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Ameriprise Celebrates Fed Interest Rate Increases

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What You Need to Know

  • Jim Cracchiolo kicked off the first-quarter earnings call by expressing horror at the situation in Ukraine.
  • He predicted that Fed efforts to increase short-term rates will lead to a meaningful increase in earnings.
  • He suggested that higher rates could make unwanted blocks of annuity and long-term care insurance business easier to sell.

Executives at Ameriprise Financial are trying to tell investors how bright the future looks for life and annuity issuers right now while being compassionate about the problems facing the world as a whole.

Jim Cracchiolo, the Minneapolis-based company’s CEO, worked to find a balance between concern and optimism Tuesday, when he briefed securities analysts on the company’s first-quarter earnings.

Cracchiolo began the earnings call by acknowledging that global stock markets are more volatile than they’ve been in most recent quarters, and that the geopolitical situation is difficult.

“Before I discuss the quarter, I’d like to acknowledge the horrific situation in Ukraine,” Cracchiolo said. “Ameriprise vehemently condemns the atrocities being committed by Russia, and our thoughts are with the Ukrainian people and all who have been affected.”

But Cracchiolo noted that Ameriprise has no staff or business in Ukraine or Russia, and that its direct exposure to investments in those countries is extremely limited.

Overall, “the economic environment remains strong,” Cracchiolo said.

For life and annuity issuers, the environment is especially strong, because of a change in direction at the Federal Reserve Board.

“The Fed has finally begun to raise short-term rates, which is appropriate,” Cracchiolo said. “They’ve been slow to take action and signaling that they’ll have to get more aggressive.”

What It Means

No one at Ameriprise was breaking out the Champagne and declaring that the good times look as if they’ll be back for sales of life insurance, disability insurance and annuities with guarantees, once the interest rates really go back up.

But no one was expressing any gloom about rates going up, either.

Why Rates Matter to Ameriprise

Ameriprise sells investment advice and investment products outside of any insurance wrapper, but it is active in the annuity, life insurance and disability insurance markets.

The company has about $16 billion in total net policy reserves, and its annuity holders have about $86 billion in total contract accumulation value, including $5 billion in variable annuity fixed subaccounts.

For regulatory and risk-management reasons, life insurers tend to invest mainly in bonds and other fixed income holdings, such as mortgage loans. They focus on buying and holding those investments over the long term, rather than engaging in active trading.

When interest rates go up, companies such as Ameriprise earn higher yields on their invested assets, without suffering the kinds of drops in current bond prices that active bond traders face.

The Earnings

Ameriprise as a whole is reporting $761 million in net income for the first quarter on $3.7 billion in revenue, up dramatically from $437 million in net income on $3.3 billion in revenue for the first quarter of 2021.

The Retirement & Protection unit, which runs the company’s insurance operations, is reporting $191 million in pretax adjusted operating earnings on $772 million in revenue, up from $183 million in operating earnings on $787 million in revenue for the year-earlier quarter.

Variable annuity deposits fell to $1 billion, from $1.4 billion.

Sales of life and disability insurance increased 27%, to $72 million, thanks to strong sales of variable universal life products.

For help with finding information about more first-quarter earnings release dates, see ThinkAdvisor’s Q1 Life, Health and Annuity Earnings Calendar.

Annuity Market Trends

Ameriprise is the first major U.S. annuity market player to post earnings for the first quarter.

Here are four things Ameriprise executives said on their earnings call that could have a bearing on the broader annuity, retirement planning and financial services markets.

1. Advisors are busy.

Ameriprise aims to provide comprehensive services for clients through a network of advisors.

Cracchiolo said the company’s advisors have seen strong client acquisition and asset flow levels, especially in the market for clients with at least $500,000 in assets.

Advisors have been busy helping clients respond to the new volatility by rebalancing their portfolios, he said.

He said the company’s advisor recruiting pipeline looks good.

2. Companies such as Ameriprise continue to move away from annuities with guarantees.

Higher interest rates could bring back contracts with living benefits guarantees, but Ameriprise stopped selling those types of contracts at the end of 2021, and that led to reduced variable annuity sales.

But sales of the remaining variable annuities were in line with the company’s expectations.

3. Sales of variable universal life insurance have been strong.

That means clients could come to agents and planners with more life insurance policies that have a high cash value and can be used in retirement income planning.

He predicted that Fed efforts to raise short-term rates will lead to a meaningful increase in earnings.

He suggested that higher rates could make unwanted blocks of annuity and long-term care insurance business easier to sell.

4. The market for blocks of life, annuity and long-term care insurance business looks better.

Life insurers keep some business on their books until they pay the benefits, but in other cases, they pass blocks of business to reinsurers or investors, to free up cash and diversify their business portfolios.

Tom Gallagher, an analyst with Evercore, asked whether rising interest rates could help Ameriprise with efforts to transfer life, annuity or long-term care insurance risk to others.

Cracchiolo said interest in deals has increased.

“These are long, complicated transactions,” he said.

He said that he would not talk about when deals might happen, but that the “environment is certainly beneficial at this stage.”

Pictured: Ameriprise headquarters in Minneapolis. (Photo: Ariana Lindquist/Bloomberg)