阿默普萊斯金融 (AMP) 2010 Q4 法說會逐字稿

Welcome to the Ameriprise Financial fourth quarter and year end earnings conference call.

My name is Christine, and I will be your operator for today's conference.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Laura Gagnon.

Ms.

Gagnon, you may begin.

Thank you.

And welcome to the Ameriprise Financial fourth quarter earnings call.

With me on the call today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer.

After their remarks, we will take your questions.

During the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the underlying performance of the company's operations.

Reconciliations of non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website.

Some of the statements that we make on this call may be forward-looking statements reflecting management's expectations about future events and operating plans and performance.

These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties.

A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release and related presentation slides, our 2009 annual report to shareholders and our 2009 10-K report.

We undertake no obligation to update publicly or revise these forward-looking statements.

With that, I'd like to turn the call over to Jim.

Good morning.

I know a lot of companies are holding their earnings calls today, so we appreciate you taking the time to join us.

This morning, Walter and I will update you on our performance for the quarter and for the full year of 2010.

Let's begin.

We reported good fourth quarter earnings and we finished the year with our best full year results ever as a public company.

For the quarter, we generated $2.6 billion in operating net revenues, a 19% increase over last year.

Our operating net income was $312 million, which was up 30% over a year ago.

I should point out that the earnings includes two notable items, a $28 million expense related to FAS 157 impacts and variable annuities, and $7 million in auto and home claims from a single hailstorm in Arizona.

For the year on an operating basis, we reported earnings of $1.2 billion or $4.47 per share and we achieved record net revenues of $9.6 billion, an increase of 24% compared with 2009.

Our return on equity reached 12.6%, an increase of 340 basis points over last year.

While that is also an all-time high, we are focused on driving further improvement in our returns.

We are making continued progress towards generating a higher percentage of our earnings from our less capital-demanding, higher-returning businesses.

For the quarter, we generated 54% of operating earnings from advice and wealth management and asset management compared with 30% a year ago.

Given the environment, we are pleased that we have already surpassed our previous high water marks which we reached back in 2007.

Remember, the S&P 500 was 20% higher then, and interest rates today remain extremely low.

So, we feel good about the path we are following.

We came through the crisis untarnished and in excellent condition, and we've used our relative strength to grow the company, both organically and through the Columbia Management acquisition.

Owned, managed and administered assets reached a new record at $673 billion, which was 47% higher than a year ago.

Our prudent operating principles continue to serve us well.

Our balance sheet and capital is stronger than at any time in the past, which gives us a competitive advantage and allows us to return capital to shareholders.

In fact, we are still one of the very few firms in the industry that is buying back stock.

For the quarter we bought back 3.8 million shares for $200 million and since restarting our buyback program in May, we repurchased a total of $573 million.

Including dividends for the year, we returned two-thirds of our earnings to shareholders.

We intend to continue the buyback program in 2011.

At the same time we are maintaining our expense discipline.

We achieved over $240 million in re-engineering savings across the company in 2010, and we used a portion of the savings to fund investments for growth while delivering much of the savings to the bottom line.

While expenses have increased as a result of the stronger business activity, we remain very comfortable with our expense management.

In total, we feel quite good about the position we are in.

The business is performing well, and we have good earnings leverage for improving conditions.

Now, I would like to discuss our segment performance.

First, advice and wealth management delivered another strong quarter.

The segment generated a record $1 billion in operating net revenues and $90 million in pre-tax operating income, nearly triple its earnings of a year ago.

Margin improvement has been an area of focus for us in the segment and we made good progress in 2010.

In the fourth quarter the segment's pre-tax operating margin was 8.9%, nearly 5 percentage points higher than a year ago.

Advisor productivity is an important measure of our progress in this segment, and it is improving nicely.

Operating net revenue per advisor reached new highs at $88,000 for the quarter and $326,000 for the year.

Several factors lead to the stronger productivity.

First, client activity continued to tick upward.

While clients still haven't returned to pre-crisis activity levels, clearly confidence in the markets and the economy is improving.

You can see the stronger activity in our client asset metrics.

We continue to generate good net inflows into wrap accounts, and our total retail client assets reached a new high of $329 billion.

Second, over the past several years, we've significantly strengthened the advisor force and its economics.

We had good success at recruiting with approximately 800 experienced advisors joining us over the past two years.

It takes awhile for new recruits to bring over assets and clients, and now we are starting to realize the benefits of their established books of business.

The transformation of the employee advisor continues.

Advisor retention has increased dramatically, and we reduced costs substantially even as we continue to invest in the business.

So, while our total number of advisors has continued to decline, we are more than making up for it with stronger advisor productivity, both on a per advisor and total basis.

In fact, on average the advisors we have added had five times the trailing productivity of the advisors who had left.

Finally, we are continuing to make major investments in the business.

We're building our brand through advertising, and we are continuing to add to the tools and technology available to advisors.

In fact, we are in the process of our multi-year rollout of a new industry standard brokerage platform, which is one of the largest investments we've made in the advisor technology.

I should note that our financial performance in this segment still faces the headwinds of extremely low interest rates which obviously depresses the spread we earn on client deposits.

We don't expect rates to rise sharply anytime soon, but an increase in rates would give us nice additional earnings leverage.

The asset management segment also delivered another strong quarter.

We generated pre-tax operating earnings of $163 million for the quarter, more than double a year ago and 35% higher than the sequential quarter.

The segment's pre-tax operating margin was 21.1%.

These results, which includes $22 million of net income from hedge fund performance during the year, demonstrated the improved profitability and scale of our combined asset management business.

Global retail flows improved sequentially and was essentially flat for the quarter.

Strong retail net inflows at Threadneedle were offset by retail and institutional outflows in the domestic business.

Domestic retail flows improved with the sequential quarter, but we remain in net outflows.

While we are starting to see a pickup in equity fund sales, we saw outflows in municipal and taxable funds.

In our institutional business, flows were skewed by the loss of two relatively large but low-margin mandates.

In fact, of the $5.7 billion in global net institutional outflows, approximately $4.7 billion came from low margin pools of insurance assets, including Zurich outflows.

While we expect some of the outflows of low margin institutional assets to continue, the pipeline of more profitable mandates is solid.

In fact, at Columbia, mandates sold in the fourth quarter that we expect to be funded early this year will more than offset revenues lost from the fourth quarter's net institutional outflows.

Threadneedle reported another strong quarter with revenues, assets, and profitability all increasing significantly compared with a year ago.

European investors began to return to equity funds during the quarter and, as a result, Threadneedle's retail flows improved substantially.

Investment performance remains strong with particular strength in equity funds.

Threadneedle continues to manage their expenses well, even as revenues have increased significantly.

So, the international business is generating increasingly solid margins

The Columbia Management integration remains on schedule.

Fund mergers will mostly be complete by the end of the second quarter, and the new lineup will include strong performing funds in every style box.

In fact, on a pro forma basis, our funds are performing above the 60th percentile in Lipper performance rankings in every category.

We believe the combination of strong performance and a clearly defined fund lineup will help us to start the turnaround of asset flows as we move through 2011.

In annuities, we reported pre-tax operating earnings of $128 million, which represents a 9% decrease compared with a year ago.

The decline was driven by the impact of FAS 157 which has no impact on the underlying economics of the business and which we recognize in operating earnings.

Walter will explain this item in more detail.

The underlying business continued to perform well as our new variable annuity product helped us generate variable annuity net inflows of approximately $400 million.

We continue to feel good about the variable annuity business, especially now that we have focused our efforts and resources on our advisor force where we have a very good understanding of client behavior and can generate strong returns.

During the quarter, we made a strategic decision to stop selling variable annuities to clients of other firms.

The decision was based in part on the fact that our outside distribution generated 12.5% of our variable annuity sales, which accounted for over 25% of the equity we invested in the variable annuity business.

Just as important, we knew that achieving scale in outside distribution of annuities would require substantial additional capital, so we chose to focus our resources on our system where we can add real value to the clients' long-term financial plans.

The fixed annuity business remains stable with net outflows resulting from our decision not to write new business because of the rate environment.

Lapse rates remain low and asset persistency high in the fixed book, which continues to generate stable spread earnings and good returns.

We will continue to pursue opportunities in fixed annuities when market conditions become more favorable.

The protection segment produced pre-tax operating earnings of $86 million, down 26% compared with a year ago.

We had weaker performance during the quarter due to claims from the hailstorm I mentioned earlier and because we increased reserves related to bodily injury coverage claims.

The results also include $10 million in higher variable universal life reserves related to SOP 03 which Walter will explain.

Aside from these impacts to the quarter, we continue to feel good about the health of our insurance business.

Our underwriting performance has been strong, and our large book of insurance business generates solid recurring earnings.

In auto and home, policy counts grew by 9% over a year ago driven in part by a promising partnership we've established to provide homeowners' insurance to customers of Progressive Insurance.

In the life and health business, clients across the industry continue to be somewhat reluctant to commit cash required for new insurance contracts.

That said, our advisors are finding that clients are beginning to be more receptive to a conversation about insurance.

As a result, our full year cash sales were up 14% compared with 2009.

To summarize, I feel very good about the progress we've made and the results we delivered, both in the fourth quarter and for the full year.

We are succeeding at driving higher margins and a greater percentage of earnings from our less capital demanding businesses, and we're deriving real benefits from the scale and strength of all four of our operating segments.

Our asset management and distribution acquisitions are paying off.

At the same time we continue to manage our finances prudently, our balance sheet and capital positions are as strong as ever, and our expense and risk disciplines will not waver.

These actions are contributing to higher returns, which is a long-term focus for us.

We are pleased with the upward trend in our ROE, and we're confident that we have the right strategy as well as the business and financial strengths to drive increasing returns.

Overall, we produced an excellent year with record results, and we feel good about our ability to continue making progress.

Now I'll turn it over to Walter, and later we will take your questions.

Thank you, Jim.

We continue to report strong performance with operating EPS of $1.21, up 33% from the prior year.

The operating earnings include some notable negative impacts which I will describe shortly.

These negatives were offset by strong growth in our low capital businesses and continued solid performance of our annuity and life and health businesses.

Our low capital businesses, advice and wealth management and asset management, generated 54% of operating segment pre-tax income, compared with 30% a year ago.

That shift, combined with prudent capital management, resulted in an operating ROE of 12.6%, up 340 basis points from last year.

In addition, our balance sheet fundamentals remain strong in all areas.

On the next slide I will provide some detail on the quarter.

Operating results exclude the impact of consolidated investment entities, realized gains and losses, as well as integration and restructuring charges.

These items and the segment impacts are detailed in our statistical supplement.

Operating net revenues grew 19% to $2.6 billion in the quarter, while net operating earnings were $312 million, up 30%.

Operating earnings per share increased 33% to $1.21, reflecting growth and improved margins in advice and wealth management and asset management.

Our results included $0.12 per share in mean reversion benefits and hedge fund performance fees driven primarily by the markets.

We believe this $0.12 is embedded in your estimates, whereas there were three unanticipated negative items included in the $1.21 that we believe are not reflected in the sell side analyst expectations.

First, we recorded $0.11 for the negative impact of credit spreads narrowing on our variable annuity liability.

This impact is not economic, and consequently we do not hedge it.

In fact, many of our insurance companies do not include it in their operating earnings.

Excluding this, earnings were $1.32.

Second, we recorded a $0.03 loss for auto and insurance claims related to an unusual hail storm in Phoenix.

And, finally, we recorded a $0.04 loss for increased auto and liability reserves in the quarter.

Our results were also impacted by increased general and administrative expenses which are booked in each segment.

We had to catch up in our comp accruals due to strong business performance during the year, and we incurred some increased legal expenses.

On a full year basis, we reported record operating earnings.

Operating net revenue grew 24% to $9.6 billion, and operating earnings were up 56% to a record $1.2 billion, which includes eight months of Columbia acquisition results.

Operating EPS grew 45% to $4.47 for the full year, which includes the impact of the higher weighted average share count for the equity we issued in June of 2009, partially offset by the share repurchases in 2010.

In the fourth quarter of 2010, low capital businesses generated 61% of our operating segment net revenues, up from 54% compared with the fourth quarter of 2009.

This strong revenue growth combined with margin expansion, AWM and asset management, resulted in 54% of operating segment's earnings from our low capital businesses, up from 30% last year.

Now I will move on to our segment performance.

In advice/wealth management, you can see that we generated a nearly threefold increase in segment PTI year-over-year.

This segment reported record revenues surpassing $1 billion.

These strong results were driven by recovering client activity, growth in assets under management from markets and inflows and retail client assets, as well as continued good expense management.

Interest rates continue to impact our earnings with our brokerage cash spreads marginally down sequentially.

Expenses also continued to be well managed.

On a sequential basis, G&A expenses increased mostly due to higher business volumes and an increase in compensation expenses reflecting strong overall company performance.

We also incurred higher than normal legal expenses as a result of our ongoing litigation at Securities America.

On the next slide I will discuss asset management.

The segment had another very strong quarter with operating net revenues up 66% year-over-year and with a pre-tax operating margin of 21.1%.

Net of past year revenues, margins increased to 34.1%.

Hedge fund performance fees, primarily from Seligman, generated $22 million of pre-tax earnings in the quarter, compared to $30 million last year.

As Jim described, we saw an increased net outflows driven by low-margin insurance portfolios in the institutional business.

Retail net flows improved sequentially.

The Columbia Management integration is proceeding according to plan.

We remain on track to deliver our financial projections we provided when we announced the transaction, and we feel very good about the business synergies we are realizing.

Let's move to the next slide.

For annuities, operating pre-tax income declined 9% year-over-year.

However, the underlying performance was strong.

In the quarter, results included a $43 million expense related to variable annuity living benefits.

This expense resulted in a FAS 157 impact, which we do not hedge; namely, nonperformance risk and which many companies do not include in operating earnings.

The business continued to generate strong sales of our new annuity product RAVA 5.

The overall book of business continued to generate strong, stable earnings and returns despite absorbing the volume-driven increased cost of distribution.

We believe these returns will be further enhanced by our decision to exit outside distribution of variable annuities which Jim described.

On the next slide I will discuss the protection segment.

The life and health segment business continued to generate consistent results.

DI and LTC claims returned to expected levels after a higher than expected third quarter and we continue to reserve at higher levels for our universal life products with secondary guarantees.

As a reminder, I mentioned on the third quarter call that we expected an increased run rate in these reserves.

That said, our results for the quarter were impacted by several notable items including the hail storm in Phoenix.

We've already reached our retention limits and are 100% reinsured for any future development from the storm.

We also increased our auto liability reserves by $16 million in the quarter.

Aside from those items, the insurance business continued to generate good results with increased VUL's sales during the year and good continued growth in the auto and home business.

On the next slide we continue to manage our financial foundation well, which has enabled us to return capital to our shareholders.

During the quarter, we repurchased 3.8 million shares for $200 million.

This brings our total repurchases in 2010 to 13.1 million shares for $573 million.

Including dividends, we returned $756 million to shareholders this year or over two-thirds of our net income.

We continue to hold more than $1.5 billion in excess capital while our cash levels remain strong at $2.9 billion with $1.8 billion of free cash.

The quality of our balance sheet also remains strong.

Our preliminary estimate of the RiverSource risk-based capital ratio is approximately 600%, and our unrealized gain position is $1.5 billion.

Our balance sheet ratios continue to remain conservative both in terms of leverage and coverage ratios.

Finally, our variable annuity hedge program continues to be effective.

So, to summarize, we generated strong earnings in the quarter as a result of very good underlying business performance in a challenging economic environment.

Our actions have resulted in increased operating leverage, and we are making good progress.

We are driving our mix towards lower capital businesses, effectively managing our excess capital, and driving our operating returns to the higher end of our on-average over-time targets.

Our balance sheet remains strong, including our capital and liquidity positions.

And we are continuing to manage our risk exposures prudently, positioning the company for continued growth.

Now we will take your questions.

(Operator Instructions).

The first question comes from Alex Blostein from Goldman Sachs.

Please go ahead.

A couple of questions on expenses, I guess, just to start.

If you look at your G&A in asset management, and even if you strip out a normalized margin on performance fees, they still ticked up a good amount quarter-on-quarter, so I guess, number one can you tell us how much the catch-up was due to, I guess, fourth quarter comp accrual and then where do you stand with respect to savings and how much is already in the run rate today?

Yes, Alex.

On the G&A expenses for AWM, I'm sorry, did you ask asset management or -- I'm sorry, then, you have to repeat the question because I --

Yes, so, if you look at the asset management G&A expense, it jumped up quite a lot quarter-on-quarter.

And then even if you strip out, I guess, an assumption for comp associated with performance fees it's still up a good amount.

So, can you try to quantify maybe either there was a catch-up, I think you mentioned in your prepared remarks or, and then on top of that how much of the savings is already in the run rate as of today?

Yes, it's actually both because it was within the catch-up on the comp for our -- in that segment of about $5 million to $6 million, and then we did have pass through coming through as related to it, which really drove the main expense.

And as a run rate, it's obviously geared towards the growth that we have on performance.

So, at this stage, I would say that it's representative.

Okay.

Then just how much of the estimated cost savings do you already have in the run rate?

I think last quarter you said there is about maybe $50 million of the $150 million to $190 million sort of range in the run rate.

So, where do we stand today?

Right now in the quarter we hit a run rate that is like $112 million and $75 million, if you take a look through the year-to-date gross synergies.

We are on target to achieve the $130 million to $150 million run rate that we talked about.

We said that would be total and some of that will carry into 2012 but certainly we are on target.

And then, Jim, a question for you on just a little bit of bigger picture.

The SEC put out a study I guess a couple of weeks ago on the role of investment advisors versus broker-dealers and the fiduciary role within that.

How would that impact your business if at all and if you can just update us where you stand on that issue?

It does not impact our business because we sort of follow the fiduciary rule across our franchise today and we already have in place all of the compliance controls, procedures, supervision necessary and appropriate for that.

It actually makes it on an even playing field for us with others.

So, I think it will impact others more than us.

I think it will do it in two ways.

One will be, you know, the wire houses will have to move to that standard -- that will change the way they operate a bit -- and then independence, because there's been a calling now, if people did move to that, to have greater reviews by either the SEC or FINRA as well as the states.

In many cases, we have a consistent level of those reviews because we are a big house.

But others are able to duck a little bit below the radar.

That may change as there is a calling for more actual reviews by the regulatory authorities as we move to the standard.

So I think for us it will be favorable.

Then lastly just on flows.

Could you quantify how much of the retail outflow in Columbia was due to the anticipated fund merger versus core outflows due to either performance or just client reallocating?

And then you mentioned pretty strong pipeline in institutional.

I was wondering if you could quantify that?

What we have seen is a bit of a pickup in some sales in equities.

That is actually continuing in January.

I think as the industry felt a bit in the fourth quarter, one of the new outflows had occurred more in the tax exempt area, particularly in a number of our portfolios with the US Trust business and, so, that had affected some of our flows.

Overall we see an improvement but it's not necessarily where we want it to be yet.

We still experience some outflows in some key funds, some sub-advised, one or two of ours that were Columbia Funds that lowered their star ratings last year or the year before.

Now, that performance in those funds have improved dramatically over the last year.

So, hopefully we will see a slowdown in some of the outflows there.

But we have really good performance.

Over 51 funds are now four and five star.

As we merge the fund families, the overall performance will even improve.

I think if you look at some of our statistical supplement, on an asset weighted basis, we are well above 60% in a number of areas already.

The mergers will actually clean up that fund lineup a bit more for us.

But we are not through the fund merger yet.

Having said that, we did declare the new funds that things are moving to the proxies are already starting to be mailed, et cetera, so I think it has some impact.

It's hard for me to tell you after that is over and we are through that process what the full effect is, but, we just announced the fund lineup in the fourth quarter and we have put the wholesalers on their territories as we adjusted the activity.

They are very focused now.

We had our kick off meetings.

So, we will try to work hard to improve the flows.

But I think it will take some time.

But we are optimistic that we can get a turnaround.

The institutional side, that is a bit lumpy, because as we said, we lost these two large accounts domestically.

There were only a few bps in account.

One was a Bank of America or bank client.

Another was insurance from the Columbia.

So, I think the revenue side of that is not going to be material but on a volume basis, it looks significant.

Our mandates are starting to come in institutional now that the consultants are getting more comfortable that we're making our way through the process.

We are picking up some nice wins.

There is a lot more to do but the pipeline is building.

So, we hopefully will start to see some traction there as well as we go into -- while we are in the new year.

Thanks for taking my questions.

Your next question comes from Andrew Kligerman from UBS Securities.

Please go ahead.

Good morning.

Just two quick ones just to make sure I understood it.

Walter, when you were talking about the run rate getting to $130 million to $150 million in [phase], are you at $50 million or $112 million?

I just wasn't clear on that.

Right now if you just take a look at where we are at the quarter in the fourth, it's about a $112 million run rate.

As we talked about when we did the transaction, we'd be on a net basis, $130 million to $150 million.

I am saying we are on track.

But that is, as I related, for the full run of the program -- and some of that will carry into 2012.

The bulk of it will be realized in 2011 but you will get the normalization factor coming into 2012.

So we are on track.

I just gave you the run rate right now.

That's perfect.

Then just, could you quantify the total amount of comp accrual adjustments that you experienced throughout the Company?

I think your answer before was just for the asset management division.

But I was curious throughout the Company?

Andrew, quarter-over-quarter if you look at the third quarter versus the fourth quarter, there is about $20 million of incremental.

As we looked at the performance and we accrued up, that is what the impact was in the fourth quarter versus the third quarter, about $20 million.

Got it.

And then just in terms of excess capital, the RBC, I think it was like 590% in the quarter yet every quarter, Walter, you say that your excess capital remains at $1.5 billion plus.

So my question is, what is the real excess capital number?

Is there a certain capital margin of that you have to absolutely keep?

What is that?

Then what are you planning to do with the excess capital?

Is it to keep pushing this buy-back or I continue to read about your interest in asset managers.

I think I read about Pioneer recently.

So, what is your interest in buying an asset manager and at what size?

I know I threw a lot of questions.

So it's what is the excess capital, what's the capital margin you absolutely need to keep and thirdly what are you going to do with it?

Is it buy asset managers, buy back stock?

And if you buy asset managers, fourthly, what is the size?

All right.

So let me take those questions.

The plus has gotten bigger.

Yes, as you look at the RBC and you do your calculations, from that standpoint you can see that using -- obviously you don't want to use the 350% because there is a rating agency default logic on it.

You would calculate that there is approximately $1 billion in excess sitting at the insurance company level.

Throughout the Company, we have, as we indicated, excess and certainly at corporate.

We are certainly on target as we talked about to do our repurchase within the levels of authorization and we're evaluating the circumstances as we look at the environment and certainly the opportunities to best return that to shareholders.

As Jim has said we certainly explore potential acquisitions as they come along, and we're opportunistic about it.

And certainly in the category of asset management, that would be one of the categories and distribution.

But we are now just progressing to have a share buy-back program and look at other ways to return that effectively to our shareholders.

So, Walter, just in terms of that $1.5 billion --- all right, so you're not going to give me how much the plus is, but how much do you need to keep?

Do you need to keep $500 million sitting there, do you need to keep $1 billion of it sitting there and never use it?

How much do you need to keep?

Listen, it's a great question.

It's about situation driven and you evaluate it.

As a definitional issue, you would say that you technically use the excess but you will assess it as you evaluate situation review at that particular time.

On this particular -- the way we look at it today, the excess is getting, as we moved out of the OD, certainly that will put less pressure on having any sort of contingent element within it.

So, we are -- we evaluate it.

At this stage I would say technically it's all usable.

Then depending on when we go to use it, we will assess the environment and assess the best use of the shareholder and how quickly we can replenish.

I think you know where the earnings are coming from, it's less capital intense.

So that gives us capability and that all goes into the evaluation of it.

That's why we talk about the plus, because you really do have -- it changes the circumstances but certainly within our definitions, we have excess that is usable.

So the last clarification around it would be, then, so you could indeed or you wouldn't -- you would be comfortable this year using up your authorization which I think is around $1 billion or if the right asset management operation came along, you could use $1 billion toward that?

That would not be something out of the realm of possibility?

Is that a fair observation on my part?

I think that is a reasonable observation.

Excellent.

Thank you much.

Your next question comes from Suneet Kamath from Sanford Bernstein.

Please go ahead.

Just a couple questions.

First for Jim on the property and casualty business, the auto and home business, I don't want to make too much out of one quarter but clearly your higher margin, lower capital intensive businesses are increasing.

I think that is a big positive from a shareholder's perspective.

I'm just wondering at some point does it make sense to retain this auto and home business?

I know that in the past the returns on it were accretive to your consolidated return but I think that was in part because your -- some of your asset management and advice and wealth management businesses weren't quite at their full earning potential.

But as those businesses get there, is it time to maybe reconsider whether or not you need to keep this auto and home in-house?

And then I will have another question.

Okay.

It's a good question.

Up until, again, you have a freak hail storm.

I should note that we have coverage so, above $10 million, that is reinsured and handled, and so, there is a cap to what that is but again it was a loss in the quarter.

I would also say that over the last few years, not that we didn't suffer this as a little bit of a set-back but over the last number of years we've had very good loss rates.

In fact we were releasing reserves over time based on what the accountants needed for us to do.

So, we did have a pickup here.

We think we have a very good reasonable and appropriate book.

We have good underwriting standards.

We have a low cost model.

I think as you look across the industry, it's one of the very good strong direct players out in the industry that I think is a very good asset.

I think it's complementary in a number of areas.

We are deepening our penetration within our own client base a bit more.

The client profiling we are picking up from our affinity partners I think is quite good.

So I think from a perspective of the Company, we don't think it will be a drag.

We think the returns have been pretty good and reasonable and appropriate against where we want to take the total returns for the business.

But having said that, we always have flexibility long term if that doesn't work the way we think it should.

Walter, do you want to --

Yes.

Also, we did take -- increase our reserves for the bodily injury.

We noticed a trend on severity that took place and the actuaries, they decided to take the reserves up.

I can say that in the fourth quarter the trend lines improved but, again, we felt it was prudent to take the reserves up.

The business does return a good return for us and is a good diversifier.

Okay.

I guess I just kind of look at where your stock is today and I think one of the big reasons it's down, despite pretty good trends in your asset management and advice and wealth is because of this noise at P&C.

And we have seen this with other life insurance hybrid models before; when something goes wrong on the insurance side, the stock tends to take a hit.

So I would just maybe put in my vote that you could reconsider that at some point.

My second question is related to this nonperformance risk FAS 157 thing.

Walter, I think you referenced in your prepared remarks twice that other life insurance companies put this below the line.

Clearly, it's very difficult to model.

Is there anything that you can do to help us think through how to model this on a quarterly basis such that it doesn't become a surprise to us because, obviously it's not cash, it's not economic, as you say and I think it's a pretty big distraction.

Yes.

We are really thinking about that and evaluating it because it is a non-economic impact and certainly as you look at the implications, it swings as with the interest rates going up and the change in the liabilities.

So, we are going to be discussing this quarter to come out, with either and look at all options, potentially excluding it or giving some sort of indication as we get later into the quarter.

Because it is -- there is no way of estimating it until you get towards the end of the quarter.

But you are spot on.

It really is problematic and it does drive differentials in the way people estimate it.

And there's no --- and so, we will work at that and certainly poll and talk to people about what the best way of doing that.

We do believe as we said, this is the non-economic aspect.

There are obviously transaction costs and other factors that we will reflect.

But this is the one that we are focusing on and we're going to work pretty hard to try and see if we can get the noise out of it and be able to give better transparency so people can have an idea about what the impact is in the quarters.

So we will get back to you.

Great.

Very helpful.

Just one quick follow-up to your prepared remarks.

You had mentioned when you were talking about the annuity business, that I think a larger percentage of the equity allocated to VAs is in the third party sales, those products.

Why would that be the case?

I think, yes, that is the case because of the percentage of living benefits that are actually acquired, sold in the outside channel.

That is the main driver of it.

It was a much higher percentage and that's what drove it up and obviously that is the prime reason, and behavioral patterns to a degree.

Understood.

Thank you.

(Operator Instructions).

Your next question comes from John Nadel from Sterne, Agee.

Please go ahead.

I have two questions for you.

The effective tax rate, Walter, in 2010 it was just under 24%.

I think you've guided us in the past to think about the marginal tax rate there being 35%.

Clearly, some of your tax planning strategies are working a bit better than maybe you anticipated.

I guess my question is, where should we be expecting that effective tax rate to move in 2011 and beyond?

Okay.

Yes, as I indicated, I think actually it was in the second quarter, maybe in the first quarter also, as we looked out in 2011 that the range we are giving it, 25% to 27%, and certainly it will probably be towards the lower end of that as we look at it now.

It is difficult to forecast it on a quarterly basis.

We have a better idea on an annual.

We did get an adjustment coming through from that was -- we thought was a little accelerated, but certainly we feel the rate for next year will be at the 25%, 27%, at the lower end of that.

Okay.

And then a question on asset management, just I know you don't want to give us necessarily the split of the revenue and the expense offset around the performance fees.

Any help you can give us as to thinking about the pre-tax operating margin excluding the performance fees?

I know those performance fees are real, I get it, but they are also a one quarter event so I'm sort of thinking about how do we look out to the next few quarters?

That's, okay, a fair question.

Yes, if you back that out, it should be between -- about 19.7%.

Okay.

Thank you very much.

The final question comes from Tom Gallagher from Credit Suisse.

Please go ahead.

The first question is, Walter, if I understood you correctly, if $112 million of Columbia synergy benefits are already in the number, that means only $38 million remain in terms of getting us to the $150 million?

So, said another way, we only have $38 million of benefits still left on asset management margins related to expense synergies.

Is that the right way to think about it?

Well, that is gross.

And the other thing is, as we said, the year-to-date gross synergies were $75 million.

If you do a run rate on that, it's $112 million as you look at the change between the quarter.

So that is what we are just trying to do, is give you a -- we said that we would do on the gross synergies between $150 million and $190 million.

Okay.

So you are talking about gross when you're using that $112 million, not net?

Yes.

So I could take $190 million, subtract $112 million and that would be the better way to think about what is left to come?

Yes, but you have to --- again, it's a range, $150 million to $190 million, remember that.

Right.

If I assume you hit the top end of your range, I could have another -- okay.

And the timing on when you expect to get those, will those be front half loaded, back half loaded in 2011?

Well, they are actually -- we didn't give guidance on it.

But it's certainly, as we go through it, you could expect there will be a calendarization factor that would carry over because as we basically bring on the transitional changes and the elements of that.

So there is a back loaded element to it which will have a carryover into '12.

Okay.

Then just a question on advice and wealth management margins.

I know you had mentioned there was an increase in legal expenses there.

But if you look at just how strong revenue growth has been there, assuming there is a corporate objective to improve those margins into the double digits, how should we think about timing?

Assuming your revenue growth remains the way it was this year, do you think we will get to double digit pre-tax margins in 2011 or is that further out?

Again, not to forecast but certainly as you look at the items that came in the quarter, as we talked about, the legal, the marketing, the bonusing, one could expect that you would get into double digits.

Okay, yes.

Just purely on -- because it was definitely a higher expense load this quarter which suppressed margins despite the fact that you had strong revenue growth.

So part of that is just seasonal with comp accrual I assume, or something like that?

Yes, you had that as resulted to the bonusing and certainly we started up the marketing program and then we had the legal that I mentioned that -- again, legal we would evaluate as we go through.

But certainly those were the elements that came through in the quarter.

But we did have to catch up on the bonusing.

Okay.

Last question is, I think if we try and at least identify the dyssynergy-related net outflows in asset management, which I think from a revenue standpoint if I remember correctly is expected to be $30 million -- $30 million loss approximately, where are we on that and should that all be behind us soon or how should I think about timing?

I understand you haven't wanted to give any outflow guidance from an asset standpoint but I know you've given it on revenues.

So I just want to know where we are at on the revenue side.

We are still working through.

It's still going through as it relates to the merger fees and the yield decline.

So that's still working through.

Right now we see it within its ranges and so it's on target.

But, Walter, from a revenue standpoint, are we halfway done or are we more than that?

I don't know if you can give some guidance on that.

I just don't have it on that side, if you're talking --- because the differential, the $20 million to $40 million, I don't have the exact numbers.

I think we're -- I don't want to speculate.

We'll get back to you on that.

But the issue is, I think we're just -- it is on target but there is certainly more to come.

That is not really -- that was more on combining of funds and things of that nature and not dealing with the outflow.

So Jim will give you some feedback.

Tom, just let me clarify.

We did say that $20 million to $40 million in revenue decline is going to include the lower fees we expect to receive on the funds as they merge.

That's going to happen through the first half of this year.

So, that impact, that portion of the $20 million to $40 million is still to come.

But there is a portion that has come, because --- as it relates to it.

Got it.

But that's what I'm saying, it's still coming.

So, was that -- maybe I misunderstood.

Did that $20 million to $40 million not include any anticipation of net outflows as a result or did that also include that?

There was some outflows that were definitely assumed that we knew as we combined at the very beginning and had overlap in portfolio managers and some institutional accounts that would leave once we did the combinations.

Some of that did take place in the third and fourth quarter.

I think what Walter is referencing as the other piece of it is mainly on the merger of the funds that takes place that we move to lower break points based on level of assets or that the funds that the assets are going into may have lower fees in the accounts because they are larger funds.

And, so, with that, that's the other piece of the tranche within the $20 million to $40 million.

Regarding whether we suffer full outflows that we experience or not, we didn't dictate every account.

But we feel comfortable that with where we are today and the assets, et cetera, that we are within those reasonableness as far as what we expected.

Now, having said that, we would like to move into inflows to grow the business rather than continue to be in sort of the outflow area.

That's where we're going to work hard to try to turn that around.

But, from what we originally estimated for what we knew at the time, I think we are within those bounds with the last piece coming as we merge the funds.

Got it.

Then I just have one last detail question for you, Walter, just to put this to bed.

So, if I assume you hit the top end of the range in terms of synergy related benefits, that would be $190 million.

You are at $112 million.

This is all gross.

The $30 million that you expect to lose on dyssynergy has not yet come so I really should be taking that off the $190 million to get to a net number.

So, on a net basis, we have gotten $112 million.

We have not yet deducted the $30 million.

We don't have $112 million.

We have a $112 million run rate leaving the year.

Okay.

$112 million was not booked as synergies within the year for actual realization.

Yes, $75 million is the actual number that we have.

So that's an end of the year that we -- that's not even in the -- that $112 million is not a run rate in the 4Q either, Jim?

It's a run rate out of 4Q.

At the end of 4Q.

But if you are asking is it already in the P&L for 2010, the answer is no.

Only $75 million is actually booked in the P&L in 2010 but as we leave the year that $75 million turns into $112 million for 2011.

I got you.

Okay.

That is helpful.

Thanks.

That was the last question for today.

Please go ahead with any final remarks.

Yes, first of all, I want to thank you for participating in the call and asking for the various questions that help clarify things.

I think one of the issues we do have which is very hard and we will try to figure out is how to deal with things like the $157 million because it's a non-economic charge but I know it goes -- people can't predict it.

So, the estimates that you come out with doesn't include it and it does sort of get a little noise in the system.

I would also leave with you this thought.

I think for the things that we wanted to do in 2010 and what we told you back in 2009 and '08 I think is actually coming about quite well.

I think we have had a strong business and a strong year.

I think we are seeing improvements.

We think we continue to drive margin improvements.

I feel very good about where AWM is and where it can go as well as with the Columbia deal and Threadneedle that we can actually continue to improve there as well.

Of course, we got work to do to change the flows around, et cetera, but I think we got good product line and good performance which is something that we never really had completely in the past.

I think we have a more substantial and fuller lineup.

Yes, we are still working through further levels of integration but the savings are being realized.

I think we have a good business now, a sizable business.

I think if you compare it to other large independent managers out there, we are quite sizable including our earnings and our ability to earn, and the same thing with our advice and wealth management.

We are starting to come into the stream where this is really having a substantial impact.

We think we can continue to grow those margins even with low interest rates.

Yes, we had some pickup in some expenses in the fourth quarter but I think outside of the Securities America activity our margins would have shown nice improvements as well in the fourth quarter for our core franchise business which is really the focus that we have.

So, I just want to leave you with the thoughts.

I think we will manage our other businesses very prudently to drive returns, and manage the risk.

That's why we chose to get out of the outside distribution of annuities.

I think we can generate good returns with good consumer behavior in the other annuities with strong hedging and I do believe our protection business will start to improve.

I take the note regarding the auto and home.

It has not been a problem for us but we don't want it to be a problem for us.

So, if we see anything substantially changing, we will evaluate.

But we really think it can drive margins but gives us some flexibility in case we don't need to.

And overall as Walter said, we do have a strong capital position.

We will be looking to utilize that appropriately.

I will not use the money for acquisitions unless they really made sense and we can really get good synergies as we have been showing you for the last few that we did.

And we will return to shareholders as appropriately but we don't need to do that all in one moment, but we can do that over time so that you can feel comfortable, we can feel comfortable and still have degrees of opportunity for growth and investment.

So I appreciate you taking the time.

I do feel we had a good year.

We tried to deliver everything that we told you about a year ago and we look forward to continuing to work with you in the new year.

Thank you.

Thank you for participating in the Ameriprise Financial fourth quarter and year end earnings conference call.

This concludes the conference for today.

You may all disconnect at this time.