On Monday, Fitch ratings agency raised its outlook on asset manager Ameriprise Financial Inc. (AMP) from ‘negative’ to ‘stable’ and affirmed its Issuer Default Rating (“IDR”) at “A” and Insurer Financial Strength (“IFS”) ratings for the company’s primary life insurance subsidiaries RiverSource Life Insurance Co. and RiverSource Life Insurance Co. of New York at “AA-“.
The upgrade is based on Fitch’s revised outlook on Ameriprise’s liquidity, financial stability and capitalization, and also on the company’s promising first quarter 2010 results. Fitch noted that the company’s exposure to investment losses is manageable, considering Ameriprise’s operating results and steady capital position relative to peers.
Fitch’s stable outlook echoes its view that Ameriprise’s balance sheet is expected to remain strong in the near future with net unrealized gain on investments of $1 billion and debt-to-total capital ratio of 20.5% as of March 31, 2010.
Ameriprise has an excellent financial flexibility with cash of about $1 billion as of March 31, 2010 following the payment of $1 billion for the acquisition of Columbia Asset Management. The company is expected to end 2010 with approximately $1 billion in cash after the projected payment of $340 million of debt in November 2010. Ameriprise has no other major debt maturities until 2015.
Ameriprise’s total financing and commitment ratio (“TFC”) was at 0.3 as of December 31, 2009, compared with the peer average of 1.07. Designed to measure debt, liquidity and capital market investments of a company and its overall dependence on the access to funding sources, TFC comprehensively measures debt-related leverage. The low TFC ratio of Ameriprise, according to Fitch, is mainly due to lack of commercial papers, securities lending, outstanding Federal Home Loan Bank borrowings or securitizations on its balance sheet.
However, Fitch was apprehensive about Ameriprise’s large equity exposure related to its variable annuity business, which could have a negative impact on reserve and capital position due to changes in policy holders’ behavior and adverse market conditions. This concern was partly alleviated by Ameriprise’s limited exposure to living benefit guarantees and extensive variable annuity hedging program, which was executed properly during the recent financial crisis.
Fitch also confirmed ratings for many of Ameriprise’s senior debt at “A-” and a junior subordinated notes due on June 1, 2066 at “BBB”.
Apart from Fitch, A.M. Best and Standard & Poor’s assigned/affirmed a ‘negative’ outlook to Ameriprise’s senior debt in September 2009 while Moody’s Corp. assigned a ‘stable’ outlook in March 2010.
Though the current global economic scenario is a cause of concern for Ameriprise’s critical sustainability factor, we think that the company has the potential to realize the full benefits of its strategic and cost-cutting initiatives in the long term, through its diverse business mix, a healthy balance sheet with lucrative, long-term investments and careful restructuring policy. However, increasing expenses on account of higher tax projections and debt restructuring charges remain major concerns at this point.
Read the full analyst report on “AMP”
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