Ameriprise 2005 Annual Report Download - page 27

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Ameriprise Financial, Inc. |
aggregate costs we will pay to American Express under the
transition services agreement for continuing services and the
costs for establishing or procuring the services that have his-
torically been provided by American Express will not
significantly differ from the amounts reflected in our historical
consolidated financial statements. However, we have incurred,
and expect to incur, significant non-recurring costs for advertis-
ing and marketing to establish our new brands and to build our
own technology infrastructure.
Marketing and Re-Branding. As part of the separation, we have
entered into a marketing and branding agreement with American
Express that grants us the right to use the “American Express”
brand name and logo in a limited capacity for up to two years
from the Distribution in conjunction with our brand name and
logo and, in the names of certain of our products, services and
subsidiaries for transitional purposes. The agreement also pro-
vides for various reciprocal marketing arrangements and
services between the parties. We do not expect to make any sig-
nificant cash payments to American Express in connection with
the marketing and branding agreement.
Technology. As a stand-alone company, we are installing and
implementing information technology infrastructure to support
our business functions, including accounting and financial
reporting, customer service and distribution, as well as other
significant investments to enhance our capabilities as an inde-
pendent business.
AMEX Assurance
Effective July 1, 2005, our subsidiary, AMEX Assurance, ceded
100% of its travel insurance and card related business offered
to American Express customers, to an American Express sub-
sidiary in return for an arm’s length ceding fee. As of
September 30, 2005, we entered into an agreement to sell
the AMEX Assurance legal entity to American Express within
two years after the Distribution. IDS Property Casualty
Insurance Company (IDS Property Casualty Co.), doing busi-
ness as Ameriprise Auto & Home Insurance, uses certain
insurance licenses held by AMEX Assurance. We intend on
obtaining similar licenses at IDS Property Casualty Co. prior to
the sale of AMEX Assurance to American Express.
Threadneedle Acquisition
On September 30, 2003, we acquired Threadneedle Asset
Management Holdings Ltd. (Threadneedle) for £340 million in
cash (or approximately $565 million at then prevailing exchange
rates). In connection with the acquisition, we received a $564
million capital contribution from American Express, which was
comprised of $536 million in cash and a $28 million non-cash
reduction of liabilities owed to American Express. We also entered
into profit-sharing arrangements for certain Threadneedle employ-
ees, one of which is based on an annual independent valuation of
Threadneedle. For additional information relating to the
Threadneedle profit-sharing arrangements, see Note 14 to our
consolidated financial statements. We included Threadneedle in
our consolidated financial statements as of September 30, 2003,
and as a result, recorded $3.6 billion of assets and $3.0 billion of
liabilities in our consolidated balance sheets, and added an
additional $81.1 billion of owned, managed and administered
assets. Approximately 5% of our 14% increase in revenue
between 2003 and 2004 was attributable to the consolidation of
Threadneedle, as well as 22% of the increase in owned, managed
and administered assets in 2003.
Equity Markets and Interest Rates
Equity market and interest rate fluctuations can have a signifi-
cant impact on our results of operations, primarily due to the
effects they have on the asset management fees we earn and
the “spread” income generated on our annuities, face-amount
certificates and universal life-type products. Asset manage-
ment fees, which we include in “Management, financial advice
and services fees” on our consolidated statements of income,
are generally based on the market value of the assets we
manage. The interest spreads we earn on our annuity, univer-
sal life-type and face-amount certificate products are the
difference between the returns we earn on the investments
that support our obligations on these products and the
amounts we must credit contractholders and policyholders.
Improvements in equity markets generally lead to increased
value in our managed assets, while declines in equity markets
generally lead to decreased value in our managed assets.
Average equity markets were higher in 2005 compared to 2004,
resulting in a favorable impact to our management fee revenue.
Interest rate spreads contracted in 2005 compared to 2004,
primarily due to rising short-term interest rates, which drove
higher crediting rates on our face-amount certificate products.
For additional information regarding our sensitivity to equity
risk and interest rate risk, see “Quantitative and Qualitative
Disclosures about Market Risks.”
Net Flows
Our owned, managed and administered assets are impacted
by market movements and net flows of client assets. Net flows
of client assets are a measure of new sales of, or deposits
into, our products offset by redemptions of, or withdrawals
from, our products. Net flows can have a significant impact on
our results of operations due to their impact on our revenues
and expenses. Since January 2004, in the aggregate, we have
experienced net inflows in our protection, variable annuity,
face-amount certificate, wrap account and other companies’
products we offer. During the same time period, we experi-
enced significant net outflows in our proprietary mutual fund
and institutional product offerings. In 1999 and 2000, we
significantly expanded our distribution of other companies’
mutual funds and our offering of other companies’ investment
products under variable universal life (VUL) and variable annu-
ity (VA) policies. This expansion of our branded distribution
channel resulted in, and continues to result in, a shift in net
flows from proprietary products to non-proprietary products.