Ameriprise 2005 Annual Report Download - page 42

40 |Ameriprise Financial, Inc.
crediting rates and higher average volumes. This increase was
partially offset by a $19 million decrease in interest credited
to fixed annuity products due primarily to average volume
declines.
Benefits, claims, losses and settlement expenses decreased
$16 million, or 31%, primarily reflecting a decline in incurred
claims related to Guaranteed Minimum Death Benefit and gain
gross-up (GGU) rider contracts as a result of equity market
conditions. This was partially offset by growth in the value of
Guaranteed Minimum Withdrawal Benefit rider contracts result-
ing from strong sales.
Amortization of DAC was $324 million in 2005 compared to
$305 million in 2004. DAC amortization in 2005 was reduced
by $14 million as a result of the annual DAC assessment per-
formed in the third quarter, while DAC amortization in 2004
was reduced by $43 million in the first quarter as a result of
lengthening amortization periods on certain variable annuity
products in conjunction with our adoption of SOP 03-1 and by
$8 million as a result of the annual DAC assessment in the
third quarter. Equity market conditions and other factors also
resulted in increased amortization of DAC in 2005 compared
to 2004, particularly for our growing variable annuity business.
Somewhat offsetting the impacts of these increases was
amortization of DAC associated with mutual funds, which was
down $33 million. Sales of the classes of mutual fund shares
for which we defer acquisition costs have declined sharply in
recent years, leading to lower DAC balances and less DAC
amortization.
Other expenses increased $240 million, or 15% on higher
non-field compensation and benefits attributable to manage-
ment incentives, higher benefit costs and merit adjustments,
and the $100 million comprehensive settlement of a consoli-
dated securities class action lawsuit, partially offset by a
decrease in mutual fund industry regulatory costs of approxi-
mately $40 million.
Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003
Income before income tax provision, discontinued operations
and accounting change was $691 million for the year ended
December 31, 2004, up $62 million, or 10% from $629 million
a year ago.
Revenues
Total revenues were $4.7 billion for the year ended
December 31, 2004, a $671 million, or 17% increase compared
to $4.0 billion for the year ended December 31, 2003. The
increase in total revenue is primarily a result of a $509 million
rise in management, financial advice and service fees, an $86
million increase in net investment income and an additional $48
million of distribution fees.
Management, financial advice and service fees increased
$509 million, or 35% as a result of higher average managed
assets and the acquisition of Threadneedle. A significant por-
tion of the increase in our managed assets was due to the
full-year impact of our September 2003 acquisition of
Threadneedle and net inflows of our SPS wrap product, as well
as general improvement in the equity markets.
The $48 million, or 7% increase in distribution fees is primarily
a result of greater mutual fund fees driven principally by fees
earned on sales of non-proprietary mutual funds within our
wrap products as well as increased retail and institutional bro-
kerage fees, partially offset by decreases in fees from sales of
other companies’ REIT products.
Net investment income increased $86 million, or 5%, reflecting
higher net realized gains on Available-for-Sale securities and
significant improvements in other net gains and losses as
noted in the discussion of our consolidated results of opera-
tions.
Expenses
Total expenses were $4.0 billion for the year ended
December 31, 2004, a $609 million, or 18% increase com-
pared to $3.4 billion for the year ended December 31, 2003.
This increase was primarily due to a $405 million, or 34% rise
in other expenses, a $186 million increase in compensation
and benefits-field, and an additional $93 million of amortiza-
tion of DAC. The increase was partially offset by a $107
million decrease related to interest credited to account values.
Compensation and benefits-field increased $186 million, or
26% due to higher commissions from increased financial advi-
sor production levels, and a reduction in the level of expense
deferrals as a result of the changing mix of product sales.
Interest credited to account values decreased by $107 million,
or 9%, primarily due to lower interest crediting rates on our
annuity and face amount certificate products.
Amortization of DAC was $305 million in 2004 compared to
$212 million in 2003. DAC amortization in 2004 was reduced
by $43 million in the first quarter as a result of lengthening
amortization periods on certain variable annuity products in
conjunction with our adoption of SOP 03-1 and by $8 million
as a result of the annual DAC assessment in the third quarter.
DAC amortization in 2003 was reduced by $109 million as a
result of the annual DAC assessment in the third quarter, pri-
marily as a result of extending amortization periods on certain
other variable annuity products.
Other expenses increased $405 million, or 34% primarily due
to the full-year effect of our September 2003 acquisition of
Threadneedle, higher salaries and benefits, and increased
management incentive costs for employees.