**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION********WASHINGTON, D.C.20549**

 

**FORM 10-Q**

** **

x        **QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period EndedSeptember 30, 2007**

**or**

o         **TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Transition Period from                  to                  **

**Commission file number 333-114888**

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name of registrantas specified in its charter)

 

| **Minnesota**                                               | ** ** | **41-0823832**                        |
|-------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of                            |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                             |       |                                  |
|                                                        |       |                                  |
| **55  Ameriprise Financial Center, Minneapolis, Minnesota** | ** ** | **55474**                             |
| (Address of principal  executive offices)                   |       | (Zip Code)                            |

Registrant’stelephone number, including area code**                     (612)671-3131**

**NotApplicable**

(Former name, former address and former fiscal year,if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes         x           No           o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.

                                                                                   Largeaccelerated filer  o         Acceleratedfiler  o         Non-acceleratedfiler  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes         o            No           x

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.
| **Class**                              | ** ** | **Outstanding  at****November 8, 2007** |
|----------------------------------------|------------|-----------------------------------------|
| Common Stock (par value $30 per share) |       | 100,000****shares                       |

 

THE REGISTRANT MEETS THE CONDITIONS SET FORTH INGENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILINGTHIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

 

 

 

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**RIVERSOURCE****LIFEINSURANCE COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| ** **          | ** **                  | ** **                                                                                                           | ** ** | **Page No.** | ** ** |
|---------------------|-----------------------------|----------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| **Part  I. **  | **Financial  Information:** | ** **                                                                                                           |       | ** **        |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | Item  1.                    | Financial  Statements                                                                                                | ** ** |              | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | ** **                  | Consolidated  Balance Sheets — September 30, 2007 and December 31, 2006                                         | ** ** | 1                 | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | ** **                  | Consolidated Statements of Income — Three months and  nine months ended September 30, 2007 and 2006             | ** ** | 2                 | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | ** **                  | Consolidated Statements of Cash Flows — Nine months  ended September 30, 2007 and 2006                          | ** ** | 3                 | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | ** **                  | Consolidated Statements of Shareholder’s Equity — Nine  months ended September 30, 2007 and 2006 | ** ** | 4                 | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | ** **                  | Notes to Consolidated Financial Statements                                                                           | ** ** | 5-10              | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
| ** **          | Item 2.                     | Management’s Narrative Analysis                                                                                 | ** ** | 11-15             | ** ** |
|                |                        |                                                                                                                 |       |              | ** ** |
|                | Item 4T.               | Controls and Procedures                                                                                              |       | 15                | ** ** |
|                |                        |                                                                                                                 |       |              | ** ** |
| **Part  II. ** | **Other  Information:**     |                                                                                                                 |       | ** **        |
|                |                        |                                                                                                                 |       |              | ** ** |
|                | Item  1.                    | Legal  Proceedings                                                                                                   |       | 15                | ** ** |
|                |                        |                                                                                                                 |       |              | ** ** |
|                | Item 1A.               | Risk  Factors                                                                                                        |       | 15                | ** ** |
| ** **          | ** **                  | ** **                                                                                                           | ** ** |              | ** ** |
|                | Item 6.                     | Exhibits                                                                                                             |       | 15                | ** ** |
|                |                        |                                                                                                                 |       |              | ** ** |
|                | Signatures                  |                                                                                                                 | 16         | ** **        |
|                |                        |                                                                                                                 |       |              | ** ** |
|                | Exhibit Index               |                                                                                                                 | E-1        |              |
|                     |                             |                                                                                                                      |            |                   |            |  |

 

 

 

 

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**PARTI.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

**RIVERSOURCE****LIFE INSURANCE COMPANY**

 

**CONSOLIDATED BALANCE SHEETS**

(inmillions, except share amounts)

 
| ** **                                                                                      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2007**               | ** ** | **2006**              | ** ** |
| ** **                                                                                      | ** ** | **(unaudited)**        | ** ** | ** **            | ** ** |
| **Assets**                                                                                      |       |                   |       |                  |       |
| Investments:                                                                                    |       |                   |       |                  |       |
| Available-for-Sale:                                                                             |       |                   |       |                  |       |
| Fixed  maturities, at fair value (amortized cost: 2007, $21,719; 2006, $25,289)                 |       | $                      | 21,344     |                  | $          | 24,995 |   |
| Common and  preferred stocks, at fair value (cost:  2007 and 2006, $30)                         |       | 30                     |       | 31                    |       |
| Mortgage loans  on real estate, at cost (less allowance for loan losses: 2007, $16; 2006,  $37) |       | 2,788                  |       | 2,790                 |       |
| Policy loans                                                                                    |       | 674                    |       | 642                   |       |
| Trading  securities and other investments                                                       |       | 77                     |       | 241                   |       |
| Total  investments                                                                              |       | 24,913                 |       | 28,699                |       |
|                                                                                            |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                      |       | 1,023                  |       | 160                   |       |
| Reinsurance recoverables                                                                        |       | 1,253                  |       | 1,137                 |       |
| Amounts due from  brokers                                                                       |       | 1                      |       | 7                     |       |
| Other accounts  receivable                                                                      |       | 122                    |       | 90                    |       |
| Accrued  investment income                                                                      |       | 277                    |       | 309                   |       |
| Deferred  acquisition costs                                                                     |       | 4,425                  |       | 4,411                 |       |
| Deferred sales  inducement costs                                                                |       | 503                    |       | 452                   |       |
| Other assets                                                                                    |       | 501                    |       | 321                   |       |
| Separate account  assets                                                                        |       | 58,033                 |       | 49,287                |       |
|                                                                                            |       |                   |       |                  |       |
| Total assets                                                                                    |       | $                      | 91,051     |                  | $          | 84,873 |   |
|                                                                                            |       |                   |       |                  |       |
| **Liabilities  and Shareholder’s Equity**                                                  |       |                   |       |                  |       |
| Liabilities:                                                                                    |       |                   |       |                  |       |
| Future policy  benefits                                                                         |       | $                      | 27,546     |                  | $          | 29,561 |   |
| Policy claims  and other policyholders’ funds                                              |       | 106                    |       | 93                    |       |
| Amounts due to  brokers                                                                         |       | 254                    |       | 132                   |       |
| Deferred income  taxes, net                                                                     |       | 134                    |       | 90                    |       |
| Other  liabilities                                                                              |       | 328                    |       | 440                   |       |
| Separate account  liabilities                                                                   |       | 58,033                 |       | 49,287                |       |
| Total  liabilities                                                                              |       | 86,401                 |       | 79,603                |       |
|                                                                                            |       |                   |       |                  |       |
| Shareholder’s  equity:                                                                     |       |                   |       |                  |       |
| Common shares,  $30 par value;                                                                  |       |                   |       |                  |       |
| 100,000 shares  authorized, issued and outstanding                                              |       | 3                      |       | 3                     |       |
| Additional  paid-in capital                                                                     |       | 2,031                  |       | 2,021                 |       |
| Retained  earnings                                                                              |       | 2,849                  |       | 3,455                 |       |
| Accumulated  other comprehensive loss, net of tax                                               |       | (233                   | )          | (209                  | )          |
| Total  shareholder’s equity                                                                |       | 4,650                  |       | 5,270                 |       |
|                                                                                            |       |                   |       |                  |       |
| Total  liabilities and shareholder’s equity                                                |       | $                      | 91,051     |                  | $          | 84,873 |   |
|                                                                                                 |            |                        |            |                       |            |  |  |  |  |  |  |

 

 

*See Notes to ConsolidatedFinancial Statements.*

* *

 

1

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

(inmillions)

 
| ** **                                                      | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                                            | ** ** | **2006**                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues**                                                    | ** ** | ** **                                          | ** ** | ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Premiums:                                                       |       |                                                |       |                                               |       |   |   |   |   |
| Traditional life  insurance                                     |       | $                                                   | 18         |                                               | $          | 18 |   | $ | 56 |   | $ | 55 |   |
| Disability income  and long term care insurance                 |       | 79                                                  |       | 91                                                 |       | 232 |   | 242 |   |
| Total premiums                                                  |       | 97                                                  |       | 109                                                |       | 288 |   | 297 |   |
|                                                            |       |                                                |       |                                               |       |   |   |   |   |
| Net investment  income                                          |       | 396                                                 |       | 389                                                |       | 1,166 |   | 1,253 |   |
| Contractholder  and policyholder charges                        |       | 173                                                 |       | 155                                                |       | 505 |   | 481 |   |
| Mortality and  expense risk and other fees                      |       | 213                                                 |       | 158                                                |       | 606 |   | 458 |   |
| Net realized  investment gains                                  |       | 35                                                  |       | 14                                                 |       | 42 |   | 24 |   |
|                                                            |       |                                                |       |                                               |       |   |   |   |   |
| Total revenues                                                  |       | 914                                                 |       | 825                                                |       | 2,607 |   | 2,513 |   |
|                                                            |       |                                                |       |                                               |       |   |   |   |   |
| **Benefits  and expenses**                                      | ** ** | ** **                                          | ** ** | ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Death and other  benefits:                                      |       |                                                |       |                                               |       |   |   |   |   |
| Traditional life  insurance                                     |       | 6                                                   |       | 8                                                  |       | 24 |   | 21 |   |
| Investment  contracts and universal life-type insurance         |       | 207                                                 |       | 63                                                 |       | 301 |   | 190 |   |
| Disability  income and long term care insurance                 |       | 23                                                  |       | 21                                                 |       | 66 |   | 61 |   |
| Increase  (decrease) in liabilities for future policy benefits: |       |                                                |       |                                               |       |   |   |   |   |
| Traditional life  insurance                                     |       | (1                                                  | )          | (2                                                 | )          | (1 | ) | — |   |
| Disability  income and long term care insurance                 |       | 34                                                  |       | 33                                                 |       | 111 |   | 107 |   |
| Interest  credited to account values                            |       | 235                                                 |       | 261                                                |       | 720 |   | 795 |   |
| Amortization of  deferred acquisition costs                     |       | 108                                                 |       | 64                                                 |       | 325 |   | 274 |   |
| Separation costs                                                |       | 22                                                  |       | 36                                                 |       | 86 |   | 91 |   |
| Other insurance  and operating expenses                         |       | 182                                                 |       | 152                                                |       | 579 |   | 472 |   |
|                                                            |       |                                                |       |                                               |       |   |   |   |   |
| Total benefits  and expenses                                    |       | 816                                                 |       | 636                                                |       | 2,211 |   | 2,011 |   |
|                                                            |       |                                                |       |                                               |       |   |   |   |   |
| Income before  income tax provision (benefit)                   |       | 98                                                  |       | 189                                                |       | 396 |   | 502 |   |
| Income tax provision  (benefit)                                 |       | (1                                                  | )          | 61                                                 |       | 68 |   | 153 |   |
|                                                            |       |                                                |       |                                               |       |   |   |   |   |
| Net income                                                      |       | $                                                   | 99         |                                               | $          | 128 |   | $ | 328 |   | $ | 349 |   |

 

 

*See Notesto Consolidated Financial Statements.*

 

 

2

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

(inmillions)

** **
| ** **                                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| **Cash  Flows from Operating Activities**                                                    | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                                                   | 328        |   | $ | 349 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:           |       |                                                |       |   |   |
| Amortization of  deferred acquisition costs                                                  |       | 325                                                 |       | 274 |   |
| Amortization of  deferred sales inducement costs                                             |       | 35                                                  |       | 38 |   |
| Capitalization  of deferred acquisition costs                                                |       | (534                                                | )          | (513 | ) |
| Capitalization  of deferred sales inducement costs                                           |       | (96                                                 | )          | (92 | ) |
| Amortization of  premium, net                                                                |       | 54                                                  |       | 57 |   |
| Deferred income  taxes                                                                       |       | 140                                                 |       | 114 |   |
| Contractholder  and policyholder charges, non-cash                                           |       | (153                                                | )          | (163 | ) |
| Net realized  investment gains                                                               |       | (42                                                 | )          | (24 | ) |
| Net realized  gain on trading securities and equity method investments in hedge funds        |       | (1                                                  | )          | (10 | ) |
| Change in  operating assets and liabilities:                                                 |       |                                                |       |   |   |
| Trading  securities and equity method investments in hedge funds, net                        |       | 121                                                 |       | 254 |   |
| Future policy  benefits for traditional life, disability income and long term care insurance |       | 207                                                 |       | 207 |   |
| Policy claims  and other policyholders’ funds                                           |       | 14                                                  |       | 14 |   |
| Policy loans,  excluding universal life-type insurance:                                      |       |                                                |       |   |   |
| Repayment                                                                                    |       | 28                                                  |       | 26 |   |
| Issuance                                                                                     |       | (30                                                 | )          | (31 | ) |
| Reinsurance  recoverables                                                                    |       | (116                                                | )          | (122 | ) |
| Other accounts  receivable                                                                   |       | (32                                                 | )          | (12 | ) |
| Accrued  investment income                                                                   |       | 32                                                  |       | 2 |   |
| Other assets and  liabilities, net                                                           |       | (99                                                 | )          | (207 | ) |
|                                                                                         |       |                                                |       |   |   |
| **Net  cash provided by operating activities**                                               |       | 181                                                 |       | 161 |   |
| ** **                                                                                   |       |                                                |       |   |   |
| **Cash  Flows from Investing Activities**                                                    |       |                                                |       |   |   |
| Available-for-Sale  securities:                                                              | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Proceeds from  sales                                                                         |       | 2,615                                               |       | 1,605 |   |
| Maturities,  sinking fund payments and calls                                                 |       | 1,380                                               |       | 1,477 |   |
| Purchases                                                                                    |       | (457                                                | )          | (1,319 | ) |
| Other  investments, excluding policy loans:                                                  |       |                                                |       |   |   |
| Proceeds from  sales, maturities, sinking fund payments and calls                            |       | 401                                                 |       | 391 |   |
| Purchases                                                                                    |       | (334                                                | )          | (334 | ) |
| Change in  amounts due to and from brokers, net                                              |       | 128                                                 |       | 55 |   |
|                                                                                         |       |                                                |       |   |   |
| **Net  cash provided by investing activities**                                               |       | 3,733                                               |       | 1,875 |   |
| ** **                                                                                   |       |                                                |       |   |   |
| **Cash  Flows from Financing Activities**                                                    |       |                                                |       |   |   |
| Activity related  to investment contracts and universal life-type insurance:                 | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Considerations  received                                                                     |       | 795                                                 |       | 980 |   |
| Interest  credited to account values                                                         |       | 720                                                 |       | 795 |   |
| Surrenders and  other benefits                                                               |       | (3,736                                              | )          | (3,620 | ) |
| Policy loans:                                                                                |       |                                                |       |   |   |
| Repayment                                                                                    |       | 85                                                  |       | 71 |   |
| Issuance                                                                                     |       | (115                                                | )          | (96 | ) |
| Cash dividends to Ameriprise Financial, Inc.                                                 |       | (800                                                | )          | (200 | ) |
| **Net  cash used in financing activities**                                                   |       | (3,051                                              | )          | (2,070 | ) |
| ** **                                                                                   |       |                                                |       |   |   |
| **Net  increase (decrease) in cash and cash equivalents**                                    |       | 863                                                 |       | (34 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 160                                                 |       | 273 |   |
|                                                                                         |       |                                                |       |   |   |
| **Cash  and cash equivalents at end of period**                                              |       | $                                                   | 1,023      |   | $ | 239 |   |
| ** **                                                                                   |       |                                                |       |   |   |
| Supplemental  Disclosures:                                                                   |       |                                                |       |   |   |
| Income taxes  paid                                                                           |       | $                                                   | 48         |   | $ | 47 |   |
| Interest paid on  borrowings                                                                 |       | —                                              |       | 1 |   |
|                                                                                              |            |                                                     |            |  |  |  |  |  |  |

 

 

*See Notes to ConsolidatedFinancial Statements.*

* *

* *

3

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

(inmillions)

** **

** **
| ** **                                                    | ** ** | **Common  Shares** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated Other  Comprehensive  Income/(Loss)** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| **Balances at December 31, 2005**                             |       | $                  | 3          |                             | $          | 2,020                  |       | $                                                   | 3,269      |       | $          | (131 | ) | $ | 5,161 |   |
| ** **                                                    |       |               |       |                             |       |                   |       |                                                |       |       |       |
| Other  comprehensive loss:                                    |       |               |       |                             |       |                   |       |                                                |       |       |       |
| Net income                                                    |       | —             |       | —                           |       | 349                    |       | —                                              |       | 349        |       |
| Change in unrealized holding losses on securities, net        |       | —             |       | —                           |       | —                 |       | (83                                                 | )          | (83        | )          |
| Change in unrealized derivative gains, net                    |       | —             |       | —                           |       | —                 |       | (1                                                  | )          | (1         | )          |
| Total other comprehensive loss                                |       | —             |       | —                           |       | —                 |       | —                                              |       | 265        |       |
| Cash dividend to Ameriprise Financial, Inc.                   |       | —             |       | —                           |       | (200                   | )          | —                                              |       | (200       | )          |
| **Balances at September 30, 2006**                            |       | $                  | 3          |                             | $          | 2,020                  |       | $                                                   | 3,418      |       | $          | (215 | ) | $ | 5,226 |   |
| ** **                                                    | ** ** | ** **         | ** ** | ** **                       | ** ** | ** **             | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| **Balances at December 31, 2006**                             |       | $                  | 3          |                             | $          | 2,021                  |       | $                                                   | 3,455      |       | $          | (209 | ) | $ | 5,270 |   |
| ** **                                                    |       |               |       |                             |       |                   |       |                                                |       |       |       |
| Change in accounting principles                               |       | —             |       | —                           |       | (134                   | )          | —                                              |       | (134       | )          |
| Other  comprehensive income:                                  |       |               |       |                             |       |                   |       |                                                |       |       |       |
| Net income                                                    |       | —             |       | —                           |       | 328                    |       | —                                              |       | 328        |       |
| Change in unrealized holding losses on securities, net        |       | —             |       | —                           |       | —                 |       | (24                                                 | )          | (24        | )          |
| Total other comprehensive income                              |       | —             |       | —                           |       | —                 |       | —                                              |       | 304        |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (800                   | )          | —                                              |       | (800       | )          |
| Non-cash capital contribution from Ameriprise Financial, Inc. |       | —             |       | 10                               |       | —                 |       | —                                              |       | 10         |       |
| **Balances at September 30, 2007**                            |       | $                  | 3          |                             | $          | 2,031                  |       | $                                                   | 2,849      |       | $          | (233 | ) | $ | 4,650 |   |
|                                                               |            |                    |            |                                  |            |                        |            |                                                     |            |            |            |  |  |  |  |  |  |  |

 

 

*See Notes to ConsolidatedFinancial Statements.*

 

 

4

 

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**RIVERSOURCE********LIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

**1.****             ****Basis of Presentation**

The accompanying Consolidated Financial Statements include the accountsof RiverSource Life Insurance Company and its whollyowned operating subsidiary, RiverSource LifeInsurance Co. of New York.  RiverSource Life Insurance Company is a wholly ownedsubsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). All significant intercompany accounts andtransactions have been eliminated in consolidation.  RiverSource LifeInsurance Company and its subsidiary are referred to collectively in this Form10-Q as “RiverSource Life”.

The accompanying Consolidated Financial Statements are prepared inaccordance with U.S. generally accepted accounting principles (“GAAP”).  Certainreclassifications of prior period amounts have been made to conform to thecurrent presentation.  The interimfinancial information in this report has not been audited.  In the opinion of management, all adjustmentsnecessary for a fair presentation of the consolidated financial position andresults of operations for the interim periods have been made.  All adjustments made were of a normal,recurring nature.  Results of operationsreported for interim periods are not necessarily indicative of results for theentire year. These Consolidated Financial Statements and Notes should be readin conjunction with the Consolidated Financial Statements and Notes in theAnnual Report on Form 10-K of RiverSource Life forthe year ended December 31, 2006, filed with the Securities and ExchangeCommission (“SEC”) on February 28, 2007.

**2.****             ****Recent Accounting****Pronouncements**

In February 2007, theFinancial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”)No. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities — Including an amendment of FASB Statement No. 115” (“SFAS159”). SFAS 159 gives entities the option to measurecertain financial instruments and certain other items at fair value that arenot currently permitted to be measured at fair value. The objective of SFAS 159 is to improve financial reporting by providingentities with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. SFAS159 requires entities to report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate. SFAS 159 also establishes presentation anddisclosure requirements. SFAS 159 is effective as ofthe beginning of an entity’s first fiscal year that begins after November 15,2007. RiverSource Life is currently evaluatingwhether or not it will elect to adopt SFAS 159.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements” (“SFAS 157”), which defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements.  SFAS 157 applies under other accounting pronouncements thatrequire or permit fair value measurements. Accordingly, SFAS157 does not require any new fair value measurements. SFAS157 is effective for fiscal years beginning after November 15, 2007, andinterim periods within those fiscal years. The provisions of SFAS 157 are required to be applied prospectively as of thebeginning of the fiscal year in which SFAS 157 isinitially applied, except for certain financial instruments as defined in SFAS 157 which will require retrospective application of SFAS 157. The transition adjustment, if any, will berecognized as a cumulative-effect adjustment to the opening balance of retainedearnings for the fiscal year of adoption. RiverSourceLife is currently evaluating the impact of adopting SFAS157 on its consolidated financial condition and results of operations.

In June 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN48 prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.  RiverSource Life adopted FIN 48 as of January 1,2007.  The effect of adopting FIN 48 on RiverSource Life’s consolidated financial condition and results ofoperations was not material.

 

5

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** **

**RIVERSOURCE********LIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)****(Continued)**

**2.     Recent****Accounting Pronouncements****(Continued)**

In February 2006, the FASBissued SFAS No. 155, “Accounting for CertainHybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“SFAS133”) and SFAS No. 140, “Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155: (i) permits fair value remeasurementfor any hybrid financial instrument that contains an embedded derivative thatotherwise would require bifurcation; (ii) clarifies which interest-only andprincipal-only strips are not subject to the requirements of SFAS 133; (iii) establishes a requirement to evaluateinterests in securitized financial assets to identify interests that arefreestanding derivatives or that are hybrid financial instruments that containan embedded derivative requiring bifurcation; (iv) clarifies thatconcentrations of credit risk in the form of subordination are not embeddedderivatives; and (v) amends SFAS 140 to eliminate theprohibition on a qualifying special-purpose entity from holding a derivativefinancial instrument that pertains to a beneficial interest other than anotherderivative financial instrument. RiverSource Lifeadopted SFAS 155 as of January 1, 2007.  The effect of adopting SFAS155 on RiverSource Life’s consolidated financialcondition and results of operations was not material.

In September 2005, theAmerican Institute of Certified Public Accountants issued Statement of Position(“SOP”) 05-1, “Accounting by Insurance Enterprises for Deferred AcquisitionCosts in Connection With Modifications or Exchanges of Insurance Contracts,” (“SOP05-1”).  SOP 05-1 provides clarifyingguidance on accounting for deferred acquisition costs (“DAC”)associated with an insurance or annuity contract thatis significantly modified or internally replaced with another contract.  Prior to adoption, RiverSourceLife accounted for many of these transactions as contract continuations andcontinued amortizing existing DAC against revenuefrom the new or modified contract. Effective on January 1, 2007, RiverSource Lifeadopted SOP 05-1 resulting in these transactions being prospectively accountedfor as contract terminations.  Consistentwith this, RiverSource Life now anticipates thesetransactions in establishing amortization periods and other valuationassumptions.  As a result of adopting SOP 05-1, RiverSourceLife recorded as a cumulative change in accounting principle a pretax charge of$206 million, reducing DAC by $204 million, deferredsales inducement costs (“DSIC”) by $11 million andliabilities for future policy benefits by $9 million.  The after-tax decrease to retained earningsfor these changes was $134 million.  Theadoption of SOP 05-1, among other things, has resulted in an increase to DAC and DSIC amortization in2007.

**3.****          ****Separation andDistribution of Ameriprise Financial, Inc. fromAmerican Express**

Ameriprise Financial was formerly a wholly owned subsidiary ofAmerican Express Company (“American Express”). On February 1, 2005, the American Express Board of Directors announcedits intention to pursue the disposition of 100% of its shareholdings in Ameriprise Financial (the “Separation”) through a tax-freedistribution to American Express shareholders. Effective as of the close of business on September 30, 2005, AmericanExpress completed the Separation and the distribution of AmeripriseFinancial common shares to American Express shareholders (the “Distribution”).  In connection with the Distribution, Ameriprise Financial entered into certain agreements withAmerican Express to effect the Separation and to define the responsibility forobligations arising before and after the date of the Distribution, including,among others, obligations relating to transition services, taxes, andemployees.  AmeripriseFinancial has incurred $862 million of pretax non-recurring separation costssince the Separation announcement through September 30, 2007 and expects toincur approximately $25 million to $30 million in costs in the fourth quarterof 2007, reflecting all remaining separation costs.  These costs are primarily related totechnology costs and marketing and rebranding.  RiverSource Lifewas allocated certain expenses incurred as a result of AmeripriseFinancial becoming an independent company. RiverSource Life has incurred $338 million intotal pretax non-recurring separation costs since the Separation announcementthrough September 30, 2007 and expects to be allocated a significant portion ofthe remaining separation costs in 2007. RiverSourceLife received a capital contribution of $650 million from AmeripriseFinancial during the third quarter of 2005 to support its financial strengthratings and to cover separation costs.

 

6

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**RIVERSOURCE********LIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)****(Continued)**

**4.****             ****Investments**

The following is a summary of Available-for-Sale securities by type:

 
| **September 30, 2007**                      | ** ** | **Amortized Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|--------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(in millions)**  | ** ** |
| Fixed  maturities:                          |       |               |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $                  | 10,681     |                         | $          | 65                            |       | $               | (302       | ) | $ | 10,444 |   |
| Mortgage and  other asset-backed securities |       | 7,853              |       | 20                           |       | (148                          | )          | 7,725           |       |
| Foreign  corporate bonds and obligations    |       | 2,625              |       | 28                           |       | (59                           | )          | 2,594           |       |
| U.S. government  and agencies obligations   |       | 278                |       | 11                           |       | (3                            | )          | 286             |       |
| State and  municipal obligations            |       | 165                |       | 2                            |       | (5                            | )          | 162             |       |
| Foreign  government bonds and obligations   |       | 117                |       | 16                           |       | —                        |       | 133             |       |
| Total fixed  maturities                     |       | 21,719             |       | 142                          |       | (517                          | )          | 21,344          |       |
| Common and  preferred stocks                |       | 30                 |       | —                       |       | —                        |       | 30              |       |
| Total                                       |       | $                  | 21,749     |                         | $          | 142                           |       | $               | (517       | ) | $ | 21,374 |   |
|                                        |       |               |       |                         |       |                          |       |            |       |
|                                        |       |               |       |                         |       |                          |       |            |       |
| **December 31, 2006**                       | ** ** | **Amortized Cost** | ** ** | **Gross Unrealized Gains**   | ** ** | **Gross Unrealized Losses**   | ** ** | **Fair Value**  | ** ** |
| ** **                                  | ** ** | **(in millions)**  | ** ** |
| Fixed  maturities:                          |       |               |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $                  | 12,232     |                         | $          | 119                           |       | $               | (262       | ) | $ | 12,089 |   |
| Mortgage and  other asset-backed securities |       | 9,400              |       | 27                           |       | (175                          | )          | 9,252           |       |
| Foreign  corporate bonds and obligations    |       | 3,080              |       | 39                           |       | (68                           | )          | 3,051           |       |
| U.S. government  and agencies obligations   |       | 295                |       | 13                           |       | (5                            | )          | 303             |       |
| State and  municipal obligations            |       | 165                |       | 4                            |       | (4                            | )          | 165             |       |
| Foreign  government bonds and obligations   |       | 117                |       | 18                           |       | —                        |       | 135             |       |
| Total fixed  maturities                     |       | 25,289             |       | 220                          |       | (514                          | )          | 24,995          |       |
| Common and  preferred stocks                |       | 30                 |       | 1                            |       | —                        |       | 31              |       |
| Total                                       |       | $                  | 25,319     |                         | $          | 221                           |       | $               | (514       | ) | $ | 25,026 |   |
|                                             |            |                    |            |                              |            |                               |            |                 |            |  |  |  |  |  |  |  |  |

Gross realized investment gains and losses onAvailable-for-Sale securities and other-than-temporary impairments onAvailable-for-Sale securities included in net realized investment gains were asfollows:
| ** **                        | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                            | ** ** | **2006**                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **(in millions)**                                   | ** ** |
| Gross realized investment  gains  |       | $                                                   | 14         |                                               | $          | 14 |   | $ | 42 |   | $ | 34 |   |
| Gross realized investment  losses |       | —                                              |       | —                                             |       | (19 | ) | (10 | ) |
| Other-than-temporary impairments  |       | —                                              |       | —                                             |       | (2 | ) | — |   |
|                                   |            |                                                     |            |                                                    |            |  |  |  |  |  |  |  |  |

Also included in net realized investment gains for thethree months and nine months ended September 30, 2007 was a decrease of $21million to the allowance for loan losses on commercial mortgage loans.

7

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**RIVERSOURCE********LIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)****(Continued)**

**5.****          ****Deferred AcquisitionCosts**

Effective January 1, 2007, RiverSource Lifeadopted SOP 05-1. SOP 05-1 provides clarifying guidance on accounting for DAC associated with an insurance or annuity contract thatis significantly modified or internally replaced with another contract.  Prior to adoption, RiverSourceLife accounted for many of these transactions as contract continuations andcontinued amortization of existing DAC against revenuefrom the new or modified contract.  RiverSource Life’s adoption of SOP 05-1 resulted in thesetransactions being prospectively accounted for as contract terminations.  As a result of adopting SOP 05-1, RiverSource Life recorded as a cumulative change inaccounting principle a pretax reduction of $204 million and $11 million to DAC and DSIC, respectively.

The balances of and changes in DAC were asfollows:
| ** **                                                                        | ** ** | **2007**               | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                                        | ** ** | **(in millions)**      | ** ** |
| Balance at  January 1                                                             |       | $                      | 4,411      |     | $          | 4,036 |   |
| Cumulative  effect of SOP 05-1 adoption                                           |       | (204                   | )          | —   |       |
| Capitalization  of acquisition costs                                              |       | 534                    |       | 513      |       |
| Amortization,  excluding impact of changes in assumptions                         |       | (321                   | )          | (318     | )          |
| Amortization,  impact of annual third quarter changes in DAC-related  assumptions |       | (16                    | )          | 38       |       |
| Amortization,  impact of other quarter changes in DAC-related  assumptions        |       | 12                     |       | 6        |       |
| Impact of  changes in net unrealized securities losses                            |       | 9                      |       | 55       |       |
| Balance at  September 30                                                          |       | $                      | 4,425      |     | $          | 4,330 |   |
|                                                                              |       |                   |       |     |       |
| The balances of  and changes in DSIC were as follows:                             |       |                   |       |     |       |
|                                                                              |       |                   |       |     |       |
| ** **                                                                        | ** ** | **2007**               | ** ** | **2006** | ** ** |
| ** **                                                                        | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                                             |       | $                      | 452        |     | $          | 370 |   |
| Cumulative  effect of SOP 05-1 adoption                                           |       | (11                    | )          | —   |       |
| Capitalization  of sales inducements                                              |       | 96                     |       | 92       |       |
| Amortization,  excluding impact of changes in assumptions                         |       | (38                    | )          | (38      | )          |
| Amortization,  impact of annual third quarter changes in DAC-related  assumptions |       | 3                      |       | —   |       |
| Impact of change  in net unrealized securities losses                             |       | 1                      |       | 7        |       |
| Balance at  September 30                                                          |       | $                      | 503        |     | $          | 431 |   |
|                                                                                   |            |                        |            |          |            |  |  |  |

**6.****             ****Future Policy Benefits, Policy Claimsand Other Policyholders’ Funds and Separate Account Liabilities**

Future policy benefits and policy claims and otherpolicyholders’ funds consisted of the following:

 
| ** **                                                                          | ** ** | **September 30, 2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                          | ** ** | **(in millions)**      | ** ** |
| Fixed annuities                                                                     |       | $                           | 14,968     |                        | $          | 16,841 |   |
| Equity indexed  annuities accumulated host values                                   |       | 255                         |       | 267                         |       |
| Equity indexed  annuities embedded derivatives                                      |       | 60                          |       | 50                          |       |
| Variable  annuities fixed sub-accounts                                              |       | 5,542                       |       | 5,975                       |       |
| Guaranteed  minimum withdrawal benefits variable annuity guarantees                 |       | 76                          |       | (12                         | )          |
| Guaranteed minimum  accumulation benefits variable annuity guarantees               |       | 12                          |       | (5                          | )          |
| Other variable  annuity guarantees                                                  |       | 27                          |       | 31                          |       |
| Total annuities                                                                     |       | 20,940                      |       | 23,147                      |       |
| Variable  universal life (“VUL”)/universal life insurance                 |       | 2,565                       |       | 2,562                       |       |
| Other life,  disability income and long term care insurance                         |       | 4,041                       |       | 3,852                       |       |
| Total future  policy benefits                                                       |       | 27,546                      |       | 29,561                      |       |
| Policy claims  and other policyholders’ funds                                  |       | 106                         |       | 93                          |       |
| Total future  policy benefits and policy claims and other policyholders’ funds |       | $                           | 27,652     |                        | $          | 29,654 |   |
|                                                                                     |            |                             |            |                             |            |  |  |  |

 

8

 

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**RIVERSOURCE********LIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)****(Continued)**

**6.****             ****Future Policy Benefits, Policy Claimsand Other Policyholders’ Funds and Separate Account Liabilities (Continued)**

Separate account liabilities consisted of thefollowing:

 
| ** **                              | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **(in millions)**            | ** ** |
| Variable annuity  variable sub-accounts |       | $                            | 51,587     |                        | $          | 43,515 |   |
| VUL insurance variable sub-accounts     |       | 6,446                        |       | 5,772                       |       |
| Total separate  account liabilities     |       | $                            | 58,033     |                        | $          | 49,287 |   |
|                                         |            |                              |            |                             |            |  |  |  |

**7.    Lines of Credit**

RiverSource Life has available a committed line of credit with Ameriprise Financial aggregating $200 million.  The interest rate for any borrowings isestablished by reference to LIBOR plus 28 basis points.  There were no amounts outstanding on thisline of credit at September 30, 2007 and December 31, 2006.

Also, RiverSource Life has a collateral loanagreement with Ameriprise Financial aggregating up to$75 million.  The interest rate for anyborrowings is equal to the preceding month’s effective new money rate for RiverSource Life’s permanent investments.  There were no amounts outstanding atSeptember 30, 2007 and December 31, 2006.

**8****.  ****    ****Income Taxes**

RiverSource Life’s effective tax rates were (1%) and17% for the three months and nine months ended September 30, 2007,respectively, compared to 32% and 31% for the three months and nine monthsended September 30, 2006. The decrease in the effective tax rates primarilyreflects lower pretax income as well as higher levels of tax advantaged items,including the dividends received deduction, relative to pretax income for thethree months and nine months ended September 30, 2007.  Additionally, the effective tax rate for thethree months ended was impacted by a $7 million tax benefit related to thefinalization of the prior year tax return.

RiverSource Life is required to establish a valuation allowancefor any portion of the deferred tax assets that management believes will not berealized.  Included in RiverSource Life’s deferred tax assets is a significantdeferred tax asset relating to capital losses that have been recognized forfinancial statement purposes but not yet for tax return purposes. Under currentU.S. federal income tax law, capital losses generally must be used against capitalgain income within five years of the year in which the capital losses arerecognized for tax purposes. Additionally, RiverSource Life has $45 millionin capital loss carryforwards that expire December31, 2009 as a result of the 2005 first short period tax return filed withAmerican Express.  Based on analysis of RiverSource Life’s tax position, management believes it ismore likely than not that the results of future operations and implementationof tax planning strategies will generate sufficient taxable income to enable RiverSource Life to utilize all of its deferred tax assets.Accordingly, no valuation allowance for deferred tax assets was established asof September 30, 2007 and December 31, 2006.

EffectiveJanuary 1, 2007, RiverSource Life adopted theprovisions of FIN 48.  The effect ofadopting FIN 48 on the consolidated financial condition and results ofoperations was not material.  As of thedate of adoption, RiverSource Life had $73 million ofgross unrecognized tax benefits.  Ifrecognized, approximately $27 million, net of federal tax benefits, wouldaffect the effective tax rate. As ofSeptember 30, 2007, RiverSource Life had$53 million of gross unrecognized tax benefits.  If recognized, approximately$18 million, net of federal tax benefits, would affect the effective taxrate.

RiverSource Life recognizes interest and penalties related tounrecognized tax benefits as a component of the income tax provision.  RiverSource Liferecognized a net reduction of interest and penalties of $8 million and $12million for the three months and nine months ended September 30, 2007,respectively.  RiverSourceLife had a $10 million liability and a $2 million receivable related tointerest and penalties accrued at January 1, 2007 and September 30, 2007,respectively.

It isreasonably possible that the total amounts of unrecognized tax benefits willchange in the next 12 months.  Based onthe current audit position of RiverSource Life, it isestimated that the total amount of unrecognized tax benefits and interest maydecrease by $1 to $2 million in the next 12 months.

 

9

 

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**RIVERSOURCE********LIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)****(Continued)**

**8****.     Income Taxes(Continued)**

RiverSource Life or one or more of its subsidiaries files incometax returns in the U.S. federal jurisdiction, and various state jurisdictions.With few exceptions, RiverSource Life is no longersubject to U.S. federal or state and local income tax examinations by taxauthorities for years before 1997. The Internal Revenue Service (“IRS”), aspart of the overall examination of the American Express Company consolidatedreturn, commenced an examination of RiverSource Life’sU.S. income tax returns for 1997 through 2002 in the third quarter of 2005. Inthe first quarter of 2007, the IRS expanded the period of the exam to include2003 through 2004. RiverSource Life or certain of itssubsidiaries’ state income tax returns are currently under examination byvarious jurisdictions for years ranging from 1998 through 2005.

**9.****             ****Commitments and Contingencies**

At September 30, 2007 and December 31, 2006, RiverSourceLife had no material commitments to purchase investments other than mortgageloan fundings.

The SEC, the Financial Industry Regulatory Authority (formerly known asthe National Association of Securities Dealers) and several state authoritieshave brought proceedings challenging several mutual fund and variable productfinancial practices, generally including suitability, sales practices, latetrading, market timing, compensation and disclosure of revenue sharingarrangements.  RiverSourceLife has received requests for information and has been contacted by regulatoryauthorities concerning its practices and is cooperating fully with theseinquiries.

RiverSource Life is involved in the normal course of business ina number of other legal and arbitration proceedings concerning matters arisingin connection with the conduct of its business activities.  RiverSource Lifebelieves that it is not a party to, nor are any of its properties the subjectof, any pending legal, arbitration or regulatory proceedings that would have amaterial adverse effect on its consolidated financial condition, results ofoperations or liquidity.  However, it ispossible that the outcome of any such proceedings could have a material impacton results of operations in any particular reporting period as the proceedingsare resolved.

 

 

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**ITEM 2.****                             ****MANAGEMENT’S NARRATIVE ANALYSIS**

The following information should be read inconjunction with RiverSource Life Insurance Company’s Consolidated FinancialStatements and Notes presented in Item 1. RiverSource Life Insurance Company and its subsidiary are referred tocollectively in this Form 10-Q as “RiverSource Life”.  This narrative analysis may containforward-looking statements that reflect RiverSource Life’s plans, estimates andbeliefs.  Actual results could differmaterially from those discussed in these forward-looking statements.  Factors that could cause or contribute tothese differences include, but are not limited to, those discussed under “Forward-LookingStatements.”  RiverSource Life believesit is useful to read this narrative analysis in conjunction with its AnnualReport on Form 10-K for the year ended December 31, 2006, filed with theSecurities and Exchange Commission (“SEC”) on February 28, 2007, as well as itscurrent reports on Form 8-K and other publicly available information.

RiverSource Life follows U.S. generally acceptedaccounting principles (“U.S. GAAP”), and the following discussion is presentedon a consolidated basis consistent with U.S. GAAP.

Management’s narrative analysis of the results ofoperations is presented in lieu of management’s discussion and analysis offinancial condition and results of operations, pursuant to General InstructionsH(2) (a) of Form 10-Q.

**Overview**

RiverSource Life Insurance Company is a stock lifeinsurance company with one wholly owned operating subsidiary, RiverSource LifeInsurance Co. of New York (“RiverSource Life of NY”).  RiverSource Life Insurance Company is awholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”).

•                        RiverSource Life Insurance Company isdomiciled in Minnesota and holds Certificates of Authority in American Samoa,the District of Columbia and all states except New York.  RiverSource Life Insurance Company issuesinsurance and annuity products.

•                        RiverSource Life of NY is a stock lifeinsurance company domiciled in New York, which holds Certificates of Authorityin New York, North Dakota and Delaware. RiverSource Life of NY issues insurance and annuity products.

Ameriprise Financial was formerly a wholly ownedsubsidiary of American Express Company (“American Express”).  On February 1, 2005, the American ExpressBoard of Directors announced its intention to pursue the disposition of 100% ofits shareholdings in Ameriprise Financial (the “Separation”) through a tax-freedistribution to American Express shareholders. Effective as of the close of business on September 30, 2005, AmericanExpress completed the Separation and the distribution of Ameriprise Financialcommon shares to American Express shareholders (the “Distribution”).  In connection with the Distribution,Ameriprise Financial entered into certain agreements with American Express toeffect the Separation and to define the responsibility for obligations arisingbefore and after the date of the Distribution, including, among others, obligationsrelating to transition services, taxes, and employees.  Ameriprise Financial has incurred $862million of pretax non-recurring separation costs since the Separationannouncement through September 30, 2007 and expects to incur approximately $25million to $30 million in costs in the fourth quarter of 2007, reflecting allremaining separation costs.  These costsare primarily related to technology costs and marketing and rebranding.  RiverSource Life was allocated certainexpenses incurred as a result of Ameriprise Financial becoming an independentcompany.  RiverSource Life has incurred$338 million in total pretax non-recurring separation costs since theSeparation announcement through September 30, 2007 and expects to be allocateda significant portion of the remaining separation costs in 2007.  RiverSource Life received a capitalcontribution of $650 million from Ameriprise Financial during the third quarterof 2005 to support its financial strength ratings and to cover separationcosts.

**Recent Accounting Pronouncements**

For information regarding recent accountingpronouncements and their expected impact on future consolidated financialcondition or results of operations, see Note 2 to the Consolidated FinancialStatements.

***Resultsof Operations for the******Nine Months Ended September 30, 2007******and******2006***

*Overview*

Consolidated net income was $328 million for the ninemonths ended September 30, 2007 comparedto $349 million for the nine months endedSeptember 30, 2006, a decrease of $21 million.  Income before income tax provision decreased$106 million to $396 million for the nine months ended September 30, 2007 from$502 million for the nine months ended September 30, 2006.  The decrease is driven by an increase indeath and other benefits due to market volatility on variable annuityguaranteed living benefit reserves, higher deferred acquisition costs (“DAC”)amortization resulting from the annual detailed review of DAC valuationassumptions (“DAC unlocking”) and the impact of lower account balances andspread compression in the annuity fixed accounts offset partially by incomefrom hedges for variable annuity guaranteed living benefits and mortality andexpense risk and other fees.

 

11

 

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*Revenues*

Total revenues increased $94million to $2.6 billion for the nine monthsended September 30, 2007 from $2.5billion for the nine months ended September 30, 2006 driven by an increase incost of insurance charges on variable universal life products as a result ofvolume increases and an increase in rider charges and mortality and expensecharges reflecting higher average separate account assets. Total premiumsdecreased $9 million for the nine months ended September 30, 2007 primarily dueto a $15 million favorable adjustment as a result of a review of the long termcare (“LTC”) reinsurance arrangements in the third quarter of 2006.

Net investment income decreased $87 million or 6.9% to $1.2 billion forthe nine months ended September 30, 2007 primarily driven bylower average account balances in annuity fixed accounts.  As expected, annuity fixed accounts aredeclining as clients choose other products in the current interest rateenvironment and RiverSource Life focuses on fee-based products.  The decrease is partially offset by favorablemark-to-market adjustments on derivatives hedging guaranteed livingbenefits.  Fluctuations in the value ofembedded derivatives are reported in the death and other benefits forinvestment contracts and universal life-type insurance line item on RiverSourceLife’s Consolidated Statements of Income.

Contractholder andpolicyholder charges increased $24 million or 5.0% to $505 million for the nine months ended September 30, 2007 primarily dueto an increase in the cost of insurance charges on variable universal lifeproducts as a result of volume increases and charges for variable annuity guaranteed living benefit riders.  This is partially offset by $18 million from recognizing previouslydeferred cost of insurance revenues during the prior year period.

Mortality and expenserisk and other fees increased $148million or 32.3% to $606 million for the nine months endedSeptember 30, 2007 reflecting higher average values of separate accountassets due to positive net flows and market appreciation.

Net realized investmentgains were $42 million for the ninemonths ended September 30, 2007 comparedto $24 million for the nine months ended September 30, 2006.  Included in net realized investment gains forthe nine months ended September 30, 2007 was a decrease of $21 million to theallowance for loan losses on commercial mortgage loans.   Forthe nine months ended September30, 2007, $42 million of gross realized investment gains were partiallyoffset by $19 million of grossrealized losses as well as $2 millionof other-than-temporary impairment losses on investments, classified asAvailable-for-Sale.  For the nine months ended September 30, 2006, $34 million of gross realized investmentgains were partially offset by $10 million of gross realized investment lossesclassified as Available-for-Sale.

*Benefitsand Expenses*

Total benefits andexpenses reflect the impact of the third quarter detailed review of DACunlocking.  RiverSource Life recorded anet expense from unlocking of $30 million, comprised of $16 million additionalDAC amortization expense and a $14 million increase in death and other benefitsfor investment contracts and universal life-type insurance.  DAC unlocking during the third quarter 2006resulted in a $25 million benefit, comprised of a $38 million benefit in DACamortization expense, a $12 million increase in death and other benefits forinvestment contracts and universal life-type insurance and a $1 milliondecrease in contractholder and policyholder charges.

The DAC unlocking netexpense of $30 million for the third quarter 2007 consisted of a $35 millionincrease in expense from updating product persistency assumptions, a $13million decrease in expense from updating assumptions related to separateaccount fee levels and net variable annuity rider charges and an $8 millionincrease in expense from updating all other assumptions.

The DAC unlocking netbenefit of $25 million for the third quarter of 2006 consisted of a $25 millionbenefit from modeling improvements in increased product persistency, a $15million benefit from modeling improvements in mortality, an $8 million increasefrom modeling lower variable product fund fee revenue, an $8 million increasefrom modeling changes related to Variable Life Second to Die insurance and $1million benefit from other miscellaneous items.

Death and other benefitsfor investment contracts and universal life-type insurance increased $111million or 58.4% to $301 millionfor the nine months endedSeptember 30, 2007.  In the third quarterof 2007, reserves providing for guaranteed benefits associated with thevariable annuity business increased by $132 million primarily due to changes infinancial market factors offset by a $9 million related change in deferredsales inducement costs.  Included in deathand other benefits for investment contracts and universal life-type insuranceis $14 million related to DAC unlocking in the third quarter of 2007 comparedto $12 million in the prior year period.

Increase in liabilitiesfor future policy benefits for disability income (“DI”) and LTC insuranceincreased $4 million or 3.7% reflecting an unfavorable $12million adjustment in DI reserves partially offset by favorable DI claimsexperience compared to the prior year.

 

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Interest credited toaccount values decreased by $75million or 9.4% to $720 million for the nine months ended September 30, 2007primarily due to lower average accumulation values of annuities.

Amortization of DACincreased $51 million to $325 million for the nine months ended September 30, 2007from $274 million for the nine monthsended September 30, 2006 primarily due to DAC unlocking.  DAC unlocking had an unfavorable impact of$16 million for the nine months ended September 30, 2007 compared to afavorable impact of $38 million for the prior year period.  Underlying increases in amortization of DACdue to growth in business volumes and the recurring impact of adoptingStatement of Position (“SOP”) 05-1 “Accounting by Insurance Enterprises forDeferred Acquisition Costs in Connection With Modifications or Exchanges ofInsurance Contracts” were offset by decreases in amortization of DAC driven bythe mark-to-market of variable annuity guaranteed living benefit riders.

Separation costsdecreased $5 million or 5.5% to $86 million for the ninemonths ended September 30, 2007. Separation costs in 2007 primarily related to technology costs.  All remaining separation costs are expectedto be incurred in the fourth quarter of 2007.

Other insuranceand operating expenses increased $107 millionor 22.7% to $579 million for the nine months ended September 30, 2007primarily reflecting increased sales and marketing expenses and corporateoverhead expenses.

*IncomeTaxes*

RiverSource Life’seffective tax rate was 17% forthe nine months ended September30, 2007 compared to 31% for the ninemonths ended September 30, 2006. The decrease in the effective tax rateprimarily reflects lower pretax income as well as higher levels of taxadvantaged items, including the dividends received deduction, relative to pretaxincome for the nine months ended September 30, 2007 as well as a $7 million taxbenefit related to the finalization of the prior year tax return.

On September 25,2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 inwhich it announced that it intends to issue regulations with respect to certaincomputational aspects  of the DividendsReceived Deduction (“DRD”) related to separate account assets held inconnection with variable contracts of life insurance companies and has added theproject to the 2007-2008 Priority Guidance Plan. Revenue Ruling 2007-61suspended a revenue ruling issued in August 2007 that purported to changeaccepted industry and IRS interpretations of the statutes governing thesecomputational questions. Any regulations that the IRS ultimately proposes forissuance in this area will be subject to public notice and comment, at whichtime insurance companies and other members of the public will have theopportunity to raise legal and practical questions about the content, scope andapplication of such regulations. As a result, the ultimate timing and substanceof any such regulations are unknown at this time, but they may result in theelimination of some or all of the separate account DRD tax benefit thatRiverSource Life receives. Management believes that it is likely that any suchregulations would apply prospectively only. For the nine months ended September30, 2007, RiverSource Life recorded a benefit of approximately $35 millionrelated to the current year’s separate account DRD.

**Liquidityand Capital Resources**

The liquidityrequirements of RiverSource Life are generally met by funds provided byinvestment income, maturities and periodic repayments of investments, deposits,premiums and proceeds from sales of investments, as well as capitalcontributions from Ameriprise Financial. RiverSource Life has established an available line of credit withAmeriprise Financial aggregating $200 million and also has repurchase agreementsavailable with outside third parties. The primary uses of funds are policy benefits, commissions, otherproduct-related acquisition and sales inducement costs, operating expenses,policy loans, dividends to Ameriprise Financial and investment purchases.  RiverSource Life routinely reviews itssources and uses of funds in order to meet its ongoing obligations.

On March 20, 2007,June 25, 2007 and September 25, 2007, RiverSource Life paid cash dividends of$150 million, $100 million and $550 million, respectively, to AmeripriseFinancial.  Also, on June 25, 2007,RiverSource Life of NY paid cash dividends of $83 million to RiverSource LifeInsurance Company.  During 2006,RiverSource Life paid $300 million of cash dividends to Ameriprise Financialand RiverSource Life of NY paid $25 million of cash dividends to RiverSourceLife Insurance Company.

 

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RiverSource LifeInsurance Company and its wholly owned life insurance subsidiary are subject toregulatory capital requirements.  Actualcapital, determined on a statutory basis, and regulatory capital requirements,based on the most recent statutory risk-based capital filings for each of thelife insurance entities, are as follows:
| ** **                                  | ** ** | **Actual Capital as of****(a)**  | ** ** | **Regulatory  Capital  Requirement** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| ** **                                  | ** ** | **September 30****,  2007** | ** ** | **December 31,  2006**          | ** ** | **December 31,  2006** | ** ** |
| ** **                                  | ** ** | **(in millions)**                | ** ** |
| RiverSource Life  Insurance Company         |       | $                                | 3,058      |                                 | $          | 3,511 |   | $ | 590 |   |
| RiverSource Life  Insurance Co. of New York |       | 291                              |       | 348                                  |       | 38 |   |
|                                             |            |                                  |            |                                      |            |  |  |  |  |  |

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(a)                  Actual capital, as defined bythe National Association of Insurance Commissioners for purposes of meetingregulatory capital requirements, includes statutory capital and surplus, pluscertain statutory valuation reserves.

** **

**Forward-LookingStatements**

This report containsforward-looking statements that reflect RiverSource Life’s plans, estimates andbeliefs.  RiverSource Life’s actualresults could differ materially from those described in these forward-lookingstatements.  The words “believe,” “expect,”“anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,”“would,” “likely” and similar expressions are intended to identifyforward-looking statements but are not the exclusive means of identifying suchstatements.  Forward-looking statementsare subject to risks and uncertainties which could cause actual results todiffer materially from such statements. RiverSource Life cautions the reader that the following list of factorsis not exhaustive.  There may also beother risks that RiverSource Life is unable to predict at this time that maycause actual results to differ materially from those in forward-lookingstatements.  Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date on which they are made.  RiverSource Life undertakes no obligation to update or revise anyforward-looking statements.

Factors that could causeactual results to differ materially from these forward-looking statementsinclude, but are not limited to, the following:

•                  changes in the interest rate, equitymarket and other financial market environments;

•     changes in the litigation and regulatory environmentand judicial or legislative developments, including the increasing focus oncustomer suitability, sales practices and disclosure, as well as ongoing legalproceedings and regulatory actions;

•     RiverSource Life’s investment management performanceand consumer acceptance of RiverSource Life’s products;

•     effects of competition in the financial servicesindustry and changes in RiverSource Life’s product distribution mix anddistribution channels;

•     RiverSource Life’s capital structure as a subsidiaryof Ameriprise Financial, including the ability of its parent to support itsfinancial strength and ratings;

•     risks of default by issuers of investments RiverSourceLife owns or by counterparties to derivative or reinsurance arrangements;

•     experience deviations from RiverSource Life’sassumptions regarding morbidity, mortality and persistency in certain annuityand insurance products;

•     successfully cross-selling insurance and annuityproducts and services to Ameriprise Financial’s customer base;

•     RiverSource Life’s ability to effectively hedge risksrelating to guaranteed benefit riders and certain other products;

•     the impact of the separation of Ameriprise Financialfrom American Express;

•     the impact of intercompany allocations to RiverSourceLife from Ameriprise Financial and its affiliates;

•     Ameriprise Financial’s ability to attract, recruit andretain qualified advisors and employees and its ability to distributeRiverSource Life’s products through current and future distribution channels;

•     the impact of Ameriprise Financial’s efforts toimprove distribution economics and of RiverSource Life’s efforts to grow thirdparty distribution, and RiverSource Life’s ability to establish its new brandsand to realize benefits from tax planning;

•     changes in U.S. federal income or estate tax lawspotentially making RiverSource Life’s products less attractive to clients;

•     RiverSource Life’s ability to recover fromcatastrophes, both natural and man-made; and

•     general economic and political factors, includingconsumer confidence in the economy, and in applicable legislation andregulation, including tax law, tax treaties and regulatory rulings andpronouncements.

 

 

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A further description ofthese and other risks and uncertainties can be found under “Item 1A — RiskFactors” and elsewhere in RiverSource Life’s Annual Report on Form 10-K for theyear ended December 31, 2006, filed on February 28, 2007 and its other reportsfiled with the SEC.

**ITEM 4T.****                     ****CONTROLS AND PROCEDURES**

**Disclosure Controls andProcedures**

RiverSource Lifemaintains disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))designed to provide reasonable assurance that the information required to bereported in the Exchange Act filings is recorded, processed, summarized andreported within the time periods specified and pursuant to SEC regulations,including controls and procedures designed to ensure that this information isaccumulated and communicated to RiverSource Life’s management, including itsprincipal executive officer and chief financial officer, as appropriate, toallow timely decisions regarding the required disclosure.  It should be noted that, because of inherentlimitations, RiverSource Life’s disclosure controls and procedures, howeverwell designed and operated, can provide only reasonable, and not absolute,assurance that the objectives of the disclosure controls and procedures aremet.

RiverSource Life’smanagement, with the participation of RiverSource Life’s principal executiveofficer and chief financial officer, evaluated the effectiveness of thedisclosure controls and procedures as of the end of the period covered by thisreport.  Based upon that evaluation,RiverSource Life’s principal executive officer and chief financial officer haveconcluded that RiverSource Life’s disclosure controls and procedures wereeffective at a reasonable level of assurance as of September 30, 2007.

**Changes in Internal Control overFinancial Reporting**

There have not been anychanges in RiverSource Life’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)during the fiscal quarter to which this report relates that have materiallyaffected, or are reasonably likely to materially affect, RiverSource Life’sinternal control over financial reporting.

**PART II.****                        ****OTHER INFORMATION**

**ITEM 1.****                             ****LEGAL PROCEEDINGS**

The information set forthin Note 9 to the Consolidated Financial Statements in Part I, Item 1 isincorporated herein by reference.

**ITEM 1A.****                    ****RISK FACTORS**

There have been nomaterial changes in the risk factors provided in Part I, Item 1A of RiverSourceLife’s Annual Report on Form 10-K for the year ended December 31, 2006 filedwith the SEC on February 28, 2007.

**ITEM 6.****                             ****EXHIBITS**

The list of exhibitsrequired to be filed as exhibits to this report are listed on page E-1 hereof,under “Exhibit Index,” which is incorporated herein by reference.

 

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** **

**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|                   | RIVERSOURCE LIFE INSURANCE COMPANY |
|------------------------|------------------------------------|
|                   |                               | (Registrant) |
|                   |                               |   |
|                   |                               |   |
|                   |                               |   |
|                   |                               |   |
|                   |                               |   |
| Date: November 8, 2007 | By                       | /s/ Timothy V. Bechtold |
|                   |                               | Timothy V. Bechtold |
|                   |                               | President |
|                   |                               |   |
|                   |                               |   |
|                   |                               |   |
| Date: November 8, 2007 | By                       | /s/ Brian J. McGrane |
|                   |                               | Brian J. McGrane |
|                   |                               | Executive Vice President and Chief Financial Officer |

 

 

 

 

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**EXHIBITINDEX**

 

The following exhibits are filed as part of thisQuarterly Report:
| **Exhibit** | ** ** | **Description**                                                                                                                                                       |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                            |
| * 31.1 |       | Certification of Timothy V. Bechtold pursuant to Rule  13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.                                   |
|        |       |                                                                                                                                                                  |
| * 31.2 |       | Certification of Brian J. McGrane pursuant to Rule  13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.                                      |
|        |       |                                                                                                                                                                  |
| * 32.1 |       | Certification of Timothy V. Bechtold and Brian J. McGrane  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

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*                     Filed electronically herewith.

 

E-1

 

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