMWB and GMAB embedded derivatives
—

 
—

 
479

 
479

(1) 
Total policyholder account balances, future policy benefits and claims
—

 
6

 
721

 
727

(2) 
Customer deposits
—

 
6

 
—

 
6

  
Other liabilities:
 

 
 

 
 

 
 

  
Interest rate derivative contracts
—

 
1,136

 
—

 
1,136

  
Equity derivative contracts
376

 
2,326

 
—

 
2,702

  
Foreign exchange derivative contracts
1

 
2

 
—

 
3

 
Other derivative contracts
—

 
114

 
—

 
114

 
Other
—

 
12

 
—

 
12

  
Total other liabilities
377

 
3,590

 
—

 
3,967

  
Total liabilities at fair value
$
377

 
$
3,602

 
$
721

 
$
4,700

  
 
(1) 
The fair value of the GMWB and GMAB embedded derivatives included $700 million of individual contracts in a liability position and $221 million of individual contracts in an asset position.
(2) 
The Company’s adjustment for nonperformance risk resulted in a $311 million cumulative decrease to the embedded derivatives.

32

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


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
 
 
 
 
Corporate Debt Securities
 
Residential Mortgage
Backed Securities
 
Commercial Mortgage
Backed Securities
 
Asset Backed Securities
 
Common Stocks
 
Total
 
Trading Securities
 
 
(in millions)
 
Balance, July 1, 2015
$
1,509

 
$
279

 
$
44

 
$
135

 
$
6

 
$
1,973

 
$
1

 
Total gains (losses) included in:
 
Net income
(1
)
 
—

 
—

 
1

 
—

 
—

(1) 
(1
)
(1) 
Other comprehensive income
(3
)
 
(1
)
 
—

 
2

 
—

 
(2
)
 
—

 
Purchases
124

 
93

 
—

 
5

 
—

 
222

 
—

 
Settlements
(90
)
 
(14
)
 
(2
)
 
(8
)
 
—

 
(114
)
 
—

 
Transfers out of Level 3
—

 
(71
)
 
(37
)
 
(13
)
 
(1
)
 
(122
)
 
—

 
Balance, September 30, 2015
$
1,539

 
$
286

 
$
5

 
$
122

 
$
5

 
$
1,957

 
$
—

 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2015 included in:
 
Net investment income
$
(1
)
 
$
—

 
$
—

 
$
1

 
$
—

 
$
—

 
$
—

 
(1) Included in net investment income in the Consolidated Statements of Operations.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB
Embedded Derivatives
 
Total
 
(in millions)
Balance, July 1, 2015
$
292

 
$
235

 
$
527

Total (gains) losses included in:
Net income
(1
)
(1) 
805

(2) 
804

Issues
31

 
69

 
100

Settlements
(5
)
 
(2
)
 
(7
)
Balance, September 30, 2015
$
317

 
$
1,107

 
$
1,424

 
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2015 included in:
Interest credited to fixed accounts
$
(1
)
 
$
—

 
$
(1
)
Benefits, claims, losses and settlement expenses
—

 
811

 
811

(1) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.
(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.



33

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Available-for-Sale Securities
 
 
 
 
 
 
Corporate Debt Securities
 
Residential Mortgage
Backed Securities
 
Commercial Mortgage
Backed Securities
 
Asset Backed Securities
 
Common Stocks
 
Total
 
Trading Securities
 
Other Derivative Contracts
 
 
(in millions)
 
 
 
 
Balance, July 1, 2014
$
1,565

 
$
214

 
$
15

 
$
185

 
$
6

 
$
1,985

 
$
1

 
$
1

 
Total losses included in:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
(1) 
Other comprehensive income
(12
)
 
—

 
—

 
(1
)
 
—

 
(13
)
 
—

 
—

 
Purchases
37

 
170

 
—

 
11

 
—

 
218

 
—

 
1

 
Settlements
(24
)
 
(6
)
 
—

 
(2
)
 
—

 
(32
)
 
—

 
—

 
Transfers into Level 3
—

 
—

 
78

 
—

 
—

 
78

 
—

 
—

 
Transfers out of Level 3
—

 
(105
)
 
—

 
—

 
(1
)
 
(106
)
 
—

 
—

 
Balance, September 30, 2014
$
1,566

 
$
273

 
$
93

 
$
193

 
$
5

 
$
2,130

 
$
1

 
$
1

 
 
 
 
 
Changes in unrealized losses relating to assets held at September 30, 2014 included in:
 
 
 
Net investment income
$
(1
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
—

 
$
—

 
Benefits, claims, losses and settlement expenses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
(1) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB
Embedded Derivatives
 
Total
 
(in millions)
Balance, July 1, 2014
$
184

 
$
(347
)
 
$
(163
)
Total losses included in:
Net income
—

 
207

(1) 
207

Issues
21

 
65

 
86

Settlements
(3
)
 
(2
)
 
(5
)
Balance, September 30, 2014
$
202

 
$
(77
)
 
$
125

 
Changes in unrealized losses relating to liabilities held at September 30, 2014 included in:
Benefits, claims, losses and settlement expenses
$
—

 
$
208

 
$
208

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


34

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Available-for-Sale Securities
 
 
 
 
Corporate Debt Securities
 
Residential Mortgage
Backed Securities
 
Commercial Mortgage
Backed Securities
 
Asset Backed Securities
 
Common Stocks
 
Total
 
Trading Securities
 
 
(in millions)
 
Balance, January 1, 2015
$
1,518

 
$
206

 
$
91

 
$
169

 
$
6

 
$
1,990

 
$
1

 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
(2
)
 
—

 
—

 
1

 
—

 
(1
)
(1) 
(1
)
(1) 
Other comprehensive income
(9
)
 
(1
)
 
—

 
2

 
1

 
(7
)
 
—

 
Purchases
179

 
312

 
41

 
37

 
—

 
569

 
—

 
Settlements
(147
)
 
(36
)
 
(5
)
 
(22
)
 
—

 
(210
)
 
—

 
Transfers into Level 3
—

 
—

 
6

 
—

 
—

 
6

 
—

 
Transfers out of Level 3
—

 
(195
)
 
(128
)
 
(65
)
 
(2
)
 
(390
)
 
—

 
Balance, September 30, 2015
$
1,539

 
$
286

 
$
5

 
$
122

 
$
5

 
$
1,957

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2015 included in:
 
Net investment income
$
(2
)
 
$
—

 
$
—

 
$
1

 
$
—

 
$
(1
)
 
$
—

 
(1) Included in net investment income in the Consolidated Statements of Operations.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB Embedded Derivatives
 
Total
 
(in millions)
Balance, January 1, 2015
$
242

 
$
479

 
$
721

Total losses included in:
 
 
 
 
 
Net income
13

(1) 
426

(2) 
439

Issues
76

 
197

 
273

Settlements
(14
)
 
5

 
(9
)
Balance, September 30, 2015
$
317

 
$
1,107

 
$
1,424

 
Changes in unrealized losses relating to liabilities held at September 30, 2015 included in:
Interest credited to fixed accounts
$
13

 
$
—

 
$
13

Benefits, claims, losses and settlement expenses
—

 
438

 
438

(1) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.
(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.



35

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Available-for-Sale Securities
  
 
 
 
 
 
Corporate Debt Securities
 
Residential Mortgage
Backed Securities
 
Commercial Mortgage
Backed Securities
 
Asset Backed Securities
 
Common Stocks
 
Total
 
Trading Securities
 
Other Derivative Contracts
 
 
(in millions)
 
 
 
 
Balance, January 1, 2014
$
1,640

 
$
187

 
$
30

 
$
260

 
$
6

 
$
2,123

 
$
2

 
$
—

 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
(1
)
 
—

 
—

 
1

 
—

 
—

(1) 
—

 
(1
)
(2) 
Other comprehensive income
4

 
—

 
—

 
(1
)
 
—

 
3

 
—

 
—

 
Purchases
159

 
388

 
60

 
32

 
—

 
639

 
1

 
2

 
Sales
(11
)
 
—

 
—

 
—

 
—

 
(11
)
 
(2
)
 
—

 
Settlements
(225
)
 
(18
)
 
—

 
(10
)
 
—

 
(253
)
 
—

 
—

 
Transfers into Level 3
—

 
—

 
78

 
—

 
—

 
78

 
—

 
—

 
Transfers out of Level 3
—

 
(284
)
 
(75
)
 
(89
)
 
(1
)
 
(449
)
 
—

 
—

 
Balance, September 30, 2014
$
1,566

 
$
273

 
$
93

 
$
193

 
$
5

 
$
2,130

 
$
1

 
$
1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2014 included in:
 
Net investment income
$
(2
)
 
$
—

 
$
—

 
$
1

 
$
—

 
$
(1
)
  
$
—

 
$
—

 
Benefits, claims, losses and settlement expenses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1
)
 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB
Embedded Derivatives
 
Total
 
(in millions)
Balance, January 1, 2014
$
125

 
$
(575
)
 
$
(450
)
Total losses included in:
 
 
 
 
 
Net income
14

(1) 
327

(2) 
341

Issues
69

 
184

 
253

Settlements
(6
)
 
(13
)
 
(19
)
Balance, September 30, 2014
$
202

 
$
(77
)
 
$
125

 
 
 
 
 
 
Changes in unrealized losses relating to liabilities held at September 30, 2014 included in:
Interest credited to fixed accounts
$
14

 
$
—

 
$
14

Benefits, claims, losses and settlement expenses
—

 
327

 
327

(1) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.
(2) Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.
The increase to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $162 million and $59 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended September 30, 2015 and 2014, respectively. The increase to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $154 million and $68 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the nine months ended September 30, 2015 and 2014, respectively.

36

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
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:
 
September 30, 2015
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Corporate debt securities (private placements)
$
1,525

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.2
%
–
4.0%
 
1.7%
IUL embedded derivatives
$
317

 
Discounted cash flow
 
Nonperformance risk (1)
 
80

 
bps
 
 
GMWB and GMAB embedded derivatives
$
1,107

 
Discounted cash flow
 
Utilization of guaranteed withdrawals (2)
 
0.0
%
–
75.6%
 
 
 
 
 
 
 
Surrender rate
 
0.0
%
–
59.1%
 
 
 
 

 
 
 
Market volatility (3)
 
5.3
%
–
21.2%
 
 
 
 
 
 
 
Nonperformance risk (1)
 
80

 
bps
 
 
 
December 31, 2014
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Corporate debt securities (private placements)
$
1,476

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.0
%
–
3.9%
 
1.5%
IUL embedded derivatives
$
242

 
Discounted cash flow
 
Nonperformance risk (1)
 
65

 
bps
 
 
GMWB and GMAB embedded derivatives
$
479

 
Discounted cash flow
 
Utilization of guaranteed withdrawals (2)
 
0.0
%
–
51.1%
 
 
 
 

 
 
 
Surrender rate
 
0.0
%
–
59.1%
 
 
 
 

 
 
 
Market volatility (3)
 
5.2
%
–
20.9%
 
 
 
 

 
 
 
Nonperformance risk (1)
 
65

 
bps
 
 
 
 
 
 
 
Elective contractholder strategy allocations (4)
 
0.0
%
–
3.0%
 
 
(1) 
The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
(2) 
The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.
(3) 
Market volatility is implied volatility of fund of funds and managed volatility funds.
(4) 
The elective allocation represents the percentage of contractholders that are assumed to electively switch their investment allocation to a different allocation model. As of September 30, 2015, the Company is no longer including this input in the fair value measurement.
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to the Company.

37

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
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 result 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 result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly higher (lower) liability value. Significant increases (decreases) in nonperformance risk, surrender rate and elective investment allocation model used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution system and whether the value of the guaranteed benefit exceeds the contract accumulation value.
Determination of Fair Value
The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
Assets
Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Investments (Available-for-Sale 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 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 and U.S. agency and foreign government 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. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is 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. In addition to the general pricing controls, the Company reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.
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.

38

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Separate Account Assets
The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV represents the exit price for the separate account. Separate account assets are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information.
Investments Segregated for Regulatory Purposes
Investments segregated for regulatory purposes includes U.S. Treasuries that are classified as Level 1.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as foreign currency forwards, or 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 and options. Other derivative contracts consist of the Company’s macro hedge program. See Note 12 for further information on the macro hedge program. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at September 30, 2015 and December 31, 2014. See Note 11 and Note 12 for further information on the credit risk of derivative instruments and related collateral.
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its EIA and IUL products. Significant inputs to the EIA calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of the IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the 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.
The Company’s Corporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management. The Level 3 inputs into the valuation are consistent with the pricing assumptions and updated as experience develops. Significant unobservable inputs that reflect policyholder behavior are reviewed quarterly along with other valuation assumptions.
Customer Deposits
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. 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 foreign currency forwards, or 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 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 and the majority of options. Other derivative contracts consist of the Company’s macro hedge program. See Note 12 for further information on the macro hedge program. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial at September 30, 2015 and December 31, 2014. See Note 11 and Note 12 for further information on the credit risk of derivative instruments and related collateral.

39

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Securities sold but not yet purchased include highly liquid investments which are short-term in nature. Securities sold but not yet purchased are measured using 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 and are classified as Level 2.
During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.
The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the tables with balances of assets and liabilities Ameriprise Financial measured at fair value on a recurring basis.
 
September 30, 2015
 
Carrying Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Financial Assets
Mortgage loans, net
$
3,382

 
$
—

 
$
—

 
$
3,437

 
$
3,437

Policy and certificate loans
824

 
—

 
1

 
805

 
806

Receivables
1,612

 
274

 
1,335

 
4

 
1,613

Restricted and segregated cash
2,377

 
2,377

 
—

 
—

 
2,377

Other investments and assets
576

 
—

 
506

 
61

 
567

 
 
 
 
 
 
 
 
 
 
Financial Liabilities
Policyholder account balances, future policy benefits and claims
$
11,730

 
$
—

 
$
—

 
$
12,705

 
$
12,705

Investment certificate reserves
4,530

 
—

 
—

 
4,521

 
4,521

Brokerage customer deposits
3,516

 
3,516

 
—

 
—

 
3,516

Separate account liabilities
4,544

 
—

 
4,544

 
—

 
4,544

Debt and other liabilities
3,592

 
353

 
3,346

 
86

 
3,785

 
December 31, 2014
 
Carrying Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Financial Assets
Mortgage loans, net
$
3,440

 
$
—

 
$
—

 
$
3,512

 
$
3,512

Policy and certificate loans
806

 
—

 
1

 
793

 
794

Receivables
1,418

 
215

 
1,200

 
3

 
1,418

Restricted and segregated cash
2,614

 
2,614

 
—

 
—

 
2,614

Other investments and assets
551

 
—

 
460

 
84

 
544

 
 
 
 
 
 
 
 
 
 
Financial Liabilities
Policyholder account balances, future policy benefits and claims
$
12,979

 
$
—

 
$
—

 
$
13,996

 
$
13,996

Investment certificate reserves
4,201

 
—

 
—

 
4,195

 
4,195

Brokerage customer deposits
3,465

 
3,465

 
—

 
—

 
3,465

Separate account liabilities
4,478

 
—

 
4,478

 
—

 
4,478

Debt and other liabilities
3,576

 
261

 
3,446

 
121

 
3,828


40

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Mortgage Loans, Net
The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including LTV ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan. Given the significant unobservable inputs to the valuation of commercial mortgage loans, these measurements are classified as Level 3.
The fair value of consumer loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, loss severity, liquidity and credit loss estimates, with discount rates based on the Company’s estimate of current market conditions. The fair value of consumer loans is classified as Level 3 as the valuation includes significant unobservable inputs.
Policy and Certificate Loans
Policy loans represent loans made against the cash surrender value of the underlying life insurance or annuity product. These loans and the related interest are usually realized at death of the policyholder or contractholder or at surrender of the contract and are not transferable without the underlying insurance or annuity contract. The fair value of policy loans is determined by estimating expected cash flows discounted at rates based on the U.S. Treasury curve. Policy loans are classified as Level 3 as the discount rate used may be adjusted for the underlying performance of individual policies.
Certificate loans represent loans made against and collateralized by the underlying certificate balance. These loans do not transfer to third parties separate from the underlying certificate. The outstanding balance of these loans is considered a reasonable estimate of fair value and is classified as Level 2.
Receivables
Brokerage margin loans are measured at outstanding balances, which are a reasonable estimate of fair value because of the sufficiency of the collateral and short term nature of these loans. Margin loans that are sufficiently collateralized are classified as Level 2. Margin loans that are not sufficiently collateralized are classified as Level 3.
Securities borrowed require the Company to deposit cash or collateral with the lender. As the market value of the securities borrowed is monitored daily, the carrying value is a reasonable estimate of fair value. The fair value of securities borrowed is classified as Level 1 as the value of the underlying securities is based on unadjusted prices for identical assets.
Restricted and Segregated Cash
Restricted and segregated cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.
Amounts segregated under federal and other regulations may also reflect resale agreements and are measured at the price at which the securities will be sold. This measurement is a reasonable estimate of fair value because of the short time between entering into the transaction and its expected realization and the reduced risk of credit loss due to pledging U.S. government-backed securities as collateral.
The fair value of restricted and segregated cash is classified as Level 1.
Other Investments and Assets
Other investments and assets primarily consist of syndicated loans. The fair value of syndicated loans is obtained from a third party pricing service or non-binding broker quotes. Syndicated loans that are priced using a market approach with observable inputs are classified as Level 2 and syndicated loans priced using a single non-binding broker quote are classified as Level 3.
Other investments and assets also include the Company’s membership in the Federal Home Loan Bank of Des Moines and investments related to the Community Reinvestment Act. The fair value of these assets is approximated by the carrying value and classified as Level 3 due to restrictions on transfer and lack of liquidity in the primary market for these assets.

41

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Policyholder Account Balances, Future Policy Benefits and Claims
The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a margin for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities. The fair value of non-life contingent fixed annuities in payout status, EIA host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner. Given the use of significant unobservable inputs to these valuations, the measurements are classified as Level 3.
Investment Certificate Reserves
The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and the Company’s nonperformance risk specific to these liabilities. Given the use of significant unobservable inputs to this valuation, the measurement is classified as Level 3.
Brokerage Customer Deposits
Brokerage customer deposits are liabilities with no defined maturities and fair value is the amount payable on demand at the reporting date. The fair value of these deposits is classified as Level 1.
Separate Account Liabilities
Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. The NAV of the related separate account assets represents the exit price for the separate account liabilities. Separate account liabilities are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information. A nonperformance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize nonperformance risk.
Debt and Other Liabilities
The fair value of long-term debt is based on quoted prices in active markets, when available. If quoted prices are not available, fair values are obtained from third party pricing services, broker quotes, or other model-based valuation techniques such as present value of cash flows. The fair value of long-term debt is classified as Level 2.
The fair value of short-term borrowings is obtained from a third party pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk. The fair value of short-term borrowings is classified as Level 2.
The fair value of future funding commitments to affordable housing partnerships is determined by discounting cash flows. The fair value of these commitments includes an adjustment for the Company’s nonperformance risk and is classified as Level 3 due to the use of the significant unobservable input.
Securities loaned require the borrower to deposit cash or collateral with the Company. As the market value of the securities loaned is monitored daily, the carrying value is a reasonable estimate of fair value. Securities loaned are classified as Level 1 as the fair value of the underlying securities is based on unadjusted prices for identical assets.
 
11.  Offsetting Assets and Liabilities
Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets. The Company’s derivative instruments, repurchase agreements and securities borrowing and lending agreements are subject to master netting arrangements 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 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.

42

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:
 
September 30, 2015
 
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
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
Net Amount
 
(in millions)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC
$
3,473

 
$
—

 
$
3,473

 
$
(2,460
)
 
$
(519
)
 
$
(445
)
 
$
49

OTC cleared
507

 
—

 
507

 
(417
)
 
(89
)
 
—

 
1

Exchange-traded
113

 
—

 
113

 
(5
)
 
—

 
—

 
108

Total derivatives
4,093

 
—

 
4,093

 
(2,882
)
 
(608
)
 
(445
)
 
158

Securities borrowed
274

 
—

 
274

 
(38
)
 
—

 
(227
)
 
9

Total
$
4,367

 
$
—

 
$
4,367

 
$
(2,920
)
 
$
(608
)
 
$
(672
)
 
$
167

 
December 31, 2014
 
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
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
Net Amount
 
(in millions)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC
$
3,735

 
$
—

 
$
3,735

 
$
(3,000
)
 
$
(281
)
 
$
(418
)
 
$
36

OTC cleared
305

 
—

 
305

 
(224
)
 
(81
)
 
—

 
—

Exchange-traded
61

 
—

 
61

 
—

 
—

 
—

 
61

Total derivatives
4,101

 
—

 
4,101

 
(3,224
)
 
(362
)
 
(418
)
 
97

Securities borrowed
215

 
—

 
215

 
(49
)
 
—

 
(163
)
 
3

Total
$
4,316

 
$
—

 
$
4,316

 
$
(3,273
)
 
$
(362
)
 
$
(581
)
 
$
100

(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:
 
September 30, 2015
 
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
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
Net Amount
 
(in millions)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC
$
2,834

 
$
—

 
$
2,834

 
$
(2,460
)
 
$
—

 
$
(356
)
 
$
18

OTC cleared
459

 
—

 
459

 
(417
)
 
(42
)
 
—

 
—

Exchange-traded
17

 
—

 
17

 
(5
)
 
—

 
—

 
12

Total derivatives
3,310

 
—

 
3,310

 
(2,882
)
 
(42
)
 
(356
)
 
30

Securities loaned
353

 
—

 
353

 
(38
)
 
—

 
(302
)
 
13

Repurchase agreements
50

 
—

 
50

 
—

 
—

 
(50
)
 
—

Total
$
3,713

 
$
—

 
$
3,713

 
$
(2,920
)
 
$
(42
)
 
$
(708
)
 
$
43


43

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
December 31, 2014
 
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
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
Net Amount
 
(in millions)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC
$
3,723

 
$
—

 
$
3,723

 
$
(3,000
)
 
$
—

 
$
(723
)
 
$
—

OTC cleared
232

 
—

 
232

 
(224
)
 
(8
)
 
—

 
—

Total derivatives
3,955

 
—

 
3,955

 
(3,224
)
 
(8
)
 
(723
)
 
—

Securities loaned
261

 
—

 
261

 
(49
)
 
—

 
(205
)
 
7

Repurchase agreements
50

 
—

 
50

 
—

 
—

 
(50
)
 
—

Total
$
4,266

 
$
—

 
$
4,266

 
$
(3,273
)
 
$
(8
)
 
$
(978
)
 
$
7

(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 amounts of assets or liabilities presented in the Consolidated Balance Sheets 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.
The Company’s freestanding derivative instruments are reflected in other assets and other liabilities. Repurchase agreements are reflected in short-term borrowings. Securities borrowing and lending agreements are reflected in receivables and other liabilities, respectively. See Note 12 for additional disclosures related to the Company’s derivative instruments, Note 9 for additional disclosures related to the Company’s repurchase agreements and Note 3 for information related to derivatives held by consolidated investment entities.

12.  Derivatives and Hedging Activities
Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.
The Company’s freestanding derivatives are recorded at fair value and are reflected in other assets or other liabilities. The Company’s freestanding derivative instruments are all 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 11 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.


44

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The Company uses derivatives as economic hedges and accounting hedges. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives:
Derivatives designated as 
hedging instruments
 
 
 
Assets
 
 
 
Liabilities
 
Balance Sheet Location
 
September 30, 2015
 
December 31, 2014
 
Balance Sheet Location
 
September 30, 2015
 
December 31, 2014
 
 
 
 
 
(in millions)
 
 
 
(in millions)
 
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
Other assets
$
76

 
$
76

 
Other liabilities
 
$
—

 
$
—

 
Total qualifying hedges
 
 
76

 
76

 
 
 
—

 
—

 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
GMWB and GMAB
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
Other assets
2,238

 
1,955

 
Other liabilities
 
1,168

 
1,136

 
Equity contracts
Other assets
1,706

 
1,954

 
Other liabilities
 
1,998

 
2,650

 
Credit contracts
Other assets
—

 
—

 
Other liabilities
 
5

 
—

 
Foreign exchange contracts
Other assets
40

 
29

 
Other liabilities
 
6

 
2

 
Embedded derivatives (1)

N/A
 
—

 
—

 
Policyholder account balances, future policy benefits and claims (2)
1,107

 
479

 
Total GMWB and GMAB
 
3,984

 
3,938

 
 
 
4,284

 
4,267

 
Other derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments
Other assets
—

 
—

 
Other liabilities
32

 
—

 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
EIA embedded derivatives
N/A
—

 
—

 
Policyholder account balances, future policy benefits and claims
5

 
6

 
IUL
Other assets
12

 
39

 
Other liabilities
 
2

 
12

 
IUL embedded derivatives
N/A
—

 
—

 
Policyholder account balances, future policy benefits and claims
317

 
242

 
SMC
Other assets
10

 
46

 
Other liabilities
7

 
40

 
Stock market certificates embedded derivatives
N/A
—

 
—

 
Customer deposits
2

 
6

 
Deferred compensation
Other assets
4

 
—

 
Other liabilities
—

 
—

 
Foreign exchange
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
Other assets
1

 
1

 
Other liabilities
—

 
—

 
Seed money
Other assets
—

 
—

 
Other liabilities
—

 
1

 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
Macro hedge program
Other assets
6

 
1

 
Other liabilities
92

 
114

 
Total other derivatives
 
33

 
87

 
 
 
457

 
421

 
Total non-designated hedges
 
4,017

 
4,025

 
 
 
4,741

 
4,688

 
Total derivatives
 
$
4,093

 
$
4,101

 
 
 
$
4,741

(3) 
$
4,688

(3) 
N/A  Not applicable.
(1) The fair values of GMWB and GMAB embedded derivatives fluctuate based on changes in equity, interest rate and credit markets.
(2) The fair value of the GMWB and GMAB embedded derivatives at September 30, 2015 included $1.2 billion of individual contracts in a liability position and $112 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives at December 31, 2014 included $700 million of individual contracts in a liability position and $221 million of individual contracts in an asset position.
(3) The fair value of the Company’s derivative liabilities after considering the effects of master netting arrangements, cash collateral held by the same counterparty and the fair value of net embedded derivatives was $1.8 billion and $1.5 billion at September 30, 2015 and December 31, 2014, respectively. See Note 11 for additional information related to master netting arrangements and cash collateral. See Note 3 for information about derivatives held by consolidated VIEs. See (2) above for additional information related to gross GMWB and GMAB embedded derivatives.
See Note 10 for additional information regarding the Company’s fair value measurement of derivative instruments.

45

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Derivatives Not Designated as Hedges
The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operation:
Derivatives not designated as hedging instruments
 
Location of Gain (Loss) on Derivatives Recognized in Income
 
Amount of Gain (Loss) on
Derivatives Recognized in Income
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
(in millions)
GMWB and GMAB
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
Benefits, claims, losses and settlement expenses
$
536

 
$
100

 
$
360

 
$
609

Equity contracts
 
Benefits, claims, losses and settlement expenses
328

 
143

 
69

 
(244
)
Credit contracts
 
Benefits, claims, losses and settlement expenses
(10
)
 
(1
)
 
(5
)
 
(23
)
Foreign exchange contracts
 
Benefits, claims, losses and settlement expenses
6

 
(13
)
 
(2
)
 
(14
)
Embedded derivatives (1)
 
Benefits, claims, losses and settlement expenses
(872
)
 
(270
)
 
(628
)
 
(498
)
Total GMWB and GMAB
 
 
 
(12
)
 
(41
)
 
(206
)
 
(170
)
 
 
 
 
 
 
 
 
 
 
 
Other derivatives:
 
 
 
 
 
 
 
 
 
 
Interest rate
 
 
 
 
 
 
 
 
 
 
Investments
 
Net investment income
 
(31
)
 
—

 
(32
)
 
—

Tax hedge
 
Net investment income
 
—

 
—

 
—

 
3

Seed money
 
Net investment income
 
—

 
—

 
—

 
(1
)
Equity
 
 
 
 
 
 
 
 
 
 
IUL
 
Interest credited to fixed accounts
 
(15
)
 
2

 
(16
)
 
13

IUL embedded derivatives
 
Interest credited to fixed accounts
 
6

 
2

 
1

 
(9
)
EIA
 
Interest credited to fixed accounts
 
(1
)
 
—

 
(1
)
 
1

EIA embedded derivatives
 
Interest credited to fixed accounts
 
1

 
—

 
1

 
(1
)
Stock market certificates
 
Banking and deposit interest expense
 
(3
)
 
—

 
(2
)
 
2

Stock market certificates embedded derivatives
 
Banking and deposit interest expense
 
2

 
—

 
2

 
(2
)
Seed money
 
Net investment income
 
—

 
1

 
(2
)
 
(2
)
Deferred compensation
 
Distribution expenses
 
(15
)
 
1

 
(9
)
 
6

Deferred compensation
 
General and administrative expense
 
(4
)
 
(1
)
 
(3
)
 
1

Foreign exchange
 
 
 
 
 
 
 
 
 
 
Foreign currency
 
Net investment income
 
—

 
4

 
—

 
2

Deferred compensation
 
Distribution expenses
 
—

 
(3
)
 
(2
)
 
(2
)
Deferred compensation
 
General and administrative expense
 
(1
)
 
—

 
(1
)
 
—

Commodity
 
 
 
 
 
 
 
 
 
 
Seed money
 
Net investment income
 
—

 
—

 
—

 
(1
)
Other
 
 
 
 
 
 
 
 
 
 
Macro hedge program
 
Benefits, claims, losses and settlement expenses
3

 
17

 
(4
)
 
(8
)
Total other derivatives
 
 
 
(58
)
 
23

 
(68
)
 
2

Total derivatives
 
 
 
$
(70
)
 
$
(18
)
 
$
(274
)
 
$
(168
)
(1) The fair values of GMWB and GMAB embedded derivatives fluctuate based on changes in equity, interest rate and credit markets. 
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.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each

46

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The Company economically hedges the exposure related to non-life contingent GMWB and GMAB provisions primarily using various futures, options, interest rate swaptions, interest rate swaps, total return swaps and variance swaps. At September 30, 2015 and December 31, 2014, the gross notional amount of derivative contracts for the Company’s GMWB and GMAB provisions was $134.1 billion and $132.0 billion, respectively.
The deferred premium associated with certain of the above options is paid or received semi-annually over the life of the option contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options:
 
Premiums Payable
 
Premiums Receivable
 
(in millions)
2015 (1)
$
110

 
$
28

2016
346

 
77

2017
286

 
77

2018
227

 
126

2019
274

 
103

2020 - 2027
761

 
227

Total
$
2,004

 
$
638

(1) 2015 amounts represent the amounts payable and receivable for the period from October 1, 2015 to December 31, 2015.
Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options prior to the full premium being paid or received.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company uses a combination of options, interest rate swaptions and/or swaps. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The gross notional amount of these derivative contracts was $4.5 billion and $2.7 billion at September 30, 2015 and December 31, 2014, respectively.
In 2015, the Company entered into interest rate swaps to manage its exposure to interest rate risk on certain of its investments. The gross notional amount of these contracts was $1.2 billion at September 30, 2015.
EIA, 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 EIA, IUL and stock market certificate products will positively or negatively impact earnings over the life of these products. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts. The gross notional amount of these derivative contracts was $2.3 billion and $2.0 billion at September 30, 2015 and December 31, 2014, respectively.
The Company enters into futures, commodity swaps, and foreign currency forward contracts to manage its exposure to price risk arising from seed money investments in proprietary investment products. The gross notional amount of these contracts was $64 million and $97 million at September 30, 2015 and December 31, 2014, respectively.
The Company enters into foreign currency forward contracts to economically hedge its exposure to certain transactions denominated in non-functional currencies. The gross notional amount of these contracts was $38 million and $11 million at September 30, 2015 and December 31, 2014, respectively.
The Company enters into futures contracts to economically hedge its exposure related to deferred compensation plans. The gross notional amount of these contracts was $284 million and $278 million at September 30, 2015 and December 31, 2014, respectively.
Embedded Derivatives
Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In addition, the equity component of the EIA, IUL and stock market certificate product obligations are also considered embedded derivatives. These embedded derivatives 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 discussed above, the Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.
Cash Flow Hedges
The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge interest rate

47

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


exposure on debt, (ii) interest rate lock agreements to hedge interest rate exposure on debt issuances and (iii) swaptions used to hedge the risk of increasing interest rates on forecasted fixed premium product sales.
For the three months and nine months ended September 30, 2015 and 2014, amounts recognized in earnings related to cash flow hedges due to ineffectiveness were not material. The estimated net amount of existing pretax losses as of September 30, 2015 that the Company expects to reclassify to earnings within the next twelve months is $4 million, which consists of $2 million of pretax gains to be recorded as a reduction to interest and debt expense and $6 million of pretax losses to be recorded in net investment income.
The following table presents the impact of the effective portion of the Company’s cash flow hedges on the Consolidated Statements of Operations and the Consolidated Statements of Equity:
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
 
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Three Months Ended September 30,
 
Nine Months Ended September 30,
2015
 
2014
 
2015
 
2014
 
 
(in millions)
Interest and debt expense
 
$
1

 
$
1

 
$
3

 
$
3

Net investment income
 
(2
)
 
(2
)
 
(4
)
 
(4
)
Total
 
$
(1
)
 
$
(1
)
 
$
(1
)
 
$
(1
)
Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 20 years and relates to forecasted debt interest payments.
Fair Value Hedges
In 2010, the Company entered into and designated as fair value hedges three interest rate swaps to convert senior notes due 2015, 2019 and 2020 from fixed rate debt to floating rate debt. The swaps have identical terms as the underlying debt being hedged so no ineffectiveness is expected to be realized. The Company recognizes gains and losses on the derivatives and the related hedged items within interest and debt expense. The following table presents the amounts recognized in income related to fair value hedges:
Derivatives designated as hedging instruments
 
Location of Gain Recorded into Income
 
Amount of Gain Recognized in Income on Derivatives
Three Months Ended September 30,
 
Nine Months Ended September 30,
2015
 
2014
 
2015
 
2014
 
 
 
 
(in millions)
Interest rate contracts
 
Interest and debt expense
 
$
8

 
$
9

 
$
24

 
$
25

Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical. See Note 11 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. At September 30, 2015 and December 31, 2014, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $299 million and $416 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2015 and December 31, 2014 was $284 million and $416 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position at September 30, 2015 and December 31, 2014 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 $15 million and nil, respectively. 


48

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


13.  Shareholders’ Equity
The following table provides information related to amounts reclassified from AOCI:
AOCI Reclassification
 
Location of Loss (Gain) Recognized in Income
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
(in millions)
Net unrealized (gains) losses on Available-for-Sale securities
Net investment income
 
$
10

 
$
(6
)
 
$
(6
)
 
$
(12
)
Tax expense
 
Income tax provision
(4
)
 
2

 
2

 
4

Net of tax
 
 
 
$
6

 
$
(4
)
 
$
(4
)
 
$
(8
)
 
 
 
 
 
 
 
 
 
 
 
Losses (gains) on cash flow hedges:
 
 
 
 
 
 
 
 
Interest rate contracts
 
Interest and debt expense
$
(1
)
 
$
(1
)
 
$
(3
)
 
$
(3
)
Swaptions
 
Net investment income
 
2

 
2

 
4

 
4

Total before tax
 
 
 
1

 
1

 
1

 
1

Tax benefit
 
Income tax provision
 
—

 
—

 
—

 
—

Net of tax
 
 
 
$
1

 
$
1

 
$
1

 
$
1

See Note 4 for additional information related to the impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverable on net unrealized securities gains/losses included in AOCI. See Note 12 for additional information regarding the Company’s cash flow hedges.
In April 2014, the Company’s Board of Directors authorized an expenditure of up to $2.5 billion for the repurchase of shares of the Company’s common stock through April 28, 2016. As of September 30, 2015, the Company had $553 million remaining under its share repurchase authorization. During the nine months ended September 30, 2015 and 2014, the Company repurchased a total of 9.8 million shares and 9.1 million shares, respectively, of its common stock for an aggregate cost of $1.2 billion and $1.0 billion, respectively.
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 nine months ended September 30, 2015 and 2014, the Company reacquired 0.4 million shares and 0.8 million shares, respectively, of its common stock through the surrender of shares upon vesting and paid in the aggregate $48 million and $92 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 nine months ended September 30, 2015 and 2014, the Company reacquired 0.7 million shares and 1.6 million shares, respectively, of its common stock through the net settlement of options for an aggregate value of $89 million and $180 million, respectively.
During the nine months ended September 30, 2015 and 2014, the Company reissued 1.0 million and 1.6 million treasury shares, respectively, for restricted stock award grants, performance share units and issuance of shares vested under the Ameriprise Financial Franchise Advisor Deferred Compensation Plan.

14.  Income Taxes
The Company’s effective tax rate on income from continuing operations was 24.1% and 21.6% for the three months ended September 30, 2015 and 2014, respectively. The Company’s effective tax rate on income from continuing operations was 23.0% and 22.2% for the nine months ended September 30, 2015 and 2014, respectively. The Company’s effective tax rates for the three months and nine months ended September 30, 2015 are lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $17 million, net of federal benefit, which will expire beginning December 31, 2015 and a state AMT credit carryforward of $1 million, which has no expiration.

49

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. 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, management believes it is more likely than not that the Company will not realize certain state deferred tax assets and state net operating losses and therefore a valuation allowance has been established. The valuation allowance was $12 million at September 30, 2015 and $20 million at December 31, 2014.
As of September 30, 2015 and December 31, 2014, the Company had $239 million and $242 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $57 million, net of federal tax benefits, of unrecognized tax benefits at both September 30, 2015 and December 31, 2014, would affect the effective tax rate.
It is reasonably possible that the total amounts 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 $150 million to $160 million in the next 12 months primarily due to resolution of IRS examinations.
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 and $3 million in interest and penalties for the three months and nine months ended September 30, 2015, respectively. The Company recognized a net increase of $1 million and $4 million in interest and penalties for the three months and nine months ended September 30, 2014, respectively. At September 30, 2015 and December 31, 2014, the Company had a payable of $52 million and $48 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 IRS has completed its field examination of the 1997 through 2011 tax returns. However, for federal income tax purposes, these years, except for 2007, continue to remain open as a consequence of certain unagreed-upon issues. The IRS is currently auditing the Company’s U.S. Income Tax Returns for 2012 and 2013. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 2012 and remain open for all years after 2012.
 
15.  Guarantees and Contingencies
Guarantees
The Company is required by law to be a member of the guaranty fund association in every state where it is 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 (“NOLHGA”) 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. At both September 30, 2015 and December 31, 2014, the estimated liability was $14 million and the related premium tax asset was $12 million. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.
Contingencies
The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions, heightened 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.

50

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


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 Office of the Comptroller of the Currency, the UK Financial Conduct Authority, state insurance and securities regulators, state attorneys general and various other domestic or 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 has numerous pending matters which include information requests, exams or inquiries that the Company has received during recent periods regarding certain matters, including: sales and distribution of mutual funds, annuities, equity and fixed income securities, real estate investment trusts, insurance products, and financial advice offerings; supervision of the Company’s financial advisors; administration of insurance and annuity claims; security of client information; trading activity; and front office systems and controls at the Company’s UK subsidiary. The Company is also responding to regulatory audits, market conduct examinations and other state inquiries relating to an industry-wide investigation of unclaimed property and escheatment practices and procedures. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including Ameriprise Financial. The Company has cooperated and will continue to cooperate with the applicable regulators.
These legal and regulatory proceedings and disputes are subject to uncertainties and, as such, it is inherently difficult to determine whether any loss is probable or even 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 or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for proceedings that are in their early stages of development or where plaintiffs seek indeterminate damages. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing unsettled legal questions relevant to the proceedings in question, before a loss or range of loss can be reasonably estimated for any proceeding. An adverse outcome in one or more proceeding could eventually result in adverse judgments, settlements, fines, penalties or other sanctions, in addition to further claims, examinations or adverse publicity that could have a material adverse effect on the Company’s consolidated financial condition, results of operations 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. 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 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.
Certain legal and regulatory proceedings are described below.
In November 2014, a lawsuit was filed against the Company’s London-based asset management affiliate in England’s High Court of Justice Commercial Court, entitled Otkritie Capital International Ltd and JSC Otkritie Holding v. Threadneedle Asset Management Ltd. and Threadneedle Management Services Ltd. (“Threadneedle Defendants”). Claimants allege that the Threadneedle Defendants should be held liable for the wrongful acts of one of its former employees, who in February 2014 was held jointly and severally liable with several other parties for conspiracy and dishonest assistance in connection with a fraud perpetrated against Claimants in 2011. Claimants allege they were harmed by that fraud in the amount of $120 million. The Threadneedle Defendants applied to the Court for an Order dismissing the proceedings as an abuse of process of the Court. This application was declined in August 2015 and the Threadneedle Defendants intend to appeal that decision. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter due to the early procedural status of the case, the number of parties involved, and the failure to allege any specific, evidence based damages.


51

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


16.  Earnings per Share Attributable to Ameriprise Financial, Inc. Common Shareholders
The computations of basic and diluted earnings per share attributable to Ameriprise Financial, Inc. common shareholders are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share amounts)
Numerator:
 

 
 

 
 
 
 
Income from continuing operations
$
352

 
$
565

 
$
1,307

 
$
1,548

Less: Net income (loss) attributable to noncontrolling interests
(45
)
 
145

 
102

 
353

Income from continuing operations attributable to Ameriprise Financial
397

 
420

 
1,205

 
1,195

Loss from discontinued operations, net of tax
—

 
—

 
—

 
(1
)
Net income attributable to Ameriprise Financial
$
397

 
$
420

 
$
1,205

 
$
1,194

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic: Weighted-average common shares outstanding
180.4

 
190.3

 
183.5

 
192.8

Effect of potentially dilutive nonqualified stock options and other
share-based awards
2.3

 
3.4

 
2.5

 
3.5

Diluted: Weighted-average common shares outstanding
182.7

 
193.7

 
186.0

 
196.3

 
 
 
 
 
 
 
 
Earnings per share attributable to Ameriprise Financial, Inc. common shareholders:
Basic:
 

 
 

 
 

 
 

Income from continuing operations
$
2.20

 
$
2.21

 
$
6.57

 
$
6.20

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
2.20

 
$
2.21

 
$
6.57

 
$
6.19

Diluted:
 

 
 

 
 

 
 

Income from continuing operations
$
2.17

 
$
2.17

 
$
6.48

 
$
6.09

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
2.17

 
$
2.17

 
$
6.48

 
$
6.08

The calculation of diluted earnings per share excludes the incremental effect of 1.7 million and 0.2 million options as of September 30, 2015 and 2014, respectively, due to their anti-dilutive effect.


52

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


17.  Segment Information
The Company’s segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other.
Management uses segment 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, operating earnings is the Company’s measure of segment performance. Operating earnings should not be viewed as a substitute for GAAP income from continuing operations before income tax provision. The Company believes the presentation of segment 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.
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.
Operating earnings is defined as operating net revenues less operating expenses. Operating net revenues and operating expenses exclude the results of discontinued operations, the market impact on IUL benefits (net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual), integration and restructuring charges and the impact of consolidating investment entities. Operating net revenues also exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments. Operating expenses also exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and the DAC and DSIC offset to net realized investment gains or losses. The market impact on variable annuity guaranteed benefits and IUL benefits includes changes in liability values caused by changes in financial market conditions, net of changes in associated economic hedge values. 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 liability values of discounting projected benefits to reflect a current estimate of the Company’s life insurance subsidiary’s nonperformance spread.
The following tables summarize selected financial information by segment and reconcile segment totals to those reported on the consolidated financial statements:
 
September 30, 2015
 
December 31, 2014
 
(in millions)
Assets:
 
 
 
Advice & Wealth Management
$
10,848

 
$
10,220

Asset Management
7,890

 
7,509

Annuities
93,747

 
98,535

Protection
20,358

 
20,779

Corporate & Other
12,477

 
11,767

Total assets
$
145,320

 
$
148,810



53

AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Operating net revenues:
 

 
 

 
 

 
 

Advice & Wealth Management
$
1,245

 
$
1,210

 
$
3,747

 
$
3,557

Asset Management
782

 
839

 
2,421

 
2,490

Annuities
632

 
655

 
1,914

 
1,942

Protection
586

 
553

 
1,776

 
1,687

Corporate & Other
(4
)
 
(1
)
 
(12
)
 
3

Eliminations(1) (2)
(366
)
 
(357
)
 
(1,090
)
 
(1,053
)
Total segment operating revenues
2,875

 
2,899

 
8,756

 
8,626

Net realized gains (losses)
(10
)
 
4

 
5

 
10

Revenues attributable to CIEs
43

 
206

 
333

 
543

Market impact on IUL benefits, net
9

 
2

 
5

 
—

Market impact of hedges on investments
(31
)
 
—

 
(32
)
 
—

Total net revenues per consolidated statements of operations
$
2,886

 
$
3,111

 
$
9,067

 
$
9,179

(1) Represents the elimination of intersegment revenues recognized for the three months ended September 30, 2015 and 2014 in each segment as follows: Advice & Wealth Management ($259 and $250, respectively); Asset Management ($11 and $11, respectively); Annuities ($85 and $85, respectively); Protection ($10 and $11, respectively); and Corporate & Other ($1 and nil, respectively).
(2) Represents the elimination of intersegment revenues recognized for the nine months ended September 30, 2015 and 2014 in each segment as follows: Advice & Wealth Management ($770 and $740, respectively); Asset Management ($33 and $33, respectively); Annuities ($255 and $248, respectively); Protection ($31 and $31, respectively); and Corporate & Other ($1 and $1, respectively).
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Operating earnings:
 

 
 

 
 

 
 

Advice & Wealth Management
$
219

 
$
205

 
$
649

 
$
580

Asset Management
180

 
208

 
568

 
590

Annuities
176

 
128

 
498

 
474

Protection
25

 
66

 
148

 
216

Corporate & Other
(42
)
 
(53
)
 
(161
)
 
(183
)
Total segment operating earnings
558

 
554

 
1,702

 
1,677

Net realized gains (losses)
(10
)
 
4

 
5

 
10

Net income (loss) attributable to noncontrolling interests
(45
)
 
145

 
102

 
353

Market impact on variable annuity guaranteed benefits, net
(5
)
 
9

 
(75
)
 
(60
)
Market impact on IUL benefits, net
(1
)
 
8

 
(2
)
 
9

Market impact of hedges on investments
(31
)
 
—

 
(32
)
 
—

Integration and restructuring charges
(3
)
 
—

 
(4
)
 
—

Income from continuing operations before income tax provision per consolidated statements of operations
$
463

 
$
720

 
$
1,696

 
$
1,989



54

AMERIPRISE FINANCIAL, INC. 


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and our Consolidated Financial Statements and Notes presented in Item 1. Our Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2015 (“2014 10-K”), as well as our current reports on Form 8-K and other publicly available information. References below to “Ameriprise Financial,” “Ameriprise,” the “Company,” “we,” “us,” and “our” refer to Ameriprise Financial, Inc. exclusively, to our entire family of companies, or to one or more of our subsidiaries.
 
Overview
Ameriprise Financial is a diversified financial services company with a 121 year history of providing financial solutions. We offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients. We are America’s leader in financial planning and a leading global financial institution with more than $765 billion in assets under management and administration as of September 30, 2015.
Our strategy is centered on helping our clients confidently achieve their goals by providing advice and managing their assets and protecting their assets and income. We utilize two go-to-market approaches in carrying out this strategy: Wealth Management and Asset Management.
Our wealth management capabilities are centered on the long-term, personal relationships between our clients and our financial advisors and registered representatives (our “advisors”). Through our advisors, we offer financial planning, products and services designed to be used as solutions for our clients’ cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. Our focus on personal relationships, together with our discipline in financial planning and strengths in product development and advice, allow us to address the evolving financial and retirement-related needs of our clients, including our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000. The financial product solutions we offer through our advisors include both our own products and services and the products of other companies. Our advisor network is the primary channel through which we offer our affiliated insurance and annuity products and services.
Our network of approximately 9,800 advisors is the primary means through which we engage in our wealth management activities. We offer our advisors training, tools, leadership, marketing programs and other field and centralized support to assist them in delivering advice and product solutions. We believe that our nationally recognized brand and practice vision, local marketing support, integrated operating platform and comprehensive set of products and solutions constitute a compelling value proposition for financial advisors, as evidenced by our strong advisor retention rate and our ability to attract and retain experienced and productive advisors. We have and will continue to invest in and develop capabilities and tools designed to maximize advisor productivity and client satisfaction.
We are in a compelling position to capitalize on significant demographic and market trends driving increased demand for financial advice and solutions. In the U.S., the ongoing transition of baby boomers into retirement, as well as recent economic and financial market crises, continues to drive demand for financial advice and solutions. In addition, the amount of investable assets held by mass affluent and affluent households, our target market, has grown and accounts for over half of U.S. investable assets. We believe our differentiated financial planning model, broad range of products and solutions, as well as our demonstrated financial strength throughout the economic downturn of recent past years, will help us capitalize on these trends.
Our asset management capabilities are increasingly global in scale, with Columbia Management Investment Advisers, LLC (“Columbia” or “Columbia Management”) as the primary provider of products and services in the U.S. and Threadneedle Asset Management Holdings Sàrl (“Threadneedle”) as the primary provider of products and services outside of the U.S. On March 30, 2015, we launched a new brand — Columbia Threadneedle Investments – that represents the combined capabilities, resources and reach of both firms. While the group now operates under one brand, established investment teams, strategies and processes in place at both firms will not change as a result of the new brand, nor will existing funds or client portfolios and mandates. In addition, there is no change to the corporate structure or regulated entities.
We offer a broad spectrum of investment advice and products to individual, institutional and high-net worth investors. These investment products are primarily provided through third parties, though we also provide our asset management products through our advisor channel. Our underlying asset management philosophy is based on delivering consistently strong and competitive investment performance. The quality and breadth of our asset management capabilities are demonstrated by 114 of our funds rated as four- and five-star funds by Morningstar.
We are positioned to continue to grow our assets under management and to strengthen our asset management offerings to existing and new clients. Our asset management capabilities are well positioned to address mature markets in the U.S. and Europe. We also have the capability to leverage existing strengths to effectively expand into new global and emerging markets. In the past few years, we have expanded beyond our traditional strengths in the U.S. and UK to gather assets in Continental Europe, Asia, Australia, the Middle

55

AMERIPRISE FINANCIAL, INC. 


East and Africa. In addition, we continue to pursue opportunities to leverage the collective capabilities of Columbia Threadneedle Investments to enhance our current range of investment solutions, to develop new solutions that are responsive to client demand in an increasingly complex marketplace and to maximize the distribution capabilities of our global business.
The financial results from the businesses underlying our go-to-market approaches are reflected in our five operating segments:
•
Advice & Wealth Management;
•
Asset Management;
•
Annuities;
•
Protection; and
•
Corporate & Other.
Our operating segments are aligned with the financial solutions we offer to address our clients’ needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly affected by investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships.
Financial markets and macroeconomic conditions have had and will continue to have a significant impact on our operating and performance results. In addition, the business and regulatory environment in which we operate remains subject to elevated uncertainty and change. To succeed, we expect to continue focusing on our key strategic objectives. The success of these and other strategies may be affected by the factors discussed in “Item 1A. Risk Factors” in our 2014 10-K, “Item 1A. Risk Factors” in our Form 10-Q for the quarterly period ended March 31, 2015 filed with the SEC on May 4, 2015 and other factors as discussed herein.
Equity price, credit market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the “spread” income generated on our fixed annuities, fixed insurance, deposit products and the fixed portion of variable annuities and variable insurance contracts, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) assets, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits.
Earnings, as well as operating earnings, will continue to be negatively impacted by the ongoing low interest rate environment. In addition to continuing spread compression in our interest sensitive product lines, a sustained low interest rate environment may result in increases to our reserves and changes in various rate assumptions we use to amortize DAC and DSIC, which may negatively impact our operating earnings. For additional discussion on our interest rate risk, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”
In the third quarter of the year, we conduct our annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations. To the extent that expectations change as a result of this review, we update valuation assumptions and the impact is reflected as part of our annual review of life insurance and annuity valuation assumptions and modeling changes (“unlocking”). The favorable unlocking impact in the third quarter of 2015 primarily reflected improved policyholder behavior, an update to market-related inputs related to our living benefit valuation and model changes that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. In addition, our annual review of our closed long term care business resulted in no loss recognition as better-than-expected premium increases offset higher morbidity and lower interest rates. The unfavorable unlocking impact in the third quarter of 2014 primarily reflected assumed interest rates, partially offset by a benefit from updating our variable annuity living benefit withdrawal utilization assumption. See our Consolidated and Segment Results of Operations sections below for the pretax impacts on our revenues and expenses attributable to unlocking and additional discussion of the drivers of the unlocking impact.
We consolidate certain collateralized loan obligations (“CLOs”) and property funds (pooled investment vehicles) for which we provide asset management services. These entities are defined as consolidated investment entities (“CIEs”). While the consolidation of the CIEs impacts our balance sheet and income statement, our exposure to these entities is unchanged and there is no impact to the underlying business results. For further information on CIEs, see Note 3 to our Consolidated Financial Statements. Changes in the valuation of the CIE assets and liabilities impact pretax income. The net income (loss) of the CIEs is reflected in net income (loss) attributable to noncontrolling interests. The results of operations of the CIEs are reflected in the Corporate & Other segment. On a consolidated basis, the management fees we earn for the services we provide to the CIEs and the related general and administrative expenses are eliminated and the changes in the assets and liabilities related to the CIEs, primarily syndicated loans and debt, are reflected in net investment income. We continue to include the fees from these entities in the management and financial advice fees line within our Asset Management segment.
While our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), management believes that operating measures, which exclude net realized investment gains or losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on variable annuity guaranteed benefits, net of hedges and the related DSIC and DAC amortization; the market impact on indexed universal life benefits, net of

56

AMERIPRISE FINANCIAL, INC. 


hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration and restructuring charges; income (loss) from discontinued operations; and the impact of consolidating CIEs, best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis. Management uses certain of these non-GAAP measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors. Also, certain of these non-GAAP measures are taken into consideration, to varying degrees, for purposes of business planning and analysis and for certain compensation-related matters. Throughout our Management’s Discussion and Analysis, these non-GAAP measures are referred to as operating measures.
It is management’s priority to increase shareholder value over a multi-year horizon by achieving our on-average, over-time financial targets.
Our financial targets are:
•
Operating total net revenue growth of 6% to 8%,
•
Operating earnings per diluted share growth of 12% to 15%, and
•
Operating return on equity excluding accumulated other comprehensive income (“AOCI”) of 19% to 23%.
The following tables reconcile our GAAP measures to operating measures:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Total net revenues
$
2,886

 
$
3,111

 
$
9,067

 
$
9,179

Less: Revenue attributable to CIEs
43

 
206

 
333

 
543

Less: Net realized gains (losses)
(10
)
 
4

 
5

 
10

Less: Market impact on indexed universal life benefits
9

 
2

 
5

 
—

Less: Market impact of hedges on investments
(31
)
 
—

 
(32
)
 
—

Operating total net revenues
$
2,875

 
$
2,899

 
$
8,756

 
$
8,626


 
 
 
 
 
Per Diluted Share
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share amounts)
Net income
$
352

 
$
565

 
 

 
 

Less: Net income (loss) attributable to noncontrolling interests
(45
)
 
145

 
 

 
 

Net income attributable to Ameriprise Financial
397

 
420

 
$
2.17

 
$
2.17

Less: Loss from discontinued operations, net of tax
—

 
—

 
—

 
—

Net income from continuing operations attributable to Ameriprise Financial
397

 
420

 
2.17

 
2.17

Add: Integration/restructuring charges, net of tax (1)
2

 
—

 
0.01

 
—

Add: Market impact on variable annuity guaranteed benefits, net of tax (1)
3

 
(5
)
 
0.02

 
(0.03
)
Add: Market impact on indexed universal life benefits, net of tax (1)
—

 
(5
)
 
—

 
(0.03
)
Add: Market impact of hedges on investments, net of tax (1)
20

 
—

 
0.11

 
—

Less: Net realized gains (losses), net of tax (1)
(7
)
 
3

 
(0.04
)
 
0.01

Operating earnings
$
429

 
$
407

 
$
2.35

 
$
2.10

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 

 
 

Basic
180.4

 
190.3

 
 

 
 

Diluted
182.7

 
193.7

 
 

 
 

(1) Calculated using the statutory tax rate of 35%.

57

AMERIPRISE FINANCIAL, INC. 


 
 
 
 
 
Per Diluted Share
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share amounts)
Net income
$
1,307

 
$
1,547

 
 

 
 

Less: Net income attributable to noncontrolling interests
102

 
353

 
 

 
 

Net income attributable to Ameriprise Financial
1,205

 
1,194

 
$
6.48

 
$
6.08

Less: Loss from discontinued operations, net of tax
—

 
(1
)
 
—

 
(0.01
)
Net income from continuing operations attributable to Ameriprise Financial
1,205

 
1,195

 
6.48

 
6.09

Add: Integration/restructuring charges, net of tax (1)
3

 
—

 
0.02

 
—

Add: Market impact on variable annuity guaranteed benefits, net of tax (1)
48

 
40

 
0.26

 
0.20

Add: Market impact on indexed universal life benefits, net of tax (1)
1

 
(6
)
 
—

 
(0.03
)
Add: Market impact of hedges on investments, net of tax (1)
21

 
—

 
0.11

 
—

Less: Net realized gains, net of tax (1)
3

 
7

 
0.02

 
0.03

Operating earnings
$
1,275

 
$
1,222

 
$
6.85

 
$
6.23

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 

 
 

Basic
183.5

 
192.8

 
 

 
 

Diluted
186.0

 
196.3

 
 

 
 

(1) Calculated using the statutory tax rate of 35%.
The following table reconciles the trailing twelve months’ sum of net income attributable to Ameriprise Financial to operating earnings and the five-point average of quarter-end equity to operating equity:
 
Twelve Months Ended September 30,
 
2015
 
2014
 
(in millions)
Net income attributable to Ameriprise Financial
$
1,630

 
$
1,490

Less: Loss from discontinued operations, net of tax
(1
)
 
(3
)
Net income from continuing operations attributable to Ameriprise Financial
1,631

 
1,493

Less: Adjustments (1)
(84
)
 
(107
)
Operating earnings
$
1,715

 
$
1,600

 
 
 
 
Total Ameriprise Financial, Inc. shareholders’ equity
$
8,017

 
$
8,310

Less: Accumulated other comprehensive income, net of tax
615

 
723

Total Ameriprise Financial, Inc. shareholders’ equity from continuing operations, excluding AOCI
7,402

 
7,587

Less: Equity impacts attributable to CIEs
250

 
331

Operating equity
$
7,152

 
$
7,256

 
 
 
 
Return on equity from continuing operations, excluding AOCI
22.0
%
 
19.7
%
Operating return on equity, excluding AOCI (2)
24.0
%
 
22.1
%
(1) 
Adjustments reflect the trailing twelve months’ sum of after-tax net realized investment gains/losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; the market impact on variable annuity guaranteed benefits, net of hedges and related DSIC and DAC amortization; the market impact on indexed universal life benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; and integration and restructuring charges. After-tax is calculated using the statutory tax rate of 35%.
(2) 
Operating return on equity, excluding AOCI, is calculated using the trailing twelve months of earnings excluding the after-tax net realized investment gains/losses, net of the related DSIC and DAC amortization, unearned revenue amortization and the reinsurance accrual; market impact on variable annuity guaranteed benefits, net of hedges and related DSIC and DAC amortization; the market impact on indexed universal benefits, net of hedges and the related DAC amortization, unearned revenue amortization, and the reinsurance accrual; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments; integration/restructuring charges; and discontinued operations in the numerator, and Ameriprise Financial shareholders’ equity, excluding AOCI and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator. After-tax is calculated using the statutory rate of 35%.


58

AMERIPRISE FINANCIAL, INC. 


Critical Accounting Policies
The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition. In some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. These accounting policies are discussed in detail in “Management’s Discussion and Analysis — Critical Accounting Policies” in our 2014 10-K.

Recent Accounting Pronouncements
For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations and financial condition, see Note 2 to our Consolidated Financial Statements.
 
Assets Under Management and Administration
Assets under management (“AUM”) include external client assets for which we provide investment management services, such as the assets of the Columbia funds and Threadneedle funds, assets of institutional clients and assets of clients in our advisor platform held in wrap accounts as well as assets managed by sub-advisers selected by us. AUM also includes certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees in our Asset Management segment, such as the assets of the general account and the variable product funds held in the separate accounts of our life insurance subsidiaries and CIEs. These assets do not include assets under advisement, for which we provide model portfolios but do not have full discretionary investment authority. Corporate & Other AUM primarily includes former bank assets that are managed within our Corporate & Other segment.
Assets under administration (“AUA”) include assets for which we provide administrative services such as client assets invested in other companies’ products that we offer outside of our wrap accounts. These assets include those held in clients’ brokerage accounts. We generally record revenues received from administered assets as distribution fees. We do not exercise management discretion over these assets and do not earn a management fee. These assets are not reported on our Consolidated Balance Sheets. AUA also includes certain assets on our Consolidated Balance Sheets for which we do not provide investment management services and do not recognize management fees, such as investments in non-affiliated funds held in the separate accounts of our life insurance subsidiaries. These assets do not include assets under advisement, for which we provide model portfolios but do not have full discretionary investment authority.
The following table presents detail regarding our AUM and AUA:
 
September 30,
 
 
 
2015
 
2014
 
Change
 
(in billions)
 
 
Assets Under Management and Administration
 
 
 
 
 
 
 
Advice & Wealth Management AUM
$
173.0

 
$
168.7

 
$
4.3

 
3
 %
Asset Management AUM
471.1

 
504.8

 
(33.7
)
 
(7
)
Corporate & Other AUM
0.7

 
0.9

 
(0.2
)
 
(22
)
Eliminations
(22.2
)
 
(21.7
)
 
(0.5
)
 
(2
)
Total Assets Under Management
622.6

 
652.7

 
(30.1
)
 
(5
)
Total Assets Under Administration
143.2

 
144.1

 
(0.9
)
 
(1
)
Total AUM and AUA
$
765.8

 
$
796.8

 
$
(31.0
)
 
(4
)%
Total AUM decreased $30.1 billion, or 5%, to $622.6 billion as of September 30, 2015 compared to $652.7 billion as of September 30, 2014 reflecting a $33.7 billion decrease in Asset Management AUM driven by the negative impact of foreign currency translation, net outflows, market depreciation and retail fund distributions, and a $4.3 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows, partially offset by market depreciation. See our segment results of operations discussion below for additional information on changes in our AUM.


59

AMERIPRISE FINANCIAL, INC. 


Consolidated Results of Operations for the Three Months Ended September 30, 2015 and 2014
The following table presents our consolidated results of operations:
 
Three Months Ended September 30,
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Management and financial advice fees
$
1,465

 
$
1,483

 
$
(18
)
 
(1
)%
Distribution fees
451

 
464

 
(13
)
 
(3
)
Net investment income
321

 
428

 
(107
)
 
(25
)
Premiums
360

 
351

 
9

 
3

Other revenues
296

 
392

 
(96
)
 
(24
)
Total revenues
2,893

 
3,118

 
(225
)
 
(7
)
Banking and deposit interest expense
7

 
7

 
—

 
—

Total net revenues
2,886

 
3,111

 
(225
)
 
(7
)
Expenses
 
 
 
 
 
 
 
Distribution expenses
806

 
813

 
(7
)
 
(1
)
Interest credited to fixed accounts
171

 
168

 
3

 
2

Benefits, claims, losses and settlement expenses
471

 
458

 
13

 
3

Amortization of deferred acquisition costs
133

 
116

 
17

 
15

Interest and debt expense
98

 
79

 
19

 
24

General and administrative expense
744

 
757

 
(13
)
 
(2
)
Total expenses
2,423

 
2,391

 
32

 
1

Income from continuing operations before income tax provision
463

 
720

 
(257
)
 
(36
)
Income tax provision
111

 
155

 
(44
)
 
(28
)
Income from continuing operations
352

 
565

 
(213
)
 
(38
)
Loss from discontinued operations, net of tax
—

 
—

 
—

 
—

Net income
352

 
565

 
(213
)
 
(38
)
Less: Net income (loss) attributable to noncontrolling interests
(45
)
 
145

 
(190
)
 
NM

Net income attributable to Ameriprise Financial
$
397

 
$
420

 
$
(23
)
 
(5
)%
NM  Not Meaningful.
Overall
Income from continuing operations before income tax provision decreased $257 million, or 36%, to $463 million for the three months ended September 30, 2015 compared to $720 million for the prior year period primarily reflecting a $190 million decrease in net income from CIEs, asset management net outflows, the unfavorable market impact of hedges on investments, higher life insurance claims, an increase in auto and home reserves, fixed annuity net outflows, a negative impact of foreign exchange, net realized investment losses of $10 million for the third quarter of 2015 compared to net realized investment gains of $4 million for the prior year period, and the impact on DAC and DSIC from actual versus expected market performance, partially offset by the favorable impact of unlocking, wrap account net inflows and lower compensation-related expense.
The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $5 million for the three months ended September 30, 2015 compared to a benefit of $9 million for the prior year period. The impact on DAC and DSIC from actual versus expected market performance based on our view of bond and equity performance was an expense of $31 million for the third quarter of 2015 compared to an expense of $6 million for the prior year period primarily due to more unfavorable equity market returns compared to the prior year period.

60

AMERIPRISE FINANCIAL, INC. 


The following table presents the total pretax impacts on our revenues and expenses attributable to unlocking for the three months ended September 30:
Pretax Increase (Decrease)
 
2015
 
2014
 
 
(in millions)
Premiums
 
$
(3
)
 
$
—

Other revenues
 
8

 
(29
)
Total revenues
 
5

 
(29
)
 
 
 
 
 
Benefits, claims, losses and settlement expenses
 
(58
)
 
6

Amortization of DAC
 
15

 
8

Total expenses
 
(43
)
 
14

Total (1)
 
$
48

 
$
(43
)
(1) Includes a $6 million net benefit related to the market impact on variable annuity guaranteed benefits and indexed universal life benefits for the three months ended September 30, 2015.
Net Revenues
Net revenues decreased $225 million, or 7%, to $2.9 billion for the three months ended September 30, 2015 compared to $3.1 billion for the prior year period primarily due to decreases in net investment income and other revenues.
Management and financial advice fees decreased $18 million, or 1%, to $1.5 billion for the three months ended September 30, 2015 compared to $1.5 billion for the prior year period primarily due to lower asset-based fees driven by a decrease in average AUM. Average AUM decreased $13.2 billion, or 2%, compared to the prior year period primarily due to asset management net outflows and the negative impact of foreign currency translation, partially offset by market appreciation and wrap account net inflows. See our discussion on the changes in AUM in our segment results of operations section.
Net investment income decreased $107 million, or 25%, to $321 million for the three months ended September 30, 2015 compared to $428 million for the prior year period primarily due to a $39 million decrease in net investment income of CIEs, a $19 million decrease in investment income on fixed maturities driven by low interest rates and a $31 million loss related to the market impact of hedges on investments. In addition, net realized investment losses were $10 million for the three months ended September 30, 2015 compared to net realized investment gains of $4 million for the prior year period.
Other revenues decreased $96 million, or 24%, to $296 million for the three months ended September 30, 2015 compared to $392 million for the prior year period due to a $124 million decrease in other revenues of CIEs, partially offset by the impact of unlocking. Other revenues for the third quarter of 2015 included an $8 million favorable impact from unlocking compared to a $29 million negative impact in the prior year period. The primary driver of the unlocking impact to other revenues for the third quarter of 2015 was a positive impact from model updates related to our indexed universal life product, partially offset by a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The primary driver of the unlocking impact to other revenues for the prior year period was lower projected gains on reinsurance contracts resulting from favorable mortality experience.
Expenses
Total expenses increased $32 million, or 1%, to $2.4 billion for the three months ended September 30, 2015 compared to $2.4 billion for the prior year period.
Interest credited to fixed accounts increased $3 million, or 2%, to $171 million for the three months ended September 30, 2015 compared to $168 million for the prior year period primarily due to the market impact on indexed universal life benefits, net of hedges, which was an expense of $4 million for the three months ended September 30, 2015 and a benefit of $7 million for the prior year period, partially offset by lower average fixed annuity account balances. Average fixed annuity account balances decreased $1.4 billion, or 12%, to $11.0 billion for the three months ended September 30, 2015 compared to the prior year period due to net outflows reflecting higher lapse rates and limited new sales due to low interest rates.
Benefits, claims, losses and settlement expenses increased $13 million, or 3%, to $471 million for the three months ended September 30, 2015 compared to $458 million for the prior year period primarily reflecting the following items:
•
The three months ended September 30, 2015 included a $58 million benefit from unlocking compared to a $6 million expense in the prior year period. The unlocking impact for the third quarter of 2015 primarily reflected an update to market-related inputs related to our living benefit valuation and a benefit from model changes that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. The unlocking impact for the prior year

61

AMERIPRISE FINANCIAL, INC. 


period reflected assumed interest rates, partially offset by a benefit from updating our variable annuity living benefit withdrawal utilization assumption.
•
A $37 million increase in benefits, claims, losses and settlement expenses related to our auto and home business due to an increase in the provision for estimated losses reflecting the impact of growth in exposures from a 5% increase in policies in force, higher 2015 accident year loss ratio assumptions, and approximately $10 million in expense primarily related to deterioration in auto collision experience resulting from an increase in miles driven and lower salvage values, as well as losses associated with our travel insurance business and $5 million related to prior year catastrophe reserve development associated with hail storms from last year. Our travel accident program is a small program we piloted but did not meet our profitability targets. Therefore, we are in the process of exiting this product line. Catastrophe losses were $8 million for the three months ended September 30, 2015 compared to $14 million for the prior year period.
•
A $13 million decrease related to a long-term care (“LTC”) future loss reserve adjustment in the third quarter of 2015.
•
A $14 million increase in life insurance claims compared to the prior year period. Life insurance claims were higher in the third quarter of 2015 as a result of claims from several large, later duration policies that had limited reinsurance coverage. In addition, life insurance claims experience was favorable in the prior year period.
•
A $117 million decrease in expense compared to the prior year period from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense. The favorable impact of the nonperformance credit spread was $185 million for the third quarter of 2015 compared to a favorable impact of $68 million for the prior year period.
•
A $131 million increase in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This increase was the result of an unfavorable $748 million change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $618 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits and an unfavorable $1 million DSIC offset. The main market drivers contributing to these changes are summarized below:
•
Interest rates were down more in the third quarter of 2015 than in the third quarter of 2014 resulting in a larger unfavorable change in the variable annuity guaranteed living benefits liability net of the corresponding change in hedge assets relative to the prior year period.
•
Equity market impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in an increase in expense in the third quarter of 2015 compared to a modest benefit for the prior year period.
•
Equity volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a higher benefit in the third quarter of 2015 compared to the prior year period.
•
Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net unfavorable impact compared to the prior year period.
Amortization of DAC increased $17 million, or 15%, to $133 million for the three months ended September 30, 2015 compared to $116 million for the prior year period. The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was an expense of $25 million for the third quarter of 2015 compared to an expense of $5 million for the prior year period primarily due to more unfavorable equity market returns compared to the prior year period.
Interest and debt expense increased $19 million, or 24%, to $98 million for the three months ended September 30, 2015 compared to $79 million for the prior year period primarily due to an increase in interest and debt expense of CIEs.
General and administrative expenses decreased $13 million, or 2%, to $744 million for the three months ended September 30, 2015 compared to $757 million for the prior year period primarily due to lower compensation-related expense, partially offset by a $13 million increase in expenses of CIEs.
Income Taxes
Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was 24.1% for the three months ended September 30, 2015 compared to 21.6% for the prior year period. Our effective tax rate on income from continuing operations excluding income attributable to noncontrolling interests was 21.9% for the three months ended September 30, 2015 compared to 27.0% for the prior year period. The effective tax rates for the three months ended September 30, 2015 and 2014 were lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits.


62

AMERIPRISE FINANCIAL, INC. 


Results of Operations by Segment for the Three Months Ended September 30, 2015 and 2014 
Operating earnings is the measure of segment profit or loss management uses to evaluate segment performance. Operating earnings should not be viewed as a substitute for GAAP income from continuing operations before income tax provision. We believe the presentation of segment operating earnings as we measure it for management purposes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating a more meaningful trend analysis. See Note 17 to the Consolidated Financial Statements for further information on the presentation of segment results and our definition of operating earnings.
The following table presents summary financial information by segment:
 
Three Months Ended September 30,
 
2015
 
2014
 
(in millions)
Advice & Wealth Management
 

 
 

Net revenues
$
1,245

 
$
1,210

Expenses
1,026

 
1,005

Operating earnings
$
219

 
$
205

Asset Management
 

 
 

Net revenues
$
782

 
$
839

Expenses
602

 
631

Operating earnings
$
180

 
$
208

Annuities
 

 
 

Net revenues
$
632

 
$
655

Expenses
456

 
527

Operating earnings
$
176

 
$
128

Protection
 

 
 

Net revenues
$
586

 
$
553

Expenses
561

 
487

Operating earnings
$
25

 
$
66

Corporate & Other
 

 
 

Net revenues
$
(4
)
 
$
(1
)
Expenses
38

 
52

Operating loss
$
(42
)
 
$
(53
)
The following table presents the segment pretax operating impacts on our revenues and expenses attributable to unlocking:
 
 
Three Months Ended September 30,
Segment Pretax Operating Increase (Decrease)
 
2015
 
2014
 
Annuities
 
Protection
 
Annuities
 
Protection
 
 
(in millions)
Premiums
 
$
—

 
$
(3
)
 
$
—

 
$
—

Other revenues
 
—

 
(5
)
 
—

 
(29
)
Total revenues
 
—

 
(8
)
 
—

 
(29
)
 
 
 
 
 
 
 
 
 
Benefits, claims, losses and settlement expenses
 
(61
)
 
6

 
5

 
1

Amortization of DAC
 
(5
)
 
10

 
17

 
(9
)
Total expenses
 
(66
)
 
16

 
22

 
(8
)
Total
 
$
66

 
$
(24
)
 
$
(22
)
 
$
(21
)


63

AMERIPRISE FINANCIAL, INC. 


Advice & Wealth Management
Our Advice & Wealth Management segment provides financial planning and advice, as well as full-service brokerage services, primarily to retail clients through our advisors. These services are centered on long-term, personal relationships between our advisors and our clients and focus on helping clients confidently achieve their financial goals. Our advisors provide a distinctive approach to financial planning and have access to a broad selection of both affiliated and non-affiliated products to help clients meet their financial needs. A significant portion of revenues in this segment is fee-based, driven by the level of client assets, which is impacted by both market movements and net asset flows. We also earn net investment income on invested assets primarily from certificate products. This segment earns revenues (distribution fees) for distributing non-affiliated products and intersegment revenues (distribution fees) for distributing our affiliated products and services to our retail clients. Intersegment expenses for this segment include expenses for investment management services provided by the Asset Management segment.
In addition to purchases of affiliated and non-affiliated mutual funds and other securities on a stand-alone basis, clients may purchase mutual funds, among other securities, in connection with investment advisory fee-based “wrap account” programs or services, and pay fees based on a percentage of their assets.
The following table presents the changes in wrap account assets and average balances for the three months ended September 30:
 
2015
 
2014
 
(in billions)
Beginning balance
$
181.9

 
$
167.8

Net flows
3.0

 
3.8

Market depreciation and other
(11.1
)
 
(2.4
)
Ending balance
$
173.8

 
$
169.2

 
 
 
 
Advisory wrap account assets ending balance (1)
$
172.3

 
$
168.2

Average advisory wrap account assets (2)
$
177.7

 
$
167.7

(1) 
Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee.
(2) 
Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.
Wrap account assets decreased $8.1 billion, or 4%, during the three months ended September 30, 2015 due to market depreciation and other of $11.1 billion, partially offset by net inflows of $3.0 billion. Average advisory wrap account assets increased $10.0 billion, or 6%, compared to the prior year period primarily due to net inflows.
The following table presents the changes in wrap account assets for the twelve months ended September 30:
 
2015
 
2014
 
(in billions)
Beginning balance
$
169.2

 
$
144.1

Net flows (1)
12.2

 
13.9

Market appreciation (depreciation) and other (1)
(7.6
)
 
11.2

Ending balance
$
173.8

 
$
169.2

(1) 
Beginning April 1, 2014, net flows reflect all additions and withdrawals to and from the SPS wrap account program. For all periods presented prior to April 1, 2014, additions and withdrawals to and from certain non-billable investments of this program were reflected in the Market appreciation and other line and purchases and sales of billable investments were reported in the Net flows line. Nets flows for the SPS program are now reported on a consistent basis with our other wrap account programs.
Wrap account assets increased $4.6 billion, or 3%, from the prior year period reflecting net inflows, partially offset by market depreciation.

64

AMERIPRISE FINANCIAL, INC. 


The following table presents the results of operations of our Advice & Wealth Management segment on an operating basis:
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Management and financial advice fees
$
658

 
$
621

 
$
37

 
6
 %
Distribution fees
540

 
544

 
(4
)
 
(1
)
Net investment income
38

 
33

 
5

 
15

Other revenues
16

 
19

 
(3
)
 
(16
)
Total revenues
1,252

 
1,217

 
35

 
3

Banking and deposit interest expense
7

 
7

 
—

 
—

Total net revenues
1,245

 
1,210

 
35

 
3

Expenses
 

 
 

 
 
 
 

Distribution expenses
764

 
742

 
22

 
3

Interest and debt expense
2

 
1

 
1

 
NM

General and administrative expense
260

 
262

 
(2
)
 
(1
)
Total expenses
1,026

 
1,005

 
21

 
2

Operating earnings
$
219

 
$
205

 
$
14

 
7
 %
NM  Not Meaningful.
Our Advice & Wealth Management segment pretax operating earnings, which exclude net realized investment gains or losses, increased $14 million, or 7%, to $219 million for the three months ended September 30, 2015 compared to $205 million for the prior year period primarily due to growth in wrap account assets and continued expense management. Pretax operating margin was 17.6% for the three months ended September 30, 2015 compared to 16.9% for the prior year period.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $35 million, or 3%, to $1.2 billion for the three months ended September 30, 2015 compared to $1.2 billion for the prior year period primarily reflecting growth in wrap account assets. Operating net revenue per branded advisor increased to $127,000 for the three months ended September 30, 2015, up 2%, from $125,000 for the prior year period driven by asset growth. Total branded advisors were 9,814 at September 30, 2015 compared to 9,696 at September 30, 2014.
Management and financial advice fees increased $37 million, or 6%, to $658 million for the three months ended September 30, 2015 compared to $621 million for the prior year period driven by growth in wrap account assets. Average advisory wrap account assets increased $10.0 billion, or 6%, compared to the prior year period primarily due to net inflows. See our discussion of the changes in wrap account assets above.
Expenses
Total expenses increased $21 million, or 2%, to $1.0 billion for the three months ended September 30, 2015 compared to $1.0 billion for the prior year period due to a $22 million increase in distribution expenses driven by higher advisor compensation due to growth in wrap account assets.

Asset Management
Our Asset Management segment provides investment advice and investment products to retail, high net worth and institutional clients on a global scale through Columbia Threadneedle Investments. We provide clients with U.S. domestic individual products through unaffiliated third party financial institutions and through our Advice & Wealth Management segment, and we provide institutional products and services through our institutional sales force. International retail products are primarily distributed through third-party financial institutions and unaffiliated financial advisors. Individual products include U.S. mutual funds and non-U.S. equivalents, exchange-traded funds and variable product funds underlying insurance and annuity separate accounts. Institutional asset management services are designed to meet specific client objectives and may involve a range of products, including those that focus on traditional asset classes, separately managed accounts, individually managed accounts, collateralized loan obligations, hedge funds, collective funds and property funds. Collateralized loan obligations, hedge funds and certain private funds are often classified as alternative assets. Revenues in this segment are primarily earned as fees based on managed asset balances, which are impacted by market movements, net asset flows, asset allocation and product mix. We may also earn performance fees from certain accounts where

65

AMERIPRISE FINANCIAL, INC. 


investment performance meets or exceeds certain pre-identified targets. Our Asset Management segment also provides intercompany asset management services for Ameriprise Financial subsidiaries. The fees for such services are reflected within the Asset Management segment results through intersegment transfer pricing. Intersegment expenses for this segment include distribution expenses for services provided by our Advice & Wealth Management, Annuities and Protection segments.
From time to time, fee waivers have been provided to the Columbia Money Market Funds (the “Funds”) by Columbia Management and certain other subsidiaries performing services for the Funds for the purpose of reducing the expenses charged to a Fund in a given period to maintain or improve a Fund’s net yield in that period. Our subsidiaries may enter into contractual arrangements with the Funds identifying the specific fees to be waived and/or expenses to be reimbursed, as well as the time period for which such waivers will apply. In aggregate, we voluntarily waived fees of $2 million for both the three months ended September 30, 2015 and 2014.
The following tables present the mutual fund performance of our retail Columbia and Threadneedle funds as of September 30:
Columbia
Mutual Fund Rankings in top 2 Lipper Quartiles
 
 
 
 
2015
 
2014
Domestic Equity
Equal weighted
 
1 year
 
57
%
 
66
%
 
 
 
3 year
 
65
%
 
73
%
 
 
 
5 year
 
57
%
 
54
%
 
Asset weighted
 
1 year
 
59
%
 
62
%
 
 
 
3 year
 
72
%
 
68
%
 
 
 
5 year
 
70
%
 
60
%
 
 
 
 
 
 
 
 
International Equity
Equal weighted
 
1 year
 
68
%
 
73
%
 
 
 
3 year
 
73
%
 
59
%
 
 
 
5 year
 
70
%
 
60
%
 
Asset weighted
 
1 year
 
35
%
 
87
%
 
 
 
3 year
 
42
%
 
40
%
 
 
 
5 year
 
40
%
 
38
%
 
 
 
 
 
 
 
 
Taxable Fixed Income
Equal weighted
 
1 year
 
58
%
 
44
%
 
 
 
3 year
 
59
%
 
56
%
 
 
 
5 year
 
71
%
 
59
%
 
Asset weighted
 
1 year
 
72
%
 
66
%
 
 
 
3 year
 
82
%
 
69
%
 
 
 
5 year
 
85
%
 
70
%
 
 
 
 
 
 
 
 
Tax Exempt Fixed Income
Equal weighted
 
1 year
 
94
%
 
94
%
 
 
 
3 year
 
100
%
 
94
%
 
 
 
5 year
 
100
%
 
100
%
 
Asset weighted
 
1 year
 
99
%
 
84
%
 
 
 
3 year
 
100
%
 
84
%
 
 
 
5 year
 
100
%
 
100
%
 
 
 
 
 
 
 
 
Asset Allocation Funds
Equal weighted
 
1 year
 
90
%
 
58
%
 
 
 
3 year
 
67
%
 
64
%
 
 
 
5 year
 
88
%
 
89
%
 
Asset weighted
 
1 year
 
100
%
 
65
%
 
 
 
3 year
 
73
%
 
75
%
 
 
 
5 year
 
97
%
 
97
%
 
 
 
 
 
 
 
 

66

AMERIPRISE FINANCIAL, INC. 


Number of funds with 4 or 5 Morningstar star ratings
 
 
Overall
 
51

 
54

 
 
 
3 year
 
52

 
48

 
 
 
5 year
 
44

 
46

 
 
 
 
 
 
 
 
Percent of funds with 4 or 5 Morningstar star ratings
 
 
Overall
 
50
%
 
51
%
 
 
 
3 year
 
51
%
 
46
%
 
 
 
5 year
 
46
%
 
47
%
 
 
 
 
 
 
 
 
Percent of assets with 4 or 5 Morningstar star ratings
 
 
Overall
 
58
%
 
56
%
 
 
 
3 year
 
57
%
 
38
%
 
 
 
5 year
 
54
%
 
52
%
Mutual fund performance rankings are based on the performance of Class Z fund shares for Columbia branded mutual funds. Only funds with Class Z shares are included. In instances where a fund’s Class Z share does not have a full five year track record (prior to September 30, 2015), performance for an older share class of the same fund, typically Class A shares, is utilized for the period before Class Z shares were launched. No adjustments to the historical track records are made to account for differences in fund expenses between share classes of a fund. Starting September 30, 2015, legacy RiverSource funds have reached 5 years of Z share performance and will not be appended. Historical rankings will continue to be appended.
Equal Weighted Rankings in Top 2 Quartiles: Counts the number of funds with above median ranking divided by the total number of funds. Asset size is not a factor.
Asset Weighted Rankings in Top 2 Quartiles: Sums the total assets of the funds with above median ranking (using Class Z and appended Class Z) divided by total assets of all funds. Funds with more assets will receive a greater share of the total percentage above or below median.
Threadneedle
Retail Fund Rankings in Top 2 Morningstar Quartiles or Above Index Benchmark
 
2015
 
2014
Equity
Equal weighted
 
1 year
 
71
%
 
62
%
 
 
 
3 year
 
74
%
 
73
%
 
 
 
5 year
 
84
%
 
84
%
 
Asset weighted
 
1 year
 
67
%
 
57
%
 
 
 
3 year
 
68
%
 
61
%
 
 
 
5 year
 
93
%
 
84
%
 
 
 
 
 
 
 
 
Fixed Income
Equal weighted
 
1 year
 
56
%
 
70
%
 
 
 
3 year
 
68
%
 
74
%
 
 
 
5 year
 
71
%
 
62
%
 
Asset weighted
 
1 year
 
66
%
 
65
%
 
 
 
3 year
 
69
%
 
62
%
 
 
 
5 year
 
59
%
 
49
%
 
 
 
 
 
 
 
 
Allocation (Managed) Funds
Equal weighted
 
1 year
 
63
%
 
63
%
 
 
 
3 year
 
86
%
 
83
%
 
 
 
5 year
 
83
%
 
67
%
 
Asset weighted
 
1 year
 
73
%
 
51
%
 
 
 
3 year
 
93
%
 
93
%
 
 
 
5 year
 
93
%
 
55
%
The performance of each fund is measured on a consistent basis against the most appropriate benchmark — a peer group of similar funds or an index. 

67

AMERIPRISE FINANCIAL, INC. 


Equal weighted: Counts the number of funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total number of funds. Asset size is not a factor. 
Asset weighted: Sums the assets of the funds with above median ranking (if measured against peer group) or above index performance (if measured against an index) divided by the total sum of assets in the funds. Funds with more assets will receive a greater share of the total percentage above or below median or index. 
Aggregated Allocation (Managed) Funds include funds that invest in other funds of the Threadneedle range including those funds that invest in both equity and fixed income. 
Aggregated Threadneedle data includes funds on the Threadneedle platform sub-advised by Columbia as well as advisors not affiliated with Ameriprise Financial, Inc.
The following table presents ending balances and average managed assets:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
September 30,
 
 
 
 
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
 
(in billions)
Columbia managed assets
$
336.2

 
$
357.6

 
$
(21.4
)
 
(6
)%
 
$
349.3

 
$
361.2

 
$
(11.9
)
 
(3
)%
Threadneedle managed assets
139.2

 
150.4

 
(11.2
)
 
(7
)
 
147.0

 
155.1

 
(8.1
)
 
(5
)
Less: Sub-advised eliminations
(4.3
)
 
(3.2
)
 
(1.1
)
 
(34
)
 
(5.3
)
 
(3.3
)
 
(2.0
)
 
(61
)
Total managed assets
$
471.1

 
$
504.8

 
$
(33.7
)
 
(7
)%
 
$
491.0

 
$
513.0

 
$
(22.0
)
 
(4
)%
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.
The following table presents managed asset net flows:
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in billions)
 
 
Columbia managed asset net flows
$
(5.0
)
 
$
(2.3
)
 
$
(2.7
)
 
NM

Threadneedle managed asset net flows
(3.6
)
 
(1.9
)
 
(1.7
)
 
(89
)%
Less: Sub-advised eliminations
1.2

 
0.1

 
1.1

 
NM

Total managed asset net flows
$
(7.4
)
 
$
(4.1
)
 
$
(3.3
)
 
(80
)%
NM  Not Meaningful.
The following table presents managed assets by type:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
September 30,
 
 
 
 
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
 
(in billions)
Equity
$
248.9

 
$
277.3

 
$
(28.4
)
 
(10
)%
 
$
266.2

 
$
284.1

 
$
(17.9
)
 
(6
)%
Fixed income
184.7

 
194.6

 
(9.9
)
 
(5
)
 
187.3

 
196.1

 
(8.8
)
 
(4
)
Money market
6.5

 
6.6

 
(0.1
)
 
(2
)
 
6.7

 
6.5

 
0.2

 
3

Alternative
8.3

 
7.0

 
1.3

 
19

 
7.9

 
7.1

 
0.8

 
11

Hybrid and other
22.7

 
19.3

 
3.4

 
18

 
22.9

 
19.2

 
3.7

 
19

Total managed assets
$
471.1

 
$
504.8

 
$
(33.7
)
 
(7
)%
 
$
491.0

 
$
513.0

 
$
(22.0
)
 
(4
)%
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.

68

AMERIPRISE FINANCIAL, INC. 


The following tables present the changes in Columbia and Threadneedle managed assets:
 
Three Months Ended September 30,
 
2015
 
2014
 
(in billions)
Columbia Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
234.8

 
$
243.8

Mutual fund inflows
7.9

 
9.1

Mutual fund outflows
(12.4
)
 
(12.0
)
Net VP/VIT fund flows
(0.2
)
 
(0.2
)
Net new flows
(4.7
)
 
(3.1
)
Reinvested dividends
0.6

 
0.6

Net flows
(4.1
)
 
(2.5
)
Distributions
(0.7
)
 
(0.7
)
Market depreciation and other
(14.1
)
 
(3.5
)
Total ending assets
215.9

 
237.1

 
 
 
 
Institutional
 

 
 

Beginning assets
81.3

 
77.6

Inflows
4.4

 
5.5

Outflows
(5.7
)
 
(5.2
)
Net flows
(1.3
)
 
0.3

Market appreciation (depreciation) and other
(2.7
)
 
0.1

Total ending assets
77.3

 
78.0

 
 
 
 
Alternative
 

 
 

Beginning assets
7.3

 
6.4

Inflows
0.7

 
—

Outflows
(0.3
)
 
(0.1
)
Net flows
0.4

 
(0.1
)
Market depreciation and other
(0.1
)
 
(0.1
)
Total ending assets
7.6

 
6.2

Affiliated General Account Assets
35.4

 
36.3

Total Columbia managed assets
$
336.2

 
$
357.6

Total Columbia net flows
$
(5.0
)
 
$
(2.3
)

69

AMERIPRISE FINANCIAL, INC. 


 
Three Months Ended September 30,
 
2015
 
2014
 
(in billions)
Threadneedle Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
48.9

 
$
52.1

Mutual fund inflows
4.0

 
4.9

Mutual fund outflows
(5.2
)
 
(5.9
)
Net new flows
(1.2
)
 
(1.0
)
Reinvested dividends
—

 
—

Net flows
(1.2
)
 
(1.0
)
Distributions
(0.1
)
 
(0.1
)
Market depreciation
(1.4
)
 
(0.4
)
Foreign currency translation (1)
(1.8
)
 
(2.4
)
Other
0.1

 
0.1

Total ending assets
44.5

 
48.3

 
 
 
 
Institutional
 

 
 

Beginning assets
101.2

 
105.3

Inflows
1.9

 
1.8

Outflows
(4.3
)
 
(2.7
)
Net flows
(2.4
)
 
(0.9
)
Market appreciation (depreciation)
(1.7
)
 
1.2

Foreign currency translation (1)
(3.7
)
 
(4.9
)
Other
0.6

 
0.7

Total ending assets
94.0

 
101.4

 
 
 
 
Alternative
 

 
 

Beginning assets
0.6

 
0.7

Other
0.1

 
—

Total ending assets
0.7

 
0.7

Total Threadneedle managed assets
$
139.2

 
$
150.4

Total Threadneedle net flows
$
(3.6
)
 
$
(1.9
)
(1) Amounts represent British Pound to US dollar conversion.
Total segment AUM decreased $32.0 billion, or 6%, during the three months ended September 30, 2015 driven by market depreciation, net outflows and a negative impact of foreign currency translation. Total segment AUM net outflows were $7.4 billion for the three months ended September 30, 2015. Management expects, consistent with prior patterns of outflows, that outflows of primarily low margin assets directly or indirectly affiliated with Threadneedle and Columbia former parent companies will continue for the foreseeable future. The overall impact to segment results is difficult to quantify due to uncertain timing, volume and mix of the outflows.
Columbia managed assets decreased $22.3 billion, or 6%, during the three months ended September 30, 2015 primarily due to market depreciation and net outflows. Columbia retail funds decreased $18.9 billion, or 8%, during the three months ended September 30, 2015 primarily due to market depreciation and net outflows. Columbia retail net outflows of $4.1 billion during the third quarter of 2015 included $1.3 billion related to a client’s decision to exit its portfolio due to asset allocation and $0.5 billion of outflows from a former parent affiliated distribution relationship. We expect outflows in former parent affiliated assets to continue in the fourth quarter with additional outflows in low-fee common trust funds given U.S. Trust’s decision to manage a portion of these fixed income products in house. Underlying Columbia retail outflows were largely driven by $1.6 billion of outflows from the Columbia Acorn Fund as well as market volatility in the quarter that decreased investor demand. Outflows from the Columbia Acorn Fund have

70

AMERIPRISE FINANCIAL, INC. 


persisted and while investment performance has improved year to date, in the near term we expect that outflows may continue. Columbia institutional AUM decreased $4.0 billion, or 5%, during the three months ended September 30, 2015 due to market depreciation of $2.7 billion and net outflows of $1.3 billion primarily reflecting outflows from former parent affiliated distribution and former parent influenced mandates.
Threadneedle managed assets decreased $11.5 billion, or 8%, during the three months ended September 30, 2015 primarily due to a $5.5 billion negative impact of foreign currency translation, market depreciation of $3.1 billion and net outflows of $3.6 billion. Threadneedle retail funds decreased $4.4 billion, or 9%, during the three months ended September 30, 2015 due to a $1.8 billion negative impact of foreign currency translation, market depreciation of $1.4 billion and net outflows of $1.2 billion. Threadneedle institutional AUM decreased $7.2 billion, or 7%, during the three months ended September 30, 2015 primarily due to a $3.7 billion negative impact of foreign currency translation, market depreciation of $1.7 billion and net outflows of $2.4 billion. Threadneedle institutional net outflows during the third quarter of 2015 included outflows of $0.8 billion from legacy insurance assets and $2.0 billion related to a client’s decision to exit its portfolio due to specific liquidity needs, partially offset by new third party mandates.
The following table presents the results of operations of our Asset Management segment on an operating basis:
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
656

 
$
706

 
$
(50
)
 
(7
)%
Distribution fees
123

 
124

 
(1
)
 
(1
)
Net investment income
1

 
7

 
(6
)
 
(86
)
Other revenues
2

 
2

 
—

 
—

Total revenues
782

 
839

 
(57
)
 
(7
)
Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
782

 
839

 
(57
)
 
(7
)
Expenses
 

 
 

 
 

 
 

Distribution expenses
270

 
288

 
(18
)
 
(6
)
Amortization of deferred acquisition costs
4

 
4

 
—

 
—

Interest and debt expense
6

 
6

 
—

 
—

General and administrative expense
322

 
333

 
(11
)
 
(3
)
Total expenses
602

 
631

 
(29
)
 
(5
)
Operating earnings
$
180

 
$
208

 
$
(28
)
 
(13
)%
Our Asset Management segment pretax operating earnings, which exclude net realized investment gains or losses, decreased $28 million, or 13%, to $180 million for the three months ended September 30, 2015 compared to $208 million for the prior year period due to net outflows, a $10 million negative impact of foreign exchange, and a $9 million decrease from lower performance fees, partially offset by equity market appreciation and continued expense management.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $57 million, or 7%, to $782 million for the three months ended September 30, 2015 compared to $839 million for the prior year period primarily due to a decrease in management and financial advice fees.
Management and financial advice fees decreased $50 million, or 7%, to $656 million for the three months ended September 30, 2015 compared to $706 million for the prior year period primarily due to lower asset-based fees driven by a decrease in average AUM, a $13 million negative impact of foreign exchange, and a $9 million decrease in performance fees. Average AUM decreased $22.0 billion, or 4%, compared to the prior year period primarily due to net outflows and the negative impact of foreign currency translation, partially offset by market appreciation.
Expenses
Total expenses decreased $29 million, or 5%, to $602 million for the three months ended September 30, 2015 compared to $631 million for the prior year period due to an $18 million decrease in distribution expenses from lower retail fund assets and an $11 million decrease in general and administrative expense due to lower compensation-related costs.


71

AMERIPRISE FINANCIAL, INC. 


Annuities
Our Annuities segment provides variable and fixed annuity products of RiverSource Life companies to individual clients. We provide our variable annuity products through our advisors, and our fixed annuity products are distributed through both affiliated and unaffiliated advisors and financial institutions. Revenues from our variable annuity products are primarily earned as fees based on underlying account balances, which are impacted by both market movements and net asset flows. Revenues from our fixed annuity products are primarily earned as net investment income on assets supporting fixed account balances, with profitability significantly impacted by the spread between net investment income earned and interest credited on the fixed account balances. We also earn net investment income on owned assets supporting reserves for immediate annuities and for certain guaranteed benefits offered with variable annuities and on capital supporting the business. Intersegment revenues for this segment reflect fees paid by our Asset Management segment for marketing support and other services provided in connection with the availability of variable insurance trust funds (“VIT Funds”) under the variable annuity contracts. Intersegment expenses for this segment include distribution expenses for services provided by our Advice & Wealth Management segment, as well as expenses for investment management services provided by our Asset Management segment.
The following table presents the results of operations of our Annuities segment on an operating basis:
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
187

 
$
191

 
$
(4
)
 
(2
)%
Distribution fees
91

 
91

 
—

 
—

Net investment income
208

 
235

 
(27
)
 
(11
)
Premiums
25

 
26

 
(1
)
 
(4
)
Other revenues
121

 
112

 
9

 
8

Total revenues
632

 
655

 
(23
)
 
(4
)
Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
632

 
655

 
(23
)
 
(4
)
Expenses
 

 
 

 
 

 
 

Distribution expenses
111

 
110

 
1

 
1

Interest credited to fixed accounts
125

 
136

 
(11
)
 
(8
)
Benefits, claims, losses and settlement expenses
89

 
136

 
(47
)
 
(35
)
Amortization of deferred acquisition costs
66

 
78

 
(12
)
 
(15
)
Interest and debt expense
10

 
9

 
1

 
11

General and administrative expense
55

 
58

 
(3
)
 
(5
)
Total expenses
456

 
527

 
(71
)
 
(13
)
Operating earnings
$
176

 
$
128

 
$
48

 
38
 %
Our Annuities segment pretax operating income, which excludes net realized investment gains or losses (net of the related DSIC and DAC amortization) and the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), increased $48 million, or 38%, to $176 million for the three months ended September 30, 2015 compared to $128 million for the prior year period primarily due to the impact of unlocking, partially offset by the impact on DAC and DSIC from actual versus expected market performance and the negative impact from lower invested assets due to fixed annuity net outflows. The impact of unlocking was an increase to pretax operating income of $66 million for the third quarter of 2015 compared to a decrease of $22 million for the prior year period. The impact on DAC and DSIC from actual versus expected market performance based on our view of bond and equity performance was an expense of $29 million for the third quarter of 2015 compared to an expense of $6 million for the prior year period primarily due to more unfavorable equity market returns compared to the prior year period.
RiverSource variable annuity account balances decreased 4% to $72.8 billion at September 30, 2015 compared to the prior year period due to net outflows of $1.4 billion and market depreciation.
RiverSource fixed annuity account balances declined 12% to $10.9 billion at September 30, 2015 compared to the prior year period reflecting limited new sales from low interest rates and higher lapse rates related to the re-pricing of the five-year guarantee block during 2014, a portion of which came out of its surrender charge period earlier in 2015. The change in crediting rates decreased the level of spread compression in both periods.

72

AMERIPRISE FINANCIAL, INC. 


Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $23 million, or 4%, to $632 million for the three months ended September 30, 2015 compared to $655 million for the prior year period primarily due to lower net investment income.
Net investment income, which excludes net realized investment gains or losses, decreased $27 million, or 11%, to $208 million for the three months ended September 30, 2015 compared to $235 million for the prior year period primarily reflecting lower invested assets due to fixed annuity net outflows.
Other revenues increased $9 million, or 8%, to $121 million for the three months ended September 30, 2015 compared to $112 million for the prior year period due to higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates.
Expenses
Total expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and the DAC and DSIC offset to net realized investment gains or losses, decreased $71 million, or 13%, to $456 million for the three months ended September 30, 2015 compared to $527 million for the prior year period primarily due to the impact of unlocking and a decrease in interested credited to fixed accounts, partially offset by the impact on DAC and DSIC from actual versus expected market performance.
Interest credited to fixed accounts decreased $11 million, or 8%, to $125 million for the three months ended September 30, 2015 compared to $136 million for the prior year period driven by lower average fixed annuity account balances. Average fixed annuity account balances decreased $1.4 billion, or 12%, to $11.0 billion for the three months ended September 30, 2015 compared to the prior year period due to net outflows reflecting higher lapse rates and limited new sales due to low interest rates.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) and the DSIC offset to net realized investment gains or losses, decreased $47 million, or 35%, to $89 million for the three months ended September 30, 2015 compared to $136 million for the prior year period primarily reflecting the following items:
•
Benefits, claims, losses and settlement expenses for the third quarter of 2015 included a $61 million benefit from unlocking primarily reflecting an update to market-related inputs related to our living benefit valuation and a benefit from model changes that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. Benefits, claims, losses and settlement expenses for the third quarter of 2014 included a $5 million expense from unlocking primarily reflecting assumed interest rates, partially offset by a benefit from updating our variable annuity living benefit withdrawal utilization assumption.
•
A $4 million increase in expense related to higher reserve funding driven by the impact of higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date.
•
A $5 million increase in expense compared to the prior year period due to the impact on DSIC from actual versus expected market performance based on our view of bond and equity performance. This impact was an expense of $6 million for the third quarter of 2015 compared to an expense of $1 million for the prior year period primarily due to more unfavorable equity market returns compared to the prior year period.
Amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed benefits and the DAC offset to net realized investment gains or losses, decreased $12 million, or 15%, to $66 million for the three months ended September 30, 2015 compared to $78 million for the prior year period due to the impact of unlocking, partially offset by the impact on DAC from actual versus expected market performance based on our view of bond and equity performance. Amortization of DAC for the third quarter of 2015 included a $5 million benefit from unlocking primarily driven by improved persistency that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. Amortization of DAC for the third quarter of 2014 included a $17 million expense from unlocking primarily driven by assumed interest rates, partially offset by favorable persistency and mortality experience and a benefit from updating our variable annuity living benefit withdrawal utilization assumption. The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was an expense of $23 million for the third quarter of 2015 compared to an expense of $5 million for the prior year period primarily due to more unfavorable equity market returns compared to the prior year period.

Protection
Our Protection segment offers a variety of products to address the protection and risk management needs of our retail clients including life, DI and property casualty insurance. Life and DI products are primarily provided through our advisors. Our property casualty products are sold primarily through affinity relationships. We issue insurance policies through our life insurance and property casualty subsidiaries. The primary sources of revenues for this segment are premiums, fees and charges we receive to assume insurance-related risk. We earn net investment income on owned assets supporting insurance reserves and capital supporting the business. We also

73

AMERIPRISE FINANCIAL, INC. 


receive fees based on the level of assets supporting VUL separate account balances. This segment earns intersegment revenues from fees paid by our Asset Management segment for marketing support and other services provided in connection with the availability of VIT Funds under the VUL contracts. Intersegment expenses for this segment include distribution expenses for services provided by our Advice & Wealth Management segment, as well as expenses for investment management services provided by our Asset Management segment.
The following table presents the results of operations of our Protection segment on an operating basis:
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
14

 
$
14

 
$
—

 
—
 %
Distribution fees
24

 
24

 
—

 
—

Net investment income
118

 
111

 
7

 
6

Premiums
339

 
329

 
10

 
3

Other revenues
91

 
75

 
16

 
21

Total revenues
586

 
553

 
33

 
6

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
586

 
553

 
33

 
6

Expenses
 

 
 

 
 

 
 

Distribution expenses
12

 
14

 
(2
)
 
(14
)
Interest credited to fixed accounts
42

 
39

 
3

 
8

Benefits, claims, losses and settlement expenses
384

 
338

 
46

 
14

Amortization of deferred acquisition costs
50

 
26

 
24

 
92

Interest and debt expense
9

 
6

 
3

 
50

General and administrative expense
64

 
64

 
—

 
—

Total expenses
561

 
487

 
74

 
15

Operating earnings
$
25

 
$
66

 
$
(41
)
 
(62
)%
Our Protection segment pretax operating income, which excludes net realized investment gains or losses (net of the related DAC amortization, unearned revenue amortization and the reinsurance accrual) and the market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual), decreased $41 million, or 62%, to $25 million for the three months ended September 30, 2015 compared to $66 million for the prior year period primarily due to higher auto and home losses, higher life insurance claims and an $11 million unfavorable impact related to a life reinsurance premium correction in the third quarter of 2015, partially offset by a $13 million favorable impact related to a LTC future loss reserve adjustment in the third quarter of 2015.
Net Revenues
Net revenues, which exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, increased $33 million, or 6%, to $586 million for the three months ended September 30, 2015 compared to $553 million for the prior year period primarily due to the impact of unlocking and growth in auto and home premiums, partially offset by a $13 million unfavorable impact related to a life reinsurance premium correction in the third quarter of 2015.
Premiums increased $10 million, or 3%, to $339 million for the three months ended September 30, 2015 compared to $329 million for the prior year period due to a 5% increase in auto and home policies in force, partially offset by a $4 million unfavorable impact related to a life reinsurance premium correction in the third quarter of 2015.
Other revenues, which exclude the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits and the unearned revenue amortization and the reinsurance accrual offset to net realized investment gains or losses, increased $16 million, or 21%, to $91 million for the three months ended September 30, 2015 compared to $75 million for the prior year period due to the impact of unlocking, partially offset by a $9 million unfavorable impact related to a life reinsurance premium correction in the third quarter of 2015. Other revenues for the third quarter of 2015 included a $5 million negative impact from unlocking compared to a $29 million negative impact in the prior year period. The primary driver of the unlocking impact to other revenues for both periods was lower projected gains on reinsurance contracts resulting from favorable mortality experience.

74

AMERIPRISE FINANCIAL, INC. 


Expenses
Total expenses, which exclude the market impact on indexed universal life benefits (net of hedges and the related DAC amortization)and the DAC offset to net realized investment gains or losses, increased $74 million, or 15%, to $561 million for the three months ended September 30, 2015 compared to $487 million for the prior year period primarily due to the impact of unlocking, higher life insurance claims and an increase in auto and home reserves.
Benefits, claims, losses and settlement expenses increased $46 million, or 14%, to $384 million for the three months ended September 30, 2015 compared to $338 million for the prior year period primarily due to an increase in auto and home reserves and a $14 million increase in life insurance claims, partially offset by a $13 million decrease related to a LTC future loss reserve adjustment in the third quarter of 2015. Life insurance claims were higher in the third quarter of 2015 as a result of claims from several large, later duration policies that had limited reinsurance coverage. In addition, life insurance claims experience was favorable in the prior year period. Benefits, claims, losses and settlement expenses related to our auto and home business increased $37 million due to an increase in the provision for estimated losses reflecting the impact of growth in exposures from a 5% increase in policies in force, higher 2015 accident year loss ratio assumptions, and approximately $10 million in expense primarily related to deterioration in auto collision experience resulting from an increase in miles driven and lower salvage values, as well as losses associated with our travel insurance business and $5 million related to prior year catastrophe reserve development associated with hail storms from last year. Catastrophe losses were $8 million for the three months ended September 30, 2015 compared to $14 million for the prior year period.
Amortization of DAC, which excludes the DAC offset to the market impact on indexed universal life benefits and the DAC offset to net realized investment gains or losses, increased $24 million, or 92%, to $50 million for the three months ended September 30, 2015 compared to $26 million for the prior year period primarily due to the impact of unlocking. Amortization of DAC for the third quarter of 2015 included a $10 million expense from unlocking primarily driven by the difference between our previously assumed interest rates versus the continued low interest rate environment. Amortization of DAC for the third quarter of 2014 included a $9 million benefit from unlocking.

Corporate & Other
Our Corporate & Other segment consists of net investment income or loss on corporate level assets, including excess capital held in our subsidiaries and other unallocated equity and other revenues as well as unallocated corporate expenses. The Corporate & Other segment also includes revenues and expenses of CIEs, which are excluded on an operating basis.
The following table presents the results of operations of our Corporate & Other segment on an operating basis:
 
Three Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Net investment loss
$
(5
)
 
$
(3
)
 
$
(2
)
 
(67
)%
Other revenues
1

 
2

 
(1
)
 
(50
)
Total revenues
(4
)
 
(1
)
 
(3
)
 
NM

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
(4
)
 
(1
)
 
(3
)
 
NM

Expenses
 

 
 

 
 

 
 
Distribution expense
—

 
1

 
(1
)
 
NM

Interest and debt expense
3

 
3

 
—

 
—

General and administrative expense
35

 
48

 
(13
)
 
(27
)
Total expenses
38

 
52

 
(14
)
 
(27
)
Operating loss
$
(42
)
 
$
(53
)
 
$
11

 
21
 %
NM  Not Meaningful.
Our Corporate & Other segment pretax operating loss excludes net realized investment gains or losses, the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact of consolidating CIEs. Our Corporate & Other segment pretax operating loss decreased $11 million, or 21%, to $42 million for the three months ended September 30, 2015 compared to $53 million for the prior year period due to a $13 million decrease in general and administrative expense primarily due to lower compensation-related costs.


75

AMERIPRISE FINANCIAL, INC. 


Consolidated Results of Operations for the Nine Months Ended September 30, 2015 and 2014
The following table presents our consolidated results of operations:
 
Nine Months Ended September 30,
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Management and financial advice fees
$
4,451

 
$
4,321

 
$
130

 
3
 %
Distribution fees
1,389

 
1,410

 
(21
)
 
(1
)
Net investment income
1,228

 
1,332

 
(104
)
 
(8
)
Premiums
1,081

 
1,026

 
55

 
5

Other revenues
939

 
1,111

 
(172
)
 
(15
)
Total revenues
9,088

 
9,200

 
(112
)
 
(1
)
Banking and deposit interest expense
21

 
21

 
—

 
—

Total net revenues
9,067

 
9,179

 
(112
)
 
(1
)
Expenses
 
 
 
 
 
 
 
Distribution expenses
2,460

 
2,409

 
51

 
2

Interest credited to fixed accounts
503

 
529

 
(26
)
 
(5
)
Benefits, claims, losses and settlement expenses
1,547

 
1,414

 
133

 
9

Amortization of deferred acquisition costs
302

 
281

 
21

 
7

Interest and debt expense
271

 
237

 
34

 
14

General and administrative expense
2,288

 
2,320

 
(32
)
 
(1
)
Total expenses
7,371

 
7,190

 
181

 
3

Income from continuing operations before income tax provision
1,696

 
1,989

 
(293
)
 
(15
)
Income tax provision
389

 
441

 
(52
)
 
(12
)
Income from continuing operations
1,307

 
1,548

 
(241
)
 
(16
)
Loss from discontinued operations, net of tax
—

 
(1
)
 
1

 
NM

Net income
1,307

 
1,547

 
(240
)
 
(16
)
Less: Net income attributable to noncontrolling interests
102

 
353

 
(251
)
 
(71
)
Net income attributable to Ameriprise Financial
$
1,205

 
$
1,194

 
$
11

 
1
 %
NM  Not Meaningful.
Income from continuing operations before income tax provision decreased $293 million, or 15%, to $1.7 billion for the nine months ended September 30, 2015 compared to $2.0 billion for the prior year period primarily reflecting a $251 million decrease in net income from CIEs, a $40 million benefit in the prior year period from policyholder movement of investments in Portfolio Navigator (traditional asset allocation) funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer (managed volatility) funds compared to a $6 million benefit for the current period, higher life insurance claims, an increase in auto and home reserves, fixed annuity net outflows, a negative impact of foreign exchange, asset management net outflows, the unfavorable market impact of hedges on investments and the impact on DAC and DSIC from actual versus expected market performance, partially offset by the favorable impact of unlocking, wrap account net inflows, market appreciation and lower compensation-related expense.
The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $75 million for the nine months ended September 30, 2015 compared to an expense of $60 million for the prior year period. The impact on DAC and DSIC from actual versus expected market performance based on our view of bond and equity performance was an expense of $25 million for the nine months ended September 30, 2015 reflecting unfavorable equity market returns compared to a benefit of $18 million for the prior year period reflecting favorable equity market returns and bond fund returns.
See the table of total pretax impacts on our revenues and expenses attributable to unlocking within our Consolidated Results of Operations for the nine months ended September 30, 2015.

76

AMERIPRISE FINANCIAL, INC. 


Net Revenues
Net revenues decreased $112 million, or 1%, to $9.1 billion for the nine months ended September 30, 2015 compared to $9.2 billion for the prior year period primarily due to decreases in net investment income and other revenues, partially offset by increases in management and financial advice fees and premiums.
Management and financial advice fees increased $130 million, or 3%, to $4.5 billion for the nine months ended September 30, 2015 compared to $4.3 billion for the prior year period primarily due to higher asset-based fees driven by an increase in average AUM. Average AUM increased $9.6 billion, or 1%, compared to the prior year period primarily due to market appreciation and wrap account net inflows, partially offset by asset management net outflows and the negative impact of foreign currency translation. See our discussion on the changes in AUM in our segment results of operations section.
Net investment income decreased $104 million, or 8%, to $1.2 billion for the nine months ended September 30, 2015 compared to $1.3 billion for the prior year period primarily due to a $59 million decrease in investment income on fixed maturities due to low interest rates and a decrease in invested assets, a $32 million loss related to the market impact of hedges on investments and a $5 million decrease in net realized investment gains.
Premiums increased $55 million, or 5%, to $1.1 billion for the nine months ended September 30, 2015 compared to $1.0 billion for the prior year period due to a 5% increase in auto and home policies in force.
Other revenues decreased $172 million, or 15%, to $939 million for the nine months ended September 30, 2015 compared to $1.1 billion for the prior year period due to a $227 million decrease in other revenues of CIEs, partially offset by the impact of unlocking and higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates. Other revenues for the nine months ended September 30, 2015 included an $8 million favorable impact from unlocking compared to a $29 million negative impact in the prior year period. The primary driver of the unlocking impact to other revenues for the nine months ended September 30, 2015 was a positive impact from model updates related to our indexed universal life product, partially offset by a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The primary driver of the unlocking impact to other revenues for the prior year period was lower projected gains on reinsurance contracts resulting from favorable mortality experience.
Expenses
Total expenses increased $181 million, or 3%, to $7.4 billion for the nine months ended September 30, 2015 compared to $7.2 billion for the prior year period primarily due to increases in distribution expenses and benefits, claims, losses and settlement expenses.
Distribution expenses increased $51 million, or 2%, to $2.5 billion for the nine months ended September 30, 2015 compared to $2.4 billion for the prior year period driven by higher advisor compensation due to growth in assets under management. See our discussion on the changes in AUM in our segment results of operations section.
Interest credited to fixed accounts decreased $26 million, or 5%, to $503 million for the nine months ended September 30, 2015 compared to $529 million for the prior year period primarily due to lower average fixed annuity account balances, partially offset by the market impact on indexed universal life benefits, net of hedges, which was an expense of $5 million for the nine months ended September 30, 2015 and a benefit of $8 million for the prior year period. Average fixed annuity account balances decreased $1.3 billion, or 10%, to $11.5 billion for the nine months ended September 30, 2015 compared to the prior year period due to net outflows reflecting higher lapse rates and limited new sales due to low interest rates.
Benefits, claims, losses and settlement expenses increased $133 million, or 9%, to $1.5 billion for the nine months ended September 30, 2015 compared to $1.4 billion for the prior year period primarily reflecting the following items:
•
The nine months ended September 30, 2015 included a $58 million benefit from unlocking compared to a $6 million expense in the prior year period. The unlocking impact for the nine months ended September 30, 2015 primarily reflected an update to market-related inputs related to our living benefit valuation and a benefit from model changes that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. The unlocking impact for the prior year period reflected assumed interest rates, partially offset by a benefit from updating our variable annuity living benefit withdrawal utilization assumption.
•
An $83 million increase in benefits, claims, losses and settlement expenses related to our auto and home business due to an increase in the provision for estimated losses reflecting the impact of growth in exposures from a 5% increase in policies in force, higher 2015 accident year loss ratio assumptions, and approximately $10 million in expense primarily related to deterioration in auto collision experience resulting from an increase in miles driven and lower salvage values, as well as losses of $6 million associated with our travel insurance business and $8 million related to prior year catastrophe reserve development associated with hail storms from last year. Auto and home losses for the prior year period included a $30 million impact related to an increase to prior accident year loss reserves and $11 million from non-catastrophe weather-related losses in the first quarter

77

AMERIPRISE FINANCIAL, INC. 


of 2014. Catastrophe losses were $65 million for the nine months ended September 30, 2015 compared to $56 million for the prior year period.
•
A $13 million increase in expense related to higher reserve funding driven by the impact of higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date.
•
An increase in expenses compared to the prior year period due to a $48 million benefit for the nine months ended September 30, 2014 from policyholder movement of investments in Portfolio Navigator funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds compared to a $7 million benefit for the nine months ended September 30, 2015.
•
A $20 million increase in life insurance claims compared to the prior year period.
•
A $9 million increase in expense compared to the prior year period due to the impact on DSIC from actual versus expected market performance based on our view of bond and equity performance. This impact was an expense of $5 million for the nine months ended September 30, 2015 reflecting unfavorable equity market returns compared to a benefit of $4 million for the prior year period reflecting favorable equity market returns and bond fund returns.
•
An $88 million decrease in expense compared to the prior year period from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense. The favorable impact of the nonperformance credit spread was $166 million for the nine months ended September 30, 2015 compared to a favorable impact of $78 million for the prior year period.
•
A $101 million increase in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This increase was the result of an unfavorable $197 million change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $99 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits and an unfavorable $3 million DSIC offset. The main market drivers contributing to these changes are summarized below:
•
Interest rate impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in higher expense in the 2015 period compared to the 2014 period.
•
Equity markets generally decreased in the 2015 period resulting in an unfavorable change in the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets whereas equity markets generally increased in the 2014 period resulting in a favorable change.
•
Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net unfavorable impact compared to the prior year period.
Amortization of DAC increased $21 million, or 7%, to $302 million for the nine months ended September 30, 2015 compared to $281 million for the prior year period. The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was an expense of $20 million for the nine months ended September 30, 2015 reflecting unfavorable equity market returns compared to a benefit of $14 million for the prior year period reflecting favorable equity market returns and bond fund returns. Amortization of DAC for the nine months ended September 30, 2015 included a favorable impact compared to the prior year period from higher than expected persistency on variable annuity business and lower expected amortization on fixed annuities due to the decline in the size of the block.
Interest and debt expense increased $34 million, or 14%, to $271 million for the nine months ended September 30, 2015 compared to $237 million for the prior year period primarily due to an increase in interest and debt expense of CIEs.
General and administrative expenses decreased $32 million, or 1%, to $2.3 billion for the nine months ended September 30, 2015 compared to $2.3 billion for the prior year period primarily due to lower compensation-related expense, an $18 million positive impact of foreign exchange and provisions for regulatory reserves in the second quarter of 2014, partially offset by a $10 million increase in expenses of CIEs.
Income Taxes
Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was 23.0% for the nine months ended September 30, 2015 compared to 22.2% for the prior year period. Our effective tax rate on income from continuing operations excluding income attributable to noncontrolling interests was 24.4% for the nine months ended September 30, 2015 compared to 26.9% for the prior year period. The effective tax rates for the nine months ended September 30, 2015 and 2014 were lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits.


78

AMERIPRISE FINANCIAL, INC. 


Results of Operations by Segment for the Nine Months Ended September 30, 2015 and 2014 
The following table presents summary financial information by segment:
 
Nine Months Ended September 30,
 
2015
 
2014
 
(in millions)
Advice & Wealth Management
 

 
 

Net revenues
$
3,747

 
$
3,557

Expenses
3,098

 
2,977

Operating earnings
$
649

 
$
580

Asset Management
 

 
 

Net revenues
$
2,421

 
$
2,490

Expenses
1,853

 
1,900

Operating earnings
$
568

 
$
590

Annuities
 

 
 

Net revenues
$
1,914

 
$
1,942

Expenses
1,416

 
1,468

Operating earnings
$
498

 
$
474

Protection
 

 
 

Net revenues
$
1,776

 
$
1,687

Expenses
1,628

 
1,471

Operating earnings
$
148

 
$
216

Corporate & Other
 

 
 

Net revenues
$
(12
)
 
$
3

Expenses
149

 
186

Operating loss
$
(161
)
 
$
(183
)
See the table of total pretax impacts on our revenues and expenses attributable to unlocking within our Results of Operations by Segment for the three months ended September 30, 2015.

Advice & Wealth Management
The following table presents the changes in wrap account assets and average balances for the nine months ended September 30:
 
2015
 
2014
 
(in billions)
Beginning balance
$
174.7

 
$
153.5

Net flows (1)
9.1

 
11.1

Market appreciation (depreciation) and other (1)
(10.0
)
 
4.6

Ending balance
$
173.8

 
$
169.2

 
 
 
 
Advisory wrap account assets ending balance (2)
$
172.3

 
$
168.2

Average advisory wrap account assets (3)
$
177.9

 
$
161.2

(1) 
Beginning April 1, 2014, net flows reflect all additions and withdrawals to and from the SPS wrap account program. For all periods presented prior to April 1, 2014, additions and withdrawals to and from certain non-billable investments of this program were reflected in the Market appreciation and other line and purchases and sales of billable investments were reported in the Net flows line. Nets flows for the SPS program are now reported on a consistent basis with our other wrap account programs.
(2) 
Advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts. Clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee.
(3) 
Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.

79

AMERIPRISE FINANCIAL, INC. 


Wrap account assets decreased $0.9 billion, or 1%, during the nine months ended September 30, 2015 due to market depreciation and other of $10.0 billion, partially offset by net inflows of $9.1 billion. Average advisory wrap account assets increased $16.7 billion, or 10%, compared to the prior year period due to net inflows and market appreciation.
The following table presents the results of operations of our Advice & Wealth Management segment on an operating basis:
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Management and financial advice fees
$
1,961

 
$
1,780

 
$
181

 
10
 %
Distribution fees
1,644

 
1,642

 
2

 
—

Net investment income
108

 
101

 
7

 
7

Other revenues
55

 
55

 
—

 
—

Total revenues
3,768

 
3,578

 
190

 
5

Banking and deposit interest expense
21

 
21

 
—

 
—

Total net revenues
3,747

 
3,557

 
190

 
5

Expenses
 

 
 

 
 
 
 

Distribution expenses
2,304

 
2,183

 
121

 
6

Interest and debt expense
6

 
5

 
1

 
20

General and administrative expense
788

 
789

 
(1
)
 
—

Total expenses
3,098

 
2,977

 
121

 
4

Operating earnings
$
649

 
$
580

 
$
69

 
12
 %
Our Advice & Wealth Management segment pretax operating earnings, which exclude net realized investment gains or losses, increased $69 million, or 12%, to $649 million for the nine months ended September 30, 2015 compared to $580 million for the prior year period primarily due to growth in wrap account assets and continued expense management. Pretax operating margin was 17.3% for the nine months ended September 30, 2015 compared to 16.3% for the prior year period.
Net Revenues
Net revenues exclude net realized investment gains or losses. Net revenues increased $190 million, or 5%, to $3.7 billion for the nine months ended September 30, 2015 compared to $3.6 billion for the prior year period primarily reflecting growth in wrap account assets. Operating net revenue per branded advisor increased to $385,000 for the nine months ended September 30, 2015, up 5%, from $367,000 for the prior year period driven by asset growth.
Management and financial advice fees increased $181 million, or 10%, to $2.0 billion for the nine months ended September 30, 2015 compared to $1.8 billion for the prior year period driven by growth in wrap account assets. Average advisory wrap account assets increased $16.7 billion, or 10%, compared to the prior year period due to net inflows and market appreciation. See our discussion of the changes in wrap account assets above.
Expenses
Total expenses increased $121 million, or 4%, to $3.1 billion for the nine months ended September 30, 2015 compared to $3.0 billion for the prior year period due to a $121 million increase in distribution expenses driven by higher advisor compensation due to growth in wrap account assets.


80

AMERIPRISE FINANCIAL, INC. 


Asset Management
In aggregate, we voluntarily waived fees of $6 million and $8 million for the nine months ended September 30, 2015 and 2014, respectively. See our discussion on fee waivers within our Asset Management Results of Operations for the nine months ended September 30, 2015.
The following table presents ending balances and average managed assets:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
 
(in billions)
Columbia managed assets
$
336.2

 
$
357.6

 
$
(21.4
)
 
(6
)%
 
$
357.8

 
$
358.6

 
$
(0.8
)
 
—
 %
Threadneedle managed assets
139.2

 
150.4

 
(11.2
)
 
(7
)
 
148.7

 
151.5

 
(2.8
)
 
(2
)
Less: Sub-advised eliminations
(4.3
)
 
(3.2
)
 
(1.1
)
 
(34
)
 
(5.1
)
 
(3.4
)
 
(1.7
)
 
(50
)
Total managed assets
$
471.1

 
$
504.8

 
$
(33.7
)
 
(7
)%
 
$
501.4

 
$
506.7

 
$
(5.3
)
 
(1
)%
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.
The following table presents managed asset net flows:
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in billions)
 
 
Columbia managed asset net flows
$
(8.5
)
 
$
(4.8
)
 
$
(3.7
)
 
(77
)%
Threadneedle managed asset net flows
(5.5
)
 
1.1

 
(6.6
)
 
NM

Less: Sub-advised eliminations
(1.2
)
 
0.1

 
(1.3
)
 
NM

Total managed asset net flows
$
(15.2
)
 
$
(3.6
)
 
$
(11.6
)
 
NM

NM  Not Meaningful.
The following table presents managed assets by type:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
September 30,
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
 
(in billions)
Equity
$
248.9

 
$
277.3

 
$
(28.4
)
 
(10
)%
 
$
274.7

 
$
279.0

 
$
(4.3
)
 
(2
)%
Fixed income
184.7

 
194.6

 
(9.9
)
 
(5
)
 
190.7

 
196.3

 
(5.6
)
 
(3
)
Money market
6.5

 
6.6

 
(0.1
)
 
(2
)
 
6.6

 
6.6

 
—

 
—

Alternative
8.3

 
7.0

 
1.3

 
19

 
7.7

 
6.9

 
0.8

 
12

Hybrid and other
22.7

 
19.3

 
3.4

 
18

 
21.7

 
17.9

 
3.8

 
21

Total managed assets
$
471.1

 
$
504.8

 
$
(33.7
)
 
(7
)%
 
$
501.4

 
$
506.7

 
$
(5.3
)
 
(1
)%
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.

81

AMERIPRISE FINANCIAL, INC. 


The following tables present the changes in Columbia and Threadneedle managed assets:
 
Nine Months Ended September 30,
 
2015
 
2014
 
(in billions)
Columbia Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
237.7

 
$
239.4

Mutual fund inflows
25.9

 
26.4

Mutual fund outflows
(37.6
)
 
(34.6
)
Net VP/VIT fund flows
(0.6
)
 
(0.6
)
Net new flows
(12.3
)
 
(8.8
)
Reinvested dividends
4.6

 
4.4

Net flows
(7.7
)
 
(4.4
)
Distributions
(5.5
)
 
(5.3
)
Market appreciation (depreciation) and other
(8.6
)
 
7.4

Total ending assets
215.9

 
237.1

 
 
 
 
Institutional
 

 
 

Beginning assets
80.7

 
75.6

Inflows
14.4

 
14.6

Outflows
(16.2
)
 
(15.5
)
Net flows
(1.8
)
 
(0.9
)
Market appreciation (depreciation) and other
(1.6
)
 
3.3

Total ending assets
77.3

 
78.0

 
 
 
 
Alternative
 

 
 

Beginning assets
6.7

 
5.6

Inflows
1.5

 
1.1

Outflows
(0.5
)
 
(0.6
)
Net flows
1.0

 
0.5

Market appreciation (depreciation) and other
(0.1
)
 
0.1

Total ending assets
7.6

 
6.2

Affiliated General Account Assets
35.4

 
36.3

Total Columbia managed assets
$
336.2

 
$
357.6

Total Columbia net flows
$
(8.5
)
 
$
(4.8
)

82

AMERIPRISE FINANCIAL, INC. 


 
Nine Months Ended September 30,
 
2015
 
2014
 
(in billions)
Threadneedle Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
46.5

 
$
50.6

Mutual fund inflows
15.1

 
17.7

Mutual fund outflows
(15.1
)
 
(19.7
)
Net new flows
—

 
(2.0
)
Reinvested dividends
0.1

 
0.1

Net flows
0.1

 
(1.9
)
Distributions
(0.4
)
 
(0.4
)
Market depreciation
(0.8
)
 
—

Foreign currency translation (1)
(1.1
)
 
(0.8
)
Other (2)
0.2

 
0.8

Total ending assets
44.5

 
48.3

 
 
 
 
Institutional
 

 
 

Beginning assets
100.7

 
96.1

Inflows
6.9

 
11.5

Outflows
(12.5
)
 
(8.4
)
Net flows
(5.6
)
 
3.1

Market appreciation (depreciation)
(0.9
)
 
1.8

Foreign currency translation (1)
(2.5
)
 
(1.8
)
Other
2.3

 
2.2

Total ending assets
94.0

 
101.4

 
 
 
 
Alternative
 

 
 

Beginning assets
0.7

 
0.8

Inflows
—

 
—

Outflows
—

 
(0.1
)
Net flows
—

 
(0.1
)
Total ending assets
0.7

 
0.7

Total Threadneedle managed assets
$
139.2

 
$
150.4

Total Threadneedle net flows
$
(5.5
)
 
$
1.1

(1) Amounts represent British Pound to US dollar conversion.
(2) Other for Q2 2015 includes $(0.5) billion related to the sale of the Multi-Manager business.
Total segment AUM decreased $34.5 billion, or 7%, during the nine months ended September 30, 2015 driven by market depreciation, net outflows and a negative impact of foreign currency translation. Total segment AUM net outflows were $15.2 billion for the nine months ended September 30, 2015. Management expects, consistent with prior patterns of outflows, that outflows of primarily low margin assets directly or indirectly affiliated with Threadneedle and Columbia former parent companies will continue for the foreseeable future. The overall impact to segment results is difficult to quantify due to uncertain timing, volume and mix of the outflows.
Columbia managed assets decreased $25.0 billion, or 7%, during the nine months ended September 30, 2015 primarily due to market depreciation, net outflows and retail fund distributions. Columbia retail funds decreased $21.8 billion, or 9%, during the nine months ended September 30, 2015 due to market depreciation, net outflows and retail fund distributions. Columbia retail net outflows of $7.7 billion during the nine months ended September 30, 2015 included $1.3 billion related to a client’s decision in the third quarter to exit its portfolio due to asset allocation and $1.4 billion of outflows from a former parent affiliated distribution relationship.

83

AMERIPRISE FINANCIAL, INC. 


Underlying Columbia retail outflows were largely driven by $6.5 billion of outflows from the Columbia Acorn Fund as well as market volatility in the third quarter that decreased investor demand, offset by normal seasonal increases in reinvested dividends in the second quarter. Columbia institutional AUM decreased $3.4 billion, or 4%, during the nine months ended September 30, 2015 due to market depreciation and other of $1.6 billion and net outflows of $1.8 billion primarily reflecting outflows from former parent affiliated distribution and former parent influenced mandates.
Threadneedle managed assets decreased $8.7 billion, or 6%, during the nine months ended September 30, 2015 primarily due to a $3.6 billion negative impact of foreign currency translation, market depreciation of $1.7 billion and net outflows of $5.5 billion. Threadneedle retail funds decreased $2.0 billion, or 4%, during the nine months ended September 30, 2015 due to a $1.1 billion negative impact of foreign currency translation and market depreciation of $0.8 billion. Threadneedle institutional AUM decreased $6.7 billion, or 7%, during the nine months ended September 30, 2015 primarily due to a $2.5 billion negative impact of foreign currency translation and net outflows of $5.6 billion. Threadneedle institutional net outflows during the nine months ended September 30, 2015 included outflows of $4.3 billion from legacy insurance assets and $2.0 billion related to a client’s decision in the third quarter to exit its portfolio due to specific liquidity needs, partially offset by new third party mandates.
The following table presents the results of operations of our Asset Management segment on an operating basis:
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
2,026

 
$
2,093

 
$
(67
)
 
(3
)%
Distribution fees
376

 
368

 
8

 
2

Net investment income
11

 
24

 
(13
)
 
(54
)
Other revenues
8

 
5

 
3

 
60

Total revenues
2,421

 
2,490

 
(69
)
 
(3
)
Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
2,421

 
2,490

 
(69
)
 
(3
)
Expenses
 

 
 

 
 

 
 

Distribution expenses
826

 
863

 
(37
)
 
(4
)
Amortization of deferred acquisition costs
12

 
12

 
—

 
—

Interest and debt expense
19

 
19

 
—

 
—

General and administrative expense
996

 
1,006

 
(10
)
 
(1
)
Total expenses
1,853

 
1,900

 
(47
)
 
(2
)
Operating earnings
$
568

 
$
590

 
$
(22
)
 
(4
)%
Our Asset Management segment pretax operating earnings, which exclude net realized investment gains or losses, decreased $22 million, or 4%, to $568 million for the nine months ended September 30, 2015 compared to $590 million for the prior year period due to net outflows, a $20 million negative impact of foreign exchange and a $17 million benefit from a CLO liquidation in the prior year period, partially offset by equity market appreciation and continued expense management.
Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $69 million, or 3%, to $2.4 billion for the nine months ended September 30, 2015 compared to $2.5 billion for the prior year period due to decreases in management and financial advice fees and net investment income.
Management and financial advice fees decreased $67 million, or 3%, to $2.0 billion for the nine months ended September 30, 2015 compared to $2.1 billion for the prior year period primarily due to lower asset-based fees driven by a decrease in average AUM, a $45 million negative impact of foreign exchange and a $14 million benefit from a CLO liquidation in the prior year period, partially offset by an $11 million increase in performance fees. Average AUM decreased $5.3 billion, or 1%, compared to the prior year period primarily due to net outflows and the negative impact of foreign currency translation, partially offset by market appreciation.
Net investment income decreased $13 million, or 54%, to $11 million for the nine months ended September 30, 2015 compared to $24 million for the prior year period primarily due to a $9 million benefit from a CLO liquidation in the prior year period.


84

AMERIPRISE FINANCIAL, INC. 


Expenses
Total expenses decreased $47 million, or 2%, to $1.9 billion for the nine months ended September 30, 2015 compared to $1.9 billion for the prior year period due to a $37 million decrease in distribution expenses from lower retail fund assets and a $10 million decrease in general and administrative expense primarily due to an $18 million benefit from the impact of foreign exchange, partially offset by an $11 million increase in compensation related to higher performance fees.

Annuities
The following table presents the results of operations of our Annuities segment on an operating basis:
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
569

 
$
563

 
$
6

 
1
 %
Distribution fees
274

 
270

 
4

 
1

Net investment income
647

 
711

 
(64
)
 
(9
)
Premiums
77

 
84

 
(7
)
 
(8
)
Other revenues
347

 
314

 
33

 
11

Total revenues
1,914

 
1,942

 
(28
)
 
(1
)
Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
1,914

 
1,942

 
(28
)
 
(1
)
Expenses
 

 
 

 
 

 
 

Distribution expenses
335

 
326

 
9

 
3

Interest credited to fixed accounts
377

 
423

 
(46
)
 
(11
)
Benefits, claims, losses and settlement expenses
339

 
335

 
4

 
1

Amortization of deferred acquisition costs
168

 
183

 
(15
)
 
(8
)
Interest and debt expense
29

 
28

 
1

 
4

General and administrative expense
168

 
173

 
(5
)
 
(3
)
Total expenses
1,416

 
1,468

 
(52
)
 
(4
)
Operating earnings
$
498

 
$
474

 
$
24

 
5
 %
Our Annuities segment pretax operating income, which excludes net realized investment gains or losses (net of the related DSIC and DAC amortization) and the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), increased $24 million, or 5%, to $498 million for the nine months ended September 30, 2015 compared to $474 million for the prior year period primarily due to the impact of unlocking, partially offset by the impact on DAC and DSIC from actual versus expected market performance, the negative impact from lower invested assets due to fixed annuity net outflows and a $42 million benefit in the prior year period from policyholder movement of investments in Portfolio Navigator funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds compared to a $6 million benefit in the current period. The impact of unlocking was an increase to pretax operating income of $66 million for the nine months ended September 30, 2015 compared to a decrease of $22 million for the prior year period. The impact on DAC and DSIC from actual versus expected market performance based on our view of bond and equity performance was an expense of $24 million for the nine months ended September 30, 2015 compared to a benefit of $17 million for the prior year period primarily due to more unfavorable equity market returns compared to the prior year period.
RiverSource variable annuity account balances decreased 4% to $72.8 billion at September 30, 2015 compared to the prior year period due to net outflows of $1.4 billion and market depreciation.
RiverSource fixed annuity account balances declined 12% to $10.9 billion at September 30, 2015 compared to the prior year period reflecting limited new sales from low interest rates and higher lapse rates related to the re-pricing of the five-year guarantee block during 2014, a portion of which came out of its surrender charge period earlier in 2015. The change in crediting rates decreased the level of spread compression in both periods.

85

AMERIPRISE FINANCIAL, INC. 


Net Revenues
Net revenues, which exclude net realized investment gains or losses, decreased $28 million, or 1%, to $1.9 billion for the nine months ended September 30, 2015 compared to $1.9 billion for the prior year period primarily due to lower net investment income, partially offset by an increase in other revenues.
Net investment income, which excludes net realized investment gains or losses, decreased $64 million, or 9%, to $647 million for the nine months ended September 30, 2015 compared to $711 million for the prior year period primarily reflecting lower invested assets due to fixed annuity net outflows.
Other revenues increased $33 million, or 11%, to $347 million for the nine months ended September 30, 2015 compared to $314 million for the prior year period due to higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date and higher average fee rates.
Expenses
Total expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) and the DAC and DSIC offset to net realized investment gains or losses, decreased $52 million, or 4%, to $1.4 billion for the nine months ended September 30, 2015 compared to $1.5 billion for the prior year period primarily due to the impact of unlocking and a decrease in interested credited to fixed accounts, partially offset by the impact on DAC and DSIC from actual versus expected market performance.
Interest credited to fixed accounts decreased $46 million, or 11%, to $377 million for the nine months ended September 30, 2015 compared to $423 million for the prior year period due to lower average fixed annuity account balances. Average fixed annuity account balances decreased $1.3 billion, or 10%, to $11.5 billion for the nine months ended September 30, 2015 compared to the prior year period due to net outflows reflecting higher lapse rates and limited new sales due to low interest rates.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) and the DSIC offset to net realized investment gains or losses, increased $4 million, or 1%, to $339 million for the nine months ended September 30, 2015 compared to $335 million for the prior year period primarily reflecting the following items:
•
Benefits, claims, losses and settlement expenses for the nine months ended September 30, 2015 included a $61 million benefit from unlocking primarily reflecting an update to market-related inputs related to our living benefit valuation and a benefit from model changes that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. Benefits, claims, losses and settlement expenses for the prior year period included a $5 million expense from unlocking primarily reflecting assumed interest rates, partially offset by a benefit from updating our variable annuity living benefit withdrawal utilization assumption.
•
An increase in expenses compared to the prior year period due to a $50 million benefit for the nine months ended September 30, 2014 from policyholder movement of investments in Portfolio Navigator funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds compared to a $7 million benefit for the nine months ended September 30, 2015.
•
A $13 million increase in expense related to higher reserve funding driven by the impact of higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date.
•
A $9 million increase in expense compared to the prior year period due to the impact on DSIC from actual versus expected market performance based on our view of bond and equity performance. This impact was an expense of $5 million for the nine months ended September 30, 2015 reflecting unfavorable equity market returns compared to a benefit of $4 million for the prior year period reflecting favorable equity market returns and bond fund returns.
Amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed benefits and the DAC offset to net realized investment gains or losses, decreased $15 million, or 8%, to $168 million for the nine months ended September 30, 2015 compared to $183 million for the prior year period. Amortization of DAC for the nine months ended September 30, 2015 included a $5 million benefit from unlocking primarily driven by improved persistency that more than offset the difference between our previously assumed interest rates versus the continued low interest rate environment. Amortization of DAC for the prior year period included a $17 million expense from unlocking primarily driven by assumed interest rates, partially offset by favorable persistency and mortality experience and a benefit from updating our variable annuity living benefit withdrawal utilization assumption. The impact on DAC from actual versus expected market performance based on our view of bond and equity performance was an expense of $19 million for the nine months ended September 30, 2015 reflecting unfavorable equity market returns compared to a benefit of $13 million for the prior year period reflecting favorable equity market returns and bond fund returns. Amortization of DAC for the nine months ended September 30, 2015 included a favorable impact compared to the prior year period from higher than expected persistency on variable annuity business and lower expected amortization on fixed annuities due to the decline in the size of the block.


86

AMERIPRISE FINANCIAL, INC. 


Protection
The following table presents the results of operations of our Protection segment on an operating basis:
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
42

 
$
44

 
$
(2
)
 
(5
)%
Distribution fees
71

 
69

 
2

 
3

Net investment income
350

 
332

 
18

 
5

Premiums
1,015

 
954

 
61

 
6

Other revenues
298

 
288

 
10

 
3

Total revenues
1,776

 
1,687

 
89

 
5

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
1,776

 
1,687

 
89

 
5

Expenses
 

 
 

 
 

 
 

Distribution expenses
41

 
44

 
(3
)
 
(7
)
Interest credited to fixed accounts
121

 
114

 
7

 
6

Benefits, claims, losses and settlement expenses
1,132

 
1,016

 
116

 
11

Amortization of deferred acquisition costs
121

 
90

 
31

 
34

Interest and debt expense
25

 
20

 
5

 
25

General and administrative expense
188

 
187

 
1

 
1

Total expenses
1,628

 
1,471

 
157

 
11

Operating earnings
$
148

 
$
216

 
$
(68
)
 
(31
)%
Our Protection segment pretax operating income, which excludes net realized investment gains or losses (net of the related DAC amortization, unearned revenue amortization and the reinsurance accrual) and the market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual), decreased $68 million, or 31%, to $148 million for the nine months ended September 30, 2015 compared to $216 million for the prior year period primarily due to higher auto and home losses, higher life insurance claims, a net $14 million LTC reserve increase in the first half of 2015 related to our review of our LTC reserve as described below and an $11 million unfavorable impact related to a reinsurance premium correction in the third quarter of 2015, partially offset by a $13 million favorable impact related to a LTC future loss reserve adjustment in the third quarter of 2015.
During the first quarter of 2015, we conducted a review of our LTC reserve for unpaid amounts on reported claims based on additional information we received from Genworth Financial, Inc., which reinsures 50% of our LTC business and administers all of our claims. Based on this information, along with a review of the discount rate, management’s best estimate for LTC claims reserves resulted in a net $32 million increase during the first quarter of 2015. The most significant drivers of the reserve increase were updates to the benefit utilization rates and claims termination rates, partially offset by a $15 million benefit from a higher discount rate. During the second quarter of 2015, we completed our review which resulted in a favorable reserve release. Based on the analysis, we concluded that the actual claims utilization and termination experience was more favorable than the initial assumptions provided by the reinsurer, and as a result, released $18 million of the net $32 million reserve. We also increased the discount rate for our disability income (“DI”) reserve for unpaid amounts on reported claims, which resulted in a $7 million reserve decrease in the first quarter of 2015. The current discount rates are based on the average interest rates earned on assets supporting the liability and were 6.25% and 5.0% for LTC and DI, respectively, at September 30, 2015.
Net Revenues
Net revenues, which exclude net realized investment gains or losses (net of unearned revenue amortization and the reinsurance accrual) and the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, increased $89 million, or 5%, to $1.8 billion for the nine months ended September 30, 2015 compared to $1.7 billion for the prior year period primarily due to the impact of unlocking and growth in auto and home premiums, partially offset by a $13 million unfavorable impact related to a reinsurance premium correction in the third quarter of 2015.
Premiums increased $61 million, or 6%, to $1.0 billion for the nine months ended September 30, 2015 compared to $954 million for the prior year period due to a 5% increase in auto and home policies in force, partially offset by a $4 million unfavorable impact related to a reinsurance premium correction in the third quarter of 2015.

87

AMERIPRISE FINANCIAL, INC. 


Other revenues, which exclude the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits and the unearned revenue amortization and the reinsurance accrual offset to net realized investment gains or losses, increased $10 million, or 3%, to $298 million for the nine months ended September 30, 2015 compared to $288 million for the prior year period due to the impact of unlocking, partially offset by a $9 million unfavorable impact related to a reinsurance premium correction in the third quarter of 2015. Other revenues for the nine months ended September 30, 2015 included a $5 million negative impact from unlocking compared to a $29 million negative impact in the prior year period. The primary driver of the unlocking impact to other revenues for both periods was lower projected gains on reinsurance contracts resulting from favorable mortality experience.
Expenses
Total expenses, which exclude the market impact on indexed universal life benefits (net of hedges and the related DAC amortization) and the DAC offset to net realized investment gains or losses, increased $157 million, or 11%, to $1.6 billion for the nine months ended September 30, 2015 compared to $1.5 billion for the prior year period primarily due to increases in benefits, claims, losses and settlement expenses and amortization of DAC.
Benefits, claims, losses and settlement expenses increased $116 million, or 11%, to $1.1 billion for the nine months ended September 30, 2015 compared to $1.0 billion for the prior year period primarily due to an increase in auto and home reserves, a $20 million increase in life insurance claims, and a net $14 million LTC reserve increase in the first half of 2015, partially offset by a $7 million favorable impact from a change in the discount rate for DI insurance products and a $13 million decrease related to a LTC future loss reserve adjustment in the third quarter of 2015. Benefits, claims, losses and settlement expenses related to our auto and home business increased $83 million due to an increase in the provision for estimated losses reflecting the impact of growth in exposures from a 5% increase in policies in force, higher 2015 accident year loss ratio assumptions, and approximately $10 million in expense primarily related to deterioration in auto collision experience resulting from an increase in miles driven and lower salvage values, as well as losses of $6 million associated with our travel insurance business and a $8 million related to prior year catastrophe reserve development associated with hail storms from last year. Auto and home losses for the prior year period included a $30 million impact related to an increase to prior accident year loss reserves and $11 million from non-catastrophe weather-related losses in the first quarter of 2014. Catastrophe losses were $65 million for the nine months ended September 30, 2015 compared to $56 million for the prior year period.
Amortization of DAC, which excludes the DAC offset to the market impact on indexed universal life benefits and the DAC offset to net realized investment gains or losses, increased $31 million, or 34%, to $121 million for the nine months ended September 30, 2015 compared to $90 million for the prior year period primarily due to the impact of unlocking. Amortization of DAC for the nine months ended September 30, 2015 included a $10 million expense from unlocking primarily driven by the difference between our previously assumed interest rates versus the continued low interest rate environment. Amortization of DAC for the prior year period included a $9 million benefit from unlocking.

Corporate & Other
The following table presents the results of operations of our Corporate & Other segment on an operating basis:
 
Nine Months Ended September 30,
 
 
 
 
 
2015
 
2014
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Distribution fees
$
—

 
$
1

 
$
(1
)
 
NM

Net investment income (loss)
(22
)
 
(4
)
 
(18
)
 
NM

Other revenues
10

 
6

 
4

 
67
 %
Total revenues
(12
)
 
3

 
(15
)
 
NM

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
(12
)
 
3

 
(15
)
 
NM

Expenses
 

 
 

 
 

 
 
Distribution expenses
—

 
1

 
(1
)
 
NM

Interest and debt expense
12

 
16

 
(4
)
 
(25
)
General and administrative expense
137

 
169

 
(32
)
 
(19
)
Total expenses
149

 
186

 
(37
)
 
(20
)
Operating loss
$
(161
)
 
$
(183
)
 
$
22

 
12
 %
NM  Not Meaningful.
Our Corporate & Other segment pretax operating loss excludes net realized investment gains or losses, the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments, integration and restructuring charges, and the impact

88

AMERIPRISE FINANCIAL, INC. 


of consolidating CIEs. Our Corporate & Other segment pretax operating loss decreased $22 million, or 12%, to $161 million for the nine months ended September 30, 2015 compared to $183 million for the prior year period due to a decrease in expenses, partially offset by a decrease in net revenues. Net revenues decreased $15 million compared to the prior year period reflecting higher net investment losses due to an increase in losses associated with affordable housing partnerships, partially offset by a $7 million gain on the sale of a building in the second quarter of 2015. Expenses decreased $37 million compared to the prior year period reflecting lower compensation-related expenses, as well as higher expenses in the prior year period related to the early redemption of our senior notes due 2039 and a provision for potential resolution of a regulatory matter.

Market Risk
Our primary market risk exposures are interest rate, equity price, foreign currency exchange rate and credit risk. Equity price and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the spread income generated on our fixed annuities, fixed insurance, brokerage client cash balances, face-amount certificate products and the fixed portion of our variable annuities and variable insurance contracts, the value of DAC and DSIC assets, the value of liabilities for guaranteed benefits associated with our variable annuities and the value of derivatives held to hedge these benefits.
Our earnings from fixed annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts are based upon the spread between rates earned on assets held and the rates at which interest is credited to accounts. We primarily invest in fixed rate securities to fund the rate credited to clients. We guarantee an interest rate to the holders of these products. Investment assets and client liabilities generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients’ accounts generally reset at shorter intervals than the yield on the underlying investments. Therefore, in an increasing interest rate environment, higher interest rates may be reflected in crediting rates to clients sooner than in rates earned on invested assets, which could result in a reduced spread between the two rates, reduced earned income and a negative impact on pretax income. However, the current low interest rate environment is resulting in interest rates below the level of some of our liability guaranteed minimum interest rates (“GMIRs”). Hence, a modest rise in interest rates would not necessarily result in changes to all the liability credited rates while projected asset purchases would capture the full increase in interest rates. This dynamic would result in widening spreads under a modestly rising rate scenario given the current relationship between the current level of interest rates and the underlying GMIRs on the business.
As a result of the low interest rate environment, our current reinvestment yields are generally lower than the current portfolio yield. We expect our portfolio income yields to continue to decline in future periods if interest rates remain low. The carrying value and weighted average yield of non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through September 30, 2017 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $3.6 billion and 3.7%, respectively, as of September 30, 2015. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $6.0 billion and had a weighted average yield of 2.7% as of September 30, 2015. While these amounts represent investments that could be subject to reinvestment risk, it is also possible that these investments will be used to fund liabilities or may not be prepaid and will remain invested at their current yields. In addition to the interest rate environment, the mix of benefit payments versus product sales as well as the timing and volumes associated with such mix may impact our investment yield. Furthermore, reinvestment activities and the associated investment yield may also be impacted by corporate strategies implemented at management’s discretion. The average yield for investment purchases during the nine months ended September 30, 2015 was approximately 3.1%.
The reinvestment of proceeds from maturities, calls and prepayments at rates below the current portfolio yield, which may be below the level of some liability guaranteed minimum interest rates, will have a negative impact to future operating results. To mitigate the unfavorable impact that the low interest rate environment has on our spread income, we assess reinvestment risk in our investment portfolio and monitor this risk in accordance with our asset/liability management framework. In addition, we may reduce the crediting rates on our fixed products when warranted, subject to guaranteed minimums. In 2014, we set lower renewal interest rates for a portion of our fixed annuities that were above the guaranteed minimum interest rates, which helped relieve some of the spread compression caused by low rates.

89

AMERIPRISE FINANCIAL, INC. 


The following table presents the account values of fixed annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts by range of guaranteed minimum crediting rates and the range of the difference between rates credited to policyholders and contractholders as of September 30, 2015 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 our discretion, subject to guaranteed minimums.
 
Account Values with 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
Range of Guaranteed Minimum Crediting Rates
(in billions, except percentages)
 
 
 
 
 
 
 
 
 
 
 
1% - 1.99%
$
2.5

 
$
0.2

 
$
0.4

 
$
0.1

 
$
0.1

 
$
3.3

2% - 2.99%
0.5

 
—

 
—

 
—

 
—

 
0.5

3% - 3.99%
9.1

 
—

 
—

 
—

 
—

 
9.1

4% - 5.00%
5.5

 
—

 
—

 
—

 
—

 
5.5

Total
$
17.6

 
$
0.2

 
$
0.4

 
$
0.1

 
$
0.1

 
$
18.4

Percentage of Account Values
That Reset In:
 
 
 
 
 
 
 
 
 
 
 
Next 12 months (1)
100
%
 
53
%
 
38
%
 
43
%
 
100
%
 
96
%
> 12 months to 24 months (2)
—

 
29

 
19

 
9

 
—

 
1

> 24 months (2)
—

 
18

 
43

 
48

 
—

 
3

Total
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
(1) Includes contracts with annual discretionary crediting rate resets and contracts with twelve or less months until the crediting rate becomes discretionary on an annual basis.
(2) Includes contracts with more than twelve months remaining until the crediting rate becomes an annual discretionary rate.
In addition to the fixed rate exposures noted above, RiverSource Life also has the following variable annuity guarantee benefits: guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Each of these guaranteed benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying invested assets.
The variable annuity guarantees continue to be managed by utilizing a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result. Our comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities: Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. We use various index options across the term structure, interest rate swaps and swaptions, total return swaps and futures to manage the risk exposures. The exposures are measured and monitored daily, and adjustments to the hedge portfolio are made as necessary.
We have a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on our statutory surplus and to cover some of the residual risks not covered by other hedging activities. We assess the residual risk under a range of scenarios in creating and executing the macro hedge program. As a means of economically hedging these risks, we use a combination of options and/or swaps. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The macro hedge program could result in additional earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory capital volatility, may not be closely aligned to changes in the variable annuity guarantee embedded derivatives.
To evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income from the sources listed below for a 12-month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, equity indexed annuities, stock market certificates, indexed universal life insurance and the associated hedge assets, we assume no change in implied market volatility despite the 10% drop in equity prices.

90

AMERIPRISE FINANCIAL, INC. 


The following tables present our estimate of the impact on pretax income from the above defined hypothetical market movements as of September 30, 2015:
 
 
Equity Price Exposure to Pretax Income
Equity Price Decline 10%
 
Before
Hedge Impact
 
Hedge Impact
 
Net Impact
 
 
(in millions)
Asset-based management and distribution fees (1)
 
$
(226
)
 
$
4

 
$
(222
)
DAC and DSIC amortization (2) (3)
 
(106
)
 
—

 
(106
)
Variable annuity riders:
 
 

 
 

 
 

GMDB and GMIB (3)
 
(142
)
 
—

 
(142
)
GMWB
 
(425
)
 
435

 
10

GMAB
 
(50
)
 
49

 
(1
)
DAC and DSIC amortization (4)
 
N/A

 
N/A

 
(1
)
Total variable annuity riders
 
(617
)
 
484

 
(134
)
Macro hedge program (5)
 
—

 
17

 
17

Equity indexed annuities
 
1

 
(1
)
 
—

Certificates
 
1

 
(1
)
 
—

Indexed universal life insurance
 
9

 
(8
)
 
1

Total
 
$
(938
)
 
$
495

 
$
(444
)

 
 
Interest Rate Exposure to Pretax Income
Interest Rate Increase 100 Basis Points
 
Before 
Hedge Impact
 
Hedge Impact
 
Net Impact
 
 
(in millions)
Asset-based management and distribution fees (1)
 
$
(48
)
 
$
—

 
$
(48
)
Variable annuity riders:
 
 

 
 

 
 

GMDB and GMIB
 
—

 
—

 
—

GMWB
 
971

 
(1,096
)
 
(125
)
GMAB
 
38

 
(41
)
 
(3
)
DAC and DSIC amortization (4)
 
N/A

 
N/A

 
22

Total variable annuity riders
 
1,009

 
(1,137
)
 
(106
)
Macro hedge program (5)
 
—

 
23

 
23

Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products
 
66

 
—

 
66

Brokerage client cash balances
 
142

 
—

 
142

Certificates
 
4

 
—

 
4

Indexed universal life insurance
 
44

 
1

 
45

Total
 
$
1,217

 
$
(1,113
)
 
$
126

N/A  Not Applicable.
(1) Excludes incentive income which is impacted by market and fund performance during the period and cannot be readily estimated.
(2) Market impact on DAC and DSIC amortization resulting from lower projected profits.
(3) In estimating the impact on DAC and DSIC amortization resulting from lower projected profits, we have not changed our assumed equity asset growth rates. This is a significantly more conservative estimate than if we assumed management follows its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. We make this same conservative assumption in estimating the impact from GMDB and GMIB riders.
(4) Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.
(5) The market impact of the macro hedge program is modeled net of any related impact to DAC and DSIC amortization.
The above results compare to an estimated negative net impact to pretax income of $435 million related to a 10% equity price decline and an estimated positive net impact to pretax income of $89 million related to a 100 basis point increase in interest rates as of December 31, 2014. The change in interest rate exposure since December 31, 2014 is primarily the result of adding new interest rate derivatives to the macro hedge program during 2015 and subsequent changes in market rates.

91

AMERIPRISE FINANCIAL, INC. 


Net impacts shown in the above table from GMWB and GMAB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with risk margins incorporated in contractholder behavior assumptions and with discount rates increased to reflect a current market estimate of our risk of nonperformance specific to these liabilities. The nonperformance spread risk is not hedged.
Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10%, that management does not increase assumed equity asset growth rates to anticipate recovery of the drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, we have not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor have we tried to anticipate actions management might take to increase revenues or reduce expenses in these scenarios.
The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.

Fair Value Measurements
We report certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives, properties held by our consolidated property funds, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions and is not the result of a forced liquidation or distressed sale. We include actual market prices, or observable inputs, in our fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. We validate prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 10 to the Consolidated Financial Statements for additional information on our fair value measurements.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price). Since there is not a market for the obligations of our variable annuity riders and indexed universal life insurance, we consider the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, we adjust the valuation of variable annuity riders and indexed universal life insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of our nonperformance risk. The nonperformance risk adjustment is based on observable market data adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of September 30, 2015. As our estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be approximately $264 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%), based on September 30, 2015 credit spreads.
 
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the nine months ended September 30, 2015. At September 30, 2015 and December 31, 2014, we had $2.8 billion and $2.6 billion, respectively, in cash and cash equivalents. We have additional liquidity available through an unsecured revolving credit facility for up to $500 million. Under the terms of the underlying credit agreement, we can increase this facility to $750 million upon satisfaction of certain approval requirements. Available borrowings under this facility are reduced by any outstanding letters of credit. At September 30, 2015, we had no outstanding borrowings under this credit facility and had $1 million of outstanding letters of credit. On May 1, 2015, we amended the underlying credit agreement for the facility to extend the expiration to May 2020. Our junior subordinated notes due 2066 and the revolving credit facility contain various administrative, reporting, legal and financial covenants. We were in compliance with all such covenants at September 30, 2015. We intend to use cash on hand to fund the repayment of $350 million of our senior notes due in November 2015.
In August 2015, we extinguished $41 million of our junior subordinated notes due 2066 in open market transactions and recognized a gain of less than $1 million.
We enter into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances, to reduce reinvestment risk from higher levels of expected annuity net cash flows. Short-term borrowings allow us to receive cash to reinvest in longer-duration assets, while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at both September 30, 2015 and December 31, 2014 was $50 million, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from our investment portfolio. Our subsidiary, RiverSource Life Insurance Company (“RiverSource Life”), is a member of the FHLB of Des Moines, which provides access to collateralized borrowings. As of both September 30, 2015 and December 31, 2014, we had $150 million of borrowings from

92

AMERIPRISE FINANCIAL, INC. 


the FHLB, which is collateralized with commercial mortgage backed securities. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs.
Dividends from Subsidiaries
Ameriprise Financial is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life, our face-amount certificate subsidiary, Ameriprise Certificate Company (“ACC”), AMPF Holding Corporation, which is the parent company of our retail introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc. (“AFSI”) and our clearing broker-dealer subsidiary, American Enterprise Investment Services, Inc. (“AEIS”), our Auto and Home insurance subsidiary, IDS Property Casualty Insurance Company (“IDS Property Casualty”), doing business as Ameriprise Auto & Home Insurance, our transfer agent subsidiary, Columbia Management Investment Services Corp., our investment advisory company, Columbia Management Investment Advisers, LLC, and Threadneedle. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements.
Actual capital and regulatory capital requirements for our wholly owned subsidiaries subject to regulatory capital requirements were as follows:
 
Actual Capital
 
Regulatory 
Capital Requirements
 
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
 
(in millions)
RiverSource Life(1)(2)
$
3,839

 
$
3,614

 
N/A

 
$
595

RiverSource Life of NY(1)(2)
338

 
312

 
N/A

 
59

IDS Property Casualty(1)(3)
725

 
560

 
$
211

 
200

Ameriprise Insurance Company(1)(3)
46

 
45

 
2

 
2

ACC(4)(5)
258

 
248

 
241

 
226

Threadneedle(6)
306

 
221

 
168

 
199

Ameriprise National Trust Bank(7)
34

 
21

 
10

 
10

AFSI(3)(4)
137

 
93

 
#

 
#

Ameriprise Captive Insurance Company(3)
67

 
61

 
11

 
10

Ameriprise Trust Company(3)
27

 
26

 
21

 
24

AEIS(3)(4)
110

 
117

 
54

 
49

RiverSource Distributors, Inc.(3)(4)
14

 
13

 
#

 
#

Columbia Management Investment Distributors, Inc.(3)(4)
19

 
18

 
#

 
#

N/A  Not applicable.
#  Amounts are less than $1 million.
(1) 
Actual capital is determined on a statutory basis.
(2) 
Regulatory capital requirement is based on the statutory risk-based capital filing.
(3) 
Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of September 30, 2015 and December 31, 2014.
(4) 
Actual capital is determined on an adjusted GAAP basis.
(5) 
ACC is required to hold capital in compliance with the Minnesota Department of Commerce and SEC capital requirements.
(6) 
Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. The regulatory capital requirements at September 30, 2015 represent calculations at December 31, 2014 of the rule based requirements, as specified by FCA regulations.
(7) 
Ameriprise National Trust Bank is required to maintain capital in compliance with the Office of the Comptroller of the Currency regulations and policies.
In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our company from our subsidiaries, and in deciding to use cash to make capital contributions to our subsidiaries.
During the nine months ended September 30, 2015, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.3 billion (including $675 million from RiverSource Life) and contributed cash to its subsidiaries of $243 million (including $175 million to IDS Property Casualty). During the nine months ended September 30, 2014, the parent holding company received cash dividends or a return of capital from its subsidiaries of $1.2 billion (including $500 million from RiverSource Life) and contributed cash to its subsidiaries of $17 million.


93

AMERIPRISE FINANCIAL, INC. 


Dividends Paid to Shareholders and Share Repurchases
We paid regular quarterly dividends to our shareholders totaling $355 million and $326 million for the nine months ended September 30, 2015 and 2014, respectively. On October 21, 2015, we announced a quarterly dividend of $0.67 per common share. The dividend will be paid on November 13, 2015 to our shareholders of record at the close of business on November 2, 2015.
In April 2014, our Board of Directors authorized an expenditure of up to $2.5 billion for the repurchase of shares of our common stock through April 28, 2016. As of September 30, 2015, the Company had $553 million remaining under its share repurchase authorization. We intend to fund share repurchases through existing working capital, future earnings and other customary financing methods. The share repurchase programs do not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase programs may be made in the open market, through privately negotiated transactions or block trades or other means. During the nine months ended September 30, 2015, we repurchased a total of 9.8 million shares of our common stock at an average price of $124.64 per share.

Cash Flows
Cash flows of CIEs are reflected in our cash flows provided by (used in) operating activities, investing activities and financing activities. Cash held by CIEs is not available for general use by Ameriprise Financial, nor is Ameriprise Financial cash available for general use by its CIEs. As such, the operating, investing and financing cash flows of the CIEs have no impact to the change in cash and cash equivalents.
Operating Activities
Net cash provided by operating activities decreased $78 million to $1.9 billion for the nine months ended September 30, 2015 compared to $2.0 billion for the prior year period primarily due to changes in cash held by CIEs, a $303 million decrease in cash related to changes in investment properties of CIEs primarily reflecting higher purchases of investment properties and a $151 million decrease in cash related to changes in brokerage deposits, partially offset by a $213 million increase in cash from changes in other investments primarily related to trading securities, a $150 million decrease in cash outflows related to derivatives and receivables and a $100 million reduction of income taxes paid, net compared to the prior year period.
Investing Activities
Our investing activities primarily relate to our Available-for-Sale investment portfolio. Further, this activity is significantly affected by the net flows of our investment certificate, fixed annuity and universal life products reflected in financing activities.
Net cash used in investing activities increased $275 million to $447 million for the nine months ended September 30, 2015 compared to $172 million for the prior year period primarily reflecting a $827 million increase in purchases of Available-for Sale securities, partially offset by a $313 million increase in proceeds from sales and maturities, sinking fund payments and calls of Available-for-Sale securities. Net cash outflows related to purchases and sales of investments by consolidated investment entities decreased $91 million and net cash outflows related to purchases and sales of other investments decreased $130 million.
Financing Activities
Net cash used in financing activities decreased $256 million to $1.3 billion for the nine months ended September 30, 2015 compared to $1.6 billion for the prior year period. Cash outflows related to repayments of debt of CIEs decreased $513 million compared to the prior year period. Net cash outflows related to noncontrolling interests decreased $218 million compared to the prior period due to higher investments from noncontrolling interests and lower distributions to noncontrolling interests. Cash outflows related to the repurchase of debt decreased $159 million compared to the prior year period. Net cash outflows from policyholder account balances increased $259 million compared to the prior year period primarily due to higher surrenders and other benefits reflecting higher lapse rates. Cash outflows related to the repurchase of common shares increased $102 million compared to the prior year period. Cash flows for the prior year period reflected a $543 million increase in cash from issuance of our unsecured senior notes due October 2024 and a $301 million decrease in cash related to short-term borrowings as we reduced our borrowings from the FHLB.

Contractual Commitments
There have been no material changes to our contractual obligations disclosed in our 2014 10-K.
 
Off-Balance Sheet Arrangements
We provide asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds, property funds and private equity funds, which are sponsored by us. We consolidate certain CLOs and property funds. We have determined that consolidation is not required for hedge funds and private equity funds which are sponsored by us. Our maximum exposure to loss with respect to our investment in these non-consolidated entities is limited to our carrying value. We have no obligation to provide further financial or other support to these investment entities nor have we provided any support to these investment entities. See Note 3 to our Consolidated Financial Statements for additional information on our arrangements with these investment entities.


94

AMERIPRISE FINANCIAL, INC. 


Forward-Looking Statements
This report contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include: 
•
statements of the Company’s plans, intentions, positioning, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, client retention and growth of our client base, financial advisor productivity, retention, recruiting and enrollments, the introduction, cessation, terms or pricing of new or existing products and services, acquisition integration, benefits and claims expenses, general and administrative costs, consolidated tax rate, return of capital to shareholders, debt repayment and excess capital position and financial flexibility to capture additional growth opportunities;
•
other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and
•
statements of assumptions underlying such statements.
The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.
Such factors include, but are not limited to:
•
conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;
•
changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act or in light of the U.S. Department of Labor pending rule and exemptions pertaining to the fiduciary status of investment advice providers to 401(k) plan, plan sponsors, plan participants and the holders of individual retirement or health savings accounts;
•
investment management performance and distribution partner and consumer acceptance of the Company’s products;
•
effects of competition in the financial services industry, including pricing pressure, the introduction of new products and services and changes in product distribution mix and distribution channels;
•
changes to the Company’s reputation that may arise from employee or advisor misconduct, legal or regulatory actions, perceptions of the financial services industry generally, improper management of conflicts of interest or otherwise;
•
the Company’s capital structure, including indebtedness, limitations on subsidiaries to pay dividends, and the extent, manner, terms and timing of any share or debt repurchases management may effect as well as the opinions of rating agencies and other analysts and the reactions of market participants or the Company’s regulators, advisors, distribution partners or customers in response to any change or prospect of change in any such opinion;
•
changes to the availability and cost of liquidity and the Company’s credit capacity that may arise due to shifts in market conditions, the Company’s credit ratings and the overall availability of credit;
•
risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge, derivative, insurance or reinsurance arrangements or by manufacturers of products the Company distributes, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the reactions of other market participants or the Company’s regulators, advisors, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;
•
experience deviations from the Company’s assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products, or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying the Company’s valuation and hedging of guaranteed benefit annuity riders, or from assumptions regarding interest rates assumed in the Company's loss recognition testing of its long term care business, or from assumptions regarding anticipated claims and losses relating to the Company’s automobile and home insurance products;
•
changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
•
the impacts of the Company’s efforts to improve distribution economics and to grow third-party distribution of its products;
•
the ability to pursue and complete strategic transactions and initiatives, including acquisitions, divestitures, restructurings, joint ventures and the development of new products and services;
•
the ability to realize the financial, operating and business fundamental benefits of strategic transactions and initiatives the Company has completed, is pursuing or may pursue in the future, which may be impacted by the ability to obtain regulatory

95

AMERIPRISE FINANCIAL, INC. 


approvals, the ability to effectively manage related expenses and by market, business partner and consumer reactions to such strategic transactions and initiatives;
•
the ability and timing to realize savings and other benefits from re-engineering and tax planning;
•
interruptions or other failures in the Company’s communications, technology and other operating systems, including errors or failures caused by third party service providers, interference or failures caused by third party attacks on the Company’s systems, or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and
•
general economic and political factors, including consumer confidence in the economy and the financial industry, the ability and inclination of consumers generally to invest as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and publicly-held firms, and regulatory rulings and pronouncements.
Management cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that management is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Management undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion included in Part I, Item 1A of our 2014 10-K and Part II, Item 1A of our Form 10-Q for the quarterly period ended March 31, 2015 filed with the SEC on May 4, 2015.
Ameriprise Financial announces financial and other information to investors through the Company’s investor relations website at ir.ameriprise.com, as well as SEC filings, press releases, public conference calls and webcasts. Investors and others interested in the company are encouraged to visit the investor relations website from time to time, as information is updated and new information is posted. The website also allows users to sign up for automatic notifications in the event new materials are posted. The information found on the website is not incorporated by reference into this report or in any other report or document the Company furnishes or files with the SEC.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” in this report is incorporated herein by reference. These disclosures should be read in conjunction with the “Quantitative and Qualitative Disclosures About Market Risk” discussion included as Part II, Item 7A of our 2014 10-K filed with the SEC on February 24, 2015.
 
ITEM 4.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, our company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2015.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.


96

AMERIPRISE FINANCIAL, INC. 


PART II.  OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
The information set forth in Note 15 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

ITEM 1A.  RISK FACTORS
Other than as described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, there have been no material changes in the risk factors provided in Part I, Item 1A of our 2014 10-K.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents the information with respect to purchases made by or on behalf of Ameriprise Financial, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the third quarter of 2015:
 
 
(a)
 
(b)
 
(c)
 
(d)
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as part of Publicly Announced Plans or Programs(1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
July 1 to July 31, 2015
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
1,084,973

 
$
125.37

 
1,084,973

 
$
867,279,896

Employee transactions (2)
 
43,853

 
$
123.58

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
August 1 to August 31, 2015
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
1,486,655

 
$
118.35

 
1,486,655

 
$
691,329,430

Employee transactions (2)
 
7,986

 
$
123.23

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
September 1 to September 30, 2015
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
1,269,298

 
$
108.60

 
1,269,298

 
$
553,485,010

Employee transactions (2)
 
8,704

 
$
109.06

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
Totals
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
3,840,926

 
$
117.11

 
3,840,926

 
 

Employee transactions (2)
 
60,543

 
$
121.45

 
N/A

 
 

 
 
3,901,469

 
 

 
3,840,926

 
 

N/A  Not applicable.
(1) On April 28, 2014, we announced that our board of directors authorized us to repurchase up to $2.5 billion worth of our common stock through April 28, 2016. The share repurchase program does not require the purchase of any minimum number of shares, and depending on market conditions and other factors, these purchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means.
(2) Includes restricted shares withheld pursuant to the terms of awards under the Company’s share-based compensation plans to offset tax withholding obligations that occur upon vesting and release of restricted shares. The value of the restricted shares withheld is the closing price of common stock of Ameriprise Financial, Inc. on the date the relevant transaction occurs. Also includes shares withheld pursuant to the net settlement of Non-Qualified Stock Option (“NQSO”) exercises to offset tax withholding obligations that occur upon exercise and to cover the strike price of the NQSO. The value of the shares withheld pursuant to the net settlement of NQSO exercises is the closing price of common stock of Ameriprise Financial, Inc. on the day prior to the date the relevant transaction occurs.

ITEM 6.  EXHIBITS
The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.


97

AMERIPRISE FINANCIAL, INC. 


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
AMERIPRISE FINANCIAL, INC.
 
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
Date:
November 2, 2015
By
/s/ Walter S. Berman
 
 
 
 
Walter S. Berman
 
 
 
 
Executive Vice President and
 
 
 
 
Chief Financial Officer
 
 
 
 
 
 
Date:
November 2, 2015
By
/s/ David K. Stewart
 
 
 
 
David K. Stewart
 
 
 
 
Senior Vice President and Controller
 
 
 
 
(Principal Accounting Officer)
 


98

AMERIPRISE FINANCIAL, INC. 


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

Exhibit        Description
3.1
Amended and Restated Certificate of Incorporation of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, File No. 1-32525, filed on May 1, 2014).
3.2
Amended and Restated Bylaws of Ameriprise Financial, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, File No. 1-32525, filed on May 1, 2014).
4.1
Form of Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Form 10 Registration Statement, File No. 1-32525, filed on August 19, 2005).
Other instruments defining the rights of holders of long-term debt securities of the registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant agrees to furnish copies of these instruments to the SEC upon request.
10.1*
First Amendment to the Ameriprise Financial 2008 Employment Incentive Equity Award Plan dated September 29, 2015.
31.1*
Certification of James M. Cracchiolo pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Walter S. Berman pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32*
Certification of James M. Cracchiolo and Walter S. Berman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following materials from Ameriprise Financial, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2015, formatted in XBRL: (i) Consolidated Statements of Operations for the three months and nine months ended September 30, 2015 and 2014; (ii) Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2015 and 2014; (iii) Consolidated Balance Sheets at September 30, 2015 and December 31, 2014; (iv) Consolidated Statements of Equity for the nine months ended September 30, 2015 and 2014; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014; and (vi) Notes to the Consolidated Financial Statements.



E-1