A.M. Best Affirms Ratings of Ameriprise Financial, Inc. and Its Subsidiaries
October 1, 2013 by Best's News Service
OLDWICK, N.J. – A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of RiverSource Life Insurance Company (Minneapolis, MN) and its wholly owned subsidiary, RiverSource Life Insurance Company of New York (Albany, NY). A.M. Best also has affirmed the FSR of A (Excellent) and ICRs of “a+” for IDS Property Casualty Insurance Company (IDS) and its wholly owned, fully reinsured subsidiary, Ameriprise Insurance Company (both domiciled in De Pere, WI). Together, these companies represent the key life/health and property/casualty insurance subsidiaries of Ameriprise Financial, Inc. (Ameriprise) (headquartered in Minneapolis, MN) [NYSE: AMP].
Concurrently, A.M. Best has affirmed the ICR of “a-” and the existing debt ratings of Ameriprise. The outlook for all ratings is stable. (Please see below for a detailed listing of the debt ratings.)
The ratings of the life/health companies primarily reflect their strong risk-adjusted capital positions, despite significant stockholder dividends in recent periods, and their favorable statutory operating performance, after adjusting for the capital impact of Ameriprise’s hedging programs. A.M. Best notes that statutory operating results are significantly impacted by fluctuations in reserves for variable annuity guaranteed benefits driven largely by movements in equity markets. However, these impacts are substantially offset by unrealized gains and losses on derivatives, which are not included in income, but as below-the-line adjustments to statutory capital. Historically, Ameriprise has employed effective hedge programs that are primarily constructed to hedge GAAP income and economic risk but also had the effect of limiting statutory capital volatility. The group also has continued to reduce the risk of some of its product offerings. At the holding company level, Ameriprise maintains a moderate level of financial leverage of approximately 20%-25% with very strong interest coverage.
The ratings also consider Ameriprise’s broad multi-platform network of financial advisors, its leading market position and well-developed enterprise risk management program. A.M. Best notes that the number of branded financial advisors has generally remained flat in recent periods, but overall retention rates on experienced advisors remain very high in the mid 90% range.
While life insurance sales have rebounded over the past two years, statutory premiums from Ameriprise’s annuity and life and health segments generally have declined over the past few years and remain well below levels prior to the financial crisis. 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 more recently due to the organization’s decision to cease sales through third-party distribution channels in 2010 and the transition to a new volatility managed annuity product in 2012. However, the company’s product mix has become more balanced as ordinary life insurance sales have increased in recent periods. Ameriprise’s earnings remain highly correlated to movements in interest rates and equity markets. As a result, earnings may be materially impacted going forward should the current low interest rate environment persist, particularly within the fixed annuity and long-term care insurance lines of business. A.M. Best notes, this risk is partially mitigated by a sizeable fixed annuity block approaching the end of its guarantee period in the near term, which
will be eligible for rate resets. Ameriprise continues to experience significant outflows in its annuity and asset management businesses. While earnings have benefitted 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 persist at current levels.
The ratings of IDS and Ameriprise Insurance Company are based on the consolidated operating results and the financial positions of IDS and its subsidiary and reflect their synergies with Ameriprise. In addition, the ratings take into account the companies’ solid risk-adjusted capital position and five-year trend of positive operating results generated by consistent investment income. However, the underwriting volatility in recent years resulted from above average weather-related losses.
A.M. Best believes Ameriprise and its subsidiaries are well positioned at their current ratings. Negative rating actions could result from a material decline in RiverSource Life Insurance Company’s risk-adjusted capital due to stockholder dividends and/or deteriorating operating results due to spread compression or a significant decline in assets management fees.
The following debt ratings have been affirmed:
Ameriprise Financial, Inc.—
– “a-” on $700 million 5.65% senior unsecured notes, due 2015
– “a-” on $300 million 7.30% senior unsecured notes, due 2019
– “a-” on $750 million 5.35% senior unsecured notes, due 2020
– “a-” on $200 million 7.75% senior unsecured notes, due 2039
– “a-” on $600 million 4.00% senior unsecured notes, due 2023
– “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
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology. BN-NJ-09-27-2013 1729 ET #
