Ameriprise 2007 Annual Report Download - page 36

Overall
Consolidated net income for 2007 was $814 million, up $183 million
from $631 million for 2006. This income growth reflected strong
growth in fee-based businesses driven by net inflows in wrap accounts
and variable annuities, market appreciation and continued advisor
productivity gains. Also contributing to our income growth was a
decline of $125 million in our non-recurring separation costs. These
positives were partially offset by higher distribution expenses which
reflect the higher levels of assets under management and overall
business growth, as well as increased benefits, claims, losses and
settlement expenses which are due to market volatility on variable
annuity living benefit reserves, which were partially offset by related
hedges in net investment income.
Income in both 2007 and 2006 was impacted by non-recurring
separation costs of $236 million and $361 million, respectively
($154 million and $235 million, respectively, after-tax). The impact
of our annual third quarter detailed review of DAC and the related
valuation assumptions (“DAC unlocking”) was a net pretax expense
of $30 million ($20 million after-tax) in 2007, compared to a net
benefit of $25 million ($16 million after-tax) in 2006.
Net revenues
Our revenue growth in management and financial advice fees was
primarily driven by the growth in our fee-based businesses. Manage-
ment and financial advice fees increased in 2007 to $3.2 billion, up
$538 million, or 20%, from $2.7 billion in 2006. Wrap account assets
grew 23% and variable annuity account assets increased 16% over the
prior year driven by strong net inflows and market appreciation.
Overall, managed assets increased 2% over the prior year period.
Distribution fees for 2007 were $1.8 billion, up $193 million, or
12%, from 2006 driven by strong advisor cash sales, up 3% from
2006, higher asset balances, an increase in the sale of direct invest-
ments, as clients had more products available to choose from and
strong net inflows into wrap accounts. Distribution fees were also
positively impacted by market appreciation.
Net investment income for 2007 decreased $125 million from 2006,
primarily driven by decreased volume in annuity fixed accounts and
certificates, partially offset by an increase in net investment income
attributable to hedges for variable annuity living benefits, net invest-
ment income related to Ameriprise Bank and a $22 million decrease
in the allowance for loan losses on commercial mortgage loans.
Included in net investment income are net realized investment gains
on Available-for-Sale securities of $44 million and $51 million for
2007 and 2006, respectively. Net realized investment gains in 2006
included a gain of $23 million related to recoveries on WorldCom
securities. Net investment income related to derivatives used to hedge
certain expense line items increased $82 million, which included a
$114 million increase related to derivatives used to hedge benefits,
claims, losses and settlement expenses for variable annuity living
benefits and a $32 million decrease related to derivatives used to
hedge interest credited expenses for equity indexed annuities and
banking and deposit interest expense for stock market certificates.
Premiums in 2007 decreased $7 million, or 1%, to $1.1 billion. This
decrease was attributable to a decline in premiums related to
immediate annuities with life contingencies, partially offset by
increases in auto and home insurance premiums resulting from
increased policy counts.
Other revenues in 2007 increased $17 million, or 2%, to $724 million.
This increase was due to the deconsolidation of a variable interest
entity, resulting in $68 million in other revenues, and higher fees from
variable annuity rider charges and cost of insurance charges for variable
universal life (“VUL”) and UL products. These increases were partially
offset by decreases in other revenues related to certain consolidated
limited partnerships and proceeds of $25 million in 2007, compared to
$66 million in 2006, received from the sale of our defined contribution
recordkeeping business.
Banking and deposit interest expense in 2007 decreased $18 million,
or 7%. This decrease was due primarily to a decrease in certificate
sales and balances, offset partially by the full year impact of
Ameriprise Bank and higher rates of interest paid on certificates.
Expenses
Total expenses reflect an increase in distribution expenses, benefits,
claims, losses and settlement expenses, the amortization of DAC, the
impact of DAC unlocking and general and administrative expense.
These increases were partially offset by decreases in separation costs
and interest credited to fixed accounts.
In 2007, we recorded net expense from DAC unlocking of
$30 million, primarily comprised of $16 million in DAC amortization
expense and a $14 million increase in benefits, claims, losses and settle-
ment expenses. In 2006, we recorded a net benefit from DAC
unlocking of $25 million, primarily comprised of a $38 million benefit
in DAC amortization expense, a $12 million increase in benefits,
claims, losses and settlement expenses and a $1 million decrease in
contract and policy charges and other fees. The DAC unlocking net
expense of $30 million in 2007 consisted of a $35 million increase in
expense from updating product persistency assumptions, a $13 million
decrease in expense from updating assumptions related to separate
account fee levels and net variable annuity rider charges and an
$8 million increase in expense from updating all other assumptions.
The DAC unlocking net benefit in 2006 primarily reflected a
$25 million benefit from modeling increased product persistency and a
$15 million benefit from modeling improvements in mortality, offset
by negative impacts of $8 million from modeling lower variable
product fund fee revenue and $8 million from model changes related
to variable life second to die insurance.
Distribution expenses increased $329 million, or 19%. The increase
primarily reflected higher commissions paid driven by overall
business growth and increases in advisor productivity, as reflected by
18% growth in net revenue per advisor and higher assets under
management.
Interest credited to fixed accounts reflected a decrease related to
annuities of $114 million primarily attributable to the continued
decline in balances in fixed annuities and the fixed portion of variable
annuities.
Benefits, claims, losses and settlement expenses increased
$161 million, or 14%. The cost of providing for guaranteed benefits
associated with our variable annuity living benefits increased by
$213 million, primarily due to changes in financial market factors. The
increase in variable annuity living benefit costs was partially offset by
34 Ameriprise Financial 2007 Annual Report