Ameriprise 2006 Annual Report Download - page 41

Overall
Consolidated net income for the year ended December 31, 2005
was $574 million, down $220 million from $794 million for the
year ended December 31, 2004. Income before discontinued
operations and accounting change declined $267 million to
$558 million in 2005. Income for the year ended
December 31, 2005 was negatively impacted by non-recurring
separation costs of $293 million ($191 million after-tax) and the
comprehensive settlement of a consolidated securities class
action lawsuit of $100 million ($65 million after-tax).
Other significant items included in income for the year ended
December 31, 2005 were a benefit from the third quarter DAC
unlocking of $67 million ($44 million after-tax), $66 million in net
realized investment gains ($43 million after-tax) and $56 million
in after-tax income from AMEX Assurance. Included in net income
for the year ended December 31, 2004 were a benefit from the
third quarter DAC unlocking of $24 million ($16 million after-tax),
$9 million in net realized investment gains ($6 million after-tax)
and $102 million in after-tax income from AMEX Assurance.
Revenues
Our revenue growth in management, financial advice and
service fees was primarily driven by higher average assets
under management due to net inflows and market appreciation,
which led to increases in Ameriprise Financial wrap fees of
$163 million, an increase in advisory and trust fees, including
the Threadneedle impact of $93 million, and an increase in
separate account fees of $77 million. These increases were
partially offset by declines of $36 million in fees related to
managing our proprietary mutual funds.
The increase in distribution fees was primarily driven by a
$61 million increase attributable to strong net inflows and favor-
able market impacts related to wrap accounts, a $33 million
increase in fees from strong sales of non-proprietary mutual
funds held outside of wrap accounts and $32 million related to
SAI. These increases were partially offset by declines in fees of
$44 million from lower sales of real estate investment trust
(“REIT”) products and a $33 million decrease from lower
distribution fees on RiverSource mutual funds.
Net investment income for the year ended December 31, 2005
increased $104 million from the year ended December 31, 2004.
This increase was driven by a $2.0 billion increase in average
earning assets, inclusive of cash equivalents. Included in net
investment income in 2005 are $66 million in net realized
investment gains, which included a $36 million net gain on the
sale of our retained interests in a CDO securitization trust. Net
realized investment gains in 2004 were $9 million, which
included $28 million of non-cash charges related to the
liquidation of secured loan trusts. Also included in 2005 net
investment income were $39 million in gains on trading securities
and equity method investments in hedge funds and $19 million in
gains from options hedging outstanding stock market certificates
and equity indexed annuities. This compares to $54 million in
gains on trading securities and equity method investments in
hedge funds and $32 million in gains from options hedging
outstanding stock market certificates and equity indexed
annuities in 2004. During the year ended December 31, 2005,
gross realized gains and losses on the sale of Available-for-Sale
securities were $137 million and $64 million, respectively, and
other-than-temporary impairments were $21 million. This
compares to gross realized gains and losses on the sale of
Available-for-Sale securities of $65 million and $21 million,
respectively, and other-than-temporary impairments of
$2 million for the year ended December 31, 2004.
Our auto and home insurance premiums increased $71 million in
2005, driven by a 15% growth in average auto and home policies
in-force. Most of the increase in policies in-force was generated
through the Costco alliance, which was renewed in January 2006
for an additional five-year period. In addition, disability income
insurance premiums grew $11 million in 2005. These increases
in premiums were more than offset by the impact of the
deconsolidation of AMEX Assurance, which had premiums of
$127 million in 2005 compared to $245 million in 2004.
The increase in other revenues reflects cost of insurance and
other contract charges, which rose $18 million in 2005
primarily as a result of a 7% increase in variable and fixed
universal life contracts in-force. Agency fees from franchisee
financial advisors increased $6 million partially offset by
decreases in other revenues of $5 million.
Expenses
The increase in compensation and benefits-field was primarily
due to increased sales force compensation driven by strong
sales activity and higher wrap account assets. GDC was up
10% during this same period. Compensation and benefits-field
in 2005 also included $35 million in ceding commissions paid
to American Express related to AMEX Assurance.
Compensation and benefits-non-field increased primarily as a
result of increased management incentives, higher benefit
costs and merit adjustments. In addition, compensation and
benefits-non-field also reflect the additional ongoing costs
associated with being an independent entity, including higher
management and administration costs.
The increase in interest credited to account values was primarily
driven by a $59 million increase in interest credited to certificate
holders. These increases were due to higher certificate reserve
volume and increased crediting rates driven by the higher short-
term interest rate environment. This increase was partially offset
by a $19 million decrease in the interest credited on fixed
annuities due to declines in the related account balances.
Benefits, claims, losses and settlement expenses increased
primarily as a result of higher expenses related to auto and
home, life and long term care offset by a $54 million decline
from the impact of ceding the AMEX Assurance reserves in
2005. Higher average auto and home insurance policies
in-force resulted in an increase of $69 million and an increase
in benefit expenses and reserves on life and long term care
insurance contracts drove expense up $37 million.
The net decrease in DAC amortization in 2005 reflects the
impact of the net benefit of DAC unlocking related to
amortization in each year, offset primarily by the impact of an
adjustment to increase DAC amortization related to certain
insurance and annuity products in 2004. The net benefit from
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Ameriprise Financial, Inc. 2006 Annual Report