Ameriprise 2006 Annual Report Download - page 43

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Overall
Our AA&I pretax segment income was $716 million for the year
ended December 31, 2005, down $13 million, or 2%, from
$729 million for the year ended December 31, 2004.
Revenues
Management, financial advice and service fees increased
primarily as a result of strong inflows and market appreciation
driving a $135 million increase in fees attributable to our wrap
accounts, a $72 million rise due to increases in variable
annuity asset levels and an additional $77 million of revenue
from Threadneedle. Also contributing to the overall increase
was the growth in assets managed at SAI, which resulted in
higher advice fees. The total increase was partially offset by
fee declines of $36 million related to the net outflows in
proprietary mutual funds.
The growth in distribution fees was driven by a $61 million
increase attributable to strong net inflows and favorable mar-
ket impacts related to wrap accounts and a $33 million
increase in fees from strong sales of non-proprietary mutual
funds held outside of wrap accounts. In addition, greater sales
activity at SAI during 2005 resulted in an increase in distribution
fees of $32 million. These increases were partially offset by
declines in fees of $44 million from lower sales of REIT products
and a $33 million decrease from lower distribution fees on
RiverSource mutual funds.
The increase in net investment income in 2005 compared to
2004 was driven by higher average invested assets offset by
lower investment yields. Net investment income in 2005 included
an increase in net realized investment gains of $36 million
compared to 2004. Net investment income included market
driven appreciation of $19 million, a decline of $13 million from
the prior year, related to options hedging outstanding stock
market certificates and equity indexed annuities.
Expenses
Compensation and benefits-field in 2005 compared to 2004
reflect higher commissions paid driven by stronger sales
activity and higher wrap account assets.
The increase in interest credited to account values reflects a
$59 million increase related to certificate products, driven by
both higher interest 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 reflect a
decline in incurred claims related to GMDB and gain gross-up
(“GGU”) rider contracts as a result of equity market conditions.
This was offset by growth in the value of GMWB rider contracts
resulting from strong sales, as well as other items.
Amortization of DAC was $323 million in 2005 compared to
$306 million in 2004. DAC amortization in 2005 was reduced
by $14 million as a result of the annual DAC assessment
performed 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.
41
Ameriprise Financial, Inc. 2006 Annual Report
Asset Accumulation and Income
The following table presents the results of operations of our AA&I segment for the years ended December 31, 2005 and 2004:
Years Ended December 31,
2005 2004 Change
(in millions, except percentages)
Revenues
Management, financial advice and service fees $ 2,316 $ 2,050 $ 266 13 %
Distribution fees 1,041 998 43 4
Net investment income 1,923 1,843 80 4
Other revenues 70 69 1 1
Total revenues 5,350 4,960 390 8
Expenses
Compensation and benefits—field 1,266 1,133 133 12
Interest credited to account values 1,164 1,125 39 3
Benefits, claims, losses and settlement expenses 52 52 — —
Amortization of deferred acquisition costs 323 306 17 6
Other expenses 1,829 1,615 214 13
Total expenses 4,634 4,231 403 10
Pretax segment income $ 716 $ 729 $ (13) (2)