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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, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 20, 2017
Common Stock (par value $.01 per share)
 
147,930,011 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, 2017 and 2016
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2017 and 2016
Consolidated Balance Sheets — September 30, 2017 and December 31, 2016
Consolidated Statements of Equity — Nine months ended September 30, 2017 and 2016
Consolidated Statements of Cash Flows — Nine months ended September 30, 2017 and 2016
Notes to Consolidated Financial Statements
1. Basis of Presentation
2. Recent Accounting Pronouncements
3. Variable Interest Entities
4. Investments
5. Financing Receivables
6. Deferred Acquisition Costs and Deferred Sales Inducement Costs
7. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
8. Variable Annuity and Insurance Guarantees
9. Debt
10. Fair Values of Assets and Liabilities
11. Offsetting Assets and Liabilities
12. Derivatives and Hedging Activities
13. Shareholders’ Equity
14. Income Taxes
15. Contingencies
16. Earnings per Share
17. Segment Information
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Item 4.  Controls and Procedures
 
 
Part II.  Other Information
Item 1.  Legal Proceedings
Item 1A.  Risk Factors
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.  Exhibits
Signatures

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,
2017
 
2016
2017
 
2016
(in millions, except per share amounts) 
Revenues
Management and financial advice fees
$
1,626

 
$
1,464

 
$
4,669

 
$
4,289

Distribution fees
437

 
455

 
1,310

 
1,338

Net investment income
372

 
387

 
1,154

 
1,090

Premiums
348

 
374

 
1,035

 
1,114

Other revenues
210

 
330

 
733

 
832

Total revenues
2,993

 
3,010

 
8,901

 
8,663

Banking and deposit interest expense
12

 
12

 
34

 
29

Total net revenues
2,981

 
2,998

 
8,867

 
8,634

Expenses
Distribution expenses
850

 
798

 
2,505

 
2,371

Interest credited to fixed accounts
176

 
161

 
509

 
465

Benefits, claims, losses and settlement expenses
474

 
855

 
1,652

 
1,934

Amortization of deferred acquisition costs
48

 
163

 
189

 
360

Interest and debt expense
52

 
52

 
154

 
160

General and administrative expense
753

 
731

 
2,244

 
2,221

Total expenses
2,353

 
2,760

 
7,253

 
7,511

Pretax income
628

 
238

 
1,614

 
1,123

Income tax provision
125

 
23

 
315

 
209

Net income
$
503

 
$
215

 
$
1,299

 
$
914

 
Earnings per share
Basic
$
3.29

 
$
1.31

 
$
8.37

 
$
5.43

Diluted
$
3.24

 
$
1.30

 
$
8.24

 
$
5.37

 
Cash dividends declared per common share
$
0.83

 
$
0.75

 
$
2.41

 
$
2.17

 
Supplemental Disclosures:
Total other-than-temporary impairment losses on securities
$

 
$

 
$
(1
)
 
$
(2
)
Portion of loss recognized in other comprehensive income (before taxes)

 

 

 
1

Net impairment losses recognized in net investment income
$

 
$

 
$
(1
)
 
$
(1
)
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,
2017
 
2016
2017
 
2016
(in millions) 
Net income
$
503

 
$
215

 
$
1,299

 
$
914

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
16

 
(16
)
 
46

 
(55
)
Net unrealized gains (losses) on securities
(4
)
 
(28
)
 
60

 
382

Net unrealized gains (losses) on derivatives
1

 
1

 
2

 
3

Defined benefit plans

 

 
5

 
6

Other

 

 
(1
)
 

Total other comprehensive income (loss), net of tax
13

 
(43
)
 
112

 
336

Total comprehensive income
$
516

 
$
172

 
$
1,411

 
$
1,250

See Notes to Consolidated Financial Statements.


4


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
September 30,
2017
 
December 31, 2016
(in millions, except share amounts)
Assets
Cash and cash equivalents
$
2,398

 
$
2,318

Cash of consolidated investment entities
106

 
168

Investments
36,202

 
35,834

Investments of consolidated investment entities, at fair value
2,215

 
2,254

Separate account assets
85,287

 
80,210

Receivables
5,742

 
5,299

Receivables of consolidated investment entities, at fair value
9

 
11

Deferred acquisition costs
2,661

 
2,648

Restricted and segregated cash and investments
3,131

 
3,331

Other assets
7,735

 
7,748

Total assets
$
145,486

 
$
139,821

 
Liabilities and Equity
Liabilities:
Policyholder account balances, future policy benefits and claims
$
29,963

 
$
30,202

Separate account liabilities
85,287

 
80,210

Customer deposits
10,427

 
10,036

Short-term borrowings
201

 
200

Long-term debt
2,902

 
2,917

Debt of consolidated investment entities, at fair value
2,267

 
2,319

Accounts payable and accrued expenses
1,728

 
1,727

Other liabilities
6,363

 
5,823

Other liabilities of consolidated investment entities, at fair value
43

 
95

Total liabilities
139,181

 
133,529

Equity:
Ameriprise Financial, Inc.:
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 327,007,785 and 324,006,315, respectively)
3

 
3

Additional paid-in capital
8,017

 
7,765

Retained earnings
11,271

 
10,351

Treasury shares, at cost (178,670,257 and 169,246,411 shares, respectively)
(13,298
)
 
(12,027
)
Accumulated other comprehensive income, net of tax
312

 
200

Total equity
6,305

 
6,292

Total liabilities and equity
$
145,486

 
$
139,821

See Notes to Consolidated Financial Statements.

5


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
 
Ameriprise Financial, Inc.
Non-controlling Interests
Total
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
(in millions, except share data) 
Balances at January 1, 2016 (1)
171,033,260
 
$
3
 
$
7,611
 
$
9,525
 
$
137
 
$
(10,338
)
$
253
 
$
7,191
 
$
1,188
 
$
8,379
 
Cumulative effect of change in accounting policies
 
 
 
1
 
(137
)
 
6
 
(130
)
(1,188
)
(1,318
)
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 (1)
158,496,336
 
$
3
 
$
7,709
 
$
10,072
 
$
 
$
(11,609
)
$
595
 
$
6,770
 
$
 
$
6,770
 
 
Balances at January 1, 2017
154,759,904
 
$
3
 
$
7,765
 
$
10,351
 
$
 
$
(12,027
)
$
200
 
$
6,292
 
$
 
$
6,292
 
Comprehensive income:
Net income
 
 
 
1,299
 
 
 
 
1,299
 
 
1,299
 
Other comprehensive income, net of tax
 
 
 
 
 
 
112
 
112
 
 
112
 
Total comprehensive income
1,411
 
 
1,411
 
Dividends to shareholders
 
 
 
(379
)
 
 
 
(379
)
 
(379
)
Repurchase of common shares
(10,184,145
)
 
 
 
 
(1,323
)
 
(1,323
)
 
(1,323
)
Share-based compensation plans
3,761,769
 
 
252
 
 
 
52
 
 
304
 
 
304
 
Balances at September 30, 2017
148,337,528
 
$
3
 
$
8,017
 
$
11,271
 
$
 
$
(13,298
)
$
312
 
$
6,305
 
$
 
$
6,305
 
(1) Prior period retained earnings were restated in the fourth quarter of 2016. See Note 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
See Notes to Consolidated Financial Statements.

6


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
 
September 30,
 
2017
 
2016
 
(in millions)
 
Cash Flows from Operating Activities
 
Net income
$
1,299

 
$
914

 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
Depreciation, amortization and accretion, net
176

 
187

 
Deferred income tax expense (benefit)
(58
)
 
(47
)
 
Share-based compensation
91

 
101

 
Net realized investment (gains) losses
(37
)
 
(1
)
 
Net trading (gains) losses
(5
)
 
(5
)
 
Loss from equity method investments
41

 
45

 
Net losses of consolidated investment entities
3

 
5

 
Changes in operating assets and liabilities:
 
Restricted and segregated investments
1

 
200

 
Deferred acquisition costs
(31
)
 
86

 
Other investments, net
(139
)
 
9

 
Policyholder account balances, future policy benefits and claims, net
(353
)
 
1,172

 
Derivatives, net of collateral
589

 
(676
)
 
Receivables
(445
)
 
(177
)
 
Brokerage deposits
(47
)
 
3

 
Accounts payable and accrued expenses
(19
)
 
(24
)
 
Other operating assets and liabilities of consolidated investment entities, net

 
(9
)
 
Other, net
113

 
239

 
Net cash provided by (used in) operating activities
1,179

 
2,022

 
 
 
Cash Flows from Investing Activities
 
Available-for-Sale securities:
 
Proceeds from sales
335

 
322

 
Maturities, sinking fund payments and calls
3,583

 
3,379

 
Purchases
(3,722
)
 
(4,666
)
 
Proceeds from sales, maturities and repayments of mortgage loans
348

 
705

 
Funding of mortgage loans
(372
)
 
(334
)
 
Proceeds from sales and collections of other investments
211

 
131

 
Purchase of other investments
(351
)
 
(144
)
 
Purchase of investments by consolidated investment entities
(1,092
)
 
(566
)
 
Proceeds from sales, maturities and repayments of investments by consolidated investment entities
1,087

 
803

 
Purchase of land, buildings, equipment and software
(125
)
 
(66
)
 
Other, net
(8
)
 
69

 
Net cash provided by (used in) investing activities
$
(106
)
 
$
(367
)
 
See Notes to Consolidated Financial Statements.
 

7


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

 
 
September 30,
 
2017
 
2016
 
(in millions)
 
Cash Flows from Financing Activities
 
Investment certificates:
 
Proceeds from additions
$
3,595

 
$
3,184

 
Maturities, withdrawals and cash surrenders
(3,158
)
 
(2,376
)
 
Policyholder account balances:
 
Deposits and other additions
1,538

 
1,532

 
Net transfers from (to) separate accounts
(120
)
 
113

 
Surrenders and other benefits
(1,413
)
 
(1,448
)
 
Cash paid for purchased options with deferred premiums
(187
)
 
(256
)
 
Cash received from purchased options with deferred premiums
42

 
242

 
Issuance of long-term debt

 
495

 
Repayments of long-term debt
(8
)
 
(254
)
 
Dividends paid to shareholders
(368
)
 
(361
)
 
Repurchase of common shares
(1,161
)
 
(1,319
)
 
Exercise of stock options
13

 
6

 
Repayments of debt by consolidated investment entities
(59
)
 
(134
)
 
Other, net

 
3

 
Net cash provided by (used in) financing activities
(1,286
)
 
(573
)
 
Effect of exchange rate changes on cash
32

 
(53
)
 
Net increase (decrease) in cash, cash equivalents and restricted cash
(181
)
 
1,029

 
Cash, cash equivalents and restricted cash at beginning of period
5,392

 
5,407

 
Net cash outflows upon the deconsolidation of VIEs

 
(346
)
 
Cash, cash equivalents and restricted cash at end of period
$
5,211

 
$
6,090

 
 
 
Supplemental Disclosures:
 
Interest paid excluding consolidated investment entities
$
130

 
$
121

 
Interest paid by consolidated investment entities
65

 
74

 
Income taxes paid, net
387

 
201

 
Non-cash investing activity:
 
Partnership commitments not yet remitted
9

 
75

 
 
September 30,
2017
 
December 31, 2016
 
(in millions)
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
Cash and cash equivalents
$
2,398

 
$
2,318

 
Cash of consolidated investment entities
106

 
168

 
Restricted and segregated cash and investments
3,131

 
3,331

 
Less: Restricted and segregated investments
(424
)
 
(425
)
 
Total cash, cash equivalents and restricted cash per consolidated statements of cash flows
$
5,211

 
$
5,392

 
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. See Note 3 for additional information on VIEs.
The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for fair statement 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 first quarter of 2017, the Company recorded a $20 million decrease to income tax provision related to an out-of-period correction for a reversal of a tax reserve.
In the third quarter of 2017, the Company recorded a $14 million out-of-period correction related to a variable annuity model assumption that decreased amortization of deferred acquisition costs (“DAC”) by $10 million and decreased benefits, claims, losses and settlement expenses by $4 million.
The impact to prior period financial statements of these out-of-period corrections 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, 2016, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2017 (“2016 10-K”).
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
Statement of Cash Flows – Restricted Cash
In November 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to the classification of restricted cash on the statement of cash flows. The update requires entities to include restricted cash and restricted cash equivalents in cash and cash equivalent balances on the statement of cash flows and disclose a reconciliation between the balances on the statement of cash flows and the balance sheet. The standard is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company early adopted the standard for the interim period ended March 31, 2017 on a retrospective basis. As a result of the adoption of the standard, restricted cash balances of $2.7 billion and $2.9 billion at September 30, 2017 and December 31, 2016, respectively, are included in the cash and cash equivalents balances on the Company’s consolidated statements of cash flows. The impact of the change in restricted cash resulted in a $213 million increase to the Company’s operating cash flows for the prior period presented.
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 evaluated 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 early adopted the standard for the interim period ended March 31, 2017 on a retrospective basis. The adoption of the standard did not have a material impact on the Company’s operating, investing or financing cash flows.
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

9


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


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 policy election to recognize forfeitures as they occur rather than estimating forfeitures to determine the recognition of expense for share-based payment awards. The standard is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. The Company adopted the standard on January 1, 2017 on a prospective basis, except for the cash flow statement provision, which the Company applied on a retrospective basis. During periods in which the settlement date 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. During the three months and nine months ended September 30, 2017, the Company recognized net excess tax benefits of $25 million and $57 million, respectively, as a reduction to the income tax provision in the consolidated statements of operations. The Company maintained its accounting policy of estimating forfeitures. As a result of the adoption of the standard, net excess tax benefits of $57 million and $8 million for the nine months ended September 30, 2017 and 2016, respectively, are included in the Other, net line within operating cash flows on the Company’s consolidated statements of cash flows.
Future Adoption of New Accounting Standards
Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB updated the accounting standards to amend the hedge accounting recognition and presentation requirements. The objectives of the update are to better align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities and simplify the application of the hedge accounting guidance. The update also adds new disclosures and amends existing disclosure requirements. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Receivables – Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB updated the accounting standards to shorten the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, premiums are generally amortized over the contractual life of the security. The amendments require the premium to be amortized to the earliest call date. The update applies to securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment
In January 2017, the FASB updated the accounting standards to simplify the accounting for goodwill impairment. The update removes the hypothetical purchase price allocation (Step 2) of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The standard is effective for interim and annual periods beginning after December 15, 2019, and should be applied prospectively with early adoption permitted for any impairment tests performed after January 1, 2017. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB updated the accounting standards related to the recognition of income tax impacts on intra-entity transfers. The update requires entities to recognize the income tax consequences of intra-entity transfers, other than inventory, upon the transfer of the asset. The update requires the selling entity to recognize a current tax expense or benefit and the purchasing entity to recognize a deferred tax asset or liability when the transfer occurs. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
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

10


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


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.
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 Company currently discloses information related to operating lease arrangements within Note 23 of the 2016 10-K. 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 update is not expected to have a material impact on the consolidated results of operations or 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 plans to adopt the revenue recognition guidance on a retrospective basis in the first quarter of 2018. The update does not apply to revenue associated with the manufacturing of insurance and annuity products or financial instruments as these revenues are in the scope of other standards. Therefore, the Company does not expect the update to have an impact on these revenues. The Company’s implementation efforts include the identification of revenue within the guidance and the review of the customer contracts to determine the Company’s performance obligation and the associated timing of each performance obligation. The Company has determined that certain payments received primarily related to franchise advisor fees should be presented as revenue rather than a reduction of expense. The Company expects the impact of this change to be an increase to both revenues and expenses of approximately $95 million to $120 million. The Company does not expect a material impact to the timing of revenue recognition; however, the Company’s implementation effort to assess the impact of the standard is still in process.
3.  Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as collateralized loan obligations (“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. 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.
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

11


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


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. The Company has determined that consolidation is required for certain CLOs.
The Company’s maximum exposure to loss with respect to non-consolidated CLOs is limited to its investments amortized cost, which was $6 million and $9 million as of September 30, 2017 and December 31, 2016, respectively. 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. The Company does not have a significant economic interest and is not required to consolidate the property funds. The carrying value of the Company’s investment in property funds is reflected in other investments and was $26 million as of both September 30, 2017 and December 31, 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 $7 million and $13 million as of September 30, 2017 and December 31, 2016, 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 $26 million and $33 million as of September 30, 2017 and December 31, 2016, respectively.
Affordable Housing Partnerships and Other Real Estate Partnerships
The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships.
A majority of the limited partnerships are VIEs. The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $455 million and $482 million as of September 30, 2017 and December 31, 2016, respectively. The Company had a $114 million and $135 million liability recorded as of September 30, 2017 and December 31, 2016, respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the above mentioned funding commitments.
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.

12


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


Fair Value of Assets and Liabilities
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, 2017
Level 1
 
Level 2
 
Level 3
 
Total
(in millions)
Assets
Investments:
Corporate debt securities
$

 
$
29

 
$

 
$
29

Common stocks
22

 
11

 
4

 
37

Other investments
4

 

 

 
4

Syndicated loans

 
1,963

 
182

 
2,145

Total investments
26

 
2,003

 
186

 
2,215

Receivables

 
9

 

 
9

Total assets at fair value
$
26

 
$
2,012

 
$
186

 
$
2,224

 
Liabilities
Debt (1)
$

 
$
2,267

 
$

 
$
2,267

Other liabilities

 
43

 

 
43

Total liabilities at fair value
$

 
$
2,310

 
$

 
$
2,310

 
December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Total
(in millions)
Assets
Investments:
Corporate debt securities
$

 
$
19

 
$

 
$
19

Common stocks
22

 
6

 
5

 
33

Other investments
4

 

 

 
4

Syndicated loans

 
1,944

 
254

 
2,198

Total investments
26

 
1,969

 
259

 
2,254

Receivables

 
11

 

 
11

Total assets at fair value
$
26

 
$
1,980

 
$
259

 
$
2,265

 
Liabilities
Debt (1)
$

 
$
2,319

 
$

 
$
2,319

Other liabilities

 
95

 

 
95

Total liabilities at fair value
$

 
$
2,414

 
$

 
$
2,414

(1) 
The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.2 billion and $2.3 billion as of September 30, 2017 and December 31, 2016, respectively.

13


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


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:
 
Corporate Debt Securities
 
Common Stocks
 
Syndicated Loans
 
(in millions)
Balance, July 1, 2017
$

 
$
7

 
$
185

 
Total gains (losses) included in:
Net income

 
1

(1) 
(1
)
(1) 
Purchases

 

 
6

 
Sales

 

 
(12
)
 
Settlements

 

 
(3
)
 
Transfers into Level 3

 

 
84

 
Transfers out of Level 3

 
(4
)
 
(77
)
 
Balance, September 30, 2017
$

 
$
4

 
$
182

 
Changes in unrealized gains (losses) included in income relating to assets held at September 30, 2017
$

 
$
1

(1) 
$

 
 
Common Stocks
 
Syndicated Loans
 
Other Assets
 
(in millions)
Balance at July 1, 2016
$
1

 
$
243

 
$
1

 
Total gains (losses) 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 (losses) included in income relating to assets held at September 30, 2016
$

 
$
2

(1) 
$

 
 
Corporate Debt Securities
 
Common Stocks
 
Syndicated Loans
 
(in millions)
Balance, January 1, 2017
$

 
$
5

 
$
254

 
Total gains (losses) included in:
Net income

 
1

(1) 

 
Purchases

 
3

 
133

 
Sales
(2
)
 
(1
)
 
(27
)
 
Settlements

 

 
(56
)
 
Transfers into Level 3
2

 
2

 
197

 
Transfers out of Level 3

 
(6
)
 
(319
)
 
Balance, September 30, 2017
$

 
$
4

 
$
182

 
Changes in unrealized gains (losses) included in income relating to assets held at September 30, 2017
$

 
$
1

(1) 
$
(2
)
(1) 

14


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


 
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 (losses) 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 (losses) 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”).
Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
All Level 3 measurements as of September 30, 2017 and December 31, 2016 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
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.
Liabilities
Debt
The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches

15


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


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. The fair value of the CLOs’ debt is classified as Level 2.
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.
Fair Value Option
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 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,
2017
 
December 31, 2016
(in millions)
Syndicated loans
Unpaid principal balance
$
2,215

 
$
2,281

Excess unpaid principal over fair value
(70
)
 
(83
)
Fair value
$
2,145

 
$
2,198

Fair value of loans more than 90 days past due
$
12

 
$
8

Fair value of loans in nonaccrual status
12

 
8

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
26

 
34

 
Debt
Unpaid principal balance
$
2,400

 
$
2,459

Excess unpaid principal over carrying value
(133
)
 
(140
)
Carrying value (1)
$
2,267

 
$
2,319

(1) The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.2 billion and $2.3 billion as of September 30, 2017 and December 31, 2016, respectively.
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 gains (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 $(1) million and nil for the three months ended September 30, 2017 and 2016, respectively.
Total net gains (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 $(3) million and $(5) million for the nine months ended September 30, 2017 and 2016, respectively.
Debt of the consolidated investment entities and the stated interest rates were as follows:
 
Carrying Value
 
Weighted Average Interest Rate
September 30,
2017
 
December 31,
2016
September 30,
2017
 
December 31,
2016
(in millions)
 
Debt of consolidated CLOs due 2025-2026
$
2,267

 
$
2,319

 
2.7
%
 
2.5
%
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0% to 7.3%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.

16


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


4.  Investments
The following is a summary of Ameriprise Financial investments:
 
September 30,
2017
 
December 31,
2016
(in millions)
Available-for-Sale securities, at fair value
$
30,826

 
$
30,719

Mortgage loans, net
3,000

 
2,986

Policy and certificate loans
841

 
831

Other investments
1,535

 
1,298

Total
$
36,202

 
$
35,834

The following is a summary of net investment income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
2017
 
2016
(in millions)
Investment income on fixed maturities
$
340

 
$
342

 
$
1,012

 
$
1,028

Net realized gains (losses)
(3
)
 
6

 
35

 
(5
)
Affordable housing partnerships
(17
)
 
(17
)
 
(42
)
 
(35
)
Other
26

 
25

 
70

 
13

Consolidated investment entities
26

 
31

 
79

 
89

Total
$
372

 
$
387

 
$
1,154

 
$
1,090

Available-for-Sale securities distributed by type were as follows:
Description of Securities
September 30, 2017
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
(in millions)
Corporate debt securities
$
14,528

 
$
1,145

 
$
(23
)
 
$
15,650

 
$

Residential mortgage backed securities
6,740

 
79

 
(29
)
 
6,790

 

Commercial mortgage backed securities
3,917

 
62

 
(27
)
 
3,952

 

Asset backed securities
1,611

 
39

 
(4
)
 
1,646

 
5

State and municipal obligations
2,216

 
249

 
(10
)
 
2,455

 

U.S. government and agencies obligations
5

 
1

 

 
6

 

Foreign government bonds and obligations
292

 
21

 
(5
)
 
308

 

Common stocks
9

 
11

 
(1
)
 
19

 
6

Total
$
29,318

 
$
1,607

 
$
(99
)
 
$
30,826

 
$
11


17


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


Description of Securities
December 31, 2016
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
(in millions)
Corporate debt securities
$
15,231

 
$
1,065

 
$
(60
)
 
$
16,236

 
$

Residential mortgage backed securities
6,899

 
86

 
(67
)
 
6,918

 
(3
)
Commercial mortgage backed securities
3,347

 
59

 
(39
)
 
3,367

 

Asset backed securities
1,532

 
33

 
(16
)
 
1,549

 
5

State and municipal obligations
2,195

 
198

 
(35
)
 
2,358

 

U.S. government and agencies obligations
7

 
1

 

 
8

 

Foreign government bonds and obligations
251

 
17

 
(7
)
 
261

 

Common stocks
10

 
13

 
(1
)
 
22

 
6

Total
$
29,472

 
$
1,472

 
$
(225
)
 
$
30,719

 
$
8

(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, 2017 and December 31, 2016, investment securities with a fair value of $1.7 billion and $1.6 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $793 million and $473 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
As of September 30, 2017 and December 31, 2016, fixed maturity securities comprised approximately 85% and 86%, 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. As of both September 30, 2017 and December 31, 2016, the Company’s internal analysts rated $1.1 billion of securities using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
Ratings
September 30, 2017
 
December 31, 2016
Amortized Cost
 
Fair Value
 
Percent of 
Total Fair Value
Amortized Cost
 
Fair Value
 
Percent of 
Total Fair Value
 
(in millions, except percentages)
AAA
$
10,444

 
$
10,528

 
34
%
 
$
9,252

 
$
9,305

 
31
%
AA
1,914

 
2,132

 
7

 
1,729

 
1,906

 
6

A
4,986

 
5,453

 
18

 
5,157

 
5,567

 
18

BBB
10,745

 
11,435

 
37

 
11,739

 
12,340

 
40

Below investment grade (1)
1,220

 
1,259

 
4

 
1,585

 
1,579

 
5

Total fixed maturities
$
29,309

 
$
30,807

 
100
%
 
$
29,462

 
$
30,697

 
100
%
(1) 
The amortized cost and fair value of below investment grade securities includes interest in CLOs managed by the Company of $6 million and $11 million, respectively, at September 30, 2017, and $9 million and $14 million, respectively, at December 31, 2016. These securities are not rated but are included in below investment grade due to their risk characteristics.
As of September 30, 2017 and December 31, 2016, approximately 41% and 47%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of total equity.

18


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


The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
Description of Securities
September 30, 2017
Less than 12 months
 
12 months or more
 
Total
Number of Securities
 
Fair Value
 
Unrealized Losses
Number of Securities
 
Fair Value
 
Unrealized Losses
Number of Securities
 
Fair Value
 
Unrealized Losses
 
(in millions, except number of securities)
Corporate debt securities
106

 
$
1,151

 
$
(7
)
 
34

 
$
325

 
$
(16
)
 
140

 
$
1,476

 
$
(23
)
Residential mortgage backed securities
113

 
1,901

 
(16
)
 
109

 
993

 
(13
)
 
222

 
2,894

 
(29
)
Commercial mortgage backed securities
90

 
1,391

 
(21
)
 
19

 
210

 
(6
)
 
109

 
1,601

 
(27
)
Asset backed securities
33

 
398

 
(2
)
 
16

 
105

 
(2
)
 
49

 
503

 
(4
)
State and municipal obligations
89

 
176

 
(1
)
 
16

 
142

 
(9
)
 
105

 
318

 
(10
)
Foreign government bonds and obligations
6

 
19

 

 
14

 
21

 
(5
)
 
20

 
40

 
(5
)
Common stocks

 

 

 
3

 
1

 
(1
)
 
3

 
1

 
(1
)
Total
437

 
$
5,036

 
$
(47
)
 
211

 
$
1,797

 
$
(52
)
 
648

 
$
6,833

 
$
(99
)
Description of Securities
December 31, 2016
Less than 12 months
 
12 months or more
 
Total
Number of Securities
 
Fair Value
 
Unrealized Losses
Number of Securities
 
Fair Value
 
Unrealized Losses
Number of Securities
 
Fair Value
 
Unrealized Losses
 
(in millions, except number of securities)
Corporate debt securities
187

 
$
2,452

 
$
(33
)
 
38

 
$
377

 
$
(27
)
 
225

 
$
2,829

 
$
(60
)
Residential mortgage backed securities
127

 
2,533

 
(33
)
 
177

 
1,290

 
(34
)
 
304

 
3,823

 
(67
)
Commercial mortgage backed securities
100

 
1,583

 
(39
)
 
5

 
43

 

 
105

 
1,626

 
(39
)
Asset backed securities
48

 
524

 
(9
)
 
27

 
298

 
(7
)
 
75

 
822

 
(16
)
State and municipal obligations
181

 
374

 
(14
)
 
3

 
110

 
(21
)
 
184

 
484

 
(35
)
Foreign government bonds and obligations
7

 
30

 
(1
)
 
15

 
23

 
(6
)
 
22

 
53

 
(7
)
Common stocks

 

 

 
3

 
1

 
(1
)
 
3

 
1

 
(1
)
Total
650

 
$
7,496

 
$
(129
)
 
268

 
$
2,142

 
$
(96
)
 
918

 
$
9,638

 
$
(225
)
As part of Ameriprise Financial’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is attributable to a decline in interest rates on the long end of the interest rate curve and tighter credit spreads.
The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss) (“OCI”):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
2017
 
2016
(in millions)
Beginning balance
$
2

 
$
81

 
$
69

 
$
85

Credit losses for which an other-than-temporary impairment was not previously recognized

 

 

 
1

Credit losses for which an other-than-temporary impairment was previously recognized

 

 
1

 

Reductions for securities sold during the period (realized)

 

 
(68
)
 
(5
)
Ending balance
$
2

 
$
81

 
$
2

 
$
81


19


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


Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2017
 
2016
2017
 
2016
(in millions)
Gross realized gains
$
6

 
$
10

 
$
50

 
$
24

Gross realized losses
(2
)
 
(3
)
 
(6
)
 
(12
)
Other-than-temporary impairments

 

 
(1
)
 
(1
)
Total
$
4

 
$
7

 
$
43

 
$
11

Other-than-temporary impairments for the nine months ended September 30, 2017 and 2016 primarily related to credit losses on asset backed securities.
See Note 13 for a rollforward of net unrealized investment gains (losses) included in AOCI.
Available-for-Sale securities by contractual maturity as of September 30, 2017 were as follows:
 
Amortized Cost
 
Fair
Value
(in millions)
Due within one year
$
2,311

 
$
2,340

Due after one year through five years
6,562

 
6,820

Due after five years through 10 years
3,852

 
4,010

Due after 10 years
4,316

 
5,249

 
17,041

 
18,419

Residential mortgage backed securities
6,740

 
6,790

Commercial mortgage backed securities
3,917

 
3,952

Asset backed securities
1,611

 
1,646

Common stocks
9

 
19

Total
$
29,318

 
$
30,826

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a s