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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

** **

**FORM 10-Q**

 
| **x** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

** **

**For the Quarterly Period Ended September 30,2009**

** **

**or**

 
| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the Transition Period from                to            **

 

**CommissionFile No. ****033-28976**

 

**RIVERSOURCE LIFE INSURANCECOMPANY**

(Exact name ofregistrant as specified in its charter)

 

| **Minnesota**                                                   | ** ** | **41-0823832**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **1099 Ameriprise Financial Center, Minneapolis,  Minnesota**   | ** ** | **55474**                            |
| (Address of principal executive offices)                        |       | (Zip Code)                           |

 

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

 

Former name, former address and former fiscal year, if changed sincelast report:  **Not Applicable**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.

 

| Large  Accelerated Filer o                                                    |   | Accelerated  Filer o         |
|-------------------------------------------------------------------------------|--------|------------------------------|
|                                                                          |   |                         |
| Non-Accelerated  Filer x  (Do not check if a smaller reporting company)  |   | Smaller  reporting company o |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act).  Yes o No x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Class**                              | ** ** | **Outstanding  at****November 3, 2009** |
|----------------------------------------|------------|----------------------------------------------|
| Common Stock (par value $30 per share) |       | 100,000****shares                            |

 

THE REGISTRANT MEETS THECONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OFFORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCEDDISCLOSURE FORMAT.

 

 

 

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

 

**FORM 10-Q**

 

**INDEX**

 
| ** **        | ** **                 | ** **                                                                                                      | **Page No.** |
|-------------------|----------------------------|-----------------------------------------------------------------------------------------------------------------|-------------------|
| **Part I.**  | **Financial Information:** |                                                                                                            |
|              | Item 1.                    | Financial Statements                                                                                            |              |
|              |                       | Consolidated Balance Sheets — September 30,  2009 and December 31, 2008                          | 1                 |
|              |                       | Consolidated Statements of Income — Three  months and nine months ended September 30, 2009 and 2008   | 2                 |
|              |                       | Consolidated Statements of Cash Flows — Nine months  ended September 30, 2009 and 2008                | 3                 |
|              |                       | Consolidated Statements of Shareholder’s  Equity — Nine months ended September 30, 2009 and 2008 | 4                 |
|              |                       | Notes to  Consolidated Financial Statements                                                                     | 5-27              |
|              | Item 2.                    | Management’s  Narrative Analysis                                                                           | 28-37             |
|              | Item 4T.                   | Controls and  Procedures                                                                                        | 38                |
| **Part II.** | **Other Information:**     |                                                                                                            |
|              | Item 1.                    | Legal Proceedings                                                                                               | 38                |
|              | Item 1A.                   | Risk Factors                                                                                                    | 38                |
|              | Item 6.                    | Exhibits                                                                                                        | 38                |
|              | Signatures                 | 39                                                                                                              |
|              | Exhibit Index         | E-1                                                                                                             |
|                   |                            |                                                                                                                 |                   |  |

 

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**PART I.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

 

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

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                                  | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**              | ** ** | ** **                  | ** ** |
| **Assets**                                                                                  |       |                         |       |                        |       |
| Investments:                                                                                |       |                         |       |                        |       |
| Available-for-Sale:                                                                         |       |                         |       |                        |       |
| Fixed  maturities, at fair value (amortized cost: 2009, $24,711; 2008, $19,452)             |       | $                            | 25,676     |                        | $          | 18,070 |   |
| Common  and preferred stocks, at fair value  (cost: 2009 and 2008, $30)                     |       | 23                           |       | 16                          |       |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2009, $25; 2008,  $17) |       | 2,570                        |       | 2,737                       |       |
| Policy  loans                                                                               |       | 714                          |       | 722                         |       |
| Trading  securities and other investments                                                   |       | 328                          |       | 452                         |       |
| Total  investments                                                                          |       | 29,311                       |       | 21,997                      |       |
|                                                                                        |       |                         |       |                        |       |
| Cash  and cash equivalents                                                                  |       | 1,232                        |       | 3,307                       |       |
| Reinsurance  recoverables                                                                   |       | 1,651                        |       | 1,592                       |       |
| Amounts  due from brokers                                                                   |       | 54                           |       | 3                           |       |
| Deferred  income taxes, net                                                                 |       | —                       |       | 599                         |       |
| Other  accounts receivable                                                                  |       | 94                           |       | 99                          |       |
| Accrued  investment income                                                                  |       | 304                          |       | 239                         |       |
| Deferred  acquisition costs                                                                 |       | 4,272                        |       | 4,324                       |       |
| Deferred  sales inducement costs                                                            |       | 514                          |       | 518                         |       |
| Other  assets                                                                               |       | 1,006                        |       | 2,658                       |       |
| Separate  account assets                                                                    |       | 52,037                       |       | 41,787                      |       |
|                                                                                        |       |                         |       |                        |       |
| Total  assets                                                                               |       | $                            | 90,475     |                        | $          | 77,123 |   |
|                                                                                        |       |                         |       |                        |       |
| **Liabilities and Shareholder’s Equity**                                               |       |                         |       |                        |       |
| Liabilities:                                                                                |       |                         |       |                        |       |
| Future  policy benefits                                                                     |       | $                            | 30,554     |                        | $          | 28,753 |   |
| Policy  claims and other policyholders’ funds                                          |       | 115                          |       | 172                         |       |
| Amounts  due to brokers                                                                     |       | 853                          |       | 1,862                       |       |
| Deferred  income taxes, net                                                                 |       | 56                           |       | —                      |       |
| Line  of credit with Ameriprise Financial, Inc.                                        |       | 500                          |       | —                      |       |
| Other  liabilities                                                                          |       | 893                          |       | 810                         |       |
| Separate  account liabilities                                                               |       | 52,037                       |       | 41,787                      |       |
| Total  liabilities                                                                          |       | 85,008                       |       | 73,384                      |       |
|                                                                                        |       |                         |       |                        |       |
| Shareholder’s  equity:                                                                 |       |                         |       |                        |       |
| Common  shares, $30 par value; 100,000 shares authorized, issued and outstanding            |       | 3                            |       | 3                           |       |
| Additional  paid-in capital                                                                 |       | 2,115                        |       | 2,116                       |       |
| Retained  earnings                                                                          |       | 2,928                        |       | 2,336                       |       |
| Accumulated  other comprehensive income (loss), net                                         |       | 421                          |       | (716                        | )          |
| Total  shareholder’s equity                                                            |       | 5,467                        |       | 3,739                       |       |
|                                                                                        |       |                         |       |                        |       |
| Total  liabilities and shareholder’s equity                                            |       | $                            | 90,475     |                        | $          | 77,123 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)**

**(inmillions)**

 
| ** **                                                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                  | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Revenues**                                                                |       |                                       |       |                                      |       |   |   |   |   |
| Premiums                                                                    |       | $                                          | 112        |                                      | $          | 110 |   | $ | 331 |   | $ | 324 |   |
| Net  investment income                                                      |       | 415                                        |       | 299                                       |       | 1,123 |   | 939 |   |
| Policy  and contract charges                                                |       | 249                                        |       | 415                                       |       | 828 |   | 1,054 |   |
| Other  revenue                                                              |       | 63                                         |       | 67                                        |       | 165 |   | 205 |   |
| Net  realized investment gains (losses)                                     |       | 7                                          |       | (200                                      | )          | 42 |   | (229 | ) |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Total  revenues                                                             |       | 846                                        |       | 691                                       |       | 2,489 |   | 2,293 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| **Benefits and expenses**                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses                           |       | 179                                        |       | 85                                        |       | 623 |   | 455 |   |
| Interest  credited to fixed accounts                                        |       | 232                                        |       | 200                                       |       | 674 |   | 588 |   |
| Amortization  of deferred acquisition costs                                 |       | (81                                        | )          | 222                                       |       | 42 |   | 483 |   |
| Other  insurance and operating expenses                                     |       | 134                                        |       | 149                                       |       | 420 |   | 487 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Total  benefits and expenses                                                |       | 464                                        |       | 656                                       |       | 1,759 |   | 2,013 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Pretax  income                                                              |       | 382                                        |       | 35                                        |       | 730 |   | 280 |   |
| Income  tax provision (benefit)                                             |       | 96                                         |       | (14                                       | )          | 176 |   | (26 | ) |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Net  income                                                                 |       | $                                          | 286        |                                      | $          | 49 |   | $ | 554 |   | $ | 306 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Supplemental  Disclosures:                                                  |       |                                       |       |                                      |       |   |   |   |   |
| Net  realized investment gains (losses):                                    |       |                                       |       |                                      |       |   |   |   |   |
| Net  realized investment gains before impairment losses on securities       |       | $                                          | 26         |                                      |       |   | $ | 102 |   |   |   |
| Total  other-than-temporary impairment losses on securities                 |       | (18                                        | )          |                                      |       | (48 | ) |   |   |
| Portion  of loss recognized in other comprehensive income                   |       | (1                                         | )          |                                      |       | (12 | ) |   |   |
| Net  impairment losses recognized in net realized investment gains (losses) |       | (19                                        | )          |                                      |       | (60 | ) |   |   |
| Net  realized investment gains (losses)                                     |       | $                                          | 7          |                                      |       |   | $ | 42 |   |   |   |

 

*See Notes to Consolidated Financial Statements.*

 

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** RIVERSOURCE LIFE INSURANCECOMPANY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

**(inmillions)**

** **
| ** **                                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| **Cash Flows from Operating  Activities**                                                    |       |                                      |       |   |   |
| Net income                                                                                   |       | $                                         | 554        |   | $ | 306 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |                                      |       |   |   |
| Capitalization of deferred acquisition costs and  deferred sales inducement costs            |       | (513                                      | )          | (501 | ) |
| Amortization of deferred acquisition costs and  deferred sales inducement costs              |       | 40                                        |       | 544 |   |
| Premium and discount amortization on  Available-for-Sale securities                          |       | (53                                       | )          | 44 |   |
| Deferred income taxes, net                                                                   |       | 22                                        |       | (77 | ) |
| Contractholder and policyholder charges, non-cash                                            |       | (194                                      | )          | (183 | ) |
| Net realized investment gains                                                                |       | (102                                      | )          | (8 | ) |
| Other-than-temporary impairments recognized in net  realized investment gains                |       | 60                                        |       | 237 |   |
| Change in operating assets and liabilities:                                                  |       |                                      |       |   |   |
| Trading securities and equity method investments,  net                                       |       | 131                                       |       | 25 |   |
| Future policy benefits for traditional life,  disability income and long term care insurance |       | 201                                       |       | 237 |   |
| Policy claims and other policyholders’ funds                                            |       | (57                                       | )          | 11 |   |
| Reinsurance recoverables                                                                     |       | (59                                       | )          | (261 | ) |
| Other accounts receivable                                                                    |       | 5                                         |       | (1 | ) |
| Accrued investment income                                                                    |       | (65                                       | )          | 12 |   |
| Liability for derivatives collateral held                                                    |       | (1,674                                    | )          | (96 | ) |
| Other assets and liabilities, net                                                            |       | 503                                       |       | 53 |   |
|                                                                                         |       |                                      |       |   |   |
| **Net cash provided by (used in)****operating activities**                                   |       | (1,201                                    | )          | 342 |   |
| ** **                                                                                   |       |                                      |       |   |   |
| **Cash Flows from Investing  Activities**                                                    |       |                                      |       |   |   |
| Available-for-Sale securities:                                                               |       |                                      |       |   |   |
| Proceeds from sales                                                                          |       | 3,550                                     |       | 189 |   |
| Maturities, sinking fund payments and calls                                                  |       | 2,511                                     |       | 1,859 |   |
| Purchases                                                                                    |       | (10,535                                   | )          | (730 | ) |
| Other investments, excluding policy loans:                                                   |       |                                      |       |   |   |
| Proceeds from sales, maturities, sinking fund  payments and calls                            |       | 230                                       |       | 231 |   |
| Purchases                                                                                    |       | (74                                       | )          | (228 | ) |
| Change in policy loans, net                                                                  |       | 9                                         |       | (26 | ) |
|                                                                                         |       |                                      |       |   |   |
| **Net cash provided by (used in)  investing activities**                                     |       | (4,309                                    | )          | 1,295 |   |
| ** **                                                                                   |       |                                      |       |   |   |
| **Cash Flows from Financing  Activities**                                                    |       |                                      |       |   |   |
| Activity related to investment contracts and  universal life-type insurance:                 |       |                                      |       |   |   |
| Considerations received                                                                      |       | 4,386                                     |       | 1,569 |   |
| Net transfers from separate accounts                                                         |       | 174                                       |       | — |   |
| Surrenders and other benefits                                                                |       | (1,587                                    | )          | (2,223 | ) |
| Proceeds from line of credit with Ameriprise  Financial, Inc.                           |       | 500                                       |       | — |   |
| Deferred premium options, net                                                                |       | (38                                       | )          | (40 | ) |
| Tax adjustment on shared-based incentive  compensation plan                                  |       | —                                    |       | 2 |   |
| Cash  dividend  to Ameriprise Financial, Inc.                                           |       | —                                    |       | (775 | ) |
| **Net cash provided by (used in)  financing activities**                                     |       | 3,435                                     |       | (1,467 | ) |
| ** **                                                                                   |       |                                      |       |   |   |
| **Net increase (decrease) in cash  and cash equivalents**                                    |       | (2,075                                    | )          | 170 |   |
| Cash and cash equivalents at beginning of period                                             |       | 3,307                                     |       | 980 |   |
|                                                                                         |       |                                      |       |   |   |
| **Cash and cash equivalents at  end of period**                                              |       | $                                         | 1,232      |   | $ | 1,150 |   |
|                                                                                         |       |                                      |       |   |   |
| Supplemental Disclosures:                                                                    |       |                                      |       |   |   |
| Income taxes paid, net                                                                       |       | $                                         | 9          |   | $ | 128 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

** **

**CONSOLIDATED STATEMENTS OFSHAREHOLDER’S EQUITY (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008**

**(in millions)**

** **
| ** **                                                                                                                     | ** ** | **Common    Shares** | ** ** | **Additional    Paid-In   Capital** | ** ** | **Retained    Earnings** | ** ** | **Accumulated  Other  Comprehensive Income (Loss)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|-----------|------------|
| **Balances at January 1,  2008**                                                                                               |       | $                    | 3          |                                | $          | 2,031                    |       | $                                                   | 3,188      |      | $          | (156 | ) | $ | 5,066 |   |
|                                                                                                                           |       |                 |       |                                |       |                     |       |                                                |       |      |       |
| Change in accounting principles, net                                                                                           |       | —               |       | —                              |       | (30                      | )          | —                                              |       | (30       | )          |
| Comprehensive income:                                                                                                          |       |                 |       |                                |       |                     |       |                                                |       |      |       |
| Net income                                                                                                                     |       | —               |       | —                              |       | 306                      |       | —                                              |       | 306       |       |
| Other comprehensive loss, net:                                                                                                 |       |                 |       |                                |       |                     |       |                                                |       |      |       |
| Change in net unrealized securities losses                                                                                     |       | —               |       | —                              |       | —                   |       | (626                                                | )          | (626      | )          |
| Total comprehensive loss                                                                                                       |       |                 |       |                                |       |                     |       |                                                |       | (320      | )          |
| Tax adjustment on share-based incentive  compensation plan                                                                     |       | —               |       | 2                                   |       | —                   |       | —                                              |       | 2         |       |
| Cash dividends to Ameriprise Financial,  Inc.                                                                                  |       | —               |       | —                              |       | (775                     | )          | —                                              |       | (775      | )          |
| **Balances at September 30,  2008**                                                                                            |       | $                    | 3          |                                | $          | 2,033                    |       | $                                                   | 2,689      |      | $          | (782 | ) | $ | 3,943 |   |
| ** **                                                                                                                     |       |                 |       |                                |       |                     |       |                                                |       |      |       |
| **Balances at January 1,  2009**                                                                                               |       | $                    | 3          |                                | $          | 2,116                    |       | $                                                   | 2,336      |      | $          | (716 | ) | $ | 3,739 |   |
| Change in accounting principles, net                                                                                           |       | —               |       | —                              |       | 38                       |       | (38                                                 | )          | —    |       |
| Comprehensive income:                                                                                                          |       |                 |       |                                |       |                     |       |                                                |       |      |       |
| Net income                                                                                                                     |       | —               |       | —                              |       | 554                      |       | —                                              |       | 554       |       |
| Other comprehensive income, net:                                                                                               |       |                 |       |                                |       |                     |       |                                                |       |      |       |
| Change in net unrealized securities losses                                                                                     |       | —               |       | —                              |       | —                   |       | 1,146                                               |       | 1,146     |       |
| Change in noncredit related impairments on  securities and net unrealized securities losses on previously impaired  securities |       | —               |       | —                              |       | —                   |       | 26                                                  |       | 26        |       |
| Change in net  unrealized derivative losses                                                                                    |       | —               |       | —                              |       | —                   |       | 3                                                   |       | 3         |       |
| Total comprehensive income                                                                                                     |       |                 |       |                                |       |                     |       |                                                |       | 1,729     |       |
| Tax adjustment on share-based incentive  compensation plan                                                                     |       | —               |       | (1                                  | )          | —                   |       | —                                              |       | (1        | )          |
| **Balances at September 30,  2009**                                                                                            |       | $                    | 3          |                                | $          | 2,115                    |       | $                                                   | 2,928      |      | $          | 421 |   | $ | 5,467 |   |

 

*See Notes to ConsolidatedFinancial Statements.*

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

 

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

 

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned subsidiaries, RiverSource Life InsuranceCo. of New York and RiverSource Tax Advantaged Investments, Inc. (“RiverSourceTax Adv. Inv.”)  RiverSource LifeInsurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc.(“Ameriprise Financial”).  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

 

RiverSource LifeInsurance Company and its subsidiaries are referred to collectively in this Form 10-Qas “RiverSource Life”.

 

The interim financialinformation in this report has not been audited. In the opinion of management,all adjustments necessary for a fair presentation of the consolidated financialposition and results of operations for the interim periods have been made. Alladjustments 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 inRiverSource Life’s Annual Report on Form 10-K for the year ended December 31,2008 filed with the Securities and Exchange Commission (“SEC”) on March 2,2009.

 

RiverSource Lifeevaluated events or transactions that may have occurred after the balance sheetdate for potential recognition or disclosure through November 3, 2009, thedate the financial statements were issued.

 

**Restatementfor Consolidation of RiverSource Tax Adv. Inv.**

 

On December 31,2008, Ameriprise Financial contributed all of the issued and outstanding sharesof RiverSource Tax Adv. Inv. to RiverSource Life Insurance Company.  The consolidated financial statements giveeffect to the RiverSource Tax Adv. Inv. transfer on December 31, 2008 as apooling of interests for entities under common control. Prior periods have beenrestated to include the accounts of RiverSource Tax Adv. Inv. using the poolingof interests method in order to be comparable to the current year. Followingare the amounts related to RiverSource Tax Adv. Inv. which are included inRiverSource Life’s consolidated financial statements:

 
| ** **                                    | ** ** | **September 30,** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **2008**               | ** ** |
| ** **                                    | ** ** | **(in millions)**      | ** ** |
| Total  revenues                               |       | $                      | (23        | ) |
| Net  income                                   |       | 10                     |       |
| Shareholder’s  equity: Retained earnings |       | 357                    |       |
|                                               |            |                        |            |  |

 

**Reclassifications**

 

The accompanyingConsolidated Financial Statements are prepared in accordance with U.S.generally accepted accounting principles (“GAAP”).  Certain reclassifications of prior periodamounts have been made to conform to the current presentation.

 

In the first quarter of2009, RiverSource Life reclassified reinsurance allowances for coinsurancecontracts for traditional life and long term care insurance from premiums toother insurance and operating expenses to net with the associated expenses.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The following table showsthe impact of the reclassification of the reinsurance allowances and the effectof the pooling of interests of RiverSource Tax. Adv. Inv. to RiverSource Life’spreviously reported Consolidated Statements of Income.

 
| ** **                                        | ** ** | **Three Months Ended********September 30, 2008** | ** ** | **Nine Months Ended********September 30, 2008** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                        | ** ** | **Previously   Reported**                             | ** ** | **Restated and   Reclassified**                      | ** ** | **Previously   Reported** | ** ** | **Restated and   Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                                     | ** ** |
| **Revenues**                                      |       |                                                  |       |                                                 |       |   |   |   |   |
| Premiums                                          |       | $                                                     | 122        |                                                 | $          | 110 |   | $ | 356 |   | $ | 324 |   |
| Net  investment income                            |       | 306                                                   |       | 299                                                  |       | 962 |   | 939 |   |
| Policy  and contract charges                      |       | 415                                                   |       | 415                                                  |       | 1,054 |   | 1,054 |   |
| Other  revenue                                    |       | 67                                                    |       | 67                                                   |       | 205 |   | 205 |   |
| Net  realized investment losses                   |       | (200                                                  | )          | (200                                                 | )          | (229 | ) | (229 | ) |
|                                              |       |                                                  |       |                                                 |       |   |   |   |   |
| Total  revenues                                   |       | 710                                                   |       | 691                                                  |       | 2,348 |   | 2,293 |   |
|                                              |       |                                                  |       |                                                 |       |   |   |   |   |
| **Benefits and expenses**                         |       |                                                  |       |                                                 |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 85                                                    |       | 85                                                   |       | 455 |   | 455 |   |
| Interest  credited to fixed accounts              |       | 200                                                   |       | 200                                                  |       | 588 |   | 588 |   |
| Amortization  of deferred acquisition costs       |       | 222                                                   |       | 222                                                  |       | 483 |   | 483 |   |
| Other  insurance and operating expenses           |       | 159                                                   |       | 149                                                  |       | 519 |   | 487 |   |
|                                              |       |                                                  |       |                                                 |       |   |   |   |   |
| Total  benefits and expenses                      |       | 666                                                   |       | 656                                                  |       | 2,045 |   | 2,013 |   |
|                                              |       |                                                  |       |                                                 |       |   |   |   |   |
| Pretax  income                                    |       | 44                                                    |       | 35                                                   |       | 303 |   | 280 |   |
| Income  tax provision (benefit)                   |       | —                                                |       | (14                                                  | )          | 7 |   | (26 | ) |
|                                              |       |                                                  |       |                                                 |       |   |   |   |   |
| **Net income**                                    |       | $                                                     | 44         |                                                 | $          | 49 |   | $ | 296 |   | $ | 306 |   |

 

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

 

## **Adoptionof New Accounting Standards**

##  

### *TheHierarchy of GAAP*

###  

In June 2009, theFinancial Accounting Standards Board (“FASB”) established the FASB AccountingStandards CodificationTM (“Codification”)as the single source of authoritative accounting principles recognized by theFASB in the preparation of financial statements in conformity with GAAP. TheCodification supersedes existing nongrandfathered, non-SEC accounting andreporting standards. The Codification did not change GAAP but rather organizedit into a hierarchy where all guidance within the Codification carries an equallevel of authority. The Codification became effective on July 1, 2009. TheCodification did not have a material effect on RiverSource Life’s consolidatedfinancial condition and results of operations.

 

### *SubsequentEvents*

###  

In May 2009, theFASB updated the accounting standards on the recognition and disclosure ofsubsequent events. The standard also requires the disclosure of the datethrough which subsequent events were evaluated. The standard is effective forinterim and annual reporting periods ending after June 15, 2009, and shallbe applied prospectively. RiverSource Life adopted the standard in the secondquarter of 2009. The adoption did not have a material effect on RiverSourceLife’s consolidated financial condition and results of operations.

 

*FairValue*

 

In April 2009, theFASB updated the accounting standards to provide guidance on estimating thefair value of a financial asset or liability when the trade volume and level ofactivity for the asset or liability have significantly decreased relative tohistorical levels. The standard requires entities to disclose the inputs andvaluation techniques used to measure fair value and any changes in valuationinputs or techniques. In addition, debt and equity securities as defined byGAAP shall be disclosed by major category. This standard is effective forinterim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009, andis to be applied prospectively. RiverSource Life early adopted the standard inthe first quarter of 2009. The adoption did not have a material effect onRiverSource Life’s consolidated financial condition and results of operations.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

In April 2009, theFASB updated the accounting standards to require interim disclosures about thefair value of in-scope financial instruments that are not reported at fairvalue. This standard is effective for interim and annual reporting periodsending after June 15, 2009, with early adoption permitted for periodsending after March 15, 2009. RiverSource Life applied the disclosurerequirements of the standard in the first quarter of 2009. See Note 8 for therequired disclosures.

 

In September 2006,the FASB updated the accounting standards to define fair value, establish aframework for measuring fair value and expand disclosures about fair valuemeasurements. The new standard applies under other accounting standards that requireor permit fair value measurements. Accordingly, the standard does not requireany new fair value measurements. The provisions of the standard are required tobe applied prospectively as of the beginning of the fiscal year in which it isinitially applied, except for certain financial instruments as defined in thestandard that require retrospective application. Any retrospective applicationwill be recognized as a cumulative effect adjustment to the opening balance ofretained earnings for the fiscal year of adoption. RiverSource Life adopted thestandard effective January 1, 2008 and recorded a cumulative effectreduction to the opening balance of retained earnings of $30 million, netof deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”)amortization and income taxes. This reduction to retained earnings was relatedto adjusting the fair value of certain derivatives RiverSource Life uses tohedge its exposure to market risk related to certain variable annuity riders.Prior to January 1, 2009, RiverSource Life recorded these derivatives inaccordance with accounting guidance for derivative contracts held for tradingpurposes and contracts involved in energy trading and risk managementactivities. The new standard nullifies the previous guidance and requires thesederivatives to be marked to the price RiverSource Life would receive to sellthe derivatives to a market participant (an exit price). The adoption of thestandard also resulted in adjustments to the fair value of RiverSource Life’sembedded derivative liabilities associated with certain variable annuityriders. Since there is no market for these liabilities, RiverSource Lifeconsidered the assumptions participants in a hypothetical market would make todetermine an exit price. As a result, RiverSource Life adjusted the valuationof these liabilities by updating certain policyholder assumptions, addingexplicit margins to provide for profit, risk, and expenses, and adjusting therate used to discount expected cash flows to reflect a current market estimateof RiverSource Life’s risk of nonperformance specific to these liabilities.These adjustments resulted in an adoption impact of a $4 million increasein earnings, net of DAC and DSIC amortization and income taxes, at January 1, 2008.The nonperformance risk component of the adjustment is specific to the risk ofRiverSource Life not fulfilling these liabilities. As RiverSource Life’sestimate of this credit spread widens or tightens, the liability willdecrease or increase.

 

### *Recognitionand Presentation of Other-Than-Temporary Impairments*

###  

In April 2009, theFASB updated the accounting standards for the recognition and presentation ofother-than-temporary impairments. The standard amends existing guidance onother-than-temporary impairments for debt securities and requires that thecredit portion of other-than-temporary impairments be recorded in earnings andthe noncredit portion of losses be recorded in other comprehensive income. Thestandard requires separate presentation of both the credit and noncreditportions of other-than-temporary impairments on the financial statements andadditional disclosures. This standard is effective for interim and annualreporting periods ending after June 15, 2009, with early adoption permittedfor periods ending after March 15, 2009. At the date of adoption, theportion of previously recognized other-than-temporary impairments thatrepresent the noncredit related loss component shall be recognized as acumulative effect of adoption with an adjustment to the opening balance ofretained earnings with a corresponding adjustment to accumulated othercomprehensive income (loss). RiverSource Life adopted the standard in the firstquarter of 2009 and recorded a cumulative effect increase to the openingbalance of retained earnings of $38 million, net of DAC and DSICamortization, certain benefit reserves and income taxes, and a correspondingincrease to accumulated other comprehensive loss, net of impacts to DAC andDSIC amortization, certain benefit reserves and income taxes. See Note 3 forRiverSource Life’s updated accounting policy and disclosures required by thisstandard.

 

*Disclosuresabout Derivative Instruments and Hedging Activities*

 

In March 2008, theFASB updated the accounting standards for disclosures about derivativeinstruments and hedging activities. The standard intends to improve financialreporting about derivative instruments and hedging activities by requiringenhanced disclosures about their impact on an entity’s financial position,financial performance, and cash flows. The standard requires disclosures regarding the objectives for usingderivative instruments, the fair value of derivative instruments and theirrelated gains and losses, and the accounting for derivatives and related hedgeditems. The standard is effective for fiscal years and interim periods beginningafter November 15, 2008, with early adoption permitted. RiverSourceLife applied the new disclosure requirements in the first quarter of 2009.See Note 9 for the required disclosures.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

Noncontrolling Interestsin Consolidated Financial Statements

 

In December 2007,the FASB updated the accounting standards for noncontrolling interests inconsolidated financial statements to establish the accounting and reporting forownership interest in subsidiaries not attributable, directly or indirectly, toa parent.  The standard requiresnoncontrolling (minority) interests to be classified as equity (instead of as aliability) within the consolidated balance sheet, and net income (loss)attributable to both the parent and the noncontrolling interests to bedisclosed on the face of the consolidated statement of income. The standard iseffective for fiscal years beginning after December 15, 2008, andinterim periods within those years with early adoption prohibited. Theprovisions of the standard are to be applied prospectively, except for thepresentation and disclosure requirements which are to be appliedretrospectively to all periods presented. RiverSource Life adopted the newstandard as of January 1, 2009 and there was no impact on itsconsolidated financial condition and results of operations.

 

### **FutureAdoption of New Accounting Standards**

###  

### *Investmentsin Certain Entities That Calculate Net Asset Value per Share (or ItsEquivalent)*

###  

In September 2009,the FASB updated the accounting standards to allow for net asset value (“NAV”)to be used as a practical expedient in estimating the fair value of alternativeinvestments without readily determinable fair values. The standard also requiresadditional disclosure by major category of investment related to restrictionson the investor’s ability to redeem the investment as of the measurement date,unfunded commitments and the investment strategies of the investees. Thedisclosures are required for all investments within the scope of the standardregardless of whether the fair value of the investment is measured using theNAV or another method.  The standard iseffective for interim and annual periods ending after December 15, 2009,with early adoption permitted. RiverSource Life does not expect the adoption tohave a material effect on its consolidated financial condition and results ofoperations.

 

### *MeasuringLiabilities at Fair Value*

###  

In August 2009, theFASB updated the accounting standards to provide additional guidance onestimating the fair value of a liability in a hypothetical transaction wherethe liability is transferred to a market participant. The standard is effectivefor the first reporting period, including interim periods, beginning afterissuance. RiverSource Life does not expect the adoption to have a materialeffect on RiverSource Life’s consolidated financial condition and results ofoperations.

 

### *Consolidationof Variable Interest Entities*

###  

In June 2009, theFASB  updated the accounting standardsrelated to the consolidation of variable interest entities (“VIEs”). Thestandard amends current consolidation guidance and requires additionaldisclosures about an enterprise’s involvement in VIEs. The standard iseffective for interim and annual reporting periods beginning after November 15,2009, with early adoption prohibited. RiverSource Life is currently evaluatingthe impact of the standard on its consolidated financial condition and resultsof operations.

 

### *Accountingfor Transfers of Financial Assets*

###  

In June 2009, theFASB updated the accounting standards related to accounting for transfers offinancial assets. The standard improves the relevance, representationalfaithfulness, and comparability of the information that a reporting entityprovides in its financial statements about a transfer of financial assets; theeffects of a transfer on its financial position, financial performance, andcash flows; and a transferor’s continuing involvement, if any, in transferredfinancial assets. The standard is effective for interim and annual reportingperiods beginning after November 15, 2009, with early adoption prohibited,and must be applied to transfers of financial assets occurring on or after theeffective date. The adoption of the standard is not expected to have a materialeffect on RiverSource Life’s consolidated financial condition and results ofoperations.

 

**3.****             ****Investments**

 

*Available-for-SaleSecurities*

 

Effective January 1,2009, RiverSource Life early adopted an accounting standard that significantlychanged RiverSource Life’s accounting policy regarding the timing and amount ofother-than-temporary impairments for Available-for-Sale securities as follows.When the fair value of an investment is less than its amortized cost, RiverSourceLife assesses whether or not: (i) it has the intent to sell the security(made a decision to sell) or (ii) it is more likely than not RiverSourceLife will be required to sell the security before its anticipated recovery. Ifeither of these conditions are met, RiverSource Life must recognize another-than-temporary impairment for the difference between the investment’samortized cost basis and its fair

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

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value through earnings.For securities that do not meet the above criteria and RiverSource Life doesnot expect to recover a security’s amortized cost basis, the security isconsidered other-than-temporarily impaired. For these securities, RiverSourceLife separates the total impairment into the credit loss component and theamount of the loss related to other factors. The amount of the totalother-than-temporary impairment related to credit loss is recognized inearnings. The amount of the total other-than-temporary impairment related toother factors is recognized in other comprehensive income, net of impacts toDAC, DSIC, certain benefit reserves and income taxes. For Available-for-Salesecurities that have recognized an other-than-temporary impairment throughearnings, if through subsequent evaluation there is a significant increase inthe cash flow expected, the difference between the amortized cost basis and thecash flows expected to be collected is accreted as interest income. Subsequentincreases and decreases in the fair value of Available-for-Sale securities areincluded in other comprehensive income. RiverSource Life’s Consolidated Statements of Shareholder’s Equitypresent all changes in other comprehensive income associated withAvailable-for-Sale debt securities that have been other-than-temporarilyimpaired on a separate line from fair value changes recorded in othercomprehensive income from all other securities.

 

RiverSource Life providesa supplemental disclosure on the face of its Consolidated Statements of Incomethat presents: (i) total other-than-temporary impairment losses recognizedduring the period and (ii) the portion of other-than-temporary impairmentlosses recognized in other comprehensive income. The sum of these amountsrepresents the credit-related portion of other-than-temporary impairments thatwere recognized in earnings during the period. The portion ofother-than-temporary losses recognized in other comprehensive income includes: (i) theportion of other-than-temporary impairment losses related to factors other thancredit recognized during the period and (ii) reclassifications ofother-than-temporary impairment losses previously determined to be related tofactors other than credit that are determined to be credit-related in thecurrent period. The amount presented on the Consolidated Statements of Incomeas the portion of other-than-temporary losses recognized in other comprehensiveincome excludes subsequent increases and decreases in the fair value of thesesecurities.

 

For all securities thatare considered temporarily impaired, RiverSource Life does not intend to sellthese securities (has not made a decision to sell) and it is not more likelythan not that RiverSource Life will be required to sell the security beforerecovery of its amortized cost basis. RiverSource Life believes that it willcollect all principal and interest due on all investments that have amortizedcost in excess of fair value that are considered only temporarily impaired.

 

*Corporatedebt securities*

 

Factors RiverSource Lifeconsiders in determining whether declines in the fair value of fixed-maturitysecurities are other-than-temporary include: (i) the extent to which themarket value is below amortized cost; (ii) the duration of time in whichthere has been a significant decline in value; (iii) fundamental analysisof the liquidity, business prospects and overall financial condition of theissuer; and (iv) market events that could impact credit ratings, economicand business climate, litigation and government actions, and similar externalbusiness factors. In order to determine the amount of the credit loss componentfor corporate debt securities considered other-than-temporarily impaired, abest estimate of the present value of cash flows expected to be collecteddiscounted at the security’s effective interest rate is compared to theamortized cost basis of the security. The significant inputs to cash flow projections consider potential debtrestructuring terms, projected cash flows available to pay creditors andRiverSource Life’s position in the debtor’s overall capital structure.

 

*Structuredinvestments*

 

For structuredinvestments (e.g., residential mortgage backed securities, commercial mortgagebacked securities, asset backed securities and other structured investments),RiverSource Life also considers factors such as overall deal structure and itsposition within the structure, quality of underlying collateral, delinquenciesand defaults, loss severities, recoveries, prepayments and cumulative lossprojections in assessing potential other-than-temporary impairments of theseinvestments. Based upon these factors, securities that have indicators ofpotential other-than-temporary impairment are subject to detailed review bymanagement. Securities for which declines are considered temporary continue tobe carefully monitored by management. For the nine months ended September 30,2009, certain non-agency mortgage backed securities were deemed other-thantemporarily impaired. Generally, the credit loss component for the non-agencymortgage backed securities is determined as the amount the amortized cost basisexceeds the present value of the projected cash flows expected to be collected.Significant inputs considered in these projections are consistent with thefactors considered in assessing potential other-than-temporary impairment forthese investments.  Forward interestrates are considered in the cash flow projections and are used to calculate thediscount rate used to determine the present value of the expected cash flowswhen structures are supported by variable rate securities.  Current effective interest rates are used todiscount cash flows supported by fixed rate securities.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

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

 
| ** **                                | ** ** | **September 30, 2009** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|
| **Description of Securities**             | ** ** | **Amortized   Cost**        | ** ** | **Gross********Unrealized********Gains** | ** ** | **Gross********Unrealized********Losses** | ** ** | **Fair********Value** | ** ** |
| ** **                                | ** ** | **(in millions)**           | ** ** |
| Fixed  maturities:                        |       |                        |       |   |   |   |   |   |   |
| Corporate  debt securities                |       | $                           | 14,417     |   | $ | 927 |   | $ | (134 | ) | $ | 15,210 |   |
| Residential  mortgage backed securities   |       | 5,358                       |       | 199 |   | (227 | ) | 5,330 |   |
| Commercial  mortgage backed securities    |       | 3,563                       |       | 193 |   | (18 | ) | 3,738 |   |
| Asset  backed securities                  |       | 720                         |       | 37 |   | (35 | ) | 722 |   |
| State  and municipal obligations          |       | 494                         |       | 30 |   | (36 | ) | 488 |   |
| Foreign  government bonds and obligations |       | 94                          |       | 15 |   | — |   | 109 |   |
| U.S.  government and agencies obligations |       | 62                          |       | 7 |   | — |   | 69 |   |
| Other  structured investments             |       | 3                           |       | 7 |   | — |   | 10 |   |
| Total  fixed maturities                   |       | 24,711                      |       | 1,415 |   | (450 | ) | 25,676 |   |
| Common  and preferred stocks              |       | 30                          |       | — |   | (7 | ) | 23 |   |
| Total                                     |       | $                           | 24,741     |   | $ | 1,415 |   | $ | (457 | ) | $ | 25,699 |   |

 
| ** **                                | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| **Description of Securities**             | ** ** | **Amortized   Cost**       | ** ** | **Gross********Unrealized********Gains** | ** ** | **Gross********Unrealized********Losses** | ** ** | **Fair********Value** | ** ** |
| ** **                                | ** ** | **(in millions)**          | ** ** |
| Fixed  maturities:                        |       |                       |       |   |   |   |   |   |   |
| Corporate  debt securities                |       | $                          | 12,030     |   | $ | 86 |   | $ | (1,123 | ) | $ | 10,993 |   |
| Residential  mortgage backed securities   |       | 3,697                      |       | 59 |   | (220 | ) | 3,536 |   |
| Commercial  mortgage backed securities    |       | 2,582                      |       | 35 |   | (174 | ) | 2,443 |   |
| Asset  backed securities                  |       | 682                        |       | 4 |   | (60 | ) | 626 |   |
| State  and municipal obligations          |       | 164                        |       | 1 |   | (20 | ) | 145 |   |
| Foreign  government bonds and obligations |       | 95                         |       | 16 |   | (4 | ) | 107 |   |
| U.S.  government and agencies obligations |       | 200                        |       | 11 |   | — |   | 211 |   |
| Other  structured investments             |       | 2                          |       | 7 |   | — |   | 9 |   |
| Total  fixed maturities                   |       | 19,452                     |       | 219 |   | (1,601 | ) | 18,070 |   |
| Common  and preferred stocks              |       | 30                         |       | — |   | (14 | ) | 16 |   |
| Total                                     |       | $                          | 19,482     |   | $ | 219 |   | $ | (1,615 | ) | $ | 18,086 |   |

 

At September 30,2009 and December 31, 2008, fixed maturity securities comprisedapproximately 88% and 82%, respectively, of RiverSource Life’s totalinvestments.  These securities were ratedby Moody’s Investors Service (“Moody’s”), Standard & Poor’s RatingServices (“S&P”) and Fitch Ratings Ltd. (“Fitch”), except for approximately$1.1 billion of securities at both September 30, 2009 and December 31,2008, which were rated by RiverSource Investments, LLC’s internal analystsusing criteria similar to Moody’s, S&P and Fitch.  Ratings on fixed maturity securities arepresented using the median of ratings from Moody’s, S&P and Fitch.  If only two of the ratings are available, thelower rating is used.  A summary of fixedmaturity securities by rating was as follows:

 
| ** **             | ** ** | **September 30, 2009**           | ** ** | **December 31, 2008** | ** ** |
|------------------------|------------|---------------------------------------|------------|----------------------------|------------|
| **Ratings**            | ** ** | **Amortized   Cost**                  | ** ** | **Fair********Value**      | ** ** | **Percent of   Total Fair   Value** | ** ** | **Amortized   Cost** | ** ** | **Fair********Value** | ** ** | **Percent of   Total Fair   Value** | ** ** |
| ** **             | ** ** | **(in millions, except percentages)** | ** ** |
| AAA                    |       | $                                     | 8,891      |                       | $          | 9,277 |   | 36 | % | $ | 7,038 |   | $ | 6,779 |   | 38 | % |
| AA                     |       | 862                                   |       | 871                        |       | 3 |   | 1,071 |   | 1,017 |   | 6 |   |
| A                      |       | 4,269                                 |       | 4,433                      |       | 17 |   | 4,132 |   | 3,883 |   | 21 |   |
| BBB                    |       | 9,031                                 |       | 9,637                      |       | 38 |   | 5,901 |   | 5,388 |   | 30 |   |
| Below investment grade |       | 1,658                                 |       | 1,458                      |       | 6 |   | 1,310 |   | 1,003 |   | 5 |   |
| Total fixed maturities |       | $                                     | 24,711     |                       | $          | 25,676 |   | 100 | % | $ | 19,452 |   | $ | 18,070 |   | 100 | % |

 

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At September 30,2009 and December 31, 2008, approximately 24% and 44%, respectively, of thesecurities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.  No holdings of any other issuer were greaterthan 10% of shareholder’s equity.

 

The following tablesprovide information about Available-for-Sale securities with gross unrealizedlosses and the length of time that individual securities have been in acontinuous unrealized loss position:

 
| ** **                               | ** ** | **September 30, 2009** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **Less than 12 months**     | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Description of Securities**            | ** ** | **Fair********Value**       | ** ** | **Unrealized  Losses** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                               | ** ** | **(in millions)**           | ** ** |
|                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Corporate debt securities                |       | $                           | 323        |   | $ | (5 | ) | $ | 2,083 |   | $ | (129 | ) | $ | 2,406 |   | $ | (134 | ) |
| Residential mortgage backed securities   |       | 514                         |       | (21 | ) | 378 |   | (206 | ) | 892 |   | (227 | ) |
| Commercial mortgage backed securities    |       | 69                          |       | — |   | 440 |   | (18 | ) | 509 |   | (18 | ) |
| Asset backed securities                  |       | 15                          |       | (3 | ) | 82 |   | (32 | ) | 97 |   | (35 | ) |
| State and municipal obligations          |       | —                      |       | — |   | 101 |   | (36 | ) | 101 |   | (36 | ) |
| Foreign government bonds and obligations |       | —                      |       | — |   | 4 |   | — |   | 4 |   | — |   |
| Common and preferred stocks              |       | —                      |       | — |   | 23 |   | (7 | ) | 23 |   | (7 | ) |
| Total                                    |       | $                           | 921        |   | $ | (29 | ) | $ | 3,111 |   | $ | (428 | ) | $ | 4,032 |   | $ | (457 | ) |

** **
| ** **                               | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------|------------|----------------------------|------------|
| ** **                               | ** ** | **Less than 12 months**    | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Description of Securities**            | ** ** | **Fair********Value**      | ** ** | **Unrealized  Losses** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                               | ** ** | **(in millions)**          | ** ** |
|                                     |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Corporate debt securities                |       | $                          | 5,086      |   | $ | (372 | ) | $ | 3,309 |   | $ | (751 | ) | $ | 8,395 |   | $ | (1,123 | ) |
| Residential mortgage backed securities   |       | 305                        |       | (85 | ) | 466 |   | (135 | ) | 771 |   | (220 | ) |
| Commercial mortgage backed securities    |       | 387                        |       | (23 | ) | 867 |   | (151 | ) | 1,254 |   | (174 | ) |
| Asset backed securities                  |       | 187                        |       | (31 | ) | 124 |   | (29 | ) | 311 |   | (60 | ) |
| State and municipal obligations          |       | 17                         |       | (1 | ) | 78 |   | (19 | ) | 95 |   | (20 | ) |
| Foreign government bonds and obligations |       | 20                         |       | (4 | ) | — |   | — |   | 20 |   | (4 | ) |
| U.S. government and agencies obligations |       | —                     |       | — |   | 11 |   | — |   | 11 |   | — |   |
| Common and preferred stocks              |       | —                     |       | — |   | 16 |   | (14 | ) | 16 |   | (14 | ) |
| Total                                    |       | $                          | 6,002      |   | $ | (516 | ) | $ | 4,871 |   | $ | (1,099 | ) | $ | 10,873 |   | $ | (1,615 | ) |

 

The followingtables summarize gross unrealized losses by ratio of fair value to amortizedcost:

 
| ** **                                   | ** ** | **September 30,  2009**                    | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **Less  than 12 months**                        | ** ** | **12  months or more** | ** ** | **Total** | ** ** |
| **Ratio  of Fair Value   to Amortized Cost** | ** ** | **Number    of  Securities**                    | ** ** | **Fair********Value** | ** ** | **Gross    Unrealized   Losses** | ** ** | **Number    of   Securities** | ** ** | **Fair********Value** | ** ** | **Gross    Unrealized   Losses** | ** ** | **Number    of   Securities** | ** ** | **Fair    Value** | ** ** | **Gross    Unrealized   Losses** | ** ** |
| ** **                                   | ** ** | **(in  millions, except number of securities)** | ** ** |
| 95% - 100%                                   |       | 59                                              |       | $ | 822 |   | $ | (8 | ) | 113 |   | $ | 1,735 |   | $ | (40 | ) | 172 |   | $ | 2,557 |   | $ | (48 | ) |
| 90% - 95%                                    |       | 5                                               |       | 60 |   | (4 | ) | 36 |   | 461 |   | (38 | ) | 41 |   | 521 |   | (42 | ) |
| 80% - 90%                                    |       | 4                                               |       | 24 |   | (3 | ) | 29 |   | 385 |   | (56 | ) | 33 |   | 409 |   | (59 | ) |
| Less than 80%                                |       | 3                                               |       | 15 |   | (14 | ) | 66 |   | 530 |   | (294 | ) | 69 |   | 545 |   | (308 | ) |
| Total                                        |       | 71                                              |       | $ | 921 |   | $ | (29 | ) | 244 |   | $ | 3,111 |   | $ | (428 | ) | 315 |   | $ | 4,032 |   | $ | (457 | ) |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 
| ** **                                   | ** ** | **December 31,  2008**                     | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **Less  than 12 months**                        | ** ** | **12  months or more** | ** ** | **Total** | ** ** |
| **Ratio  of Fair Value   to Amortized Cost** | ** ** | **Number    of  Securities**                    | ** ** | **Fair********Value** | ** ** | **Gross    Unrealized   Losses** | ** ** | **Number  of   Securities** | ** ** | **Fair********Value** | ** ** | **Gross    Unrealized   Losses** | ** ** | **Number  of   Securities** | ** ** | **Fair    Value** | ** ** | **Gross    Unrealized   Losses** | ** ** |
| ** **                                   | ** ** | **(in  millions, except number of securities)** | ** ** |
| 95% - 100%                                   |       | 191                                             |       | $ | 3,181 |   | $ | (75 | ) | 69 |   | $ | 1,068 |   | $ | (23 | ) | 260 |   | $ | 4,249 |   | $ | (98 | ) |
| 90% - 95%                                    |       | 98                                              |       | 1,667 |   | (129 | ) | 48 |   | 1,001 |   | (86 | ) | 146 |   | 2,668 |   | (215 | ) |
| 80% - 90%                                    |       | 62                                              |       | 747 |   | (119 | ) | 82 |   | 1,465 |   | (271 | ) | 144 |   | 2,212 |   | (390 | ) |
| Less than 80%                                |       | 47                                              |       | 407 |   | (193 | ) | 150 |   | 1,337 |   | (719 | ) | 197 |   | 1,744 |   | (912 | ) |
| Total                                        |       | 398                                             |       | $ | 6,002 |   | $ | (516 | ) | 349 |   | $ | 4,871 |   | $ | (1,099 | ) | 747 |   | $ | 10,873 |   | $ | (1,615 | ) |

 

As part of RiverSourceLife’s ongoing monitoring process, management determined that a majority of thegross unrealized losses on its Available-for-Sale securities are attributableto changes in credit spreads across sectors. The primary driver of lowerunrealized losses in 2009 compared to 2008 was the tightening of credit spreadsacross sectors.  A portion of thedecrease in unrealized losses was offset by an increase due to the adoption ofa new accounting standard effective January 1, 2009. RiverSource Liferecorded a cumulative effect increase to the amortized cost of previouslyother-than-temporarily impaired investments that increased the gross unrealizedlosses on Available-for-Sale securities by $64 million. This impact is due tothe impairment of Available-for-Sale securities recognized in othercomprehensive income previously recognized through earnings for factors otherthan credit.

 

The following table presentsthe amounts recognized in the Consolidated Statements of Income forother-than-temporary impairments related to credit losses on securities forwhich a portion of the securities’ total other-than-temporary impairments wasrecognized in other comprehensive income:

 
| ** **                                                                                                                                                                        | ** ** | **Three Months Ended  September 30, 2009** | ** ** | **Nine Months Ended  September 30, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                                                        | ** ** | **(in millions)**                               | ** ** |
| Beginning  balance of credit losses on securities held for which a portion of  other-than-temporary impairment was recognized in other comprehensive income                       |       | $                                               | 131        |                                           | $          | 101 |   |
| Additional  amount related to credit losses for which an other-than-temporary impairment  was not previously recognized                                                           |       | —                                          |       | 8                                              |       |
| Reductions  for securities sold during the period (realized)                                                                                                                      |       | (15                                             | )          | (18                                            | )          |
| Additional  increases to the amount related to credit losses for which an  other-than-temporary impairment was previously recognized                                              |       | 3                                               |       | 28                                             |       |
| Ending  balance of credit losses on securities held as of September 30 for which  a portion of other-than-temporary impairment was recognized in other  comprehensive income |       | $                                               | 119        |                                           | $          | 119 |   |

 

The change in netunrealized securities losses in other comprehensive income (loss) includesthree components, net of tax: (i) unrealized gains (losses) that arosefrom changes in the market value of securities that were held during theperiod; (ii) (gains) losses that were previously unrealized, but have beenrecognized in current period net income due to sales of Available-for-Salesecurities and (iii) other items primarily consisting of adjustments inasset and liability balances, such as DAC, DSIC, benefit reserves andreinsurance recoverables, to reflect the expected impact on their carryingvalues had the unrealized gains (losses) been realized as of the respectivebalance sheet dates.  As a result of theadoption of a new accounting standard effective January 1, 2009, netunrealized investment gains (losses) arising during the period also includesother-than-temporary impairment losses on Available-for-Sale securities relatedto factors other than credit that were recognized in other comprehensive incomeduring the period. Additionally, reclassification of (gains) losses included innet income contains noncredit other-than-temporary impairment losses that werepreviously unrealized, but have been recognized in current period net incomedue to their reclassification as credit losses.

 

12

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The following tablepresents a rollforward of the net unrealized securities gains (losses) onAvailable-for-Sale securities included in accumulated other comprehensiveincome (loss):

 
| ** **                                                                                               | ** ** | **Net********Unrealized********Investment********Gains (Losses)** | ** ** | **Deferred********Income Tax** | ** ** | **Accumulated Other********Comprehensive Income   (Loss) Related to Net   Unrealized Investment   Gains (Losses)** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **(in millions)**                                                 | ** ** |
| Balance  at January 1, 2008                                                                         |       | $                                                                 | (178       | )                              | $          | 62                                                                                                                 |       | $ | (116 | ) |
| Net  unrealized investment losses arising during the period                                              |       | (1,196                                                            | )          | 419                            |       | (777                                                                                                               | )          |
| Reclassification  of losses included in net income                                                       |       | 229                                                               |       | (80                            | )          | 149                                                                                                                |       |
| Impact  of net unrealized investment gains on DAC, DSIC and benefit reserves                             |       | 3                                                                 |       | (1                             | )          | 2                                                                                                                  |       |
| Balance  at September 30, 2008                                                                      |       | $                                                                 | (1,142     | )                              | $          | 400                                                                                                                |       | $ | (742 | ) |
|                                                                                                     |       |                                                              |       |                           |       |                                                                                                               |       |
| Balance  at January 1, 2009                                                                         |       | $                                                                 | (1,043     | )                              | $          | 365                                                                                                                |       | $ | (678 | ) |
| Cumulative  effect of accounting change                                                                  |       | (58                                                               | )(1)       | 20                             |       | (38                                                                                                                | )          |
| Net  unrealized investment gains arising during the period                                               |       | 2,465                                                             |       | (862                           | )          | 1,603                                                                                                              |       |
| Reclassification  of gains included in net income                                                        |       | (52                                                               | )          | 18                             |       | (34                                                                                                                | )          |
| Impact  of net unrealized investment losses on DAC, DSIC, benefit reserves and  reinsurance recoverables |       | (611                                                              | )          | 214                            |       | (397                                                                                                               | )          |
| Balance  at September 30, 2009                                                                      |       | $                                                                 | 701        |                           | $          | (245                                                                                                               | )          | $ | 456 | (2) |

 

----

(1)          Amountrepresents the cumulative effect of adopting a new accounting standard on January 1,2009, net of DAC and DSIC amortization and certain benefit reserves.  See Note 2 for additional information on theadoption impact.

 

(2)       At September 30,2009, Accumulated Other Comprehensive Income Related to Net UnrealizedInvestment Gains included $(13) million of noncredit related impairments on securities and net unrealizedsecurities losses on previously impaired securities.

 

Net realized gains and losses onAvailable-for-Sale securities, determined using the specific identificationmethod, recognized in net realized investment gains (losses) were as follows:

 
| ** **                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(in millions)**                          | ** ** |
| Gross realized gains from sales  |       | $                                          | 48         |                                      | $          | 3 |   | $ | 143 |   | $ | 13 |   |
| Gross realized losses from sales |       | (21                                        | )          | (3                                        | )          | (31 | ) | (5 | ) |
| Impairment losses                |       | (19                                        | )          | (200                                      | )          | (60 | ) | (237 | ) |
|                                  |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |

 

The $19 million of other-than-temporary impairmentsrecognized in net realized investment gains (losses) for the three months endedSeptember 30, 2009 were related primarily to RiverSource Life’s decisionto sell certain corporate debt securities in the banking and financeindustries.  The $60 million ofother-than-temporary impairments recognized in net realized investment gains(losses) for the nine months ended September 30, 2009 were related tocredit losses on non-agency residential mortgage backed securities andcorporate debt securities in the gaming industry and banking and financeindustries.

 

13

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

Available-for-Salesecurities by contractual maturity as of September 30, 2009 were asfollows:

 
| ** **                              | ** ** | **Amortized Cost**       | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|----------------|------------|
| ** **                              | ** ** | **(in****millions****)** | ** ** |
| Due  within one year                    |       | $                        | 665        |           | $          | 674 |   |
| Due  after one year through five years  |       | 6,997                    |       | 7,201          |       |
| Due  after five years through 10 years  |       | 4,690                    |       | 4,976          |       |
| Due  after 10 years                     |       | 2,715                    |       | 3,025          |       |
|                                    |       | 15,067                   |       | 15,876         |       |
| Residential  mortgage backed securities |       | 5,358                    |       | 5,330          |       |
| Commercial  mortgage backed securities  |       | 3,563                    |       | 3,738          |       |
| Asset  backed securities                |       | 720                      |       | 722            |       |
| Other  structured investments           |       | 3                        |       | 10             |       |
| Common  and preferred stocks            |       | 30                       |       | 23             |       |
| Total                                   |       | $                        | 24,741     |           | $          | 25,699 |   |

 

Actual maturities maydiffer from contractual maturities because issuers may have the right to callor prepay obligations.  Residentialmortgage backed securities, commercial mortgage backed securities, asset backedsecurities and other structured investments are not due at a single maturitydate.  As such, these securities, as wellas common and preferred stocks, were not included in the maturitiesdistribution.

 

**4****.****             ****Deferred Acquisition Costs****and Deferred Sales Inducement Costs**

 

During the third quarterof 2009 and 2008, RiverSource Life completed the annual detailed review ofvaluation assumptions of its products. In addition, during the third quarter of 2008, RiverSource Lifeconverted to a new industry standard valuation system that provides enhancedmodeling capabilities.

 

The total pretax impactson RiverSource Life’s assets and liabilities attributable to the review ofvaluation assumptions during the third quarter of 2009 and 2008 and thevaluation system conversion during the third quarter of 2008 were as follows:

 
| **Balance  Sheet Impact  Debit (Credit)** | ** ** | **Reinsurance   Recoverables** | ** ** | **DAC** | ** ** | **DSIC** | ** ** | **Other   Assets** | ** ** | **Future   Policy   Benefits** | ** ** | **Other   Liabilities** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|--------------------------------|------------|---------|------------|----------|------------|--------------------|------------|--------------------------------|------------|-------------------------|------------|-----------|------------|
| **(in millions)**                         |       |
| 2009  period                              |       | $                              | (65        | )       | $          | 119      |       | $                  | 9          |                           | $          | —                  |       | $         | 71         |   | $ | — |   | $ | 134 |   |
| 2008  period                              |       | 92                             |       | (81     | )          | (6       | )          | 1                  |       | 95                             |       | 5                       |       | 106       |       |
|                                           |            |                                |            |         |            |          |            |                    |            |                                |            |                         |            |           |            |  |  |  |  |  |  |  |

 

The total pretax impactson RiverSource Life’s revenues and expenses attributable to the review of thevaluation assumptions for the three and nine months ended September 30,2009 and 2008 and the valuation system conversion for the three and nine monthsended September 30, 2008 were as follows:

 
| **Pretax    Benefit (Charge)** | ** ** | **Premiums** | ** ** | **Policy and   Contract   Charges** | ** ** | **Benefits,   Claims,   Losses and   Settlement   Expenses** | ** ** | **Amortization  of DAC** | ** ** | **Other   Insurance   and   Operating   Expenses** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------|------------|-------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------|------------|----------------------------------------------------|------------|-----------|------------|
| **(in  millions)**             | ** ** |
| 2009 period                    |       | $            | —     |                                | $          | (65                                                          | )          | $                        | 80         |                                               | $          | 119       |       | $ | — |   | $ | 134 |   |
| 2008 period                    |       | 2            |       | 95                                  |       | 89                                                           |       | (81                      | )          | 1                                                  |       | 106       |       |
|                                |            |              |            |                                     |            |                                                              |            |                          |            |                                                    |            |           |            |  |  |  |  |  |  |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The balances of and changes in DACwere as follows:

 
| ** **                                                                                        | ** ** | **2009**          | ** ** | **2008** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                                                                        | ** ** | **(in millions)** | ** ** |
| Balance at January 1                                                                         |       | $                 | 4,324      |     | $          | 4,334 |   |
| Cumulative  effect of accounting change                                                           |       | —            |       | 36       |       |
| Capitalization of acquisition costs                                                               |       | 452               |       | 437      |       |
| Amortization,  excluding impacts of valuation assumptions review and valuation system  conversion |       | (161              | )          | (402     | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion             |       | 119               |       | (81      | )          |
| Impact of change in net unrealized securities losses                                              |       | (462              | )          | (11      | )          |
| Balance at September 30                                                                      |       | $                 | 4,272      |     | $          | 4,313 |   |

 

The balances of andchanges in DSIC were as follows:

 
| ** **                                                                                        | ** ** | **2009**               | ** ** | **2008** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                                                        | ** ** | **(in millions)** | ** ** |
| Balance at January 1                                                                         |       | $                      | 518        |     | $          | 511 |   |
| Cumulative  effect of accounting change                                                           | ** ** | —                 |       | 9        |       |
| Capitalization of sales inducement costs                                                          | ** ** | 61                     |       | 64       |       |
| Amortization,  excluding impacts of valuation assumptions review and valuation system  conversion | ** ** | (7                     | )          | (55      | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion             | ** ** | 9                      |       | (6       | )          |
| Impact of change in net unrealized securities losses                                              | ** ** | (67                    | )          | —   |       |
| Balance at September 30                                                                      |       | $                      | 514        |     | $          | 523 |   |

 

RiverSource Life adopteda new accounting standard on the recognition and presentation ofother-than-temporary impairments in the first quarter of 2009.  The adoption had no net impact to DAC andDSIC.

 

Effective January 1,2008, RiverSource Life adopted a new accounting standard on fair valuemeasurements and recorded as a cumulative change in accounting principle apretax increase of $36 million and $9 million to DAC and DSIC,respectively.  See Note 2 and Note 8 foradditional information regarding RiverSource Life’s adoption of fair valueaccounting standards.

 

**5.     Future Policy Benefits, Policy Claims andOther Policyholders’ Funds and Separate Account Liabilities**

 

Futurepolicy benefits and policy claims and other policyholders’ funds consisted ofthe following:

 
| ** **                                                                           | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                           | ** ** | **(in millions)**      | ** ** |
| Fixed  annuities                                                                     |       | $                           | 16,551     |                       | $          | 14,058 |   |
| Equity  indexed annuities accumulated host values                                    |       | 183                         |       | 228                        |       |
| Equity  indexed annuities embedded derivatives                                       |       | 13                          |       | 16                         |       |
| Variable  annuities fixed sub-accounts                                               |       | 6,040                       |       | 5,623                      |       |
| Variable  annuity guaranteed minimum withdrawal benefits (“GMWB”)          |       | 468                         |       | 1,471                      |       |
| Variable  annuity guaranteed minimum accumulation benefits (“GMAB”)        |       | 151                         |       | 367                        |       |
| Other  variable annuity guarantees                                                   |       | 16                          |       | 67                         |       |
| Total  annuities                                                                     |       | 23,422                      |       | 21,830                     |       |
| Variable  universal life (“VUL”)/universal life (“UL”) insurance |       | 2,584                       |       | 2,526                      |       |
| Other  life, disability income and long term care insurance                          |       | 4,548                       |       | 4,397                      |       |
| Total  future policy benefits                                                        |       | 30,554                      |       | 28,753                     |       |
| Policy  claims and other policyholders’ funds                                   |       | 115                         |       | 172                        |       |
| Total  future policy benefits and policy claims and other policyholders’ funds  |       | $                           | 30,669     |                       | $          | 28,925 |   |

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                              | ** ** | **(in millions)**           | ** ** |
| Variable  annuity variable sub-accounts |       | $                           | 46,959     |                       | $          | 37,657 |   |
| VUL  insurance variable sub-accounts    |       | 5,033                       |       | 4,091                      |       |
| Other  insurance variable sub-accounts  |       | 45                          |       | 39                         |       |
| Total  separate account liabilities     |       | $                           | 52,037     |                       | $          | 41,787 |   |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**6.****             ****Variable Annuity and InsuranceGuarantees**

 

Themajority of the variable annuity contracts offered by RiverSource Life containguaranteed minimum death benefit (“GMDB”) provisions.  RiverSource Life also offers variableannuities with death benefit provisions that gross up the amount payable by acertain percentage of contract earnings, which are referred to as gain gross-up(“GGU”) benefits.  In addition,RiverSource Life offers contracts with GMWB provisions.  On June 1, 2009, RiverSource Lifesuspended sales of contracts with GMAB provisions.  RiverSource Life previously offered contractscontaining guaranteed minimum income benefit (“GMIB”) provisions.

 

Certainuniversal life contracts offered by RiverSource Life provide secondary guaranteebenefits.  The secondary guaranteeensures that, subject to specified conditions, the policy will not terminateand will continue to provide a death benefit even if there is insufficientpolicy value to cover the monthly deductions and charges.

 

Thefollowing table provides summary information related to all variable annuityguarantees for which RiverSource Life has established additional liabilities:

 
| ** **                                               | ** ** | **September 30, 2009**   | ** ** | **December 31, 2008**                    | ** ** |
|----------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------------------|------------|
| **Variable  annuity   guarantees by benefit   type (1)** | ** ** | **Total   contract   value**  | ** ** | **Contract   value in   separate   accounts** | ** ** | **Net amount  at risk(2)** | ** ** | **Weighted   average   attained   age** | ** ** | **Total   contract   value** | ** ** | **Contract   value in   separate   accounts** | ** ** | **Net   amount   at risk(2)** | ** ** | **Weighted   average   attained   age** | ** ** |
| ** **                                               | ** ** | **(in millions, except age)** | ** ** |
| **GMDB:**                                                |       |                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Return of Premium                                        |       | $                             | 29,238     |                                          | $          | 26,816 |   | $ | 1,445 |   | 61 |   | $ | 22,249 |   | $ | 20,153 |   | $ | 4,873 |   | 61 |   |
| Six-Year Reset                                           |       | 13,805                        |       | 11,098                                        |       | 1,185 |   | 61 |   | 12,719 |   | 10,063 |   | 2,802 |   | 61 |   |
| One-Year Ratchet                                         |       | 6,883                         |       | 6,189                                         |       | 1,082 |   | 63 |   | 5,770 |   | 5,061 |   | 2,163 |   | 62 |   |
| Five-Year Ratchet                                        |       | 1,197                         |       | 1,119                                         |       | 56 |   | 59 |   | 951 |   | 888 |   | 199 |   | 59 |   |
| Other                                                    |       | 566                           |       | 525                                           |       | 112 |   | 67 |   | 471 |   | 429 |   | 192 |   | 66 |   |
| Total — GMDB                                        |       | $                             | 51,689     |                                          | $          | 45,747 |   | $ | 3,880 |   | 61 |   | $ | 42,160 |   | $ | 36,594 |   | $ | 10,229 |   | 61 |   |
|                                                     |       |                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU death benefit**                                    |       | $                             | 824        |                                          | $          | 745 |   | $ | 69 |   | 63 |   | $ | 699 |   | $ | 619 |   | $ | 65 |   | 63 |   |
|                                                     |       |                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                                 |       | $                             | 626        |                                          | $          | 578 |   | $ | 145 |   | 63 |   | $ | 567 |   | $ | 511 |   | $ | 245 |   | 63 |   |
|                                                     |       |                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                                |       |                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                     |       | $                             | 4,110      |                                          | $          | 3,994 |   | $ | 591 |   | 63 |   | $ | 3,513 |   | $ | 3,409 |   | $ | 1,312 |   | 63 |   |
| GMWB for life                                            |       | 13,770                        |       | 13,189                                        |       | 1,077 |   | 63 |   | 9,194 |   | 8,764 |   | 2,704 |   | 63 |   |
| Total — GMWB                                        |       | $                             | 17,880     |                                          | $          | 17,183 |   | $ | 1,668 |   | 63 |   | $ | 12,707 |   | $ | 12,173 |   | $ | 4,016 |   | 63 |   |
|                                                     |       |                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                                 |       | $                             | 2,813      |                                          | $          | 2,743 |   | $ | 220 |   | 56 |   | $ | 2,006 |   | $ | 1,937 |   | $ | 608 |   | 56 |   |

 

----

(1)          Individual variable annuitycontracts may have more than one guarantee and therefore may be included inmore than one benefit type.  Variableannuity contracts for which the death benefit equals account value are notshown in this table.

(2)          Represents the currentguaranteed benefit amount in excess of the current contract value. GMIB, GMWBand GMAB benefits are subject to waiting periods and payment periods specifiedin the contract.

 

Changes in additionalliabilities were as follows:

 
| ** **                                    | ** ** | **GMDB &   GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                    | ** ** | **(in millions)**         | ** ** |
| Liability  balance at January 1, 2008    |       | $                              | 24         |     | $          | 3        |       | $        | 136        |   | $          | 33 |   | $ | 4 |   |
| Incurred  claims                              |       | 1                              |       | 3        |       | 94       |       | 70       |       | 4      |       |
| Paid  claims                                  |       | (7                             | )          | —   |       | —   |       | —   |       | (2     | )          |
| Liability  balance at September 30, 2008 |       | $                              | 18         |     | $          | 6        |       | $        | 230        |   | $          | 103 |   | $ | 6 |   |
|                                          |       |                           |       |     |       |     |       |     |       |   |       |
| Liability  balance at January 1, 2009    |       | $                              | 55         |     | $          | 12       |       | $        | 1,471      |   | $          | 367 |   | $ | 7 |   |
| Incurred  claims                              |       | 7                              |       | (5       | )          | (1,003   | )          | (216     | )          | 5      |       |
| Paid  claims                                  |       | (53                            | )          | —   |       | —   |       | —   |       | — |       |
| Liability  balance at September 30, 2009 |       | $                              | 9          |     | $          | 7        |       | $        | 468        |   | $          | 151 |   | $ | 12 |   |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**7.     Lineof Credit**

 

In July 2009, RiverSource LifeInsurance Company, as the borrower, entered into a revolving credit agreementwith Ameriprise Financial as the lender. The aggregate amount outstanding under the line of credit may not exceed$800 million at any time.   The interestrate for any borrowing under the new agreement is established by reference toLIBOR plus 28 basis points.  Amountsborrowed may be repaid at any time with no prepayment penalty.  As of September 30, 2009, theoutstanding balance under this credit line was $500 million.

 

**8.     FairValues of Assets and Liabilities**

 

GAAP defines fair value as the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date; thatis, an exit price. The exit price assumes the asset or liability is not exchangedsubject to a forced liquidation or distressed sale.

 

**Valuation Hierarchy**

** **

RiverSourceLife categorizes its fair value measurements according to a three-levelhierarchy. The hierarchy prioritizes the inputs used by RiverSource Life’svaluation techniques. A level is assigned to each fair value measurement basedon the lowest level input that is significant to the fair value measurement inits entirety. The three levels of the fair value hierarchy are defined asfollows:

 

Level 1                      Unadjusted quoted prices for identical assets or liabilitiesin active markets that are accessible at the measurement date.

 

Level 2                      Prices or valuations based on observable inputs other thanquoted prices in active markets for identical assets and liabilities.

 

Level 3                      Prices or valuations that require inputs that are bothsignificant to the fair value measurement and unobservable.

 

**Determination of FairValue**

** **

RiverSource Life uses valuationtechniques consistent with the market and income approaches to measure the fairvalue of its assets and liabilities. RiverSource Life’s market approach usesprices and other relevant information generated by market transactionsinvolving identical or comparable assets or liabilities. RiverSource Life’sincome approach uses valuation techniques to convert future projected cashflows to a single discounted present value amount. When applying eitherapproach, RiverSource Life maximizes the use of observable inputs and minimizesthe use of unobservable inputs.

 

The following is a description of thevaluation techniques used to measure fair value and the general classificationof these instruments pursuant to the fair value hierarchy.

 

**Assets**

** **

*Cash Equivalents*

* *

Cash equivalents include highlyliquid investments with original maturities of 90 days or less. Actively tradedmoney market funds are measured at their NAV and classified as Level 1.RiverSource Life’s remaining cash equivalents are classified as Level 2 andmeasured at amortized cost, which is a reasonable estimate of fair valuebecause of the short time between the purchase of the instrument and itsexpected realization.

 

*Available-for-Sale Securities*

* *

When available, the fair value ofsecurities is based on quoted prices in active markets. If quoted prices arenot available, fair values are obtained from nationally-recognized pricingservices, broker quotes, or other model-based valuation techniques such as thepresent value of cash flows. Level 1 securities include U.S. Treasuries. Level2 securities include corporate and municipal bonds, agency mortgage backedsecurities, commercial mortgage backed securities, asset backed securities andU.S. and foreign government and agency securities. Level 3 securities includecorporate bonds, non-agency residential mortgage backed securities, commercialmortgage backed securities and asset backed securities.

 

Through RiverSource Life’s ownexperience transacting in the marketplace and through discussions with itspricing vendors, RiverSource Life believes that the market for non-agencyresidential mortgage backed securities is inactive. Indicators of inactivemarkets include: pricing services’ reliance on brokers or discounted cash flowanalyses to provide prices, an increase in the disparity between pricesprovided by different pricing services for the same security, unreasonablylarge bid-offer spreads and a significant decrease in the volume of tradesrelative to historical levels. In certain cases, this market inactivity

 

17

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

has resulted in RiverSource Lifeapplying valuation techniques that rely more on an income approach (discountedcash flows using market rates) than on a market approach (prices from pricingservices).  RiverSource Life considersmarket observable yields for other asset classes it considers to be of similarrisk which includes nonperformance and liquidity for individual securities toset the discount rate for applying the income approach to certain non-agencyresidential mortgage backed securities.

 

*Separate Account Assets*

* *

The fair value of assets held byseparate accounts is determined by the NAV of the funds in which those separateaccounts are invested. The NAV represents the exit price for the separateaccount. Separate account assets are classified as Level 2 as they are tradedin principal-to-principal markets with little publicly released pricinginformation.

 

*Derivatives*

* *

The fair value of derivatives thatare traded in certain over-the-counter markets are generally measured usingpricing models with market observable inputs such as interest rates and equityindex levels. These measurements are classified as Level 2 within the fairvalue hierarchy and include interest rate swaps and options. Derivatives thatare valued using pricing models that have significant unobservable inputs areclassified as Level 3 measurements. Structured derivatives that are used byRiverSource Life to hedge its exposure to market risk related to certainvariable annuity riders are classified as Level 3.  As of September 30, 2009, RiverSourceLife had no structured derivatives.

 

**Liabilities**

** **

*Embedded Derivatives*

* *

*Variable AnnuityRiders — GMAB and GMWB*

* *

RiverSource Life values the embeddedderivative liability attributable to the provisions of certain variable annuityriders using internal valuation models. These models calculate fair value bydiscounting expected cash flows from benefits plus margins for profit, risk,and expenses less embedded derivative fees. The projected cash flows used by these models include observable capitalmarket assumptions and incorporate significant unobservable inputs related tocontractholder behavior assumptions and margins for risk, profit and expensesthat RiverSource Life believes an exit market participant would expect. Thefair value of these embedded derivatives also reflects a current estimate ofRiverSource Life’s nonperformance risk specific to these liabilities. Given thesignificant unobservable inputs to this valuation, these measurements areclassified as Level 3. The embedded derivative liability attributable to theseprovisions is recorded in future policy benefits.

 

*Equity Indexed Annuities*

* *

RiverSourceLife uses various Black-Scholes calculations to determine the fair value of theembedded derivative liability associated with the provisions of its equityindexed annuities. The inputs to these calculations are primarily marketobservable. As a result, these measurements are classified as Level 2. Theembedded derivative liability attributable to the provisions of RiverSourceLife’s equity indexed annuities is recorded in future policy benefits.

 

18

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The following tables present thebalances of assets and liabilities measured at fair value on a recurring basis:

 
| ** **                                  | ** ** | **September 30, 2009** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **Level 1**                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **(in millions)**           | ** ** |
| Assets                                      |       |                        |       |   |   |   |   |   |   |
| Available-for-Sale:                         |       |                        |       |   |   |   |   |   |   |
| Fixed  maturities:                          |       |                        |       |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                           | —     |   | $ | 14,003 |   | $ | 1,207 |   | $ | 15,210 |   |
| Residential  mortgage backed securities     |       | —                      |       | 2,745 |   | 2,585 |   | 5,330 |   |
| Commercial  mortgage backed securities      |       | —                      |       | 3,669 |   | 69 |   | 3,738 |   |
| Asset  backed securities                    |       | —                      |       | 595 |   | 127 |   | 722 |   |
| State and  municipal obligations            |       | —                      |       | 488 |   | — |   | 488 |   |
| Foreign  government bonds and obligations   |       | —                      |       | 109 |   | — |   | 109 |   |
| U.S. government  and agencies obligations   |       | 10                          |       | 59 |   | — |   | 69 |   |
| Other structured  investments               |       | —                      |       | — |   | 10 |   | 10 |   |
| Total  Available-for-Sale: Fixed maturities |       | 10                          |       | 21,668 |   | 3,998 |   | 25,676 |   |
| Common and preferred  stocks                |       | —                      |       | 23 |   | — |   | 23 |   |
| Trading  securities                         |       | —                      |       | 36 |   | — |   | 36 |   |
| Cash equivalents                            |       | 12                          |       | 1,220 |   | — |   | 1,232 |   |
| Other assets                                |       | —                      |       | 814 |   | — |   | 814 |   |
| Separate account  assets                    |       | —                      |       | 52,037 |   | — |   | 52,037 |   |
| Total assets at  fair value                 |       | $                           | 22         |   | $ | 75,798 |   | $ | 3,998 |   | $ | 79,818 |   |
|                                        |       |                        |       |   |   |   |   |   |   |
| Liabilities                                 |       |                        |       |   |   |   |   |   |   |
| Future policy  benefits                     |       | $                           | —     |   | $ | 13 |   | $ | 610 |   | $ | 623 |   |
| Other  liabilities                          |       | —                      |       | 631 |   | — |   | 631 |   |
| Total  liabilities at fair value            |       | $                           | —     |   | $ | 644 |   | $ | 610 |   | $ | 1,254 |   |

 
| ** **                                  | ** ** | **December 31, 2008** | ** **   |
|---------------------------------------------|------------|----------------------------|--------------|
| ** **                                  | ** ** | **Level 1**                | ** **   | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **(in millions)**          | ** **   |
| Assets                                      |       |                       |         |   |   |   |   |   |   |
| Available-for-Sale:                         |       |                       |         |   |   |   |   |   |   |
| Fixed  maturities:                          |       |                       |         |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                          | —       |   | $ |  9,907 |   | $ |  1,086 |   | $ |  10,993 |   |
| Residential  mortgage backed securities     |       | —                     |         | 3,016 |   | 520 |   | 3,536 |   |
| Commercial  mortgage backed securities      |       | —                     |         | 2,440 |   | 3 |   | 2,443 |   |
| Asset backed  securities                    |       | —                     |         | 531 |   | 95 |   | 626 |   |
| State and  municipal obligations            |       | —                     |         | 145 |   | — |   | 145 |   |
| U.S. government  and agencies obligations   |       | 21                         |         | 190 |   | — |   | 211 |   |
| Foreign  government bonds and obligations   |       | —                     |         | 107 |   | — |   | 107 |   |
| Other structured  investments               |       | —                     |         | — |   | 9 |   | 9 |   |
| Total  Available-for-Sale: Fixed maturities |       | 21                         |         | 16,336 |   | 1,713 |   | 18,070 |   |
| Common and  preferred stocks                |       | —                     |         | 16 |   | — |   | 16 |   |
| Trading  securities                         |       | 70                         |         | 77 |   | — |   | 147 |   |
| Cash equivalents                            |       | 432                        |         | 2,861 |   | — |   | 3,293 |   |
| Other assets                                |       | —                     |         | 2,238 |   | 200 |   | 2,438 |   |
| Separate account  assets                    |       | —                     |         | 41,787 |   | — |   | 41,787 |   |
| Total assets at  fair value                 |       | $                          |  523    |   | $ |  63,315 |   | $ |  1,913 |   | $ |  65,751 |   |
|                                        |       |                       |         |   |   |   |   |   |   |
| Liabilities                                 |       |                       |         |   |   |   |   |   |   |
| Future policy  benefits                     |       | $                          |  — |   | $ |  16 |   | $ |  1,832 |   | $ |  1,848 |   |
| Other  liabilities                          |       | —                     |         | 645 |   | — |   | 645 |   |
| Total  liabilities at fair value            |       | $                          |  — |   | $ |  661 |   | $ |  1,832 |   | $ |  2,493 |   |

 

19

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The following tables provide asummary of changes in Level 3 assets and liabilities measured at fair value ona recurring basis:

 
| ** **                                  | ** ** | ** **        | ** ** | **Purchases,**           | ** ** | ** **        | ** ** | ** **       | ** ** |
|---------------------------------------------|------------|-------------------|------------|--------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                  | ** ** | ** **        | ** ** | **Total Gains**          | ** ** | **Sales,**        | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **        | ** ** | **(Losses) Included in** | ** ** | **Issuances**     | ** ** | **Transfers**    | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Balance,**      | ** ** | ** **               | ** ** | **Other**         | ** ** | **and**          | ** ** | **In/(Out)** | ** ** | **Balance,** | ** ** |
| ** **                                  | ** ** | **July 1,**  | ** ** | **Net**                  | ** ** | **Comprehensive** | ** ** | **Settlements,** | ** ** | **of** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2009**          | ** ** | **Income**               | ** ** | **Loss**          | ** ** | **Net**          | ** ** | **Level 3** | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Available-for-Sale:  Fixed maturities       |       |              |       |                     |       |              |       |             |       |   |   |   |   |
| Corporate  debt securities                  |       | $                 | 1,147      |                     | $          | —            |       | $                |  94   |   | $ |  12 |   | $ |  (46 | ) | $ |  1,207 |   |
| Residential  mortgage backed securities     |       | 2,386             |       | 25                       |       | 111               |       | 63               |       | — |   | 2,585 |   |
| Commercial  mortgage backed securities      |       | 64                |       | —                   |       | 5                 |       | —           |       | — |   | 69 |   |
| Asset  backed securities                    |       | 161               |       | 2                        |       | 9                 |       | (36              | )          | (9 | ) | 127 |   |
| Other  structured investments               |       | 9                 |       | 1                        |       | —            |       | —           |       | — |   | 10 |   |
| Total  Available-for-Sale: Fixed maturities |       | 3,767             |       | 28                       | (1)        | 219               |       | 39               |       | (55 | )(3) | 3,998 |   |
|                                        |       |              |       |                     |       |              |       |             |       |   |   |   |   |
| Future  policy benefits                     |       | (759              | )          | 166                      | (2)        | —            |       | (17              | )          | — |   | (610 | ) |
|                                             |            |                   |            |                          |            |                   |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Included in net investment income in the ConsolidatedStatements of Income.

(2)          Includedin benefits, claims, losses and settlement expenses in the ConsolidatedStatements of Income.

(3)          Representstwo securities with a fair value of $64 million that were transferred to Level2 as the fair value of the securities is now obtained from anationally-recognized pricing service and one security with a fair value of $9million that was transferred to Level 3 as the fair value of the security isnow based on broker quotes.

 
| ** **                                  | ** ** | ** **        | ** **  | **Purchases,**           | ** ** | ** **        | ** ** | ** **       | ** ** |
|---------------------------------------------|------------|-------------------|-------------|--------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                  | ** ** | ** **        | ** **  | **Total Gains**          | ** ** | **Sales,**        | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **        | ** **  | **(Losses) Included in** | ** ** | **Issuances**     | ** ** | **Transfers**    | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Balance,**      | ** **  | ** **               | ** ** | **Other**         | ** ** | **and**          | ** ** | **In/(Out)** | ** ** | **Balance,** | ** ** |
| ** **                                  | ** ** | **July 1,**  | ** **  | **Net**                  | ** ** | **Comprehensive** | ** ** | **Settlements,** | ** ** | **of** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2008**          | ** **  | **Income**               | ** ** | ** Loss**    | ** ** | ** Net**    | ** ** | **Level 3** | ** ** | **2008** | ** ** |
| ** **                                  | ** ** | **(in millions)** | ** **  |
| Available-for-Sale:  Fixed maturities       |       |              |        |                     |       |              |       |             |       |   |   |   |   |
| Corporate  debt securities                  |       | $                 |  1,207 |                     | $          |  (1)         |       | $                |  (41  | ) | $ |  12 |   | $ |  — |   | $ |  1,177 |   |
| Residential  mortgage backed securities     |       | 423               |        | (2)                      |       | (5                | )          | (16              | )          | — |   | 400 |   |
| Commercial  mortgage backed securities      |       | 4                 |        | —                   |       | —            |       | (1               | )          | — |   | 3 |   |
| Asset  backed securities                    |       | 126               |        | —                   |       | (2                | )          | (7               | )          | — |   | 117 |   |
| Other  structured investments               |       | 2                 |        | 1                        |       | —            |       | (1               | )          | — |   | 2 |   |
| Total  Available-for-Sale: Fixed maturities |       | 1,762             |        | (2                       | )(1)       | (48               | )          | (13              | )          | — |   | 1,699 |   |
|                                        |       |              |        |                     |       |              |       |             |       |   |   |   |   |
| Other assets                                |       | 74                |        | 21                       | (2)        | —            |       | —           |       | — |   | 95 |   |
| Future  policy benefits                     |       | (154              | )           | (159                     | )(2)       | —            |       | (18              | )          | — |   | (331 | ) |
| Other  liabilities                          |       | (4                | )           | (1                       | )(2)       | —            |       | —           |       | — |   | (5 | ) |
|                                             |            |                   |             |                          |            |                   |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $4 million loss included in net realizedinvestment gains (losses) and a $2 million gain included in net investmentincome in the Consolidated Statements of Income.

(2)          Included in benefits, claims, losses and settlement expensesin the Consolidated Statements of Income.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The following table presents thechanges in unrealized gains (losses) included in net income related to Level 3assets and liabilities held at September 30 for the three months thenended:

 
| ** **                              | ** ** | **2009**                      | ** ** | **2008**                                           | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|----------------------------------------------------|------------|
| ** **                              | ** ** | **Net   Investment   Income** | ** ** | **Net   Realized   Investment   Gains   (Losses)** | ** ** | **Benefits,   Claims,  Losses and  Settlement   Expenses** | ** ** | **Net   Investment  Income** | ** ** | **Net   Realized  Investment   Gains   (Losses)** | ** ** | **Benefits,   Claims,   Losses and   Settlement   Expenses** | ** ** |
| ** **                              | ** ** | **(in millions)**             | ** ** |
| Available-for-Sale:  Fixed maturities   |       |                          |       |                                               |       |   |   |   |   |   |   |   |   |
| Residential  mortgage backed securities |       | $                             | 27         |                                               | $          | (3 | ) | $ |  — |   | $ | 1 |   | $ |  (3 | ) | $ | — |   |
|                                    |       |                          |       |                                               |       |   |   |   |   |   |   |   |   |
| Other assets                            |       | —                        |       | —                                             |       | — |   | — |   | — |   | 21 |   |
| Future  policy benefits                 |       | —                        |       | —                                             |       | 165 |   | — |   | — |   | (158 | ) |
| Other  liabilities                      |       | —                        |       | —                                             |       | — |   | — |   | — |   | (1 | ) |
|                                         |            |                               |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The following tables provide asummary of changes in Level 3 assets and liabilities measured at fair value ona recurring basis:

 
| ** **                                  | ** ** | ** **          | ** ** | **Purchases,**           | ** ** | ** **        | ** ** | ** **       | ** ** |
|---------------------------------------------|------------|---------------------|------------|--------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                  | ** ** | ** **          | ** ** | **Total Gains**          | ** ** | **Sales,**        | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **          | ** ** | **(Losses) Included in** | ** ** | **Issuances**     | ** ** | **Transfers**    | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Balance,**        | ** ** | ** **               | ** ** | **Other**         | ** ** | **and**          | ** ** | **In/(Out)** | ** ** | **Balance,** | ** ** |
| ** **                                  | ** ** | **January 1,** | ** ** | **Net**                  | ** ** | **Comprehensive** | ** ** | **Settlements,** | ** ** | **of** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2009**            | ** ** | **Income**               | ** ** | **Loss**          | ** ** | **Net**          | ** ** | **Level 3** | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(in millions)**   | ** ** |
| Available-for-Sale:  Fixed maturities       |       |                |       |                     |       |              |       |             |       |   |   |   |   |
| Corporate  debt securities                  |       | $                   | 1,086      |                     | $          | —            |       | $                |  172  |   | $ |  10 |   | $ |  (61 | ) | $ |  1,207 |   |
| Residential  mortgage backed securities     |       | 520                 |       | 50                       |       | 103               |       | 1,912            |       | — |   | 2,585 |   |
| Commercial  mortgage backed securities      |       | 3                   |       | —                   |       | 6                 |       | 60               |       | — |   | 69 |   |
| Asset  backed securities                    |       | 95                  |       | 7                        |       | 7                 |       | 27               |       | (9 | ) | 127 |   |
| Other  structured investments               |       | 9                   |       | 1                        |       | —            |       | —           |       | — |   | 10 |   |
| Total  Available-for-Sale: Fixed maturities |       | 1,713               |       | 58                       | (1)        | 288               |       | 2,009            |       | (70 | )(3) | 3,998 |   |
|                                        |       |                |       |                     |       |              |       |             |       |   |   |   |   |
| Other  assets                               |       | 200                 |       | (37                      | )(2)       | —            |       | (163             | )          | — |   | — |   |
| Future  policy benefits                     |       | (1,832              | )          | 1,268                    | (2)        | —            |       | (46              | )          | — |   | (610 | ) |
|                                             |            |                     |            |                          |            |                   |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $3 million loss included in net realizedinvestment gains (losses) and a $61 million gain included in net investmentincome in the Consolidated Statements of Income.

(2)          Includedin benefits, claims, losses and settlement expenses in the ConsolidatedStatements of Income.

(3)          Representsthree securities with a fair value of $79 million that were transferred toLevel 2 as the fair value of the securities is now obtained from anationally-recognized pricing service and one security with a fair value of $9million that was transferred to Level 3 as the fair value of the security isnow based on broker quotes.

 

21

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 
| ** **                                  | ** ** | ** **          | ** ** | **Purchases,**           | ** ** | ** **        | ** ** | ** **       | ** ** |
|---------------------------------------------|------------|---------------------|------------|--------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                  | ** ** | ** **          | ** ** | **Total Gains**          | ** ** | **Sales,**        | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **          | ** ** | **(Losses) Included in** | ** ** | **Issuances**     | ** ** | **Transfers**    | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Balance,**        | ** ** | ** **               | ** ** | **Other**         | ** ** | **and**          | ** ** | **In/(Out)** | ** ** | **Balance,** | ** ** |
| ** **                                  | ** ** | **January 1,** | ** ** | **Net**                  | ** ** | **Comprehensive** | ** ** | **Settlements,** | ** ** | **of** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2008**            | ** ** | **Income**               | ** ** | ** Loss**    | ** ** | ** Net**    | ** ** | **Level 3** | ** ** | **2008** | ** ** |
| ** **                                  | ** ** | **(in millions)**   | ** ** |
| Available-for-Sale:  Fixed maturities       |       |                |       |                     |       |              |       |             |       |   |   |   |   |
| Corporate  debt securities                  |       | $                   | 1,271      |                     | $          | (1                | )          | $                |  (73  | ) | $ | (20 | ) | $ |  — |   | $ |  1,177 |   |
| Residential  mortgage backed securities     |       | 417                 |       | (38                      | )          | (86               | )          | 107              |       | — |   | 400 |   |
| Commercial  mortgage backed securities      |       | 5                   |       | —                   |       | —            |       | (2               | )          | — |   | 3 |   |
| Asset  backed securities                    |       | 115                 |       | 1                        |       | (10               | )          | 11               |       | — |   | 117 |   |
| Other  structured investments               |       | 2                   |       | 3                        |       | —            |       | (3               | )          | — |   | 2 |   |
| Total  Available-for-Sale: Fixed maturities |       | 1,810               |       | (35                      | )(1)       | (169              | )          | 93               |       | — |   | 1,699 |   |
|                                        |       |                |       |                     |       |              |       |             |       |   |   |   |   |
| Other assets                                |       | 280                 |       | 44                       | (2)        | —            |       | (229             | )          | — |   | 95 |   |
| Future  policy benefits                     |       | (158                | )          | (125                     | )(2)       | —            |       | (48              | )          | — |   | (331 | ) |
| Other  liabilities                          |       | —              |       | (1                       | )(2)       | —            |       | (4               | )          | — |   | (5 | ) |
|                                             |            |                     |            |                          |            |                   |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $41 million loss included in net realizedinvestment gains (losses) and a $6 million gain included in net investmentincome in the Consolidated Statements of Income.

(2)          Included in benefits, claims, losses and settlement expensesin the Consolidated Statements of Income.

 

The following table presents thechanges in unrealized gains (losses) included in net income related to Level 3assets and liabilities held at September 30 for the nine months thenended:

 
| ** **                                  | ** ** | **2009**                      | ** ** | **2008**                                          | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------|------------|
| ** **                                  | ** ** | **Net   Investment   Income** | ** ** | **Net   Realized  Investment   Gains   (Losses)** | ** ** | **Benefits,   Claims,  Losses and   Settlement  Expenses** | ** ** | **Net   Investment  Income** | ** ** | **Net   Realized   Investment   Gains   (Losses)** | ** ** | **Benefits,   Claims,  Losses and   Settlement   Expenses** | ** ** |
|                                        |       | **(in millions)**             |       |
| Available-for-Sale:  Fixed maturities       |       |                          |       |                                              |       |   |   |   |   |   |   |   |   |
| Corporate  debt securities                  |       | $                             | —     |                                              | $          | — |   | $ |  — |   | $ | 1 |   | $ |  — |   | $ | — |   |
| Residential  mortgage backed securities     |       | 57                            |       | (30                                               | )          | — |   | 1 |   | (40 | ) | — |   |
| Asset  backed securities                    |       | 1                             |       | —                                            |       | — |   | 1 |   | — |   | — |   |
| Total  Available-for-Sale: Fixed maturities |       | 58                            |       | (30                                               | )          | — |   | 3 |   | (40 | ) | — |   |
|                                        |       |                          |       |                                              |       |   |   |   |   |   |   |   |   |
| Other assets                                |       | —                        |       | —                                            |       | — |   | — |   | — |   | 22 |   |
| Future  policy benefits                     |       | —                        |       | —                                            |       | 1,244 |   | — |   | — |   | (123 | ) |
| Other  liabilities                          |       | —                        |       | —                                            |       | — |   | — |   | — |   | (1 | ) |
|                                             |            |                               |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

During the reporting periods, therewere no material assets or liabilities measured at fair value on anon-recurring basis.

 

The followingtable provides the carrying value and the estimated fair value of financialinstruments that are not reported at fair value. All other financialinstruments that are reported at fair value have been included in the tableabove with balances of assets and liabilities measured at fair value on arecurring basis.

 
| ** **                      | ** ** | **September 30, 2009** | ** **   |
|---------------------------------|------------|-----------------------------|--------------|
| ** **                      | ** ** | **Carrying Value**          | ** **   | **Fair Value** | ** ** |
| ** **                      | ** ** | **(in millions)**           | ** **   |
| **Financial Assets**            |       |                        |         |   |   |
| Commercial  mortgage loans, net |       | $                           |  2,570  |   | $ |  2,480 |   |
| Policy  loans                   |       | 714                         |         | 794 |   |
| Other  investments              |       | 239                         |         | 256 |   |
|                            |       |                        |         |   |   |
| **Financial Liabilities**       |       |                        |         |   |   |
| Future  policy benefits         |       | $                           |  15,517 |   | $ |  15,429 |   |
| Separate  account liabilities   |       | 401                         |         | 401 |   |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

*Commercial mortgageloans, net*

* *

The fair value ofcommercial mortgage loans, except those with significant credit deterioration,is determined by discounting contractual cash flows using discount rates thatreflect current pricing for loans with similar remaining maturities andcharacteristics including loan-to-value ratio, occupancy rate, refinance risk,debt-service coverage, location, and property condition. For commercialmortgage loans with significant credit deterioration, fair value is determinedusing the same adjustments as above with an additional adjustment forRiverSource Life’s estimate of the amount recoverable on the loan.

 

*Policy loans*

* *

The fair value of policyloans is determined using discounted cash flows.

 

*Other investments*

* *

Other investmentsprimarily consist of syndicated loans. The fair value of syndicated loans isobtained from a nationally-recognized pricing service.

 

*Future policybenefits*

* *

The fair value of fixedannuities, in deferral status, is determined by discounting cash flows using arisk neutral discount rate with adjustments for profit, expense and riskmargins and for RiverSource Life’s non-performance risk specific to theseliabilities. The fair value of other liabilities including non-life contingentfixed annuities in payout status, equity indexed annuity host contracts and thefixed portion of a small number of variable annuity contracts classified asinvestment contracts is determined in a similar manner.

 

*Separate accountliabilities*

* *

Certain separateaccount liabilities are classified as investment contracts and are carried atan amount equal to the related separate account assets.  Carrying value is a reasonable estimate ofthe fair value as it represents the exit value as evidenced by withdrawaltransactions between contractholders and RiverSource Life. A non-performanceadjustment is not included as the related separate account assets act ascollateral for these liabilities and minimize non-performance risk.

 

**9.     Derivativesand Hedging Activities**

 

Derivativeinstruments enable RiverSource Life to manage its exposure to various marketrisks. The value of such instruments is derived from an underlyingvariable or multiple variables, including equity and interest rate indices orprices. RiverSource Life primarily enters into derivative agreements for riskmanagement purposes related to RiverSource Life’s products.

 

RiverSourceLife uses derivatives as economic hedges and occasionally holds derivativesdesignated for hedge accounting. The following table presents the balance sheetlocation and the gross fair value of derivative instruments, including embeddedderivatives, by type of derivative and product at September 30, 2009:

 
| **Derivatives not designated as  hedging instruments** | ** ** | **Balance  Sheet  Location** | ** ** | **Asset**         | ** ** | **Balance Sheet  Location** | ** **        | **Liability**     | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-------------------|------------|-----------------------------|-------------------|-------------------|------------|
| ** **                                             | ** ** | ** **                   | ** ** | **(in millions)** | ** ** | ** **                  | ** **        | **(in millions)** | ** ** |
| **Interest rate contracts**                            | ** ** | ** **                   | ** ** | ** **        | ** ** | ** **                  | ** **        | ** **        | ** ** |
| GMWB  and GMAB                                         |       | Other assets                 |       | $                 | 240        |                        | Other liabilities |              | $          | 231 |   |
|                                                   |       |                         |       |              |       |                        |              |              |       |
| **Equity contracts**                                   |       |                         |       |              |       |                        |              |              |       |
| GMWB  and GMAB                                         |       | Other assets                 |       | 572               |       | Other liabilities           |              | 399               |       |
| GMDB                                                   |       |                         |       | —            |       | Other liabilities           |              | 1                 |       |
| Equity  indexed annuities                              |       | Other assets                 |       | 2                 |       |                        |              | —            |       |
| Equity  indexed annuities embedded derivatives         | ** ** | ** **                   |       | **—**        |       | Future policy benefits      |              | 13                |       |
|                                                   |       |                         |       |              |       |                        |              |              |       |
| **Other**                                              |       |                         |       |              |       |                        |              |              |       |
| GMWB  and GMAB embedded derivatives(1)                 |       |                         |       | —            |       | Future policy benefits      |              | 610               |       |
| Total                                                  |       |                         |       | $                 | 814        |                        |              |              | $          | 1,254 |   |

 

----

(1)         The fair values of GMWB and GMAB embedded derivatives fluctuateprimarily based on changes in equity, interest rate and credit markets.

 

See Note8 for additional information regarding RiverSource Life’s fair valuemeasurement of derivative instruments. 

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

***Derivatives Not Designated as Hedges***

 

Thefollowing table presents a summary of the impact of derivatives not designatedas hedging instruments on the Consolidated Statements of Income:

 
| ** **                                             | ** ** | ** **                                                        | ** ** | **Amount of Gain (Loss)   on Derivatives Recognized in Income** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **Derivatives not designated as  hedging instruments** | ** ** | **Location of Gain (Loss)   on Derivatives Recognized in Income** | ** ** | **Three Months  Ended   September 30, 2009**               | ** ** | **Nine Months  Ended   September 30, 2009** | ** ** |
| ** **                                             | ** ** | ** **                                                        | ** ** | **(in millions)**                                               | ** ** |
| **Interest rate contracts**                            | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** |
| GMWB  and GMAB                                         |       | Benefits,  claims, losses and settlement expenses                 |       | $                                                               | 63         |   | $ | (322 | ) |
|                                                   |       |                                                              |       |                                                            |       |   |   |
| **Equity contracts**                                   |       |                                                              |       |                                                            |       |   |   |
| GMWB  and GMAB                                         |       | Benefits,  claims, losses and settlement expenses                 |       | (266                                                            | )          | (1,078 | ) |
| GMDB                                                   |       | Benefits,  claims, losses and settlement expenses                 |       | (7                                                              | )          | (7 | ) |
| Equity  indexed annuities                              |       | Interest  credited to fixed accounts                              |       | 3                                                               |       | 1 |   |
| Equity  indexed annuities embedded derivatives         |       | Interest  credited to fixed accounts                              |       | 2                                                               |       | 3 |   |
|                                                   |       |                                                              |       |                                                            |       |   |   |
| **Other**                                              |       |                                                              |       |                                                            |       |   |   |
| GMWB  and GMAB embedded derivatives                    |       | Benefits,  claims, losses and settlement expenses                 |       | 149                                                             |       | 1,222 |   |
| Total                                                  |       |                                                              |       | $                                                               | (56        | ) | $ | (181 | ) |

 

RiverSourceLife holds derivative instruments that either do not qualify or are notdesignated for hedge accounting treatment. These derivative instruments areused as economic hedges of equity and interest rate risk related to variousRiverSource Life products.

 

Themajority of RiverSource Life’s annuity contracts contain GMDB provisions, whichmay result in a death benefit payable that exceeds the contract accumulationvalue when market values of customers’ accounts decline. Certain annuitycontracts contain GMWB or GMAB provisions, which guarantee the right to makelimited partial withdrawals each contract year regardless of the volatilityinherent in the underlying investments or guarantee a minimum accumulationvalue of considerations received at the beginning of the contract period, aftera specified holding period, respectively. RiverSource Life economically hedgesthe exposure related to non-life contingent GMWB and GMAB provisions usingvarious equity futures, equity options, total return swaps, interest rateswaptions and interest rate swaps. In the third quarter of 2009, RiverSourceLife entered into a limited number of derivative contracts to economicallyhedge equity exposure related to GMDB provisions on variable annuity contractswritten previously in 2009.  At September 30,2009, the gross notional amount of these contracts was $37.2 billion and $75million for RiverSource Life’s GMWB and GMAB provisions and GMDB provisions,respectively. The premium associated with certain of the above options ispaid or received semi-annually over the life of the option contract.

 

Thefollowing is a summary of the payments RiverSource Life is scheduled to makeand receive for these options:

 
| ** ** | ** ** | **Premiums  Payable** | ** ** | **Premiums  Receivable** | ** ** |
|------------|------------|-----------------------|------------|--------------------------|------------|
| ** ** | ** ** | **(in millions)**     | ** ** |
| 2009(1)    |       | $                     | (55        | )                        | $          | 3 |   |
| 2010       |       | (189                  | )          | 5                        |       |
| 2011       |       | (181                  | )          | 4                        |       |
| 2012       |       | (165                  | )          | 3                        |       |
| 2013       |       | (153                  | )          | 2                        |       |
| 2014-2023  |       | (511                  | )          | 5                        |       |
|            |            |                       |            |                          |            |  |  |

 

----

(1)   2009amounts represent the amounts payable and receivable for the period from October 1,2009 to December 31, 2009.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

Actualtiming and payment amounts may differ due to future contract settlements,modifications or exercises of options prior to the full premium being paid orreceived.

 

Equityindexed annuities have returns tied to the performance of equity markets. As aresult of fluctuations in equity markets, the obligation incurred byRiverSource Life related to equity indexed annuities products will positivelyor negatively impact earnings over the life of these products. As a means ofeconomically hedging its obligations under the provisions of these products,RiverSource Life enters into index options and occasionally enters into futurescontracts. The gross notional amount of these derivative contracts was $168million at September 30, 2009.

 

**EmbeddedDerivatives**

 

Certainannuities contain GMAB and non-life contingent GMWB provisions, which areconsidered embedded derivatives.  Inaddition, the equity component of the equity indexed annuity productobligations is also considered an embedded derivative.  As captured in the tables above, embeddedderivatives are bifurcated from their host contracts and reported on theConsolidated Balance Sheets at fair value with changes in fair value reportedin earnings.  As noted above, RiverSourceLife uses derivatives to mitigate the financial statement impact of theseembedded derivatives.

 

**Cash FlowHedges**

 

RiverSourceLife has amounts classified in accumulated other comprehensive income relatedto gains and losses associated with the effective portion of previouslydesignated cash flow hedges. RiverSource Life reclassifies these amounts intoincome as the forecasted transactions impact earnings. During the nine monthsended September 30, 2009, RiverSource Life held no derivatives that weredesignated as cash flow hedges. The following table shows the impact of itspreviously designated cash flow hedges on the Consolidated Statements ofIncome:

 
| ** **                                         | ** ** | **Location of Gain (Loss) Reclassified**                     | ** ** | **Amount of Gain (Loss)   Reclassified from Accumulated Other  Comprehensive Income into Income** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| **Derivatives designated as  hedging instruments** | ** ** | **from Accumulated Other  Comprehensive Income into Income** | ** ** | **Three Months Ended  September 30, 2009**                                                   | ** ** | **Nine Months Ended  September 30, 2009** | ** ** |
| ** **                                         | ** ** | ** **                                                   | ** ** | **(in millions)**                                                                                 | ** ** |
| **Cash  flow hedges**                              | ** ** | ** **                                                   | ** ** | ** **                                                                                        | ** ** | ** ** | ** ** |
| Fixed annuity products                             |       | Net investment  income                                       |       | $                                                                                                 | (2         | ) | $ | (5 | ) |
|                                                    |            |                                                              |            |                                                                                                   |            |  |  |  |  |

 

At September 30, 2009,RiverSource Life expects to reclassify $6 million of deferred loss onderivative instruments from accumulated other comprehensive income to earningsduring the next 12 months that will be recorded in net investment income.These were originally losses on derivative instruments related to interest rateswaptions. For any hedge relationships that are discontinued because theforecasted transaction is not expected to occur according to the originalstrategy, related amounts previously recorded in accumulated othercomprehensive income are recognized in earnings immediately. No hedgerelationships were discontinued during the nine months ended September 30, 2009due to forecasted transactions no longer expected to occur according to theoriginal hedge strategy.

 

Currently, the longestperiod of time over which RiverSource Life is hedging exposure to thevariability in future cash flows is 10 years and relates to interestcredited on forecasted fixed premium product sales.

 

**Credit Risk**

 

Credit risk associatedwith RiverSource Life’s derivatives is the risk that a derivative counterpartywill not perform in accordance with the terms of the applicable derivativecontract. To mitigate such risk, RiverSource Life has established guidelinesand oversight of credit risk through a comprehensive enterprise risk managementprogram that includes members of senior management. Key components of thisprogram are to require preapproval of counterparties and the use of masternetting arrangements and collateral arrangements wherever practical. As of September 30,2009, RiverSource Life held $205 million in cash and cash equivalents andrecorded a corresponding liability in other liabilities for collateralRiverSource Life is obligated to return to counterparties.  As of September 30, 2009,RiverSource Life’s maximum credit exposure related to derivative assets afterconsidering netting arrangements with counterparties and collateralarrangements was approximately $55 million.

 

Certain of RiverSourceLife’s derivative instruments contain provisions that adjust the level ofcollateral RiverSource Life is required to post based on RiverSource Life’sfinancial strength rating (or based on the debt rating of RiverSource Life’sparent, Ameriprise Financial). Additionally, certain of RiverSource Life’sderivative contracts contain provisions that allow

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

the counterparty toterminate the contract if RiverSource Life does not maintain a specificfinancial strength rating or Ameriprise Financial’s debt does not maintain aspecific credit rating (generally an investment grade rating).  If these termination provisions were to betriggered, RiverSource Life’s counterparty could require immediate settlementof any net liability position. At September 30, 2009, the aggregate fairvalue of all derivative instruments containing such credit risk features was$75 million. The aggregate fair value of assets posted as collateral for suchinstruments as of September 30, 2009 was $43 million. If the creditrisk features of derivative contracts that were in a net liability position at September 30, 2009were triggered, the additional fair value of assets needed to settle thesederivative liabilities would have been $32 million.

 

**10.****       Income Taxes**

 

RiverSourceLife’s effective tax rates were 25% and 24% for the three and nine months endedSeptember 30, 2009, respectively. RiverSource Life’s effective tax rateswere (40)% and (9)% for the three and nine months ended September 30,2008, respectively. The increase in the effective tax rates primarily reflectsthe impact of a $39 million tax benefit related to changes in the status ofcurrent audits for the nine months ended September 30, 2008 and anincrease in pretax income relative to a decrease of tax advantaged items,including the dividends received deduction for the three and nine months ended September 30,2009.

 

RiverSource Life is required to establish a valuationallowance for any portion of the deferred income tax assets that managementbelieves will not be realized.  Includedin RiverSource Life’s deferred tax assets is a significant deferred tax assetrelating to capital losses that have been recognized for financial statementpurposes but not yet for tax return purposes. Under current U.S. federal incometax law, capital losses generally must be used against capital gain incomewithin five years of the year in which the capital losses are recognized fortax purposes.  Significant judgment isrequired in determining if a valuation allowance should be established, and theamount of such allowance if required. Factors used in making this determination include estimates relating tothe performance of the business including the ability to generate capitalgains.  Consideration is given to, amongother things in making this determination, a) future taxable income exclusiveof reversing temporary differences and carryforwards, b) future reversals ofexisting taxable temporary differences, c) taxable income in prior carrybackyears, and d) tax planning strategies.

 

Additionally, RiverSource Life has net operating losscarryforwards of $22 million which will expire beginning December 31, 2025as well as tax credit carryforwards of $143 million which will expire beginningDecember 31, 2025.   Based onanalysis of RiverSource Life’s tax position, management believes it is morelikely than not that the results of future operations and implementation of taxplanning strategies will generate sufficient taxable income to enableRiverSource Life to utilize all of its deferred tax assets. Accordingly, novaluation allowance for deferred tax assets has been established as of September 30,2009 and December 31, 2008.

 

As of September 30, 2009 and December 31,2008, RiverSource Life had $78 million and $89 million of gross unrecognizedtax expense, respectively.  Ifrecognized, approximately $48 million and $30 million, net of federal taxbenefits, of unrecognized tax benefits as of September 30, 2009 and December 31,2008, respectively, would affect the effective tax rate.

 

RiverSource Life recognizes interest and penaltiesrelated to unrecognized tax benefits as a component of the income taxprovision.  RiverSource Life recognized anet reduction of $1 million in interest and penalties for the nine months endedSeptember 30, 2009.  As of September 30,2009 and December 31, 2008, RiverSource Life had a receivable of $16million and $15 million, respectively, related to the accrual of interest andpenalties.

 

It is reasonably possible that the total amounts ofunrecognized tax benefits will change in the next 12 months.   However, there are a number of open auditsand quantification of a range cannot be made at this time.

 

RiverSource Life or one or more of its subsidiariesfiles income tax returns in the U.S. federal jurisdiction and various state jurisdictions.With few exceptions, RiverSource Life is no longer subject to U.S. federal orstate and local income tax examinations by tax authorities for years before1997. The Internal Revenue Service (“IRS”), as part of the overall examinationof the American Express Company consolidated return, completed its fieldexamination of RiverSource Life’s income tax returns for 1997 through 2002during 2008 and completed its field examination of 2003 through 2004 in thethird quarter of 2009. However, for federal income tax purposes, these yearscontinue to remain open as a consequence of certain issues under appeal.  In the fourth quarter of 2008, the IRScommenced an examination of RiverSource Life’s U.S. income tax returns for 2005through 2007.  RiverSource Life orcertain of its subsidiaries’ state income tax returns are currently underexamination by various jurisdictions for years ranging from 1998 through 2006.

 

On September 25,2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intendsto issue regulations with respect to certain computational aspects of theDividends Received Deduction (“DRD”) related to separate account assets held inconnection with variable contracts of life insurance companies. Revenue Ruling2007-61 suspended a revenue

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

rulingissued in August 2007 that purported to change accepted industry and IRSinterpretations of the statutes governing these computational questions. Anyregulations that the IRS ultimately proposes for issuance in this area will besubject to public notice and comment, at which time insurance companies andother members of the public will have the opportunity to raise legal andpractical questions about the content, scope and application of suchregulations.   As a result, the ultimatetiming and substance of any such regulations are unknown at this time, but theymay result in the elimination of some or all of the separate account DRD taxbenefit that RiverSource Life receives. Management believes that it is likely that any such regulations would applyprospectively only.

 

**11.****       Contingencies**

 

The SEC, the FinancialIndustry Regulatory Authority, commonly referred to as FINRA, and several stateauthorities have brought proceedings challenging several mutual fund andvariable product financial practices, generally including suitability, latetrading, market timing, compensation and disclosure of revenue sharingarrangements.  RiverSource Life hasreceived requests for information and has been contacted by regulatoryauthorities concerning its practices and is cooperating fully with theseinquiries.

 

RiverSource Life isinvolved in the normal course of business in a number of other legal andarbitration proceedings concerning matters arising in connection with theconduct of its business activities.  RiverSourceLife believes that it is not a party to, nor are any of its properties thesubject of, any pending legal, arbitration or regulatory proceedings that wouldhave a material adverse effect on its consolidated financial condition, resultsof operations or liquidity.  However, itis possible that the outcome of any such proceedings could have a materialimpact on results of operations in any particular reporting period as theproceedings are resolved.

 

**12.****       VariableInterest Entities**

 

RiverSource Tax Adv.Inv., a subsidiary of RiverSource Life Insurance Company, has variableinterests in affordable housing partnerships for which it is not the primarybeneficiary and, therefore, does not consolidate.

 

RiverSource Tax Adv. Inv.’smaximum exposure to loss as a result of its investment in the affordablehousing partnerships is limited to the carrying values. RiverSource Tax Adv.Inv. has no obligation to provide further financial or other support to theaffordable housing partnerships nor has RiverSource Tax Adv. Inv. provided anyadditional support to the affordable housing partnerships. RiverSource Life hadno liabilities recorded as of September 30, 2009 and December 31,2008 related to the affordable housing partnerships.

 

RiverSource Tax Adv. Inv.is a limited partner in affordable housing partnerships which qualify forgovernment sponsored low income housing tax credit programs. In most cases,RiverSource Tax Adv. Inv. has less than 50% interest in the partnershipssharing in benefits and risks with other limited partners in proportion toRiverSource Tax Adv. Inv.’s ownership interest. In the limited cases in whichRiverSource Tax Adv. Inv. has a greater than 50% interest in affordablehousing partnerships, it was determined that the relationship with the generalpartner is an agent relationship and the general partner was most closelyrelated to the partnership as it is the key decision maker and controls theoperations. The carrying values are reflected in trading securities and otherinvestments and were $33 million and $54 million as of September 30, 2009and December 31, 2008, respectively.

 

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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 Part I, Item 1.  RiverSource Life Insurance Company and itssubsidiaries are referred to collectively in this Form 10-Q as “RiverSourceLife”.  This narrative analysis maycontain forward-looking statements that reflect RiverSource Life’s plans,estimates and beliefs.  Actual resultscould differ materially from those discussed in these forward-lookingstatements.  Factors that could cause orcontribute to these differences include, but are not limited to, thosediscussed under “Forward-Looking Statements.” RiverSource Life believes it is useful to read this narrative analysisin conjunction with its Annual Report on Form 10-K for the year ended December 31,2008, filed with the Securities and Exchange Commission (“SEC”) on March 2,2009 (“2008 10-K”), as well as its current reports on Form 8-K and otherpublicly available information.

 

RiverSource Life follows U.S. generally acceptedaccounting principles (“GAAP”), and the following discussion is presented on aconsolidated basis consistent with GAAP. In the first quarter of 2009,RiverSource Life reclassified reinsurance allowances for coinsurance contractsfor traditional life and long term care insurance from premiums to otherinsurance and operating expenses to net with the associated expenses.  Prior period amounts were reclassified toconform to the current presentation.

 

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. (“AmeripriseFinancial”).

 

·                  RiverSource LifeInsurance Company is domiciled in Minnesota and holds Certificates of Authorityin American Samoa, the District of Columbia and all states except NewYork.  RiverSource Life Insurance Companyissues insurance and annuity products.

 

·                  RiverSource Lifeof NY is a stock life insurance company domiciled in New York, which holdsCertificates of Authority in New York, North Dakota and Delaware.  RiverSource Life of NY issues insurance andannuity products.

 

RiverSource Life Insurance Company also wholly ownsRiverSource Tax Advantaged Investments, Inc. which is a stock companydomiciled in Delaware and is a limited partner in affordable housingpartnership investments.

 

**CriticalAccounting Policies**

 

***Valuationof Investments***

 

Effective January 1,2009, RiverSource Life early adopted an accounting standard that significantlychanged RiverSource Life’s accounting policy regarding the timing and amount ofother-than temporary impairments for Available-for-Sale securities.  For information regarding the changes toRiverSource Life’s accounting policy, see Note 3 to the Consolidated FinancialStatements.

 

***DeferredAcquisition Costs and Deferred Sales Inducement Costs***

 

For RiverSource Life’sannuity and life, disability income (“DI”) and long term care (“LTC”) insuranceproducts, the deferred acquisition costs (“DAC”) and deferred sales inducementcosts (“DSIC”) balances at any reporting date are supported by projections thatshow that management expects there to be adequate premiums or estimated grossprofits after that date to amortize the remaining DAC and DSIC balances. Theseprojections are inherently uncertain because they require management to makeassumptions about financial markets, anticipated mortality and morbidity levelsand policyholder behavior over periods extending well into the future.Projection periods used for RiverSource Life’s annuity products are typically10 to 25 years, while projection periods for RiverSource Life’s life, DI andLTC insurance products are often 50 years or longer. Management regularlymonitors financial market conditions and actual policyholder behaviorexperience and compares them to its assumptions.

 

For annuity and universallife insurance products, the assumptions made in projecting future results andcalculating the DAC balance and DAC amortization expense are management’s bestestimates. Management is required to update these assumptions whenever itappears that, based on actual experience or other evidence, earlier estimatesshould be revised. When assumptions are changed, the percentage of estimatedgross profits used to amortize DAC might also change. A change in the requiredamortization percentage is applied retrospectively; an increase in amortizationpercentage will result in a decrease in the DAC balance and an increase in DACamortization expense, while a decrease in amortization percentage will resultin an increase in

 

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the DAC balance and adecrease in DAC amortization expense. The impact on results of operations ofchanging assumptions can be either positive or negative in any particularperiod and is reflected in the period in which such changes are made.  For products with associated DSIC, the samepolicy applies in calculating the DSIC balance and periodic DSIC amortization.

 

For other life, DI andLTC insurance products, the assumptions made in calculating the DAC balance andDAC amortization expense are consistent with those used in determining theliabilities and, therefore, are intended to provide for adverse deviations inexperience and are revised only if management concludes experience will be soadverse that DAC are not recoverable. If management concludes that DAC are notrecoverable, DAC are reduced to the amount that is recoverable based on bestestimate assumptions and there is a corresponding expense recorded in theconsolidated statements of income.

 

For annuity and life, DIand LTC insurance products, key assumptions underlying these long-termprojections include interest rates (both earning rates on invested assets andrates credited to contractholder and policyholder accounts), equity marketperformance, mortality and morbidity rates and the rates at which policyholdersare expected to surrender their contracts, make withdrawals from theircontracts and make additional deposits to their contracts. Assumptions aboutearned and credited interest rates are the primary factors used to project interestmargins, while assumptions about equity and bond market performance are theprimary factors used to project client asset value growth rates, andassumptions about surrenders, withdrawals and deposits comprise projectedpersistency rates. Management must also make assumptions to project maintenanceexpenses associated with servicing its annuity and insurance businesses duringthe DAC amortization period.

 

The client asset valuegrowth rates are the rates at which variable annuity and variable universal lifeinsurance contract values invested in separate accounts are assumed toappreciate in the future. The rates used vary by equity and fixed incomeinvestments. Management reviews and, where appropriate, adjusts its assumptionswith respect to client asset value growth rates on a regular basis. RiverSourceLife typically uses a five-year mean reversion process as a guideline insetting near-term equity asset growth rates based on a long-term view offinancial market performance as well as recent actual performance.  The suggested near-term growth rate isreviewed to ensure consistency with management’s assessment of anticipatedequity market performance.  For the ninemonths ended September 30, 2009, management elected to follow the meanreversion guideline, decreasing near-term equity asset growth rates to reflectthe positive market on a year-to-date basis. At recent equity market levels, increasing the annualized equity marketreturn projected during the five-year mean reversion period by 100 basis pointsreduces DAC amortization and other impacted expenses by $15 — $20 million aftertax.

 

Management monitors otherprincipal DAC and DSIC amortization assumptions, such as persistency,mortality, morbidity, interest margin and maintenance expense levels eachquarter and, when assessed independently, each could impact RiverSource Life’sDAC and DSIC balances.

 

The analysis of DAC andDSIC balances and the corresponding amortization is a dynamic process thatconsiders all relevant factors and assumptions described previously. Unlessmanagement identifies a significant deviation over the course of the quarterlymonitoring, management reviews and updates these DAC and DSIC amortizationassumptions annually in the third quarter of each year.  An assessment of sensitivity associated withchanges in any single assumption would not necessarily be an indicator offuture results.

 

**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.

 

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***Resultsof Operations for the NineMonths Ended September 30, 2009 compared to the Nine Months Ended September 30,2008***

 

The following tablepresents RiverSource Life’s results of operations for the nine months ended September 30,2009 and 2008:

 
| ** **                                                                  | ** ** | **Nine Months Ended   September 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                  | ** ** | **2009**                                   | ** ** | **2008**   | ** ** | **Change** | ** ** |
| ** **                                                                  | ** ** | **(in millions, except percentages)**      | ** ** |
| **Revenues**                                                                |       |                                       |       |       |       |       |       |   |   |
| Premiums                                                                    |       | $                                          | 331        |       | $          | 324        |       | $ | 7 |   | 2 | % |
| Net  investment income                                                      |       | 1,123                                      |       | 939        |       | 184        |       | 20 |   |
| Policy  and contract charges                                                |       | 828                                        |       | 1,054      |       | (226       | )          | (21 | ) |
| Other  revenue                                                              |       | 165                                        |       | 205        |       | (40        | )          | (20 | ) |
| Net  realized investment gains (losses)                                     |       | 42                                         |       | (229       | )          | 271        |       | NM |   |
| Total  revenues                                                             |       | 2,489                                      |       | 2,293      |       | 196        |       | 9 |   |
|                                                                        |       |                                       |       |       |       |       |       |   |   |
| **Benefits and expenses**                                                   |       |                                       |       |       |       |       |       |   |   |
| Benefits,  claims, losses and settlement expenses                           |       | 623                                        |       | 455        |       | 168        |       | 37 |   |
| Interest  credited to fixed accounts                                        |       | 674                                        |       | 588        |       | 86         |       | 15 |   |
| Amortization  of deferred acquisition costs                                 |       | 42                                         |       | 483        |       | (441       | )          | (91 | ) |
| Other  insurance and operating expenses                                     |       | 420                                        |       | 487        |       | (67        | )          | (14 | ) |
| Total  benefits and expenses                                                |       | 1,759                                      |       | 2,013      |       | (254       | )          | (13 | ) |
| Pretax  income                                                              |       | 730                                        |       | 280        |       | 450        |       | NM |   |
| Income  tax provision (benefit)                                             |       | 176                                        |       | (26        | )          | 202        |       | NM |   |
| Net  income                                                                 |       | $                                          | 554        |       | $          | 306        |       | $ | 248 |   | 81 | % |
|                                                                        |       |                                       |       |       |       |       |       |   |   |
| Supplemental  Disclosures:                                                  |       |                                       |       |       |       |       |       |   |   |
| Net  realized investment gains (losses):                                    |       |                                       |       |       |       |       |       |   |   |
| Net  realized investment gains before impairment losses on securities       |       | $                                          | 102        |       |       |       |       |   |   |   |
| Total  other-than-temporary impairment losses on securities                 |       | (48                                        | )          |       |       |       |       |   |   |
| Portion  of loss recognized in other comprehensive income                   |       | (12                                        | )          |       |       |       |       |   |   |
| Net  impairment losses recognized in net realized investment gains (losses) |       | (60                                        | )          |       |       |       |       |   |   |
| Net  realized investment gains (losses)                                     |       | $                                          | 42         |       |       |       |       |   |   |   |

 

NM  Not Meaningful.

 

*Overview*

 

Consolidated net incomewas $554 million for the nine months endedSeptember 30, 2009 compared to $306 million for the nine months ended September 30, 2008, anincrease of $248 million or 81%.  Pretaxincome increased $450 million to $730 million for the nine months ended September 30,2009 from $280 million for the nine months ended September 30, 2008. Theincrease was primarily driven by an increase in net realized investment gainscompared to net realized investment losses in the prior year period and adecrease in amortization of DAC.  Theseincreases to net income were partially offset by a decrease in policy andcontract charges and an increase in benefits, claims, losses and settlementexpenses.

 

In the third quarter of 2009, the annual valuationassumptions review resulted in a net pretax benefit of $134 million consistingof a decrease in expenses primarily from updating product mortality assumptionsfor certain life insurance products and from the impact of updating productspreads and expense assumptions partially offset by a decrease in revenuesrelated to the reinsurance impacts from updating product mortalityassumptions.  In the third quarter of2008, the valuation assumptions review and the valuation system conversionresulted in a net pretax benefit of $106 million consisting of a decrease inexpenses primarily from updating product mortality and expense assumptions forcertain life insurance products and from updating fund mix and policyholderbehavior assumptions for variable annuities with guaranteed benefits.  The valuation system conversion also resultedin an increase in revenue primarily from improved modeling of the expectedvalue of existing reinsurance agreements and a decrease in expense frommodeling annuity amortization periods at the individual policy level.

 

Also included in the results for the nine months endedSeptember 30, 2009 and 2008 was a $26 million benefit pretax and an $82million pretax expense, respectively, resulting from the impact of markets onDAC and DSIC.

 

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The total pretax impacts on RiverSource Life’srevenues and expenses attributable to the review of valuation assumptions andthe impact of markets for the nine months ended September 30, 2009 were asfollows:

 
| **Pretax Benefit (Charge)**     | ** ** | **Premiums**      | ** ** | **Policy and  Contract  Charges** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Amortization  of DAC** | ** ** | **Other  Insurance  and  Operating Expenses** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------|------------|-----------------------------------|------------|----------------------------------------------------------|------------|--------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| ** **                      | ** ** | **(in millions)** | ** ** |
| Review of valuation assumptions |       | $                 | —     |                              | $          | (65                                                      | )          | $                        | 80         |                                          | $          | 119       |       | $ | — |   | $ | 134 |   |
| Market impacts                  |       | —            |       | —                            |       | 4                                                        |       | 22                       |       | —                                        |       | 26        |       |
| Total                           |       | $                 | —     |                              | $          | (65                                                      | )          | $                        | 84         |                                          | $          | 141       |       | $ | — |   | $ | 160 |   |

 

The total pretaximpacts on RiverSource Life’s revenues and expenses attributable to the reviewof valuation assumptions, the valuation system conversion and the impact ofmarkets for the nine months ended September 30, 2008 were as follows:

 
| **Pretax Benefit (Charge)**                                      | ** ** | **Premiums**      | ** ** | **Policy and  Contract  Charges** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Amortization  of DAC** | ** ** | **Other  Insurance  and  Operating  Expenses** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|-----------------------------------|------------|----------------------------------------------------------|------------|--------------------------|------------|------------------------------------------------|------------|-----------|------------|
| ** **                                                       | ** ** | **(in millions)** | ** ** |
| Review of valuation assumptions and valuation  system conversion |       | $                 | 2          |                              | $          | 95                                                       |       | $                        | 89         |                                           | $          | (81       | )          | $ | 1 |   | $ | 106 |   |
| Market impacts                                                   |       | —            |       | —                            |       | (9                                                       | )          | (73                      | )          | —                                         |       | (82       | )          |
| Total                                                            |       | $                 | 2          |                              | $          | 95                                                       |       | $                        | 80         |                                           | $          | (154      | )          | $ | 1 |   | $ | 24 |   |

 

*Revenues*

 

Totalrevenues increased $196 million or 9% to $2.5 billion for the nine months endedSeptember 30, 2009.

 

Netinvestment income increased $184 million or 20% to $1.1 billion for the ninemonths ended September 30,2009.  The increase is due to higherinvested asset levels due to fixed annuity net inflows as well as higher yieldson longer term investments.

 

Policy and contractcharges decreased $226 million or 21% to $828 million for the nine months ended September 30,2009 primarily due to a $65 million expense from updating valuation assumptionsin the third quarter of 2009 compared to a benefit of $95 million from updatingvaluation assumptions and converting to a new valuation system in the thirdquarter of 2008.  The decrease alsoreflects decreased separate account fee revenue as a result of the decrease inaverage separate account assets. Average separate account assetsdecreased $11.1 billion or 20% from the prior year period primarily due toequity market declines partially offset by net inflows.

 

Other revenue decreased$40 million or 20% to $165 million forthe nine months ended September 30,2009 reflecting lower marketing support and administrative fees due tolower average underlying separate account asset values.

 

Net realized investmentgains were $42 million for the ninemonths ended September 30,2009 compared to net realized investment losses of $229 million for the nine months ended September 30, 2008.  In the nine months ended September 30,2009, net realized gains from sales of Available-for-Sale securities were $112million and other-than-temporary impairments recognized in earnings were $60million. In the nine months ended September 30, 2009, the reserves oncommercial mortgage loans increased by $9 million.  In the nine months ended September 30,2008, net realized gains from sales of securities were $8 million andother-than-temporary impairments recognized in earnings were $237 million.

 

*Benefitsand Expenses*

 

Total benefits andexpenses decreased $254 million or 13% to $1.8 billion for the nine monthsended September 30, 2009.   Thisdecrease is primarily due to a decrease in DAC amortization, partially offsetby increases in benefits, claims, losses and settlement expenses and interestcredited to fixed accounts.

 

Benefits,claims, losses and settlement expenses increased $168 million or 37% to $623million for the nine monthsended September 30, 2009 compared to $455 million for the nine monthsended September 30, 2008, driven by an increase in expenses from variableannuity living benefit guarantees. Benefits, claims, losses and settlement expenses for the nine monthsended September 30, 2009 were impacted by $136 million in variable annuityliving benefit expenses, net of hedges and DSIC, which included $517 million inexpenses from the non-cash impact of the nonperformance spread on the fairvalue of living benefit

 

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liabilities.  Benefits, claims, losses and settlementexpenses for the nine months ended September 30, 2008 included a $32million benefit related to variable annuity guaranteed living benefits, net ofhedges, of which $140 million of benefit was related to the nonperformance spread.  Benefits, claims, losses and settlementexpenses for the nine months ended September 30, 2009 included an $80million benefit related to updating valuation assumptions compared to a benefitof $89 million in the prior year period from updating valuation assumptions andconverting to a new valuation system. The impact of higher policyholder account balances as a result of equityand fixed income market performance for the nine months ended September 30,2009 decreased DSIC amortization by $4 million compared to an expense of $9million for the prior year period.

 

Interest credited tofixed accounts increased $86 million or 15% to $674 million for the nine months ended September 30, 2009primarily due to higher average fixed annuity account balances and higheraverage fixed annuity crediting rates compared to the prior year period.  Average fixed annuities contract accumulationvalues increased $1.8 billion, or 15% compared to the prior year period. Theaverage fixed annuity crediting rate excluding capitalized interest increasedto 4.0% in the 2009 period compared to 3.7% in the prior year period.

 

Amortization of DACdecreased $441 million or 91% to $42 million for the nine months ended September 30,2009 compared to the prior year period. This decrease included a $119 millionbenefit from updating valuation assumptions in the third quarter of 2009compared to an expense of $81 million from updating valuation assumptions andconverting to a new valuation system in the prior year period.  In addition, DAC amortization for the 2009period included a benefit of $113 million offsetting higher variable annuitybenefit expenses compared to a $15 million expense in the prior yearperiod.  The impact of higherpolicyholder account balances as a result of equity and fixed income marketperformance decreased DAC amortization by $22 million in the first nine monthsof 2009 compared to an expense of $73 million in the first nine months of 2008.

 

Otherinsurance and operating expenses decreased $67 million or 14% to $420 million for the nine months ended September 30,2009 primarily due to decreased sales and marketing expenses and lowercorporate overhead expenses.

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 24% for the ninemonths ended September 30, 2009, compared to (9%) for the ninemonths ended September 30, 2008. The increase in the effective tax rate primarily reflects the impact ofa $39 million tax benefit related to changes in the status of current auditsfor the nine months ended September 30, 2008 and an increase in pretaxincome relative to a decrease of tax advantaged items, including the dividends receiveddeduction for the nine months ended September 30, 2009.

 

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 Dividends Received Deduction (“DRD”) related toseparate account assets held in connection with variable contracts of lifeinsurance companies. Revenue Ruling 2007-61 suspended a revenue ruling issuedin August 2007 that purported to change accepted industry and IRSinterpretations of the statutes governing these computational questions. Anyregulations that the IRS ultimately proposes for issuance in this area will besubject to public notice and comment, at which time insurance companies and othermembers of the public will have the opportunity to raise legal and practicalquestions about the content, scope and application of such regulations. As aresult, the ultimate timing and substance of any such regulations are unknownat this time, but they may result in the elimination of some or all of theseparate account DRD tax benefit that RiverSource Life receives. Managementbelieves that it is likely that any such regulations would apply prospectivelyonly.

 

***Market Risk***

 

Equity market andinterest rate fluctuations can have a significant impact on RiverSource Life’sresults of operations, primarily due to the effects on asset-based fees andexpenses, the “spread” income generated on its annuities and universal life (“UL”)insurance products, the value of DAC and DSIC, assets associated with variableannuity and variable UL products, the values of liabilities for guaranteedbenefits associated with its variable annuities and the values of derivativesheld to hedge these benefits.

 

The guaranteed benefitsassociated with RiverSource Life’s variable annuities are guaranteed minimumwithdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”),guaranteed minimum death benefits (“GMDB”) and guaranteed minimum incomebenefits (“GMIB”) options. Each of these guaranteed benefits guarantees payoutsto the annuity holder under certain specific conditions regardless of theperformance of the underlying investment assets.

 

To evaluateinterest rate and equity market risk, RiverSource Life performs sensitivitytesting which measures the impact on pretax income from the sources listedbelow for a 12 month period following a hypothetical 100 basis point increasein interest rates and a hypothetical 10% decline in equity markets.  The interest rate risk test assumes a sudden100 basis point parallel shift in the yield curve, with rates then staying atthose levels for the next 12 months. The equity market risk test assumes asudden

 

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10% drop in equityprices, with equity prices then staying at those levels for the next 12 months.In estimating the values of variable annuity riders, equity indexed annuitiesand the associated hedge assets, RiverSource Life assumed no change in impliedmarket volatility despite the 10% drop in equity markets.

 

The tables belowshow RiverSource Life’s estimate of the pretax impacts on income from thesehypothetical market movements, net of hedging as of September 30, 2009.

 
| ** **                     | ** ** | **Equity Market Exposure to  Pretax Income** | ** ** |
|--------------------------------|------------|----------------------------------------------|------------|
| **Equity Market Decline 10%**  | ** ** | **Before   Hedge Impact**                    | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                     | ** ** | **(in millions)**                            | ** ** |
| Asset-based  fees and expenses |       | $                                            | (52        | ) | $ | — |   | $ | (52 | ) |
| DAC  and DSIC amortization(1)  |       | (149                                         | )          | — |   | (149 | ) |
| Variable  annuity riders:      |       |                                         |       |   |   |   |   |
| GMDB  and GMIB                 |       | (63                                          | )          | 3 |   | (60 | ) |
| GMWB                           |       | (104                                         | )          | 108 |   | 4 |   |
| GMAB                           |       | (32                                          | )          | 20 |   | (12 | ) |
| DAC  and DSIC amortization(2)  |       | N/A                                          |       | N/A |   | (2 | ) |
| Total  variable annuity riders |       | (199                                         | )          | 131 |   | (70 | ) |
| Equity  indexed annuities      |       | 1                                            |       | (1 | ) | — |   |
| Total                          |       | $                                            | (399       | ) | $ | 130 |   | $ | (271 | ) |

 
| ** **                                                                         | ** ** | **Interest Rate Exposure to Pretax Income** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **Interest Rate Increase 100 Basis Points**                                        | ** ** | **Before  Hedge Impact**                    | ** ** | **Hedge   Impact** | ** ** | **Net Impact** | ** ** |
| ** **                                                                         | ** ** | **(in millions)**                           | ** ** |
| Asset-based  fees and expenses                                                     |       | $                                           | (13        | ) | $ | — |   | $ | (13 | ) |
| Variable  annuity riders:                                                          |       |                                        |       |   |   |   |   |
| GMWB                                                                               |       | 214                                         |       | (313 | ) | (99 | ) |
| GMAB                                                                               |       | 41                                          |       | (14 | ) | 27 |   |
| DAC  and DSIC amortization(2)                                                      |       | N/A                                         |       | N/A |   | 22 |   |
| Total  variable annuity riders                                                     |       | 255                                         |       | (327 | ) | (50 | ) |
| Fixed  annuities, fixed portion of variable annuities and fixed insurance products |       | (9                                          | )          | — |   | (9 | ) |
| Total                                                                              |       | $                                           | 233        |   | $ | (327 | ) | $ | (72 | ) |

 

----

| N/A | Not  Applicable.                                                                                                |
|-----|-----------------------------------------------------------------------------------------------------------------|
| (1) | Market  impact on DAC and DSIC amortization resulting from lower projected profits.                             |
| (2) | Market  impact on DAC and DSIC amortization related to variable annuity riders is  modeled net of hedge impact. |

 

In evaluating equity market risk,the estimated impact on DAC and DSIC amortization resulting from lowerprojected profits as a result of the equity market decline is shown separatelyfrom the estimated impact on DAC and DSIC amortization resulting from changesin the values of GMWB and GMAB riders net of hedges. In estimating the impacton DAC and DSIC amortization resulting from lower projected profits,RiverSource Life has not changed its assumed equity asset growth rates. This isa significantly more conservative estimate than if RiverSource Life assumedmanagement follows its mean reversion guideline and increased near-term ratesto recover the drop in equity values over a five-year period. See CriticalAccounting Policies for additional discussion on RiverSource Life’s DAC andDSIC accounting policies. RiverSource Life makes this same conservativeassumption in estimating the impact from GMDB and GMIB riders.

 

Net impacts shown in the above tablefrom GMWB and GMAB riders result largely from differences between the liabilityvaluation basis and the hedging basis. Liabilities are valued using fair valueaccounting principles, with key policyholder behavior assumptions loaded toprovide risk margins and with discount rates increased to reflect a currentmarket estimate of RiverSource Life’s risk of nonperformance specific to theseliabilities. Management has elected to hedge based on best estimatepolicyholder assumptions and explicitly does not hedge nonperformance spreadrisk. Net impacts shown in the above table from GMDB and GMIB reflect the factthat these guaranteed benefits are primarily retained by RiverSource Life andnot hedged.  In the third quarter of2009, RiverSource Life entered into a limited number of derivative contracts toeconomically hedge equity exposure related to GMDB provisions on variableannuity contracts written previously in 2009.

 

Actual results could differmaterially from those illustrated above as they are based on a number ofestimates and assumptions. These include assuming that implied marketvolatility does not change when equity values fall by 10%, that management doesnot increase assumed equity asset growth rates to anticipate recovery of thedrop in equity values when valuing DAC, DSIC and

 

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GMDB and GMIB liability values andthat the 100 basis point increase in interest rates is a parallel shift of theyield curve. Furthermore, RiverSource Life has not tried to anticipate changesin client preferences for different types of assets or other changes in clientbehavior, nor has RiverSource Life tried to anticipate actions management mighttake to increase revenues or reduce expenses in these scenarios.

 

The selection of a 100 basis pointinterest rate increase as well as a 10% equity market decline should not beconstrued as a prediction of future market events.  Impacts of larger or smaller changes ininterest rates or equity prices may not be proportional to those shown for a100 basis point increase in interest rates or a 10% decline in equity prices.

 

***Credit Risk***

* *

RiverSource Life is exposed tocredit risk within its investment portfolio, including its loan portfolio, andthrough its derivative and reinsurance activities. Credit risk relates to theuncertainty of an obligor’s continued ability to make timely payments inaccordance with the contractual terms of the financial instrument or contract.RiverSource Life considers its total potential credit exposure to eachcounterparty and its affiliates to ensure compliance with pre-establishedcredit guidelines at the time it enters into a transaction which wouldpotentially increase RiverSource Life’s credit risk. These guidelines andoversight of credit risk are managed through a comprehensive enterprise riskmanagement program that includes members of senior management.

 

RiverSource Life manages the risk ofcredit-related losses in the event of nonperformance by counterparties byapplying disciplined fundamental credit analysis and underwriting standards,prudently limiting exposures to lower-quality, higher-yielding investments, anddiversifying exposures by issuer, industry, region and underlying investmenttype.  RiverSource Life remains exposedto occasional adverse cyclical economic downturns during which default ratesmay be significantly higher than the long-term historical average used inpricing.

 

RiverSource Life manages its creditrisk related to over-the-counter derivatives by entering into transactions withcreditworthy counterparties, maintaining collateral arrangements and throughthe use of master netting arrangements that provide for a single net payment tobe made by one counterparty to another at each due date and upon termination.Generally, RiverSource Life’s current credit exposure on over-the-counterderivative contracts is limited to a derivative counterparty’s net positivefair value of derivative contracts after taking into consideration theexistence of netting arrangements and any collateral received. This exposure ismonitored and managed to an acceptable threshold level.

 

Because exchange-traded futures areeffected through regulated exchanges, and positions are marked to market andgenerally cash settled on a daily basis, RiverSource Life has minimal exposureto credit-related losses in the event of nonperformance by counterparties tosuch derivative instruments.

 

RiverSource Life manages its creditrisk related to reinsurance treaties by evaluating the financial condition ofreinsurance counterparties prior to entering into new reinsurance treaties. Inaddition, RiverSource Life regularly evaluates their financial strength duringthe terms of the treaties. As of September 30, 2009, RiverSource Life’slargest reinsurance credit risk is related to a long term care coinsurancetreaty with a life insurance subsidiary of Genworth Financial, Inc.

 

***Fair Value Measurements***

* *

RiverSource Life reports certainassets and liabilities at fair value; specifically, separate account assets,derivatives, embedded derivatives, most investments and cash equivalents.  Fair value assumes the exchange of assets orliabilities occurs in orderly transactions. GAAP does not require the use of market prices that are the result of aforced liquidation or distressed sale. RiverSource Life includes actual market prices or observable inputs inits fair value measurements to the extent available. Broker quotes are obtainedwhen quotes from pricing services are not available. RiverSource Life validatesprices obtained from third parties through a variety of means such as: pricevariance analysis, subsequent sales testing, stale price review, pricecomparison across pricing vendors and due diligence reviews of vendors.

 

*Inactive Markets*

 

Through RiverSource Life’s ownexperience transacting in the marketplace and through discussions with itspricing vendors, RiverSource Life believes that the market for non-agencyresidential mortgage backed securities is inactive. Indicators of inactivemarkets include: pricing services’ reliance on brokers or discounted cash flowanalyses to provide prices, an increase in the disparity between pricesprovided by different pricing services for the same security, unreasonablylarge bid-offer spreads and a significant decrease in the volume of tradesrelative to historical levels. In certain cases, this market inactivity hasresulted in RiverSource Life applying valuation techniques that rely more on anincome approach (discounted cash flows using market rates) than on a marketapproach (prices from pricing services). RiverSource Life considers market observable yields for other assetclasses of similar risk which includes nonperformance and liquidity forindividual securities to set the discount rate for applying the income approachto certain non-agency residential mortgage backed securities. The discountrates used for the fair value of these securities at September 30, 2009ranged from 11% to 22%.

 

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*Non-agencyResidential Mortgage Backed Securities Backed by Subprime, Alt-A or PrimeCollateral*

 

Subprime mortgage lending is theorigination of residential mortgage loans to customers with weak creditprofiles. Alt-A mortgage lending is the origination of residential mortgageloans to customers who have credit ratings above subprime but may not conformto government-sponsored standards. Prime mortgage lending is the origination ofresidential mortgage loans to customers with good credit profiles.  RiverSource Life has exposure to these typesof loans predominantly through mortgage backed and asset backed securities. Theslow down in the U.S. housing market, combined with relaxed underwritingstandards by some originators, has recently led to higher delinquency and lossrates for some of these investments. Recent market conditions have increasedthe likelihood of other-than-temporary impairments for certain non-agencyresidential mortgage backed securities. As a part of RiverSource Life’s risk management process, an internalrating system is used in conjunction with market data as the basis of analysisto assess the likelihood that RiverSource Life will not receive all contractualprincipal and interest payments for these investments. For the investments thatare more at risk for impairment, RiverSource Life performs its own assessmentof projected cash flows incorporating assumptions about default rates,prepayment speeds, loss severity, and geographic concentrations to determine ifan other-than-temporary impairment should be recognized.

 

The following table presents, as of September 30,2009, RiverSource Life’s non-agency residential mortgage backed and assetbacked securities backed by subprime, Alt-A or prime mortgage loans by creditrating and vintage year (in millions):

 
| ** **             | ** ** | **AAA**             | ** ** | **AA**          | ** ** | **A**               | ** ** | **BBB**         | ** ** | **BB &  Below** | ** ** | **Total**       | ** ** |
|------------------------|------------|---------------------|------------|-----------------|------------|---------------------|------------|-----------------|------------|--------------------------|------------|-----------------|------------|
| ** **             | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost**      | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| **Subprime**           |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | —     |            | $          | —              |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| 2004                   |       | 3                   |       | 3               |       | 7                   |       | 2               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 10 |   | 5 |   |
| 2005                   |       | 37                  |       | 34              |       | 12                  |       | 6               |       | 8                        |       | 7               |       | — |   | — |   | 19 |   | 11 |   | 76 |   | 58 |   |
| 2006                   |       | 1                   |       | 1               |       | 7                   |       | 6               |       | —                   |       | —          |       | 6 |   | 5 |   | — |   | — |   | 14 |   | 12 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | —              |       | —          |       | 7                   |       | 6               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 7 |   | 6 |   |
| Total Subprime    |       | $                   | 41         |            | $          | 38                  |       | $               | 33         |                     | $          | 20              |       | $ | 8 |   | $ | 7 |   | $ | 6 |   | $ | 5 |   | $ | 19 |   | $ | 11 |   | $ | 107 |   | $ | 81 |   |
| ** **             |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 16         |            | $          | 16                  |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 16 |   | $ | 16 |   |
| 2004                   |       | 7                   |       | 7               |       | 60                  |       | 53              |       | 5                        |       | 3               |       | — |   | — |   | 18 |   | 9 |   | 90 |   | 72 |   |
| 2005                   |       | 5                   |       | 3               |       | 39                  |       | 21              |       | 33                       |       | 18              |       | 6 |   | 3 |   | 184 |   | 123 |   | 267 |   | 168 |   |
| 2006                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 14 |   | 8 |   | 14 |   | 8 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 30 |   | 16 |   | 30 |   | 16 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total Alt-A       |       | $                   | 28         |            | $          | 26                  |       | $               | 99         |                     | $          | 74              |       | $ | 38 |   | $ | 21 |   | $ | 6 |   | $ | 3 |   | $ | 246 |   | $ | 156 |   | $ | 417 |   | $ | 280 |   |
| ** **             |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Prime**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 143        |            | $          | 141                 |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 143 |   | $ | 141 |   |
| 2004                   |       | 23                  |       | 24              |       | 13                  |       | 14              |       | 29                       |       | 27              |       | — |   | — |   | — |   | — |   | 65 |   | 65 |   |
| 2005                   |       | 13                  |       | 16              |       | 37                  |       | 42              |       | 73                       |       | 70              |       | 32 |   | 26 |   | 93 |   | 40 |   | 248 |   | 194 |   |
| 2006                   |       | 22                  |       | 24              |       | —              |       | —          |       | 6                        |       | 3               |       | 36 |   | 35 |   | — |   | — |   | 64 |   | 62 |   |
| 2007                   |       | 33                  |       | 34              |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 15 |   | 12 |   | 48 |   | 46 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Re-Remic(1)            |       | 1,702               |       | 1,798           |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 1,702 |   | 1,798 |   |
| Total Prime       |       | $                   | 1,936      |            | $          | 2,037               |       | $               | 50         |                     | $          | 56              |       | $ | 108 |   | $ | 100 |   | $ | 68 |   | $ | 61 |   | $ | 108 |   | $ | 52 |   | $ | 2,270 |   | $ | 2,306 |   |
| **Grand  Total**       |       | $                   | 2,005      |            | $          | 2,101               |       | $               | 182        |                     | $          | 150             |       | $ | 154 |   | $ | 128 |   | $ | 80 |   | $ | 69 |   | $ | 373 |   | $ | 219 |   | $ | 2,794 |   | $ | 2,667 |   |

 

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(1)    Re-Remics of mortgage backedsecurities are prior vintages with cash flows structured into senior andsubordinated bonds. Credit enhancement on senior bonds is increased through theRe-Remic process. All senior bonds are rated AAA by Moody’s Investors Service,Standard & Poor’s Rating Services or Fitch Ratings Ltd. RiverSourceLife did not have any exposure to subordinate tranches as of September 30,2009.

 

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Fair Value of Liabilities andNonperformance Risk

 

GAAP also requires companies tomeasure the fair value of liabilities at the price that would be received totransfer the liability to a market participant (an exit price). Since there isnot a market for RiverSource Life’s obligations of its variable annuity riders,RiverSource Life considers the assumptions participants in a hypotheticalmarket would make to reflect an exit price. As a result, RiverSource Lifeadjusts the valuation of variable annuity riders by updating certaincontractholder assumptions, adding explicit margins to provide for profit, riskand expenses, and adjusting the rates used to discount expected cash flows toreflect a current market estimate of RiverSource Life’s nonperformance risk.The nonperformance risk adjustment is based on broker quotes for credit defaultswaps that are adjusted to estimate the risk of RiverSource Life not fulfillingthese liabilities. Consistent with general market conditions, this estimateresulted in a spread over the LIBOR swap curve as of September 30, 2009.As RiverSource Life’s estimate of this spread widens or tightens, the liabilitywill decrease or increase. If this nonperformance credit spread moves to a zerospread over the LIBOR swap curve, the reduction to net income would beapproximately $40 million, net of DAC and DSIC amortization and income taxes,based on September 30, 2009 credit spreads.

 

**Liquidityand Capital Resources**

 

***LiquidityStrategy***

 

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. Other liquidity sources RiverSource Life has established are repurchaseagreements and available lines of credit with Ameriprise Financial, nowaggregating $1 billion with the additional line of credit established, asdescribed below.

 

In July 2009,Ameriprise Financial, as the lender, entered into an $800 million revolvingcredit agreement with RiverSource Life Insurance Company, as the borrower. Asof September 30, 2009, the outstanding balance under this agreement was$500 million.  See Note 7 to theConsolidated Financial Statements for additional information regarding this newcredit agreement.

 

In March 2009,RiverSource Life Insurance Company became a member of the Federal Home LoanBank of Des Moines (“FHLB of Des Moines”), which provides RiverSource LifeInsurance Company access to collateralized borrowings.  As of September 30, 2009, there havebeen no borrowings from the FHLB of Des Moines. 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.

 

There were nodividends paid to Ameriprise Financial during the nine months ended September 30,2009.  On March 26, June 25 andSeptember 25, 2008, RiverSource Life paid cash dividends of $125 million,$275 million and $375 million, respectively, to Ameriprise Financial.  On June 25 and September 25, 2008,RiverSource Life of NY paid cash dividends of $27 million and $50 million,respectively, to RiverSource Life Insurance Company.

 

RiverSource LifeInsurance Company and RiverSource Lifeof NY are subject to regulatory capital requirements as follows:

 
| ** **                                  | ** ** | **Actual  Capital as of****(a)** | ** ** | **Regulatory  Capital Requirement(b)** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **September 30,****2009**   | ** ** | **December 31,  2008**            | ** ** | **December 31,  2008** | ** ** |
| ** **                                  | ** ** | **(in millions)**                | ** ** |
| RiverSource Life Insurance  Company         |       | $                                | 2,925      |                                   | $          | 2,722 |   | $ | 551 |   |
| RiverSource Life Insurance  Co. of New York |       | 247                              |       | 229                                    |       | 58 |   |
|                                             |            |                                  |            |                                        |            |  |  |  |  |  |

 

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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.

(b)         Regulatory capitalrequirement is based on the most recent statutory risk-based capital filing.

 

**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.

 

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RiverSource Life has made variousforward-looking statements in this report. Examples of such forward-lookingstatements include:

 

·                  statements aboutfuture economic performance, the performance of equity markets and interestrate variations and the economic performance of the United States and of globalmarkets; and

·                  statements ofassumptions underlying such statements.

 

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.

 

Such factors include, butare not limited to:

 

·                  changes in the valuations, liquidity andvolatility in the interest rate, credit default equity market, and foreignexchange environments;

·                  changes in the litigation and regulatoryenvironment, including ongoing legal proceedings and regulatory actions, thefrequency and extent of legal claims threatened or initiated by clients, otherpersons and regulators, and developments in regulation and legislation;

·                  RiverSource Life’s investment managementperformance and consumer acceptance of RiverSource Life’s products;

·                  effects of competition in the financialservices industry and changes in RiverSource Life’s product distribution mixand distribution channels;

·                  RiverSource Life’s capital structure as asubsidiary of Ameriprise Financial, including the ability of its parent tosupport its financial strength and ratings, as well as the opinions of ratingorganizations and other analysts or RiverSource Life’s regulators, distributorsor policyholders and contractholders in response to any change or prospect of changein any such opinion;

·                  risks of default by issuers or guarantorsof investments RiverSource Life owns or by counterparties to hedge derivative,insurance or reinsurance arrangements, experience deviations from RiverSourceLife’s assumptions regarding such risks and the evaluations or the prospect ofchanges in evaluations of any such third parties published by ratingorganizations or other analysts;

·                  experience deviations from RiverSourceLife’s assumptions regarding morbidity, mortality and persistency in certainannuity and insurance products, or from assumptions regarding market returnsassumed in valuing DAC and DSIC or market volatility underlying RiverSourceLife’s valuation and hedging of guaranteed living benefit annuity riders;

·                  successfully cross-selling insurance andannuity products 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 intercompany allocations toRiverSource Life 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;

·                  changes in capital requirements that may be indicated,required or advised by regulators or rating organizations;

·                  the impact of Ameriprise Financial’sefforts to improve distribution economics and of RiverSource Life’s efforts togrow third party distribution and to realize benefits from reengineering andtax 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;

·                  changes in the capital markets and competitiveenvironments induced or resulting from the partial or total ownership or othersupport by central governments of certain financial services firms forfinancial assets; and

·                  general economic and political factors,including consumer confidence in the economy, the ability and inclination ofconsumers generally to invest, as well as their ability and inclination toinvest in or purchase insurance and other products other than cash and cash equivalents,the costs of products and services RiverSource Life consumes in the conduct ofits business, and applicable legislation and regulation and changes therein,including tax laws, tax treaties, fiscal and central government treasurypolicy, and regulatory rulings and pronouncements.

 

RiverSource Life cautionsthe reader that the foregoing list of factors is not exhaustive.  There may also be other risks thatRiverSource Life is unable to predict at this time that may cause actualresults to differ materially from those in forward-looking statements.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the dateon which they are made.   RiverSourceLife undertakes no obligation to update or revise any forward-lookingstatements.

 

The foregoing list offactors should be read in conjunction with the “Risk Factors” discussion as Part I,Item 1A in RiverSource Life’s 2008 10-K.

 

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**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 “ExchangeAct”)) designed to provide reasonable assurance that the information requiredto be reported in the Exchange Act filings is recorded, processed, summarizedand reported 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, 2009.

 

**Changes in Internal Control OverFinancial Reporting**

 

There have been nochanges in RiverSource Life’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the fiscal quarter to which this report relates that havematerially affected, or are reasonably likely to materially affect, RiverSourceLife’s internal control over financial reporting.

 

**PART II.**                  OTHER INFORMATION

** **

**ITEM 1.**                       LEGAL PROCEEDINGS

** **

The information set forthin Note 11 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 ofRiverSource Life’s 2008 10-K.

 

**ITEM 6.**                       EXHIBITS

** **

The list of exhibitsrequired to be filed as exhibits to this report are listed on page E-1hereof, 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 3, 2009 | By                                                                                                                                   | /s/ Timothy V. Bechtold |
|                        |                                                                                                                                 | Timothy V. Bechtold |
|                        |                                                                                                                                 | President |
|                        |                                                                                                                                 |   |
|                        |                                                                                                                                 |   |
| Date: November 3, 2009 | 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**                                                                                                                                                                                                                                                  |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                             |
| 3.1         |   | Copy of  Certificate of Incorporation of IDS Life Insurance Company filed as  Exhibit 3.1 to Post-Effective Amendment No. 5 to Registration  Statement No. 33-28976 is incorporated by reference.                                                 |
|        |   |                                                                                                                                                                                                                                                             |
| 3.1.1       |   | Copy of  Certificate of Amendment of Certificate of Incorporation of IDS Life  Insurance Company dated June 22, 2006, filed as Exhibit 3.1 to  Form 8-K filed on Jan. 5, 2007 is incorporated by reference.                                  |
|        |   |                                                                                                                                                                                                                                                             |
| 3.2         |   | Copy of Amended  and Restated By-Laws of RiverSource Life Insurance Company dated  June 22, 2006, filed as Exhibit 27(f)(2) to Post-Effective  Amendment No. 28 to Registration Statement No. 333-69777, is  incorporated by reference. |
|        |   |                                                                                                                                                                                                                                                             |
| * 31.1      |   | Certification  of Timothy V. Bechtold,  President, pursuant to  Rule 13a-14(a) promulgated under the Securities Exchange Act of  1934, as amended.                                                                                                     |
|        |   |                                                                                                                                                                                                                                                             |
| * 31.2      |   | Certification of  Brian J. McGrane, Chief Financial Officer, pursuant to  Rule 13a-14(a) promulgated under the Securities Exchange Act of  1934, as amended.                                                                                           |
|        |   |                                                                                                                                                                                                                                                             |
| * 32.1      |   | Certification of  Timothy V. Bechtold, President, and Brian J. McGrane, Chief Financial  Officer, 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. |
|---|--------------------------------|

 

 

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