AMP 06.30.2014

 
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 June 30, 2014
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
(Do not check if a smaller reporting company) o
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
July 25, 2014
Common Stock (par value $.01 per share)
 
187,200,583 shares
 


AMERIPRISE FINANCIAL, INC. 


FORM 10-Q
 
INDEX
 
 
 
 
 
 
Consolidated Statements of Operations — Three months and six months ended June 30, 2014 and 2013
3

 
 
Consolidated Statements of Comprehensive Income — Three months and six months ended June 30, 2014 and 2013
4

 
 
Consolidated Balance Sheets — June 30, 2014 and December 31, 2013
5

 
 
Consolidated Statements of Equity — Six months ended June 30, 2014 and 2013
6

 
 
Consolidated Statements of Cash Flows — Six months ended June 30, 2014 and 2013
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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
1,452

 
$
1,294

 
$
2,838

 
$
2,538

Distribution fees
470

 
448

 
946

 
882

Net investment income
433

 
451

 
904

 
940

Premiums
345

 
315

 
675

 
625

Other revenues
379

 
249

 
719

 
471

Total revenues
3,079

 
2,757

 
6,082

 
5,456

Banking and deposit interest expense
7

 
8

 
14

 
16

Total net revenues
3,072

 
2,749

 
6,068

 
5,440

Expenses
 

 
 

 
 

 
 

Distribution expenses
810

 
732

 
1,596

 
1,430

Interest credited to fixed accounts
175

 
198

 
361

 
396

Benefits, claims, losses and settlement expenses
506

 
490

 
956

 
899

Amortization of deferred acquisition costs
78

 
92

 
165

 
167

Interest and debt expense
79

 
60

 
158

 
126

General and administrative expense
805

 
775

 
1,563

 
1,533

Total expenses
2,453

 
2,347

 
4,799

 
4,551

Income from continuing operations before income tax provision
619

 
402

 
1,269

 
889

Income tax provision
152

 
120

 
286

 
241

Income from continuing operations
467

 
282

 
983

 
648

Loss from discontinued operations, net of tax
—

 
(1
)
 
(1
)
 
(2
)
Net income
467

 
281

 
982

 
646

Less: Net income (loss) attributable to noncontrolling interests
93

 
(40
)
 
208

 
(10
)
Net income attributable to Ameriprise Financial
$
374

 
$
321

 
$
774

 
$
656

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

 
 

 
 

 
 

Basic
 

 
 

 
 

 
 

Income from continuing operations
$
1.94

 
$
1.57

 
$
3.99

 
$
3.18

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
1.94

 
$
1.57

 
$
3.99

 
$
3.17

Diluted
 

 
 

 
 

 
 

Income from continuing operations
$
1.91

 
$
1.54

 
$
3.92

 
$
3.13

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
1.91

 
$
1.54

 
$
3.92

 
$
3.12

Cash dividends declared per common share
$
0.58

 
$
0.52

 
$
1.10

 
$
0.97

Supplemental Disclosures:
 

 
 

 
 

 
 

Total other-than-temporary impairment losses on securities
$
—

 
$
(3
)
 
$
(1
)
 
$
(4
)
Portion of loss recognized in other comprehensive income (loss) (before taxes)
—

 
1

 
—

 
(1
)
Net impairment losses recognized in net investment income
$
—

 
$
(2
)
 
$
(1
)
 
$
(5
)
See Notes to Consolidated Financial Statements.

3

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
467

 
$
281

 
$
982

 
$
646

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Foreign currency translation adjustment
38

 
—

 
53

 
(73
)
Net unrealized gains (losses) on securities:
 

 
 

 
 

 
 

Net unrealized securities gains (losses) arising during the period
239

 
(661
)
 
478

 
(802
)
Reclassification of net securities (gains) losses included in net income
(1
)
 
1

 
(4
)
 
—

Impact on deferred acquisition costs, deferred sales inducement costs, benefit reserves and reinsurance recoverables
(76
)
 
201

 
(167
)
 
265

Total net unrealized gains (losses) on securities
162

 
(459
)
 
307

 
(537
)
Total other comprehensive income (loss), net of tax
200

 
(459
)
 
360

 
(610
)
Total comprehensive income (loss)
667

 
(178
)
 
1,342

 
36

Less: Comprehensive income (loss) attributable to noncontrolling interests
119

 
(40
)
 
243

 
(51
)
Comprehensive income (loss) attributable to Ameriprise Financial
$
548

 
$
(138
)
 
$
1,099

 
$
87

See Notes to Consolidated Financial Statements.


4

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
 
June 30, 2014
 
December 31, 2013
 
(unaudited)
 
 
Assets
 

 
 

Cash and cash equivalents
$
2,141

 
$
2,632

Cash of consolidated investment entities
718

 
419

Investments
35,958

 
35,735

Investments of consolidated investment entities, at fair value
5,626

 
5,002

Separate account assets
84,027

 
81,223

Receivables
4,782

 
4,538

Receivables of consolidated investment entities (includes $84 and $32, respectively, at fair value)
127

 
72

Deferred acquisition costs
2,612

 
2,663

Restricted and segregated cash and investments
2,344

 
2,360

Other assets
8,435

 
7,983

Other assets of consolidated investment entities, at fair value
2,390

 
1,949

Total assets
$
149,160

 
$
144,576

Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Policyholder account balances, future policy benefits and claims
$
29,607

 
$
29,620

Separate account liabilities
84,027

 
81,223

Customer deposits
7,285

 
7,062

Short-term borrowings
200

 
500

Long-term debt
2,523

 
2,720

Debt of consolidated investment entities (includes $5,511 and $4,804, respectively, at fair value)
6,672

 
5,736

Accounts payable and accrued expenses
1,274

 
1,367

Accounts payable and accrued expenses of consolidated investment entities
47

 
62

Other liabilities
7,356

 
6,829

Other liabilities of consolidated investment entities (includes $457 and $193, respectively, at fair value)
492

 
225

Total liabilities
139,483

 
135,344

Equity:
 

 
 

Ameriprise Financial, Inc.:
 

 
 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 319,297,647 and 316,816,851, respectively)
3

 
3

Additional paid-in capital
7,144

 
6,929

Retained earnings
7,843

 
7,289

Appropriated retained earnings of consolidated investment entities
320

 
337

Treasury shares, at cost (131,550,883 and 124,698,544 shares, respectively)
(7,802
)
 
(6,961
)
Accumulated other comprehensive income, net of tax
920

 
595

Total Ameriprise Financial, Inc. shareholders’ equity
8,428

 
8,192

Noncontrolling interests
1,249

 
1,040

Total equity
9,677

 
9,232

Total liabilities and equity
$
149,160

 
$
144,576

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 
Comprehensive
Income
 
Total
Ameriprise
Financial,
Inc.
Shareholders’
Equity
 
Non-controlling
Interests
 
Total
Balances at January 1, 2013
203,942,994

 
$
3

 
$
6,503

 
$
6,381

 
$
336

 
$
(5,325
)
 
$
1,194

 
$
9,092

 
$
620

 
$
9,712

Comprehensive income (loss):
Net income (loss)
—

 
—

 
—

 
656

 
—

 
—

 
—

 
656

 
(10
)
 
646

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
(569
)
 
(569
)
 
(41
)
 
(610
)
Total comprehensive income (loss)
 
87

 
(51
)
 
36

Net loss reclassified to appropriated retained earnings
—

 
—

 
—

 
—

 
(37
)
 
—

 
—

 
(37
)
 
37

 
—

Dividends to shareholders
—

 
—

 
—

 
(202
)
 
—

 
—

 
—

 
(202
)
 
—

 
(202
)
Noncontrolling interests investments in subsidiaries
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
81

 
81

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(54
)
 
(54
)
Repurchase of common shares
(12,650,339
)
 
—

 
—

 
—

 
—

 
(922
)
 
—

 
(922
)
 
—

 
(922
)
Share-based compensation plans
7,166,436

 
—

 
227

 
(4
)
 
—

 
99

 
—

 
322

 
9

 
331

Balances at June 30, 2013
198,459,091

 
$
3

 
$
6,730

 
$
6,831

 
$
299

 
$
(6,148
)
 
$
625

 
$
8,340

 
$
642

 
$
8,982

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
—

 
—

 
—

 
774

 
—

 
—

 
—

 
774

 
208

 
982

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
325

 
325

 
35

 
360

Total comprehensive income
 
1,099

 
243

 
1,342

Net loss reclassified to appropriated retained earnings
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
(17
)
 
17

 
—

Dividends to shareholders
—

 
—

 
—

 
(215
)
 
—

 
—

 
—

 
(215
)
 
—

 
(215
)
Noncontrolling interests investments in subsidiaries
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
114

 
114

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(173
)
 
(173
)
Repurchase of common shares
(8,409,803
)
 
—

 
—

 
—

 
—

 
(929
)
 
—

 
(929
)
 
—

 
(929
)
Share-based compensation plans
4,038,260

 
—

 
215

 
(5
)
 
—

 
88

 
—

 
298

 
8

 
306

Balances at June 30, 2014
187,746,764

 
$
3

 
$
7,144

 
$
7,843

 
$
320

 
$
(7,802
)
 
$
920

 
$
8,428

 
$
1,249

 
$
9,677

See Notes to Consolidated Financial Statements.

6

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
 
Six Months Ended June 30,
 
2014
 
2013
Cash Flows from Operating Activities
 
 
 
Net income
$
982

 
$
646

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation, amortization and accretion, net
129

 
116

Deferred income tax expense (benefit)
(45
)
 
18

Share-based compensation
63

 
71

Net realized investment gains
(7
)
 
(5
)
Net trading gains
(4
)
 
—

Loss (income) from equity method investments
4

 
(25
)
Other-than-temporary impairments and provision for loan losses
1

 
5

Net gains of consolidated investment entities
(206
)
 
(9
)
Changes in operating assets and liabilities:
 
 
 
Restricted and segregated cash and investments
16

 
215

Deferred acquisition costs
(1
)
 
—

Other investments, net
(43
)
 
1

Policyholder account balances, future policy benefits and claims, net
248

 
(812
)
Derivatives, net of collateral
(244
)
 
716

Receivables
(294
)
 
(239
)
Brokerage deposits
23

 
(147
)
Accounts payable and accrued expenses
(98
)
 
(23
)
Cash held by consolidated investment entities
(290
)
 
(456
)
Investment properties of consolidated investment entities
(189
)
 
(172
)
Other operating assets and liabilities of consolidated investment entities, net
(14
)
 
11

Other, net
333

 
(4
)
Net cash provided by (used in) operating activities
364

 
(93
)
 
 
 
 
Cash Flows from Investing Activities
 
 
 
Available-for-Sale securities:
 
 
 
Proceeds from sales
292

 
269

Maturities, sinking fund payments and calls
1,972

 
2,455

Purchases
(1,622
)
 
(2,391
)
Proceeds from maturities and repayments of mortgage loans
284

 
363

Funding of mortgage loans
(256
)
 
(316
)
Proceeds from sales and collections of other investments
117

 
200

Purchase of other investments
(225
)
 
(207
)
Purchase of investments by consolidated investment entities
(1,501
)
 
(1,501
)
Proceeds from sales, maturities and repayments of investments by consolidated investment entities
1,134

 
1,837

Purchase of land, buildings, equipment and software
(40
)
 
(38
)
Other, net
3

 
19

Net cash provided by investing activities
158

 
690

See Notes to Consolidated Financial Statements.

7

AMERIPRISE FINANCIAL, INC. 


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
(in millions)
 
Six Months Ended June 30,
 
2014
 
2013
Cash Flows from Financing Activities
 
 
 
Investment certificates:
 
 
 
Proceeds from additions
$
1,315

 
$
1,124

Maturities, withdrawals and cash surrenders
(1,114
)
 
(918
)
Policyholder account balances:
 
 
 
Deposits and other additions
1,021

 
1,025

Net transfers to separate accounts
(109
)
 
(44
)
Surrenders and other benefits
(1,363
)
 
(1,025
)
Cash paid for purchased options with deferred premiums
(229
)
 
(215
)
Cash received from purchased options with deferred premiums
54

 
—

Repayments of debt
(200
)
 
—

Change in short-term borrowings, net
(301
)
 
(1
)
Dividends paid to shareholders
(211
)
 
(197
)
Repurchase of common shares
(838
)
 
(807
)
Exercise of stock options
19

 
74

Excess tax benefits from share-based compensation
109

 
77

Borrowings by consolidated investment entities
1,554

 
1,054

Repayments of debt by consolidated investment entities
(675
)
 
(791
)
Noncontrolling interests investments in subsidiaries
114

 
81

Distributions to noncontrolling interests
(173
)
 
(54
)
Other, net
—

 
(1
)
Net cash used in financing activities
(1,027
)
 
(618
)
Effect of exchange rate changes on cash
14

 
(19
)
Net decrease in cash and cash equivalents
(491
)
 
(40
)
Cash and cash equivalents at beginning of period
2,632

 
2,371

Cash and cash equivalents at end of period
$
2,141

 
$
2,331

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid excluding consolidated investment entities
$
91

 
$
90

Interest paid by consolidated investment entities
96

 
75

Income taxes paid, net
225

 
93

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

 
28

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, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2014.
In the Consolidated Statements of Operations, the Company reclassified certain fixed wholesaling costs from distribution expenses to general and administrative expense on a retroactive basis to improve consistency in its presentation of wholesaling distribution expense. The amount reclassified for the three months and six months ended June 30, 2013 was $28 million and $56 million, respectively. The Company also reclassified certain prior period amounts in the Consolidated Statements of Cash Flows, as discussed below, to improve the transparency of its cash flows. Total cash flows provided by (used in) operating, investing and financing activities did not change as a result of the reclassifications.
Within investing activities, the change in residential mortgage loans was reclassified from “Change in consumer loans, net” to “Proceeds from maturities and repayments of mortgage loans” and “Funding of mortgage loans.” These lines also include changes in commercial mortgage loans.
Within financing activities, the increase in policyholder account balances for interest credited was reclassified from “Policyholder account balances: Surrenders and other benefits” to “Policyholder account balances: Deposits and other additions.” The increase in certificate account balances for interest credited was reclassified from “Investment certificates: Maturities, withdrawals and cash surrenders” to “Investment certificates: Proceeds from additions.”
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
Income Taxes
In July 2013, the Financial Accounting Standards Board (“FASB”) updated the accounting standard for income taxes. The update provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard is effective for interim and annual periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company adopted the standard in the first quarter of 2014. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations and financial condition.
Investment Companies
In June 2013, the FASB updated the accounting standard related to investment companies. The standard provides a new two-tiered approach for determining whether a company is an investment company and requires new disclosures for investment companies. The

9

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


guidance does not directly apply to the Company and did not impact investment entities that the Company consolidates. The standard is effective for interim and annual periods beginning after December 15, 2013 and is required to be applied prospectively. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations and financial condition.
Future Adoption of New Accounting Standards
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. Specifically, 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.
Transfers and Servicing
In June 2014, the 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-to-maturity transactions accounted for as secured borrowings which are effective for interim periods beginning after March 15, 2015. Early adoption of the standard is prohibited. 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. As the Company does not have repurchase-to-maturity transactions, 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. The standard is effective for interim and annual periods beginning after December 15, 2016 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.
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. 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.
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. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.


10

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


3.  Consolidated Investment Entities
The Company provides asset management services to various collateralized debt obligations (“CDOs”) and other investment products (collectively, “investment entities”), which are sponsored by the Company. Certain of these investment entities are considered to be VIEs while others are considered to be voting rights entities (“VREs”). The Company consolidates certain of these investment entities.
The CDOs managed by the Company are considered VIEs. These CDOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CDO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CDOs are non-recourse to the Company. The CDO’s debt holders have recourse only to the assets of the CDO. The assets of the CDOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CDO’s collateral pool. The Company generally earns management fees from the CDOs based on the par value of outstanding debt and, in certain instances, may also receive performance-based fees. In the normal course of business, the Company has invested in certain CDOs, generally an insignificant portion of the unrated, junior subordinated debt.
For certain of the CDOs, the Company has determined that consolidation is required as it has power over the CDOs and holds a variable interest in the CDOs for which the Company has the potential to receive benefits or the potential obligation to absorb losses that are significant to the CDO. For other CDOs managed by the Company, the Company has determined that consolidation is not required as the Company does not hold a variable interest in the CDOs or it does hold a variable interest but does not have the potential to receive benefits or the potential obligation to absorb losses that are significant to the CDO.
The Company provides investment advice and related services to private, pooled investment vehicles organized as limited partnerships, limited liability companies or foreign (non-U.S.) entities. Certain of these pooled investment vehicles are considered VIEs while others are VREs. 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 provides seed money occasionally to certain of these funds. For certain of the pooled investment vehicles, the Company has determined that consolidation is required as the Company stands to absorb a majority of the entity’s expected losses or receive a majority of the entity’s expected residual returns. For other VIE pooled investment vehicles, the Company has determined that consolidation is not required because the Company is not expected to absorb the majority of the expected losses or receive the majority of the expected residual returns. For the pooled investment vehicles which are VREs, the Company consolidates the structure when it has a controlling financial interest.
The Company also provides investment advisory, distribution and other services to the Columbia and Threadneedle mutual fund families. The Company has determined that consolidation is not required for these mutual funds.
In addition, the Company may invest in structured investments including 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 includes these investments in Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to its relative size, position in the capital structure of these entities and the Company’s lack of power over the structures. The Company’s maximum exposure to loss as a result of its investment in structured investments that it does not consolidate is limited to its carrying value. The Company has no obligation to provide further financial or other support to these structured investments nor has the Company provided any support to these structured investments. See Note 4 for additional information about these structured investments.
During the six months ended June 30, 2014, the Company consolidated three new investment entities with assets of approximately $1.3 billion and liquidated one investment entity resulting in the sale of approximately $300 million in assets.

11

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:
 
June 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$
—

 
$
154

 
$
—

 
$
154

Common stocks
144

 
47

 
7

 
198

Other investments
4

 
32

 
—

 
36

Syndicated loans
—

 
4,811

 
427

 
5,238

Total investments
148

 
5,044

 
434

 
5,626

Receivables
—

 
84

 
—

 
84

Other assets
—

 
1

 
2,389

 
2,390

Total assets at fair value
$
148

 
$
5,129

 
$
2,823

 
$
8,100

Liabilities
 

 
 

 
 

 
 

Debt
$
—

 
$
—

 
$
5,511

 
$
5,511

Other liabilities
—

 
457

 
—

 
457

Total liabilities at fair value
$
—

 
$
457

 
$
5,511

 
$
5,968

 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$
—

 
$
200

 
$
2

 
$
202

Common stocks
147

 
31

 
14

 
192

Other investments
3

 
33

 
—

 
36

Syndicated loans
—

 
4,204

 
368

 
4,572

Total investments
150

 
4,468

 
384

 
5,002

Receivables
—

 
32

 
—

 
32

Other assets
—

 
13

 
1,936

 
1,949

Total assets at fair value
$
150

 
$
4,513

 
$
2,320

 
$
6,983

Liabilities
 

 
 

 
 

 
 

Debt
$
—

 
$
—

 
$
4,804

 
$
4,804

Other liabilities
—

 
193

 
—

 
193

Total liabilities at fair value
$
—

 
$
193

 
$
4,804

 
$
4,997


12

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:
 
Corporate Debt Securities
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance, April 1, 2014
$
13

 
$
10

 
$
384

 
$
1,993

 
$
(5,225
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
Net income
—


—


2

(1) 
106

(2) 
(15
)
(1) 
Other comprehensive income
—

 
—

 
—

 
52

 
—

 
Purchases
—

 
—

 
142

 
240

 
—

 
Sales
(7
)
 
(2
)
 
(27
)
 
(2
)
 
—

 
Issues
—

 
—

 
—

 
—

 
(608
)
 
Settlements
—

 
—

 
(26
)
 
—

 
337

 
Transfers into Level 3
—

 
5

 
98

 
—

 
—

 
Transfers out of Level 3
(6
)
 
(6
)
 
(146
)
 
—

 
—

 
Balance, June 30, 2014
$
—

 
$
7

 
$
427

 
$
2,389

 
$
(5,511
)
 
Changes in unrealized gains included in income relating to assets and liabilities held at
June 30, 2014
$
—


$
—


$
1

(1) 
$
108

(2) 
$
19

(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, April 1, 2013
$
3

 
$
8

 
$
205

 
$
1,176

 
$
(4,595
)
 
Total gains (losses) included in:
 
 
 

 
 

  
 

  
 

  
Net income
—

 
1

(1) 
1

(1) 
8

(2) 
(61
)
(1) 
Other comprehensive loss
—

 
—

 
—

 
3

 
—

 
Purchases
1

 
—

 
117

 
144

 
—

 
Sales
(1
)
 
(3
)
 
(26
)
 
(17
)
 
—

 
Issues
—

 
—

 
—

 
—

 
(518
)
 
Settlements
—

 
—

 
(20
)
 
—

 
497

 
Transfers into Level 3
—

 
13

 
76

 
8

 
—

 
Transfers out of Level 3
—

 
(3
)
 
(61
)
 
—

 
—

 
Balance, June 30, 2013
$
3

 
$
16

 
$
292

 
$
1,322

 
$
(4,677
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at
June 30, 2013
$
—

 
$
(1
)
(1) 
$
—

 
$
12

(2) 
$
(34
)
(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.

13

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


 
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) 
6

(1) 
186

(2) 
(25
)
(1) 
Other comprehensive income
—

 
—

 
—

 
67

 
—

 
Purchases
2

 
—

 
238

 
259

 
—

 
Sales
(9
)
 
(2
)
 
(27
)
 
(70
)
 
—

 
Issues
—

 
—

 
—

 
—

 
(1,064
)
 
Settlements
—

 
—

 
(38
)
 
—

 
382

 
Transfers into Level 3
10

 
11

 
244

 
11

 
—

 
Transfers out of Level 3
(6
)
 
(18
)
 
(364
)
 
—

 
—

 
Balance, June 30, 2014
$
—

 
$
7

 
$
427

 
$
2,389

 
$
(5,511
)
 
Changes in unrealized gains included in income relating to assets and liabilities held at
June 30, 2014
$
—


$
1

(1) 
$
2

(1) 
$
186

(2) 
$
10

(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, 2013
$
3

 
$
14

 
$
202

 
$
1,214

 
$
(4,450
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
Net income
—

 
1

(1) 
1

(1) 
2

(2) 
(88
)
(1) 
Other comprehensive loss
—

 
—

 
—

 
(74
)
 
—

 
Purchases
1

 
—

 
193

 
195

 
—

 
Sales
(1
)
 
(3
)
 
(44
)
 
(23
)
 
—

 
Issues
—

 
—

 
—

 
—

 
(926
)
 
Settlements
—

 
—

 
(33
)
 
—

 
787

 
Transfers into Level 3
—

 
15

 
127

 
8

 
—

 
Transfers out of Level 3
—

 
(11
)
 
(154
)
 
—

 
—

 
Balance, June 30, 2013
$
3

 
$
16

 
$
292

 
$
1,322

 
$
(4,677
)
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at
June 30, 2013
$
—

 
$
(1
)
(1) 
$
1

(1) 
$
7

(2) 
$
(59
)
(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.

14

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:
 
June 30, 2014
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
Other assets
$
2,378

 
Discounted cash flow/ market comparables
 
Equivalent yield
 
3.7
%
–
12.5%
 
6.8
%
 
 

 
 
 
Expected rental value (per square foot)
 
$3
–
$108
 
$35
Debt
$
5,511

 
Discounted cash flow
 
Annual default rate
 
2.5%
 


 
 

 
 
 
Discount rate
 
1.3
%
–
7.0%
 
2.5
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
–
10.0%
 
9.8
%
 
 

 
 
 
Loss recovery
 
36.4
%
–
63.6%
 
62.7
%
 
December 31, 2013
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
Other assets
$
1,936

 
Discounted cash flow/ market comparables
 
Equivalent yield
 
4.4
%
–
12.4%
 
7.4
%
 
 

 
 
 
Expected rental value (per square foot) (1)
 
$3
–
$165
 
$27
Debt
$
4,804

 
Discounted cash flow
 
Annual default rate
 
2.5%
 


 
 

 
 
 
Discount rate
 
1.5
%
–
8.3%
 
2.7
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
–
10.0%
 
9.8
%
 
 
 
 
 
Loss recovery
 
36.4
%
–
63.6%
 
62.3
%
(1)  The previously reported range and weighted average for the expected rental value was $5-$373 per square foot and $33 per square foot, respectively. These inputs have been revised in this disclosure only and the change does not impact the fair value of other assets.
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 CDO’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

15

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 CDOs, 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.
Other assets of the consolidated CDOs consist primarily of warrants. 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 CDOs’ 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 CDOs’ underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the CDOs’ debt is classified as Level 3.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CDOs. 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 CDOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CDOs.
The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
 
June 30, 2014
 
December 31, 2013
 
(in millions)
Syndicated loans
 

 
 

Unpaid principal balance
$
5,277

 
$
4,628

Excess unpaid principal over fair value
(39
)
 
(56
)
Fair value
$
5,238

 
$
4,572

Fair value of loans more than 90 days past due
$
35

 
$
23

Fair value of loans in nonaccrual status
35

 
23

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
21

 
33

Debt
 

 
 

Unpaid principal balance
$
5,724

 
$
5,032

Excess unpaid principal over fair value
(213
)
 
(228
)
Fair value
$
5,511

 
$
4,804


16

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


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 $(1) million and $(30) million for the three months ended June 30, 2014 and 2013, 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 $20 million and $(9) million for the six months ended June 30, 2014 and 2013, 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
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
 
(in millions)
 
 
 
 
Debt of consolidated CDOs due 2016-2026
$
5,511

 
$
4,804

 
1.2
%
 
1.0
%
Floating rate revolving credit borrowings due 2014
347

 
305

 
2.3

 
2.6

Floating rate revolving credit borrowings due 2015
105

 
97

 
2.4

 
2.4

Floating rate revolving credit borrowings due 2017
123

 
120

 
4.6

 
4.5

Floating rate revolving credit borrowings due 2018
428

 
377

 
2.7

 
3.5

Floating rate revolving credit borrowings due 2019
158

 
33

 
3.3

 
3.0

Total
$
6,672

 
$
5,736

 
 

 
 

The debt of the consolidated CDOs has both fixed and floating interest rates, which range from 0% to 9.2%. The interest rates on the debt of CDOs are weighted average rates based on the outstanding principal and current interest rates. The carrying value of the debt of the consolidated CDOs 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 $1.2 billion and $932 million as of June 30, 2014 and December 31, 2013, respectively. The consolidated pooled investment vehicles 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 $4 million and $5 million at June 30, 2014 and December 31, 2013, respectively. The overall effective interest rate reflecting the impact of the derivative contracts was 3.3% and 4.2% as of June 30, 2014 and December 31, 2013, respectively.

4.  Investments
The following is a summary of Ameriprise Financial investments:
 
June 30, 2014
 
December 31, 2013
 
(in millions)
Available-for-Sale securities, at fair value
$
30,486

 
$
30,310

Mortgage loans, net
3,474

 
3,510

Policy and certificate loans
792

 
774

Other investments
1,206

 
1,141

Total
$
35,958

 
$
35,735


17

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


The following is a summary of net investment income:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Investment income on fixed maturities
$
375

 
$
403

 
$
749

 
$
804

Net realized gains
1

 
—

 
6

 
1

Affordable housing partnerships
(6
)
 
(1
)
 
(12
)
 
(8
)
Other
20

 
42

 
44

 
59

Consolidated investment entities
43

 
7

 
117

 
84

Total net investment income
$
433

 
$
451

 
$
904

 
$
940

 
Available-for-Sale securities distributed by type were as follows:
 
 
June 30, 2014
Description of Securities
 
Amortized
Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
 
Noncredit
OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
15,717

 
$
1,713

 
$
(19
)
 
$
17,411

 
$
3

Residential mortgage backed securities
 
6,065

 
173

 
(80
)
 
6,158

 
(21
)
Commercial mortgage backed securities
 
2,626

 
146

 
(4
)
 
2,768

 
—

Asset backed securities
 
1,451

 
59

 
(4
)
 
1,506

 
—

State and municipal obligations
 
2,135

 
214

 
(32
)
 
2,317

 
—

U.S. government and agencies obligations
 
42

 
5

 
—

 
47

 
—

Foreign government bonds and obligations
 
238

 
25

 
(5
)
 
258

 
—

Common stocks
 
8

 
13

 
—

 
21

 
5

Total
 
$
28,282

 
$
2,348

 
$
(144
)
 
$
30,486

 
$
(13
)
 
 
December 31, 2013
Description of Securities
 
Amortized
Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
 
Noncredit
OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
16,233

 
$
1,330

 
$
(97
)
 
$
17,466

 
$
3

Residential mortgage backed securities
 
6,114

 
147

 
(137
)
 
6,124

 
(33
)
Commercial mortgage backed securities
 
2,612

 
141

 
(12
)
 
2,741

 
—

Asset backed securities
 
1,459

 
53

 
(8
)
 
1,504

 
—

State and municipal obligations
 
2,132

 
106

 
(78
)
 
2,160

 
—

U.S. government and agencies obligations
 
47

 
5

 
—

 
52

 
—

Foreign government bonds and obligations
 
235

 
18

 
(8
)
 
245

 
—

Common stocks
 
7

 
11

 
—

 
18

 
4

Total
 
$
28,839

 
$
1,811

 
$
(340
)
 
$
30,310

 
$
(26
)
(1)  Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income. 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.

18

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


As of June 30, 2014 and December 31, 2013, investment securities with a fair value of $2.0 billion and $2.3 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings.
At both June 30, 2014 and December 31, 2013, fixed maturity securities comprised approximately 85% 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 June 30, 2014 and December 31, 2013, 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:
 
 
June 30, 2014
 
December 31, 2013
Ratings
 
Amortized Cost
 
Fair Value
 
Percent of Total
Fair Value
 
Amortized Cost
 
Fair Value
 
Percent of Total
Fair Value
 
 
(in millions, except percentages)
AAA
 
$
7,443

 
$
7,723

 
25
%
 
$
7,562

 
$
7,746

 
25
%
AA
 
1,496

 
1,693

 
6

 
1,587

 
1,707

 
6

A
 
6,241

 
6,798

 
22

 
6,381

 
6,738

 
22

BBB
 
11,281

 
12,435

 
41

 
11,427

 
12,272

 
41

Below investment grade
 
1,813

 
1,816

 
6

 
1,875

 
1,829

 
6

Total fixed maturities
 
$
28,274

 
$
30,465

 
100
%
 
$
28,832

 
$
30,292

 
100
%
At June 30, 2014 and December 31, 2013, approximately 48% and 45%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of total equity.
The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
 
 
June 30, 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
35

 
$
270

 
$
(1
)
 
51

 
$
801

 
$
(18
)
 
86

 
$
1,071

 
$
(19
)
Residential mortgage backed securities
58

 
657

 
(6
)
 
150

 
1,486

 
(74
)
 
208

 
2,143

 
(80
)
Commercial mortgage backed securities
9

 
41

 
—

 
9

 
105

 
(4
)
 
18

 
146

 
(4
)
Asset backed securities
5

 
83

 
(1
)
 
16

 
231

 
(3
)
 
21

 
314

 
(4
)
State and municipal obligations
10

 
30

 
—

 
55

 
236

 
(32
)
 
65

 
266

 
(32
)
Foreign government bonds and obligations
3

 
20

 
—

 
14

 
27

 
(5
)
 
17

 
47

 
(5
)
Total
120

 
$
1,101

 
$
(8
)
 
295

 
$
2,886

 
$
(136
)
 
415

 
$
3,987

 
$
(144
)

19

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


 
 
December 31, 2013
 
 
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
181

 
$
2,817

 
$
(83
)
 
12

 
$
181

 
$
(14
)
 
193

 
$
2,998

 
$
(97
)
Residential mortgage backed securities
128

 
2,393

 
(66
)
 
113

 
663

 
(71
)
 
241

 
3,056

 
(137
)
Commercial mortgage backed securities
35

 
426

 
(10
)
 
4

 
22

 
(2
)
 
39

 
448

 
(12
)
Asset backed securities
40

 
531

 
(7
)
 
4

 
32

 
(1
)
 
44

 
563

 
(8
)
State and municipal obligations
169

 
468

 
(36
)
 
14

 
117

 
(42
)
 
183

 
585

 
(78
)
Foreign government bonds and obligations
23

 
77

 
(8
)
 
—

 
—

 
—

 
23

 
77

 
(8
)
Total
576

 
$
6,712

 
$
(210
)
 
147

 
$
1,015

 
$
(130
)
 
723

 
$
7,727

 
$
(340
)
As part of Ameriprise Financial’s ongoing monitoring process, management determined that a majority of the change in gross unrealized losses on its Available-for-Sale securities is attributable to movement in interest rates.
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:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Beginning balance
$
147

 
$
165

 
$
147

 
$
176

Credit losses for which an other-than-temporary impairment was previously recognized
1

 
2

 
1

 
4

Reductions for securities sold during the period (realized)
—

 
(10
)
 
—

 
(23
)
Ending balance
$
148

 
$
157

 
$
148

 
$
157

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 items primarily consisting of adjustments in asset and liability balances, such as deferred acquisition costs (“DAC”), deferred sales inducement costs (“DSIC”), benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.

20

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


The following table presents a rollforward of the net unrealized securities gains on Available-for-Sale securities included in accumulated other comprehensive income:
 
Net 
Unrealized
Securities
Gains
 
Deferred
Income Tax
 
Accumulated 
Other Comprehensive
Income Related to 
Net Unrealized
Securities Gains
 
 
(in millions)
  
Balance at January 1, 2013
$
2,017

 
$
(705
)
 
$
1,312

  
Net unrealized securities losses arising during the period (1)
(1,222
)
 
420

 
(802
)
  
Impact of DAC, DSIC, benefit reserves and reinsurance recoverables
407

 
(142
)
 
265

 
Balance at June 30, 2013
$
1,202

 
$
(427
)
 
$
775

(2) 
 
 
 
 
 
 
 
Balance at January 1, 2014
$
1,016

 
$
(361
)
 
$
655

  
Net unrealized securities gains arising during the period (1)
739

 
(261
)
 
478

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

 
(4
)
 
Impact of DAC, DSIC, benefit reserves and reinsurance recoverables
(257
)
 
90

 
(167
)
  
Balance at June 30, 2014
$
1,492

 
$
(530
)
 
$
962

(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 $(2) million and $12 million of noncredit related impairments on securities and net unrealized securities (gains) losses on previously impaired securities at June 30, 2014 and 2013, 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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Gross realized gains
$
4

 
$
3

 
$
11

 
$
7

Gross realized losses
(3
)
 
(2
)
 
(4
)
 
(2
)
Other-than-temporary impairments
—

 
(2
)
 
(1
)
 
(5
)
Total
$
1

 
$
(1
)
 
$
6

 
$
—

Other-than-temporary impairments for the six months ended June 30, 2014 primarily related to the Company’s decision to sell a corporate debt security and credit losses on non-agency residential mortgage backed securities. Other-than-temporary impairments for the three months and six months ended June 30, 2013 primarily related to credit losses on non-agency residential mortgage backed securities.

21

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


Available-for-Sale securities by contractual maturity at June 30, 2014 were as follows:
 
Amortized Cost
 
Fair Value
 
(in millions)
Due within one year
$
1,604

 
$
1,633

Due after one year through five years
6,810

 
7,439

Due after five years through 10 years
5,049

 
5,385

Due after 10 years
4,669

 
5,576

 
18,132

 
20,033

Residential mortgage backed securities
6,065

 
6,158

Commercial mortgage backed securities
2,626

 
2,768

Asset backed securities
1,451

 
1,506

Common stocks
8

 
21

Total
$
28,282

 
$
30,486

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. 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.
Allowance for Loan Losses
The following tables present a rollforward of the allowance for loan losses for the six months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:
 
June 30, 2014
 
Commercial
Mortgage Loans
 
Syndicated Loans
 
Consumer Loans
 
Total
 
(in millions)
Beginning balance
$
26

 
$
6

 
$
5

 
$
37

Charge-offs
(1
)
 
(2
)
 
(1
)
 
(4
)
Ending balance
$
25

 
$
4

 
$
4

 
$
33

 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
8

 
$
—

 
$
1

 
$
9

Collectively evaluated for impairment
17

 
4

 
3

 
24


22

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


 
June 30, 2013
 
Commercial
Mortgage Loans
 
Syndicated Loans
 
Consumer Loans
 
Total
 
(in millions)
Beginning balance
$
29

 
$
7

 
$
8

 
$
44

Charge-offs
—

 
(1
)
 
(1
)
 
(2
)
Ending balance
$
29

 
$
6

 
$
7

 
$
42

 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
8

 
$
—

 
$
1

 
$
9

Collectively evaluated for impairment
21

 
6

 
6

 
33

The recorded investment in financing receivables by impairment method and type of loan was as follows:
 
June 30, 2014
 
Commercial
Mortgage Loans
 
Syndicated Loans
 
Consumer Loans
 
Total
 
(in millions)
Individually evaluated for impairment
$
36

 
$
5

 
$
7

 
$
48

Collectively evaluated for impairment
2,669

 
407

 
807

 
3,883

Total
$
2,705

 
$
412

 
$
814

 
$
3,931

 
December 31, 2013
 
Commercial
Mortgage Loans
 
Syndicated Loans
 
Consumer Loans
 
Total
 
(in millions)
Individually evaluated for impairment
$
42

 
$
9

 
$
7

 
$
58

Collectively evaluated for impairment
2,640

 
370

 
873

 
3,883

Total
$
2,682

 
$
379

 
$
880

 
$
3,941

As of June 30, 2014 and December 31, 2013, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $17 million and $21 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 and six months ended June 30, 2014, the Company purchased $25 million and $90 million, respectively, and sold $6 million and $10 million, respectively, of syndicated loans. During the three months and six months ended June 30, 2013, the Company purchased $37 million and $59 million, respectively, and sold $1 million and $2 million, respectively, 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 $12 million and $22 million as of June 30, 2014 and December 31, 2013, 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% and 2% of total commercial mortgage loans at June 30, 2014 and December 31, 2013, respectively. 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.

23

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


Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
 
Loans
 
Percentage
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
 
(in millions)
 
 
 
 
East North Central
$
239

 
$
251

 
9
%
 
9
%
East South Central
65

 
71

 
2

 
3

Middle Atlantic
221

 
211

 
8

 
8

Mountain
262

 
257

 
10

 
10

New England
142

 
149

 
5

 
5

Pacific
671

 
661

 
25

 
25

South Atlantic
736

 
713

 
27

 
26

West North Central
212

 
207

 
8

 
8

West South Central
157

 
162

 
6

 
6

 
2,705

 
2,682

 
100
%
 
100
%
Less: allowance for loan losses
25

 
26

 
 

 
 

Total
$
2,680

 
$
2,656

 
 

 
 

 
Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 
Loans
 
Percentage
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
 
(in millions)
 
 
 
 
Apartments
$
465

 
$
488

 
17
%
 
18
%
Hotel
35

 
33

 
1

 
1

Industrial
475

 
454

 
17

 
17

Mixed use
45

 
36

 
2

 
1

Office
563

 
559

 
21

 
21

Retail
966

 
951

 
36

 
36

Other
156

 
161

 
6

 
6

 
2,705

 
2,682

 
100
%
 
100
%
Less: allowance for loan losses
25

 
26

 
 

 
 

Total
$
2,680

 
$
2,656

 
 

 
 

Syndicated Loans
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 June 30, 2014 and December 31, 2013 were $5 million and $4 million, respectively.
Consumer Loans
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 both June 30, 2014 and December 31, 2013, approximately 5% of consumer loans had FICO scores below 640. As of both June 30, 2014 and December 31, 2013, 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% and 38% of the portfolio as of June 30, 2014 and December 31, 2013, respectively. No other state represents more than 10% of the total consumer loan portfolio.

24

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


Troubled Debt Restructurings
The following table presents the number of loans restructured by the Company during the period and their recorded investment at the end of the period:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
Number of Loans
 
Recorded Investment
 
Number of Loans
 
Recorded Investment
 
Number of Loans
 
Recorded Investment
 
Number of Loans
 
Recorded Investment
 
(in millions, except number of loans)
Commercial mortgage loans
—

 
$
—

 
4

 
$
10

 
2

 
$
8

 
4

 
$
10

Syndicated loans
—

 
—

 
1

 
—

 
1

 
1

 
1

 
—

Consumer loans
2

 
—

 
4

 
—

 
4

 
—

 
9

 
—

Total
2

 
$
—

 
9

 
$
10

 
7

 
$
9

 
14

 
$
10

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 six months ended June 30, 2014 and 2013. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.

6.  Deferred Acquisition Costs and Deferred Sales Inducement Costs
The balances of and changes in DAC were as follows:
 
2014
 
2013
 
(in millions)
Balance at January 1
$
2,663

 
$
2,399

Capitalization of acquisition costs
166

 
167

Amortization
(165
)
 
(167
)
Impact of change in net unrealized securities losses (gains)
(52
)
 
107

Balance at June 30
$
2,612

 
$
2,506

The balances of and changes in DSIC, which is included in other assets, were as follows:
 
2014
 
2013
 
(in millions)
Balance at January 1
$
409

 
$
404

Capitalization of sales inducement costs
3

 
3

Amortization
(25
)
 
(30
)
Impact of change in net unrealized securities losses (gains)
(8
)
 
15

Balance at June 30
$
379

 
$
392



25

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:
 
June 30, 2014
 
December 31, 2013
 
(in millions)
Policyholder account balances
 
 
 
Fixed annuities
$
13,143

 
$
13,826

Variable annuity fixed sub-accounts
4,877

 
4,926

Variable universal life (“VUL”)/universal life (“UL”) insurance
2,821

 
2,790

Indexed universal life (“IUL”) insurance
418

 
315

Other life insurance
858

 
878

Total policyholder account balances
22,117

 
22,735

Future policy benefits
 
 
 
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)(1)
(131
)
 
(383
)
Variable annuity guaranteed minimum accumulation benefits (“GMAB”)(1)
(76
)
 
(62
)
Other annuity liabilities
126

 
76

Fixed annuities life contingent liabilities
1,520

 
1,523

Equity indexed annuities (“EIA”)
29

 
29

Life, disability income and long term care insurance
4,936

 
4,739

VUL/UL and other life insurance additional liabilities
405

 
336

Total future policy benefits
6,809

 
6,258

Policy claims and other policyholders’ funds
681

 
627

Total policyholder account balances, future policy benefits and claims
$
29,607

 
$
29,620

(1) Includes the value of GMWB and GMAB embedded derivatives that was a net asset at both June 30, 2014 and December 31, 2013 reported as a contra liability.
Separate account liabilities consisted of the following:
 
June 30, 2014
 
December 31, 2013
 
(in millions)
Variable annuity
$
72,771

 
$
70,687

VUL insurance
7,099

 
6,885

Other insurance
44

 
44

Threadneedle investment liabilities
4,113

 
3,607

Total
$
84,027

 
$
81,223

 

26

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


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.
The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:
 
 
June 30, 2014
 
December 31, 2013
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
 
$
55,051

 
$
53,238

 
$
21

 
64
 
$
52,616

 
$
50,790

 
$
28

 
64
Five/six-year reset
 
10,867

 
8,327

 
29

 
64
 
11,220

 
8,663

 
42

 
64
One-year ratchet
 
7,659

 
7,259

 
29

 
66
 
7,676

 
7,261

 
38

 
65
Five-year ratchet
 
1,819

 
1,764

 
1

 
62
 
1,781

 
1,725

 
1

 
62
Other
 
1,004

 
986

 
32

 
69
 
1,015

 
996

 
36

 
69
Total — GMDB
 
$
76,400

 
$
71,574

 
$
112

 
64
 
$
74,308

 
$
69,435

 
$
145

 
64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GGU death benefit
 
$
1,074

 
$
1,022

 
$
128

 
66
 
$
1,052

 
$
998

 
$
121

 
64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMIB
 
$
381

 
$
358

 
$
8

 
67
 
$
413

 
$
389

 
$
8

 
66
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMWB:
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
GMWB
 
$
3,854

 
$
3,841

 
$
1

 
67
 
$
3,936

 
$
3,921

 
$
1

 
67
GMWB for life
 
36,192

 
36,070

 
53

 
65
 
34,069

 
33,930

 
77

 
64
Total — GMWB
 
$
40,046

 
$
39,911

 
$
54

 
65
 
$
38,005

 
$
37,851

 
$
78

 
64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMAB
 
$
4,289

 
$
4,277

 
$
1

 
58
 
$
4,194

 
$
4,181

 
$
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:
 
June 30, 2014
 
December 31, 2013
 
Net Amount at Risk
 
Weighted Average Attained Age
 
Net Amount at Risk
 
Weighted Average Attained Age
 
(in millions, except age)
UL secondary guarantees
$
5,838

 
62
 
$
5,674

 
62

27

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


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.
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, 2013
$
4

 
$
9

 
$
799

 
$
103

 
$
155

Incurred claims
3

 
—

 
(715
)
 
(89
)
 
36

Paid claims
(2
)
 
—

 
—

 
—

 
(7
)
Balance at June 30, 2013
$
5

 
$
9

 
$
84

 
$
14

 
$
184

 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
$
4

 
$
6

 
$
(383
)
 
$
(62
)
 
$
206

Incurred claims
2

 
—

 
252

 
(14
)
 
31

Paid claims
(2
)
 
—

 
—

 
—

 
(1
)
Balance at June 30, 2014
$
4

 
$
6

 
$
(131
)
 
$
(76
)
 
$
236

(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:
 
June 30, 2014
 
December 31, 2013
 
(in millions)
Mutual funds:
 

 
 

Equity
$
40,724

 
$
39,195

Bond
25,965

 
26,519

Other
4,858

 
3,764

Total mutual funds
$
71,547

 
$
69,478


9.  Debt
The balances and the stated interest rates of outstanding debt of Ameriprise Financial were as follows: 
 
Outstanding Balance
 
Stated Interest Rate
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
 
(in millions)
 
 

 
 

Long-term debt:
 

 
 

 
 

 
 

Senior notes due 2015
$
363

(1) 
$
366

(1) 
5.7
%
 
5.7
%
Senior notes due 2019
329

(1) 
327

(1) 
7.3

 
7.3

Senior notes due 2020
787

(1) 
783

(1) 
5.3

 
5.3

Senior notes due 2023
750

 
750

 
4.0

 
4.0

Senior notes due 2039
—

 
200

  
—

 
7.8

Junior subordinated notes due 2066
294

 
294

 
7.5

 
7.5

Total long-term debt
2,523

 
2,720

 
 

 
 

 
 
 
 
 
 
 
 
Short-term borrowings:
 

 
 

 
 

 
 

Federal Home Loan Bank (“FHLB”) advances
150

 
450

 
0.3

 
0.3

Repurchase agreements
50

 
50

 
0.3

 
0.3

Total short-term borrowings
200

 
500

 
 

 
 

Total
$
2,723

 
$
3,220

 
 

 
 

(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.

28

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.
On September 30, 2013, the Company entered into a restated credit agreement for $500 million expiring on September 28, 2018. Under the terms of the agreement, the Company may increase the amount of this facility 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 $2 million as of June 30, 2014.
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 June 30, 2014 and December 31, 2013.
Long-term Debt
In May 2014, the Company issued a notice of redemption for $200 million of its senior notes due 2039. The notes were redeemed on June 16, 2014 pursuant to the terms of the indenture at the principal value plus accrued interest to the redemption date. The Company recognized an expense for the remaining unamortized debt issuance costs on the notes in the second quarter of 2014.
Short-term Borrowings
The Company enters into repurchase agreements in exchange for cash, which it accounts for as secured borrowings. The Company has pledged Available-for-Sale securities consisting of agency residential mortgage backed securities and commercial mortgage backed securities to collateralize its obligation under the repurchase agreements. The fair value of the securities pledged is recorded in investments and was $51 million and $52 million at June 30, 2014 and December 31, 2013, respectively. 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 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 $502 million and $574 million at June 30, 2014 and December 31, 2013, respectively. 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.

29

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: 
 
June 30, 2014
  
 
Level 1
 
Level 2
 
Level 3
 
Total
  
 
(in millions)
  
Assets
 

 
 

 
 

 
 

  
Cash equivalents
$
44

 
$
1,615

 
$
—

 
$
1,659

  
Available-for-Sale securities:
 

 
 

 
 

 
 

  
Corporate debt securities
—

 
15,846

 
1,565

 
17,411

  
Residential mortgage backed securities
—

 
5,944

 
214

 
6,158

  
Commercial mortgage backed securities
—

 
2,753

 
15

 
2,768

  
Asset backed securities
—

 
1,321

 
185

 
1,506

  
State and municipal obligations
—

 
2,317

 
—

 
2,317

  
U.S. government and agencies obligations
12

 
35

 
—

 
47

  
Foreign government bonds and obligations
—

 
258

 
—

 
258

  
Common stocks
6

 
9

 
6

 
21

  
Total Available-for-Sale securities
18

 
28,483

 
1,985

 
30,486

  
Trading securities
52

 
31

 
1

 
84

  
Separate account assets
—

 
84,027

 
—

 
84,027

  
Other assets:
 
 
 
 
 
 
 
 
Interest rate derivative contracts
—

 
1,670

 
—

 
1,670

  
Equity derivative contracts
298

 
1,432

 
—

 
1,730

  
Credit derivative contracts
—

 
—

 
—

 
—

  
Foreign exchange contracts
2

 
3

 
—

 
5

  
Other derivative contracts
—

 
—

 
1

 
1

  
Total other assets
300

 
3,105

 
1

 
3,406

  
Total assets at fair value
$
414

 
$
117,261

 
$
1,987

 
$
119,662

  
Liabilities
 
 
 
 
 
 
 
 
Policyholder account balances, future policy benefits and claims:
 

 
 

 
 

 
 

  
EIA embedded derivatives
$
—

 
$
5

 
$
—

 
$
5

  
IUL embedded derivatives
—

 
—

 
184

 
184

  
GMWB and GMAB embedded derivatives
—

 
—

 
(347
)
 
(347
)
(2) 
Total policyholder account balances, future policy benefits and claims
—

 
5

 
(163
)
 
(158
)
(1) 
Customer deposits
—

 
6

 
—

 
6

  
Other liabilities:
 

 
 

 
 

 
 

  
Interest rate derivative contracts
—

 
1,306

 
—

 
1,306

  
Equity derivative contracts
464

 
2,363

 
—

 
2,827

  
Foreign exchange contracts
1

 
—

 
—

 
1

  
Other derivative contracts
—

 
141

 
—

 
141

 
Other
—

 
10

 
—

 
10

  
Total other liabilities
465

 
3,820

 
—

 
4,285

  
Total liabilities at fair value
$
465

 
$
3,831

 
$
(163
)
 
$
4,133

  
(1) The Company’s adjustment for nonperformance risk resulted in a $162 million cumulative increase to the embedded derivatives.
(2) The fair value of the GMWB and GMAB embedded derivatives was a net asset at June 30, 2014 and the amount is reported as a contra liability.

30

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


 
December 31, 2013
  
 
Level 1
 
Level 2
 
Level 3
 
Total
  
 
(in millions)
  
Assets
 

 
 

 
 

 
 

  
Cash equivalents
$
12

 
$
1,841

 
$
—

 
$
1,853

  
Available-for-Sale securities:
 

 
 

 
 

 
 

  
Corporate debt securities
—

 
15,826

 
1,640

 
17,466

  
Residential mortgage backed securities
—

 
5,937

 
187

 
6,124

  
Commercial mortgage backed securities
—

 
2,711

 
30

 
2,741

  
Asset backed securities
—

 
1,244

 
260

 
1,504

  
State and municipal obligations
—

 
2,160

 
—

 
2,160

  
U.S. government and agencies obligations
17

 
35

 
—

 
52

  
Foreign government bonds and obligations
—

 
245

 
—

 
245

  
Common stocks
5

 
7

 
6

 
18

  
Total Available-for-Sale securities
22

 
28,165

 
2,123

 
30,310

  
Trading securities
3

 
32

 
2

 
37

  
Separate account assets
—

 
81,223

 
—

 
81,223

  
Other assets:
 

 
 

 
 

 
 

  
Interest rate derivative contracts
—

 
1,566

 
—

 
1,566

  
Equity derivative contracts
265

 
1,576

 
—

 
1,841

  
Credit derivative contracts
—

 
3

 
—

 
3

 
Foreign exchange contracts
2

 
2

 
—

 
4

  
Other derivative contracts
—

 
4

 
—

 
4

  
Total other assets
267

 
3,151

 
—

 
3,418

  
Total assets at fair value
$
304

 
$
114,412

 
$
2,125

 
$
116,841

  
Liabilities
 

 
 

 
 

 
 

  
Policyholder account balances, future policy benefits and claims:
 

 
 

 
 

 
 

  
EIA embedded derivatives
$
—

 
$
5

 
$
—

 
$
5

  
IUL embedded derivatives
—

 
—

 
125

 
125

  
GMWB and GMAB embedded derivatives
—

 
—

 
(575
)
 
(575
)
(2) 
Total policyholder account balances, future policy benefits and claims
—

 
5

 
(450
)
 
(445
)
(1) 
Customer deposits
—

 
7

 
—

 
7

  
Other liabilities:
 

 
 

 
 

 
 

  
Interest rate derivative contracts
—

 
1,672

 
—

 
1,672

  
Equity derivative contracts
550

 
2,447

 
—

 
2,997

  
Other derivative contracts
—

 
139

 
—

 
139

 
Other
—

 
12

 
—

 
12

  
Total other liabilities
550

 
4,270

 
—

 
4,820

  
Total liabilities at fair value
$
550

 
$
4,282

 
$
(450
)
 
$
4,382

  
 
(1) The Company’s adjustment for nonperformance risk resulted in a $150 million cumulative increase to the embedded derivatives.
(2) The fair value of the GMWB and GMAB embedded derivatives was a net asset at December 31, 2013 and the amount is reported as a contra liability.

31

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
 
Other Derivative Contracts
 
(in millions)
Balance, April 1, 2014
$
1,566

 
$
87

 
$
75

 
$
206

 
$
6

 
$
1,940

 
$
2

 
$
—

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

 
—

 
1

 
—

 
—

(1) 
—

 
—

    Other comprehensive income
12

 
—

 
—

 
—

 
—

 
12

 
—

 
—

Purchases
46

 
136

 
—

 
—

 
—

 
182

 
1

 
1

Sales
—

 
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

Settlements
(58
)
 
(9
)
 
—

 
(2
)
 
—

 
(69
)
 
—

 
—

Transfers out of Level 3
—

 
—

 
(60
)
 
(20
)
 
—

 
(80
)
 
—

 
—

Balance, June 30, 2014
$
1,565

 
$
214

 
$
15

 
$
185

 
$
6

 
$
1,985

 
$
1

 
$
1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized losses relating to assets held at June 30, 2014 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, April 1, 2014
$
154

 
$
(471
)
 
$
(317
)
Total losses included in:
    Net income
8

(1) 
68

(2) 
76

Issues
24

 
60

 
84

Settlements
(2
)
 
(4
)
 
(6
)
Balance, June 30, 2014
$
184

 
$
(347
)
 
$
(163
)
 
 
 
 
 
 
Changes in unrealized losses relating to liabilities held at June 30, 2014 included in:
Interest credited to fixed accounts
$
8

 
$
—

 
$
8

Benefits, claims, losses and settlement expenses
—

 
67

 
67

(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.


32

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
 
 
(in millions)
Balance, April 1, 2013
$
1,764

 
$
8

 
$
204

 
$
321

 
$
5

 
$
2,302

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

 
—

 
—

 
—

 
(1
)
(1) 
Other comprehensive loss
(37
)
 
—

 
(4
)
 
2

 
—

 
(39
)
 
Purchases
20

 
62

 
10

 
32

 
—

 
124

 
Settlements
(79
)
 
(1
)
 
—

 
(1
)
 
—

 
(81
)
 
Transfers into Level 3
—

 
—

 
—

 
8

 
—

 
8

 
Transfers out of Level 3
—

 
—

 
—

 
(148
)
 
—

 
(148
)
 
Balance, June 30, 2013
$
1,667

 
$
69

 
$
210

 
$
214

 
$
5

 
$
2,165

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized losses relating to assets held at June 30, 2013 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, April 1, 2013
$
61

 
$
266

 
$
327

Total (gains) losses included in:
Net income
2

(1) 
(306
)
(2) 
(304
)
Issues
13

 
53

 
66

Settlements
—

 
(2
)
 
(2
)
Balance, June 30, 2013
$
76

 
$
11

 
$
87

 
 
 
 
 
 
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2013 included in:
Interest credited to fixed accounts
$
2

 
$
—

 
$
2

Benefits, claims, losses and settlement expenses
—

 
(299
)
 
(299
)
(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, January 1, 2014
$
1,640

 
$
187

 
$
30

 
$
260

 
$
6

 
$
2,123

 
$
2

 
$
—

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

 
—

 
1

 
—

 
—

(1) 
—

 
—

    Other comprehensive income
16

 
—

 
—

 
—

 
—

 
16

 
—

 
—

Purchases
122

 
218

 
60

 
21

 
—

 
421

 
1

 
1

Sales
(11
)
 
—

 
—

 
—

 
—

 
(11
)
 
(2
)
 
—

Settlements
(201
)
 
(12
)
 
—

 
(8
)
 
—

 
(221
)
 
—

 
—

Transfers out of Level 3
—

 
(179
)
 
(75
)
 
(89
)
 
—

 
(343
)
 
—

 
—

Balance, June 30, 2014
$
1,565

 
$
214

 
$
15

 
$
185

 
$
6

 
$
1,985

 
$
1

 
$
1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized gains (losses) relating to assets held at June 30, 2014 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, January 1, 2014
$
125

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

(1) 
120

(2) 
134

Issues
48

 
119

 
167

Settlements
(3
)
 
(11
)
 
(14
)
Balance, June 30, 2014
$
184

 
$
(347
)
 
$
(163
)
 
 
 
 
 
 
Changes in unrealized losses relating to liabilities held at June 30, 2014 included in:
Interest credited to fixed accounts
$
14

 
$
—

 
$
14

Benefits, claims, losses and settlement expenses
—

 
119

 
119

(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.

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
 
 
(in millions)
Balance, January 1, 2013
$
1,764

 
$
284

 
$
206

 
$
178

 
$
6

 
$
2,438

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

 
—

 
1

 
—

 
—

(1) 
Other comprehensive loss
(37
)
 
—

 
(6
)
 
7

 
—

 
(36
)
 
Purchases
74

 
62

 
10

 
171

 
—

 
317

 
Settlements
(133
)
 
(1
)
 
—

 
(3
)
 
—

 
(137
)
 
Transfers into Level 3
—

 
—

 
—

 
8

 
—

 
8

 
Transfers out of Level 3
—

 
(276
)
 
—

 
(148
)
 
(1
)
 
(425
)
 
Balance, June 30, 2013
$
1,667

 
$
69

 
$
210

 
$
214

 
$
5

 
$
2,165

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized gains (losses) relating to assets held at June 30, 2013 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, January 1, 2013
$
45

 
$
833

 
$
878

Total (gains) losses included in:
Net income
6

(1) 
(924
)
(2) 
(918
)
Issues
25

 
103

 
128

Settlements
—

 
(1
)
 
(1
)
Balance, June 30, 2013
$
76

 
$
11

 
$
87

 
 
 
 
 
 
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2013 included in:
Interest credited to fixed accounts
$
6

 
$
—

 
$
6

Benefits, claims, losses and settlement expenses
—

 
(908
)
 
(908
)
(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 impact to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(6) million and $(28) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the three months ended June 30, 2014 and 2013, respectively. The impact to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $9 million and $(90) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual, for the six months ended June 30, 2014 and 2013, respectively.
Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third party pricing service with observable inputs. 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.

35

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:
 
June 30, 2014
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Corporate debt securities (private placements)
$
1,519

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
0.8
%
–
4.7%
 
1.2%
Other derivative contracts
$
1

 
Option pricing model
 
Correlation (1)
 
(40.0)%
 
 
IUL embedded derivatives
$
184

 
Discounted cash flow
 
Nonperformance risk (2)
 
56

 
bps
 
 
GMWB and GMAB embedded derivatives
$
(347
)
 
Discounted cash flow
 
Utilization of guaranteed withdrawals (3)
 
0.0
%
–
51.1%
 
 
 
 
 
 
 
Surrender rate
 
0.1
%
–
57.9%
 
 
 
 

 
 
 
Market volatility (4)
 
4.6
%
–
17.2%
 
 
 
 
 
 
 
Nonperformance risk (2)
 
56

 
bps
 
 
 
 
 
 
 
Elective contractholder strategy allocations (5)
 
0.0
%
–
50.0%
 
 
 
December 31, 2013
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Corporate debt securities (private placements)
$
1,589

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
0.9
%
–
5.3%
 
1.5%
IUL embedded derivatives
$
125

 
Discounted cash flow
 
Nonperformance risk (2)
 
74

 
bps
 
 
GMWB and GMAB embedded derivatives
$
(575
)
 
Discounted cash flow
 
Utilization of guaranteed withdrawals (3)
 
0.0
%
–
51.1%
 
 
 
 

 
 
 
Surrender rate
 
0.1
%
–
57.9%
 
 
 
 

 
 
 
Market volatility (4)
 
4.9
%
–
18.8%
 
 
 
 

 
 
 
Nonperformance risk (2)
 
74

 
bps
 
 
 
 
 
 
 
Elective contractholder strategy allocations (5)
 
0.0
%
–
50.0%
 
 
(1) 
Represents the correlation between equity returns and interest rates used in the valuation of the derivative contract.
(2) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
(3) The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.
(4) Market volatility is implied volatility of fund of funds and managed volatility funds.
(5) The elective allocation represents the percentage of contractholders that are assumed to electively switch their investment allocation to a different allocation model.
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.
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 (decreases) increases in the correlation used in the fair value measurement of Level 3 derivatives in isolation would result in a significantly higher (lower) fair value measurement.

36

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


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, surrender rate and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) asset value, possibly creating a liability. Significant increases (decreases) in nonperformance risk 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 higher (lower) asset 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 net asset value (“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, municipal bonds 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.

37

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.
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 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 the majority of the Company’s options. The fair value of certain derivatives measured using pricing models which include significant unobservable inputs are classified as Level 3 within the fair value hierarchy. 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 June 30, 2014 and December 31, 2013. 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 fair value of derivatives that are traded in less active OTC markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include 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 June 30, 2014 and December 31, 2013. See Note 11 and Note 12 for further information on the credit risk of derivative instruments and related collateral.

38

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 table with balances of assets and liabilities Ameriprise Financial measured at fair value on a recurring basis.
 
June 30, 2014
 
Carrying Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Financial Assets
Mortgage loans, net
$
3,474

 
$
—

 
$
—

 
$
3,511

 
$
3,511

Policy and certificate loans
792

 
—

 
1

 
779

 
780

Receivables
1,367

 
223

 
1,129

 
6

 
1,358

Restricted and segregated cash
2,344

 
2,344

 
—

 
—

 
2,344

Other investments and assets
459

 
—

 
404

 
56

 
460

Financial Liabilities
Policyholder account balances, future policy benefits and claims
$
13,424

 
$
—

 
$
—

 
$
14,195

 
$
14,195

Investment certificate reserves
4,177

 
—

 
—

 
4,175

 
4,175

Brokerage customer deposits
3,110

 
3,110

 
—

 
—

 
3,110

Separate account liabilities
4,511

 
—

 
4,511

 
—

 
4,511

Debt and other liabilities
3,041

 
290

 
2,918

 
107

 
3,315

 
December 31, 2013
 
Carrying Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Financial Assets
Mortgage loans, net
$
3,510

 
$
—

 
$
—

 
$
3,490

 
$
3,490

Policy and certificate loans
774

 
—

 
1

 
765

 
766

Receivables
1,141

 
107

 
1,026

 
8

 
1,141

Restricted and segregated cash
2,360

 
2,360

 
—

 
—

 
2,360

Other investments and assets
440

 
—

 
368

 
73

 
441

Financial Liabilities
Policyholder account balances, future policy benefits and claims
$
14,106

 
$
—

 
$
—

 
$
14,724

 
$
14,724

Investment certificate reserves
3,977

 
—

 
—

 
3,982

 
3,982

Brokerage customer deposits
3,088

 
3,088

 
—

 
—

 
3,088

Separate account liabilities
4,007

 
—

 
4,007

 
—

 
4,007

Debt and other liabilities
3,416

 
137

 
3,372

 
134

 
3,643


39

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 loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan. 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.

40

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, equity indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner. 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.
 

41

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


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. The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
 
June 30, 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
$
3,233

 
$
—

 
$
3,233

 
$
(2,916
)
 
$
(176
)
 
$
(114
)
 
$
27

OTC cleared
106

 
—

 
106

 
(82
)
 
(24
)
 
—

 
—

Exchange-traded
67

 
—

 
67

 
—

 
—

 
—

 
67

Total derivatives
3,406

 
—

 
3,406

 
(2,998
)
 
(200
)
 
(114
)
 
94

Securities borrowed
223

 
—

 
223

 
(43
)
 
—

 
(175
)
 
5

Total
$
3,629

 
$
—

 
$
3,629

 
$
(3,041
)
 
$
(200
)
 
$
(289
)
 
$
99

 
December 31, 2013
 
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
$
3,337

 
$
—

 
$
3,337

 
$
(3,227
)
 
$
(75
)
 
$
(15
)
 
$
20

OTC cleared
21

 
—

 
21

 
(20
)
 
(1
)
 
—

 
—

Exchange-traded
60

 
—

 
60

 
—

 
—

 
—

 
60

Total derivatives
3,418

 
—

 
3,418

 
(3,247
)
 
(76
)
 
(15
)
 
80

Securities borrowed
107

 
—

 
107

 
(15
)
 
—

 
(90
)
 
2

Total
$
3,525

 
$
—

 
$
3,525

 
$
(3,262
)
 
$
(76
)
 
$
(105
)
 
$
82

(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.

42

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


The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
 
June 30, 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
$
4,193

 
$
—

 
$
4,193

 
$
(2,916
)
 
$
(14
)
 
$
(1,263
)
 
$
—

OTC cleared
82

 
—

 
82

 
(82
)
 
—

 
—

 
—

Total derivatives
4,275

 
—

 
4,275

 
(2,998
)
 
(14
)
 
(1,263
)
 
—

Securities loaned
290

 
—

 
290

 
(43
)
 
—

 
(237
)
 
10

Repurchase agreements
50

 
—

 
50

 
—

 
—

 
(50
)
 
—

Total
$
4,615

 
$
—

 
$
4,615

 
$
(3,041
)
 
$
(14
)
 
$
(1,550
)
 
$
10

 
December 31, 2013
 
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
$
4,786

 
$
—

 
$
4,786

 
$
(3,227
)
 
$
—

 
$
(1,498
)
 
$
61

OTC cleared
22

 
—

 
22

 
(20
)
 
(2
)
 
—

 
—

Total derivatives
4,808

 
—

 
4,808

 
(3,247
)
 
(2
)
 
(1,498
)
 
61

Securities loaned
136

 
—

 
136

 
(15
)
 
—

 
(117
)
 
4

Repurchase agreements
50

 
—

 
50

 
—

 
—

 
(50
)
 
—

Total
$
4,994

 
$
—

 
$
4,994

 
$
(3,262
)
 
$
(2
)
 
$
(1,665
)
 
$
65

(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.
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

43

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


information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.
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
 
June 30, 2014
 
December 31, 2013
 
Balance Sheet
Location
 
June 30, 2014
 
December 31, 2013
 
 
 
 
(in millions)
 
 
 
(in millions)
Fair value hedges
Fixed rate debt
 
Other assets
 
$
85

 
$
82

 
Other liabilities
 
$
—

 
$
—

Total qualifying hedges
 
85

 
82

 
 
 
—

 
—

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
GMWB and GMAB
Interest rate contracts
 
Other assets
 
1,585

 
1,484

 
Other liabilities
 
1,306

 
1,672

Equity contracts
 
Other assets
 
1,642

 
1,741

 
Other liabilities
 
2,767

 
2,918

Credit contracts
 
Other assets
 
—

 
3

 
Other liabilities
 
—

 
—

Foreign exchange contracts
 
Other assets
 
2

 
2

 
Other liabilities
 
—

 
—

Embedded derivatives (1)
 
N/A
 
—

 
—

 
Policyholder account balances, future policy benefits and claims (2)
 
(347
)
 
(575
)
Total GMWB and GMAB
 
3,229

 
3,230

 
 
 
3,726

 
4,015

Other derivatives:
Equity
EIA embedded derivatives
 
N/A
 
—

 
—

 
Policyholder account balances, future policy benefits and claims
 
5

 
5

IUL
 
Other assets
 
33

 
27

 
Other liabilities
 
11

 
13

IUL embedded derivatives
 
N/A
 
—

 
—

 
Policyholder account balances, future policy benefits and claims
 
184

 
125

Stock market certificates
 
Other assets
 
55

 
73

 
Other liabilities
 
49

 
66

Stock market certificates embedded derivatives
 
N/A
 
—

 
—

 
Customer deposits
 
6

 
7

Foreign exchange
Foreign currency
 
Other assets
 
3

 
2

 
Other liabilities
 
1

 
—

Other
Macro hedge program
 
Other assets
 
1

 
4

 
Other liabilities
 
141

 
139

Total other
 
92

 
106

 
 
 
397

 
355

Total non-designated hedges
 
3,321

 
3,336

 
 
 
4,123

 
4,370

Total derivatives
 
$
3,406

 
$
3,418

 
 
 
$
4,123

 
$
4,370

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 was a net asset at June 30, 2014 and December 31, 2013 and the amount is reported as a contra liability.
See Note 10 for additional information regarding the Company’s fair value measurement of derivative instruments.

44

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


Derivatives Not Designated as Hedges
The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operations:
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 June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
(in millions)
GMWB and GMAB
Interest rate contracts
 
Benefits, claims, losses and settlement expenses
 
$
245

 
$
(380
)
 
$
509

 
$
(512
)
Equity contracts
 
Benefits, claims, losses and settlement expenses
 
(197
)
 
12

 
(387
)
 
(480
)
Credit contracts
 
Benefits, claims, losses and settlement expenses
 
(12
)
 
8

 
(22
)
 
8

Foreign exchange contracts
 
Benefits, claims, losses and settlement expenses
 
—

 
2

 
(1
)
 
7

Embedded derivatives (1)
 
Benefits, claims, losses and settlement expenses
 
(124
)
 
255

 
(228
)
 
822

Total GMWB and GMAB
 
(88
)
 
(103
)
 
(129
)
 
(155
)
Other derivatives:
Interest rate
Tax hedge
 
Net investment income
 
—

 
—

 
3

 
—

Seed money
 
Net investment income
 
—

 
2

 
(1
)
 
2

Equity
IUL
 
Interest credited to fixed accounts
 
6

 
2

 
11

 
6

IUL embedded derivatives
 
Interest credited to fixed accounts
 
5

 
2

 
11

 
5

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
 
1

 
1

 
2

 
4

Stock market certificates embedded derivatives
 
Banking and deposit interest expense
 
(1
)
 
(1
)
 
(2
)
 
(4
)
Seed money
 
Net investment income
 
(2
)
 
(2
)
 
(3
)
 
(8
)
Deferred compensation
 
Distribution expenses
 
4

 
1

 
5

 
2

Deferred compensation
 
General and administrative expense
 
2

 
—

 
2

 
—

Foreign exchange
Foreign currency
 
Net investment income
 
(2
)
 
(3
)
 
(2
)
 
(3
)
Deferred compensation
 
Distribution expenses
 
1

 
—

 
1

 
—

Commodity
Seed money
 
Net investment income
 
—

 
1

 
(1
)
 
1

Other
Macro hedge program
 
Benefits, claims, losses and settlement expenses
 
(24
)
 
—

 
(25
)
 
—

Total other
 
(10
)
 
3

 
1

 
5

Total derivatives
 
$
(98
)
 
$
(100
)
 
$
(128
)
 
$
(150
)
(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 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

45

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


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 June 30, 2014 and December 31, 2013, the gross notional amount of derivative contracts for the Company’s GMWB and GMAB provisions was $133.0 billion and $142.4 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)
2014 (1)
 
$
195

 
$
57

2015
 
374

 
69

2016
 
332

 
55

2017
 
262

 
54

2018
 
214

 
57

2019-2027
 
641

 
89

Total
 
$
2,018

 
$
381

(1) 2014 amounts represent the amounts payable and receivable for the period from July 1, 2014 to December 31, 2014.
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 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 $2.9 billion and $2.8 billion at June 30, 2014 and December 31, 2013, respectively.
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 $1.7 billion and $1.5 billion at June 30, 2014 and December 31, 2013, 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 $103 million and $111 million at June 30, 2014 and December 31, 2013, 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 $173 million and $30 million at June 30, 2014 and December 31, 2013, 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 $232 million and $224 million at June 30, 2014 and December 31, 2013, 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.

46

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


Cash Flow Hedges
The Company has designated and accounts for the following as cash flow hedges: (i) interest rate swaps to hedge interest rate 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 six months ended June 30, 2014 and 2013, 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 June 30, 2014 that the Company expects to reclassify to earnings within the next twelve months is $1 million, which consists of $5 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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
 
(in millions)
Interest and debt expense
 
$
1

 
$
1

 
$
2

 
$
2

Net investment income
 
(1
)
 
(1
)
 
(2
)
 
(2
)
Total
 
$
—

 
$
—

 
$
—

 
$
—

Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 21 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 June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
(in millions)
Fixed rate debt
 
Interest and debt expense
 
$
8

 
$
10

 
$
16

 
$
20

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 June 30, 2014 and December 31, 2013, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $814 million and $1.0 billion, respectively. The aggregate fair value of assets posted as collateral for such instruments as of June 30, 2014 and December 31, 2013 was $814 million and $959 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position at June 30, 2014 and December 31, 2013 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 nil and $56 million, respectively. 

47

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


13.  Shareholders’ Equity
The following table provides information related to amounts reclassified from accumulated other comprehensive income (“AOCI”):
AOCI Reclassification
 
Location of Loss (Gain) Recognized in Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
(in millions)
Net unrealized losses (gains) on Available-for-Sale securities
 
Net investment income
 
$
(1
)
 
$
1

 
$
(6
)
 
$
—

Tax expense
 
Income tax provision
 
—

 
—

 
2

 
—

Net of tax
 
 
 
$
(1
)
 
$
1

 
$
(4
)
 
$
—

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

 
1

 
2

 
2

Total before tax
 
 
 
—

 
—

 
—

 
—

Tax benefit
 
Income tax provision
 
—

 
—

 
—

 
—

Net of tax
 
 
 
$
—

 
$
—

 
$
—

 
$
—

See Note 4 for additional information related to the impact of DAC, DSIC, 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 October 2012, the Company’s Board of Directors authorized an expenditure of up to $2.0 billion for the repurchase of shares of our common stock through 2014. In April 2014, the Company’s Board of Directors authorized an expenditure of up to an additional $2.5 billion for the repurchase of shares of our common stock through April 28, 2016. As of June 30, 2014, the Company had $2.4 billion remaining under its share repurchase authorization. During the six months ended June 30, 2014 and 2013, the Company repurchased a total of 6.4 million shares and 10.1 million shares, respectively, of its common stock for an aggregate cost of $706 million and $740 million, 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 six months ended June 30, 2014 and 2013, the Company reacquired 0.8 million shares and 0.4 million shares, respectively, of its common stock through the surrender of shares upon vesting and paid in the aggregate $90 million and $25 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 six months ended June 30, 2014 and 2013, the Company reacquired 1.2 million shares and 2.1 million shares of its common stock through the net settlement of options for an aggregate value of $133 million and $156 million, respectively.
During the six months ended June 30, 2014 and 2013, the Company reissued 1.6 million and 1.9 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.
In April 2014, the Company’s shareholders approved an increase of 16.5 million shares to the total number of shares available for all awards under the Amended and Restated Ameriprise Financial 2005 Incentive Compensation Plan (“2005 ICP”). This increases the total shares available to be issued under the 2005 ICP to 54.4 million shares. No more than 4.5 million shares may be issued after April 30, 2014 for full value awards, which are awards other than stock options and stock appreciation rights.


48

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


14.  Income Taxes
The Company’s effective tax rate on income from continuing operations was 24.5% and 29.6% for the three months ended June 30, 2014 and 2013, respectively. The Company’s effective tax rate on income from continuing operations was 22.5% and 27.1% for the six months ended June 30, 2014 and 2013, respectively. The Company’s effective tax rates for the three months and six months ended June 30, 2014 are lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits, as well as a $17 million benefit in the first quarter of 2014 related to the completion of an Internal Revenue Service (“IRS”) audit.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $23 million which will expire beginning December 31, 2014.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, (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 $19 million at both June 30, 2014 and December 31, 2013.
As of June 30, 2014 and December 31, 2013, the Company had $230 million and $209 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $45 million and $62 million, net of federal tax benefits, of unrecognized tax benefits would affect the effective tax rate as of June 30, 2014 and December 31, 2013, respectively.
It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of the Company, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $170 million to $180 million in the next 12 months.
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 $4 million and $3 million in interest and penalties for the three months and six months ended June 30, 2014, respectively. The Company recognized a net increase of $1 million and $2 million in interest and penalties for the three months and six months ended June 30, 2013, respectively. At June 30, 2014 and December 31, 2013, the Company had a payable of $45 million and $42 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 2007 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 completed the audits of the Company’s 2008 and 2009 tax returns in the first quarter of 2014. The IRS is in the process of completing the audits of the Company’s income tax returns for 2010 and 2011 and the Company expects these audits to be completed in 2014. 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 2011 and remain open for all years after 2011.
 

49

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


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. Uncertainty and volatility in the U.S. economy and financial markets in recent years have weakened the financial condition of numerous insurers, including insurers currently in receiverships, increasing the risk of triggering guaranty fund assessments.
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.
Executive Life Insurance Company of New York (“ELNY”) was placed into rehabilitation by a New York state court in 1991. On April 16, 2012, the court issued an order converting the rehabilitation into a liquidation proceeding under a plan submitted by the New York insurance regulator with support from NOLHGA and the industry. Closing under the liquidation plan took place in August 2013.
The Company has a liability for estimated guaranty fund assessments and a related premium tax asset, primarily associated with ELNY. At June 30, 2014 and December 31, 2013, the estimated liability was $13 million and $14 million, respectively. At both June 30, 2014 and December 31, 2013, the related premium tax asset was $11 million. Subsequent to the August 2013 closing described above, the Company has received and paid assessments related to ELNY from some of the state guaranty fund associations; however, the expected period over which all of the 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.
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, investment personnel’s potential access and use of material non-public information, real estate investment trusts, insurance products, and financial advice offerings; supervision of the Company’s financial advisors; administration of insurance claims; security of client information 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 regarding their inquiries.
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

50

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


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 or results of operations.
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 October 2011, a putative class action lawsuit entitled Roger Krueger, et al. vs. Ameriprise Financial, et al. was filed in the United States District Court for the District of Minnesota against the Company, certain of its present or former employees and directors, as well as certain fiduciary committees on behalf of participants and beneficiaries of the Ameriprise Financial 401(k) Plan. The alleged class period is from October 1, 2005 to the present. The action alleges that Ameriprise breached fiduciary duties under ERISA, by selecting and retaining primarily proprietary mutual funds with allegedly poor performance histories, higher expenses relative to other investment options and improper fees paid to Ameriprise Financial or its subsidiaries. The action also alleges that the Company breached fiduciary duties under ERISA because it paid excessive record-keeping fees, used its affiliate Ameriprise Trust Company as the Plan trustee and record-keeper and improperly reaped profits from the sale of the record-keeping business to Wachovia Bank, N.A. Plaintiffs allege over $20 million in damages. Plaintiffs filed an amended complaint on February 7, 2012. On April 11, 2012, the Company filed its motion to dismiss the Amended Complaint, which was denied on November 20, 2012. On July 3, 2013, the Company moved for summary judgment on statute of limitations grounds. On March 20, 2014, the Court filed its decision, granting in part and denying in part the motion. On October 1, 2013, Plaintiffs filed their Motion to Certify Class Action, and by order dated May 23, 2014, the Court granted Plaintiffs’ motion. The parties are engaged in discovery. The case is scheduled to be ready for trial as of March 1, 2015. 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 lack of expert damages analyses, and plaintiffs’ failure to allege any specific, evidence-based damages.
In October 2012, a putative class action lawsuit entitled Jeffers vs. Ameriprise Financial Services, et al. was filed against the Company in the United States District Court for the Northern District of Illinois relating to its sales of the Inland Western (now known as Retail Properties of America, Inc. (“RPAI”)) REIT. The action also names as defendants RPAI, several of RPAI’s executives, and several members of RPAI’s board. The action alleges that the Company failed to perform required due diligence and misrepresented various aspects of the REIT including fees charged to clients, risks associated with the product, and valuation of the shares on client account statements. Plaintiffs seek unspecified damages. The Company was served in December 2012, and, on April 19, 2013, moved to dismiss the complaint. On June 10, 2014, the Court granted the Company’s motion to dismiss. On July 10, 2014, the plaintiff filed an amended complaint, naming only Ameriprise Financial Services, Inc. as a defendant. The Company’s response is due August 11, 2014. 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 absence of class certification, the lack of a formal demand on the Company by the plaintiffs and plaintiffs’ 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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions, except per share amounts)
Numerator:
 

 
 

 
 
 
 
Income from continuing operations
$
467

 
$
282

 
$
983

 
$
648

Less: Net income (loss) attributable to noncontrolling interests
93

 
(40
)
 
208

 
(10
)
Income from continuing operations attributable to Ameriprise Financial
374

 
322

 
775

 
658

Loss from discontinued operations, net of tax
—

 
(1
)
 
(1
)
 
(2
)
Net income attributable to Ameriprise Financial
$
374

 
$
321

 
$
774

 
$
656

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic: Weighted-average common shares outstanding
192.7

 
204.9

 
194.1

 
206.6

Effect of potentially dilutive nonqualified stock options and other share-based awards
3.5

 
3.7

 
3.5

 
3.8

Diluted: Weighted-average common shares outstanding
196.2

 
208.6

 
197.6

 
210.4

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

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Income from continuing operations
$
1.94

 
$
1.57

 
$
3.99

 
$
3.18

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
1.94

 
$
1.57

 
$
3.99

 
$
3.17

Diluted:
 

 
 

 
 

 
 

Income from continuing operations
$
1.91

 
$
1.54

 
$
3.92

 
$
3.13

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income
$
1.91

 
$
1.54

 
$
3.92

 
$
3.12

The calculation of diluted earnings per share excludes the incremental effect of 1.5 million and nil options as of June 30, 2014 and 2013, 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.
In the first quarter of 2014, the Company made the following changes to its previously reported segment data:
•
Ameriprise interest and debt expense was allocated to all segments to more accurately reflect management’s assessment of capital allocation.
•
Interest accretion income from the intercompany transfer of former bank assets was eliminated for segment reporting resulting in this accretion no longer being allocated to the Annuities and Protection segments. The corresponding offset is no longer reported in the Corporate & Other segment.
•
Certain fixed wholesaling costs were reclassified from distribution expenses to general and administrative expense to improve consistency in our presentation of wholesaling distribution expense across all segments.
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), restructuring charges and the impact of consolidating investment entities. Operating net revenues also exclude net realized gains or losses. Operating expenses also exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization). 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. Restructuring charges include expenses related to the Company’s transition of its federal savings bank subsidiary, Ameriprise Bank, FSB, to a limited powers national trust bank.
The following tables summarize selected financial information by segment and reconcile segment totals to those reported on the consolidated financial statements:
 
June 30, 2014
 
December 31, 2013
 
(in millions)
Assets:
 
 
 
Advice & Wealth Management
$
10,069

 
$
9,571

Asset Management
8,345

 
7,223

Annuities
98,941

 
98,354

Protection
20,892

 
19,605

Corporate & Other
10,913

 
9,823

Total assets
$
149,160

 
$
144,576


53

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


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Operating net revenues:
 

 
 

 
 

 
 

Advice & Wealth Management
$
1,198

 
$
1,076

 
$
2,347

 
$
2,094

Asset Management
844

 
822

 
1,651

 
1,568

Annuities
651

 
635

 
1,287

 
1,259

Protection
579

 
550

 
1,134

 
1,087

Corporate & Other
(2
)
 
3

 
4

 
7

Eliminations(1) (2)
(355
)
 
(348
)
 
(696
)
 
(669
)
Total segment operating revenues
2,915

 
2,738

 
5,727

 
5,346

Net realized gains
1

 
—

 
6

 
1

Revenues attributable to CIEs
160

 
12

 
337

 
94

Market impact on IUL benefits, net
(4
)
 
(1
)
 
(2
)
 
(1
)
Total net revenues per consolidated statements of operations
$
3,072

 
$
2,749

 
$
6,068

 
$
5,440

(1) Represents the elimination of intersegment revenues recognized for the three months ended June 30, 2014 and 2013 in each segment as follows: Advice & Wealth Management ($250 and $252, respectively); Asset Management ($11 and $10, respectively); Annuities ($83 and $76, respectively); Protection ($10 and $10, respectively); and Corporate & Other ($1 and nil, respectively).
(2) Represents the elimination of intersegment revenues recognized for the six months ended June 30, 2014 and 2013 in each segment as follows: Advice & Wealth Management ($490 and $480, respectively); Asset Management ($22 and $19, respectively); Annuities ($163 and $149, respectively); Protection ($20 and $20, respectively); and Corporate & Other ($1 and $1, respectively).
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Operating earnings:
 

 
 

 
 

 
 

Advice & Wealth Management
$
194

 
$
150

 
$
375

 
$
280

Asset Management
199

 
194

 
382

 
332

Annuities
170

 
110

 
346

 
252

Protection
91

 
91

 
150

 
194

Corporate & Other
(75
)
 
(57
)
 
(130
)
 
(110
)
Total segment operating earnings
579

 
488

 
1,123

 
948

Net realized gains
1

 
—

 
6

 
1

Net income (loss) attributable to noncontrolling interests
93

 
(40
)
 
208

 
(10
)
Market impact on variable annuity guaranteed benefits, net
(54
)
 
(43
)
 
(69
)
 
(45
)
Market impact on IUL benefits, net
—

 
(2
)
 
1

 
(2
)
Restructuring charges
—

 
(1
)
 
—

 
(3
)
Income from continuing operations before income tax provision per consolidated statements of operations
$
619

 
$
402

 
$
1,269

 
$
889


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, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2014 (“2013 10-K”), as well as our current reports on Form 8-K and other publicly available information. Certain reclassifications of prior year amounts have been made to conform to the current presentation. 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 120 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 $809 billion in assets under management and administration as of June 30, 2014.
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 more than 9,600 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, have 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. 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 113 of our mutual funds, including 51 Columbia Management funds and 62 Threadneedle funds, being 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 East and Africa. In addition, we continue to pursue opportunities to leverage the collective capabilities of Columbia and Threadneedle in order 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.

55

AMERIPRISE FINANCIAL, INC. 


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.
In the first quarter of 2014, we made the following changes to our previously reported segment data:
•
Ameriprise interest and debt expense was allocated to all segments to more accurately reflect management’s assessment of capital allocation.
•
Interest accretion income from the intercompany transfer of former bank assets was eliminated for segment reporting resulting in this accretion no longer being allocated to the Annuities and Protection segments. The corresponding offset is no longer reported in the Corporate & Other segment.
•
Certain fixed wholesaling costs were reclassified from distribution expenses to general and administrative expense to improve consistency in our presentation of wholesaling distribution expense across all segments. This change also impacted the Consolidated Statements of Income.
The reallocations and reclassifications did not result in any changes to our previously reported consolidated net income or shareholders’ equity.
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 2013 10-K 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.”
We consolidate certain collateralized debt obligations (“CDOs”) and other investment products (collectively, “investment entities”) for which we provide asset management services to and sponsor for the investment of client assets in the normal course of business. These entities are defined as consolidated investment entities (“CIEs”). 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 debt and underlying syndicated loans, are reflected in net investment income. We continue to include the fees 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 gains or losses; 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 hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual; 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. While the consolidation of the CIEs impacts our balance sheet

56

AMERIPRISE FINANCIAL, INC. 


and income statement, our exposure to these entities is unchanged and there is no impact to the underlying business results. 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 of 19% to 23%.
The following tables reconcile our GAAP measures to operating measures:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Total net revenues
$
3,072

 
$
2,749

 
$
6,068

 
$
5,440

Less: Revenue attributable to CIEs
160

 
12

 
337

 
94

Less: Net realized gains
1

 
—

 
6

 
1

Less: Market impact on indexed universal life benefits
(4
)
 
(1
)
 
(2
)
 
(1
)
Operating total net revenues
$
2,915

 
$
2,738

 
$
5,727

 
$
5,346

 
 
 
 
 
Per Diluted Share
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions, except per share amounts)
Net income
$
467

 
$
281

 
 

 
 

Less: Net income (loss) attributable to noncontrolling interests
93

 
(40
)
 
 

 
 

Net income attributable to Ameriprise Financial
374

 
321

 
$
1.91

 
$
1.54

Less: Loss from discontinued operations, net of tax
—

 
(1
)
 
—

 
—

Net income from continuing operations attributable to Ameriprise Financial
374

 
322

 
1.91

 
1.54

Add: Restructuring charges, net of tax (1)
—

 
1

 
—

 
0.01

Add: Market impact on variable annuity guaranteed benefits, net of tax (1)
35

 
28

 
0.18

 
0.13

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

 
1

 
—

 
0.01

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

 
—

 
0.01

 
—

Operating earnings
$
408

 
$
352

 
$
2.08

 
$
1.69

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 

 
 

Basic
192.7

 
204.9

 
 

 
 

Diluted
196.2

 
208.6

 
 

 
 

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


57

AMERIPRISE FINANCIAL, INC. 


 
 
 
 
 
Per Diluted Share
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions, except per share amounts)
Net income
$
982

 
$
646

 
 

 
 

Less: Net income (loss) attributable to noncontrolling interests
208

 
(10
)
 
 

 
 

Net income attributable to Ameriprise Financial
774

 
656

 
$
3.92

 
$
3.12

Less: Loss from discontinued operations, net of tax
(1
)
 
(2
)
 
—

 
(0.01
)
Net income from continuing operations attributable to Ameriprise Financial
775

 
658

 
3.92

 
3.13

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

 
2

 
—

 
0.01

Add: Market impact on variable annuity guaranteed living benefits, net of tax (1)
45

 
30

 
0.22

 
0.14

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

 
—

 
—

Less: Net realized gains, net of tax (1)
4

 
1

 
0.02

 
—

Operating earnings
$
815

 
$
690

 
$
4.12

 
$
3.28

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 

 
 

Basic
194.1

 
206.6

 
 

 
 

Diluted
197.6

 
210.4

 
 

 
 

(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 June 30,
 
2014
 
2013
 
(in millions)
Net income attributable to Ameriprise Financial
$
1,452

 
$
1,218

Less: Loss from discontinued operations, net of tax
(2
)
 
(2
)
Net income from continuing operations attributable to Ameriprise Financial
1,454

 
1,220

Less: Adjustments (1)
(131
)
 
(126
)
Operating earnings
$
1,585

 
$
1,346

 
 
 
 
Total Ameriprise Financial, Inc. shareholders’ equity
$
8,326

 
$
8,911

Less: Accumulated other comprehensive income, net of tax
698

 
1,023

Total Ameriprise Financial, Inc. shareholders’ equity from continuing operations, excluding AOCI
7,628

 
7,888

Less: Equity impacts attributable to CIEs
330

 
356

Operating equity
$
7,298

 
$
7,532

 
 
 
 
Return on equity from continuing operations, excluding AOCI
19.1
%
 
15.5
%
Operating return on equity, excluding AOCI (2)
21.7
%
 
17.9
%
(1)  Adjustments reflect the trailing twelve months’ sum of after-tax net realized gains/losses; 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; and integration and restructuring charges. After-tax is calculated using the statutory tax rate of 35%.
(2)  Operating return on equity, excluding accumulated other comprehensive income (“AOCI”), is calculated using the trailing twelve months of earnings excluding the after-tax net realized gains/losses; 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; integration and restructuring charges; and discontinued operations in the numerator, and Ameriprise Financial shareholders’ equity, excluding AOCI; the impact of consolidating investment entities; and the assets and liabilities held for sale using a five-point average of quarter-end equity in the denominator.


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 and, 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 2013 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 client assets of 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:
 
June 30,
 
 
 
2014
 
2013
 
Change
Assets Under Management and Administration
(in billions)
 
 
Advice & Wealth Management AUM
$
168.3

 
$
136.3

 
$
32.0

 
23
 %
Asset Management AUM
518.3

 
459.4

 
58.9

 
13

Corporate & Other AUM
0.9

 
1.0

 
(0.1
)
 
(10
)
Eliminations
(21.3
)
 
(19.0
)
 
(2.3
)
 
(12
)
Total Assets Under Management
666.2

 
577.7

 
88.5

 
15

Total Assets Under Administration
143.7

 
125.5

 
18.2

 
15

Total AUM and AUA
$
809.9

 
$
703.2

 
$
106.7

 
15
 %
Total AUM increased $88.5 billion, or 15%, to $666.2 billion as of June 30, 2014 compared to $577.7 billion as of June 30, 2013 due to a $32.0 billion increase in Advice & Wealth Management AUM driven by wrap account net inflows and market appreciation and a $58.9 billion increase in Asset Management AUM driven by market appreciation, partially offset by net outflows. 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 June 30, 2014 and 2013
The following table presents our consolidated results of operations:
 
Three Months Ended June 30,
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Management and financial advice fees
$
1,452

 
$
1,294

 
$
158

 
12
 %
Distribution fees
470

 
448

 
22

 
5

Net investment income
433

 
451

 
(18
)
 
(4
)
Premiums
345

 
315

 
30

 
10

Other revenues
379

 
249

 
130

 
52

Total revenues
3,079

 
2,757

 
322

 
12

Banking and deposit interest expense
7

 
8

 
(1
)
 
(13
)
Total net revenues
3,072

 
2,749

 
323

 
12

Expenses
 
 
 
 
 
 
 
Distribution expenses
810

 
732

 
78

 
11

Interest credited to fixed accounts
175

 
198

 
(23
)
 
(12
)
Benefits, claims, losses and settlement expenses
506

 
490

 
16

 
3

Amortization of deferred acquisition costs
78

 
92

 
(14
)
 
(15
)
Interest and debt expense
79

 
60

 
19

 
32

General and administrative expense
805

 
775

 
30

 
4

Total expenses
2,453

 
2,347

 
106

 
5

Income from continuing operations before income tax provision
619

 
402

 
217

 
54

Income tax provision
152

 
120

 
32

 
27

Income from continuing operations
467

 
282

 
185

 
66

Loss from discontinued operations, net of tax
—

 
(1
)
 
1

 
NM

Net income
467

 
281

 
186

 
66

Less: Net income (loss) attributable to noncontrolling interests
93

 
(40
)
 
133

 
NM

Net income attributable to Ameriprise Financial
$
374

 
$
321

 
$
53

 
17
 %
NM  Not Meaningful.
Overall
Income from continuing operations before income tax provision increased $217 million, or 54%, to $619 million for the three months ended June 30, 2014 compared to $402 million for the prior year period primarily reflecting the impact of market appreciation, wrap account net inflows, a $10 million benefit 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 and a $133 million increase in net income (loss) attributable to noncontrolling interests, partially offset by the negative impact from spread compression in our interest sensitive product lines, the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), asset management net outflows, higher weather-related losses and a $30 million gain on the sale of Threadneedle’s strategic business investment in Cofunds in the second quarter of 2013. The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $54 million for the second quarter of 2014 compared to an expense of $43 million for the prior year period. The negative impact on earnings from spread compression in our interest sensitive product lines was approximately $11 million pretax for the three months ended June 30, 2014 compared to 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 a benefit of $16 million for the second quarter of 2014 compared to an expense of $12 million for the prior year period as a result of more favorable equity market returns and bond fund returns compared to the prior year period.

60

AMERIPRISE FINANCIAL, INC. 


Net Revenues
Net revenues increased $323 million, or 12%, to $3.1 billion for the three months ended June 30, 2014 compared to $2.7 billion for the prior year period primarily due to higher management and financial advice fees and other revenues.
Management and financial advice fees increased $158 million, or 12%, to $1.5 billion for the three months ended June 30, 2014 compared to $1.3 billion for the prior year period primarily due to higher asset-based fees driven by an increase in average AUM. Average AUM increased $66.2 billion, or 11%, compared to the prior year period primarily due to market appreciation and wrap account net inflows, partially offset by asset management net outflows. See our discussion on the changes in AUM in our segment results of operations section below.
Distribution fees increased $22 million, or 5%, to $470 million for the three months ended June 30, 2014 compared to $448 million for the prior year period due to higher client assets.
Net investment income decreased $18 million, or 4%, to $433 million for the three months ended June 30, 2014 compared to $451 million for the prior year period primarily due to a $30 million gain on the sale of Threadneedle’s investment in Cofunds in the prior year period and a $28 million decrease in investment income on fixed maturities driven by low interest rates, partially offset by a $36 million increase in net investment income of CIEs.
Premiums increased $30 million, or 10%, to $345 million for the three months ended June 30, 2014 compared to $315 million for the prior year period primarily due to growth in auto and home premiums driven by continued new policy sales growth, primarily from our affinity relationships with Costco and Progressive. Auto and home policy counts increased 12% compared to the prior year period.
Other revenues increased $130 million, or 52%, to $379 million for the three months ended June 30, 2014 compared to $249 million for the prior year period due to a $112 million increase in other revenues of CIEs and higher fees from variable annuity guarantees driven by higher volumes due to prior year sales with a first fee collected on the anniversary date, as well as higher average fee rates.
Expenses
Total expenses increased $106 million, or 5%, to $2.5 billion for the three months ended June 30, 2014 compared to $2.3 billion for the prior year period primarily due to increases in distribution expenses and general and administrative expense.
Distribution expenses increased $78 million, or 11%, to $810 million for the three months ended June 30, 2014 compared to $732 million for the prior year period driven by growth in assets under management. See our discussion on the changes in AUM in our segment results of operations section below.
Interest credited to fixed accounts decreased $23 million, or 12%, to $175 million for the three months ended June 30, 2014 compared to $198 million for the prior year period driven by lower average fixed annuity account balances and a lower average crediting rate on interest sensitive fixed annuities. Average fixed annuities contract accumulation values decreased $836 million, or 6%, to $12.8 billion for the three months ended June 30, 2014 compared to the prior year period due to net outflows reflecting elevated surrenders on products sold through third parties where rates have been reset. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.0% for the three months ended June 30, 2014 compared to 3.6% for the prior year period reflecting the re-pricing of the five-year guarantee block. See additional discussion on the re-pricing in the Annuities segment.
Benefits, claims, losses and settlement expenses increased $16 million, or 3%, to $506 million for the three months ended June 30, 2014 compared to $490 million for the prior year period primarily reflecting the following items:
•
An increase in expenses related to our auto and home business driven by higher claim and claim adjustment expense reflecting the impact of growth in exposures due to a 9% increase in gross new policies and an increase in catastrophe losses due to severe weather. Catastrophe losses were $33 million for the three months ended June 30, 2014 compared to $18 million for the prior year period.
•
An increase in expenses of approximately $7 million related to higher reserve funding driven by the impact of higher fees from prior year sales with variable annuity guarantees.
•
A $12 million decrease in expenses from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds. See additional discussion in the Annuities segment.
•
A decrease in expense compared to the prior year period due to an $8 million increase in disability income reserves in the second quarter of 2013 related to prior periods.
•
A decrease 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 a benefit of $3 million for the second

61

AMERIPRISE FINANCIAL, INC. 


quarter of 2014 compared to an expense of $3 million for the prior year period as a result of more favorable equity market returns and bond fund returns compared to the prior year period.
•
A $41 million decrease in expense compared to the prior year period from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits.
•
A $54 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. The $54 million increase was the result of an unfavorable $426 million change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $370 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits and a favorable $2 million DSIC offset. The main market drivers contributing to these changes are summarized below:
•
Interest rates were down in 2014 and up in 2013 resulting in an unfavorable change in the variable annuity guaranteed living benefits liability, partially offset by a favorable change in the related hedge assets.
•
Equity market and volatility impacts on the variable annuity guaranteed living benefits liability resulted in a decrease in expense in 2014 compared to an increase in expense in 2013. This benefit was partially offset by an unfavorable change in 2014 compared to 2013 from equity market and volatility impacts on the related hedge assets.
•
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 favorable impact compared to the prior year period.
Amortization of DAC decreased $14 million, or 15%, to $78 million for the three months ended June 30, 2014 compared to $92 million for the prior year period primarily reflecting the impact on DAC from actual versus expected market performance based on our view of bond and equity performance. This impact was a benefit of $13 million for the second quarter of 2014 compared to an expense of $9 million for the prior year period as a result of more favorable equity market returns and bond fund returns compared to the prior year period.
Interest and debt expense increased $19 million, or 32%, to $79 million for the three months ended June 30, 2014 compared to $60 million for the prior year period primarily due to a $10 million increase in interest and debt expense of CIEs, as well as expenses related to the early redemption of our senior notes due 2039 in the second quarter of 2014 and higher average outstanding debt balances.
General and administrative expenses increased $30 million, or 4%, to $805 million for the three months ended June 30, 2014 compared to $775 million for the prior year period primarily due to provisions for regulatory reserves in the second quarter of 2014, higher performance driven compensation accruals, a $5 million increase in general and administrative expenses of CIEs and investments in the business.
Income Taxes
Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was 24.5% for the three months ended June 30, 2014 compared to 29.6% for the prior year period. Our effective tax rate on income from continuing operations excluding income attributable to noncontrolling interests was 28.7% for the three months ended June 30, 2014 compared to 26.9% for the prior year period. The effective tax rate for the three months ended June 30, 2014 was 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 June 30, 2014 and 2013 
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 June 30,
 
2014
 
2013
 
(in millions)
Advice & Wealth Management
 

 
 

Net revenues
$
1,198

 
$
1,076

Expenses
1,004

 
926

Operating earnings
$
194

 
$
150

Asset Management
 

 
 

Net revenues
$
844

 
$
822

Expenses
645

 
628

Operating earnings
$
199

 
$
194

Annuities
 

 
 

Net revenues
$
651

 
$
635

Expenses
481

 
525

Operating earnings
$
170

 
$
110

Protection
 

 
 

Net revenues
$
579

 
$
550

Expenses
488

 
459

Operating earnings
$
91

 
$
91

Corporate & Other
 

 
 

Net revenues
$
(2
)
 
$
3

Expenses
73

 
60

Operating loss
$
(75
)
 
$
(57
)

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.

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AMERIPRISE FINANCIAL, INC. 


The following table presents the changes in wrap account assets and average balances for the three months ended June 30:
 
2014
 
2013
 
(in billions)
Beginning balance
$
159.4

 
$
133.8

Net flows (1)
3.0

 
3.1

Market appreciation (depreciation) and other (1)
5.4

 
(1.0
)
Ending balance
$
167.8

 
$
135.9

 
 
 
 
Average balance (2)
$
163.0

 
$
136.0

(1) Beginning April 1, 2014, net flows reflect all additions and withdrawals to and from the Ameriprise Strategic Portfolio Service (“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 (depreciation) and other line and purchases and sales of billable investments were reported in the Net flows line. Net flows for the SPS program are now reported on a consistent basis with our other wrap account programs.
(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 increased $8.4 billion, or 5%, during the three months ended June 30, 2014 due to net inflows of $3.0 billion and market appreciation and other of $5.4 billion. Average wrap account assets increased $27.0 billion, or 20%, compared to the prior year period due to net inflows and market appreciation.
The following table presents the changes in wrap account assets for the twelve months ended June 30:
 
2014
 
2013
 
(in billions)
Beginning balance
$
135.9

 
$
113.4

Net flows (1)
13.1

 
11.3

Market appreciation and other (1)
18.8

 
11.2

Ending balance
$
167.8

 
$
135.9

(1) See Note 1 in the table above.
Wrap account assets increased $31.9 billion, or 23%, from the prior year period reflecting net inflows and market appreciation.
The following table presents the results of operations of our Advice & Wealth Management segment on an operating basis:
 
Three Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 
 
 
Management and financial advice fees
$
604

 
$
505

 
$
99

 
20
 %
Distribution fees
551

 
535

 
16

 
3

Net investment income
34

 
31

 
3

 
10

Other revenues
16

 
13

 
3

 
23

Total revenues
1,205

 
1,084

 
121

 
11

Banking and deposit interest expense
7

 
8

 
(1
)
 
(13
)
Total net revenues
1,198

 
1,076

 
122

 
11

Expenses
 

 
 

 
 

 
 

Distribution expenses
734

 
662

 
72

 
11

Interest and debt expense
2

 
2

 
—

 
—

General and administrative expense
268

 
262

 
6

 
2

Total expenses
1,004

 
926

 
78

 
8

Operating earnings
$
194

 
$
150

 
$
44

 
29
 %

64

AMERIPRISE FINANCIAL, INC. 


Our Advice & Wealth Management segment pretax operating earnings, which exclude net realized gains or losses, increased $44 million, or 29%, to $194 million for the three months ended June 30, 2014 compared to $150 million for the prior year period primarily due to strong growth in wrap account assets and continued expense management. Pretax operating margin was 16.2% for the three months ended June 30, 2014 compared to 13.9% for the prior year period.
Net Revenues
Net revenues exclude net realized gains or losses. Net revenues increased $122 million, or 11%, to $1.2 billion for the three months ended June 30, 2014 compared to $1.1 billion for the prior year period reflecting retail client net inflows and market appreciation. Operating net revenue per branded advisor was $124,000 for the three months ended June 30, 2014, up 13% from the prior year period driven by asset growth. Total branded advisors were 9,692 at June 30, 2014 compared to 9,788 at June 30, 2013.
Management and financial advice fees increased $99 million, or 20%, to $604 million for the three months ended June 30, 2014 compared to $505 million for the prior year period driven by growth in wrap account assets. Average wrap account assets increased $27.0 billion, or 20%, 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 $78 million, or 8%, to $1.0 billion for the three months ended June 30, 2014 compared to $926 million for the prior year period due to a $72 million increase in distribution expenses driven by higher compensation due to growth in client 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 Management and Threadneedle. Columbia Management primarily provides products and services in the U.S. and Threadneedle primarily provides products and services internationally. 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 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 purposes 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 $3 million for both the three months ended June 30, 2014 and 2013.


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AMERIPRISE FINANCIAL, INC. 


The following tables present the mutual fund performance of our retail Columbia and Threadneedle funds as of June 30:
Columbia
Mutual Fund Rankings in top 2 Lipper Quartiles
 
 
 
 
2014
 
2013
Domestic Equity
Equal weighted
 
1 year
 
58
%
 
68
%
 
 
 
3 year
 
50
%
 
68
%
 
 
 
5 year
 
65
%
 
64
%
 
Asset weighted
 
1 year
 
50
%
 
47
%
 
 
 
3 year
 
48
%
 
79
%
 
 
 
5 year
 
76
%
 
73
%
 
 
 
 
 
 
 
 
International Equity
Equal weighted
 
1 year
 
40
%
 
50
%
 
 
 
3 year
 
50
%
 
56
%
 
 
 
5 year
 
41
%
 
53
%
 
Asset weighted
 
1 year
 
16
%
 
23
%
 
 
 
3 year
 
77
%
 
26
%
 
 
 
5 year
 
26
%
 
79
%
 
 
 
 
 
 
 
 
Taxable Fixed Income
Equal weighted
 
1 year
 
33
%
 
67
%
 
 
 
3 year
 
61
%
 
71
%
 
 
 
5 year
 
47
%
 
75
%
 
Asset weighted
 
1 year
 
37
%
 
72
%
 
 
 
3 year
 
83
%
 
83
%
 
 
 
5 year
 
52
%
 
93
%
 
 
 
 
 
 
 
 
Tax Exempt Fixed Income
Equal weighted
 
1 year
 
100
%
 
94
%
 
 
 
3 year
 
100
%
 
100
%
 
 
 
5 year
 
94
%
 
89
%
 
Asset weighted
 
1 year
 
100
%
 
98
%
 
 
 
3 year
 
100
%
 
100
%
 
 
 
5 year
 
84
%
 
98
%
 
 
 
 
 
 
 
 
Asset Allocation Funds
Equal weighted
 
1 year
 
50
%
 
54
%
 
 
 
3 year
 
64
%
 
70
%
 
 
 
5 year
 
89
%
 
80
%
 
Asset weighted
 
1 year
 
49
%
 
63
%
 
 
 
3 year
 
75
%
 
84
%
 
 
 
5 year
 
97
%
 
88
%
 
 
 
 
 
 
 
 
Number of funds with 4 or 5 Morningstar star ratings
 
 
Overall
 
51

 
51

 
 
 
3 year
 
43

 
49

 
 
 
5 year
 
44

 
43

 
 
 
 
 
 
 
 
Percent of funds with 4 or 5 Morningstar star ratings
 
 
Overall
 
50
%
 
53
%
 
 
 
3 year
 
43
%
 
51
%
 
 
 
5 year
 
46
%
 
46
%
 
 
 
 
 
 
 
 
Percent of assets with 4 or 5 Morningstar star ratings
 
 
Overall
 
53
%
 
70
%
 
 
 
3 year
 
40
%
 
50
%
 
 
 
5 year
 
40
%
 
55
%

66

AMERIPRISE FINANCIAL, INC. 


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 shares do not have a full five year track record, 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.
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
 
2014
 
2013
Equity
Equal weighted
 
1 year
 
62
%
 
65
%
 
 
 
3 year
 
73
%
 
78
%
 
 
 
5 year
 
81
%
 
81
%
 
Asset weighted
 
1 year
 
53
%
 
52
%
 
 
 
3 year
 
78
%
 
91
%
 
 
 
5 year
 
89
%
 
94
%
 
 
 
 
 
 
 
 
Fixed Income
Equal weighted
 
1 year
 
65
%
 
88
%
 
 
 
3 year
 
73
%
 
82
%
 
 
 
5 year
 
62
%
 
92
%
 
Asset weighted
 
1 year
 
46
%
 
91
%
 
 
 
3 year
 
59
%
 
76
%
 
 
 
5 year
 
46
%
 
98
%
 
 
 
 
 
 
 
 
Allocation (Managed) Funds
Equal weighted
 
1 year
 
88
%
 
83
%
 
 
 
3 year
 
67
%
 
67
%
 
 
 
5 year
 
67
%
 
83
%
 
Asset weighted
 
1 year
 
63
%
 
92
%
 
 
 
3 year
 
37
%
 
78
%
 
 
 
5 year
 
55
%
 
86
%
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. 
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.

67

AMERIPRISE FINANCIAL, INC. 


The following table presents ending balances and average managed assets:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
June 30,
 
 
 
 
 
Three Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
 
(in billions)
Columbia managed assets
$
363.5

 
$
335.2

 
$
28.3

 
8
 %
 
$
359.1

 
$
340.7

 
$
18.4

 
5
 %
Threadneedle managed assets
158.1

 
127.0

 
31.1

 
24

 
152.3

 
129.2

 
23.1

 
18

Less: Sub-advised eliminations
(3.3
)
 
(2.8
)
 
(0.5
)
 
(18
)
 
(3.3
)
 
(2.7
)
 
(0.6
)
 
(22
)
Total managed assets
$
518.3

 
$
459.4

 
$
58.9

 
13
 %
 
$
508.1

 
$
467.2

 
$
40.9

 
9
 %
(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 June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in billions)
 
 
Columbia managed asset net flows
$
0.2

 
$
(2.5
)
 
$
2.7

 
NM

Threadneedle managed asset net flows
4.3

 
0.7

 
3.6

 
NM

Less: Sub-advised eliminations
(0.1
)
 
(0.3
)
 
0.2

 
67
%
Total managed asset net flows
$
4.4

 
$
(2.1
)
 
$
6.5

 
NM

NM  Not Meaningful.
The following table presents managed assets by type:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
June 30,
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
 
(in billions)
Equity
$
289.4

 
$
238.5

 
$
50.9

 
21
%
 
$
280.4

 
$
240.8

 
$
39.6

 
16
 %
Fixed income
196.4

 
195.7

 
0.7

 
—

 
196.2

 
201.5

 
(5.3
)
 
(3
)
Money market
6.3

 
6.1

 
0.2

 
3

 
6.6

 
6.0

 
0.6

 
10

Alternative
7.2

 
6.3

 
0.9

 
14

 
6.9

 
6.3

 
0.6

 
10

Hybrid and other
19.0

 
12.8

 
6.2

 
48

 
18.0

 
12.6

 
5.4

 
43

Total managed assets
$
518.3

 
$
459.4

 
$
58.9

 
13
%
 
$
508.1

 
$
467.2

 
$
40.9

 
9
 %
(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 June 30,
 
2014
 
2013
 
(in billions)
Columbia Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
239.5

 
$
227.5

Mutual fund inflows
7.7

 
9.5

Mutual fund outflows
(10.2
)
 
(13.3
)
Net VP/VIT fund flows
(0.3
)
 
(0.2
)
Net new flows
(2.8
)
 
(4.0
)
Reinvested dividends
3.5

 
2.4

Net flows
0.7

 
(1.6
)
Distributions
(4.1
)
 
(2.7
)
Market appreciation and other
7.7

 
0.1

Total ending assets
243.8

 
223.3

 
 
 
 
Institutional
 

 
 

Beginning assets
76.5

 
71.9

Inflows
4.6

 
5.1

Outflows
(5.4
)
 
(5.7
)
Net flows
(0.8
)
 
(0.6
)
Market appreciation (depreciation) and other
1.9

 
(0.2
)
Total ending assets
77.6

 
71.1

 
 
 
 
Alternative
 

 
 

Beginning assets
6.0

 
5.7

Inflows
0.6

 
0.5

Outflows
(0.3
)
 
(0.8
)
Net flows
0.3

 
(0.3
)
Market appreciation and other
0.1

 
0.1

Total ending assets
6.4

 
5.5

Affiliated General Account Assets
35.7

 
35.3

Total Columbia managed assets
$
363.5

 
$
335.2

Total Columbia net flows
$
0.2

 
$
(2.5
)

69

AMERIPRISE FINANCIAL, INC. 


 
Three Months Ended June 30,
 
2014
 
2013
 
(in billions)
Threadneedle Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
50.7

 
$
41.4

Mutual fund inflows
5.9

 
5.6

Mutual fund outflows
(6.0
)
 
(4.7
)
Net new flows
(0.1
)
 
0.9

Reinvested dividends
0.1

 
—

Net flows
—

 
0.9

Distributions
(0.2
)
 
(0.1
)
Market depreciation
(0.1
)
 
(0.7
)
Foreign currency translation (1)
1.2

 
—

Other
0.5

 
0.3

Total ending assets
52.1

 
41.8

 
 
 
 
Institutional
 

 
 

Beginning assets
97.8

 
85.3

Inflows
7.7

 
2.4

Outflows
(3.4
)
 
(2.6
)
Net flows
4.3

 
(0.2
)
Market depreciation
—

 
(1.8
)
Foreign currency translation (1)
2.3

 
0.1

Other
0.9

 
0.9

Total ending assets
105.3

 
84.3

 
 
 
 
Alternative
 

 
 

Beginning assets
0.8

 
1.0

Inflows
—

 
—

Outflows
—

 
—

Net flows
—

 
—

Market depreciation
(0.1
)
 
(0.1
)
Total ending assets
0.7

 
0.9

Total Threadneedle managed assets
$
158.1

 
$
127.0

Total Threadneedle net flows
$
4.3

 
$
0.7

(1) Amounts represent British Pound to US dollar conversion.
Total segment AUM increased $14.4 billion, or 3%, during the three months ended June 30, 2014 driven by market appreciation, net inflows and a positive impact of foreign currency translation. Total segment AUM net inflows were $4.4 billion for the three months ended June 30, 2014 primarily due to a previously announced $5.6 billion mandate from a new client. 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 increased $5.6 billion, or 2%, during the three months ended June 30, 2014 primarily due to market appreciation. Columbia retail funds increased $4.3 billion, or 2%, during the three months ended June 30, 2014 primarily due to market appreciation and net inflows, partially offset by distributions. Columbia retail net inflows of $0.7 billion during the second quarter of 2014 included $3.5 billion of reinvested dividends some of which related to normal seasonal increases from funds underlying our variable annuity products, partially offset by $2.8 billion of net new outflows which included $1.0 billion of outflows in the defined contribution/investment only channel, $0.3 billion of outflows from a former parent affiliated distribution relationship, $0.4 billion of outflows in the Registered Investment Advisor (“RIA”) channel and $0.2 billion of outflows of a third party sub-advisor. Columbia institutional AUM increased $1.1 billion, or 1%, during the three months ended June 30, 2014 due to market appreciation, partially offset by net outflows of $0.8 billion primarily reflecting outflows from former parent affiliated distribution and former parent influenced mandates, partially offset by third party institutional inflows.

70

AMERIPRISE FINANCIAL, INC. 


Threadneedle managed assets increased $8.8 billion, or 6%, during the three months ended June 30, 2014 due to net inflows and a positive impact of foreign currency translation. Threadneedle retail funds increased $1.4 billion, or 3%, during the three months ended June 30, 2014 primarily due to a positive impact of foreign currency translation. Threadneedle retail net flows were nil as strong underlying net inflows were offset by approximately $1.5 billion of outflows from the U.S. equities product where we had a portfolio manager change earlier in the year. Threadneedle institutional AUM increased $7.5 billion, or 8%, during the three months ended June 30, 2014 primarily due to net inflows and a positive impact of foreign currency translation. Threadneedle institutional net inflows of $4.3 billion during the second quarter of 2014 included a $5.6 billion mandate from a leading UK wealth management firm to manage assets in a Strategic Managed fund, which holds a combination of global and UK domestic equities and bonds, partially offset by $0.7 billion of outflows from legacy insurance assets and $0.4 billion of one-time outflows from corporate Liverpool Victoria assets.
The following table presents the results of operations of our Asset Management segment on an operating basis:
 
Three Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
707

 
$
662

 
$
45

 
7
 %
Distribution fees
123

 
116

 
7

 
6

Net investment income
13

 
41

 
(28
)
 
(68
)
Other revenues
1

 
4

 
(3
)
 
(75
)
Total revenues
844

 
823

 
21

 
3

Banking and deposit interest expense
—

 
1

 
(1
)
 
NM

Total net revenues
844

 
822

 
22

 
3

Expenses
 

 
 

 
 

 
 

Distribution expenses
291

 
281

 
10

 
4

Amortization of deferred acquisition costs
4

 
4

 
—

 
—

Interest and debt expense
7

 
5

 
2

 
40

General and administrative expense
343

 
338

 
5

 
1

Total expenses
645

 
628

 
17

 
3

Operating earnings
$
199

 
$
194

 
$
5

 
3
 %
NM  Not Meaningful.
Our Asset Management segment pretax operating earnings, which exclude net realized gains or losses, increased $5 million, or 3%, to $199 million for the three months ended June 30, 2014 compared to $194 million for the prior year period reflecting equity market appreciation, partially offset by the impact of net outflows in prior periods and a $30 million gain on the sale of Threadneedle’s strategic business investment in Cofunds in the prior year period.
Net Revenues
Net revenues, which exclude net realized gains or losses, increased $22 million, or 3%, to $844 million for the three months ended June 30, 2014 compared to $822 million for the prior year period driven by an increase in management and financial advice fees, partially offset by a decrease in net investment income.
Management and financial advice fees increased $45 million, or 7%, to $707 million for the three months ended June 30, 2014 compared to $662 million for the prior year period primarily due to an increase in assets under management. Average assets under management increased 9% compared to the prior year period driven by equity market appreciation, partially offset by net outflows. See our discussion above on the changes in assets under management.
Net investment income decreased $28 million, or 68%, to $13 million for the three months ended June 30, 2014 compared to $41 million for the prior year period due to a $30 million gain on the sale of Threadneedle’s investment in Cofunds in the prior year period.
Expenses
Total expenses increased $17 million, or 3%, to $645 million for the three months ended June 30, 2014 compared to $628 million for the prior year period primarily due to a $10 million increase in distribution expenses driven by higher retail fund assets.
 

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 for 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 for 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 June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
189

 
$
174

 
$
15

 
9
 %
Distribution fees
91

 
85

 
6

 
7

Net investment income
234

 
260

 
(26
)
 
(10
)
Premiums
32

 
26

 
6

 
23

Other revenues
105

 
90

 
15

 
17

Total revenues
651

 
635

 
16

 
3

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
651

 
635

 
16

 
3

Expenses
 

 
 

 
 

 
 

Distribution expenses
109

 
106

 
3

 
3

Interest credited to fixed accounts
139

 
162

 
(23
)
 
(14
)
Benefits, claims, losses and settlement expenses
113

 
130

 
(17
)
 
(13
)
Amortization of deferred acquisition costs
51

 
66

 
(15
)
 
(23
)
Interest and debt expense
9

 
8

 
1

 
13

General and administrative expense
60

 
53

 
7

 
13

Total expenses
481

 
525

 
(44
)
 
(8
)
Operating earnings
$
170

 
$
110

 
$
60

 
55
 %
Our Annuities segment pretax operating income, which excludes net realized gains or losses and the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), increased $60 million, or 55%, to $170 million for the three months ended June 30, 2014 compared to $110 million for the prior year period primarily due to market appreciation and a benefit from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds. In addition, the impact on DAC and DSIC from actual versus expected market performance based on our view of bond and equity performance was a benefit of $15 million for the second quarter of 2014 compared to an expense of $12 million for the prior year period as a result of more favorable equity market returns and bond fund returns compared to the prior year period.
During the fourth quarter of 2013, we added Portfolio Stabilizer fund options for our in-force variable annuities with living benefit guarantees. We continue to see existing policyholders moving to Portfolio Stabilizer funds at a level higher than anticipated. In the second quarter of 2014, approximately $1.5 billion of account value was moved into the funds. The resulting earnings benefit in the second quarter of 2014 was $10 million.
RiverSource variable annuity account balances increased 10% to $77.6 billion at June 30, 2014 compared to the prior year period due to market appreciation, partially offset by net outflows of $1.3 billion. RiverSource fixed annuity account balances declined 7% to $12.6 billion at June 30, 2014 compared to the prior year period reflecting elevated surrenders on products sold through third parties where rates have been reset. This decline is offset by the change in crediting rates, which decreased the level of spread

72

AMERIPRISE FINANCIAL, INC. 


compression in the second quarter of 2014. Approximately $3.7 billion of the five-year guarantee block has been re-priced and approximately $0.4 billion will be re-priced in the balance of the year.
Net Revenues
Net revenues, which exclude net realized gains or losses, increased $16 million, or 3%, to $651 million for the three months ended June 30, 2014 compared to $635 million for the prior year period primarily due to higher management and financial advice fees and other revenues, partially offset by a decrease in net investment income.
Management and financial advice fees increased $15 million, or 9%, to $189 million for the three months ended June 30, 2014 compared to $174 million for the prior year period due to higher fees on variable annuities driven by higher separate account balances. Average variable annuities contract accumulation values increased $4.9 billion, or 7%, compared to the prior year period due to market appreciation, partially offset by net outflows.
Distribution fees increased $6 million, or 7%, to $91 million for the three months ended June 30, 2014 compared to $85 million for the prior year period due to higher fees on variable annuities driven by higher separate account balances.
Net investment income, which excludes net realized gains or losses, decreased $26 million, or 10%, to $234 million for the three months ended June 30, 2014 compared to $260 million for the prior year period primarily reflecting a decrease of approximately $8 million from lower invested assets due to fixed annuity net outflows and approximately $20 million from lower interest rates.
Premiums increased $6 million, or 23%, to $32 million for the three months ended June 30, 2014 compared to $26 million for the prior year period primarily due to higher sales of immediate annuities with life contingencies.
Other revenues increased $15 million, or 17%, to $105 million for the three months ended June 30, 2014 compared to $90 million for the prior year period due to higher fees from variable annuity guarantees driven by higher volumes due to prior year sales with a first fee collected on the anniversary date, as well as 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) decreased $44 million, or 8%, to $481 million for the three months ended June 30, 2014 compared to $525 million for the prior year period due to decreases in interest credited to fixed accounts, benefits, claims, losses and settlement expenses and amortization of DAC.
Interest credited to fixed accounts decreased $23 million, or 14%, to $139 million for the three months ended June 30, 2014 compared to $162 million for the prior year period driven by lower average fixed annuity account balances and a lower average crediting rate on interest sensitive fixed annuities. Average fixed annuities contract accumulation values decreased $836 million, or 6%, to $12.8 billion for the three months ended June 30, 2014 compared to the prior year period due to net outflows reflecting elevated surrenders on products sold through third parties where rates have been reset. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.0% for the three months ended June 30, 2014 compared to 3.6% for the prior year period reflecting the re-pricing of the five-year guarantee block.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization), decreased $17 million, or 13%, to $113 million for the three months ended June 30, 2014 compared to $130 million for the prior year period primarily due to a $12 million benefit from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds and a decrease in expense due to the impact on DSIC from actual versus expected market performance based on our view of bond and equity performance, partially offset by an increase in expense of $7 million related to higher reserve funding driven by the impact of higher fees from prior year sales with variable annuity guarantees. The impact on DSIC from actual versus expected market performance based on our view of bond and equity performance was a benefit of $3 million for the second quarter of 2014 compared to an expense of $3 million for the prior year period as a result of more favorable equity market returns and bond fund returns compared to the prior year period.
Amortization of DAC, which excludes the DAC offset to the market impact on variable annuity guaranteed benefits, decreased $15 million, or 23%, to $51 million for the three months ended June 30, 2014 compared to $66 million for the prior year period primarily reflecting the impact on DAC from actual versus expected market performance based on our view of bond and equity performance. This impact was a benefit of $12 million for the second quarter of 2014 compared to an expense of $9 million for the prior year period as a result of more favorable equity market returns and bond fund returns compared to the prior year period.
 

73

AMERIPRISE FINANCIAL, INC. 


Protection
Our Protection segment offers a variety of products to address the protection and risk management needs of our retail clients including life, disability income and property-casualty insurance. Life and disability income 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 subsidiaries and the Property Casualty companies. 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 receive fees based on the level of assets supporting variable universal life (“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 June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
15

 
$
14

 
$
1

 
7
 %
Distribution fees
22

 
23

 
(1
)
 
(4
)
Net investment income
113

 
111

 
2

 
2

Premiums
317

 
293

 
24

 
8

Other revenues
112

 
109

 
3

 
3

Total revenues
579

 
550

 
29

 
5

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
579

 
550

 
29

 
5

Expenses
 

 
 

 
 

 
 

Distribution expenses
16

 
16

 
—

 
—

Interest credited to fixed accounts
37

 
34

 
3

 
9

Benefits, claims, losses and settlement expenses
329

 
309

 
20

 
6

Amortization of deferred acquisition costs
36

 
31

 
5

 
16

Interest and debt expense
7

 
6

 
1

 
17

General and administrative expense
63

 
63

 
—

 
—

Total expenses
488

 
459

 
29

 
6

Operating earnings
$
91

 
$
91

 
$
—

 
—
 %
NM  Not Meaningful.
Our Protection segment pretax operating income, which excludes net realized gains or losses and the market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual), remained flat at $91 million for the three months ended June 30, 2014 compared to the prior year period.
Net Revenues
Net revenues, which exclude net realized gains or losses and the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, increased $29 million, or 5%, to $579 million for the three months ended June 30, 2014 compared to $550 million for the prior year period due to growth in auto and home premiums.
Premiums increased $24 million, or 8%, to $317 million for the three months ended June 30, 2014 compared to $293 million for the prior year period primarily due to growth in auto and home premiums driven by continued new policy sales growth, primarily from our affinity relationships with Costco and Progressive. Auto and home policy counts increased 12% compared to the prior year period.

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AMERIPRISE FINANCIAL, INC. 


Expenses
Total expenses, which exclude the market impact on indexed universal life benefits (net of hedges and the related DAC amortization), increased $29 million, or 6%, to $488 million for the three months ended June 30, 2014 compared to $459 million for the prior year period primarily due to higher expenses related to our auto and home business.
Benefits, claims, losses and settlement expenses increased $20 million, or 6%, to $329 million for the three months ended June 30, 2014 compared to $309 million for the prior year period due to higher auto and home claim and claim adjustment expense, partially offset by an $8 million increase in disability income reserves in the second quarter of 2013 related to prior periods. The increase in auto and home claim and claim adjustment expense reflected the impact of growth in exposures due to a 9% increase in gross new policies and an increase in catastrophe losses due to severe weather. Catastrophe losses were $33 million for the three months ended June 30, 2014 compared to $18 million for the prior year period.

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 June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Distribution fees
$
—

 
$
1

 
$
(1
)
 
NM

Net investment income (loss)
(5
)
 
2

 
(7
)
 
NM

Other revenues
3

 
—

 
3

 
NM

Total revenues
(2
)
 
3

 
(5
)
 
NM

Banking and deposit interest expense
—

 
—

 
—

 
—
 %
Total net revenues
(2
)
 
3

 
(5
)
 
NM

Expenses
 

 
 

 
 

 
 
Distribution expenses
—

 
—

 
—

 
—

Interest and debt expense
9

 
4

 
5

 
NM

General and administrative expense
64

 
56

 
8

 
14

Total expenses
73

 
60

 
13

 
22

Operating loss
$
(75
)
 
$
(57
)
 
$
(18
)
 
(32
)%
NM  Not Meaningful.
Our Corporate & Other segment pretax operating loss excludes net realized gains or losses, the impact of consolidating CIEs and restructuring charges. Our Corporate & Other segment pretax operating loss was $75 million for the three months ended June 30, 2014 compared to $57 million for the prior year period. Our Corporate & Other segment results for the second quarter of 2014 included higher expenses primarily related to the early redemption of our senior notes due 2039, provision for potential resolution of a regulatory matter regarding certain historical events and processes at one of our ongoing lines of business which we believe have since been remediated, and long-term performance compensation awards.


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AMERIPRISE FINANCIAL, INC. 


Consolidated Results of Operations for the Six Months Ended June 30, 2014 and 2013
The following table presents our consolidated results of operations:
 
Six Months Ended June 30,
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Management and financial advice fees
$
2,838

 
$
2,538

 
$
300

 
12
 %
Distribution fees
946

 
882

 
64

 
7

Net investment income
904

 
940

 
(36
)
 
(4
)
Premiums
675

 
625

 
50

 
8

Other revenues
719

 
471

 
248

 
53

Total revenues
6,082

 
5,456

 
626

 
11

Banking and deposit interest expense
14

 
16

 
(2
)
 
(13
)
Total net revenues
6,068

 
5,440

 
628

 
12

Expenses
 
 
 
 
 
 
 
Distribution expenses
1,596

 
1,430

 
166

 
12

Interest credited to fixed accounts
361

 
396

 
(35
)
 
(9
)
Benefits, claims, losses and settlement expenses
956

 
899

 
57

 
6

Amortization of deferred acquisition costs
165

 
167

 
(2
)
 
(1
)
Interest and debt expense
158

 
126

 
32

 
25

General and administrative expense
1,563

 
1,533

 
30

 
2

Total expenses
4,799

 
4,551

 
248

 
5

Income from continuing operations before income tax provision
1,269

 
889

 
380

 
43

Income tax provision
286

 
241

 
45

 
19

Income from continuing operations
983

 
648

 
335

 
52

Loss from discontinued operations, net of tax
(1
)
 
(2
)
 
1

 
50

Net income
982

 
646

 
336

 
52

Less: Net income (loss) attributable to noncontrolling interests
208

 
(10
)
 
218

 
NM

Net income attributable to Ameriprise Financial
$
774

 
$
656

 
$
118

 
18
 %
NM Not Meaningful
Overall
Income from continuing operations before income tax provision increased $380 million, or 43%, to $1.3 billion for the six months ended June 30, 2014 compared to $889 million for the prior year period primarily reflecting the impact of market appreciation, wrap account net inflows, a $37 million benefit from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds and an increase in net income attributable to noncontrolling interests, partially offset by the negative impact from spread compression in our interest sensitive product lines, the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), asset management net outflows, higher weather-related losses, an increase in auto liability reserves and a $30 million gain on the sale of Threadneedle’s strategic business investment in Cofunds in the second quarter of 2013. The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $69 million for the six months ended June 30, 2014, which included a $2 million expense associated with 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 an expense of $45 million for the prior year period. The negative impact on earnings from spread compression in our interest sensitive product lines was approximately $29 million pretax for the six months ended June 30, 2014 compared to 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 a benefit of $24 million for the six months ended June 30, 2014 compared to a benefit of $3 million for the prior year period as a result of more favorable bond fund returns compared to the prior year period.
 
 
 
 

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AMERIPRISE FINANCIAL, INC. 


Net Revenues
Net revenues increased $628 million, or 12%, to $6.1 billion for the six months ended June 30, 2014 compared to $5.4 billion for the prior year period primarily due to higher management and financial advice fees, distribution fees and other revenues.
Management and financial advice fees increased $300 million, or 12%, to $2.8 billion for the six months ended June 30, 2014 compared to $2.5 billion for the prior year period primarily due to higher asset-based fees driven by an increase in average AUM. Average AUM increased $65.8 billion, or 11%, compared to the prior year period primarily due to market appreciation and wrap account net inflows, partially offset by asset management net outflows. See our discussion on the changes in AUM in our segment results of operations section below.
Distribution fees increased $64 million, or 7%, to $946 million for the six months ended June 30, 2014 compared to $882 million for the prior year period due to higher client assets and increased client activity.
Net investment income decreased $36 million, or 4%, to $904 million for the six months ended June 30, 2014 compared to $940 million for the prior year period primarily due to a $30 million gain on the sale of Threadneedle’s investment in Cofunds in the prior year period and a $55 million decrease in investment income on fixed maturities driven by low interest rates, partially offset by a $33 million increase in net investment income of CIEs.
Premiums increased $50 million, or 8%, to $675 million for the six months ended June 30, 2014 compared to $625 million for the prior year period primarily due to growth in auto and home premiums driven by continued new policy sales growth, primarily from our affinity relationships with Costco and Progressive. Auto and home policy counts increased 12% compared to the prior year period.
Other revenues increased $248 million, or 53%, to $719 million for the six months ended June 30, 2014 compared to $471 million for the prior year period due to a $212 million increase in other revenues of CIEs and higher fees from variable annuity guarantees driven by higher volumes due to prior year sales with a first fee collected on the anniversary date, as well as higher average fee rates.
Expenses
Total expenses increased $248 million, or 5%, to $4.8 billion for the six months ended June 30, 2014 compared to $4.6 billion for the prior year period primarily due to increases in distribution expenses and benefits, claims, losses and settlement expenses.
Distribution expenses increased $166 million, or 12%, to $1.6 billion for the six months ended June 30, 2014 compared to $1.4 billion for the prior year period driven by growth in assets under management. See our discussion on the changes in AUM in our segment results of operations section below.
Interest credited to fixed accounts decreased $35 million, or 9%, to $361 million for the six months ended June 30, 2014 compared to $396 million for the prior year period driven by lower average fixed annuity account balances and a lower average crediting rate on interest sensitive fixed annuities. Average fixed annuities contract accumulation values decreased $748 million, or 5%, to $12.9 billion for the six months ended June 30, 2014 compared to the prior year period due to net outflows reflecting elevated surrenders on products sold through third parties where rates have been reset. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.2% for the six months ended June 30, 2014 compared to 3.6% for the prior year period reflecting the re-pricing of the five-year guarantee block. See additional discussion on the re-pricing in the Annuities segment.
Benefits, claims, losses and settlement expenses increased $57 million, or 6%, to $956 million for the six months ended June 30, 2014 compared to $899 million for the prior year period primarily reflecting the following items:
•
An increase in expenses related to our auto and home business driven by higher claim and claim adjustment expense reflecting the impact of growth in exposures due to an 11% increase in gross new policies, an increase in catastrophe losses due to severe weather and a $30 million increase in auto liability reserves in the first quarter of 2014 based upon additional analysis and information regarding continued adverse development of bodily injury claims associated with prior accident years. Catastrophe losses were $42 million for the six months ended June 30, 2014 compared to $20 million for the prior year period.
•
An increase in expenses of approximately $16 million related to higher reserve funding driven by the impact of higher fees from prior year sales with variable annuity guarantees.
•
A $44 million decrease in expenses from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds, which included a $2 million expense related to the market impact on variable annuity guaranteed benefits. See additional discussion in the Annuities segment.
•
A decrease in expense compared to the prior year period due to an $8 million increase in disability income reserves in the second quarter of 2013 related to prior periods.

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AMERIPRISE FINANCIAL, INC. 


•
A decrease 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 a benefit of $5 million for the first half of 2014 compared to nil for the prior year period as a result of more favorable bond fund returns compared to the prior year period.
•
A $150 million decrease in expense compared to the prior year period from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits.
•
A $177 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. The $177 million increase was the result of an unfavorable $1.2 billion change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $1.1 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits and a favorable $3 million DSIC offset. The main market drivers contributing to these changes are summarized below:
•
Interest rates were down in 2014 and up in 2013 resulting in an unfavorable change in the variable annuity guaranteed living benefits liability, partially offset by a favorable change in the related hedge assets.
•
Equity market and volatility impacts on the variable annuity guaranteed living benefits liability resulted in a larger decrease in expense in 2014 compared to 2013. This benefit was partially offset by an unfavorable change in 2014 compared to 2013 from equity market and volatility impacts on the related hedge assets.
•
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 favorable impact compared to the prior year period.
Interest and debt expense increased $32 million, or 25%, to $158 million for the six months ended June 30, 2014 compared to $126 million for the prior year period primarily due to a $19 million increase in interest and debt expense of CIEs, as well as expenses related to the early redemption of our senior notes due 2039 in the second quarter of 2014 and higher average outstanding debt balances.
General and administrative expenses increased $30 million, or 2%, to $1.6 billion for the six months ended June 30, 2014 compared to $1.5 billion for the prior year period primarily due to provisions for regulatory reserves in the second quarter of 2014, higher performance driven compensation accruals, a $6 million increase in general and administrative expenses of CIEs and investments in the business.
Income Taxes
Our effective tax rate on income from continuing operations including income attributable to noncontrolling interests was 22.5% for the six months ended June 30, 2014 compared to 27.1% for the prior year period. Our effective tax rate on income from continuing operations excluding income attributable to noncontrolling interests was 26.9% for the six months ended June 30, 2014 compared to 26.8% for the prior year period. The effective tax rate for the six months ended June 30, 2014 was lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits, as well as a $17 million benefit in the first quarter of 2014 related to the completion of an Internal Revenue Service audit.


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AMERIPRISE FINANCIAL, INC. 


Results of Operations by Segment for the Six Months Ended June 30, 2014 and 2013 
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:
 
Six Months Ended June 30,
 
2014
 
2013
 
(in millions)
Advice & Wealth Management
 

 
 

Net revenues
$
2,347

 
$
2,094

Expenses
1,972

 
1,814

Operating earnings
$
375

 
$
280

Asset Management
 

 
 

Net revenues
$
1,651

 
$
1,568

Expenses
1,269

 
1,236

Operating earnings
$
382

 
$
332

Annuities
 

 
 

Net revenues
$
1,287

 
$
1,259

Expenses
941

 
1,007

Operating earnings
$
346

 
$
252

Protection
 

 
 

Net revenues
$
1,134

 
$
1,087

Expenses
984

 
893

Operating earnings
$
150

 
$
194

Corporate & Other
 

 
 

Net revenues
$
4

 
$
7

Expenses
134

 
117

Operating loss
$
(130
)
 
$
(110
)

Advice & Wealth Management
The following table presents the changes in wrap account assets and average balances for the six months ended June 30:
 
2014
 
2013
 
(in billions)
Beginning balance
$
153.5

 
$
124.6

Net flows (1)
7.2

 
7.2

Market appreciation and other (1)
7.1

 
4.1

Ending balance
$
167.8

 
$
135.9

 
 
 
 
Average balance (2)
$
159.3

 
$
132.6

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

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AMERIPRISE FINANCIAL, INC. 


Wrap account assets increased $14.3 billion, or 9%, during the six months ended June 30, 2014 due to net inflows of $7.2 billion and market appreciation and other of $7.1 billion. Average wrap account assets increased $26.7 billion, or 20%, 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:
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 
 
 
Management and financial advice fees
$
1,159

 
$
981

 
$
178

 
18
 %
Distribution fees
1,098

 
1,038

 
60

 
6

Net investment income
68

 
63

 
5

 
8

Other revenues
36

 
28

 
8

 
29

Total revenues
2,361

 
2,110

 
251

 
12

Banking and deposit interest expense
14

 
16

 
(2
)
 
(13
)
Total net revenues
2,347

 
2,094

 
253

 
12

Expenses
 

 
 

 
 

 
 

Distribution expenses
1,441

 
1,288

 
153

 
12

Interest and debt expense
4

 
3

 
1

 
33

General and administrative expense
527

 
523

 
4

 
1

Total expenses
1,972

 
1,814

 
158

 
9

Operating earnings
$
375

 
$
280

 
$
95

 
34
 %
Our Advice & Wealth Management segment pretax operating earnings, which exclude net realized gains or losses, increased $95 million, or 34%, to $375 million for the six months ended June 30, 2014 compared to $280 million for the prior year period primarily due to strong growth in wrap account assets, increased client activity and continued expense management, partially offset by the impact of low interest rates. The negative impact of lower spreads on cash sweep accounts and certificates was approximately $11 million compared to the prior year period. Pretax operating margin was 16.0% for the six months ended June 30, 2014 compared to 13.4% for the prior year period.
Net Revenues
Net revenues exclude net realized gains or losses. Net revenues increased $253 million, or 12%, to $2.3 billion for the six months ended June 30, 2014 compared to $2.1 billion for the prior year period reflecting retail client net inflows, market appreciation and increased client activity, partially offset by the negative impact of low interest rates. Operating net revenue per branded advisor was $242,000 for the six months ended June 30, 2014, up 13% from the prior year period driven by the combination of asset growth and client activity. Total branded advisors were 9,692 at June 30, 2014 compared to 9,788 at June 30, 2013.
Management and financial advice fees increased $178 million, or 18%, to $1.2 billion for the six months ended June 30, 2014 compared to $981 million for the prior year period driven by growth in wrap account assets. Average wrap account assets increased $26.7 billion, or 20%, compared to the prior year period due to net inflows and market appreciation. See our discussion of the changes in wrap account assets above.
Distribution fees increased $60 million, or 6%, to $1.1 billion for the six months ended June 30, 2014 compared to $1.0 billion for the prior year period primarily due to higher client assets and increased client activity.
Expenses
Total expenses increased $158 million, or 9%, to $2.0 billion for the six months ended June 30, 2014 compared to $1.8 billion for the prior year period due to a $153 million increase in distribution expenses driven by higher compensation due to growth in client assets and increased client activity.


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AMERIPRISE FINANCIAL, INC. 


Asset Management
In aggregate, we voluntarily waived fees of $6 million for both the six months ended June 30, 2014 and 2013. See our discussion on fee waivers within our Asset Management Results of Operations for the three months ended June 30, 2014.
The following table presents ending balances and average managed assets:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
June 30,
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
 
(in billions)
 
 
 
(in billions)
 
 
Columbia managed assets
$
363.5

 
$
335.2

 
$
28.3

 
8
 %
 
$
357.7

 
$
338.3

 
$
19.4

 
6
 %
Threadneedle managed assets
158.1

 
127.0

 
31.1

 
24

 
150.4

 
128.5

 
21.9

 
17

Less: Sub-advised eliminations
(3.3
)
 
(2.8
)
 
(0.5
)
 
(18
)
 
(3.3
)
 
(2.7
)
 
(0.6
)
 
(22
)
Total managed assets
$
518.3

 
$
459.4

 
$
58.9

 
13
 %
 
$
504.8

 
$
464.1

 
$
40.7

 
9
 %
(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:
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in billions)
 
 
Columbia managed asset net flows
$
(2.5
)
 
$
(7.6
)
 
$
5.1

 
67
%
Threadneedle managed asset net flows
3.0

 
(0.2
)
 
3.2

 
NM

Less: Sub-advised eliminations
—

 
—

 
—

 
—

Total managed asset net flows
$
0.5

 
$
(7.8
)
 
$
8.3

 
NM

NM  Not Meaningful.
The following table presents managed assets by type:
 
 
 
 
 
 
 
 
 
Average(1)
 
 
 
 
 
June 30,
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
 
(in billions)
Equity
$
289.4

 
$
238.5

 
$
50.9

 
21
%
 
$
277.6

 
$
236.5

 
$
41.1

 
17
 %
Fixed income
196.4

 
195.7

 
0.7

 
—

 
196.4

 
202.5

 
(6.1
)
 
(3
)
Money market
6.3

 
6.1

 
0.2

 
3

 
6.7

 
6.2

 
0.5

 
8

Alternative
7.2

 
6.3

 
0.9

 
14

 
6.8

 
6.4

 
0.4

 
6

Hybrid and other
19.0

 
12.8

 
6.2

 
48

 
17.3

 
12.5

 
4.8

 
38

Total managed assets
$
518.3

 
$
459.4

 
$
58.9

 
13
%
 
$
504.8

 
$
464.1

 
$
40.7

 
9
 %
(1) Average ending balances are calculated using an average of the prior period’s ending balance and all months in the current period.

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AMERIPRISE FINANCIAL, INC. 


The following tables present the changes in Columbia and Threadneedle managed assets:
 
Six Months Ended June 30,
 
2014
 
2013
 
(in billions)
Columbia Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
239.4

 
$
216.3

Mutual fund inflows
17.3

 
19.8

Mutual fund outflows
(22.6
)
 
(25.8
)
Net VP/VIT fund flows
(0.4
)
 
(0.3
)
Net new flows
(5.7
)
 
(6.3
)
Reinvested dividends
3.8

 
2.9

Net flows
(1.9
)
 
(3.4
)
Distributions
(4.6
)
 
(3.4
)
Market appreciation and other
10.9

 
13.8

Total ending assets
243.8

 
223.3

 
 
 
 
Institutional
 

 
 

Beginning assets
75.6

 
72.4

Inflows
9.1

 
9.9

Outflows
(10.3
)
 
(13.7
)
Net flows
(1.2
)
 
(3.8
)
Market appreciation and other
3.2

 
2.5

Total ending assets
77.6

 
71.1

 
 
 
 
Alternative
 

 
 

Beginning assets
5.6

 
5.7

Inflows
1.1

 
0.9

Outflows
(0.5
)
 
(1.3
)
Net flows
0.6

 
(0.4
)
Market appreciation and other
0.2

 
0.2

Total ending assets
6.4

 
5.5

Affiliated General Account Assets
35.7

 
35.3

Total Columbia managed assets
$
363.5

 
$
335.2

Total Columbia net flows
$
(2.5
)
 
$
(7.6
)

82

AMERIPRISE FINANCIAL, INC. 


 
Six Months Ended June 30,
 
2014
 
2013
 
(in billions)
Threadneedle Managed Assets Rollforward
 

 
 

Retail Funds
 

 
 

Beginning assets
$
50.6

 
$
39.1

Mutual fund inflows
12.8

 
11.0

Mutual fund outflows
(13.8
)
 
(8.7
)
Net new flows
(1.0
)
 
2.3

Reinvested dividends
0.1

 
—

Net flows
(0.9
)
 
2.3

Distributions
(0.3
)
 
(0.2
)
Market appreciation
0.4

 
2.8

Foreign currency translation (1)
1.6

 
(2.6
)
Other
0.7

 
0.4

Total ending assets
52.1

 
41.8

 
 
 
 
Institutional
 

 
 
Beginning assets
96.1

 
87.6

Inflows
9.7

 
3.7

Outflows
(5.7
)
 
(6.2
)
Net flows
4.0

 
(2.5
)
Market appreciation
0.6

 
3.4

Foreign currency translation (1)
3.1

 
(5.7
)
Other
1.5

 
1.5

Total ending assets
105.3

 
84.3

 
 
 
 
Alternative
 

 
 
Beginning assets
0.8

 
1.0

Inflows
—

 
—

Outflows
(0.1
)
 
—

Net flows
(0.1
)
 
—

Foreign currency translation (1)
—

 
(0.1
)
Total ending assets
0.7

 
0.9

Total Threadneedle managed assets
$
158.1

 
$
127.0

Total Threadneedle net flows
$
3.0

 
$
(0.2
)
(1) Amounts represent British Pound to US dollar conversion.
Total segment AUM increased $17.5 billion, or 3%, during the six months ended June 30, 2014 driven by market appreciation, as well as a positive impact of foreign currency translation. Total segment AUM net inflows were $0.5 billion for the six months ended June 30, 2014. 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 increased $6.8 billion, or 2%, during the six months ended June 30, 2014 primarily due to market appreciation, partially offset by net outflows. Total Columbia net outflows were $2.5 billion for the six months ended June 30, 2014. Columbia retail funds increased $4.4 billion, or 2%, during the six months ended June 30, 2014 primarily due to market appreciation, partially offset by net outflows and distributions. Columbia retail net outflows of $1.9 billion during the first half of 2014 included $5.7 billion of net new outflows, partially offset by $3.8 billion of reinvested dividends some of which was related to normal seasonal increases in the second quarter from funds underlying our variable annuity products. Columbia retail net new outflows for the six months ended June 30, 2014 included $2.0 billion of outflows in the defined contribution/investment only channel, $0.7 billion of outflows from a former parent affiliated distribution relationship, $0.7 billion of outflows in the RIA channel and $0.4 billion of outflows from a third party sub-advisor. Columbia institutional AUM increased $2.0 billion, or 3%, during the six months ended June 30, 2014 due to market appreciation, partially offset by net outflows of $1.2 billion primarily reflecting

83

AMERIPRISE FINANCIAL, INC. 


outflows from former parent affiliated distribution and former parent influenced mandates, partially offset by third party institutional inflows.
Threadneedle managed assets increased $10.7 billion, or 7%, during the six months ended June 30, 2014 due to net inflows, market appreciation and a positive impact of foreign currency translation. Threadneedle retail funds increased $1.5 billion, or 3%, during the six months ended June 30, 2014 primarily due to a positive impact of foreign currency translation and market appreciation, partially offset by net outflows. Threadneedle retail net outflows were $0.9 billion as strong underlying net inflows were offset by approximately $3.6 billion of outflows from the U.S. equities product where we had a portfolio manager change earlier in the year. Threadneedle institutional AUM increased $9.2 billion, or 10%, during the six months ended June 30, 2014 primarily due to net inflows and a positive impact of foreign currency translation. Threadneedle institutional net inflows of $4.0 billion during the first half of 2014 included a $5.6 billion mandate from a leading UK wealth management firm to manage assets in a Strategic Managed fund, partially offset by $1.8 billion of outflows from legacy insurance assets and $0.4 billion of one-time outflows from corporate Liverpool Victoria assets in the second quarter.
The following table presents the results of operations of our Asset Management segment on an operating basis:
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
1,387

 
$
1,289

 
$
98

 
8
 %
Distribution fees
244

 
230

 
14

 
6

Net investment income
17

 
45

 
(28
)
 
(62
)
Other revenues
3

 
5

 
(2
)
 
(40
)
Total revenues
1,651

 
1,569

 
82

 
5

Banking and deposit interest expense
—

 
1

 
(1
)
 
NM

Total net revenues
1,651

 
1,568

 
83

 
5

Expenses
 

 
 

 
 

 
 

Distribution expenses
575

 
549

 
26

 
5

Amortization of deferred acquisition costs
8

 
8

 
—

 
—

Interest and debt expense
13

 
11

 
2

 
18

General and administrative expense
673

 
668

 
5

 
1

Total expenses
1,269

 
1,236

 
33

 
3

Operating earnings
$
382

 
$
332

 
$
50

 
15
 %
NM  Not Meaningful.
Our Asset Management segment pretax operating earnings, which exclude net realized gains or losses, increased $50 million, or 15%, to $382 million for the six months ended June 30, 2014 compared to $332 million for the prior year period reflecting equity market appreciation, partially offset by the impact of net outflows in prior periods and a $30 million gain on the sale of Threadneedle’s strategic business investment in Cofunds in the prior year period.
Net Revenues
Net revenues, which exclude net realized gains or losses, increased $83 million, or 5%, to $1.7 billion for the six months ended June 30, 2014 compared to $1.6 billion for the prior year period driven by an increase in management and financial advice fees, partially offset by a decrease in net investment income.
Management and financial advice fees increased $98 million, or 8%, to $1.4 billion for the six months ended June 30, 2014 compared to $1.3 billion for the prior year period primarily due to an increase in assets under management. Average assets under management increased 9% compared to the prior year period driven by equity market appreciation, partially offset by net outflows. See our discussion above on the changes in assets under management.
Net investment income decreased $28 million, or 62%, to $17 million for the six months ended June 30, 2014 compared to $45 million for the prior year period due to a $30 million gain on the sale of Threadneedle’s investment in Cofunds in the prior year period.
Expenses
Total expenses increased $33 million, or 3%, to $1.3 billion for the six months ended June 30, 2014 compared to $1.2 billion for the prior year period primarily due to a $26 million increase in distribution expenses driven by higher retail fund assets.

84

AMERIPRISE FINANCIAL, INC. 


Annuities
The following table presents the results of operations of our Annuities segment on an operating basis:
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
372

 
$
344

 
$
28

 
8
 %
Distribution fees
179

 
166

 
13

 
8

Net investment income
476

 
524

 
(48
)
 
(9
)
Premiums
58

 
54

 
4

 
7

Other revenues
202

 
171

 
31

 
18

Total revenues
1,287

 
1,259

 
28

 
2

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
1,287

 
1,259

 
28

 
2

Expenses
 

 
 

 
 

 
 

Distribution expenses
216

 
203

 
13

 
6

Interest credited to fixed accounts
287

 
326

 
(39
)
 
(12
)
Benefits, claims, losses and settlement expenses
199

 
246

 
(47
)
 
(19
)
Amortization of deferred acquisition costs
105

 
107

 
(2
)
 
(2
)
Interest and debt expense
19

 
16

 
3

 
19

General and administrative expense
115

 
109

 
6

 
6

Total expenses
941

 
1,007

 
(66
)
 
(7
)
Operating earnings
$
346

 
$
252

 
$
94

 
37
 %
Our Annuities segment pretax operating income, which excludes net realized gains or losses and the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization), increased $94 million, or 37%, to $346 million for the six months ended June 30, 2014 compared to $252 million for the prior year period due to a benefit from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds and market appreciation. In addition, the impact on DAC and DSIC from actual versus expected market performance based on our view of bond and equity performance was a benefit of $23 million for the six months ended June 30, 2014 compared to a benefit of $2 million for the prior year period as a result of more favorable bond fund returns compared to the prior year period.
During the fourth quarter of 2013, we added Portfolio Stabilizer fund options for our in-force variable annuities with living benefit guarantees. We continue to see existing policyholders moving to Portfolio Stabilizer funds at a level higher than anticipated. In the first half of 2014, approximately $3.3 billion of account value was moved into the funds. The resulting earnings benefit for the six months ended June 30, 2014 was $39 million.
RiverSource variable annuity account balances increased 10% to $77.6 billion at June 30, 2014 compared to the prior year period due to market appreciation, partially offset by net outflows of $1.3 billion. RiverSource fixed annuity account balances declined 7% to $12.6 billion at June 30, 2014 compared to the prior year period reflecting elevated surrenders on products sold through third parties where rates have been reset. This decline is offset by the change in crediting rates, which decreased the level of spread compression in the first half of 2014. Approximately $3.7 billion of the five-year guarantee block has been re-priced and approximately $0.4 billion will be re-priced in the balance of the year.
Net Revenues
Net revenues, which exclude net realized gains or losses, increased $28 million, or 2%, to $1.3 billion for the six months ended June 30, 2014 compared to $1.3 billion for the prior year period primarily due to higher management and financial advice fees, distribution fees and other revenues, partially offset by a decrease in net investment income.
Management and financial advice fees increased $28 million, or 8%, to $372 million for the six months ended June 30, 2014 compared to $344 million for the prior year period due to higher fees on variable annuities driven by higher separate account balances. Average variable annuities contract accumulation values increased $5.1 billion, or 8%, compared to the prior year period due to market appreciation, partially offset by net outflows.

85

AMERIPRISE FINANCIAL, INC. 


Distribution fees increased $13 million, or 8%, to $179 million for the six months ended June 30, 2014 compared to $166 million for the prior year period due to higher fees on variable annuities driven by higher separate account balances.
Net investment income, which excludes net realized gains or losses, decreased $48 million, or 9%, to $476 million for the six months ended June 30, 2014 compared to $524 million for the prior year period primarily reflecting a decrease of approximately $11 million from lower invested assets due to fixed annuity net outflows and approximately $40 million from lower interest rates.
Other revenues increased $31 million, or 18%, to $202 million for the six months ended June 30, 2014 compared to $171 million for the prior year period due to higher fees from variable annuity guarantees driven by higher volumes due to prior year sales with a first fee collected on the anniversary date, as well as 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) decreased $66 million, or 7%, to $941 million for the six months ended June 30, 2014 compared to $1.0 billion for the prior year period due to decreases in interest credited to fixed accounts and benefits, claims, losses and settlement expenses.
Distribution expenses increased $13 million, or 6%, to $216 million for the six months ended June 30, 2014 compared to $203 million for the prior year period primarily due to higher variable annuity compensation driven by higher variable annuity contract values.
Interest credited to fixed accounts decreased $39 million, or 12%, to $287 million for the six months ended June 30, 2014 compared to $326 million for the prior year period driven by lower average fixed annuity account balances and a lower average crediting rate on interest sensitive fixed annuities. Average fixed annuities contract accumulation values decreased $748 million, or 5%, to $12.9 billion for the six months ended June 30, 2014 compared to the prior year period due to net outflows reflecting elevated surrenders on products sold through third parties where rates have been reset. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.2% for the six months ended June 30, 2014 compared to 3.6% for the prior year period reflecting the re-pricing of the five-year guarantee block.
Benefits, claims, losses and settlement expenses, which exclude the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization), decreased $47 million, or 19%, to $199 million for the six months ended June 30, 2014 compared to $246 million for the prior year period primarily due to a $46 million benefit from policyholder movement of investments in Portfolio Navigator funds under certain in-force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds and a decrease in expense due to the impact on DSIC from actual versus expected market performance based on our view of bond and equity performance, partially offset by an increase in expense of $16 million related to higher reserve funding driven by the impact of higher fees from prior year sales with variable annuity guarantees. The impact on DSIC from actual versus expected market performance based on our view of bond and equity performance was a benefit of $5 million for the first half of 2014 compared to nil for the prior year period as a result of more favorable bond fund returns compared to the prior year period.
 

86

AMERIPRISE FINANCIAL, INC. 


Protection
The following table presents the results of operations of our Protection segment on an operating basis:
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Management and financial advice fees
$
30

 
$
28

 
$
2

 
7
 %
Distribution fees
45

 
45

 
—

 
—

Net investment income
221

 
221

 
—

 
—

Premiums
625

 
579

 
46

 
8

Other revenues
213

 
214

 
(1
)
 
—

Total revenues
1,134

 
1,087

 
47

 
4

Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
1,134

 
1,087

 
47

 
4

Expenses
 

 
 

 
 

 
 

Distribution expenses
30

 
29

 
1

 
3

Interest credited to fixed accounts
75

 
68

 
7

 
10

Benefits, claims, losses and settlement expenses
678

 
601

 
77

 
13

Amortization of deferred acquisition costs
64

 
60

 
4

 
7

Interest and debt expense
14

 
12

 
2

 
17

General and administrative expense
123

 
123

 
—

 
—

Total expenses
984

 
893

 
91

 
10

Operating earnings
$
150

 
$
194

 
$
(44
)
 
(23
)%
Our Protection segment pretax operating income, which excludes net realized gains or losses 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 $44 million, or 23%, to $150 million for the six months ended June 30, 2014 compared to $194 million for the prior year period reflecting lower auto and home earnings.
Net Revenues
Net revenues, which exclude net realized gains or losses and the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits, increased $47 million, or 4%, to $1.1 billion for the six months ended June 30, 2014 compared to the prior year period due to growth in auto and home premiums.
Premiums increased $46 million, or 8%, to $625 million for the six months ended June 30, 2014 compared to $579 million for the prior year period primarily due to growth in auto and home premiums driven by continued new policy sales growth, primarily from our affinity relationships with Costco and Progressive. Auto and home policy counts increased 12% compared to the prior year period.
Expenses
Total expenses, which exclude the market impact on indexed universal life benefits (net of hedges and the related DAC amortization), increased $91 million, or 10%, to $984 million for the six months ended June 30, 2014 compared to $893 million for the prior year period primarily due to higher expenses related to our auto and home business.
Benefits, claims, losses and settlement expenses increased $77 million, or 13%, to $678 million for the six months ended June 30, 2014 compared to $601 million for the prior year period due to higher auto and home claim and claim adjustment expense, partially offset by an $8 million increase in disability income reserves in the second quarter of 2013 related to prior periods. The increase in auto and home claim and claim adjustment expense reflected the impact of growth in exposures due to an 11% increase in gross new policies, an increase in catastrophe losses due to severe weather and a $30 million increase in auto liability reserves in the first quarter of 2014 based upon additional analysis and information regarding continued adverse development of bodily injury claims associated with prior accident years. Catastrophe losses were $42 million for the six months ended June 30, 2014 compared to $20 million for the prior year period.


87

AMERIPRISE FINANCIAL, INC. 


Corporate & Other
The following table presents the results of operations of our Corporate & Other segment on an operating basis:
 
Six Months Ended June 30,
 
 
 
 
 
2014
 
2013
 
Change
 
(in millions)
 
 
Revenues
 

 
 

 
 

 
 

Distribution fees
$
1

 
$
1

 
$
—

 
—
 %
Net investment income (loss)
(1
)
 
3

 
(4
)
 
NM

Other revenues
4

 
3

 
1

 
33

Total revenues
4

 
7

 
(3
)
 
(43
)
Banking and deposit interest expense
—

 
—

 
—

 
—

Total net revenues
4

 
7

 
(3
)
 
(43
)
Expenses
 

 
 

 
 

 
 
Distribution expenses
—

 
1

 
(1
)
 
NM

Interest and debt expense
13

 
8

 
5

 
63

General and administrative expense
121

 
108

 
13

 
12

Total expenses
134

 
117

 
17

 
15

Operating loss
$
(130
)
 
$
(110
)
 
$
(20
)
 
(18
)%
NM  Not Meaningful.
Our Corporate & Other segment pretax operating loss excludes net realized gains or losses, the impact of consolidating CIEs and restructuring charges. Our Corporate & Other segment pretax operating loss was $130 million for the six months ended June 30, 2014 compared to $110 million for the prior year period. Our Corporate & Other segment results for the six months ended June 30, 2014 included higher expenses primarily related to the early redemption of our senior notes due 2039, provision for potential resolution of a regulatory matter regarding certain historical events and processes at one of our ongoing lines of business which we believe have since been remediated, and long-term performance compensation awards.

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.

88

AMERIPRISE FINANCIAL, INC. 


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 2015 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, was $2.9 billion and 3.9%, respectively, as of June 30, 2014. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $6.2 billion and had a weighted average yield of 3.3% as of June 30, 2014. 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 six months ended June 30, 2014 was approximately 2.8%.
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 the second quarter of 2014, we continued the process of setting lower renewal interest rates for a portion of our fixed annuities that are above the guaranteed minimum, which helps relieve some of the spread compression caused by low rates. Approximately $3.7 billion of the five-year guarantee block has been re-priced and approximately $0.4 billion will be re-priced in the balance of the year.
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 contractholders as of June 30, 2014 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%
$
0.3

 
$
2.9

 
$
0.4

 
$
0.4

 
$
0.3

 
$
4.3

2% - 2.99%
0.5

 
—

 
—

 
—

 
—

 
0.5

3% - 3.99%
9.4

 
0.1

 
—

 
—

 
—

 
9.5

4% - 5.00%
5.7

 
—

 
—

 
—

 
—

 
5.7

Total
$
15.9

 
$
3.0

 
$
0.4

 
$
0.4

 
$
0.3

 
$
20.0

Percentage of Account Values That Reset In:
 
 
 
 
 
 
 
 
 
 
 
Next 12 months (1)
99
%
 
95
%
 
27
%
 
45
%
 
98
%
 
96
%
> 12 months to 24 months (2)
—

 
1

 
22

 
27

 
2

 
1

> 24 months (2)
1

 
4

 
51

 
28

 
—

 
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 investment assets.

89

AMERIPRISE FINANCIAL, INC. 


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 guaranty 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.
The following tables present our estimate of the impact on pretax income from the above defined hypothetical market movements as of June 30, 2014:
 
 
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)
 
$
(254
)
 
$
5

 
$
(249
)
DAC and DSIC amortization (2) (3)
 
(90
)
 
—

 
(90
)
Variable annuity riders:
 
 

 
 

 
 

GMDB and GMIB (3)
 
(84
)
 
—

 
(84
)
GMWB
 
(179
)
 
155

 
(24
)
GMAB
 
(34
)
 
29

 
(5
)
DAC and DSIC amortization (4)
 
N/A

 
N/A

 
6

Total variable annuity riders
 
(297
)
 
184

 
(107
)
Macro hedge program (5)
 
—

 
19

 
19

Equity indexed annuities
 
1

 
(1
)
 
—

Certificates
 
2

 
(2
)
 
—

Indexed universal life insurance
 
14

 
(16
)
 
(2
)
Total
 
$
(624
)
 
$
189

 
$
(429
)

90

AMERIPRISE FINANCIAL, INC. 


 
 
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)
 
$
(43
)
 
$
—

 
$
(43
)
Variable annuity riders:
 
 

 
 

 
 

GMDB and GMIB
 
—

 
—

 
—

GMWB
 
613

 
(635
)
 
(22
)
GMAB
 
23

 
(25
)
 
(2
)
DAC and DSIC amortization (4)
 
N/A

 
N/A

 
4

Total variable annuity riders
 
636

 
(660
)
 
(20
)
Macro hedge program (5)
 
—

 
(41
)
 
(41
)
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products
 
16

 
—

 
16

Brokerage client cash balances
 
125

 
—

 
125

Certificates
 
2

 
—

 
2

Indexed universal life insurance
 
19

 
1

 
20

Total
 
$
755

 
$
(700
)
 
$
59

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 $389 million related to a 10% equity price decline and an estimated positive net impact to pretax income of $49 million related to a 100 basis point increase in interest rates as of December 31, 2013.
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.


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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 14 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 our 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 broker quotes for credit default swaps that are adjusted to estimate the risk of our life insurance company subsidiaries not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of June 30, 2014. 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 $82 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%), based on June 30, 2014 credit spreads.
 
Liquidity and Capital Resources
Overview
We maintained substantial liquidity during the six months ended June 30, 2014. At June 30, 2014, we had $2.1 billion in cash and cash equivalents compared to $2.6 billion at December 31, 2013. We have additional liquidity available through an unsecured revolving credit facility for up to $500 million that expires in September 2018. 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 June 30, 2014, we had no outstanding borrowings under this credit facility and had $2 million of outstanding letters of credit. Our junior subordinated notes due 2066 and credit facility contain various administrative, reporting, legal and financial covenants. We were in compliance with all such covenants at June 30, 2014.
In May 2014, we issued a notice of redemption for $200 million of our senior notes due 2039. The notes were redeemed on June 16, 2014 pursuant to the terms of the indenture at the principal value plus accrued interest to the redemption date. We recognized an expense for the remaining unamortized debt issuance costs on the notes in the second quarter of 2014.
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 June 30, 2014 and December 31, 2013 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 June 30, 2014 and December 31, 2013, we had $150 million and $450 million, respectively, of borrowings from 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

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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
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
 
(in millions)
RiverSource Life(1)(2)
$
3,162

 
$
2,747

 
N/A

 
$
591

RiverSource Life of NY(1)(2)
277

 
251

 
N/A

 
49

IDS Property Casualty(1)(3)
575

 
531

 
$
188

 
177

Ameriprise Insurance Company(1)(3)
45

 
44

 
2

 
2

ACC(4)(5)
241

 
230

 
225

 
215

Threadneedle(6)
395

 
257

 
171

 
158

Ameriprise National Trust Bank(7)
15

 
19

 
10

 
10

AFSI(3)(4)
90

 
78

 
2

 
2

Ameriprise Captive Insurance Company(3)
69

 
62

 
13

 
11

Ameriprise Trust Company(3)
25

 
58

 
23

 
56

AEIS(3)(4)
113

 
100

 
49

 
44

RiverSource Distributors, Inc.(3)(4)
18

 
23

 
#

 
#

Columbia Management Investment Distributors, Inc.(3)(4)
23

 
23

 
#

 
#

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 June 30, 2014 and December 31, 2013.
(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 June 30, 2014 represent management’s assessment at December 31, 2013 of the risk 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 six months ended June 30, 2014, the parent holding company received cash dividends or a return of capital from its subsidiaries of $725 million (including $300 million from RiverSource Life) and contributed cash to its subsidiaries of $6 million. During the six months ended June 30, 2013, the parent holding company received cash dividends or a return of capital from its subsidiaries of $990 million (including $535 million from RiverSource Life) and contributed cash to its subsidiaries of $28 million.

Dividends Paid to Shareholders and Share Repurchases
We paid regular quarterly dividends to our shareholders totaling $215 million and $202 million for the six months ended June 30, 2014 and 2013, respectively. On July 29, 2014, we announced a quarterly dividend of $0.58 per common share. The dividend will be paid on August 22, 2014 to our shareholders of record at the close of business on August 11, 2014.
In October 2012, our Board of Directors authorized an expenditure of up to $2.0 billion for the repurchase of shares of our common stock through 2014. In April 2014, our Board of Directors authorized an expenditure of up to an additional $2.5 billion for the repurchase of shares of our common stock through April 28, 2016. As of June 30, 2014, the Company had $2.4 billion 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 six months ended June 30, 2014, we repurchased a total of 6.4 million shares of our common stock at an average price of $110.54 per share.


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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 was $364 million for the six months ended June 30, 2014 compared to net cash used in operating activities of $93 million for the prior year period. The change in net cash provided by (used in) operating activities compared to prior year period was primarily due to a $194 million increase in cash flows related to changes in amounts due to brokers, a $166 million increase in cash flows related to cash held by CIEs and an increase in fee revenue partially offset by related expenses.
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 provided by investing activities decreased $532 million to $158 million for the six months ended June 30, 2014 compared to $690 million for the prior year period primarily due to a $703 million decrease in proceeds from sales, maturities and repayments of investments by consolidated investment entities and a $483 million decrease in proceeds from maturities, sinking fund payments and calls of Available-for-Sale securities, partially offset by a $769 million decrease in cash used for purchases of Available-for-Sale securities.
Financing Activities
Net cash used in financing activities increased $409 million to $1.0 billion for the six months ended June 30, 2014 compared to $618 million for the prior year period. Cash outflows from surrenders and other benefits of policyholder account balances increased $338 million compared to the prior year period. Cash outflows from changes in short-term borrowings increased $300 million compared to the prior year period as we reduced our borrowings from the FHLB in the first half of 2014. Cash outflows related to repayments of debt increased $200 million due to the redemption of our senior notes due 2039 in the second quarter of 2014. Cash inflows related to CIEs increased $530 million compared to the prior year period primarily due to a $500 million increase in borrowings of CIEs.

Contractual Commitments
There have been no material changes to our contractual obligations disclosed in our 2013 10-K.
 
Off-Balance Sheet Arrangements
We provide asset management services to various collateralized debt obligations and other investment products, which are sponsored by us for the investment of client assets in the normal course of business. Certain of these investment entities are considered to be variable interest entities while others are considered to be voting rights entities. We consolidate certain of these investment entities. For entities that we do not consolidate, our maximum exposure to loss is our investment in the entity, which was not material as of June 30, 2014. We have no obligation to provide further financial or other support to these structured investments nor have we provided any support to these structured investments. See Note 3 to our Consolidated Financial Statements for additional information on our arrangements with structured investments.


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Forward-Looking Statements
This report contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. 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, general and administrative costs, consolidated tax rate, return of capital to shareholders, 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;
•
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 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 approvals, the ability to effectively manage related expenses and by market, business partner and consumer reactions to such strategic transactions and initiatives;

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AMERIPRISE FINANCIAL, INC. 


•
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 2013 10-K.

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 2013 10-K filed with the SEC on February 27, 2014.
 
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 June 30, 2014.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

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AMERIPRISE FINANCIAL, INC. 


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

ITEM 1A.  RISK FACTORS
There have been no material changes in the risk factors provided in Part I, Item 1A of our 2013 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 second quarter of 2014:
 
 
(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)
 
 
 
 
 
 
 
 
 
April 1 to April 30, 2014
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
1,037,445

 
$
106.96

 
1,037,445

 
$
2,684,366,119

Employee transactions (2)
 
21,395

 
$
112.28

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
May 1 to May 31, 2014
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
1,101,529

 
$
110.70

 
1,101,529

 
$
2,562,432,278

Employee transactions (2)
 
258,482

 
$
112.05

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
June 1 to June 30, 2014
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
1,013,183

 
$
117.26

 
1,013,183

 
$
2,443,630,504

Employee transactions (2)
 
259,112

 
$
117.33

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
Totals
 
 

 
 

 
 

 
 

Share repurchase program (1)
 
3,152,157

 
$
111.57

 
3,152,157

 
 

Employee transactions (2)
 
538,989

 
$
114.60

 
N/A

 
 

 
 
3,691,146

 
 

 
3,152,157

 
 

N/A   Not applicable.  
(1) On October 24, 2012, we announced that our board of directors authorized us to repurchase up to $2.0 billion worth of our common stock through 2014. On April 28, 2014, we announced that our board of directors authorized us to repurchase up to an additional $2.5 billion worth of our common stock through April 28, 2016. 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.
(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.

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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:
August 4, 2014
By
/s/ Walter S. Berman
 
 
 
 
Walter S. Berman
 
 
 
 
Executive Vice President and
 
 
 
 
Chief Financial Officer
 
 
 
 
 
 
Date:
August 4, 2014
By
/s/ David K. Stewart
 
 
 
 
David K. Stewart
 
 
 
 
Senior Vice President and Controller
 
 
 
 
(Principal Accounting Officer)
 

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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.
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 June 30, 2014, formatted in XBRL: (i) Consolidated Statements of Operations for the three months and six months ended June 30, 2014 and 2013; (ii) Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2014 and 2013; (iii) Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (iv) Consolidated Statements of Equity for the six months ended June 30, 2014 and 2013; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (vi) Notes to the Consolidated Financial Statements.



E-1