Ameriprise Financial, Inc. (AMP) Q4 2017 Earnings Report, Transcript and Summary

Welcome to the Q4 2017 Earnings Call. My name is Paulette, and I will be your operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Alicia Charity, you may begin.

Thank you, and good morning. Welcome to Ameriprise Financials fourth quarter earnings call. On the call with me today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, our Chief Financial Officer. Following their remarks, we'll be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on slide two you see a discussion of forward-looking statements. Specifically during the call, you will hear reference to various non-GAAP financial measures which we believe provide insight into the company's operations. Reconciliations of non-GAAP numbers to their respective GAAP numbers can be found in today's materials. Some statements that we make on this call may be forward looking, reflecting management's expectations about future events and overall 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 our fourth quarter 2017 earnings release, our 2016 annual report to shareholders, and our 2016 10-K report. We make no obligation to update publicly or revise these forward-looking statements. Turning to slide three, you will see our GAAP financial results at the top of the page for the fourth quarter. As you are aware, the tax cuts and jobs act was established in the fourth quarter resulting in a $320 million unfavourable charge in the quarter. Given the charge is one time in nature, we are also provided our operating results adjusted for the tax re-measurement impact. Management believes this enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on operating financial results adjusted for tax re-measurement. And with that, I'll turn it over to Jim.

Good morning and thank you for joining today's earnings call. I'll provide my perspective on the business. Walter will speak about the numbers and then we’ll be happy to take your questions. Let's get started. I’m pleased to share that we had an excellent fourth quarter concluding what was a very strong year for Ameriprise. Clearly, the strong markets and operating environment we experienced throughout most of 2017 remains favourable in the fourth quarter. In addition, we had the beneficial impact of improving economies globally and the pro-growth agenda in Washington which boosted financial markets and investor sentiment. As I reflect on last year, we remain focused on what sets us apart providing a top quality experience to clients and advisors supported by strong solutions what we executed and invested in our strategy for long term value creation. We delivered strong results across the firm, with excellent momentum and returns in Advice & Wealth Management. Assets under management and administration reached a new high of $897 billion up 14% driven by continued strength in Ameriprise client flows and equity market appreciation. As you saw, while we took a one time charge in the quarter for the new tax act, we expect the ongoing benefits from tax reform to be positive. The lower corporate rate will provide additional opportunities for further free cash and capital generation, which we’ll further invest in the business while generating a good shareholder return. Regarding our operating numbers, excluding the tax impact we highlighted, we reached new highs on many metrics. Both earnings and earnings per share grew significantly from a year ago. Earnings were $502 million, up 13% and earnings per diluted share were $3.26 a 19% increase. When we look at full-year operating results, Ameriprise achieved a new record, earnings were $1.9 billion up 35% with earnings per share of $12.27, a 45% increase. In addition, we achieved a new high return on equity at 32.3% which is one of the best returns in financial services. Very few financial services companies are generating this level of hourly and capital return. And Ameriprise has consistently grown these measures at a meaningful rate. In 2017, we continued our growth investments and excellent expense management discipline and at the same time maintain our strong financial foundation. And consistent with our long-term strategy, we grew our lower capital fee-based businesses of wealth management and asset management to be 73% of our total operating earnings for the quarter, complemented by our protection and annuity businesses. Let’s move to the businesses. Our Advice & Wealth Management business is powerful and growing. The consumer opportunity around the need for advice is increasing. Ameriprise is one of the largest providers in the industry and we are very well situated with our leadership position and an advice value proposition. Recently, I met with our field leadership team to kick off the year and reminded them how a year ago our industry was facing a great deal of uncertainty with the Department of Labor role. Ameriprise devoted considerable time and resources to ensure we were well prepared. We kept our advisors focused on serving clients and running and growing their practices while managing significant regulatory changes. The way we work with and support our advisors, reflects the strength of our culture and why Ameriprise is so attractive in the industry. Moving to some of the key metrics for the quarter, Ameriprise retail client assets grew by 17% to $560 billion as we continue to serve more clients including more affluent clients and deepen our relationships with them. We brought in good client flows and our wrap net inflows grew 51% to $5 billion for the quarter. As a result, we continue to grow productivity nicely with operating total net revenue per financial advisor increasing 15% year-over-year, adjusting for net 12b-1 fee impacts. As a result of our consistent investments and the support we provide our advisors, we help them grow at a higher rate than the industry competitors over the longer term. With good growth and productivity as well as our expense discipline, we expand the pretax operating margins in AWM significantly to 22% in the fourth quarter, and if you look at the full-year, margins grew 300 basis points to 21.1% for the full-year. It also was another strong quarter for recruiting with 99 high quality advisors joining the firm, in fact it was one of our best quarters in terms of quality and quantity of advisor recruits, and we continue to see larger size practices joining Ameriprise. There are changes occurring in the recruiting landscape, but I believe we well situated to continue to attract good advisors who appreciate our advice value proposition and client centric culture. These are important differentiators and key to a strong reputation in the industry. In addition, we earned a number of important accolades in 2017. Number one in customer service, number one in forgiveness, number two in trust, a top performer in serving clients best interest and we also ranked first for the likelihood to recommend the firm to friends or colleague. And recently Ameriprise ranked number one for customer loyalty in the investment industry in the 2017 Temkin Index. We’re going to continue to tell our story through our integrated TV, digital and social media platform and we picked up 2018 with new ads for Our Be Brilliant and we’ll continue to invest in our brand and marketing including in our digital experience to provide clients with increased capabilities and security. As we move forward, our wealth management business is situated well. We’re building off an excellent year and started 2018 in a favorable position. We know that the experience and the advice value proposition we provide to clients creates confidence in its industry leading and we want to help more consumers experience it. Let’s move to annuities and protection. We continue to serve our clients long-term financial security needs through our annuity and protection offerings. These are solid books that we manage well. Total annuity and our VUL/UL insurance balances were up due to equity market appreciation. Variable annuity sales overall have been at a slower pace consistent with the industry and essentially flat last year, however we continuing to see a nice pickup in sales of annuities without living benefits up 18% from a year ago. And on the Life side, fourth quarter sales continue to show improvement over previous quarters particularly in IUL sales. We continue to help advisors provide these important solutions to clients from using data analytics to improve insurance underwriting, to implementing new digital and e-capabilities. In terms of the quarter, RiverSource launched our first Fixed Index annuity, which is a long-term retirement savings vehicle that can add stability to client’s retirement portfolios. Overall, we are focused on maintaining strong books of business in 2018. In Auto and Home, our changes are taking hold and we’re seeing good progress and results. We remain focused on increasing rates and enhancing segmentation and what discipline underwriting, enhanced reinsurance coverage to mitigate property cat risk and improving claims management. Unfortunately, like the industry we are impacted by higher cat losses in the quarter on the wildfires in California. Overall, aside from those cat losses, we’re seeing improvement in the underline loss development trends and that’s starting to be reflected in our financial results and reserve position. In asset management, we are generating good financial returns in managing and involving operating environment as we benefit from positive markets and our expense discipline. Regarding the business we are focused on executing our near-term plans while positioning the firm to compete globally over the long-term. Assets under management were up 9% to nearly $500 billion, and we are generating competitive financial results in the quarter. Operating earnings were up 27% and the adjusted margin increased to more than 39%, this includes a strong quarter for performance fees and CLO unwinds. In terms of the quarter, I’ll start with investment performance. We continue to generate consistent competitive performance with about 70% of our funds, equities, fixed income and asset allocation above [Indiscernible] or benchmarks for one, three and five year timeframes. We’ve delivered strong results in North America across domestic and international equities as well as taxable and tax exempt fixed income. This performance is reflected in our strong line up of 114 four-and five-star Morningstar-rated funds globally. We’ve also earned more than 50 investment awards around the world including terrific recognition as multi-asset manager of the year in the U.K. On the product front, we continue to focus on our strategic products that are in high demand categories, and align with investor needs. We’re also aiding products where we see opportunities that include our multi-asset solutions business where we are generating solid flows in our adaptive risk and diversify real return strategies in the U.S. and the U.K. We continue to build upon these capabilities. We recently launched the Columbia adaptive retirement series, a unique product for the defined contribution market that incorporates our adaptive risk capability. Another key priority is increase in Columbia Threadneedle’s brand awareness. We’ve had a good response to our ongoing advertising campaign centered on consistency. That included launching new ads on CNBC, awareness is up in our key regions and we are pleased with the results so far. As part of this work, we are investing to strengthen our online presence. We were recently recognized in the U.S. as a digital leader in asset management for a website and social media channels, and how they help advisors create solutions and achieve investor goals. And we continue to execute our multiyear project to move from regional operating platforms to a truly global front middle and back office operating platform. We make good progress in 2017 and once completed, we will strengthen our operating capabilities considerably, improve flexibility and our ability to offer customized solutions and increase efficiency. And on the regulatory front we are managing a significant change of gender including MiFID II and preparing for Brexit. In terms of flows, total net inflows were $2.4 billion including reinvest in dividends and the Limestone acquisition. In U.S. retail, overall we were net inflows of 3.8 billion including reinvested dividends. We experienced a more normal level of outflows at U.S. Trust given the characteristics of the legacy book. I know fourth quarter mutual fund net sales in VD and IAD channels improved by about $2 billion reflecting progress in our segmentation strategy and enhance business intelligence tools. We are making progress however with the move to passive there’s more work. In the U.K. and Europe retail, we had another good quarter for both gross and net sales, with net inflows of about 500 million. It was the third consecutive quarter of net inflows in the U.K. Europe. And in institutional, we had approximately 1.8 billion of former parent related outflows. In third party, we experienced elevated outflows of 4.3 billion which were very low fee fixed income mandates that had a weighted average fee rate of only four basis points. And we completed the acquisition of Limestone investments which complements our strength in U.K. property and added $5.4 billion in assets. I would note that we’ll remain in that outflows, particularly low fee third-party institutional former parent assets, our revenues and the fee rate overall for the business are up year-over-year reflecting the mix of assets we manage. Overall, we are positioning the business for the long-term to deliver for clients and generate good returns. In closing, Ameriprise had a strong quarter and an excellent year. We continue to be recognized for the way we work together, as well as for our community involvement. In 2017, Ameriprise received 100% rating on the corporate equality Index and we’ve earned this for the last 12 years. We’re again recognized as a best place to work. In the U.K. Columbia Threadneedle was named employer of the year at the women and finance awards. In addition, we were again named the military friendly employer for the fourth year in a row, and the foundation for all of this our employees and advisors, our engagement with them is industry-leading, as it’s been for many years. The strength of the Ameriprise culture is essential to how well-positioned we are to continue to deliver long-term value to clients and all our stakeholders. Now Walter will cover the financials, and I’ll be back to take your questions.

Thank you Jim. Ameriprise results in the quarter and in the year demonstrated significant progress in obtaining our long-term shareholder objectives with strong growth in revenue, EPS, and return-on-equity. I will go through the results in detail on the following pages. Moving to slide six, overall revenue growth was strong, up 10% in the quarter driven by Advice & Wealth Management Asset Management. Strong growth in client assets, particularly in wrap accounts and market appreciation drove substantial 17% topline growth in AWM. Asset Management revenue was up 8% from markets, performance fees in our hedge funds, and U.K. property funds and the unwinding of two CLO’s. Annuities in life and health insurance revenues were relatively flat consistent with prior trends. In the auto and home business revenues declined 7% due to the additional reinsurance arrangements established in 2017. On slide seven, Ameriprise reported operating EPS was $1.18 including the tax re-measurement impact. Adjusting for the tax item, EPS was $3.26 up 19% from last year. This was fuelled by our strong growth businesses where AWM and Asset Management earnings were up 28% and 27%. G&A expenses were up 6% adjusting for the timing of accruals for performance-based compensation, including asset management performance fees and foreign exchange translation, G&A was essentially flat, expense discipline remains the focus as we move into 2018. We returned more than 1.8 billion to shareholders via buybacks and dividends as well as closing on two acquisitions in our growth businesses. Capital return was slower in the second half of the year as we would expect giving the share price appreciation. Let’s turn to AWM on slide eight, Advice & Wealth Management delivered an outstanding quarter and a year. Revenues were up 17% driven by strong rap net inflows, improve transactional activity levels and market appreciation. Expense growth was driven by higher distribution related expenses; G&A was elevated from the timing of performance-based compensation and the on-boarding of IPI. Adjusting for these items, G&A was up 5% year-over-year based upon continued investment for growth and volume related items. Going forward, we will be consistent and prudently manage expenses relative to the level of revenue growth AWM had substantial earnings growth and margin expansion in the quarter and for the full year. The margin in the quarter was up 270 basis points to 22% and up 300 basis points to 21.1% for the full year. Let’s turn to page nine, asset management financial performance remained very strong. Revenues were up 8% from strong market appreciation as well as performance fees and the unwinding of two CLO’s in the period, in addition, the fee rate increase reflecting our mix of business. The CLO business provided good revenue and earnings benefit in 2017 as a number of deals unwound. We anticipate fewer deals to unwind in 2018. Expenses continue to be prudently managed due to the timing of performance related compensation that I previously mentioned and foreign exchange translation. G&A was up 8% year-over-years excluding those items G&A would be up only 1%. We delivered a 39% margin in the quarter supported by the strong performance fees in CLO’s. We continue to expect the margin to be in the 35% to 39% range in the near-term. Let’s turn to annuities on slide 10. The annuity segment benefited from strong markets in 2017. Pretax operating earnings were up 17% year-over-year. Variable annuities earnings growth was 25% from strong equity markets with fixed annuities earnings being down to 14 million as expected. Variable annuities continue to be in outflows, similar to the industry and the trends we’ve seen over the past year. We’ve seen an uptick in sales of a variable annuities product without living benefits. Our non-living benefit product now comprises about a third of our sales up from 29% of sales last year. The quality of our VA book is excellent. Our net amount at risk is exceptionally low relative to the industry. As a percent of account value it is only 0.3% with living benefits and 0.1% with death benefits. Fixed annuities pretax operating earnings declined $6 million as lapses in interest rates continue to impact results as expected. Turning to Protection on slide 11, Life & Health pretax operating earnings improved 16%. Overall claims experience is in line with expected ranges, though disability claims came in favorable to last year. Interest rates continue to pressure earnings, however the portfolio is positioned well to benefit when interest rates rise. In the auto and home business, pretax operating results in the quarter were impacted by elevated cat losses of 38 million as well as the contractual reinstatement premium on our reinsurance program. The prior year benefited from a $12 million reserve lease and lower cat losses. On an underlying basis, auto and home earnings were up from last year. Let’s turn to slide 12; we are continuing to grow our Advice & Wealth Management and Asset Management businesses at a faster pace than insurance and annuities. Advice & Wealth Management made up nearly 45% of the earnings in the quarter. Combined with asset management the fee-based business is made up 70% of our earnings for the full year and 73% for the fourth quarter. This mix shift supports our strong free cash flow generation. Let's turn to slide 13. As we announced early in January, Ameriprise had a one-time primarily non-cash impact in the fourth quarter related to the Tax Cut and Job Act of $320 million. This charge was related to the re-measurement of net deferred tax assets, repatriation tax and lower future tax benefits from low income housing assets. On a statutory basis this impacted our RBC ratio by about 40 percentage points, but the ratio remains quite strong at about 435%. We expect RBC to improve as we move through 2018. Going forward, tax reform will be advantageous to Ameriprise. We estimate our ongoing effective tax rate to be between 17% to 19%, driving an improvement in our cash flow generation particularly in AWM and asset management. Within two years we expect to earn back the charge taken in the fourth quarter. Turning to slide 14, Ameriprise’s balance sheet quality, cash flow generation and capital return remain very strong. Ameriprise’s capital position remains strong with $1.3 billion of excess capital reflecting the impact of tax reform. In the year, we returned about $1.8 billion of capital to shareholders, which was 96% of our operating earnings. As we move through 2017 our share price appreciated substantially. We lowered our share repurchase levels and allocated some of those resources to acquisitions. With that, we’ll take your questions.

Thank you. [Operator Instructions]. And our first question comes from Suneet Kamath from Citi. Please go ahead.

Thanks. Good morning. Just wanted to start with free cash flow on our post-tax reform basis, can you help us think through sort of what the annual pace of free cash flow generation is after the effective tax reform?

Yes. I guess, the easiest way to think it from my standpoint is, we’ve talked about it this particular environment situation that were generating 85%, 90% free cash flow. At this stage you could assume that that will go up by somewhere between 150 million and 200 million. I know I’m giving you a percentage versus that, but it’s the best way to think about because it will fall pretty at that level into the free cash flow category. Again assuming the mix of businesses and things don’t change, just coming from the Tax Reform Act.

Right. So take whatever our estimate is for earnings on a post-tax reform basis applied at 85% to 90% and then you’re saying add 150 million to 200 million on top of that?

Yes. That’s a fair way and we’ll be refining as we go through, but it’s a good measure to go through.

Okay, fine. And then as you think about tax reform just from a business perspective, do you expect to retain the benefits of the lower tax rate i.e. you have them fall to the bottom line or you expecting some potential offset either in terms of pricing or additional investment in the business?

We will continue to look at opportunities for continued investment as we have and we modulate that appropriately, so we would say that some of that we would like to continue to invest – continue to invest as we do with the other aspects of our free cash flow and some of that will be return as well. So -- and return as you saw last year we did some small acquisitions, so we think that would also be a way that utilizes some of the cash that we’re generating.

Okay. And just my last is just on the advice and wealth management business. In the past you’ve talk about the reasons why you exited the bank largely due to regulatory concerns and with some of the deregulation that's going on across financial services, are you contemplating or considering getting back into that business?

I think we are certainly evaluating that. And I think your observations are good ones.

Hey, great. Thanks.

Our next question comes from Ryan Krueger from KBW. Please go ahead.

Hi. Thanks. Good morning. With several large firms now pulling out of the broker protocol, can you talk about how you see that impacting recruiting for Ameriprise going forward?

Yes. We feel very good about the value proposition we have and our ability to track advisors. We tracked advisors not just from the protocol firms. Today we tracked them from firms that weren't in the protocol as well. And we have a good process in place. So we feel very good about our ability to continue to recruit appropriately if advisors are interested in joining us. We are in the protocol and so we’re remaining in. And so from that perspective we’ll continue to recruit in the marketplace and we feel that our value proposition is strong.

Got it. And then sticking with AWM, can you us, I know expenses were somewhat elevated in the quarter for comp and performance related reasons. Can you help us think about what we should expect for G&A expense growth in AWM in 2018?

I would say, if you -- as we go through, again, we’re going to be looking to invest for growth. But I would say on normalize patterns it certainly tie to our revenue growth and growth in revenue, but getting back into three to five range and staying in that range, because we will be investing in the business and obviously there is volume associate expenses. But it will be correlated to what the revenue growth is.

Got it. Thank you.

And our next question comes from Alex Blostein from Goldman Sachs. Please go ahead.

Hey. Good morning everybody. Couple of questions for you guys around the De Young [ph] business. I guest first around recruitment, if I look at the quarter I guess you guys highlighted 99 new recruits for the year looks by a numbers over 360 or something like that. That’s a very strong year. Can you guys remind us kind of what the productivity of these new recruits stand today versus kind like their run rate once all the assets that are transition over to you guys? And then I have a follow-up.

Well, the new recruits coming in, our average productivity on them are actually pretty strong. They are actually above the average across our system right now, particularly in the employee channel. So that was quite good. But as I said, it does take up to three years for ramp-up, some sooner than others. But the nature on averages it takes two to three years for them to ramp up to their productivity. And so as an example if you look at our AAG platform which is the employee platform, you can see it more because the number of recruits there a bit higher against the base, but the productivity of the channel has grown nicely and so has the margins in that channel.

Right. You kind of hit on the second part of my question there; so if I look at the retention in the employee channel that improve nicely as well. So I guess should we think of that as a sign that you guys are sort of getting closer to the end of kind of phasing out lower producers and in other words that that net number in the employee headcount should start to kind of creep higher and grow from here versus you guys had really good recruiting but then some lower producers were leaving, so we are in a little bit more of a steady-state now?

Yes. I think overall as you think about the core of the AAG business that is correct. We do and have added the IPI channel which is a new channel that were still going through an integration of or will over the course of the year, so that's an aside. But as a core of the AAG the answer is yes.

Got it. Thanks for that. And then I guess separately just want to go back to the capital discussion for a second. I hear you on reinvesting some, but I guess if we think about the return of capital on a pro forma for tax reforms, kind of higher earnings base, is 90% to 100% payout, still what you guys are shooting for and the mix between kind of dividends and buybacks?

Yes. Alex. That is still the guidance from that standpoint to 90% to 100%, again circumstance driven, but that's where we said that we would target.

Understand. Great. Thanks for taking the questions.

Our next question comes from Humphrey Lee from Dowling & Partners. Please go ahead.

Good morning and thank you for taking my questions. In asset management in the press release you talk about the average fee rates for those $4.3 billion of redemptions were kind of around four basis points, which is pretty helpful. But what about the average fee rates that you’re collecting on the inflows that you're getting, and how is that compare to the outflows?

Well, overall our fee base on the rate basis points, I’d say 2017 over 2016 is actually up, it's a combination of mix, some of the assets that we've added but also overall the assets that we managed or retain, which we do have a good portion, a good thing in equity. We did lose a bit more in the fixed income side in net flow picture which has very low basis points for some of those institutional and parent activities. So that's really the balancing. The flow picture that we bring in from the new flows actually have good rates to them including in the institutional side of the business. So we still feel very good about the total that we’re managing and echoes both domestically but also internationally. We’re bringing in some good retail asset net inflows in the international marketplace as well as good fees.

I think if you look at the overall average fee rates for asset management is probably around 52 to 53 basis points, which is say that the new business that you’re bringing in would be higher than that or in line with that?

It’s Walter. It’s a tad lower but it's -- if you take a look at the inflow versus the outflow for your question, the inflow basis points are about 15% higher than the outflow as we look over the quarter and looked over the 2017.

And remember it's a combination of institutional and retail asset, so that's in OpEx.

Got it. And then, staying with asset management, so you are going through the platform consolidation that was started in 2017 and my understanding is it’s probably complete in 2018. And looking at your expenses you seems to be getting pretty good results from the consolidation in terms of expenses which is pretty much flat for the full year and at the most in large part. And my understanding is some of the benefits would have yet to come through in 2018. So how should we think about the potential efficiency gains that you can generate from the platform consolidation in 2018?

Sure. It’s Walter. We will generate some efficiency gains, but also we’ll be incurring expenses as it relates -- relates to Brexit, relates to the every elements. And the benefits that we will start garnering with the capabilities that we have in this conversion is really ability and to offer products across the global aspects of this and the consistency on the risk management and you have a capabilities. So it's going to give us those capabilities. But we will get some dollars savings, but it’s not going to be the main focus of it, because we’ve we picked up some already and we will be spending money on new initiatives. But it certainly the capabilities that gives us is going to be vastly beyond the dollar saving.

Got it. Thank you.

Our next question comes from Doug Mewhirter from SunTrust. Please go ahead.

Hi. Good morning. First question on message to – do you have – it’s a better idea of what the impact to your G&A expenses would be for your European operations. I know it’s very – from the other side of the table I know it's been a very complicated process. So I was just wondering if you sort of narrow that down at all as to what the impact would be?

Yes. We've gone through an extensive process and obviously looking at the level of research and how to reengineer. So I would say that we bought the cost a bit down and still maintain servicing capabilities that were associated with it. So it should not be a major event for us in 2018, obviously where there’ll be some of the course, but we have really reengineered those cost of levels that we can manage.

Okay. Thanks for that. And my second and final question maybe for Walter. What was that the dollar contribution from the CLO unwind in the fourth quarter?

From CLO, the total was 32; it’s around 16 [ph] or 60 [ph].

$16 [ph] million.

Yes.

Okay. Thank you.

You’re welcome.

Our next question comes from Adam Klauber from William Blair. Please go ahead.

Good morning. Last year you did two what I call bolt-on deals. How does the pipeline look for 2018 and if you do deals, were they’ll be sort of that similar size?

Yes. We’re continuing to look at opportunities that still up in the marketplace or that we think would be of interest to us appropriately. As you know that ones you look at and ones that you can actually do appropriately that make sense. So we're constantly looking at that and will to 2018, we think the marketplace is open in that sense and things will come out this year. So it is something that we have as part of our plans. But there will be small acquisitions along those lines, but ones that we can bolt-on.

Okay. Thanks. And then in advice and wealth management I know you don't give the exact data, but would you say your net new business in 2017 is that doing better than we saw say in 2015 and 2016?

Yes. The answer is yes. We’ve had very good strong client activity, new client activity and flows in even where the money being deployed our cash balances are still very consistently high from the new cash flow coming in. So we feel very good about that business. And our advisors are actually generating even nicer increase productivity. And we’re actually going to do a bit more and helping the advisors grows this year. Now that we’re not concentrating on the DOL activities and we’re investing both in technology as well as in a capability over the course of the year to even bring our client experience to life even more so, our advice experience, the digital advice tools that we’re going to put into our advisors hands. So we feel very good. And some of the things Walter said is investment it's in some good technology including and some of our contact activities and engagement activities for clients. So over the course of the year we’re continuing to really deploy and invest in better capabilities to help our advisors even be more engaged.

Okay. Thanks. And just one detail question. If you haven’t said, what is the dollar amount of the performance fees and asset management for the quarter?

Dollar amount performance fees, well, I gave you PTI, I don’t if I have them. I’ll get back. I don’t to guess, but the…

Well, the PTI impact…

The PTI impact, I gave you is a six and then had to go through the compensation. That was performance fees then you have the CLOS, the total is 32.

32.

Total is 32 for CLOs and for – what you call again, for performance fees to property, but the breakdown how much was in the revenue and how much was so on the expense side, I just don’t have that in front of me.

Okay.

But I’ll get it before I’ll out.

Thanks.

Our next question comes from Tom Gallagher from Evercore. Please go ahead.

Good morning. Walter, the decline in excess capital of 400 million, was that all RBC tax reform driven? And does that imply that you’re not changing your RBC target despite the fact that there’s kind of been mechanical change in RBC. Can you describe what drove the $400 million decline?

Sure. The answer to your question yes, it is driven by the tax reform. The answer to the second part of the question is the RBC and the effectiveness and the required RBC is driven by the rating agencies. To the best of my knowledge I have not given us any guidance that they will be changing what their required RBC will be. And we have the ability and will be building back your RBC as we go through the year.

Got you. And then just on the long-term care in the runoff corporate operation, the loss of around 13 million, that's the highest loss you’ve had. I think as far back as I can see. And I know you guys called out clean severity and then it normalized in December. But how should we think about your comfort in reserves just given, I mean you had GE take a very large charge in the market for the same type of business. But can you talk a little bit about your comfort in that exposure?

Sure. Before I go there I just want to say that 435 RBC that we reported actually is above the standard. So we're starting at a good place from that standpoint. As relates to the – you’re saying is the loss 13, that was a PTI loss. That was not claims. That was not all claims. The majority I would say about only 30%, 40% was claims and that related to basically experience of having new claims come in and cohorts that were higher than on daily payouts and we book it. We do not believe that will change. Our active reserve adequacy as we look at and we did extensive analysis and that trend line has now subsequently changed. The other parts of it, we had around $4 million to $5 million loss in LTC which is normal. We have that. And then the other part was really, we had to do with timing issue that we looking at transfers and some lapsing that we didn’t pick up the exact amount. But again it is -- we feel extremely comfortable with reserves. It's gone through extensive reviews and certainly we feel that they are adequate and we constantly monitor.

Okay. Thanks.

Our next question comes from Erik Bass from Autonomous Research. Please go ahead.

Hi. Thank you. First, I had one follow-up on taxes and just wondering if you expect the lower tax rate to have any impact on pricing or fee rates and neither the advice & wealth management or asset management businesses?

No. We personally look at the marketplace competitively, in asset management we make adjustments in fee levels appropriately based on whether it's institutional or retail in certain activities, but we’ve been doing that on an ongoing basis, not necessarily or will be driven by the tax rate. And in AWM as well, it's based on client level of activity and value and appropriate for the adviser to decide for the activities with their clients and nothing is going to be holistically driven by the tax rate.

Got it. So you’re not seeing any competitive pressures with people becoming more aggressive on pricing as a result of the tax benefit gains?

Not at this point.

Okay. And then can you also update us on what you're seeing in terms of the competitive dynamics around cash fees and I guess what you're anticipating in terms of the benefit from additional rate hikes that we may get in 2018?

Yes. We have seen – over the year there’s been some increase and certainly we follow that because we’re coming of a very low base, but it's been much less than we originally would've anticipate in the beginning of the year. So we are seeing competitors are being fairly consistent and we’re certainly observing, but at this stage it's very tough to gauge the exact amount that will be proportionally to us and to shareholder based upon the situation. So we will remain competitive and we are competitive and so will have to gauge. But I imagine we would -- the percent would increase if we -- that's what I would think and we'll have to gauge the competitive reactions.

Got it. So you still expect to be able to retain at least some of the benefit of additional rate hikes?

Absolutely. And we believe that is what the trend line is, yes, some.

Got it. Thank you.

Our next question comes from Kenneth Lee from RBC Capital Markets. Please go ahead.

Thanks for taking my question. Just looking at the wrap flows, it was a very strong annualized organic growth in the quarter. What would you highlight as particular drivers for the recent strength inflows, more specific I'm just wondering how much could be driven by potential shifts from my commission-based accounts? Thanks.

Yes. So over the course of the year, but over the course of the last number of years there's been a shift from commission-based business to fee-based accounts and that's definitely included for the fourth quarter, but we also seen greater inflow of client activity that has been going to the fee-based business. And so as their advisors continue to look at doing business that way – more of the flows will continue to go into that area. We still saw a very good transactional activity in the fourth quarter, so we didn’t see it as just a shift, we saw it as more client activity with a piece going to commission base, but more so on the trend line to the advised based, fee based business.

Great. And just more quick one. Just in terms of the asset management assets under management, could you just remind us how much of that AUM is more general account versus I guess I would call that more third party AUM? Thanks.\

Yes. The Asset Management, how much is general account?

General account is around $35 billion to $40 billion.

Got you. Okay, great thank you very much.

And we have an answer on the question on performance fees. The revenue is 34 billion and the PTI is 16.

Thank you. And our next question comes from John Barnidge from Sandler O'Neill. Please go ahead.

Thank you. A couple of questions. There is a lot of catastrophe loss activity in 4Q and generally in 2017 in the industry. Can you talk about your pricing power as a result and then I have one follow up.

When you say pricing power, the ability to raise our premiums because of it, is that what you...

Yes.

It’s again dealing with cat losses, you have to demonstrate it then non-anomalous and that because they are it’s very tough to pass rate. We have courage; it was really the unique nature of the California fires two of them. The first one of course being the most damaging. That basically, we ate the larger portion on that and it’s – so we will evaluate and the team is evaluating what aspects will be then put into pricing and then obviously we have to be competitive, and ensure and pass through the years state filters, but certainly it will be evaluating if it is part of the regular trend line and is incorporated we will stop pricing for it.

And then there have been a lot of press reports about the California Insurance Commissioner possibly pressuring rate for property insurers in light of tax reform so that the corporate reduction is passed completely along the policy holders. Is there any commentary you have about that?

No, that one I don’t, I really do not. I don’t want to have to figure out myself, if you don’t mind.

No, that’s fine. Thanks for the answers.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. And you may now disconnect.