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Section 1: 10-Q (10-Q)

Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from_______________________to_______________________
Commission File No. 1-32525 
AMERIPRISE FINANCIAL, INC.
(Exact name of registrant as specified in its charter) 
Delaware
 
13-3180631
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1099 Ameriprise Financial Center, Minneapolis, Minnesota
55474
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:  (612) 671-3131 
Former name, former address and former fiscal year, if changed since last report:  Not Applicable 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       Yes x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer x
Accelerated Filer o
 
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes o    No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at October 21, 2016
Common Stock (par value $.01 per share)
 
158,047,749 shares
 



AMERIPRISE FINANCIAL, INC. 

FORM 10-Q
INDEX 
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
 
Consolidated Statements of Operations — Three months and nine months ended September 30, 2016 and 2015
3

Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2016 and 2015
4

Consolidated Balance Sheets — September 30, 2016 and December 31, 2015
5

Consolidated Statements of Equity — Nine months ended September 30, 2016 and 2015
6

Consolidated Statements of Cash Flows — Nine months ended September 30, 2016 and 2015
7

Notes to Consolidated Financial Statements
9

1. Basis of Presentation
9

2. Recent Accounting Pronouncements
9

3. Variable Interest Entities
11

4. Investments
20

5. Financing Receivables
23

6. Deferred Acquisition Costs and Deferred Sales Inducement Costs
26

7. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
27

8. Variable Annuity and Insurance Guarantees
27

9. Debt
29

10. Fair Values of Assets and Liabilities
30

11. Offsetting Assets and Liabilities
42

12. Derivatives and Hedging Activities
44

13. Shareholders’ Equity
49

14. Income Taxes
51

15. Guarantees and Contingencies
52

16. Earnings per Share Attributable to Ameriprise Financial, Inc. Common Shareholders
53

17. Segment Information
54

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
56

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
92

Item 4.  Controls and Procedures
92

 
 
Part II.  Other Information
93

Item 1.  Legal Proceedings
93

Item 1A.  Risk Factors
93

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
93

Item 6.  Exhibits
93

Signatures
94

Exhibit Index
E-1


2


AMERIPRISE FINANCIAL, INC. 

PART I. FINANCIAL INFORMATION 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions, except per share amounts) 
Revenues
 

 
 

 
 
 
 
Management and financial advice fees
$
1,464

 
$
1,465

 
$
4,289

 
$
4,451

Distribution fees
455

 
451

 
1,338

 
1,389

Net investment income
387

 
321

 
1,090

 
1,228

Premiums
374

 
360

 
1,114

 
1,081

Other revenues
330

 
296

 
832

 
939

Total revenues
3,010

 
2,893

 
8,663

 
9,088

Banking and deposit interest expense
12

 
7

 
29

 
21

Total net revenues
2,998

 
2,886

 
8,634

 
9,067

Expenses
 

 
 

 
 

 
 

Distribution expenses
798

 
806

 
2,371

 
2,460

Interest credited to fixed accounts
161

 
171

 
465

 
503

Benefits, claims, losses and settlement expenses
855

 
471

 
1,934

 
1,547

Amortization of deferred acquisition costs
163

 
133

 
360

 
302

Interest and debt expense
52

 
98

 
160

 
271

General and administrative expense
731

 
744

 
2,221

 
2,288

Total expenses
2,760

 
2,423

 
7,511

 
7,371

Pretax income
238

 
463

 
1,123

 
1,696

Income tax provision
23

 
111

 
209

 
389

Net income
215

 
352

 
914

 
1,307

Less: Net income (loss) attributable to noncontrolling interests

 
(45
)
 

 
102

Net income attributable to Ameriprise Financial
$
215

 
$
397

 
$
914

 
$
1,205

 
 
 
 
 
 
 
 
Earnings per share attributable to Ameriprise Financial, Inc. common shareholders
 
 
 
 
 
 
Basic
$
1.31

 
$
2.20

 
$
5.43

 
$
6.57

Diluted
$
1.30

 
$
2.17

 
$
5.37

 
$
6.48

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.75

 
$
0.67

 
$
2.17

 
$
1.92

 
 
 
 
 
 
 
 
Supplemental Disclosures:
 

 
 

 
 

 
 

Total other-than-temporary impairment losses on securities
$

 
$
(7
)
 
$
(2
)
 
$
(8
)
Portion of loss recognized in other comprehensive income (before taxes)

 

 
1

 

Net impairment losses recognized in net investment income
$

 
$
(7
)
 
$
(1
)
 
$
(8
)
See Notes to Consolidated Financial Statements.

3


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions) 
Net income
$
215

 
$
352

 
$
914

 
$
1,307

Other comprehensive income (loss), net of tax:
 

 
 

 
 
 
 
Foreign currency translation adjustment
(16
)
 
(65
)
 
(55
)
 
(50
)
Net unrealized gains (losses) on securities
(28
)
 
(19
)
 
382

 
(186
)
Net unrealized gains on derivatives
1

 
1

 
3

 
1

Defined benefit plans

 

 
6

 

Total other comprehensive income (loss), net of tax
(43
)
 
(83
)
 
336

 
(235
)
Total comprehensive income
172

 
269

 
1,250

 
1,072

Less: Comprehensive income (loss) attributable to noncontrolling interests

 
(89
)
 

 
68

Comprehensive income attributable to Ameriprise Financial
$
172

 
$
358

 
$
1,250

 
$
1,004

See Notes to Consolidated Financial Statements.


4


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
September 30,
2016
 
December 31, 2015
 
(in millions, except share amounts)
Assets
 

 
 

Cash and cash equivalents
$
3,075

 
$
2,357

Cash of consolidated investment entities
254

 
502

Investments
35,875

 
34,144

Investments of consolidated investment entities, at fair value
2,573

 
6,570

Separate account assets
81,511

 
80,349

Receivables
5,322

 
5,167

Receivables of consolidated investment entities (includes $14 and $70, respectively, at fair value)
14

 
107

Deferred acquisition costs
2,534

 
2,725

Restricted and segregated cash and investments
2,962

 
2,949

Other assets
9,502

 
8,384

Other assets of consolidated investment entities (includes $1 and $2,065, respectively, at fair value)
1

 
2,065

Total assets
$
143,623

 
$
145,319

 
 
 
 
Liabilities and Equity
 

 
 

Liabilities:
 

 
 

Policyholder account balances, future policy benefits and claims
$
31,469

 
$
29,699

Separate account liabilities
81,511

 
80,349

Customer deposits
9,442

 
8,634

Short-term borrowings
200

 
200

Long-term debt
2,934

 
2,692

Debt of consolidated investment entities (includes $2,710 and $6,630, respectively, at fair value)
2,710

 
7,531

Accounts payable and accrued expenses
1,498

 
1,552

Accounts payable and accrued expenses of consolidated investment entities

 
54

Other liabilities
6,951

 
5,965

Other liabilities of consolidated investment entities (includes $112 and $221, respectively, at fair value)
112

 
238

Total liabilities
136,827

 
136,914

Equity:
 

 
 

Ameriprise Financial, Inc.:
 

 
 

Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 323,724,066 and 322,822,746, respectively)
3

 
3

Additional paid-in capital
7,709

 
7,611

Retained earnings
10,098

 
9,551

Appropriated retained earnings of consolidated investment entities

 
137

Treasury shares, at cost (165,227,730 and 151,789,486 shares, respectively)
(11,609
)
 
(10,338
)
Accumulated other comprehensive income, net of tax
595

 
253

Total Ameriprise Financial, Inc. shareholders’ equity
6,796

 
7,217

Noncontrolling interests

 
1,188

Total equity
6,796

 
8,405

Total liabilities and equity
$
143,623

 
$
145,319

See Notes to Consolidated Financial Statements.

5


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
 
Ameriprise Financial, Inc.
 
 
 
Number of Outstanding Shares
Common Shares
Additional Paid-In Capital
Retained Earnings
Appropriated Retained
Earnings of Consolidated
Investment Entities
Treasury
Shares
Accumulated Other Com-
prehensive Income
Total Ameriprise Financial, Inc. Shareholders’ Equity
Non-controlling Interests
Total
 
(in millions, except share data) 
Balances at January 1, 2015
183,109,509
 
$
3
 
$
7,345
 
$
8,469
 
$
234
 
$
(8,589
)
$
662
 
$
8,124
 
$
1,181
 
$
9,305
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
1,205
 
 
 
 
1,205
 
102
 
1,307
 
Other comprehensive loss, net of tax
 
 
 
 
 
 
(201
)
(201
)
(34
)
(235
)
Total comprehensive income
 
 
 
 
 
 
 
1,004
 
68
 
1,072
 
Net income reclassified to appropriated retained earnings
 
 
 
 
(60
)
 
 
(60
)
60
 
 
Dividends to shareholders
 
 
 
(355
)
 
 
 
(355
)
 
(355
)
Noncontrolling interests investments in subsidiaries
 
 
 
 
 
 
 
 
225
 
225
 
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
(342
)
(342
)
Repurchase of common shares
(10,882,885
)
 
 
 
 
(1,362
)
 
(1,362
)
 
(1,362
)
Share-based compensation plans
2,794,851
 
 
212
 
 
 
66
 
 
278
 
 
278
 
Balances at September 30, 2015
175,021,475
 
$
3
 
$
7,557
 
$
9,319
 
$
174
 
$
(9,885
)
$
461
 
$
7,629
 
$
1,192
 
$
8,821
 
 
 
 
 
 
 
 
 
 
 
 
Balances at January 1, 2016, previously reported
171,033,260
 
$
3
 
$
7,611
 
$
9,551
 
$
137
 
$
(10,338
)
$
253
 
$
7,217
 
$
1,188
 
$
8,405
 
Cumulative effect of change in accounting policies
 
 
 
1
 
(137
)
 
6
 
(130
)
(1,188
)
(1,318
)
Balances at January 1, 2016, as adjusted
171,033,260
 
3
 
7,611
 
9,552
 
 
(10,338
)
259
 
7,087
 
 
7,087
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
914
 
 
 
 
914
 
 
914
 
Other comprehensive income, net of tax
 
 
 
 
 
 
336
 
336
 
 
336
 
Total comprehensive income
 
 
 
 
 
 
 
1,250
 
 
1,250
 
Dividends to shareholders
 
 
 
(368
)
 
 
 
(368
)
 
(368
)
Repurchase of common shares
(14,349,061
)
 
 
 
 
(1,333
)
 
(1,333
)
 
(1,333
)
Share-based compensation plans
1,812,137
 
 
98
 
 
 
62
 
 
160
 
 
160
 
Balances at September 30, 2016
158,496,336
 
$
3
 
$
7,709
 
$
10,098
 
$
 
$
(11,609
)
$
595
 
$
6,796
 
$
 
$
6,796
 
See Notes to Consolidated Financial Statements.


6


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions)
Cash Flows from Operating Activities
 
 
 
Net income
$
914

 
$
1,307

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion, net
187

 
185

Deferred income tax benefit
(47
)
 
(23
)
Share-based compensation
101

 
108

Net realized investment gains
(1
)
 
(14
)
Net trading gains
(5
)
 
(5
)
Loss from equity method investments
45

 
22

Other-than-temporary impairments and provision for loan losses

 
9

Net losses (gains) of consolidated investment entities
5

 
(85
)
Changes in operating assets and liabilities:
 
 
 
Restricted and segregated cash and investments
(13
)
 
(88
)
Deferred acquisition costs
86

 
38

Other investments, net
9

 
61

Policyholder account balances, future policy benefits and claims, net
1,172

 
681

Derivatives, net of collateral
(676
)
 
(180
)
Receivables
(177
)
 
(294
)
Brokerage deposits
3

 
51

Accounts payable and accrued expenses
(24
)
 
(41
)
Cash held by consolidated investment entities
(100
)
 
(394
)
Investment properties of consolidated investment entities

 
(126
)
Other operating assets and liabilities of consolidated investment entities, net
(9
)
 
54

Other, net
235

 
637

Net cash provided by operating activities
1,705

 
1,903

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Available-for-Sale securities:
 
 
 
Proceeds from sales
322

 
151

Maturities, sinking fund payments and calls
3,379

 
3,453

Purchases
(4,666
)
 
(3,340
)
Proceeds from sales, maturities and repayments of mortgage loans
705

 
481

Funding of mortgage loans
(334
)
 
(427
)
Proceeds from sales and collections of other investments
131

 
198

Purchase of other investments
(144
)
 
(249
)
Purchase of investments by consolidated investment entities
(566
)
 
(2,063
)
Proceeds from sales, maturities and repayments of investments by consolidated investment entities
803

 
1,429

Purchase of land, buildings, equipment and software
(66
)
 
(109
)
Other, net
70

 
29

Net cash used in investing activities
$
(366
)
 
$
(447
)
See Notes to Consolidated Financial Statements.

7


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions)
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Investment certificates:
 
 
 
Proceeds from additions
$
3,184

 
$
2,182

Maturities, withdrawals and cash surrenders
(2,376
)
 
(1,853
)
Policyholder account balances:
 
 
 
Deposits and other additions
1,532

 
1,514

Net transfers from (to) separate accounts
113

 
(141
)
Surrenders and other benefits
(1,448
)
 
(2,169
)
Cash paid for purchased options with deferred premiums
(256
)
 
(305
)
Cash received from purchased options with deferred premiums
242

 
8

Issuance of long-term debt
495

 

Repayments of long-term debt
(254
)
 
(41
)
Dividends paid to shareholders
(361
)
 
(348
)
Repurchase of common shares
(1,319
)
 
(1,293
)
Exercise of stock options
6

 
14

Excess tax benefits from share-based compensation
8

 
70

Borrowings by consolidated investment entities

 
1,583

Repayments of debt by consolidated investment entities
(134
)
 
(405
)
Noncontrolling interests investments in subsidiaries

 
225

Distributions to noncontrolling interests

 
(342
)
Other, net

 
(1
)
Net cash used in financing activities
(568
)
 
(1,302
)
Effect of exchange rate changes on cash
(53
)
 
(12
)
Net increase in cash and cash equivalents
718

 
142

Cash and cash equivalents at beginning of period
2,357

 
2,638

Cash and cash equivalents at end of period
$
3,075

 
$
2,780

 
 
 
 
Supplemental Disclosures:
 
 

Interest paid excluding consolidated investment entities
$
121

 
$
122

Interest paid by consolidated investment entities
74

 
175

Income taxes paid, net
201

 
245

Non-cash investing activity:
 
 
 
Partnership commitments not yet remitted
75

 
9

See Notes to Consolidated Financial Statements.


8


AMERIPRISE FINANCIAL, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
1.  Basis of Presentation
Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations of Ameriprise Financial, Inc. are conducted primarily through Threadneedle Asset Management Holdings Sàrl and Ameriprise Asset Management Holdings GmbH (collectively, “Threadneedle”).
The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). All intercompany transactions and balances have been eliminated in consolidation. Effective January 1, 2016, the Company adopted ASU 2015-02 - Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”) and deconsolidated several collateralized loan obligations (“CLOs”) and all previously consolidated property funds. The income or loss generated by consolidated entities which will not be realized by the Company’s shareholders is attributed to noncontrolling interests in the Consolidated Statements of Operations. Noncontrolling interests are the ownership interests in subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc. and are classified as equity within the Consolidated Balance Sheets. The Company, excluding noncontrolling interests, is defined as “Ameriprise Financial.” Upon adoption of ASU 2015-02, the Company no longer has noncontrolling interests primarily due to the deconsolidation of property funds. See Note 2 and Note 3 for additional information on recently adopted accounting pronouncements and VIEs.
The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. Except for the adjustment described below, all adjustments made were of a normal recurring nature.
In the third quarter of 2016, the Company recorded a $29 million increase to long term care (“LTC”) reserves for an out-of-period correction related to its claim utilization assumption. The impact to prior period financial statements was not material.
The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2016.
The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions were identified.
2.  Recent Accounting Pronouncements
Adoption of New Accounting Standards
Fair Value Measurement Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
In May 2015, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to fair value measurement. The update applies to investments that are measured at net asset value (“NAV”). The standard eliminates the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share as a practical expedient. In addition, the update limits disclosures about the nature and risks of the investments to investments for which the entity elected to measure the fair value using the practical expedient rather than all investments that are eligible for the NAV practical expedient. The standard is effective for interim and annual periods beginning after December 15, 2015. The Company adopted the standard on January 1, 2016 on a retrospective basis to all periods presented. There was no impact of the standard to the Company’s consolidated results of operations and financial condition.
Interest – Imputation of Interest
In April 2015, the FASB updated the accounting standards related to debt issuance costs. The update requires that debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of debt. The update does not impact the measurement or recognition of debt issuance costs. In August 2015, the FASB updated the guidance to allow companies to make a policy election to exclude debt issuance costs for line-of-credit arrangements from the standard. The standard is effective for interim and annual periods beginning after December 15, 2015. The Company adopted the standard on January 1, 2016 on a retrospective basis to all periods presented. The reclassification did not have a material impact on the Company’s consolidated financial condition. There was no impact of the standard to the Company’s consolidated results of operations.
Consolidation
In February 2015, the FASB updated the accounting standard for consolidation. The update changes the accounting for the consolidation model for limited partnerships and VIEs and excludes certain money market funds from the consolidation analysis. Specific to the consolidation analysis of a VIE, the update clarifies consideration of fees paid to a decision maker and amends the related party guidance. The standard is effective for periods beginning after December 15, 2015. The Company adopted the standard

9


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


on January 1, 2016 using the modified retrospective approach. The adoption resulted in the deconsolidation of several CLOs and all previously consolidated property funds with a decrease of approximately $6.2 billion of assets, $4.9 billion of liabilities and $1.3 billion of equity (noncontrolling interests and appropriated retained earnings of consolidated investment entities). Effective January 1, 2016, intercompany amounts between the Company and the deconsolidated CLOs and property funds are no longer eliminated in consolidation.
In August 2014, the FASB updated the accounting standard related to consolidation of collateralized financing entities. The update applies to reporting entities that consolidate a collateralized financing entity and measures all financial assets and liabilities of the collateralized financing entity at fair value. The update provides a measurement alternative which would allow an entity to measure both the financial assets and financial liabilities at the fair value of the more observable of the fair value of the financial assets or financial liabilities. When the measurement alternative is elected, the reporting entity’s net income should reflect its own economic interests in the collateralized financing entity, including changes in the fair value of the beneficial interests retained by the reporting entity and beneficial interests that represent compensation for services. If the measurement alternative is not elected, the financial assets and financial liabilities should be measured separately in accordance with the requirements of the fair value accounting standard. Any difference in the fair value of the assets and liabilities would be recorded to net income attributable to the reporting entity. The standard is effective for interim and annual periods beginning after December 15, 2015. The Company adopted the standard on January 1, 2016 and elected the measurement alternative using the modified retrospective approach. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations and financial condition after the deconsolidation of several CLOs noted above.
Compensation – Stock Compensation
In June 2014, the FASB updated the accounting standards related to stock compensation. The update clarifies the accounting for share-based payments with a performance target that could be achieved after the requisite service period. The update specifies the performance target should not be reflected in estimating the grant-date fair value of the award. Instead, the probability of achieving the performance target should impact vesting of the award. The standard is effective for interim and annual periods beginning after December 15, 2015. The Company adopted the standard on January 1, 2016. The adoption did not have a material impact on the Company’s consolidated results of operations and financial condition.
Future Adoption of New Accounting Standards
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB updated the accounting standards related to classification of certain cash receipts and cash payments on the statement of cash flows. The update includes amendments to address diversity in practice for the classification of eight specific cash flow activities. The specific amendments the Company is evaluating include the classification of debt prepayment and extinguishment costs, contingent consideration payments, proceeds from insurance settlements and corporate owned life insurance settlements, distributions from equity method investees and the application of the predominance principle to separately identifiable cash flows. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted and all amendments must be adopted during the same period. The Company is currently evaluating the impact of the standard, but does not expect adoption of the standard to have a material impact on its consolidated cash flows.
Financial Instruments - Measurement of Credit Losses
In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. Generally, the initial estimate of the expected credit losses and subsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the balance sheet. The current credit loss model for Available-for-Sale debt securities does not change; however, the credit loss calculation and subsequent recoveries are required to be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption will be permitted for interim and annual periods beginning after December 15, 2018. A modified retrospective cumulative adjustment to retained earnings should be recorded as of the first reporting period in which the guidance is effective for loans, receivables, and other financial instruments subject to the new expected credit loss model. Prospective adoption is required for establishing an allowance related to Available-for-Sale debt securities, certain beneficial interests, and financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Compensation – Stock Compensation
In March 2016, the FASB updated the accounting standards related to employee share-based payments. The update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. This change is required to be applied prospectively to excess tax benefits and tax deficiencies resulting from settlements after the date of adoption. No adjustment is recorded for any excess tax benefits or tax deficiencies previously recorded in additional paid in capital. The update also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. This provision can be applied on either a prospective or retrospective basis. The update permits entities to make an accounting

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AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


policy election to recognize forfeitures as they occur rather than estimating forfeitures to determine the recognition of expense for share-based payment awards. If elected, this provision is required to be adopted on a modified retrospective approach. The update also changes the limit of the amount withheld upon settlement of an award to satisfy the employer’s tax withholding requirement without causing the award to be classified as a liability. Under current guidance, the amount is limited to the employer’s minimum statutory tax withholding requirement. The update allows entities to withhold an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction. This provision is required to be adopted using a modified retrospective approach, with a cumulative effect adjustment to opening retained earnings for any outstanding liability awards that qualify for equity classification under the update. The standard is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. During periods in which the settlement date fair value differs materially from the grant date fair value of certain share-based payment awards, the Company may experience volatility in income tax recognized in its consolidated results of operations. The Company does not expect the adoption of the standard to have a material impact on its consolidated financial condition or cash flows.
Leases - Recognition of Lease Assets and Liabilities on Balance Sheet
In February 2016, the FASB updated the accounting standards for leases. The update was issued to increase transparency and comparability for the accounting of lease transactions. The standard will require most lease transactions for lessees to be recorded on the balance sheet as lease assets and lease liabilities and both quantitative and qualitative disclosures about leasing arrangements. The standard is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The update should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for certain provisions. Generally, the update should be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Insurance – Disclosure about Short-Duration Contracts
In May 2015, the FASB updated the accounting standard for short-duration insurance contracts. The update requires enhanced disclosures about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, methodologies and judgements in estimating claims and the timing, frequency and severity of claims. The standard is effective for annual periods beginning after December 15, 2015 and interim periods within annual periods beginning after December 15, 2016 with early adoption permitted. The disclosures should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. There will be no impact of the standard on the Company’s consolidated results of operations and financial condition.
Revenue from Contracts with Customers
In May 2014, the FASB updated the accounting standards for revenue from contracts with customers. The update provides a five step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract and requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Subsequent related updates provide clarification on certain revenue recognition guidance in the new standard. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for interim and annual periods beginning after December 15, 2016. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company is currently evaluating the impact of the standard on its consolidated results of operations, financial condition and disclosures.
3.  Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds, property funds, certain international series funds (Open Ended Investment Companies and Societes d’Investissement A Capital Variable) and private equity funds (collectively, “investment entities”), which are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates certain investment entities (collectively, “consolidated investment entities”). If the Company is deemed to be the primary beneficiary, it will consolidate the VIE.

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AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its investment nor has the Company provided any support to these entities. The carrying value of the Company’s investment in these entities, if any, is included in investments on the Consolidated Balance Sheets.
Principles of Consolidation
Effective January 1, 2016, the Company adopted ASU 2015-02 using the modified retrospective approach. See Note 2 for additional information on the adoption impact.
A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest (including substantive voting rights, the obligation to absorb the entity’s losses, or the rights to receive the entity’s returns) or has equity investors that do not provide sufficient financial resources for the entity to support its activities.
Voting interest entities (“VOEs”) are those entities that do not qualify as a VIE. The Company consolidates VOEs in which it holds a greater than 50% voting interest. The Company generally accounts for entities using the equity method when it holds a greater than 20% but less than 50% voting interest or when the Company exercises significant influence over the entity. All other investments that are not reported at fair value as trading or Available-for-Sale securities are accounted for under the cost method when the Company owns less than a 20% voting interest and does not exercise significant influence.
Pre-adoption of ASU 2015-02
A VIE that meets one of these criteria is assessed for consolidation under one of the following models:
If the VIE is a registered money market fund, or is an investment company, or has the financial characteristics of an investment company, and the following are true:
(i)
the reporting entity does not have an explicit or implicit obligation to fund the investment company’s losses; and
(ii)
the investment company is not a securitization entity, asset backed financing entity, or an entity previously considered a qualifying special purpose entity,
then, the VIE will be consolidated by the entity that determines it stands to absorb a majority of the VIE’s expected losses or to receive a majority of the VIE’s expected residual returns. Entities that are assessed for consolidation under this framework include hedge funds, property funds, private equity funds, international series funds and venture capital funds.
When determining whether the Company will absorb the majority of a VIE’s expected losses or receive a majority of a VIE’s expected returns, it analyzes the purpose and design of the VIE and identifies the variable interests it holds including those of related parties and de facto agents of the Company. The Company then quantitatively determines whether its variable interests will absorb a majority of the VIE’s expected losses or residual returns. If the Company will absorb the majority of the VIE’s expected losses or residual returns, the Company consolidates the VIE.
If the VIE does not meet the criteria above, then the VIE will be consolidated by the reporting entity that determines it has both:
(i)
the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and
(ii)
the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Entities that are assessed for consolidation under this framework include asset-backed financing entities such as CLOs and investments in qualified affordable housing partnerships.
When evaluating entities for consolidation under this framework, the Company considers its contractual rights in determining whether it has the power to direct the activities of the VIE that most significantly impact the VIEs economic performance. In determining whether the Company has this power, it considers whether it is acting as an asset manager enabling it to direct the activities that most significantly impact the economic performance of an entity or if it is acting in a more passive role such as a limited partner without substantive rights to impact the economic performance of the entity.
In determining whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers an analysis of its rights to receive benefits such as management and incentive fees and investment returns and its obligation to absorb losses associated with any investment in the VIE in conjunction with other qualitative factors.
Post-adoption of ASU 2015-02
A VIE will be consolidated by the reporting entity that determines it has both:
the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and
the obligation to absorb potentially significant losses or the right to receive potentially significant benefits to the VIE.
All VIEs are assessed for consolidation under this framework. When evaluating entities for consolidation, the Company considers its contractual rights in determining whether it has the power to direct the activities of the VIE that most significantly impact the VIEs economic performance. In determining whether the Company has this power, it considers whether it is acting in a role that enables it to

12


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


direct the activities that most significantly impact the economic performance of an entity or if it is acting in an agent role.
In determining whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers an analysis of its rights to receive benefits such as investment returns and its obligation to absorb losses associated with any investment in the VIE in conjunction with other qualitative factors. Management and incentive fees that are at market and commensurate with the level of services provided, and where the Company does not hold other interests in the VIE that would absorb more than an insignificant amount of the VIE’s expected losses or receive more than an insignificant amount of the VIE’s expected residual returns, are not considered a variable interest and are excluded from the analysis.
The updated guidance has a scope exception for reporting entities with interests in registered money market funds which do not have an explicit support agreement.
CLOs
CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO’s debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO’s collateral pool. The Company earns management fees from the CLOs based on the CLO’s collateral pool and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes of certain CLOs.
Prior to adoption of ASU 2015-02, the Company considered management fees and incentive fees to be variable interests in the determination as to whether the Company had the obligation to absorb potentially significant losses or the right to receive potentially significant benefits to the VIE (significant economics) and therefore consolidated all CLOs it managed except one. The Company did not have an investment in the non-consolidated CLO. Subsequent to adoption, the fees earned from the CLOs, which are at market and commensurate with the level of effort required to provide those services, are excluded in consideration of significant economics. As a result of excluding these fees, the Company deconsolidated certain CLOs as its ownership interest was not considered significant. See Note 2 for additional information on the adoption impact.
The Company's maximum exposure to loss with respect to non-consolidated CLOs is limited to its amortized cost, which was $10 million as of September 30, 2016. The Company classifies these investments as Available-for-Sale securities. See Note 4 for additional information on these investments.
Property Funds
The Company provides investment advice and related services to property funds, which are considered VIEs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. Prior to adoption, the Company determined that consolidation was required for certain property funds as the Company was deemed to be a de facto agent of the third-party investors and required to consider their interest as its own. Subsequent to adoption, the Company deconsolidated all property funds. The Company is no longer required to consider the interest of the third-party investors as its own as the third-party investors are not under common control or a related party of the Company. As a result of excluding the interest of the third-party investors, the Company does not have significant economics and is not required to consolidate the property funds. See Note 2 for additional information on the adoption impact. The carrying value of the Company’s investment in property funds is reflected in other investments and was $28 million at September 30, 2016.
Hedge Funds and Private Equity Funds
The Company has determined that consolidation is not required for hedge funds and private equity funds which are sponsored by the Company and considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company's maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in these entities is reflected in other investments and was $13 million and $29 million at September 30, 2016 and December 31, 2015, respectively.
International Series Funds
The Company manages international series funds, which are considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not consolidate these funds and its maximum exposure to loss is limited to its carrying value. The carrying value of the Company’s investment in these funds is reflected in other assets and was $39 million as of September 30, 2016.

13


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Affordable Housing Partnerships and Other Real Estate Partnerships
The Company has variable interests in certain affordable housing partnerships for which it is not the primary beneficiary and therefore does not consolidate. The Company’s maximum exposure to loss as a result of its investments in affordable housing partnerships is limited to the carrying value of these investments. The carrying value of the Company’s investment in affordable housing partnerships is reflected in other investments and was $544 million and $517 million at September 30, 2016 and December 31, 2015, respectively.
The Company has variable interests in a partnership that invests in properties that may requalify for low income tax credits. The Company is not the primary beneficiary and therefore does not consolidate the partnership. The Company’s maximum exposure to loss as a result of its investment in the partnership is limited to the carrying value of the investment, which is reflected in other investments and was $10 million at September 30, 2016.
Structured Investments
The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company’s investment in the entities and position in the capital structure of these entities. The Company's maximum exposure to loss as a result of its investment in these structured investments is limited to its carrying value. See Note 4 for additional information on these structured investments.
Fair Value of Assets and Liabilities
The Company has elected the fair value option for the financial assets and liabilities of the consolidated CLOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CLOs.
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 10 for the definition of the three levels of the fair value hierarchy.
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
September 30, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$

 
$
59

 
$

 
$
59

Common stocks
1

 
17

 
3

 
21

Other investments
5

 
3

 

 
8

Syndicated loans

 
2,289

 
196

 
2,485

Total investments
6

 
2,368

 
199

 
2,573

Receivables

 
14

 

 
14

Other assets

 

 
1

 
1

Total assets at fair value
$
6

 
$
2,382

 
$
200

 
$
2,588

Liabilities
 

 
 

 
 

 
 

Debt (1)
$

 
$
2,710

 
$

 
$
2,710

Other liabilities

 
112

 

 
112

Total liabilities at fair value
$

 
$
2,822

 
$

 
$
2,822

(1) As the Company elected the measurement alternative effective January 1, 2016, the carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. See Note 2 and below for additional discussion on the measurement alternative. The estimated fair value of the CLOs’ debt was $2.6 billion at September 30, 2016.

14


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets
 

 
 

 
 

 
 

Investments:
 

 
 

 
 

 
 

Corporate debt securities
$

 
$
154

 
$

 
$
154

Common stocks
74

 
46

 
3

 
123

Other investments
4

 
22

 

 
26

Syndicated loans

 
5,738

 
529

 
6,267

Total investments
78

 
5,960

 
532

 
6,570

Receivables

 
70

 

 
70

Other assets

 

 
2,065

 
2,065

Total assets at fair value
$
78

 
$
6,030

 
$
2,597

 
$
8,705

Liabilities
 

 
 

 
 

 
 

Debt
$

 
$

 
$
6,630

 
$
6,630

Other liabilities

 
221

 

 
221

Total liabilities at fair value
$

 
$
221

 
$
6,630

 
$
6,851

The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
(in millions)
Balance, July 1, 2016
$
1

 
$
243

 
$
1

Total gains included in:
 
 
 
 
 
Net income

 
2

(1) 

Purchases
1

 
50

 

Sales

 
(10
)
 

Settlements

 
(26
)
 

Transfers into Level 3
1

 
57

 

Transfers out of Level 3

 
(120
)
 

Balance, September 30, 2016
$
3

 
$
196

 
$
1

 
Changes in unrealized gains included in income relating to assets held at September 30, 2016
$

 
$
2

(1) 
$

(1) Included in net investment income in the Consolidated Statements of Operations.

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AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance, July 1, 2015
$
11

 
$
457

 
$
1,979

 
$
(6,487
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
Net income

 
(8
)
(1) 
24

(2) 
67

(1) 
Other comprehensive loss

 

 
(61
)
 

 
Purchases

 
101

 
193

 

 
Sales

 
(5
)
 
(6
)
 

 
Issues

 

 

 
(699
)
 
Settlements

 
(32
)
 

 
143

 
Transfers into Level 3

 
136

 

 

 
Transfers out of Level 3
(5
)
 
(195
)
 

 

 
Balance, September 30, 2015
$
6

 
$
454

 
$
2,129

 
$
(6,976
)
 
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2015
$

 
$
(9
)
(1) 
$
26

(2) 
$
67

(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
(in millions)
Balance at January 1, 2016, previously reported
$
3

 
$
529

 
$
2,065

 
$
(6,630
)
Cumulative effect of change in accounting policies (3)
(2
)
 
(304
)
 
(2,065
)
 
6,630

Balance at January 1, 2016, as adjusted
1

 
225

 

 

Total gains included in:
 
 
 
 
 
 
 
Net income

 
1

(1) 
1

(2) 

Purchases
1

 
100

 

 

Sales

 
(11
)
 

 

Settlements

 
(51
)
 

 

Transfers into Level 3
3

 
286

 

 

Transfers out of Level 3
(2
)
 
(354
)
 

 

Balance, September 30, 2016
$
3

 
$
196

 
$
1

 
$

 
Changes in unrealized gains included in income relating to assets and liabilities held at September 30, 2016
$

 
$
1

(1) 
$

 
$

(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
(3) The cumulative effect of change in accounting policies includes the adoption impact of ASU 2015-02 and ASU 2014-13 - Consolidation: Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”).


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AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
Debt
 
 
(in millions)
  
Balance at January 1, 2015
$
7

 
$
484

 
$
1,935

 
$
(6,030
)
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
Net income
(1
)
(1) 
(8
)
(1) 
122

(2) 
96

(1) 
Other comprehensive loss

 

 
(54
)
 

 
Purchases

 
257

 
539

 

 
Sales

 
(23
)
 
(413
)
 

 
Issues

 

 

 
(1,268
)
 
Settlements

 
(105
)
 

 
226

 
Transfers into Level 3
5

 
523

 

 

 
Transfers out of Level 3
(5
)
 
(674
)
 

 

 
Balance, September 30, 2015
$
6

 
$
454

 
$
2,129

 
$
(6,976
)
 
 
Changes in unrealized gains (losses) included in income relating to assets and liabilities held at September 30, 2015
$

 
$
(11
)
(1) 
$
26

(2) 
$
96

(1) 
(1) Included in net investment income in the Consolidated Statements of Operations.
(2) Included in other revenues in the Consolidated Statements of Operations.
Securities and loans transferred from Level 2 to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. Securities and loans transferred from Level 3 to Level 2 represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. During the reporting periods, there were no transfers between Level 1 and Level 2.
The following table provides a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities held by consolidated investment entities at December 31, 2015:
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range 
 
Weighted Average
 
(in millions)
Other assets (property funds)
$
2,060

 
Discounted cash flow / market comparables
 
Equivalent yield
 
2.6
%
11.5%
 
5.8
%
 
 

 
 
 
Expected rental value (per square foot)
 
$3
$159
 
$51
CLO debt
$
6,630

 
Discounted cash flow
 
Annual default rate
 
2.5%
 
 
 
 

 
 
 
Discount rate
 
2.0
%
11.8%
 
3.4
%
 
 

 
 
 
Constant prepayment rate
 
5.0
%
10.0%
 
9.9
%
 
 
 
 
 
Loss recovery
 
36.4
%
63.6%
 
62.9
%
Level 3 measurements at December 31, 2015 not included in the table above and all Level 3 measurements at September 30, 2016 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Generally, a significant increase (decrease) in the expected rental value used in the fair value measurement of properties held by property funds in isolation would result in a significantly higher (lower) fair value measurement and a significant increase (decrease) in the equivalent yield in isolation would result in a significantly lower (higher) fair value measurement.
Generally, a significant increase (decrease) in the annual default rate and discount rate used in the fair value measurement of the CLO’s debt in isolation would result in a significantly lower (higher) fair value measurement and a significant increase (decrease) in loss recovery in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the constant prepayment rate in isolation would result in a significantly higher (lower) fair value measurement.

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AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Determination of Fair Value
Assets
Investments
The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies loans with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of the third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
See Note 10 for a description of the Company’s determination of the fair value of corporate debt securities, U.S. government and agencies obligations, common stocks and other investments.
Receivables
For receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
Other Assets
At December 31, 2015, other assets primarily consisted of properties held in consolidated property funds managed by Threadneedle and were classified as Level 3. The property funds were deconsolidated effective January 1, 2016 upon the adoption of ASU 2015-02.
The consolidated CLOs hold an immaterial amount of stock warrants recorded in other assets. Warrants are classified as Level 2 when the price is derived from observable market data. Warrants from an issuer whose securities are not priced in active markets are classified as Level 3.
Liabilities
Debt
Effective January 1, 2016, the Company adopted ASU 2014-13 and elected the measurement alternative, which allows an entity to measure both the financial assets and financial liabilities at the fair value of the more observable of the fair value of the financial assets or financial liabilities. See Note 2 for additional information on ASU 2014-13. The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches for which market activity is limited and less transparent. As a result, the fair value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. Under ASU 2014-13, the fair value of the CLOs’ debt is classified as Level 2.
Prior to adoption of ASU 2014-13, the fair value of the CLOs’ debt was determined using a discounted cash flow model. Inputs used to determine the expected cash flows included assumptions about default, discount, prepayment and recovery rates of the CLOs’ underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the CLOs’ debt was classified as Level 3 prior to adoption of ASU 2014-13.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2.

18


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Fair Value Option
The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
 
September 30,
2016
 
December 31, 2015
 
(in millions)
Syndicated loans
 

 
 

Unpaid principal balance
$
2,607

 
$
6,635

Excess unpaid principal over fair value
(122
)
 
(368
)
Fair value
$
2,485

 
$
6,267

Fair value of loans more than 90 days past due
$
32

 
$
24

Fair value of loans in nonaccrual status
32

 
24

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
57

 
72

 
 
 
 
Debt
 

 
 

Unpaid principal balance
$
2,841

 
$
7,063

Excess unpaid principal over carrying value
(131
)
 
(433
)
Carrying value
$
2,710

(1) 
$
6,630

(1) As the Company elected the measurement alternative effective January 1, 2016, the carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. See Note 2 and above for additional discussion on the measurement alternative. The estimated fair value of the CLOs’ debt was $2.6 billion at September 30, 2016.
Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are also recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.
Total net losses recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were nil and $61 million for the three months ended September 30, 2016 and 2015, respectively.
Total net losses recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $5 million and $32 million for the nine months ended September 30, 2016 and 2015, respectively.
Debt of the consolidated investment entities and the stated interest rates were as follows:
 
Carrying Value
 
Weighted Average Interest Rate
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
 
(in millions)
 
 
 
 
Debt of consolidated CLOs due 2019-2026
$
2,710

 
$
6,630

 
2.2
%
 
1.6
%
Floating rate revolving credit borrowings due 2017-2020

(1) 
901

 

 
2.8

Total
$
2,710

 
$
7,531

 
 

 
 

(1) The property funds were deconsolidated effective January 1, 2016 upon adoption of ASU 2015-02.
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0% to 9.2%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.
The carrying value of the floating rate revolving credit borrowings represents the outstanding principal amount of debt of certain consolidated property funds. The fair value of this debt was $901 million as of December 31, 2015. The property funds have entered into interest rate swaps and collars to manage the interest rate exposure on the floating rate revolving credit borrowings. The fair value of these derivative instruments is recorded gross and was a liability of $8 million at December 31, 2015. The overall effective interest rate reflecting the impact of the derivative contracts was 3.2% at December 31, 2015.

19


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


4.  Investments
The following is a summary of Ameriprise Financial investments:
 
September 30,
2016
 
December 31,
2015
 
(in millions)
Available-for-Sale securities, at fair value
$
30,799

 
$
28,673

Mortgage loans, net
2,974

 
3,359

Policy and certificate loans
835

 
824

Other investments
1,267

 
1,288

Total
$
35,875

 
$
34,144

The following is a summary of net investment income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Investment income on fixed maturities
$
342

 
$
346

 
$
1,028

 
$
1,055

Net realized gains (losses)
6

 
(10
)
 
(5
)
 
5

Affordable housing partnerships
(17
)
 
(7
)
 
(35
)
 
(25
)
Other
25

 
(10
)
 
13

 
32

Consolidated investment entities
31

 
2

 
89

 
161

Total
$
387

 
$
321

 
$
1,090

 
$
1,228

Available-for-Sale securities distributed by type were as follows:
 
 
September 30, 2016
Description of Securities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
15,092

 
$
1,499

 
$
(39
)
 
$
16,552

 
$
3

Residential mortgage backed securities
 
6,759

 
145

 
(42
)
 
6,862

 
(5
)
Commercial mortgage backed securities
 
2,960

 
130

 
(1
)
 
3,089

 

Asset backed securities
 
1,471

 
42

 
(9
)
 
1,504

 
5

State and municipal obligations
 
2,191

 
310

 
(13
)
 
2,488

 

U.S. government and agencies obligations
 
9

 
1

 

 
10

 

Foreign government bonds and obligations
 
251

 
28

 
(4
)
 
275

 

Common stocks
 
8

 
11

 

 
19

 
5

Total
 
$
28,741

 
$
2,166

 
$
(108
)
 
$
30,799

 
$
8


20


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
 
December 31, 2015
Description of Securities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
 
(in millions)
Corporate debt securities
 
$
15,750

 
$
894

 
$
(296
)
 
$
16,348

 
$
3

Residential mortgage backed securities
 
5,933

 
106

 
(66
)
 
5,973

 
(12
)
Commercial mortgage backed securities
 
2,400

 
70

 
(14
)
 
2,456

 

Asset backed securities
 
1,273

 
34

 
(11
)
 
1,296

 

State and municipal obligations
 
2,105

 
213

 
(28
)
 
2,290

 

U.S. government and agencies obligations
 
66

 
2

 

 
68

 

Foreign government bonds and obligations
 
218

 
17

 
(11
)
 
224

 

Common stocks
 
7

 
11

 

 
18

 
5

Total
 
$
27,752

 
$
1,347

 
$
(426
)
 
$
28,673

 
$
(4
)
(1) 
Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income (“AOCI”). Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.
As of September 30, 2016 and December 31, 2015, investment securities with a fair value of $1.2 billion and $1.0 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $260 million and $478 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
At September 30, 2016 and December 31, 2015, fixed maturity securities comprised approximately 86% and 84%, respectively, of Ameriprise Financial investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or, if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. At September 30, 2016 and December 31, 2015, the Company’s internal analysts rated $1.1 billion and $1.3 billion, respectively, of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
 
 
September 30, 2016
 
December 31, 2015
Ratings
 
Amortized Cost
 
Fair Value
 
Percent of 
Total Fair Value
 
Amortized Cost
 
Fair Value
 
Percent of 
Total Fair Value
 
 
(in millions, except percentages)
AAA
 
$
8,669

 
$
8,929

 
29
%
 
$
7,147

 
$
7,289

 
25
%
AA
 
1,764

 
2,032