Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND 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, 2008**             |
| ** ** | ** **                                                              |
| ** ** | **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 number 333-114888**

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name ofregistrant as specified in its charter)

 

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

 

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

 

**Not Applicable**

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

 

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 filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes                            x                                  No                                o

 

Indicate by check markwhether the 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     | Smaller  reporting company o |
|----------------------------|---------------------|-----------------------------|------------------------------|
|                       |                | (Do not check if a  smaller |                         |
|                       |                | reporting company)          |                         |

 

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

 

Yes                            o                                    No                                x

 

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

 

| **Class**                              | ** ** | **Outstanding at****November 4,  2008** |
|----------------------------------------|------------|----------------------------------------------|
| 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                                                                                            |              | 1 |
|                                     |                                                                                                            |              |   |
|                                     | Consolidated Balance Sheets –  September 30, 2008 and December 31, 2007                          |              | 1 |
|                                     |                                                                                                            |              |   |
|                                     | Consolidated Statements of  Income – Three months and nine months ended September 30, 2008 and 2007   |              | 2 |
|                                     |                                                                                                            |              |   |
|                                     | Consolidated Statements of  Cash Flows – Nine months ended September 30, 2008 and 2007                |              | 3 |
|                                     |                                                                                                            |              |   |
|                                     | Consolidated Statements of  Shareholder’s Equity – Nine months ended September 30, 2008 and 2007 |              | 4 |
|                                     |                                                                                                            |              |   |
|                                     | Notes to Consolidated Financial Statements                                                                      |              | 5-18 |
|                                     |                                                                                                            |              |
| Item 2.                                  | Management’s  Narrative Analysis                                                                           |              | 19-27 |
|                                     |                                                                                                            |              |
| Item 4T.                                 | Controls and  Procedures                                                                                        |              | 27 |
|                                     |                                                                                                            |              |
| **Part II.  Other Information:**    | ** **                                                                                                      | ** **        |
|                                     |                                                                                                            |              |
| Item 1.                                  | Legal Proceedings                                                                                               |              | 28 |
|                                     |                                                                                                            |              |
| Item 1A.                                 | Risk Factors                                                                                                    |              | 28 |
|                                     |                                                                                                            |              |
| Item 6.                                  | Exhibits                                                                                                        |              | 35 |
|                                     |                                                                                                            |              |
| Signatures                               |                                                                                                            | 36                |
|                                     |                                                                                                            |              |
| Exhibit Index                       |                                                                                                            | E-1               |

 

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Table ofContents

 

**PART I.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                               | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                               | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| ** **                                                                               | ** ** | **(unaudited)**        | ** ** | ** **            | ** ** |
| **Assets**                                                                               |       |                   |       |                  |       |
| Investments:                                                                             |       |                   |       |                  |       |
| Available-for-Sale:                                                                      |       |                   |       |                  |       |
| Fixed  maturities, at fair value (amortized cost: 2008, $19,403; 2007, $21,020)          |       | $                      | 18,214     |                  | $          | 20,792 |   |
| Common and  preferred stocks, at fair value (cost:  2008 and 2007, $30)                  |       | 23                     |       | 29                    |       |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2008 and 2007, $16) |       | 2,762                  |       | 2,892                 |       |
| Policy loans                                                                             |       | 723                    |       | 697                   |       |
| Trading  securities and other investments                                                |       | 195                    |       | 67                    |       |
| Total  investments                                                                       |       | 21,917                 |       | 24,477                |       |
|                                                                                     |       |                   |       |                  |       |
| Cash equivalents                                                                         |       | 1,148                  |       | 973                   |       |
| Reinsurance  recoverables                                                                |       | 1,551                  |       | 1,290                 |       |
| Amounts due from  brokers                                                                |       | 16                     |       | 123                   |       |
| Other accounts  receivable                                                               |       | 120                    |       | 118                   |       |
| Accrued  investment income                                                               |       | 240                    |       | 252                   |       |
| Deferred  acquisition costs                                                              |       | 4,412                  |       | 4,429                 |       |
| Deferred sales  inducement costs                                                         |       | 523                    |       | 511                   |       |
| Deferred income  taxes, net                                                              |       | 296                    |       | —                |       |
| Other assets                                                                             |       | 487                    |       | 491                   |       |
| Separate account  assets                                                                 |       | 49,929                 |       | 58,070                |       |
|                                                                                     |       |                   |       |                  |       |
| Total assets                                                                             |       | $                      | 80,639     |                  | $          | 90,734 |   |
| ** **                                                                               |       |                   |       |                  |       |
| **Liabilities  and Shareholder’s Equity**                                           |       |                   |       |                  |       |
| Liabilities:                                                                             |       |                   |       |                  |       |
| Future policy  benefits                                                                  |       | $                      | 26,505     |                  | $          | 26,977 |   |
| Policy claims  and other policyholders’ funds                                       |       | 102                    |       | 91                    |       |
| Amounts due to  brokers                                                                  |       | 182                    |       | 361                   |       |
| Deferred income  taxes, net                                                              |       | —                 |       | 133                   |       |
| Other  liabilities                                                                       |       | 334                    |       | 382                   |       |
| Separate account  liabilities                                                            |       | 49,929                 |       | 58,070                |       |
| Total  liabilities                                                                       |       | 77,052                 |       | 86,014                |       |
|                                                                                     |       |                   |       |                  |       |
| Shareholder’s  equity:                                                              |       |                   |       |                  |       |
| Common shares,  $30 par value;                                                           |       |                   |       |                  |       |
| 100,000 shares  authorized, issued and outstanding                                       |       | 3                      |       | 3                     |       |
| Additional  paid-in capital                                                              |       | 2,033                  |       | 2,031                 |       |
| Retained  earnings                                                                       |       | 2,333                  |       | 2,842                 |       |
| Accumulated  other comprehensive loss, net of tax                                        |       | (782                   | )          | (156                  | )          |
| Total  shareholder’s equity                                                         |       | 3,587                  |       | 4,720                 |       |
|                                                                                     |       |                   |       |                  |       |
| Total  liabilities and shareholder’s equity                                         |       | $                      | 80,639     |                  | $          | 90,734 |   |

 

*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,** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                        | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| **Revenues**                                      |       |                                                 |       |                                                |       |   |   |   |   |
| Premiums                                          |       | $                                                    | 122        |                                                | $          | 123 |   | $ | 356 |   | $ | 361 |   |
| Net investment  income                            |       | 306                                                  |       | 352                                                 |       | 962 |   | 1,121 |   |
| Policy and  contract charges                      |       | 415                                                  |       | 308                                                 |       | 1,054 |   | 893 |   |
| Other revenue                                     |       | 67                                                   |       | 66                                                  |       | 205 |   | 187 |   |
| Net realized  investment gains (losses)           |       | (200                                                 | )          | 35                                                  |       | (229 | ) | 42 |   |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| Total revenues                                    |       | 710                                                  |       | 884                                                 |       | 2,348 |   | 2,604 |   |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| **Benefits  and expenses**                        |       |                                                 |       |                                                |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 85                                                   |       | 248                                                 |       | 455 |   | 579 |   |
| Interest  credited to fixed accounts              |       | 200                                                  |       | 212                                                 |       | 588 |   | 645 |   |
| Amortization of  deferred acquisition costs       |       | 222                                                  |       | 108                                                 |       | 483 |   | 325 |   |
| Separation costs                                  |       | —                                               |       | 22                                                  |       | — |   | 86 |   |
| Other insurance  and operating expenses           |       | 159                                                  |       | 196                                                 |       | 519 |   | 573 |   |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| Total benefits  and expenses                      |       | 666                                                  |       | 786                                                 |       | 2,045 |   | 2,208 |   |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| Pretax income                                     |       | 44                                                   |       | 98                                                  |       | 303 |   | 396 |   |
| Income tax  provision (benefit)                   |       | —                                               |       | (1                                                  | )          | 7 |   | 68 |   |
|                                              |       |                                                 |       |                                                |       |   |   |   |   |
| Net income                                        |       | $                                                    | 44         |                                                | $          | 99 |   | $ | 296 |   | $ | 328 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

**(inmillions)**

** **
| ** **                                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| **Cash  Flows from Operating Activities**                                                    |       |                                                |       |   |   |
| Net income                                                                                   |       | $                                                   | 296        |   | $ | 328 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:           |       |                                                |       |   |   |
| Capitalization  of deferred acquisition costs and deferred sales inducement costs            |       | (505                                                | )          | (630 | ) |
| Amortization of  deferred acquisition costs and deferred sales inducement costs              |       | 544                                                 |       | 360 |   |
| Premium and  discount amortization on Available-for-Sale                                     |       | 44                                                  |       | 54 |   |
| Deferred income  taxes                                                                       |       | (77                                                 | )          | 140 |   |
| Contractholder  and policyholder charges, non-cash                                           |       | (183                                                | )          | (153 | ) |
| Net realized  investment losses (gains)                                                      |       | 229                                                 |       | (42 | ) |
| Net realized  gain on trading securities and equity method investments in hedge funds        |       | —                                              |       | (1 | ) |
| Change in  operating assets and liabilities:                                                 |       |                                                |       |   |   |
| Trading  securities and equity method investments in hedge funds, net                        |       | 1                                                   |       | 125 |   |
| Future policy  benefits for traditional life, disability income and long term care insurance |       | 237                                                 |       | 207 |   |
| Policy claims  and other policyholders’ funds                                           |       | 11                                                  |       | 13 |   |
| Reinsurance  recoverables                                                                    |       | (261                                                | )          | (116 | ) |
| Other accounts  receivable                                                                   |       | (2                                                  | )          | (33 | ) |
| Accrued  investment income                                                                   |       | 12                                                  |       | 35 |   |
| Other assets and  liabilities, net                                                           |       | 1                                                   |       | (85 | ) |
|                                                                                         |       |                                                |       |   |   |
| **Net  cash provided by operating activities**                                               |       | 347                                                 |       | 202 |   |
| ** **                                                                                   |       |                                                |       |   |   |
| **Cash  Flows from Investing Activities**                                                    |       |                                                |       |   |   |
| Available-for-Sale  securities:                                                              |       |                                                |       |   |   |
| Proceeds from  sales                                                                         |       | 189                                                 |       | 2,618 |   |
| Maturities,  sinking fund payments and calls                                                 |       | 1,859                                               |       | 1,380 |   |
| Purchases                                                                                    |       | (730                                                | )          | (444 | ) |
| Other  investments, excluding policy loans:                                                  |       |                                                |       |   |   |
| Proceeds from  sales, maturities, sinking fund payments and calls                            |       | 231                                                 |       | 401 |   |
| Purchases                                                                                    |       | (228                                                | )          | (334 | ) |
| Change in policy  loans, net                                                                 |       | (26                                                 | )          | (34 | ) |
|                                                                                         |       |                                                |       |   |   |
| **Net  cash provided by investing activities**                                               |       | 1,295                                               |       | 3,587 |   |
| ** **                                                                                   |       |                                                |       |   |   |
| **Cash  Flows from Financing Activities**                                                    |       |                                                |       |   |   |
| Activity related  to investment contracts and universal life-type insurance:                 |       |                                                |       |   |   |
| Considerations  received                                                                     |       | 1,569                                               |       | 795 |   |
| Net transfers to  separate accounts                                                          |       | —                                              |       | 7 |   |
| Surrenders and  other benefits                                                               |       | (2,223                                              | )          | (2,928 | ) |
| Other                                                                                        |       | (40                                                 | )          | — |   |
| Tax adjustment  of share-based incentive compensation plan                                   |       | 2                                                   |       | — |   |
| Cash dividends to Ameriprise  Financial, Inc.                                           |       | (775                                                | )          | (800 | ) |
| **Net  cash used in financing activities**                                                   |       | (1,467                                              | )          | (2,926 | ) |
| ** **                                                                                   |       |                                                |       |   |   |
| **Net  increase in cash equivalents**                                                        |       | 175                                                 |       | 863 |   |
| Cash equivalents  at beginning of period                                                     |       | 973                                                 |       | 160 |   |
|                                                                                         |       |                                                |       |   |   |
| **Cash  equivalents at end of period**                                                       |       | $                                                   | 1,148      |   | $ | 1,023 |   |
| ** **                                                                                   |       |                                                |       |   |   |
| Supplemental  Disclosures:                                                                   |       |                                                |       |   |   |
| Income taxes  paid, net                                                                      |       | $                                                   | 128        |   | $ | 48 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)**

**NINEMONTHS ENDED SEPTEMBER 30, 2008 AND 2007**

**(inmillions)**

** **
| ** **                                                         | ** ** | **Common  Shares** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other****Comprehensive  Loss** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| **Balances at December 31, 2006**                             |       | $                  | 3          |                             | $          | 2,021                  |       | $                                             | 3,455      |      | $          | (209 | ) | $ | 5,270 |   |
| Change in accounting principles                                    |       | —             |       | —                           |       | (134                   | )          | —                                        |       | (134      | )          |
| Other  comprehensive income:                                       |       |               |       |                             |       |                   |       |                                          |       |      |       |
| Net income                                                         |       | —             |       | —                           |       | 328                    |       | —                                        |       | 328       |       |
| Change in net unrealized securities losses                         |       | —             |       | —                           |       | —                 |       | (24                                           | )          | (24       | )          |
| Total other comprehensive  income                                  |       |               |       |                             |       |                   |       |                                          |       | 304       |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (800                   | )          | —                                        |       | (800      | )          |
| Non-cash capital contribution from Ameriprise Financial, Inc. |       | —             |       | 10                               |       | —                 |       | —                                        |       | 10        |       |
| **Balances at September 30, 2007**                            |       | $                  | 3          |                             | $          | 2,031                  |       | $                                             | 2,849      |      | $          | (233 | ) | $ | 4,650 |   |
|                                                               |       |               |       |                             |       |                   |       |                                          |       |      |       |
| **Balances at December 31, 2007**                             |       | $                  | 3          |                             | $          | 2,031                  |       | $                                             | 2,842      |      | $          | (156 | ) | $ | 4,720 |   |
| Change in accounting principles                                    |       | —             |       | —                           |       | (30                    | )          | —                                        |       | (30       | )          |
| Other  comprehensive income:                                       |       |               |       |                             |       |                   |       |                                          |       |      |       |
| Net income                                                         |       | —             |       | —                           |       | 296                    |       | —                                        |       | 296       |       |
| Change in net unrealized securities losses                         |       | —             |       | —                           |       | —                 |       | (626                                          | )          | (626      | )          |
| Total other comprehensive  loss                                    |       |               |       |                             |       |                   |       |                                          |       | (330      | )          |
| Tax adjustment of share-based incentive compensation plan          |       | —             |       | 2                                |       | —                 |       | —                                        |       | 2         |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (775                   | )          | —                                        |       | (775      | )          |
| **Balances at September 30, 2008**                            |       | $                  | 3          |                             | $          | 2,033                  |       | $                                             | 2,333      |      | $          | (782 | ) | $ | 3,587 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

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

 

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned operating subsidiary, RiverSource LifeInsurance Co. of New York.  RiverSourceLife Insurance 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 subsidiary 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.

 

**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, including newincome statement captions which are described in Note 1 of RiverSource Life’sAnnual Report on Form 10-K for the year ended December 31, 2007,filed with the Securities and Exchange Commission (“SEC”) on February 29,2008 (the “2007 10-K”).  In the secondquarter of 2008, RiverSource Life reclassified the mark-to-market adjustmentson certain derivatives from net investment income to various expense lineswhere the mark-to-market adjustment on the related embedded derivative resides.The mark-to-market adjustment on derivatives hedging variable annuity livingbenefits and equity indexed annuities were reclassified to benefits, claims,losses and settlement expenses and interest credited to fixed accounts,respectively.  As part of the December 31,2007 reclassifications, portions of these mark-to-market adjustments werereclassified from other insurance and operating expenses to net investmentincome.

 

These reclassificationswere made to enhance transparency and to better align the financial statementline captions with the key drivers of the business.  The reclassifications did not result in anychanges to consolidated net income or shareholder’s equity.  Results of operations reported for interimperiods are not necessarily indicative of results for the entire year. TheseConsolidated Financial Statements and Notes should be read in conjunction withthe Consolidated Financial Statements and Notes in RiverSource Life’s 200710-K.

 

***                       ******Income StatementReclassifications***

 

The following table showsthe impact of the new captions and the reclassifications made to RiverSourceLife’s previously reported Consolidated Statements of Income.

 
| ** **                                        | ** ** | **Three Months Ended  September 30, 2007** | ** ** | **Nine Months Ended  September 30, 2007** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                        | ** ** | **Previously  Reported**                                       | ** ** | **Reclassified**                                              | ** ** | **Previously  Reported** | ** ** | **Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                                         | ** ** |
| **Revenues**                                      |       |                                                           |       |                                                          |       |   |   |   |   |
| Premiums                                          |       | $                                                              | 97         |                                                          | $          | 123 |   | $ | 288 |   | $ | 361 |   |
| Net investment  income                            |       | 396                                                            |       | 352                                                           |       | 1,166 |   | 1,121 |   |
| Policy and  contract charges                      |       | 173                                                            |       | 308                                                           |       | 505 |   | 893 |   |
| Other revenue                                     |       | 213                                                            |       | 66                                                            |       | 606 |   | 187 |   |
| Net realized  investment gains                    |       | 35                                                             |       | 35                                                            |       | 42 |   | 42 |   |
|                                              |       |                                                           |       |                                                          |       |   |   |   |   |
| Total revenues                                    |       | 914                                                            |       | 884                                                           |       | 2,607 |   | 2,604 |   |
| ** **                                        |       |                                                           |       |                                                          |       |   |   |   |   |
| **Benefits  and expenses**                        |       |                                                           |       |                                                          |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 269                                                            |       | 248                                                           |       | 501 |   | 579 |   |
| Interest  credited to fixed accounts              |       | 235                                                            |       | 212                                                           |       | 720 |   | 645 |   |
| Amortization of  deferred acquisition costs       |       | 108                                                            |       | 108                                                           |       | 325 |   | 325 |   |
| Separation costs                                  |       | 22                                                             |       | 22                                                            |       | 86 |   | 86 |   |
| Other insurance  and operating expenses           |       | 182                                                            |       | 196                                                           |       | 579 |   | 573 |   |
|                                              |       |                                                           |       |                                                          |       |   |   |   |   |
| Total benefits  and expenses                      |       | 816                                                            |       | 786                                                           |       | 2,211 |   | 2,208 |   |
|                                              |       |                                                           |       |                                                          |       |   |   |   |   |
| Pretax income                                     |       | 98                                                             |       | 98                                                            |       | 396 |   | 396 |   |
| Income tax  provision (benefit)                   |       | (1                                                             | )          | (1                                                            | )          | 68 |   | 68 |   |
| ** **                                        |       |                                                           |       |                                                          |       |   |   |   |   |
| **Net  income**                                   |       | $                                                              | 99         |                                                          | $          | 99 |   | $ | 328 |   | $ | 328 |   |

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

**1.****             Basis of Presentation(Continued)**

 

***                      ******Statement of Cash FlowsReclassifications***

 

The effect ofreclassifications on prior period net cash flows related to operating,investing and financing activities is summarized below.

 
| ** **                                                                       | ** ** | **Nine Months Ended  September 30, 2007** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **(in millions)**                                        | ** ** |
|                                                                             |       |                                                          |       |
| Net cash  provided by operating activities, previous presentation                |       | $                                                             | 181        |   |
| Reclassification  for annuity transfers                                          |       | (95                                                           | )          |
| Reclassification  for policy loans                                               |       | 2                                                             |       |
| Other  reclassifications                                                         |       | 114                                                           |       |
| Net cash  provided by operating activities, adjusted for these reclassifications |       | $                                                             | 202        |   |
|                                                                             |       |                                                          |       |
| Net cash  provided by investing activities, previous presentation                |       | $                                                             | 3,733      |   |
| Reclassification  for policy loans                                               |       | (34                                                           | )          |
| Other  reclassifications                                                         |       | (112                                                          | )          |
| Net cash  provided by investing activities, adjusted for these reclassifications |       | $                                                             | 3,587      |   |
|                                                                             |       |                                                          |       |
| Net cash used in  financing activities, previous presentation                    |       | $                                                             | (3,051     | ) |
| Reclassification  for annuity transfers                                          |       | 95                                                            |       |
| Reclassification  for policy loans                                               |       | 32                                                            |       |
| Other  reclassifications                                                         |       | (2                                                            | )          |
| Net cash used in  financing activities, adjusted for these reclassifications     |       | $                                                             | (2,926     | ) |

 

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

 

In October 2008,the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market forThat Asset Is Not Active” (“FSP 157-3”), which was effective upon issuance,including prior periods for which financial statements have not been issued.FSP 157-3 clarifies the application of Statement of Financial AccountingStandards (“SFAS”) No. 157 “Fair Value Measurements” (“SFAS 157”) in amarket that is not active and provides an example of key considerations todetermine the fair value of financial assets when the market for those assetsis not active. The adoption of FSP 157-3 did not have a material effect onRiverSource Life’s consolidated financial condition and results of operations.

 

In March 2008, theFASB issued SFAS No. 161 “Disclosures about Derivative Instruments andHedging Activities–an amendment of FASB Statement No. 133” (“SFAS 161”).SFAS 161 intends to improve financial reporting about derivative instrumentsand hedging activities by requiring enhanced disclosures about their impact onan entity’s financial position, financial performance and cash flows. SFAS 161 requiresdisclosures regarding the objectives for using derivative instruments, the fairvalue of derivative instruments and their related gains and losses, and theaccounting for derivatives and related hedged items. SFAS 161 is effective forfiscal years and interim periods beginning after November 15, 2008, withearly adoption permitted. RiverSource Life is currently evaluating the impactof SFAS 161 on its disclosures. RiverSource Life’s adoption of SFAS 161 willnot impact its consolidated financial condition and results of operations.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS141(R)”).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures theidentifiable assets acquired, the liabilities assumed, any noncontrollinginterest in an acquiree, and goodwill acquired. SFAS 141(R) also requires an acquirer to disclose information aboutthe financial effects of a business combination.  SFAS 141(R) is effective prospectivelyfor business combinations with an acquisition date on or after the beginning ofthe first annual reporting period beginning on or after December 15, 2008,with early adoption prohibited. RiverSource Life will apply the standard to any business combinationswithin the scope of SFAS 141(R) occurring after December 31, 2008.

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements – an amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 establishes the accounting andreporting for ownership interest in subsidiaries not attributable, directly orindirectly, to a parent.  SFAS 160requires that noncontrolling (minority) interests be

 

6

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Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

classified as equity(instead of as a liability) within the Consolidated Balance Sheets, and netincome attributable to both the parent and the noncontrolling interest bedisclosed on the face of the Consolidated Statements of Income.  SFAS 160 is effective for fiscal yearsbeginning after December 15, 2008, and interim periods within those yearswith early adoption prohibited.  Theprovisions of SFAS 160 are to be applied prospectively, except for thepresentation and disclosure requirements which are to be appliedretrospectively to all periods presented. RiverSource Life will apply the provisions of SFAS 160 to anynoncontrolling interests held after December 31, 2008.

 

In September 2006,the FASB issued SFAS 157 which defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair valuemeasurements.  SFAS 157 applies underother accounting pronouncements that require or permit fair value measurements.Accordingly, SFAS 157 does not require any new fair value measurements. Theprovisions of SFAS 157 are required to be applied prospectively as of thebeginning of the fiscal year in which SFAS 157 is initially applied, except forcertain financial instruments as defined in SFAS 157 that require retrospectiveapplication. Any retrospective application will be recognized as a cumulativeeffect adjustment to the opening balance of retained earnings for the fiscalyear of adoption. RiverSource Life adopted SFAS 157 effective January 1,2008 and recorded a cumulative effect reduction to the opening balance ofretained earnings of $30 million, net of deferred acquisition costs (“DAC”) anddeferred sales inducement costs (“DSIC”) amortization and income taxes. Thisreduction to retained earnings was related to adjusting the fair value ofcertain derivatives RiverSource Life uses to hedge its exposure to market riskrelated to certain variable annuity riders. RiverSource Life initially recorded these derivatives in accordance withEmerging Issues Task Force (“EITF”) Issue No. 02-3 “Issues Involved inAccounting for Derivative Contracts Held for Trading Purposes and ContractsInvolved in Energy Trading and Risk Management Activities” (“EITF 02-3”).  SFAS 157 nullifies the guidance in EITF 02-3and requires these derivatives to be marked to the price RiverSource Life wouldreceive to sell the derivatives to a market participant (an exit price).  The adoption of SFAS 157 also resulted inadjustments to the fair value of RiverSource Life’s embedded derivativeliabilities associated with certain variable annuity riders. Since there is nomarket for these liabilities, RiverSource Life considered the assumptionsparticipants in a hypothetical market would make to determine an exit price. Asa result, RiverSource Life adjusted the valuation of these liabilities by updatingcertain policyholder assumptions, adding explicit margins to provide forprofit, risk and expenses and adjusting the rate used to discount expected cashflows to reflect a current market estimate of RiverSource Life’s risk ofnonperformance specific to these liabilities. These adjustments resulted in anadoption impact of a $4 million increase in earnings, net of DAC and DSICamortization and income taxes, at January 1, 2008. The nonperformance riskcomponent of the adjustment is specific to the risk of RiverSource Life notfulfilling these liabilities. As RiverSource Life’s estimate of this creditspread widens or tightens, the liability will decrease or increase.

 

Inaccordance with FSP FAS 157-2, “Effective Date of FASB Statement No. 157”(“FSP 157-2”), RiverSource Life will defer the adoption of SFAS 157 until January 1,2009 for all nonfinancial assets and nonfinancial liabilities, except for thosethat are recognized or disclosed at fair value in the financial statements on arecurring basis.  In January 2008,the FASB published for comment Proposed FSP FAS 157-c “Measuring Liabilitiesunder FASB Statement No. 157” (“FSP 157-c”).  FSP 157-c would amend SFAS 157 to clarify theaccounting principles on the fair value measurement of liabilities.  RiverSource Life is monitoring the impactthat this proposed FSP could have on its consolidated financial condition andresults of operations.   See Note 5 foradditional information regarding the fair values of RiverSource Life’s assetsand liabilities. 

 

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

 

In September 2005, theAmerican Institute of Certified Public Accountants (“AICPA”) issued Statementof Position (“SOP”) 05-1, “Accounting by Insurance Enterprises for DeferredAcquisition Costs in Connection With Modifications or Exchanges of InsuranceContracts,” (“SOP 05-1”).  SOP 05-1provides clarifying guidance on accounting for DAC associated with an insuranceor annuity contract that is significantly modified or is internally replacedwith another contract.  Prior toadoption, RiverSource Life accounted for many of these transactions as contractcontinuations and continued amortizing existing DAC

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

against revenue for the newor modified contract.  Effective January 1,2007, RiverSource Life adopted SOP 05-1 resulting in these transactions beingprospectively accounted for as contract terminations.  Consistent with this, RiverSource Life nowanticipates these transactions in establishing amortization periods and othervaluation assumptions.  As aresult of adopting SOP 05-1, RiverSource Life recorded as a cumulative changein accounting principle $206 million, reducing DAC by $204 million, DSIC by $11million and liabilities for future policy benefits by $9 million.  The after-tax decrease to retained earningsfor these changes was $134 million.

 

**3.****             Separation andDistribution of Ameriprise Financial, Inc. from American Express**

 

Ameriprise Financial was formerly a wholly ownedsubsidiary of American Express Company (“American Express”).  On February 1, 2005, the AmericanExpress Board of Directors announced its intention to pursue the disposition of100% of its shareholdings in Ameriprise Financial (the “Separation”) through atax-free distribution to American Express shareholders.  Effective as of the close of business on September 30,2005, American Express completed the Separation and the distribution ofAmeriprise Financial common shares to American Express shareholders (the “Distribution”).  In connection with the Distribution,Ameriprise Financial entered into certain agreements with American Express toeffect the Separation and to define the responsibility for obligations arisingbefore and after the date of the Distribution, including, among others,obligations relating to transition services, taxes, and employees.  Through 2007, RiverSource Life was allocatedcertain expenses incurred as a result of Ameriprise Financial becoming anindependent company.  The separation fromAmerican Express was completed in 2007.

 

**4.****             Investments**

 

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

 
| **September 30, 2008**            | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Fixed  maturities:                          |       |                   |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $                      | 11,864     |                         | $          | 31                            |       | $               | (951       | ) | $ | 10,944 |   |
| Mortgage and  other asset-backed securities |       | 7,077                  |       | 31                           |       | (310                          | )          | 6,798           |       |
| U.S. government  and agencies obligations   |       | 201                    |       | 7                            |       | (1                            | )          | 207             |       |
| State and  municipal obligations            |       | 164                    |       | 2                            |       | (10                           | )          | 156             |       |
| Foreign  government bonds and obligations   |       | 95                     |       | 12                           |       | —                        |       | 107             |       |
| Structured  investments(a)                  |       | 2                      |       | —                       |       | —                        |       | 2               |       |
| Total fixed  maturities                     |       | 19,403                 |       | 83                           |       | (1,272                        | )          | 18,214          |       |
| Common and  preferred stocks                |       | 30                     |       | —                       |       | (7                            | )          | 23              |       |
| Total                                       |       | $                      | 19,433     |                         | $          | 83                            |       | $               | (1,279     | ) | $ | 18,237 |   |

 

----

(a)          Includes unconsolidated collateralized debt obligations.

 
| **December 31, 2007**             | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Fixed  maturities:                          |       |                   |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $                      | 12,870     |                         | $          | 112                           |       | $               | (307       | ) | $ | 12,675 |   |
| Mortgage and  other asset-backed securities |       | 7,637                  |       | 33                           |       | (84                           | )          | 7,586           |       |
| U.S. government  and agencies obligations   |       | 249                    |       | 7                            |       | (1                            | )          | 255             |       |
| State and  municipal obligations            |       | 165                    |       | 3                            |       | (6                            | )          | 162             |       |
| Foreign  government bonds and obligations   |       | 97                     |       | 15                           |       | —                        |       | 112             |       |
| Structured  investments(a)                  |       | 2                      |       | —                       |       | —                        |       | 2               |       |
| Total fixed  maturities                     |       | 21,020                 |       | 170                          |       | (398                          | )          | 20,792          |       |
| Common and  preferred stocks                |       | 30                     |       | —                       |       | (1                            | )          | 29              |       |
| Total                                       |       | $                      | 21,050     |                         | $          | 170                           |       | $               | (399       | ) | $ | 20,821 |   |

 

----

(a)          Includes unconsolidated collateralized debt obligations.

 

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

**4.****             Investments(Continued)**

 

Net realizedinvestment gains and losses on Available-for-Sale securities, determined usingthe specific identification method, were as follows:

 
| ** **                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(in millions)**                               | ** ** |
| Gross realized investment gains  |       | $                                                    | 3          |                                                | $          | 14 |   | $ | 13 |   | $ | 42 |   |
| Gross realized investment losses |       | (3                                                   | )          | —                                              |       | (5 | ) | (19 | ) |
| Other-than-temporary impairments |       | (200                                                 | )          | —                                              |       | (237 | ) | (2 | ) |
|                                  |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

RiverSource Life regularly reviews Available-for-Salesecurities for impairments in value considered to be other-than-temporary. Thecost basis of securities that are determined to be other-than-temporarilyimpaired is written down to current fair value with a corresponding charge tonet income. A write-down for impairment can be recognized for bothcredit-related events and for changes in fair value due to changes in interestrates. Once a security is written down to fair value through net income, anysubsequent recovery in value cannot be recognized in net income until theprincipal is returned.

 

Factors RiverSource Life considers in determiningwhether declines in the fair value of fixed-maturity securities areother-than-temporary include: 1) the extent to which the market value is belowamortized cost; 2) RiverSource Life’s ability and intent to hold the investmentfor a sufficient period of time for it to recover to an amount at least equalto its carrying value; 3) the duration of time in which there has been asignificant decline in value; 4) fundamental analysis of the liquidity,business prospects and overall financial condition of the issuer; and 5) marketevents that could impact credit ratings, economic and business climate,litigation and government actions and similar external business factors. Forstructured investments (e.g., mortgage-backed securities), RiverSource Lifealso considers factors such as overall deal structure and its position withinthe structure, quality of underlying collateral, delinquencies and defaults,loss severities, recoveries, prepayments, cumulative loss projections anddiscounted cash flows in assessing potential other-than-temporary impairment ofthese investments.  Based upon thesefactors, securities that have indicators of potential other-than-temporaryimpairment are subject to detailed review by management. Securities for whichdeclines are considered temporary continue to be carefully monitored bymanagement.

 

For the three and nine months ended September 30,2008, other-than-temporary impairments were $200 million and $237 million,respectively, primarily related to credit-related losses in Lehman Brotherssecurities, Washington Mutual securities and non-agency residentialmortgage-backed securities.

 

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, 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                  |       | $                                      | 5,818      |   | $ | (354 | ) | $ | 3,417 |   | $ | (597 | ) | $ | 9,235 |   | $ | (951 | ) |
| Mortgage and  other asset-backed securities |       | 2,543                                  |       | (101 | ) | 2,273 |   | (209 | ) | 4,816 |   | (310 | ) |
| U.S. government  and agencies obligations   |       | 49                                     |       | — |   | 35 |   | (1 | ) | 84 |   | (1 | ) |
| State and  municipal obligations            |       | 17                                     |       | — |   | 88 |   | (10 | ) | 105 |   | (10 | ) |
| Foreign  government bonds and obligations   |       | 14                                     |       | — |   | — |   | — |   | 14 |   | — |   |
| Common and  preferred stocks                |       | —                                 |       | — |   | 23 |   | (7 | ) | 23 |   | (7 | ) |
| Total                                       |       | $                                      | 8,441      |   | $ | (455 | ) | $ | 5,836 |   | $ | (824 | ) | $ | 14,277 |   | $ | (1,279 | ) |

 

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**RIVERSOURCE LIFE INSURANCECOMPANY**

 

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

 

**4.     Investments (Continued)**

 
| ** **                                  | ** ** | **December 31, 2007**        | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **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                  |       | $                                      | 1,477      |   | $ | (45 | ) | $ | 7,083 |   | $ | (262 | ) | $ | 8,560 |   | $ | (307 | ) |
| Mortgage and  other asset-backed securities |       | 888                                    |       | (15 | ) | 4,219 |   | (69 | ) | 5,107 |   | (84 | ) |
| U.S. government  and agencies obligations   |       | —                                 |       | — |   | 154 |   | (1 | ) | 154 |   | (1 | ) |
| State and  municipal obligations            |       | 47                                     |       | (4 | ) | 63 |   | (2 | ) | 110 |   | (6 | ) |
| Foreign  government bonds and obligations   |       | —                                 |       | — |   | 2 |   | — |   | 2 |   | — |   |
| Common and  preferred stocks                |       | 29                                     |       | (1 | ) | — |   | — |   | 29 |   | (1 | ) |
| Total                                       |       | $                                      | 2,441      |   | $ | (65 | ) | $ | 11,521 |   | $ | (334 | ) | $ | 13,962 |   | $ | (399 | ) |

* *

In evaluatingpotential other-than-temporary impairments, RiverSource Life considers theextent to which amortized cost exceeds fair value and the duration of thatdifference. A key metric in performing this evaluation is the ratio of fairvalue to amortized cost. The following tables summarize the unrealized lossesby ratio of fair value to amortized cost:

 
| ** **                                                          | ** ** | **September 30, 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%                                                          |       | 330                                                                     |       | $ | 5,995 |   | $ | (119 | ) | 118 |   | $ | 1,987 |   | $ | (55 | ) | 448 |   | $ | 7,982 |   | $ | (174 | ) |
| 90% - 95%                                                           |       | 102                                                                     |       | 1,631 |   | (120 | ) | 85 |   | 1,578 |   | (129 | ) | 187 |   | 3,209 |   | (249 | ) |
| 80% - 90%                                                           |       | 53                                                                      |       | 503 |   | (82 | ) | 97 |   | 1,520 |   | (260 | ) | 150 |   | 2,023 |   | (342 | ) |
| Less than 80%                                                       |       | 21                                                                      |       | 312 |   | (134 | ) | 70 |   | 751 |   | (380 | ) | 91 |   | 1,063 |   | (514 | ) |
| Total                                                               |       | 506                                                                     |       | $ | 8,441 |   | $ | (455 | ) | 370 |   | $ | 5,836 |   | $ | (824 | ) | 876 |   | $ | 14,277 |   | $ | (1,279 | ) |

 
| ** **                                                          | ** ** | **December 31,  2007**                                             | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **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%                                                          |       | 164                                                                     |       | $ | 2,015 |   | $ | (25 | ) | 486 |   | $ | 10,169 |   | $ | (180 | ) | 650 |   | $ | 12,184 |   | $ | (205 | ) |
| 90% - 95%                                                           |       | 31                                                                      |       | 305 |   | (22 | ) | 48 |   | 811 |   | (57 | ) | 79 |   | 1,116 |   | (79 | ) |
| 80% - 90%                                                           |       | 4                                                                       |       | 121 |   | (18 | ) | 32 |   | 461 |   | (66 | ) | 36 |   | 582 |   | (84 | ) |
| Less than 80%                                                       |       | 1                                                                       |       | — |   | — |   | 10 |   | 80 |   | (31 | ) | 11 |   | 80 |   | (31 | ) |
| Total                                                               |       | 200                                                                     |       | $ | 2,441 |   | $ | (65 | ) | 576 |   | $ | 11,521 |   | $ | (334 | ) | 776 |   | $ | 13,962 |   | $ | (399 | ) |

 

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**RIVERSOURCE LIFE INSURANCECOMPANY**

 

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

 

**5.****             ****Fair Values of Assets and Liabilities**

** **

Effective January 1,2008, RiverSource Life adopted SFAS 157, which defines fair value, establishesa framework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS 157 defines fair value as the price that would be receivedto sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date; that is, an exit price.The exit price assumes the asset or liability is not exchanged subject to aforced liquidation or distressed sale.

 

**Valuation Hierarchy**

 

UnderSFAS 157, RiverSource Life categorizes its fair value measurements according toa three-level hierarchy. The hierarchy prioritizes the inputs used byRiverSource Life’s valuation techniques. A level is assigned to each fair valuemeasurement based on the lowest level input that is significant to the fairvalue measurement in its entirety. The three levels of the fair value hierarchyare defined as follows:

 
| Level 1 |   | Unadjusted quoted prices for identical assets or liabilities in  active markets that are accessible at the measurement date.      |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
| Level 2 |   | Prices or valuations based on observable inputs other than quoted  prices in active markets for identical assets and liabilities. |
| Level 3 |   | Prices or valuations that require inputs that are both significant to  the fair value measurement and unobservable.               |

 

**Determinationof Fair Value**

 

RiverSource Life usesvaluation techniques consistent with the market and income approaches tomeasure the fair value of its assets and liabilities. RiverSource Life’s marketapproach uses prices and other relevant information generated by markettransactions involving identical or comparable assets or liabilities.RiverSource Life’s income approach uses valuation techniques to convert futureprojected cash flows to a single discounted present value amount. When applyingeither approach, RiverSource Life maximizes the use of observable inputs andminimizes the use of unobservable inputs.

 

The following is adescription of the valuation techniques used to measure fair value and the generalclassification of these instruments pursuant to the fair value hierarchy.

 

**Assets**

 

*Cash Equivalents*

* *

Cash equivalentsinclude highly liquid investments with original maturities of 90 days or less.Actively traded money market funds are measured at their net asset value (“NAV”)and classified as Level 1. RiverSource Life’s remaining cash equivalents areclassified as Level 2 and are measured at amortized cost, which is a reasonableestimate of fair value because of the short time between the purchase of theinstrument and its expected realization.

 

*Available-for-SaleSecurities*

* *

When available, thefair value of securities is based on quoted prices in active markets. If quotedprices are not available, fair values are obtained from nationally-recognizedpricing services, broker quotes, or other model-based valuation techniques suchas the present value of cash flows. Level 1 securities include U.S. Treasuries.Level 2 securities include agency mortgage-backed securities; and certainnon-agency mortgage-backed securities, asset-backed securities, municipal andcorporate bonds, and U.S. and foreign government and agency securities. Level 3securities include certain non-agency mortgage-backed securities, asset-backedsecurities, and corporate bonds.

 

*Separate AccountAssets*

* *

The fair value ofassets held by separate accounts is determined by the NAV of the funds in whichthose separate accounts are invested. The NAV represents the exit price for theseparate account. These assets are classified as Level 2.

 

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**RIVERSOURCE LIFE INSURANCECOMPANY**

 

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

 

**5.****             ****Fair Values of Assets and Liabilities (Continued)**

** **

*Derivatives*

* *

The fair value ofderivatives that are traded in certain over-the-counter markets are generallymeasured using pricing models with market observable inputs such as interestrates and equity index levels. These measurements are classified as Level 2within the fair value hierarchy and include interest rate swaps and options.Derivatives that are valued using pricing models that have significantunobservable inputs are classified as Level 3 measurements. Structuredderivatives that are used by RiverSource Life to hedge its exposure to marketrisk related to certain variable annuity riders are classified as Level 3.

 

**Liabilities**

 

*Embedded Derivatives*

* *

*VariableAnnuity Riders – Guaranteed Minimum Accumulation Benefit and Guaranteed MinimumWithdrawal Benefit*

 

RiverSource Lifevalues the embedded derivative liability attributable to the provisions ofcertain variable annuity riders using internal valuation models. These modelscalculate fair value by discounting expected cash flows from benefits plusmargins for profit, risk, and expenses less embedded derivative fees.  The projected cash flows used by these modelsinclude observable capital market assumptions and incorporate significantunobservable inputs related to policyholder behavior assumptions and marginsfor risk, profit and expenses that RiverSource Life believes an exit marketparticipant would expect. The fair value of these embedded derivatives alsoreflects a current estimate of RiverSource Life’s nonperformance risk specificto these liabilities. Given the significant unobservable inputs to thisvaluation, these measurements are classified as Level 3. The embeddedderivative liability attributable to these provisions is recorded in futurepolicy 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.

 

Thefollowing table presents the balances of assets and liabilities measured atfair value on a recurring basis:

 
| ** **                       | ** ** | **September 30, 2008** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Level 1**                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **(in millions)**           | ** ** |
|                             |       |                             |       |   |   |   |   |   |   |
| Assets                           |       |                             |       |   |   |   |   |   |   |
| Available-for-Sale:              |       |                             |       |   |   |   |   |   |   |
| Fixed maturities                 |       | $                                | 19         |   | $ | 16,496 |   | $ | 1,699 |   | $ | 18,214 |   |
| Common and  preferred stocks     |       | —                           |       | 23 |   | — |   | 23 |   |
| Cash equivalents                 |       | 5                                |       | 1,143 |   | — |   | 1,148 |   |
| Other assets                     |       | —                           |       | 223 |   | 95 |   | 318 |   |
| Separate account  assets         |       | —                           |       | 49,929 |   | — |   | 49,929 |   |
| Total assets at  fair value      |       | $                                | 24         |   | $ | 67,814 |   | $ | 1,794 |   | $ | 69,632 |   |
|                             |       |                             |       |   |   |   |   |   |   |
| Liabilities                      |       |                             |       |   |   |   |   |   |   |
| Future policy  benefits          |       | $                                | —     |   | $ | 25 |   | $ | 331 |   | $ | 356 |   |
| Other  liabilities               |       | —                           |       | 11 |   | 5 |   | 16 |   |
| Total  liabilities at fair value |       | $                                | —     |   | $ | 36 |   | $ | 336 |   | $ | 372 |   |

 

12

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Tableof Contents

 

**RIVERSOURCE LIFE INSURANCECOMPANY**

 

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

 

**5.****             ****Fair Values of Assets andLiabilities (Continued)**

 

The following tablesprovide a summary of changes in Level 3 assets and liabilities measured at fairvalue on a recurring basis:

 
| ** **                                                                                                                | ** ** | **Three Months Ended September 30, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                                | ** ** | **Available-for-  Sale  Securities:  Fixed  Maturities**           | ** ** | **Other  Assets** | ** ** | **Future Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** |
| ** **                                                                                                                | ** ** | **(in millions)**                                             | ** ** |
| Balance,  June 30                                                                                                    |       | $                                                                  | 1,762      |   | $ | 74 |   | $ | (154 | ) | $ | (4 | ) |
| Total gains  (losses) included in:                                                                                        |       |                                                               |       |   |   |   |   |   |   |
| Net income                                                                                                                |       | (2                                                                 | )(1)       | 21 | (2) | (159 | )(2) | (1 | )(2) |
| Other  comprehensive loss                                                                                                 |       | (48                                                                | )          | — |   | — |   | — |   |
| Purchases,  sales, issuances and settlements, net                                                                         |       | (13                                                                | )          | — |   | (18 | ) | — |   |
| Balance,  September 30                                                                                               |       | $                                                                  | 1,699      |   | $ | 95 |   | $ | (331 | ) | $ | (5 | ) |
|                                                                                                                      |       |                                                               |       |   |   |   |   |   |   |
| Change in  unrealized gains (losses) included in net income relating to assets and  liabilities held at September 30 |       | $                                                                  | (2         | )(1) | $ | 21 | (2) | $ | (158 | )(2) | $ | (1 | )(2) |

 

----

(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.

 
| ** **                                                                                                               | ** ** | **Nine  Months Ended September 30, 2008**           | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **Available-  for-Sale  Securities:  Fixed  Maturities** | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** |
| ** **                                                                                                               | ** ** | **(in millions)**                                   | ** ** |
| Balance,  January 1                                                                                                 |       | $                                                        | 1,810      |   | $ | 280 |   | $ | (158 | ) | $ | — |   |
| Total gains  (losses) included in:                                                                                       |       |                                                     |       |   |   |   |   |   |   |
| Net income                                                                                                               |       | (35                                                      | )(1)       | 44 | (2) | (125) | (2) | (1 | )(2) |
| Other  comprehensive loss                                                                                                |       | (169                                                     | )          | — |   | — |   | — |   |
| Purchases,  sales, issuances and settlements, net                                                                        |       | 93                                                       |       | (229 | ) | (48 | ) | (4 | ) |
| Balance,  September 30                                                                                              |       | $                                                        | 1,699      |   | $ | 95 |   | $ | (331 | ) | $ | (5 | ) |
|                                                                                                                     |       |                                                     |       |   |   |   |   |   |   |
| Change in unrealized gains (losses) included in net  income relating to assets and liabilities held at September 30 |       | $                                                        | (37        | )(3) | $ | 22 | (2) | $ | (123 | )(2) | $ | (1 | )(2) |

 

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

(2)   Included in benefits, claims, losses andsettlement expenses in the Consolidated Statements of Income.

(3)         Represents a $40 million loss included in net realizedinvestment gains (losses) and a $3 million gain included in net investmentincome in the Consolidated Statements of Income.

 

During the reporting period, there were no material assets orliabilities measured at fair value on a non-recurring basis.

 

13

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

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

 

**6.****          DeferredAcquisition Costs****and Deferred SalesInducement Costs**

During the third quarter of 2008, RiverSource Lifecompleted the annual detailed review of valuation assumptions.  In addition, during the third quarter of2008, RiverSource Life converted to a new industry standard valuation systemthat provides enhanced modeling capabilities.

The total pretax impacts on RiverSource Life’s assets and liabilities attributableto the review of valuation assumptions and the valuation system conversionduring the third quarter of 2008 and the review of the valuation assumptions duringthe third quarter of 2007 were as follows:

 
| **Balance Sheet Impact  Debit (credit)** | ** ** | **Reinsurance  Recoverables** | ** ** | **DAC** | ** ** | **DSIC** | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|---------|------------|----------|------------|-------------------|------------|------------------------------|------------|------------------------|------------|-----------|------------|
| ** **                                              | ** ** | **(in millions)**        | ** ** |
| 2008 period                                             |       | $                             | 92         |    | $          | (82      | )          | $                 | (6         | )                            | $          | 1                      |       | $         | 96         |   | $ | 5 |   | $ | 106 |   |
| 2007 period                                             |       | (2                            | )          | (16     | )          | 3        |       | —            |       | (15                          | )          | —                 |       | (30       | )          |
|                                                         |            |                               |            |         |            |          |            |                   |            |                              |            |                        |            |           |            |  |  |  |  |  |  |  |

 

The total pretax impacts on RiverSource Life’s revenuesand expenses attributable to the review of the valuation assumptions and thevaluation system conversion for the three months and nine months endedSeptember 30, 2008 and the review of the valuation assumptions for the threemonths and nine months ended September 30, 2007 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)** | ** ** |
| 2008 period                             |       | $                 | 2          |                                   | $          | 95                                                            |       | $                             | 90         |                                           | $          | (82       | )          | $ | 1 |   | $ | 106 |   |
| 2007 period                             |       | —            |       | (2                                     | )          | (12                                                           | )          | (16                           | )          | —                                         |       | (30       | )          |
|                                         |            |                   |            |                                        |            |                                                               |            |                               |            |                                                |            |           |            |  |  |  |  |  |  |

 

The balances of and changes in DAC were as follows:

 
| ** **                                                                                             | ** ** | **2008**               | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                                                             | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                                                                  |       | $                      | 4,429      |     | $          | 4,411 |   |
| Cumulative  effect of accounting change                                                                |       | 36                     |       | (204     | )          |
| Capitalization  of acquisition costs                                                                   |       | 441                    |       | 534      |       |
| Amortization,  excluding impacts of valuation assumptions review and  valuation system conversion |       | (401                   | )          | (309     | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion                  |       | (82                    | )          | (16      | )          |
| Impact of change  in net unrealized securities gains and losses                                        |       | (11                    | )          | 9        |       |
| Balance at  September 30                                                                               |       | $                      | 4,412      |     | $          | 4,425 |   |

 

The balances of and changes in DSIC were as follows:

 
| ** **                                                                                             | ** ** | **2008**               | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                                                             | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                                                                  |       | $                      | 511        |     | $          | 452 |   |
| Cumulative  effect of accounting change                                                                |       | 9                      |       | (11      | )          |
| Capitalization  of sales inducements                                                                   |       | 64                     |       | 96       |       |
| Amortization,  excluding impacts of valuation assumptions review and  valuation system conversion |       | (55                    | )          | (38      | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion                  |       | (6                     | )          | 3        |       |
| Impact of change  in net unrealized securities gains and losses                                        |       | —                 |       | 1        |       |
| Balance at  September 30                                                                               |       | $                      | 523        |     | $          | 503 |   |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

 

**6.****     Deferred Acquisition Costs****and Deferred Sales Inducement Costs (Continued)**

 

Effective January 1,2008, RiverSource Life adopted SFAS 157 and recorded as a cumulative change inaccounting principle a pretax increase of $36 million and $9 million to DAC andDSIC, respectively.  See Note 2 and Note5 for additional information regarding SFAS 157.

 

Effective January 1,2007, RiverSource Life adopted SOP 05-1 and recorded as a cumulative change inaccounting principle a pretax reduction of $204 million and $11 million to DACand DSIC, respectively.

 

**7.****    ****Lines of Credit**

 

In September 2008,RiverSource Life, as the lender, entered into a revolving credit agreement withAmeriprise Financial as the borrower. This line of credit is not to exceed 3% of RiverSource Life’s statutoryadmitted assets as of the prior year end.  The interest rate for any borrowing isestablished by reference to LIBOR plus 28 basis points.  In the event of default, an additional 1%interest will accrue during such period of default.  There were no amounts outstanding on thisrevolving credit agreement as of September 30, 2008.

 

RiverSource Life had acollateral loan agreement with Ameriprise Financial aggregating up to $75million which expired on October 31, 2008.

 

RiverSource Life hasavailable a committed line of credit with Ameriprise Financial aggregating $200million.  The interest rate for anyborrowings is established by reference to LIBOR plus 28 basis points.  There were no amounts outstanding on thisline of credit at September 30, 2008.

 

**8.****     Future Policy Benefits, Policy Claims and OtherPolicyholders’ Funds and Separate Account Liabilities**

 

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

 
| ** **                                                                          | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                          | ** ** | **(in millions)**       | ** ** |
| Fixed annuities                                                                     |       | $                            | 13,530     |                        | $          | 14,382 |   |
| Equity indexed  annuities accumulated host values                                   |       | 240                          |       | 253                         |       |
| Equity indexed  annuities embedded derivatives                                      |       | 25                           |       | 53                          |       |
| Variable  annuities fixed sub-accounts                                              |       | 5,496                        |       | 5,419                       |       |
| Variable annuity  guaranteed minimum withdrawal benefits                            |       | 230                          |       | 136                         |       |
| Variable annuity  guaranteed minimum accumulation benefits                          |       | 103                          |       | 33                          |       |
| Other variable  annuity guarantees                                                  |       | 24                           |       | 27                          |       |
| Total annuities                                                                     |       | 19,648                       |       | 20,303                      |       |
| Variable  universal life (“VUL”)/universal life insurance                 |       | 2,536                        |       | 2,568                       |       |
| Other life,  disability income and long term care insurance                         |       | 4,321                        |       | 4,106                       |       |
| Total future  policy benefits                                                       |       | 26,505                       |       | 26,977                      |       |
| Policy claims  and other policyholders’ funds                                  |       | 102                          |       | 91                          |       |
| Total future  policy benefits and policy claims and other policyholders’ funds |       | $                            | 26,607     |                        | $          | 27,068 |   |

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **(in millions)**       | ** ** |
| Variable annuity  variable sub-accounts |       | $                            | 44,805     |                        | $          | 51,764 |   |
| VUL insurance  variable sub-accounts    |       | 5,074                        |       | 6,244                       |       |
| Other insurance  variable sub-accounts  |       | 50                           |       | 62                          |       |
| Total separate  account liabilities     |       | $                            | 49,929     |                        | $          | 58,070 |   |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

 

**9.****     VariableAnnuity Guarantees**

 

The majority of thevariable annuity contracts offered by RiverSource Life contain guaranteedminimum death benefit (“GMDB”) provisions. RiverSource Life also offers variable annuities with death benefitprovisions that gross up the amount payable by a certain percentage of contractearnings, which are referred to as gain gross-up (“GGU”) benefits.  In addition, RiverSource Life offerscontracts with guaranteed minimum withdrawal benefit (“GMWB”) and guaranteedminimum accumulation benefit (“GMAB”) provisions.  RiverSource Life previously offered contractscontaining guaranteed minimum income benefit (“GMIB”) provisions.  RiverSource Life has established additionalliabilities for the variable annuity death benefits, GMIB provisions and forlife contingent benefits associated with GMWB provisions.  GMAB and non-life contingent benefitsassociated with GMWB provisions are considered embedded derivatives and arerecorded at fair value.

 

The variable annuitycontracts with GMWB riders typically have account values that are based on anunderlying portfolio of mutual funds, the values of which fluctuate based onequity market performance.  At issue, theguaranteed amount is equal to the amount deposited but the guarantee may beincreased annually to the account value (a “step-up”) in the case of favorablemarket performance.  The GMWB offeredinitially guarantees that the client can withdraw 7% per year until the amountwithdrawn is equal to the guaranteed amount, regardless of the performance ofthe underlying funds.   In 2007,RiverSource Life added a new GMWB benefit design that is available in a jointversion that promises 6% withdrawals while either contractholder remainsalive.  In addition, once withdrawalsbegin, the policyholder’s funds are moved to one of the three less aggressiveasset allocation models (of the five that are available prior to withdrawal).

 

Variable annuitycontractholders age 79 or younger at contract issue can also obtain aprincipal-back guarantee by purchasing the optional GMAB rider for anadditional charge.  The GMAB riderguarantees that, regardless of market performance at the end of the 10-yearwaiting period, the contract value will be no less than the original investmentor 80% of the highest anniversary value, adjusted for withdrawals.  If the contract value is less than theguarantee at the end of the 10-year period, a lump sum will be added to thecontract value to make the contract value equal to the guarantee value.

 

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

 
| **Variable Annuity Guarantees by Benefit Type(1)** | ** ** | **September 30,  2008**                 | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **(in millions, except age)** | ** ** |
| **Contracts  with GMDB providing for return of premium:**                   |       |                                         |       |                        |       |
| Total contract  value                                                       |       | $                                            | 25,077     |                        | $          | 25,804 |   |
| Contract value  in separate accounts                                        |       | $                                            | 23,016     |                        | $          | 23,892 |   |
| Net amount at risk(2)                                                       |       | $                                            | 1,715      |                        | $          | 26 |   |
| Weighted average  attained age                                              |       | 61                                           |       | 60                          |       |
| **Contracts  with GMDB providing for six-year reset:**                      |       |                                         |       |                        |       |
| Total contract  value                                                       |       | $                                            | 15,477     |                        | $          | 20,231 |   |
| Contract value  in separate accounts                                        |       | $                                            | 12,896     |                        | $          | 17,617 |   |
| Net amount at  risk(2)                                                      |       | $                                            | 1,195      |                        | $          | 167 |   |
| Weighted average  attained age                                              |       | 61                                           |       | 60                          |       |
| **Contracts  with GMDB providing for one-year ratchet:**                    |       |                                         |       |                        |       |
| Total contract  value                                                       |       | $                                            | 6,797      |                        | $          | 7,908 |   |
| Contract value  in separate accounts                                        |       | $                                            | 6,085      |                        | $          | 7,143 |   |
| Net amount at  risk(2)                                                      |       | $                                            | 1,186      |                        | $          | 81 |   |
| Weighted average  attained age                                              |       | 62                                           |       | 61                          |       |
| **Contracts  with GMDB providing for five-year ratchet:**                   |       |                                         |       |                        |       |
| Total contract  value                                                       |       | $                                            | 1,101      |                        | $          | 1,211 |   |
| Contract value  in separate accounts                                        |       | $                                            | 1,044      |                        | $          | 1,163 |   |
| Net amount at  risk(2)                                                      |       | $                                            | 61         |                        | $          | 1 |   |
| Weighted average  attained age                                              |       | 58                                           |       | 58                          |       |
| **Contracts  with other GMDB:**                                             |       |                                         |       |                        |       |
| Total contract  value                                                       |       | $                                            | 567        |                        | $          | 693 |   |
| Contract value  in separate accounts                                        |       | $                                            | 524        |                        | $          | 639 |   |
| Net amount at  risk(2)                                                      |       | $                                            | 106        |                        | $          | 12 |   |
| Weighted average  attained age                                              |       | 66                                           |       | 65                          |       |

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

 

**9.****     VariableAnnuity Guarantees (Continued)**

 
| **Variable Annuity Guarantees by Benefit Type(1) (Continued)** | ** ** | **September 30,  2008**                 | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                   | ** ** | **(in millions, except age)** | ** ** |
| **Contracts  with GGU death benefit:**                                                       |       |                                         |       |                        |       |
| Total contract  value                                                                        |       | $                                            | 832        |                        | $          | 950 |   |
| Contract value  in separate accounts                                                         |       | $                                            | 754        |                        | $          | 873 |   |
| Net amount at  risk(2)                                                                       |       | $                                            | 68         |                        | $          | 80 |   |
| Weighted average  attained age                                                               |       | 62                                           |       | 62                          |       |
| **Contracts  with GMIB:**                                                                    |       |                                         |       |                        |       |
| Total contract  value                                                                        |       | $                                            | 706        |                        | $          | 927 |   |
| Contract value  in separate accounts                                                         |       | $                                            | 647        |                        | $          | 859 |   |
| Net amount at  risk(2)                                                                       |       | $                                            | 130        |                        | $          | 18 |   |
| Weighted average  attained age                                                               |       | 62                                           |       | 62                          |       |
| **Contracts  with GMWB:**                                                                    |       |                                         |       |                        |       |
| Total contract  value                                                                        |       | $                                            | 4,214      |                        | $          | 5,104 |   |
| Contract value  in separate accounts                                                         |       | $                                            | 4,086      |                        | $          | 4,980 |   |
| Benefit amount  in excess of account value                                                   |       | $                                            | 666        |                        | $          | 22 |   |
| Weighted average  attained age                                                               |       | 62                                           |       | 62                          |       |
| **Contracts  with GMWB for life:**                                                           |       |                                         |       |                        |       |
| Total contract  value                                                                        |       | $                                            | 9,656      |                        | $          | 7,958 |   |
| Contract value  in separate accounts                                                         |       | $                                            | 9,218      |                        | $          | 7,685 |   |
| Benefit amount  in excess of account value                                                   |       | $                                            | 1,324      |                        | $          | 33 |   |
| Weighted average  attained age                                                               |       | 63                                           |       | 62                          |       |
| **Contracts  with GMAB:**                                                                    |       |                                         |       |                        |       |
| Total contract  value                                                                        |       | $                                            | 2,239      |                        | $          | 2,260 |   |
| Contract value  in separate accounts                                                         |       | $                                            | 2,172      |                        | $          | 2,205 |   |
| Benefit amount  in excess of account value                                                   |       | $                                            | 252        |                        | $          | 3 |   |
| Weighted average  attained age                                                               |       | 56                                           |       | 55                          |       |

 

----

(1)   Individualvariable annuity contracts may have more than one guarantee and therefore maybe included in more than one benefit type. Variable annuity contracts for which the death benefit always equalsaccount value are not shown in this table.

(2)   Representscurrent death benefit less total contract value for GMDB, amount of gross upfor GGU and accumulated guaranteed minimum benefit base less total contractvalue for GMIB and assumes the actuarially remote scenario that all claimsbecome payable on the same day.

 

For the nine months endedSeptember 30, 2008, additional liabilities and incurred claims were:

 
| ** **                                                 | ** ** | **GMDB &  GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** |
|------------------------------------------------------------|------------|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                 | ** ** | **(in millions)**   | ** ** |
| Liability  balance at January 1                       |       | $                        | 24         |     | $          | 3        |       | $        | 136        |   | $ | 33 |   |
| Reported claims                                            |       | 7                        |       | —   |       | —   |       | —   |       |
| Liability  balance at September 30                    |       | 18                       |       | 6        |       | 230      |       | 103      |       |
| Incurred claims  (sum of reported and change in liability) |       | 1                        |       | 3        |       | 94       |       | 70       |       |
|                                                            |            |                          |            |          |            |          |            |          |            |  |  |  |  |

 

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

 

RiverSourceLife’s effective tax rates were 0% and 2% for the three and nine months ended September 30,2008, respectively, compared to (1%) and 17% for the three and nine monthsended September 30, 2007, respectively. The decrease in the effective taxrates primarily reflects the level of pretax income relative to tax advantageditems, including the dividends received deduction for the three and nine monthsended September 30, 2008, as well as a $39 million tax benefit for thenine months ended September 30, 2008 related to changes in the status ofcurrent audits.

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

 

**10.****       Income Taxes (Continued)**

 

RiverSource Life is required to establish a valuationallowance for any portion of the deferred tax assets that management believeswill not be realized.  Included inRiverSource 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.  Based on analysis ofRiverSource Life’s tax position, management believes it is more likely than notthat the results of future operations and implementation of tax planningstrategies will generate sufficient taxable income to enable RiverSource Lifeto utilize all of its deferred tax assets. Accordingly, no valuation allowancefor deferred tax assets has been established as of September 30, 2008 and December 31,2007.

 

As of September 30, 2008 and December 31,2007, RiverSource Life had ($37) million and $97 million, respectively, ofgross unrecognized tax benefits.  Ifrecognized, approximately $20 million and $49 million of permanent items, netof federal tax benefits as of September 30, 2008 and December 31,2007, 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 recognizedinterest of $5 million for the three months ended September 30, 2008 and anet reduction of interest and penalties of $14 million for the nine monthsended September 30, 2008. RiverSource Life had a $15 million and a $1 million receivable relatedto interest and penalties accrued at September 30, 2008 and December 31,2007, respectively.

 

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 as well as variousstate jurisdictions. With few exceptions, RiverSource Life is no longer subjectto U.S. federal or state and local income tax examinations by tax authoritiesfor years before 1997. The Internal Revenue Service (“IRS”), as part of theoverall examination of the American Express Company consolidated return,commenced an examination of RiverSource Life’s U.S. income tax returns for 1997through 2002 in the third quarter of 2005. In the first quarter of 2007, theIRS expanded the period of the examination to include 2003 through 2004.RiverSource Life or certain of its subsidiaries’ state income tax returns arecurrently under examination by various jurisdictions for years ranging from1998 through 2005.

 

On September 25,2007, the IRS issued Revenue Ruling 2007-61 in which it announced that itintends to issue regulations with respect to certain computational aspects ofthe Dividends Received Deduction (“DRD”) related to separate account assetsheld in connection with variable contracts of life insurance companies and hasadded the project to the 2007-2008 Priority Guidance Plan. Revenue Ruling2007-61 suspended a revenue ruling issued in August 2007 that purported tochange accepted industry and IRS interpretations of the statutes governingthese computational questions. Any regulations that the IRS ultimately proposesfor issuance in this area will be subject to public notice and comment, atwhich time insurance companies and other members of the public will have theopportunity to raise legal and practical questions about the content, scope andapplication of such regulations.   As 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.  Management believes that it is likely thatany such regulations would apply prospectively 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. RiverSource Life believes that it is not a party to, nor are any of itsproperties the subject of, any pending legal, arbitration or regulatoryproceedings that would have a material adverse effect on its consolidatedfinancial condition, results of operations or liquidity.  However, it is possible that the outcome ofany such proceedings could have a material impact on results of operations inany particular reporting period as the proceedings are resolved.

 

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

** **

The following information should be read inconjunction with RiverSource Life Insurance Company’s Consolidated Financial Statementsand Notes presented in Part I, Item 1. RiverSource Life Insurance Company and its subsidiary are referred tocollectively in this Form 10-Q as “RiverSource Life”.  This narrative analysis may containforward-looking statements that reflect RiverSource Life’s plans, estimates andbeliefs.  Actual results could differmaterially from those discussed in these forward-looking statements.  Factors that could cause or contribute tothese differences include, but are not limited to, those discussed under “Forward-LookingStatements.”  RiverSource Life believesit is useful to read this narrative analysis in conjunction with its AnnualReport on Form 10-K for the year ended December 31, 2007, filed withthe Securities and Exchange Commission (“SEC”) on February 29, 2008 (“200710-K”), as well as its current reports on Form 8-K and other publiclyavailable information.

 

RiverSource Life follows U.S. generally acceptedaccounting principles (“GAAP”), and the following discussion is presented on aconsolidated basis consistent with GAAP. In the second quarter of 2008, RiverSource Life reclassified themark-to-market adjustments on certain derivatives from net investment income tovarious expense lines where the mark-to-market adjustment on the related embeddedderivative resides. The mark-to-market adjustment on derivatives hedgingvariable annuity living benefits and equity indexed annuities were reclassifiedto benefits, claims, losses and settlement expenses and interest credited tofixed accounts, respectively.  Priorperiod amounts were reclassified to conform 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 Life  Insurance Company is domiciled in Minnesota and holds Certificates of  Authority in American Samoa, the District of Columbia and all states except  New York. RiverSource Life Insurance Company issues insurance and annuity  products. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                       |
| · |   | RiverSource Life  of NY is a stock life insurance company domiciled in New York, which holds  Certificates of Authority in New York, North Dakota and Delaware. RiverSource  Life of NY issues insurance and annuity products.                             |

 

Ameriprise Financial was formerly a wholly ownedsubsidiary of American Express Company (“American Express”).  On February 1, 2005, the AmericanExpress Board of Directors announced its intention to pursue the disposition of100% of its shareholdings in Ameriprise Financial (the “Separation”) through atax-free distribution to American Express shareholders.  Effective as of the close of business on September 30,2005, American Express completed the Separation and the distribution ofAmeriprise Financial common shares to American Express shareholders (the “Distribution”).  In connection with the Distribution,Ameriprise Financial entered into certain agreements with American Express toeffect the Separation and to define the responsibility for obligations arisingbefore and after the date of the Distribution, including, among others,obligations relating to transition services, taxes, and employees.  Through 2007, RiverSource Life was allocatedcertain expenses incurred as a result of Ameriprise Financial becoming anindependent company.  The separation fromAmerican Express was completed in 2007.

 

**Recent Accounting Pronouncements**

 

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

 

***Resultsof Operations for the******Nine Months Ended September 30, 2008compared to the Nine Months Ended September 30, 2007***

 

*Overview*

 

Consolidated net income was $296 million for the ninemonths ended September 30, 2008 comparedto $328 million for the nine months endedSeptember 30, 2007, a decrease of $32 million.  Pretax income decreased $93 million to $303million for the nine months ended September 30, 2008 from $396 million forthe nine months ended September 30, 2007.

 

Included in the consolidated net income for the ninemonths ended September 30, 2008 were pretax net realized investment lossesof $229 million primarily related to the other-than-temporary impairment ofLehman Brothers securities, Washington Mutual securities, and various othernon-agency, residential mortgage-backed securities partially offset by thefavorable impact of

 

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the annual review of valuation assumptions andconversion to a new industry standard valuation system that provides enhancedmodeling capabilities, both of which occurred during the third quarter of 2008.

 

In the third quarter of 2008, the valuationassumptions review and the valuation system conversion resulted in a net$106 million benefit.  The review ofthe valuation assumptions resulted in a decrease in expenses primarily fromupdating product mortality and expense assumptions for certain life insuranceproducts and from updating fund mix and policyholder behavior assumptions forvariable annuities with guaranteed benefits. The valuation system conversion also resulted in an increase in revenueprimarily from improved modeling of the expected value of existing reinsuranceagreements and a decrease in expense from modeling annuity amortization periodsat the individual policy level.  Thereview of the valuation assumptions in the third quarter of 2007 resultedin a net $30 million increase in expense from updating product persistencyassumptions partially offset by decreases in expense from updating otherassumptions.

 

Also included in the results for the nine months endedSeptember 30, 2008 and 2007 is an $83 million expense and a $15 millionbenefit, respectively, resulting from the impact of markets on deferredacquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”).

 

The total pretax impacts on RiverSource Life’s assetsand liabilities as of September 30, 2008 and 2007 attributable to theannual third quarter review of the valuation assumptions, the valuation systemconversion and the impact of markets were as follows:

 
| **Balance Sheet Impact  Debit (credit)** | ** ** | **Reinsurance  Recoverables** | ** ** | **DAC**    | ** ** | **DSIC**          | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|------------|------------|-------------------|------------|-------------------|------------|------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                              | ** ** | ** **                    | ** ** | ** ** | ** ** | **(in millions)** | ** ** | ** **        | ** ** | ** **                   | ** ** | ** **             | ** ** | ** ** | ** ** |
| 2008 period                                             |       | $                             | 92         |       | $          | (155              | )          | $                 | (16        | )                            | $          | 1                      |       | $          | 96         |   | $ | 5 |   | $ | 23 |   |
| 2007 period                                             |       | (2                            | )          | (3         | )          | 5                 |       | —            |       | (15                          | )          | —                 |       | (15        | )          |
|                                                         |            |                               |            |            |            |                   |            |                   |            |                              |            |                        |            |            |            |  |  |  |  |  |  |  |

 

The total pretax impacts on RiverSource Life’srevenues and expenses for the nine months ended September 30, 2008 and2007 attributable to the annual third quarter review of the valuationassumptions, the valuation system conversion and the impact of markets 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)**                                             | ** ** | ** **                    | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| 2008 period                       |       | $            | 2          |                                   | $          | 95                                                            |       | $                             | 80         |                                           | $          | (155       | )          | $ | 1 |   | $ | 23 |   |
| 2007 period                       |       | —       |       | (2                                     | )          | (10                                                           | )          | (3                            | )          | —                                         |       | (15        | )          |
|                                   |            |              |            |                                        |            |                                                               |            |                               |            |                                                |            |            |            |  |  |  |  |  |  |

 

*Revenues*

 

Totalrevenues decreased $256 million or 9.8% to $2.3 billion for the ninemonths ended September 30, 2008.

 

Netinvestment income decreased $159 million or 14.2% to $962 million for the nine months ended September 30, 2008, primarilydue to decreased assets driven by a reduction in fixed annuity balances as wellas a decline in yield.

 

Policy and contractcharges increased $161 million or 18.0% to $1.1 billion for the nine months ended September 30,2008 primarily reflecting a $95 million benefit from updating valuationassumptions and converting to a newvaluation system as well as growthin guaranteed benefit rider fees on variable annuities andcost-of-insurance fees for variable universal life/universal lifeinsurance.  The impact to policy andcontract charges from updating valuation assumptions for the prior year periodwas immaterial.

 

Other revenue increased$18 million or 9.6% to $205 million forthe nine months ended September 30,2008 reflecting higher marketing support and administrative fees due tohigher average underlying separate account asset values.

 

Net realized investmentlosses were $229 million for the ninemonths ended September 30,2008 compared to net realized investment gains of $42 million for the nine months ended September 30, 2007.  Included in net realized investment lossesfor the nine months ended September 30, 2008 is $237 million ofother-than-temporary impairments primarily related to credit-related losses inLehman Brothers securities, Washington Mutual securities and non-agencyresidential mortgage-backed securities. For the nine months ended September 30, 2008, $13million of gross realized investment gains were offset by $5 million of gross realized losses,classified as Available-for-Sale. Included in net realized investment gains for the nine months endedSeptember

 

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30, 2007 was a decreaseof $21 million to the allowance for loan losses on commercial mortgageloans.  For the nine months ended September 30,2007, $42 million of gross realized investment gains were partiallyoffset by $19 million of gross realized investment losses as well as $2 millionof other-than-temporary impairment losses on investments, classified asAvailable-for-Sale.

 

*Benefitsand Expenses*

 

Total benefits andexpenses for the nine months ended September 30, 2008 were $2.0 billion, adecrease of $163 million from the nine months ended September 30, 2007total of $2.2 billion.  Total benefitsand expenses reflect the impact of the valuation assumptions review and thevaluation system conversion as previously described.

 

Benefits, claims, losses and settlementexpenses decreased $124 million or 21.4% to $455 million for the nine months ended September 30,2008.  This decrease was primarily theresult of a $90 million benefit from updating valuation assumptions andconverting to a new valuation system, partially offset by an expense of $10million from the market’s impact on DSIC and by increases in life, long termcare and disability income insurance benefits. In the prior year period, updating valuation assumptions resulted in $12million additional expense and an immaterial market impact on DSIC. The ninemonths ended September 30, 2007 included $39 million of increased benefitexpenses from mark-to-market of variable annuity guaranteed benefit riderscompared to a decrease of $31 million in the current nine month period.  Expenses in the prior year period alsoincluded an unfavorable $12 million adjustment to reserves for disabilityincome insurance claims.

 

Interest credited tofixed accounts decreased by $57 million or 8.8% to $588 million for the nine months ended September 30, 2008primarily due to a continued decline in fixed annuity account balances.

 

The amortization of DACincreased $158 million or 48.6% to $483 million for the nine months ended September 30,2008, primarily due to an $82 million increase from updating valuationassumptions  and converting to a newvaluation system, as well as a $73 million increase from the market’s impact onDAC, partially offset by lower fixed annuity volumes.  In the prior year period, updating valuationassumptions resulted in $16 million of additional DAC amortization partiallyoffset by a benefit of $13 million from the market’s impact on DAC.

 

Separation costs incurredin 2007 were primarily associated with separating and reestablishing technologyplatforms.  All separation costs wereincurred as of December 31, 2007.

 

Otherinsurance and operating expenses decreased $54 million or 9.4% to $519 million for the nine months ended September 30, 2008 primarily dueto decreased sales and marketing expenses and lower corporate overheadexpenses.

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 2% for the ninemonths ended September 30, 2008, compared to 17% for the ninemonths ended September 30, 2007. The decrease in the effective tax rates primarily reflects a $39 milliontax benefit, related to changes in the status of current audits as well as thelevel of pretax income relative to tax advantaged items, including thedividends received deduction for the nine months ended September 30, 2008.

 

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 and has added the project to the 2007-2008 PriorityGuidance Plan. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007that purported to change accepted industry and IRS interpretations of thestatutes governing these computational questions. Any regulations that the IRSultimately proposes for issuance in this area will be subject to public noticeand comment, at which time insurance companies and other members of the publicwill have the opportunity to raise legal and practical questions about thecontent, scope and application of such regulations. 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 likelythat any such regulations would apply prospectively only.

 

***MarketRisk***

* *

Equity market andinterest rate fluctuations can have a significant impact on RiverSource Life’sresults of operations, primarily due to the “spread” income generated on itsannuities and universal life (“UL”) insurance products, the value of DAC andDSIC, assets associated with variable annuity and variable UL products, thevalues of liabilities for guaranteed benefits associated with RiverSource Life’svariable annuities and the values of derivatives held to hedge these benefits.

 

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Changes in boththe equity and fixed income markets during the third quarter of 2008 haveaffected RiverSource Life’s market risk position.  These changes resulted in lower asset valuesagainst which RiverSource Life takes asset-based fees and expenses as well asincreases in stated liabilities for variable annuity guaranteed benefits.  The guaranteed benefits associated withRiverSource Life’s variable annuities are guaranteed minimum withdrawal benefit(“GMWB”), guaranteed minimum accumulation benefit (“GMAB”), guaranteed minimumdeath benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) options.Each of the guaranteed benefits mentioned above guarantees payouts to theannuity holder under certain specific conditions regardless of the performanceof the underlying investment assets.

 

To evaluateinterest rate and equity price 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.  Due to the market turmoil in the thirdquarter of 2008, RiverSource Life also performed sensitivity testing assuming ahypothetical 20% decline in equity markets.

 

The numbers belowshow RiverSource Life’s estimate of the pretax impact from equity price riskexposures related to asset-based fees and expenses, and variable annuity ridersat September 30, 2008.

 
| ** **                                                 | ** ** | **Equity Price Exposure to Pretax Income** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| **Equity Price Decline 10%**                               | ** ** | **Before  Hedge  Impact**                  | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                                                 | ** ** | ** **                                 | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| Asset-based fees  and expenses, including DAC amortization |       | $                                          | (98        | ) | $ | N/A |   | $ | (98 | ) |
| Variable annuity  riders:                                  |       |                                       |       |   |   |   |   |
| GMDB and GMIB                                              |       | (51                                        | )          | N/A |   | (51 | ) |
| GMWB                                                       |       | (82                                        | )          | 84 |   | 2 |   |
| GMAB                                                       |       | (24                                        | )          | 28 |   | 4 |   |
| DAC amortization                                           |       | (3                                         | )          | N/A |   | (3 | ) |
| Total variable  annuity riders                             |       | (160                                       | )          | 112 |   | (48 | ) |
| Total                                                      |       | $                                          | (258       | ) | $ | 112 |   | $ | (146 | ) |

 
| ** **                                                 | ** ** | **Equity Price Exposure to Pretax Income** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| **Equity Price Decline 20%**                               | ** ** | **Before  Hedge  Impact**                  | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                                                 | ** ** | ** **                                 | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| Asset-based fees  and expenses, including DAC amortization |       | $                                          | (159       | ) | $ | N/A |   | $ | (159 | ) |
| Variable annuity  riders:                                  |       |                                       |       |   |   |   |   |
| GMDB and GMIB                                              |       |                                       | (95        | ) |   | N/A |   |   | (95 | ) |
| GMWB                                                       |       | (189                                       | )          | 200 |   | 11 |   |
| GMAB                                                       |       | (54                                        | )          | 67 |   | 13 |   |
| DAC amortization                                           |       | (5                                         | )          | N/A |   | (5 | ) |
| Total variable  annuity riders                             |       | (343                                       | )          | 267 |   | (76 | ) |
| Total                                                      |       | $                                          | (502       | ) | $ | 267 |   | $ | (235 | ) |

 

The numbers belowshow RiverSource Life’s estimate of the pretax impact from interest rate riskexposure related to variable annuity riders at September 30, 2008:

 
| ** **                                  | ** ** | **Interest Rate Exposure to Pretax Income** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| **Interest Rate Increase 100 Basis Points** | ** ** | **Before   Hedge  Impact**                  | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                                  | ** ** | ** **                                  | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| Variable annuity  riders:                   |       |                                        |       |   |   |   |   |
| GMWB                                        |       | $                                           | 161        |   | $ | (185 | ) | $ | (24 | ) |
| GMAB                                        |       | 37                                          |       | (25 | ) | 12 |   |
| DAC amortization                            |       | 5                                           |       | N/A |   | 5 |   |
| Total                                       |       | $                                           | 203        |   | $ | (210 | ) | $ | (7 | ) |

 

----

N/A    Not Applicable.

 

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Theimpact of pretax income from interest rate risk exposure related to RiverSourceLife’s fixed annuities, fixed portion of variable annuities and fixed insuranceproducts did not materially change from its disclosures in its “Management’sNarrative Analysis - Risk Management” in its 2007 10-K.

 

Actual results coulddiffer materially from those illustrated above as they are based on a number ofestimates and assumptions. These include assuming the composition of investedassets and liabilities does not change in the 12 month period followingthe hypothetical market decline, that there are no changes in implied marketvolatility and the increase in interest rates produces a parallel shift in theyield curve. The selection of a 100 basis point interest rate increase and a10% and 20% equity market decline should not be construed as a prediction offuture market events.

 

Equity Price Risk –Variable Annuity Riders

 

The variable annuityguaranteed benefits guarantee payouts to the annuity holder under certainspecific conditions regardless of the performance of the investment assets. Forthis reason, when equity markets decline, the returns from the separate accountassets coupled with guaranteed benefit fees from annuity holders may not besufficient to fund expected payouts. In that case, reserves must be increasedwith a negative impact to earnings. RiverSource Life does not hedge the equity price risk related to GMDBand GMIB. The core derivative instruments with which RiverSource Life hedgesthe equity price risk of GMWB and GMAB are longer dated put and call options;these core instruments are supplemented with equity futures and total returnswaps.

 

Interest Rate Risk –Variable Annuity Riders

 

The GMAB and thenon-life contingent benefits associated with the GMWB provisions createembedded derivatives which are carried at fair value separately from theunderlying host variable annuity contract. Increases in interest rates reducethe fair value of the GMWB and GMAB liabilities. The GMWB and GMAB interestrate exposure is hedged with a portfolio of longer dated put and call options,interest rate swaps and swaptions. During the three months ended September 30, 2008, RiverSource Lifecontinued to adjust the hedge portfolio to reflect the sensitivity of theliabilities.

 

***Credit Risk***

 

RiverSource Life isexposed to credit risk within its investment portfolio, which includes loans,and through derivative and reinsurance counterparties. Credit risk relates tothe uncertainty of an obligor’s continued ability to make timely payments inaccordance with the contractual terms of the instrument or contract.RiverSource Life’s potential derivative credit exposure to each counterparty isaggregated with all of its other exposures to the counterparty to determinecompliance with established credit guidelines at the time it enters into aderivative transaction. RiverSource Life manages credit risk throughfundamental credit analysis, issuer and industry concentration guidelines, anddiversification requirements. These guidelines and oversight of credit risk aremanaged through its comprehensive enterprise risk management program thatincludes members of senior management.

 

RiverSource Lifemanages the risk of adverse default experience on these investments by applyingdisciplined fundamental credit analysis and underwriting standards, prudentlylimiting exposures to lower-quality, higher-yielding investments, anddiversifying exposures by issuer, industry, region and property type. For eachcounterparty or borrowing entity and its affiliates, RiverSource Life’sexposures from all types of transactions are aggregated and managed in relationto guidelines set by risk tolerance thresholds and external and internal ratingquality. RiverSource Life remains exposed to occasional adverse cyclicaleconomic downturns during which default rates may be significantly higher thanthe long term historical average used in pricing.

 

Credit exposures on derivativecontracts may take into account netting arrangements and collateralarrangements. Before executing a new type of structure of derivative contract,RiverSource Life determines the variability of the contract’s potential marketand credit exposures and whether such variability might reasonably be expectedto create exposure to a counterparty in excess of established limits.

 

Additionally, RiverSource Lifereinsures a portion of the insurance risks associated with its life, disabilityincome and long term care insurance products through reinsurance agreementswith unaffiliated reinsurance companies. Reinsurance is used in order to limitlosses, reduce exposure to large risks and provide additional capacity forfuture growth. To manage exposure to losses from reinsurer insolvencies, thefinancial condition of reinsurers is evaluated prior to entering into newreinsurance treaties and on a periodic basis during the terms of the treaties.RiverSource Life remains primarily liable as the direct insurer on all risksreinsured.

 

For additionalinformation regarding our sensitivity to market and credit risk, see “Management’sNarrative Analysis—Risk Management” in RiverSource Life’s 2007 10-K.

 

***Fair ValueMeasurements***

 

RiverSource Lifereports certain assets and liabilities at fair value; specifically, separateaccount assets, derivatives, embedded derivatives, and most investments andcash equivalents are reported at their fair values.  Statement of Financial Accounting Standards No. 157“Fair Value Measurements” (“SFAS 157”) defines fair value, provides a frameworkfor measuring fair value and expands disclosures about fair valuemeasurements.  Fair value assumes theexchange of assets or liabilities occurs in orderly transactions.  RiverSource Life includes actual marketprices, or observable inputs in its fair value measurements to the extentavailable. Broker quotes are obtained when quotes from pricing services are notavailable.

 

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RiverSource Lifevalidates prices obtained from third parties through a variety of means suchas: price variance analysis, subsequent sales testing, stale price review,price comparison across pricing vendors and due diligence reviews of vendors.SFAS 157 does not require the use of market prices that are the result of aforced liquidation or distressed sale.

 

Illiquid Markets

 

Through RiverSourceLife’s own experience transacting in the marketplace and through discussionswith its pricing vendors, RiverSource Life believes that the market for certainnon-agency residential mortgage-backed securities is inactive. Indicators ofinactive markets include: pricing services’ reliance on brokers or discountedcash flow analyses to provide prices, an increase in the disparity betweenprices provided by different pricing services for the same security,unreasonably large bid-offer spreads and a significant decrease in the volumeof trades relative to historical levels. This market inactivity has resulted inRiverSource Life applying valuation techniques that rely more on an incomeapproach (discounted cash flows using market rates) than on a market approach(prices from pricing services).  RiverSourceLife considers market observable yields for other asset classes it considers tobe of similar risk which includes nonperformance and liquidity for individualsecurities to set the discount rate for applying the income approach to certainnon-agency residential mortgage-backed securities. The discount rates used forthese securities at September 30, 2008 ranged from 11% to 15%.

 

ResidentialMortgage-backed Securities Backed by Subprime or Alt-A Collateral

 

Sub-prime mortgagelending is the origination of residential mortgage loans to customers with weakcredit profiles. Alt-A mortgage lending is the origination of residentialmortgage loans to customers who have credit ratings above sub-prime but may notconform to government-sponsored standards. RiverSource Life has exposure tothese types of loans only through mortgage-backed and asset-backed securities.The slow 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 for 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. Based on thisanalysis, other than non-agency mortgage-backed securities that hadcredit-related impairments recorded in the nine months ended September 30,2008, all contractual payments are expected to be received.

 

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The following tablepresents, as of September 30, 2008, RiverSource Life’s residentialmortgage-backed and asset-backed securities backed by sub-prime and Alt-Amortgage loans by credit rating and vintage year.  For presentation in this table,other-than-temporarily impaired securities are shown at their internal ratingof BB and below (amounts 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** | ** ** |
| **Sub-prime**              |       |                |       |            |       |                    |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior     |       | $                   | 5          |            | $          | 5                       |       | $               | 8          |                         | $          | 6               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 13 |   | $ | 11 |   |
| 2005                       |       | 77                  |       | 69              |       | —                  |       | —          |       | 5                            |       | 4               |       | — |   | — |   | — |   | — |   | 82 |   | 73 |   |
| 2006                       |       | 25                  |       | 23              |       | —                  |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 25 |   | 23 |   |
| 2007                       |       | —              |       | —          |       | —                  |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                       |       | 11                  |       | 10              |       | —                  |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 11 |   | 10 |   |
| **Total   Sub-prime** |       | $                   | 118        |            | $          | 107                     |       | $               | 8          |                         | $          | 6               |       | $ | 5 |   | $ | 4 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 131 |   | $ | 117 |   |
| ** **                 |       |                |       |            |       |                    |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**                  |       |                |       |            |       |                    |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior     |       | $                   | 46         |            | $          | 41                      |       | $               | 15         |                         | $          | 10              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 61 |   | $ | 51 |   |
| 2005                       |       | 285                 |       | 238             |       | 72                      |       | 37              |       | 3                            |       | 2               |       | — |   | — |   | 20 |   | 20 |   | 380 |   | 297 |   |
| 2006                       |       | —              |       | —          |       | —                  |       | —          |       | —                       |       | —          |       | 21 |   | 21 |   | 6 |   | 6 |   | 27 |   | 27 |   |
| 2007                       |       | 32                  |       | 24              |       | —                  |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 32 |   | 24 |   |
| 2008                       |       | —              |       | —          |       | —                  |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| **Total Alt-A**       |       | $                   | 363        |            | $          | 303                     |       | $               | 87         |                         | $          | 47              |       | $ | 3 |   | $ | 2 |   | $ | 21 |   | $ | 21 |   | $ | 26 |   | $ | 26 |   | $ | 500 |   | $ | 399 |   |
| **Grand  Total**           |       | $                   | 481        |            | $          | 410                     |       | $               | 95         |                         | $          | 53              |       | $ | 8 |   | $ | 6 |   | $ | 21 |   | $ | 21 |   | $ | 26 |   | $ | 26 |   | $ | 631 |   | $ | 516 |   |

 

Fair Value ofLiabilities and Nonperformance Risk

 

SFAS 157 also requirescompanies to measure the fair value of liabilities at the price that would bereceived to transfer the liability to a market participant (an exit price).Since there is not a market for RiverSource Life’s obligations of its variableannuity riders, RiverSource Life considered the assumptions participants in ahypothetical market would make to reflect an exit price. As a result,RiverSource Life adjusted the valuation of variable annuity riders by updatingcertain policyholder assumptions, adding explicit margins to provide forprofit, risk and expenses, and adjusting the rates used to discount expectedcash flows to reflect a current market estimate of RiverSource Life’snonperformance risk. The nonperformance risk adjustment is specific to the riskof RiverSource Life not fulfilling these liabilities. This nonperformance riskadjustment is based on broker quotes for credit default-swaps.  Consistent with general market conditions, thisestimate resulted in a spread over the LIBOR swap curve as of September 30,2008. As RiverSource Life’s estimate of this spread widens or tightens, theliability will decrease or increase. If this nonperformance credit spread movesto a zero spread over the LIBOR swap curve, the reduction to net income wouldbe approximately $62 million, net of DAC and DSIC amortization and incometaxes, based on September 30, 2008 credit spreads.

 

As outlined in thecredit risk section above, nonperformance risk for derivatives is managed andmitigated primarily through the use of master netting arrangements andcollateral arrangements. As of September 30, 2008, any deterioration inRiverSource Life’s derivative counterparties’ credit would not materiallyimpact the financial statements.

 

**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 an available line of credit with Ameriprise Financialaggregating $200 million.  The primaryuses of funds are policy benefits, commissions, other product-relatedacquisition and sales inducement costs, operating expenses, policy loans,dividends to Ameriprise Financial and investment purchases.  RiverSource Life routinely reviews itssources and uses of funds in order to meet its ongoing obligations.

 

On March 26, June 25and September 25, 2008, RiverSource Life paid cash dividends of $125million, $275 million and $375 million, respectively, to AmeripriseFinancial.  On June 25 and September 25,2008, RiverSource Life of NY paid cash dividends

 

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of $27 million and$50 million, respectively, to RiverSource Life Insurance Company.  During 2007, RiverSource Life paid cashdividends of $900 million to Ameriprise Financial.  Also during 2007, RiverSource Life of NY paidcash dividends of $83 million 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,****2008**                   | ** ** | **December 31,  2007**             | ** ** | **December 31,  2007** | ** ** |
| ** **                                  | ** ** | **(in millions)**                           | ** ** |
| RiverSource Life  Insurance Company         |       | $                                                | 2,089      |                                    | $          | 3,017 |   | $ | 442 |   |
| RiverSource Life  Insurance Co. of New York |       | 157                                              |       | 288                                     |       | 34 |   |
|                                             |            |                                                  |            |                                         |            |  |  |  |  |  |

 

----

| (a) | Actual  capital, as defined by the National Association of Insurance Commissioners  for purposes of meeting regulatory capital requirements, includes statutory  capital and surplus, plus certain statutory valuation reserves. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Regulatory  capital requirement is based on the most recent statutory risk-based capital  filing.                                                                                                                                |

 

In responseto a question raised during the Ameriprise Financial third quarter earningsconference call on October 29, 2008, management estimated that the risk basedcapital (“RBC”) ratio of RiverSource Life was above 450% as of September 30,2008, without adjusting for capital requirements for year-end C3 Phase IIanalysis and after year-to-date dividends of $775 million to Ameriprise Financial.

 

Based uponits preliminary assessment, if equity markets fall 30% during the fourthquarter of 2008, RiverSource Life expects that it will maintain an RBC ratioaligned with its targeted levels for AA ratings, inclusive of C3 Phase IIcapital requirements.  RiverSource Lifewill finalize the RBC ratio as part of the statutory reporting process in early2009.

 

The numeratorof RiverSource Life’s estimated RBC ratio was its actual statutory capital asof September 30, 2008, which was impacted by earnings, impairments and variableannuity reserve increases from year-to-date equity market declines of 21% aswell as $775 million in dividends paid in 2008 to move excess capital fromRiverSource Life to Ameriprise Financial. The denominator was an estimate of RiverSource Life’s company actionlevel risk-based capital based on September 30, 2008 statutory asset andliability balances.  Importantly,RiverSource Life had no incremental capital requirement from C3 Phase II atyear end 2007, and did not include any such capital requirement in the estimatedescribed above.

 

ForRiverSource Life, the declining equity markets affect statutory capitalprimarily by increasing required reserves for variable annuities.  RiverSource Life’s living benefit hedgingprogram and increases in the value of those hedge instruments help mitigatethis impact.

 

As mentionedabove, RiverSource Life had no incremental capital requirement from C3 Phase IIas of December 31, 2007.  While the significantyear-to-date decline in equity levels makes it more likely there will be such arequirement at December 31, 2008, a substantial portion of that requirementwill be eliminated due to the diversification benefit of RiverSource Life’sbusiness.

 

**Forward-LookingStatements**

 

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

 

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

 
| · | changes in the  valuations, liquidity and volatility in the interest rate, equity market, and  foreign exchange environments;                                                                                                                                                                                                                                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | changes in the  litigation and regulatory environment, including ongoing legal proceedings  and regulatory actions, the frequency and extent of legal claims threatened  or initiated by clients, other persons and regulators, and developments in  regulation and legislation;                                                                                                                                                       |
| · | RiverSource Life’s  investment management performance and consumer acceptance of RiverSource Life’s  products;                                                                                                                                                                                                                                                                                                               |
| · | effects of competition  in the financial services industry and changes in RiverSource Life’s product  distribution mix and distribution channels;                                                                                                                                                                                                                                                                                 |
| · | RiverSource Life’s  capital structure as a subsidiary of Ameriprise Financial, including the  ability of its parent to support its financial strength and ratings;                                                                                                                                                                                                                                                                |
| · | risks of default by  issuers or guarantors of investments RiverSource Life owns or by  counterparties to hedge derivative, insurance or reinsurance arrangements;                                                                                                                                                                                                                                                                      |
| · | experience deviations  from RiverSource Life’s assumptions regarding morbidity, mortality and  persistency in certain annuity and insurance products, or from assumptions  regarding market volatility underlying RiverSource Life’s hedges on  guaranteed benefit annuity riders;                                                                                                                                           |
| · | successfully cross-selling  insurance and annuity products and services to Ameriprise Financial’s  customer base;                                                                                                                                                                                                                                                                                                                 |
| · | RiverSource Life’s  ability to effectively hedge risks relating to guaranteed benefit riders and  certain other products;                                                                                                                                                                                                                                                                                                         |
| · | the impact of  intercompany allocations to RiverSource Life from Ameriprise Financial and  its affiliates;                                                                                                                                                                                                                                                                                                                             |
| · | Ameriprise Financial’s  ability to attract, recruit and retain qualified advisors and employees and  its ability to distribute RiverSource Life’s products through current and  future distribution channels;                                                                                                                                                                                                                |
| · | the impact of  Ameriprise Financial’s efforts to improve distribution economics and of  RiverSource Life’s efforts to grow third party distribution and to realize  benefits from reengineering and tax planning;                                                                                                                                                                                                            |
| · | changes in U.S. federal  income or estate tax laws potentially making RiverSource Life’s products less  attractive to clients;                                                                                                                                                                                                                                                                                                    |
| · | RiverSource Life’s  ability to recover from catastrophes, both natural and man-made; and                                                                                                                                                                                                                                                                                                                                          |
| · | general economic and  political factors, including consumer confidence in the economy as well as  the ability and inclination of consumers generally to invest, the costs of  products and services RiverSource Life consumes in the conduct of its  business, and applicable legislation and regulation, including tax law, tax treaties,  fiscal and central government treasury policy, and regulatory rulings and  pronouncements. |

 

The foregoing list offactors should be read in conjunction with the “Risk Factors” discussion as Part I,Item 1A of RiverSource Life’s 2007 10-K.

 

**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, 2008.

 

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**Changes in Internal Control OverFinancial Reporting**

 

During the third quarterof 2008, RiverSource Life converted to a new industry standard actuarialvaluation system that provides enhanced modeling capabilities.  This system strengthens the internal controlenvironment as the valuation is highly automated and manual intervention issignificantly reduced. There were no other changes in RiverSource Life’sinternal control over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to which thisreport relates that have materially affected, or are reasonably likely tomaterially affect, RiverSource Life’s internal control over financialreporting.

 

**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

** **

The risk factors set forth below update the risk factors sectionpreviously disclosed in Item 1A of Part I of RiverSource Life’s AnnualReport on Form 10-K for the year ended December 31, 2007 (“2007 Form 10-K”).

 

**Risks Relating toRiverSource Life’s Business**

*** ***

***RiverSourceLife’s financial condition and results of operations may be adversely affectedby interest rate fluctuations and by economic and other factors.***

 

RiverSource Life’s financial condition andresults of operations may be materially affected by interest rate fluctuationsand economic and other factors. RiverSource Life’s insurance and annuity products are sensitive tointerest rate fluctuations, and its future costs associated with suchvariations may differ from its historical costs.  In addition, interest rate fluctuations couldresult in fluctuations in the valuation of certain minimum guaranteed benefitscontained in some of its variable annuity products.  Although RiverSource Life typically hedgesagainst such fluctuations, a significant change in interest rates could have amaterial adverse impact on RiverSource Life’s results of operations.

 

During periods of increasing marketinterest rates, RiverSource Life must offer higher crediting rates on interest-sensitiveproducts, such as fixed universal life insurance and fixed annuities, and itmust increase crediting rates on insurance and annuity products to keep theseproducts competitive. Because returns on invested assets may not increase asquickly as current interest rates, RiverSource Life may have to accept a lower “spread,”or the difference between the returns it earns on the investments that supportits obligations under these products and the amounts that it must paypolicyholders and contractholders, and thus lower profitability or face adecline in sales and greater loss of existing contracts and relatedassets.  In addition, increases in marketinterest rates may cause increased policy surrenders, withdrawals from lifeinsurance policies and annuity contracts and requests for policy loans, aspolicyholders and contractholders seek to shift assets to products withperceived higher returns. This process may lead to an earlier than expectedflow of cash out of the business.  Also,increases in market interest rates may result in extension of the maturity ofsome of RiverSource Life’s investment assets. These earlier outflows and asset maturity extensions may requireinvestment assets to be sold at a time when the prices of those assets arelower because of the increase in market interest rates, which may result inrealized investment losses.  Increases increditing rates, as well as surrenders and withdrawals, could have an adverseeffect on RiverSource Life’s financial condition and results ofoperations.  An increase in policysurrenders and withdrawals also may require RiverSource Life to accelerateamortization of deferred acquisition costs (“DAC”), which would increase itsexpenses and reduce its net earnings.

 

During periods of falling interest rates,RiverSource Life’s “spread” or the difference between the returns it earns onthe investments that support its obligations under these products and theamounts that it must pay policyholders and contractholders, may be reduced orcould become negative, primarily because some of these products have guaranteedminimum crediting rates.  Due to the longterm nature of the liabilities associated with RiverSource Life’s fixedannuities and guaranteed benefits on variable annuities, sustained declines inlong term interest rates may subject RiverSource Life to reinvestment risks andincreased hedging costs.

 

Interest rate fluctuations also could havean adverse effect on the results of RiverSource Life’s investment portfolio.During periods of declining market interest rates, the interest RiverSourceLife receives on variable interest rate investments decreases. In addition,during those periods, RiverSource Life is forced to reinvest the cash itreceives as interest or return of principal on its investments in lower–yieldinghigh-grade instruments or in lower–credit instruments to maintain comparablereturns. Issuers of fixed income securities also may decide to prepay theirobligations in order to borrow at lower market rates, which increases the riskthat RiverSource Life may have to invest the cash proceeds of these securitiesin lower–yielding or lower–credit instruments.

 

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The guaranteed minimum accumulation benefit (“GMAB”) and the non-lifecontingent benefits associated with guaranteed minimum withdrawal benefit (“GMWB”)provisions offered with certain RiverSource Life variable annuities createobligations which are carried at fair value separately from the underlying hostvariable annuity contract.  Changes inthe fair value of these GMAB and GMWB obligations are recorded through earningswith fair value calculated by estimating the present value of future benefitsless applicable fees charged for the rider using actuarial models, whichsimulate various economic scenarios. Changes in interest rates may impact the fair value of the GMAB and GMWBliabilities.  Although RiverSource Life typically hedges against suchchanges, a significant change in interest rates may result in some net adverseimpact to current period financial statements. 

 

For additional information regarding thesensitivity of the fixed income securities in RiverSource Life’s investmentportfolio to interest rate fluctuations, see Item 7 of the 2007 Form 10-K – “Management’sNarrative Analysis – Risk Management”. 

 

Many factors of a global or localizednature include: political, economic and market conditions; technologicalchanges and events; inflation; investor sentiment and confidence in thefinancial markets; terrorism events and armed conflicts; and natural disasterssuch as weather catastrophes and widespread health emergencies.  In addition, during periods of unfavorablemarket or economic conditions, the level of consumer investing and insuringactivity may also decrease, which may negatively impact the results ofRiverSource Life’s businesses.  Moreover,fluctuations in economic and market activity could impact the way then-existingcustomers allocate their available resources, which could affect RiverSourceLife’s persistency, surrender and product cash value loan experience and couldnegatively impact its business.

*** ***

***Governmental initiativesintended to address capital market conditions may not be effective and may giverise to additional requirements for RiverSource Life’s business, including newcapital requirements or other regulations, that could materially affect itsfinancial condition, results of operations and liquidity in ways that it cannotpredict****.*

 

Legislation has been passed in an attempt to address the instability inglobal financial markets. This legislation includes a provision to grant theU.S. Treasury Department the authority to, among other things, purchase up to$700 billion of mortgage-backed and other securities from financialinstitutions. This legislation or similar proposals, as well as other actionssuch as monetary or fiscal actions of U.S. government instrumentalities or comparableauthorities in other countries, may fail to stabilize the financial markets.This legislation and other proposals or actions may also have otherconsequences, including material effects on interest rates, which couldmaterially affect RiverSource Life’s investments, results of operations andliquidity in ways that it cannot predict. 

 

In addition, RiverSource Life is subject to extensive laws andregulations that are administered and enforced by a number of differentgovernmental authorities and non-governmental self-regulatory agencies,including state securities and insurance regulators, the Securities andExchange Commission, the Financial Industry Regulatory Authority, the U.S.Department of Justice and state attorneys general.  The current financial crisis has prompted ormay prompt some of these authorities to consider additional regulatoryrequirements intended to prevent future crises or otherwise assure thestability of institutions under their supervision. These authorities may alsoseek to exercise their authority in new or more expansive ways. All of thesepossibilities, if they occurred, could affect the way RiverSource Life conductsits business and manages its capital, and may require RiverSource Life tosatisfy increased capital requirements, any of which in turn could materiallyaffect its financial condition, results of operations and liquidity.

*** ***

***Poorinvestment performance in RiverSource Life’s variable products could adverselyaffect its financial condition and results of operations.***

 

RiverSource Life believes that investmentperformance is an important factor in the growth of its variable annuity andvariable life insurance business. Poor investment performance could impairrevenues and earnings, as well as RiverSource Life’s prospects for growth,because:

 

·                  RiverSource Life’s ability to attractfunds from existing and new clients might diminish; and

 

·                  existing clients might withdraw assetsfrom RiverSource Life’s variable products in favor of better performingproducts of other companies, which would result in lower revenues.

*** ***

***Adowngrade or a potential downgrade in RiverSource Life’s financial strengthratings could result in a loss of business and adversely affect its financialcondition and results of operations.***

 

Financial strength ratings, which variousratings organizations publish as a measure of an insurance company’s ability tomeet contractholder and policyholder obligations, are important to maintainingpublic confidence in RiverSource Life’s products, the ability to market itsproducts and its competitive position. Any downgrade in RiverSource Life’sfinancial strength ratings, or the announced potential for a downgrade, couldhave a significant adverse effect on its financial condition and results ofoperations in many ways, including:

 

·                  reducing new sales of insurance andannuity products;

 

·                  adversely affecting RiverSource Life’srelationships with distributors of its products;

 

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·                  materially increasing the number oramount of policy surrenders and withdrawals by contractholders andpolicyholders;

 

·                  requiring RiverSource Life to reduceprices for many of its products to remain competitive; and

 

·                  adversely affecting RiverSource Life’sability to obtain reinsurance or obtain reasonable pricing on reinsurance.

 

In view of the difficulties experiencedrecently by RiverSource Life’s competitors, RiverSource Life believes it ispossible that the ratings organizations will heighten the level of scrutinythat they apply, will increase the frequency and scope of their reviews, willrequest additional information from the companies that they rate, and mayadjust upward the capital and other requirements employed in the ratingsorganization’s models for maintenance of ratings levels.  

 

RiverSource Life cannot predict whatactions rating agencies may take, or what actions RiverSource Life may take inresponse to the actions of rating agencies, which could adversely affect itsbusiness. As with other companies in the insurance industry, RiverSource Life’sratings could be changed at any time and without any notice by the ratingsorganizations.

*** ***

***Intensecompetition and the economics of changes in RiverSource Life’s product revenuemix and distribution channels could negatively affect RiverSource Life’sability to maintain or increase its market share and profitability.***

 

RiverSource Life operates in an intenselycompetitive industry. RiverSource Life competes based on a number of factorsincluding name recognition, service, investment performance, product features,price, perceived financial strength, and claims-paying ratings.RiverSource Life’s competitors include insurers and other financial institutions.RiverSource Life may face competitors that have greater market share, offer abroader range of products, have greater financial resources or have higherclaims-paying ratings than RiverSource Life does.  Some of RiverSource Life’scompetitors may possess or acquire intellectual property rights that couldprovide a competitive advantage to them in certain markets or for certainproducts, which could make it more difficult for RiverSource Life to introducenew products and services.  Some of RiverSourceLife’s competitors’ proprietary products or technology could be similar to itsown, and this could result in disputes that could impact RiverSource Life’sfinancial condition or results of operations. 

 

Currently, Ameriprise Financial’s brandedadvisor network distributes annuity and insurance products issued almostexclusively by RiverSource Life. If Ameriprise Financial’s branded advisornetwork further opened or expanded its distribution of annuity and insuranceproducts of other companies, RiverSource Life could experience lower sales ofits products, higher surrenders or other developments, which could have amaterial adverse effect on RiverSource Life’s financial condition and resultsof operations.

*** ***

***Downturnsand volatility in equity markets could adversely affect RiverSource Life’sbusiness and profitability.***

 

Significant downturns and volatility inequity markets could have an adverse effect on RiverSource Life’s financialcondition and results of operations. Market downturns and volatility may causepotential new purchasers to refrain from purchasing RiverSource Life’s variableannuities and variable universal life insurance products that have returnslinked to the performance of the equity markets. Downturns may also causecontractholders in annuity products and policyholders in insurance products towithdraw cash values from those products.

 

Additionally, downturns in equity marketscan have an adverse effect on RiverSource Life’s asset-based revenues becausethe value of equity-based separate account assets will be reduced.  

 

The GMAB and the non-life contingent benefits associated with GMWBprovisions offered with certain RiverSource Life variable annuities createobligations which are carried at fair value separately from the underlying hostvariable annuity contract.  Changes inthe fair value of these GMAB and GMWB obligations are recorded through earningswith fair value calculated by estimating the present value of future benefitsless applicable fees charged for the rider using actuarial models, whichsimulate various economicscenarios.  Changes in equity pricesand/or equity market volatility may impact the fair value of the GMAB and GMWBliabilities.  Although RiverSource Life typically hedges against suchchanges, a significant change in either equity price levels or equity marketvolatility may result in some net adverse impact to current period financialstatements. 

 

A significant market decline in equityprice levels could also result in guaranteed minimum benefits under guaranteedminimum death benefits (“GMDB”) andguaranteed minimum income benefit (“GMIB”) provisions being higher than current account values,which could have an adverse effect on RiverSource Life’s financial conditionand results of operations.  RiverSourceLife does not currently hedge or reinsure GMDB or GMIB provisions.

 

For additional information regarding thesensitivity of RiverSource Life’s business results to equity marketfluctuations, see Item 7 of the 2007 Form 10-K – “Management’s NarrativeAnalysis –Risk Management”.

 

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***Defaultsin RiverSource Life’s fixed maturity securities portfolio would adverselyaffect its earnings.***

 

Issuers of the fixed maturity securitiesthat RiverSource Life owns may default on principal and interest payments. Atboth December 31, 2007 and 2006, 6% of RiverSource Life’s investment portfoliohad ratings below investment-grade. Moreover, economic downturns and corporate malfeasance can increase thenumber of companies, including those with investment-grade ratings, thatdefault on their debt obligations. Default-related declines in the value of RiverSource Life’s fixedmaturity securities portfolio could cause its net earnings to decline and couldweaken its capital position.

*** ***

***The determinationof the amount of allowances and impairments taken on certain investments is subjectto management***’***s evaluation and judgment and could materially impact RiverSource Life’s financial position or resultsof operations.*** 

 

The determination of the amount ofallowances and impairments vary by investment type and is based uponRiverSource Life’s periodic evaluation and assessment of inherent and knownrisks associated with the respective asset class.  Such evaluations and assessments are revisedas conditions change and new information becomes available.  Management updates its evaluations regularlyand reflects changes in allowances and impairments in operations as suchevaluations are revised.  Historicaltrends may not be indicative of future impairments or allowances.

 

The assessment of whether impairments haveoccurred is based on management’s case-by-case evaluation of the underlyingreasons for the decline in fair value that considers a wide range of factorsabout the security issuer and management uses its best judgment in evaluatingthe cause of the decline in the estimated fair value of the security and inassessing the prospects for recovery. Inherent in management’s evaluation ofthe security are assumptions and estimates about the operations of the issuerand its future earnings potential, which assumptions and estimates are moredifficult to make with certainty under current market conditions.

*** ***

***Some ofRiverSource Life’s investments are relatively illiquid.***

 

RiverSource Life invests a portion of itsgeneral account assets in certain privately placed fixed income securities,mortgage loans, policy loans, and collateralized debt obligations, amongothers, all of which are relatively illiquid. These asset classes represented19.0% of the carrying value of RiverSource Life’s investment portfolio as ofDecember 31, 2007.  If RiverSource Liferequires significant amounts of cash on short notice in excess of its normalcash requirements, it may have difficulty selling these investments in a timelymanner, or be forced to sell them for an amount less than it would otherwisehave been able to realize, or both. For example, if an unexpected number of contractholdersof its annuity products exercise their surrender right and RiverSource Life isunable to access other liquidity sources, it may have to quickly liquidateassets. Any inability to quickly dispose of illiquid investments could have anadverse effect on RiverSource Life’s financial condition and results ofoperations.

*** ***

***RiverSourceLife’s affiliated distributor may be unable to attract and retain financialadvisors.***

 

RiverSource Life is dependent on thebranded financial advisors of its affiliated broker-dealer selling firm for asignificant portion of the sales of its annuity and insurance products. Asignificant number of its branded financial advisors operate as independentcontractors under a franchise agreement with its affiliated selling firm. Therecan be no assurance that RiverSource Life’s affiliated selling firm will besuccessful in its efforts to recruit and retain new advisors to its network. IfRiverSource Life’s affiliated selling firm is unable to attract and retainquality financial advisors, fewer advisors would be available to sellRiverSource Life’s annuity and insurance products and RiverSource Life’sfinancial condition and results of operations could be materially adverselyaffected.

*** ***

***RiverSourceLife and its affiliates face intense competition in attracting and retainingkey talent.***

 

RiverSource Life’s continued successdepends to a substantial degree on its, and its affiliates’, ability to attractand retain qualified personnel to conduct its business. The market forqualified talent is extremely competitive and has grown more so in recentperiods due to industry growth. There can be no assurance that RiverSource Lifewill be successful in its efforts to recruit and retain the required personnel.If RiverSource Life is unable to attract and retain qualified individuals orits recruiting and retention costs increase significantly, its financialcondition and results of operations could be materially adversely affected.

*** ***

***If thecounterparties to RiverSource Life’s reinsurance arrangements or to thederivative instruments it uses to hedge its business risks default, RiverSourceLife may be exposed to risks it had sought to mitigate, which could adverselyaffect its financial condition and results of operations.***

 

RiverSource Life uses reinsurance tomitigate its risks in various circumstances. See Item 1 of the 2007 Form10-K – “Business– Reinsurance”.  Reinsurance does notrelieve RiverSource Life of its direct liability to its policyholders, evenwhen the reinsurer is liable to RiverSource Life. Accordingly, RiverSource Lifebears credit risk with respect to its reinsurers. RiverSource Life cannotprovide assurance that its reinsurers will pay the reinsurance recoverable owedto it now or in the future or that they will pay these recoverables on a timelybasis. A reinsurer’s insolvency or its inability or unwillingness to makepayments under the terms of its reinsurance agreement could have an adverseeffect on RiverSource Life’s financial condition and results of operations thatcould be material.  See Note 2 and Note13 to the Consolidated Financial Statements in the 2007 Form10-K.

 

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In addition, RiverSource Life usesderivative instruments to hedge various business risks.  The amount and breadth of exposure toderivative counterparties have increased significantly in connection withRiverSource Life’s strategies to hedge guaranteed benefit obligations under itsvariable annuity products.  IfRiverSource Life’s counterparties fail to honor in a timely manner theirobligations under the derivative instruments, RiverSource Life’s hedges of therelated risk will be ineffective. That failure could have a material adverseeffect on RiverSource Life’s financial condition and results ofoperations.  This risk offailure of RiverSource Life’s hedge transactions may be increased by capitalmarket volatility, such as the volatility that has been experienced since thesecond half of 2007.

*** ***

***RiverSourceLife’s business is heavily regulated, and changes in regulation may reduce itsprofitability and limit its growth.***

 

RiverSource Life operates in a highlyregulated industry, and is required to obtain and maintain licenses for itsbusiness in addition to being subject to regulatory oversight. Financialregulators have significantly increased the level of regulation in recent yearsand have several outstanding proposals for additional regulation. Significantdiscussion and activity by regulators concern the sale and suitability offinancial products and services to persons planning for retirement, as well asto older investors.  In addition,RiverSource Life is subject to heightened requirements and associated costs andrisks relating to privacy and the protection of customer data.  RiverSource Life’s information systems,moreover, may be subject to increased efforts of “hackers” by reason of thecustomer data it possesses.  Theserequirements, costs and risks, as well as possible legislative or regulatorychanges, may constrain RiverSource Life’s ability to market its products andservices to its target demographic and potential customers, and couldnegatively affect RiverSource Life’s profitability and make it more difficultfor RiverSource Life to pursue its growth strategy.

 

RiverSource Life is subject to stateregulation, so must comply with statutory reserve and capitalrequirements.  State regulators arecontinually reviewing and updating these requirements and other requirementsrelating to the business operations of insurance companies, including theirunderwriting and sales practices. Moreover, RiverSource Life is subject to capital requirements forvariable annuity contracts with guaranteed death or living benefits.  These requirements may have an impact onfuture statutory reserves and regulatory capital in the event equity marketvalues fall in the future.  RiverSourceLife is required by state law to be a member of the guaranty fund associationin every state where it is licensed to do business.  In the event of insolvency of one or moreunaffiliated insurance companies, RiverSource Life could be adversely affectedby the requirement to pay assessments to the guaranty fund associations.  Moreover, there is active discussion at theNational Association of Insurance Commissioners (“NAIC”) of moving to aprinciples-based reserving system.  Thiscould change statutory reserve requirements significantly and it is notpossible to estimate the impact at this time. Further, RiverSource Life cannot predict the effect that proposedfederal legislation, such as the option of federally chartered insurers, mayhave on RiverSource Life or its competitors.

 

Compliance with applicable laws andregulations is time consuming and personnel–intensive.  Moreover, the evaluation ofRiverSource Life’s compliance with these laws and regulations by stateinsurance regulators, the SEC, and other regulatory organizations is an ongoingfeature of RiverSource Life’s business, the outcomes of which may not beforeseeable. Changes in these lawsand regulations may materially increase RiverSource Life’s direct and indirectcompliance and other expenses of doing business.  The costs of the compliance requirementsRiverSource Life faces, and the constraints they impose on its operations,could have a material adverse effect on RiverSource Life’s financial conditionand results of operations. For a further discussion of the regulatory frameworkin which RiverSource Life operates, see Item 1 of the 2007 Form10-K – “Business– Regulation”. For more information regarding ongoing investigations, see “PartII – Item 1 – Legal Proceedings.” 

*** ***

***Legaland regulatory actions are inherent in RiverSource Life’s business and couldresult in financial losses or harm its business.***

 

RiverSource Life is, and in the future maybe, subject to legal and regulatory actions in the ordinary course of itsoperations.  Substantial legal liabilityin legal or regulatory actions could have a material financial effect or causesignificant reputational harm, which in turn could seriously harm its businessprospects.

*** ***

***Competitiveand regulatory pressures may require RiverSource Life to reduce the levels ofits fees.***

 

RiverSource Life’s profit margins and earnings are dependent in part onits ability to maintain current fee levels for the products and services thatit offers.  Competition within thefinancial services industry could lead RiverSource Life to reduce the fees thatit charges its clients for products and services.  See the risk factor entitled “Intensecompetition and the economics of changes in RiverSource Life’s product revenuemix and distribution channels could negatively affect RiverSource Life’sability to maintain or increase its market share and profitability.” In addition, RiverSource Life may be required to reduce its fee levels,or restructure the fees it charges, as a result of regulatory initiatives orproceedings that are either industry-wide or specifically targeted atRiverSource Life.  See the risk factorentitled “RiverSource Life’s business is heavily regulated, and changes inregulation may reduce its profitability and limit its growth” and “Part II –Item 1 – Legal Proceedings” for more information regarding this and otherregulatory matters.  Reductions or otherchanges in the fees that RiverSource Life charges for its products and servicescould reduce its revenues and earnings.

 

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***Misconductby RiverSource Life’s employees and agents and its affiliates’ employees andagents is difficult to detect and deter and could harm RiverSource Life’sbusiness, results of operations or financial condition.***

 

Misconduct by RiverSource Life’s employeesand agents and its affiliates’ employees and agents could result in violationsof law, regulatory sanctions and/or serious reputational or financial harm.Misconduct can occur in each of RiverSource Life’s businesses and couldinclude:

 

·                  attempting to bind RiverSource Life totransactions that exceed authorized limits;

 

·                  hiding unauthorized or unsuccessfulactivities resulting in unknown and unmanaged risks or losses;

 

·                  improperly using, disclosing, orotherwise compromising confidential information;

 

·                  recommending transactions that are notsuitable;

 

·                  engaging in fraudulent or otherwiseimproper activity;

 

·                  engaging in unauthorized or excessivetrading to the detriment of customers; or

 

·                  otherwise not complying with laws orRiverSource Life’s control procedures.

 

RiverSource Life cannot always determisconduct by employees and agents and the precautions RiverSource Life takesto prevent and detect this activity may not be effective in all cases.  RiverSource Life also cannot provideassurance that misconduct by employees and agents will not lead to a materialadverse effect on its business, financial condition or results of operations.

*** ***

***IfRiverSource Life’s reserves for future policy benefits and claims areinadequate, it may be required to increase its reserve liabilities, which couldadversely affect its financial condition and results of operations.***

 

RiverSource Life establishes reserves asestimates of its liabilities to provide for future obligations under its insurancepolicies and annuities contracts. Reserves do not represent an exact calculation of liability, but ratherare estimates of contract benefits and related expenses RiverSource Lifeexpects to incur over time. The assumptions and estimates RiverSource Lifemakes in establishing reserves require certain judgments about futureexperience and, therefore, are inherently uncertain.  RiverSource Life cannot determine withprecision the actual amounts that it will pay for contract benefits, the timingof payments, or whether the assets supporting its stated reserves will increaseto the levels it estimates before payment of benefits or claims.  RiverSource Life monitors its reserve levelscontinually.  If RiverSource Life were toconclude that its reserves are insufficient to cover actual or expectedcontract benefits, it would be required to increase its reserves and incurincome statement charges for the period in which it makes the determination,which could adversely affect its financial condition and results of operations.For more information on how RiverSource Life sets its reserves, see Note 2 tothe Consolidated Financial Statements in the 2007 Form10-K. 

*** ***

***RiverSourceLife may face losses if morbidity rates or mortality rates differ significantlyfrom its pricing expectations.***

 

RiverSource Life sets prices for its life,disability income (“DI”) and long term care (“LTC”) insurance and some annuityproducts based upon expected claim payment patterns, derived from assumptionsRiverSource Life makes about the morbidity rates, or likelihood of sickness,and the mortality rates, or likelihood of death, of its policyholders andcontractholders. The long-term profitability of these products depends upon howRiverSource Life’s actual experience compares with its pricing assumptions. Forexample, if morbidity rates are higher, or mortality rates are lower, than itspricing assumptions, RiverSource Life could be required to make greaterpayments under DI and LTC insurance policies and immediate annuity contracts thanit had projected.  The same holds truefor LTC policies RiverSource Life previously underwrote to the extent of therisks that RiverSource Life has retained. If mortality rates are higher than its pricing assumptions, RiverSourceLife could be required to make greater payments under its life insurancepolicies and annuity contracts with GMDBs than it had projected.

 

Therisk that RiverSource Life’s claims experience may differ significantly fromits pricing assumptions is particularly significant for its LTC insuranceproducts, notwithstanding RiverSource Life’s ability to implement future priceincreases.  As with life insurance, LTCinsurance policies provide for long-duration coverage and, therefore, itsactual claims experience will emerge over many years. However, as a relativelynew product in the market, LTC insurance does not have the extensive claimsexperience history of life insurance, and, as a result, RiverSource Life’sability to forecast future claim rates for LTC insurance is more limited thanfor life insurance.  RiverSource Life hassought to moderate these uncertainties to some extent by partially reinsuringLTC policies that it had previously underwritten and by limitingits present LTC insurance offerings to policies underwritten fully by anunaffiliated third party, and RiverSource Life has also implemented rateincreases on certain inforce policies as described in Item 1 of the 2007 Form10-K – “Business – Insurance:Product Features and Risks – Long Term Care 

 

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Insurance”.  There can be noassurance that RiverSource Life will not be required to implement additionalrate increases in the future or that RiverSource Life will receive regulatoryapproval to the full extent and timing of any rate increases that RiverSourceLife may seek.

*** ***

***RiverSourceLife may face losses if there are significant deviations from its assumptionsregarding the future persistency of its insurance policies and annuitycontracts.***

 

The prices and expected futureprofitability of RiverSource Life’s insurance and deferred annuity products arebased in part upon expected patterns of premiums, expenses and benefits, usinga number of assumptions, including those related to persistency, which is theprobability that a policy or contract will remain inforce from one period tothe next. The effect of persistency on profitability varies for differentproducts. For most of its life insurance and deferred annuity products, actualpersistency that is lower than its persistency assumptions could have anadverse impact on profitability, especially in the early years of a policy orcontract, primarily because RiverSource Life would be required to acceleratethe amortization of expenses it deferred in connection with the acquisition ofthe policy or contract.  

 

For RiverSource Life’s LTC insurance,actual persistency that is higher than its persistency assumptions could have anegative impact on profitability. If these policies remain inforce longer thanRiverSource Life assumed, then RiverSource Life could be required to makegreater benefit payments than it had anticipated when it priced or partiallyreinsured these products.  Some of its LTCinsurance policies have experienced higher persistency and poorer lossexperience than RiverSource Life had assumed, which led it to increase premiumrates on certain of these policies. 

 

Because RiverSource Life’s assumptionsregarding persistency experience are inherently uncertain, reserves for futurepolicy benefits and policy claims and other policyholders’ funds may prove tobe inadequate if actual persistency experience is different from thoseassumptions. Although some of its products permit RiverSource Life to increasepremiums during the life of the policy or contract, RiverSource Life cannotguarantee that these increases would be sufficient to maintain profitability.Additionally, some of these pricing changes require regulatory approval, whichmay not be forthcoming. Moreover, many of RiverSource Life’s products do notpermit RiverSource Life to increase premiums or limit those increases duringthe life of the policy or contract while premiums on certain other products(primarily LTC insurance) may not be increased without prior regulatoryapproval. Significant deviations in experience from pricing expectationsregarding persistency could have an adverse effect on the profitability ofRiverSource Life’s products.

*** ***

***RiverSourceLife may be required to accelerate the amortization of DAC, which wouldincrease its expenses and reduce profitability.***

 

DAC represent the costs of acquiring newbusiness, principally direct sales commissions and other distribution andunderwriting costs that have been deferred on the sale of annuity, life, DI andLTC insurance. For annuity and universal life products, DAC are amortized basedon projections of estimated gross profits over amortization periods equal tothe approximate life of the business. For other insurance products, DAC are generally amortized as apercentage of premiums over amortization periods equal to the premium-payingperiod.  

 

RiverSource Life’s projections underlyingthe amortization of DAC require the use of certain assumptions, includinginterest margins, mortality rates, persistency rates, maintenance expenselevels and customer asset value growth rates for variable products. RiverSourceLife periodically reviews and, where appropriate, adjusts its assumptions. WhenRiverSource Life changes its assumptions, it may be required to accelerate theamortization of DAC or to record a charge to increase benefit reserves.

 

As of both December 31, 2007 and 2006,RiverSource Life had $4.4 billion of DAC, and it amortized $470 million and$356 million of DAC as a current period expense for the years ended December31, 2007 and 2006, respectively.  Formore information regarding DAC, see Item 7 of the 2007 Form10-K – “Management’sNarrative Analysis – Critical Accounting Policies – Deferred Acquisition Costs”and “– Recent Accounting Pronouncements”.

*** ***

***Changesin U.S. federal income or estate tax law could make some of RiverSource Life’sproducts less attractive to clients.***

 

Many of the products RiverSource Lifeissues or on which its business is based (including both insurance products andnon-insurance products) enjoy favorable treatment under current U.S.federal income or estate tax law. Changes in U.S. federal income or estate taxlaw could make some of its products less attractive to clients.

*** ***

***Breaches of security, or the perception that RiverSource Life’stechnology infrastructure is not secure, could harm its business.***

 

RiverSource Life’sbusiness requires the appropriate and secure utilization of consumer and othersensitive information.  RiverSource Life’soperations require the secure transmission of confidential information overpublic networks. Security breaches in connection with the delivery of itsproducts and services, including products and services utilizing the Internet,and the trend toward broad consumer and general public notification of suchincidents, could significantly harm RiverSource Life’s 

 

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business, financial condition or results of operations.   Even if RiverSource Life successfullyprotected its technology infrastructure and the confidentiality of sensitivedata, RiverSource Life could suffer harm to its business and reputation ifattempted security breaches are publicized. RiverSource Life cannot be certainthat advances in criminal capabilities, discovery of new vulnerabilities,attempts to exploit vulnerabilities in its systems, data thefts, physicalsystem or network break-ins or inappropriate access, or other developments willnot compromise or breach the technology or other security measures protectingthe networks used in connection with its products and services. 

*** ***

***Protection from system interruptions is important to RiverSource Life’sbusiness. If RiverSource Life experienced a sustained interruption to itstelecommunications or data processing systems, it could harm its business.***

 

System or network interruptions could delay and disrupt RiverSourceLife’s ability to develop, deliver or maintain its products and services,causing harm to its business and reputation and resulting in loss of customersor revenue. These interruptions can include fires, floods, earthquakes, powerlosses, equipment failures, failures of internal or vendor software or systemsand other events beyond its control.

*** ***

***RiverSourceLife’s risk management policies and procedures may not be fully effective inmitigating its risk exposure in all market environments or against all types ofrisk, including employee and financial advisor misconduct.***

 

RiverSource Life has devoted significantresources toward developing its risk management policies and procedures andwill continue to do so in the future. Nonetheless, RiverSource Life’s policiesand procedures to identify, monitor and manage risks may not be fully effectivein mitigating its risk exposure in all market environments or against all typesof risk. Many of its methods of managing risk and exposures are based upon itsuse of observed historical market behavior or statistics based on historicalmodels. During periods of market volatility or due to unforeseen events, thehistorically derived correlations upon which these methods are based may not bevalid.  As a result, these methods maynot accurately predict future exposures, which could be significantly greaterthan what its models indicate. This could cause RiverSource Life to incurinvestment losses or cause its hedging and other risk management strategies tobe ineffective.  Other risk managementmethods depend upon the evaluation of information regarding markets, clients,catastrophe occurrence or other matters that are publicly available orotherwise accessible to RiverSource Life, which may not always be accurate,complete, up-to-date or properly evaluated. 

 

Moreover, RiverSource Life is subject to the risks of errors and misconduct by itsemployees and affiliated financial advisors – such as fraud, non-compliancewith policies, recommending transactions that are not suitable, and improperlyusing or disclosing confidential information – which are difficult to detect inadvance and deter, and could harm its business, financial condition or resultsof operations.  Management of operational, legal and regulatory risksrequires, among other things, policies and procedures to record properly andverify a large number of transactions and events, and these policies andprocedures may not be fully effective in mitigating RiverSource Life’s riskexposure in all market environments or against all types of risk.  Insurance and other traditionalrisk-shifting tools may be held by or available to RiverSource Life in order tomanage certain exposures, but they are subject to terms such as deductibles,coinsurance, limits and policy exclusions, as well as risk of counterparty denialof coverage, default or insolvency.

*** ***

***RiverSourceLife is subject to tax contingencies that could adversely affect the provisionfor income taxes.***

 

RiverSource Life is subject to the incometax laws of the U.S., its states and municipalities and those of the foreignjurisdictions in which it has significant business operations.  These tax laws are complex and may be subjectto different interpretations. RiverSource Life must make judgments and interpretations about theapplication of these inherently complex tax laws when determining the provisionfor income taxes and must also make estimates about when in the future certainitems affect taxable income in the various tax jurisdictions.  Disputes over interpretations of the tax lawsmay be settled with the taxing authority upon examination or audit.

 

In addition, changes to the Internal Revenue Code, administrativerulings or court decisions could increase RiverSource Life’s provision forincome taxes. For example, on August 16, 2007, the Internal Revenue Service (“IRS”)issued a revenue ruling which purports, among other things, to modify thecalculation of the deduction for dividends received by life insurancecompanies. Subsequently on September 25, 2007, the IRS issued another revenueruling that suspended the August 16 ruling and announced a new regulationproject on the issue. The income tax benefit of the separate account dividendsreceived deduction for current year dividends was approximately $46 million forthe fiscal year ended December 31, 2007.

 

**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 4, 2008 | By                                 | /s/ Timothy V. Bechtold      |
|                        |                               | Timothy V. Bechtold          |
|                        |                               | President                    |
|                        |                               |                         |
|                        |                               |                         |
| Date: November 4, 2008 | By                                 | /s/ Brian J. McGrane         |
|                        |                               | Brian J. McGrane             |
|                        |                               | Executive Vice President and |
|                        |                               | Chief Financial Officer      |
|                             |                                    |                              |  |

 

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**EXHIBITINDEX**

 

The following exhibits are filed as part of thisQuarterly Report:

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                        |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                                                                             |
| * 31.1 |       | Certification of Timothy V. Bechtold, 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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*                Filedelectronically herewith.

 

E-1

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