A.M. Best Affirms Credit Ratings of Ameriprise Financial, Inc. and Its Life/Health Subsidiaries
October 9, 2018 by Best's News Service
Oldwick – A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of RiverSource Life Insurance Company (Minneapolis, MN) and its wholly owned subsidiary, RiverSource Life Insurance Co. of New York (Albany, NY) These companies represent the key life/health (L/H) insurance subsidiaries of Ameriprise Financial, Inc. (Ameriprise) (headquartered in Minneapolis, MN) [NYSE: AMP] and are collectively known as Ameriprise Financial Group. Concurrently, A.M. Best has affirmed the Long-Term ICR of “a-” and the existing Long-Term Issue Credit Ratings (Long-Term IR) of Ameriprise. The outlook of these Credit Ratings (ratings) is stable. Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of Ameriprise Captive Insurance Company (ACIC) (Burlington, Vermont), a property/casualty subsidiary of Ameriprise. The outlook of these ratings is stable.
The ratings of Ameriprise Financial Group reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The ratings of the L/H companies primarily reflect their strong risk-adjusted capital positions, favorable operating results, effective hedging programs, strong market positions and brand recognition. Ameriprise continues to benefit from its strong fee-based business, which has led to favorable operating earnings in recent periods due to favorable equity markets. The ratings also consider Ameriprise’s broad multi-platform network of financial advisers and well-developed ERM program. Along with its hedging program, Ameriprise’s current variable annuity (VA) products offer relatively modest guarantees that help to reduce the company’s VA guarantee risks. In addition, the use of permitted practices available in Minnesota on VA statutory hedge accounting has better aligned reported hedge gains (losses) to changes in VA reserves. At the holding company level, Ameriprise maintains moderate financial leverage of approximately 32% with solid interest coverage as of second quarter 2018. Both measures are within A.M. Best’s guidelines for Ameriprise’s current ratings.
A.M. Best notes that Ameriprise’s earnings remain highly correlated to movements in interest rates and equity markets. More than two-thirds of Ameriprise’s admitted assets are in separate accounts that are susceptible to sizable equity market declines due to reduced fee income. Operating margins also are likely to be affected negatively should the current low interest rate environment persist, particularly in the annuity and long-term care insurance lines of business. In addition, Ameriprise will likely continue to experience net outflows in its annuity and asset management businesses; however, this is being offset by its strong fee-based businesses. Although, A.M. Best has concern for potential earnings erosion; however, this has been mitigated by Ameriprise’s robust ERM practices that measure its key risks to ensure decisions are made that will enhance its overall business profile and performance.
The ratings of ACIC reflect its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, limited business profile and appropriate ERM. The ratings also reflect the rating enhancement from its parent, Ameriprise.
ACIC’s balance sheet assessment is supported by risk-adjusted capitalization being at the strongest level and a clean balance sheet with no debt. The credit quality of the company’s assets is high, with significant allocation to investment grade bonds.
The captive has generated strong operating performance as demonstrated by its five-year average pre-tax return on revenue and equity ratios that compare favorably with the averages for the commercial casualty composite. The captive benefits from a very low expense ratio. A.M. Best expects ACIC’s operating performance to remain strong in the near term.
ACIC’s business profile is assessed as limited, due to its narrow market focus as a single parent captive, serving just one customer (its parent) for a limited amount of exposure. ACIC provides various coverages to its parent in the form of errors & omissions policies, a workers’ compensation deductible reimbursement policy and fidelity bonds. ACIC’s ERM is assessed as appropriate, as the company has adopted the risk management strategies employed by Ameriprise.
ACIC benefits from rating enhancement due to its strategic importance as a single parent captive insurance provider.
The following Long-Term IRs have been affirmed:
Ameriprise Financial, Inc.—
— “a-” on $300 million 7.30% senior unsecured notes, due 2019
— “a-” on $750 million 5.35% senior unsecured notes, due 2020
— “a-” on $750 million 4.00% senior unsecured notes, due 2023
— “a-” on $550 million 3.70% senior unsecured notes, due 2024
— “a-” on $500 million 2.875% senior unsecured notes, due 2026
The following indicative Long-Term IRs have been affirmed under the current shelf registration:
Ameriprise Financial, Inc.—
— “a-” on senior unsecured debt
— “bbb+” on subordinated debt
— “bbb” on preferred stock
Ameriprise Capital Trust I, II, III and IV—
— “bbb” on trust preferred securities
A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.
BN-NJ-10-5-2018 0910 ET #