OCTOBER 01, 2015 03:24 PM (EDT)
A.M. Best Affirms Ratings of Ameriprise Financial, Inc. and Its Subsidiaries
FOR IMMEDIATE RELEASE
OLDWICK - OCTOBER 01, 2015 03:24 PM (EDT)
The ratings of the life/health companies primarily reflect their strong risk-adjusted capital positions, favorable operating results and effective hedging programs. Operating earnings have improved over the most recent period due to higher management and financial advisor fees from improved market conditions, leading to higher assets under management. In addition, operating earnings have benefited from higher distribution fees due to increased client activity. The growth in operating earnings has been able to offset significant stockholder dividends, which has enabled the life/health companies to maintain their strong capital positions. Furthermore, Ameriprise continues to employ effective hedge programs that are primarily constructed to hedge GAAP income and economic risk but also limit statutory capital volatility. The group also has reduced the risk of some of its product offerings, which included the launch of its managed volatility funds that are now required for all new variable annuities with a living benefit rider. The managed volatility funds have helped Ameriprise lower hedge costs and performance volatility, while reducing required capital.
The ratings also consider Ameriprise’s broad multi-platform network of financial advisors, its leading market position and well-developed enterprise risk management (ERM) program. A.M. Best notes that the number of branded financial advisors remained relatively flat in recent periods, but overall retention rates on experienced advisors remain in the mid-90% range. At the holding company level, Ameriprise maintains a moderate level of financial leverage of approximately 25% with solid interest coverage. Both measures are well within A.M. Best’s guidelines for its current ratings.
A.M. Best notes that Ameriprise’s earnings remain highly correlated to movements in interest rates and equity markets. Over two-thirds of Ameriprise’s admitted assets are in separate accounts that are susceptible to sizable equity market declines. Earnings are also likely to be materially impacted should the current low interest rate environment persist, particularly in the fixed annuity and long-term care insurance lines of business. Although A.M. Best remains concerned with the potential earnings volatility, this concern is somewhat mitigated by Ameriprise’s robust ERM practices, which measures its key risks to ensure decisions are made that will enhance its overall business profile and performance.
While life insurance sales have rebounded over the past four years, statutory premiums from Ameriprise’s annuity, life and health lines of business have generally declined during that same period. This is primarily due to a substantial decline in variable annuity and variable universal life sales following the financial crisis. Sales of variable annuities have been impacted since the organization decided to cease marketing through third-party distribution channels and the transition to new volatility managed annuity products in the past two years.
However, the company’s product mix has become more balanced as ordinary life insurance sales have increased in recent periods. With the exception of 2014, Ameriprise has experienced significant outflows in its annuity and asset management businesses over the years including the first half of 2015. While earnings have benefited from market appreciation and expense management initiatives in these business segments, a substantial decline in equity markets may result in a considerable decline in operating results should these negative outflows return to historical levels.
The ratings of IDS and its reinsured subsidiary, Ameriprise Insurance Company, are based on the consolidated operating results and financial positions that reflect their contribution to Ameriprise through diversification of risks and earnings, expanded product offerings to affinity partners and tax benefits from their municipal bond portfolio. However, operating performance has declined over the recent five-year period necessitating strong capital infusions to maintain the companies’ risk-adjusted capitalization. The companies reported overall operating losses primarily due to deteriorating underwriting performance as a result of adverse loss and loss-adjustment expense reserve development and above plan, prior year, weather-related, catastrophic losses.
The following issue ratings have been affirmed:
Ameriprise Financial, Inc.—
— “a-” on $700 million 5.65% senior unsecured notes, due 2015 (currently $350 million outstanding)
— “a-” on $300 million 7.30% senior unsecured notes, due 2019
— “a-” on $750 million 5.35% senior unsecured notes, due 2020
— “a-” on $750 million 4.00% senior unsecured notes, due 2023
— “a-” on $550 million 3.70% senior unsecured notes, due 2024
— “bbb” on $500 million 7.518% junior subordinated notes, due 2066 (currently $294 million outstanding)
The following indicative shelf ratings have been affirmed:
Ameriprise Financial, Inc.—
— “a-” on senior unsecured debt
— “bbb+” on subordinated debt
— “bbb” on preferred stock
Ameriprise Capital Trust I, II, III and IV—
— “bbb” on trust preferred securities
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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