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Ameriprise Spends 7% More on Annuity Distribution

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Ameriprise Financial Inc. spent $114 million in the fourth quarter on paying and supporting the people who sell its annuities, or about 7% more than it spent on annuity distribution expenses in the fourth quarter of 2016.

Annuity unit revenue increased 3%, year-over-year, to $638 million, and annuity unit pretax operating income increased 17%, to $148 million.

Total fixed annuity ending balances fell 7%, to $9.3 billion, but total variable annuity ending balances increased 7%, to $80 billion.

Ameriprise included those figures in a statistical supplement today when it posted its earnings for the fourth quarter, and for all of 2017.

A copy of the supplement is available here.

(Related: 3 New Questions About Annuity Issuers’ Performance)

Ameriprise, which is based in Minneapolis, was the first publicly traded U.S. life and annuity issuer to release its fourth-quarter results.

Overall Earnings

Ameriprise sells advice and wealth management services, asset management services, life insurance, and auto and home insurance as well as annuities.

The company as a whole is reporting $181 million in net income for the latest quarter on $3.2 billion in revenue, compared with $400 million in net income on $3.1 billion in revenue for the fourth quarter of 2016.

The company expects the new Tax Cuts and Jobs Act (TCJA) to slash its future income tax bills, but other, immediate effects led the company to record $320 million in TCJA-related charges. 

The company’s operating earnings total, which excludes the effects of the TCJA charges, increased 13%, to $502 million.

Annuity Distribution Expenses

Ameriprise notes in an annual financial report it filed with the U.S. Securities and Exchange Commission for 2017 that its annuity distribution expenses “primarily include compensation paid to our financial advisors, representatives, third-party distributors and wholesalers, net of amounts capitalized as part of [deferred acquisition costs (DACs)].”

Ben Franklin (Image: Thinkstock)

(Image: Thinkstock)

The distribution expenses total also includes the cost of marketing support and of other payments made to distributors, according to Ameriprise.

The TCJA changed the tax rules for DAC costs. Ameriprise has not yet talked about how the TCJA changes will affect its distribution expenses.

Life and Annuity Trends

Ameriprise continues to be an active issuer of annuities, but it, like other issuers, says it’s feeling the effects of the long period of low interest rates.

The company says its variable annuity cash sales increased 1%, and that its variable annuity earnings increased to 25%, to $134 million.

But the company notes that about one-third of the new variable annuity contracts it sold during the latest quarter came without living benefits guarantees.

Low interest rates reduced the spread between what Ameriprise pays holders of fixed annuities and what the company can earn on its own investments.

The continued spread compression led to limited new fixed annuity contract sales, continued fixed annuity lapses, and a drop in fixed annuity sales, Ameriprise says.

Cash sales of universal life and variable universal life (VUL) products fell 4%, to $84 million, but VUL investment gains helped increase the ending account balances for those products 9%, to $12.5 billion, Ameriprise says.

Conference Call 

Ameriprise plans to stream live audio of a conference with securities analysts on the web at 9 a.m. Eastern time Thursday. The company expects to post a recording of the call on the web shortly after the end of the call.

Information about listening to the conference call is available here.

—Read Ameriprise Tells Analysts It Likes Advisors on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook and Twitter.


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