Ameriprise Financial's (AMP) CEO James Cracchiolo on Q2 2014 Results - Earnings Call Transcript

Jul.30.14 | About: Ameriprise Financial, (AMP)

Ameriprise Financial (NYSE:AMP)

Q2 2014 Earnings Call

July 30, 2014 9:00 am ET

Executives

Alicia Charity -

James M. Cracchiolo - Chairman, Chief Executive Officer and Chairman of Executive Committee

Walter S. Berman - Chief Financial Officer and Executive Vice President

Analysts

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Seth Tennant

Suneet L. Kamath - UBS Investment Bank, Research Division

Operator

Welcome to the Ameriprise Financial Second Quarter 2014 Earnings Call. My name is Ellen, 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. Ms. Charity, you may begin.

Alicia Charity

Thank you, and good morning. Welcome to Ameriprise Financial's Second Quarter Earnings Call. On the call today with me are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. During the call, you will hear references to various non-GAAP financial measures which we believe provide insight into the company's operations. Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about the future 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, our 2013 annual report to shareholders and our 2013 10-K report. We take no obligation to update publicly or revise these forward-looking statements. And with that, I'll turn it over to Jim.

James M. Cracchiolo

Good morning, and thank you for joining our second quarter earnings call. I'll start with my perspective on the quarter and how I'm feeling about the business. Walter will cover the numbers in more detail, and then we'll answer your questions. As you saw in our release, it was another strong quarter for Ameriprise, marking a very good first half of the year. We had meaningful operating net revenue growth, up 8% to $2.9 billion. Operating earnings were also strong at $408 million, with operating earnings per diluted share up 31% to $2.08, excluding the Cofunds gain from a year ago. Assets under management and administration reached an all-time high, increasing 15% to $810 billion, reflecting strong advisor client flows and positive markets. We're executing our strategy well, and I'm pleased with how Ameriprise is performing. Maintaining an excellent financial foundation is core to how we operate the company. Our capital and financial position is very strong, and we continue to generate significant free cash flows to return to shareholders.

During the quarter, we returned $464 million to shareholders through share repurchases and dividends. And year-to-date, as of June 30, we returned $921 million to shareholders in excess of our total earnings. With our strong earnings and capital return, we delivered record operating return on equity, excluding AOCI, of 21.7%, up 380 basis points from a year ago.

Let's get into the business, beginning with Advice & Wealth Management, where we're achieving excellent results. Operating net revenues were up 11% to $1.2 billion. A strong fee-based growth continues to offset the weight of low interest rates.

I'm very pleased with the revenue growth we're delivering. Clients are engaged and active. Total client assets increased 16% to $435 billion, and we continue to have meaningful flows in our investment advisory programs. Our advisor productivity continues to grow nicely, increasing 14% to $468,000 on a trailing 12-month basis. Pretax operating earnings were up 29% to $194 million, and pretax operating margin increased significantly to 16.2%. We're focusing on taking advisor productivity even higher as advisors utilize the resources and capabilities that we invest in for them. Our priority is to bring in new clients and assets to Ameriprise and to deepen relationships with our current clients. Our "Real Questions, Real Answers" advertising campaign continues to resonate well with our clients and consumers and brand awareness is at record levels.

Our Confident Retirement approach, which we feature in the campaign, is beginning to take hold. We're seeing a terrific initial response both from clients who have experienced it, as well as its effect on advisor practices. Client satisfaction to [ph] our approach is in the mid to upper 90s, and our advisors who have incorporated it into their practices are more productive. Importantly, our advisor force remains strong, and they're feeling good about the company. Retention and satisfaction rates remain very high.

We continue to recruit good, productive advisors and brought in another 54 in the quarter. This is down a bit from where we started the year, but it's consistent with the overall slowdown in recruiting that the industry is experiencing. That said, the productivity of advisors we're bringing in is very good and growing. For the second half of the year, our recruiting pipeline looks good and is building. We're also supporting our advisors to benefit from the investments we've made, especially in our brokerage platform, online and mobile capabilities. Advisors who are taking advantage of our technology platform find that it helps them save time, increase efficiency and productivity. At the company level, we're starting to realize operating cost efficiencies from our technology. It's more than just tools, it's about the overall client experience. Temkin Trust Ratings indicate that in 2014, Ameriprise has the second-highest trust rating, as well as the highest forgiveness in the investment firm industry. Also during the quarter, DALBAR recognized Ameriprise as a social media "All-Star," giving us a 5-star rating in social engagement in their rankings of financial services firms.

Our advisors are feeling good about the value proposition and growth opportunity they have here. I've just returned from a national conference with our top 1,500 advisors. I've heard from many of them about how energized they are about Ameriprise. The marketing, technology and leadership we're providing, and importantly, their ability to grow even further. Overall, it was another excellent quarter for Advice & Wealth Management. We're delivering nice growth and profitability across the business. The business is consistently generating the results we expected and that we told you we could achieve. Our focus is to continue to execute well and maintain our momentum.

Now let me turn to Asset Management, where we're delivering competitive financial results and gaining some traction. Our assets under management grew to $518 billion, up 13% from a year ago, mainly driven by positive equity markets in the U.S. and Europe. The combination of solid revenue growth and good expense management drove operating earnings up 21% to $199 million when adjusting for the prior year gain. We're delivering competitive investment performance with the exception of a few areas, which we are addressing.

With regard to flows, we generated net inflows of $4.4 billion in the quarter compared to $2.1 billion of outflows last year. Walter will take you through the details, but at a high level, we continue to experience strong net inflows in the U.K. and Europe, which have offset outflows from a manager change last quarter. Domestically, we're working to expand our presence on key platforms and other distribution channels. While we remain in net outflows, we're seeing some improvement, most notably in our former parent affiliated channel, and we're addressing challenges in DCIO. And in institutional, the pipeline looks good and continues to build. The same change place mandate funded in the quarter, and we're making very good progress in the traditional third-party business, with a number of wins in the quarter that reflect a healthy pipeline. In addition, we're making good progress in a number of other areas, including in investment solutions as well as global products. We're adding to our product capabilities. A great example is the Columbia adoptive risk allocation product that recently launched, managed by Jeff Knight and the team. We have a similar product for retail clients. In addition, Columbia flexible capital income fund just reached its 3-year anniversary, and Threadneedle launched a global corporate bond fund that benefits from the fixed income capabilities of both Threadneedle and Columbia.

We're also adding talent. We recently hired industry veteran Bill Landis to lead the strategic plan for Columbia's multi-asset solution business. We'll soon be announcing a new head of our U.S. intermediary organization. These are 2 important growth opportunities for us, and I feel good about the team we're putting in place. As I've discussed, there's more work to do, but we're moving in a positive direction.

Let's move to Annuities and Protection, key businesses and central to our Confident Retirement approach. Our Annuity business is well positioned and we're generating good returns with lower risk and volatility. We built a differentiated business that we're growing at the moderate pace we want. In variable annuities, client account balances grew 10% due to market appreciation. We have $1.2 billion in new sales in our channel. And as we noted, about a quarter of those sales were without living benefits. In addition, clients and advisors continue to move assets to our portfolio stabilizer funds, which enhances our clients, as well as our overall risk profile. We're making enhancements to our VAs without living benefits. We're adding 4 new investment options at the end of the quarter and helping advisors and clients understand the benefits these income solutions can provides through our Confident Retirement approach. We're also developing additional services to support income management that we plan to release later this year.

In fixed annuities, while earnings are down, results are in line with what we expected. As we stated, our focus remains on the overall profitability of the book. As these products come out of rate guarantee periods, we're able to reprice to mitigate the rate impact. In Protection, our financial results in the quarter were flat to last year.

Let's start with life insurance, where earnings were up and continue to reflect good claims experience. Variable universal life sales picked up year-over-year, and VUL/UL ending account balances were up 10%. In Auto & Home, premiums are up nicely, and we had good policy growth, up 12% from a year ago. We're working to deepen our relationships with our affiliate partners, and our own advisors are seeing nice progress. Auto & Home is rated one of the best firms for client satisfaction, and retention also remains very high. As I've mentioned, Auto & Home earnings suffered because of weather-related losses in the quarter, consistent with others in the industry.

Overall, Ameriprise had a strong second quarter and a very good first half of the year. We're executing our strategy well and realizing the benefits as we continue to invest for further growth. Overall, revenues are growing nicely, and we're delivering excellent operating return on equity, excluding AOCI, that is now almost 22%. Our strong business results and ability to generate significant free cash flow provide us the ability to continue to return to shareholders, as we have in the past, and we have maintained the capability to do that through our newly increased buyback authorization. With that, I'd like to hand things over to Walter.

Walter S. Berman

Thank you, Jim. Ameriprise delivered another quarter of excellent financial results. Let's start with operating net revenue growth on Page 3. In total, operating net revenues grew 8%, excluding the gain on the sale of Cofunds last year, driven by strong operating fundamentals. This was led by particularly robust growth in Advice & Wealth Management. Revenue growth, combined with continued expense discipline, resulted in a record 16.2% margin in AWM and a 38.7% margin in Asset Management. Together, Advice & Wealth Management and Asset Management operating earnings grew 25%, excluding the gain on Cofunds and account for over 60% of the earnings, demonstrating our continued business mix shift.

Turning to Slide 4. Operating return on equity reached another all-time high of 21.7%, up nearly 400 basis points and solidly within our targeted range of 19% to 23%. Operating earnings per share also reached a new record level of $2.08, up 31%, excluding the gain of the sale of Cofunds, a credit to solid business growth and continued strong capital management.

Moving to Slide 5. We continue to deliver excellent business metrics and financial results in Advice & Wealth Management, with 11% top line growth. Pretax operating earnings were up 29% to $194 million due to improved advisor productivity and continued strong asset growth. As we have discussed previously, we are seeing continued improvement in the earnings and margins in both the employee and franchise channels. In total, margins reached a new record high of 16.2%, up 230 basis points. These results were achieved with no benefit from interest rates on over $22 billion we have in short-term funds. Spread earned on the $18.5 billion of brokerage cash was just 17 basis points this quarter. So there remains a substantial upside potential from an increase in short-term rates going forward. Overall, it was another excellent quarter for AWM. And the business continues to deliver consistently good results, demonstrating the strength of our business model.

Turning to Asset Management on Slide 6. Revenues increased to $844 million, primarily from growth in assets under management from strong markets. We've continued to manage expense tightly, with G&A up only 1%. This resulted in an underlying earnings growth of 21% and margins of 38.7%. Assets under management increased 13% from market appreciation and net flows, which I will cover in more detail on the next slide. In the quarter, we had a total of $4.4 billion of net inflows, with inflows in retail, institutional and alternative assets. We had a total net inflow of $600 million in retail. At Columbia, we had $700 million of retail inflows, including $3.5 billion of reinvested dividends. We had outflows in several areas we have discussed in the past, namely former parent affiliated distribution, the RIA channel and a sub advisor. In addition, we continue to face some challenges in the retail intermediate channel at Columbia, particularly in the DCIO channel.

At Threadneedle, retail flows were breakeven, with strong underlying inflows offset by outflows in the U.S. equity product, where we had a portfolio manager change earlier this year. Performance has been solid under Diane Sobin's leadership, and we had added a few resources to round out the U.S. equity team.

Institutional net inflows of $3.5 billion were driven by the funding of St. James Place mandate and third-party institutional flows at Columbia. Partially offsetting this were outflows from several former parent-related areas at both Columbia and Threadneedle, as well as a onetime outflow from corporate Liverpool Victoria assets. The third-party institutional pipeline looks quite solid as we look over the next few quarters.

Turning to annuities on Slide 8. Pretax operating earnings were $170 million. Variable annuity pretax operating earnings grew 79% from a year ago, driven by the impact of clients moving to manage volatility funds, as well as higher fees and mean reversion from improved equity markets. We continue to see existing policyholders moving to manage volatility funds at a higher level than anticipated. Since the inception in quarter 4 of 2013, over $5 billion of account value has moved to these funds. The in-force book is solid, with account values up 10% to $78 billion. Our net amount at risk as a percent of account value is only 0.1% for both living benefits and death benefits. Variable annuities remain an important solution for our clients. We continue to write new business with very attractive risk profile, offering products with living benefit guarantees using our managed volatility funds and products without living benefits that provide tax advantage accumulation for our clients.

In fixed annuities, pretax operating earnings were $30 million, down 6% from a year ago. These results are in line with our expectations, particularly given lower overall market sales and the repricing of a large block of policies. Fixed annuity account values declined 7% to $12.6 billion, primarily reflecting continued elevated lapse on products sold through third parties, where rates had been reset. This repricing initiative is largely complete and preceding in line with our expectations in terms of lapse and the favorable impact on spreads.

Moving to Protection on Slide 9. Pretax operating earnings were flat at $91 million due to cat losses in Auto & Home. Our life and health businesses remain solid, and earnings are in line with expectations. Account balances grew for VUL and UL by 10%, and life and health claims experience remains good. Auto & Home earnings were below expectations as a result of cat losses of $33 million. While this is consistent with the industry, cat losses were $12 million higher than anticipated.

Let's turn to capital in Slide 10. Our balance sheet remains strong with over $2 billion of excess capital, and our RBC ratio is approximately 530%. We continue to return capital to shareholders with $464 million distributed through dividends and share repurchase in the quarter. A significant return of capital is an important driver of our ROE expansion. We reached a record 21.7%, which is solidly in line with our targeted range of 19% to 23%. With that, we will take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Alex Blostein with Goldman Sachs.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

First question on the flow dynamic. Look, I mean, I guess we've seen the legacy related and the parent -- legacy parent-related, sorry, outflows for quite some time. And in your prepared comments, sounds like at Columbia, in particular, maybe they've gotten a little bit better, but flows are still fairly, I guess, disappointing. So it implies, I guess, the rest of the business may have gotten a little bit worse. So can we just get, I guess, an update on what do you guys still think is at risk. And help us parse out the outlook for flows from here.

Walter S. Berman

On flows and looking at the quarter. Obviously, you saw that from our standpoint, there was -- the activity levels slowed. And basically, that was -- we evaluated the situation that the rebalancing was slower and which resulted in lower gross sales. And also, it's basically the same with the redemptions and the sales of basically a complacence. These people are pretty content where they are. We've checked through, and we've seen this trend with the industry in several of our peers. So we do see that we are making progress, and as we indicated, the flows from the former parent and certainly related are within the ranges and actually performing. So again, we're on track. It's, again, work to be done. But it is -- I think, we are making progress and still progress to be made.

James M. Cracchiolo

Yes, Alex, I think we -- to Walter's point, we saw a bit slowing in the sales. Outside of the x parent -- I mean, the Zurich, we're always going to have that and we also will always have part of the outflows from the large base that we have for the affiliated. That's more of a natural rebalancing that will continue to occur. So we're not concerned about that. In fact, those look like they actually, similar to what Walter said for the industry, sort of slowed a little bit because the redemptions weren't as high and even though the sales were a bit lower. I think the 2 things that probably affect us a little more in the second quarter was we continued to get the outflow from the U.S. desk that we had in Threadneedle, and that's in the retail side. We had booked the same change as an institutional mandate. And then, in the U.S., a bit more, as Walter said in his comments and I said in the DCIO, where there was a little bit more of an outflow that we experienced there in some of the Wanger product and in one of the funds. And so I think adjusted for that, we would have saw some improvement. But we did see across the industry a bit of a slowing, and we did have a bit of a slowing in sales in the second quarter in retail.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Yes -- no. And I totally appreciate just the slow of flow dynamics in the industry as well this quarter. But I guess, if we were to think about the 3 buckets, one being Columbia, former parent-related AUM, how much is there still that's sort of risk? And then the same comment, I guess, on Threadneedle from the U.S. team that left. How much AUM is there and how much is at risk? So this way we can kind of rank [ph] them. What should be potential in your runoff versus the progress that you're making on the [indiscernible]

James M. Cracchiolo

Right. So in the affiliated at Columbia, there are, I don't know, a few billion dollars left. Some Bank of America, some Balboa, et cetera. And that will flow out a little over time. We should see a bit of that come out in the fourth quarter. But again, we don't know exactly. The Balboa, as an example, it's a little lumpy, but that has come down a lot. So that would be one area. Then we have what would be ongoing distribution with Bank of America. And just based on the natural evolution of those assets as they further diversify from some of our mandates, whereas when the new sales go into a broader group of mandates, we're going to continue to see some outflow there. We mentioned over the course of the year $3 billion to $4 billion in total. But again, that actually got a bit better in the second quarter. So -- but that will continue. And then the Zurich, we roughly tell you, is going to be roughly about $4 billion a year U.S. And that's just the natural flow. Now having said that, those assets have good retention of what's there with appreciation. So it's not as though we're losing the fee, but it will still go through the flow line item. Now where do we see uptick? We see good uptick in our institutional mandates. We have a good pipeline that's being built, and some of that's starting to win -- we won and we'll fund. So we feel good about that both domestically and internationally. We still have good retail sales in the U.K. and Europe and Threadneedle. So that, we feel good about. We have more work to do in the U.S. intermediary. We're making some changes there, both from a leadership perspective as well as from a product and marketing and various things of how we align that to get on various platforms, and that we're putting a lot more focus and concentration on with a new leadership lineup there. So we feel good about that. And we also feel good about some of the new solutions business that we're putting some time and effort in that we think will pay some good dividends over time that would even build the institution, and even in retail for some of the products that we'll come out with. So the retail is still a bit more of a work in progress in the U.S. It's actually built momentum in the U.K. and Europe, and institutional is moving along nicely.

Walter S. Berman

Alex, as I said in my prepared remarks, the other [ph] thing as related to the U.S. equities. For TAM retail, they actually were flat, absorbing the $1.5 billion on U.S. equity outflow. So they're -- we're having strong inflow performance. We can -- we've seen it slow obviously in the June time frame, and Diane's performance has been quite good. So we're gauging it right now. But it's -- I think we have a little ways to go, but we just don't have an exact number. It's tracking, I guess, in the range where we thought at this stage.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Got it, that's helpful. Second question on the margins and I guess both AWM and the Asset Management business. You guys continue to put up really strong results in AWM. And I think this is the question that kind of comes up every call, but you guys continue to kind of, I guess, surpass even the expectation of the layout [ph] for yourself. But where do you guys see this margin shaking out, I guess, towards the end of year as some of these new FAs come in? Because it does sound like the cost control in G&A front [ph] was pretty good.

Walter S. Berman

Okay. Obviously, last quarter, I was talking about being at 15.5% to 16%. The market's really -- we have a solid base of assets and certainly strong flow performance. So I would say, again, I hate estimating these things. But certainly, we -- this level seems comfortable. Again, subject to market changes, everything of that nature.

James M. Cracchiolo

I think what I would say, Alex, with that is you always get adjusted [ph] quarter-to-quarter or various things, but our expense trends and what we're doing there is holding. We are getting good leverage off of the investments we've made. We're continuing to make good investment. So I want to be very clear. We're not doing that because we stopped investing. We're still investing nicely in a number of new capabilities and products and services that we've just -- including just what we launched last quarter and what we're putting behind [ph]. So we're making good investments, but we're managing our expenses well. We're getting leverage of the investments that we mentioned to you previously that we invested in, in technology. That's also deriving some savings for us as we lower call [ph] volume and other activities, transaction, manual efforts that we used to do. Our advisors are seeing productivity lifts from taking up these things, including our Confident Retirement approach and our focus in the market. So I think a combination of factors. We feel good about the margins. So we're going to continue to want to grow our productivity which, hopefully, will add to margins as we go on. And as you still know, I mean, we're probably at an all-time low in interest rate effect, just because old contracts have rolled off and we're probably at a very low level now. So any pickup there will be a benefit over time. So no, we feel very good about the progress we're making. We're going to continue to look to make progress. So I'm not saying we'll stop here. And the other side of it is our focus has been on driving our asset levels and our productivity, which will then, as we maintain and leverage the expenses in the investments we've made, will build the margin.

Operator

The next question is from Seth Tennant with Citi.

Seth Tennant

Yes, can you discuss your current interest in M&A and the type of properties you would be most interested in? Would you be looking at another large asset manager or more focused on filling specific product gaps?

James M. Cracchiolo

As we continue -- we're investing in new product and capability and building out some of our solutions area right now with the talent that we've been adding and some of the global product that we're putting out between Columbia and Threadneedle. So we're going to continue to push forward there. We also launched a new fund in Asia, and we have now 3 or 4 up. So we're going to continue to do that. We will continue to look for -- in product areas and certain disciplines that we don't necessarily have here at Columbia. So we'll look around in some of those areas, but they wouldn't be major acquisitions. In regard to anything larger, it really would depend on whether it would add some larger capability to us or distribution that would make sense strategically. But as we continue to operate, we'll probably put a bit more in the first one I mentioned, which is more of product areas that would continue to build against our portfolio capabilities. Again, we don't rule out something wonderful that pops up. But having said that, we don't necessarily count on those things happening.

Operator

[Operator Instructions] The next question is from Suneet Kamath with UBS.

Suneet L. Kamath - UBS Investment Bank, Research Division

I don't want to take anything away from the strong AWM margins or the good flows in Asset Management, but I wanted hit on Protection in 2 places. First, on long-term care, another insurance company just reported a pretty weak result in long-term care, and I believe you've reinsured some of your business with that carrier. So I just want to get a sense of what your block looks like, how you're feeling about that block. And do you have any comments on how much of that business has lifetime benefits and when it was originally written?

James M. Cracchiolo

Sure. Again, looking at our block, as we've been talking about, we have started program of appropriately raising rates for a while now. And our claims performance been within our target ranges. So again, we've been dealing with that, and it's small, relatively small to our situation. So these policies of -- I believe we're in the late '90s. Most of them -- I believe most of them were done back then. I don't recall the percentage on the lifetime side of it. But we've been certainly monitoring, looking and taking [indiscernible]. So we are feeling that, number one, as I said, it's small relative to -- as we talked about before and that we -- it's been performing, again, within ranges and, again, within the levels that we anticipated. So we don't see a concern at this time.

Suneet L. Kamath - UBS Investment Bank, Research Division

Okay, got it. And then I wanted to shift over to the Auto & Home business, because that's a business that, I think it's fair to say has been underperforming for several quarters now. And I know, Jim, in the past, you talked about your commitment to the business and all of that. But I'm just wondering if you've given anymore thought as to whether or not you need to manufacture that product or whether you can outsource manufacturing to some other P&C companies and allow your advisors just to sell their products.

James M. Cracchiolo

Yes. We don't own the P&C business because of the sales per se to our advisor channel. It's one of the affinity channels that the product is sold to. So it's not necessarily, I would say, core against our franchise channel. We have and are continuing to focus on that business. We have been underperforming for the last few quarters. This last quarter, the underperformance really came from the cat losses. It was solely driven by that as you saw experienced in the industry and it's a nature [ph] part of that business. From that perspective, we feel like we can continue to get appropriate rate there. We know that there are things that we can continue to do that we're very much focused on that would enhance our various pricing and various underwriting and risk in certain areas that cause some of the underperformance in certain states based on changes that have occurred out there, both in the legal environment as well as with various other competitors. So we actually feel like there's a lot that we can do to get that business back to a more higher performing in its results -- bottom line results. We also know after further study, externally, by external sources, that this is actually one of the better businesses out there and the type of model that we have and the cost structure of the business and how we operate it. So if we can fix a few of the things that we know we can fix, which we will be working on, we could have a very high-performing business. Now that doesn't answer your question necessarily of whether it's a business that is long-term integrated in core. We like it because of its level of diversification. We like it that we're building appropriate scale in it. And if we can operate it to generate the type of dynamics, it will give us a lot of choice of what we do with it. So it is a little bit more of a work that we have underway, but we already start to see signs that, that will come to fruition. And at the same time, we're growing the business nicely and diversifying it. And so we're very happy with the business. I know it hasn't been reflected because of whether it's cat losses and storms or some of the extra reserves that we took recently. But we feel that, that reserving situation is behind us. And now we'll be focused on really dealing more with the external environment a little, as the industry is. But I think we'll start to see better bottom line returns coming over the next number of quarters.

Suneet L. Kamath - UBS Investment Bank, Research Division

Got it. Okay, that's helpful. And then maybe just one quick one for Walter on the variable annuities. How much more of your VA book could move potentially to these volatility managed funds? Because it seems like every time that happens, you get an earnings benefit. So I'm just wondering how much more could be in front of us here.

Walter S. Berman

Well, actually, we've seen -- we've -- so far $5 billion has moved. We are seeing it slowing again and within anticipated levels. So it will be slowing as we head through the cycle. But there's a continuous element to it. We think it's actually a very good thing, because it's good for the customers and it's good for our risk profiling. And so it works for both of us. So it is definitely slowing, and we're seeing it from that standpoint. So it will be coming through, but I think it will be certainly at a lower level.

Operator

We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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