Ameriprise celebrates Fed interest rate hikes

What do you want to know

  • Jim Cracchiolo launched the first quarter earnings call by expressing his horror at the situation in Ukraine.
  • He predicted that the Fed’s efforts to raise short-term rates will lead to a significant increase in earnings.
  • He suggested higher rates could make it easier to sell unwanted blocks of annuities and long-term care insurance.

frames to Ameriprise Financial attempt to tell investors how bright the future looks for issuers of life insurance and annuities right now, while being sympathetic to the issues facing the world as a whole.

Jim Cracchiolo, The CEO of the Minneapolis-based company struggled to strike a balance between worry and optimism on Tuesday when he briefed stock analysts on the company’s first-quarter results.

Cracchiolo began the earnings call by acknowledging that global equity markets are more volatile than they have been in recent quarters and the geopolitical situation is challenging.

“Before discussing the quarter, I would like to acknowledge the horrible situation in Ukraine,” Cracchiolo said. “Ameriprise vehemently condemns the atrocities committed by Russia, and our hearts go out to the people of Ukraine and all those affected.”

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

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

For issuers of life insurance and annuities, the environment is particularly buoyant, due to a change in orientation within the Federal Reserve Board.

“The Fed has finally started raising short-term rates, which is appropriate,” Cracchiolo said. “They have been slow to act and signal that they will have to become more aggressive.”

What this means

No one at Ameriprise was breaking out the champagne and saying that the good times seemed to return for sales of life insurance, disability insurance and guaranteed annuities once interest rates really picked up.

But no one was expressing gloom about the rate hike either.

Why Tariffs Matter to Ameriprise

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

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

For regulatory and risk management reasons, life insurers tend to invest primarily in bonds and other fixed income securities, such as mortgages. They focus on buying and holding these investments for the long term, rather than actively trading.

When interest rates rise, companies such as Ameriprise earn higher returns on their invested assets, without experiencing the kinds of declines in current bond prices that active bond traders face.

Earnings

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

The Retirement & Protection unit, which handles the company’s insurance business, posted pretax adjusted operating profit of $191 million on $772 million in revenue, versus $183 million in operating profit on $787 million in revenue for the prior year quarter.

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

Life and disability insurance sales increased 27% to $72 million, driven by strong sales of variable universal life products.


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