Tableof Contents

** **

 

** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

 

**x****     ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarterly Period Ended March 31,2010**

 

**OR**

 

**o****        ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the Transition Periodfrom                to**

 

**Commission File No. ****033-28976**

 

**RIVERSOURCE LIFE INSURANCECOMPANY**

(Exact name ofregistrant as specified in its charter)

 

| **Minnesota**                                                   | ** ** | **41-0823832**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

| **1099 Ameriprise Financial Center, Minneapolis,  Minnesota** | ** ** | **55474**  |
|---------------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                      |       | (Zip Code) |

 

Registrant’s telephonenumber, including area code: **(612) 671-3131**

 

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

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

 

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

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yeso  Nox

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 

| **Class**                              | ** ** | **Outstanding  at****May 4, 2010** |
|----------------------------------------|------------|-----------------------------------------|
| Common Stock (par value $30 per share) |       | 100,000****shares                       |

 

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

 

 

 

----

Tableof Contents

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| Part I.  | Financial Information: |                                                                                                          |
|---------------|------------------------|---------------------------------------------------------------------------------------------------------------|
|          |                   |                                                                                                          |
|          | Item 1.                | Financial Statements                                                                                          |   |
|          |                   |                                                                                                          |   |
|          |                   | Consolidated  Balance Sheets — March 31, 2010 and December 31, 2009                            | 1 |
|          |                   |                                                                                                          |   |
|          |                   | Consolidated  Statements of Income — Three months ended March 31, 2010 and 2009                     | 2 |
|          |                   |                                                                                                          |   |
|          |                   | Consolidated  Statements of Cash Flows — Three months ended March 31, 2010 and 2009                 | 3 |
|          |                   |                                                                                                          |   |
|          |                   | Consolidated  Statements of Shareholder’s Equity — Three months ended March 31, 2010  and 2009 | 4 |
|          |                   |                                                                                                          |   |
|          |                   | Notes to Consolidated Financial Statements                                                                    | 5 |
|          |                   |                                                                                                          |   |
|          | Item 2.                | Management’s  Narrative Analysis                                                                         | 24 |
|          |                   |                                                                                                          |   |
|          | Item 4T.               | Controls and  Procedures                                                                                      | 31 |
|          |                   |                                                                                                          |   |
| Part II. | Other Information:     |                                                                                                          |
|          |                   |                                                                                                          |   |
|          | Item 1.                | Legal Proceedings                                                                                             | 31 |
|          |                   |                                                                                                          |   |
|          | Item 1A.               | Risk Factors                                                                                                  | 31 |
|          |                   |                                                                                                          |   |
|          | Item 6.                | Exhibits                                                                                                      | 31 |
|          |                   |                                                                                                          |   |
|          | Signatures             | 32                                                                                                            |
|          |                   |                                                                                                          |   |
|          | Exhibit Index     | E-1                                                                                                           |

 

----

Table of Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

**PART I.  FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                                  | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                  |       |                     |       |                        |       |
| Investments:                                                                                |       |                     |       |                        |       |
| Available-for-Sale:                                                                         |       |                     |       |                        |       |
| Fixed  maturities, at fair value (amortized cost: 2010, $24,143; 2009, $25,142)             |       | $                        | 25,344     |                        | $          | 25,999 |   |
| Common  and preferred stocks, at fair value  (cost: 2010 and 2009, $30)                     |       | 27                       |       | 23                          |       |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2010, $36; 2009,  $30) |       | 2,522                    |       | 2,532                       |       |
| Policy  loans                                                                               |       | 715                      |       | 715                         |       |
| Trading  securities and other investments                                                   |       | 288                      |       | 310                         |       |
| Total  investments                                                                          |       | 28,896                   |       | 29,579                      |       |
| Cash  and cash equivalents                                                                  |       | 619                      |       | 811                         |       |
| Restricted  cash                                                                            |       | 208                      |       | 184                         |       |
| Reinsurance  recoverables                                                                   |       | 1,726                    |       | 1,688                       |       |
| Deferred  income taxes, net                                                                 |       | —                   |       | 63                          |       |
| Other  receivables                                                                          |       | 264                      |       | 332                         |       |
| Accrued  investment income                                                                  |       | 294                      |       | 303                         |       |
| Deferred  acquisition costs                                                                 |       | 4,196                    |       | 4,285                       |       |
| Deferred  sales inducement costs                                                            |       | 514                      |       | 524                         |       |
| Other  assets                                                                               |       | 1,024                    |       | 936                         |       |
| Separate  account assets                                                                    |       | 56,412                   |       | 54,267                      |       |
|                                                                                        |       |                     |       |                        |       |
| Total  assets                                                                               |       | $                        | 94,153     |                        | $          | 92,972 |   |
| **Liabilities and Shareholder’s Equity****Liabilities:**                               |       |                     |       |                        |       |
| Future  policy benefits                                                                     |       | $                        | 30,338     |                        | $          | 30,383 |   |
| Policy  claims and other policyholders’ funds                                          |       | 142                      |       | 123                         |       |
| Deferred  income taxes, net                                                                 |       | 339                      |       | —                      |       |
| Line  of credit with Ameriprise Financial, Inc.                                        |       | —                   |       | 300                         |       |
| Other  liabilities                                                                          |       | 1,085                    |       | 1,955                       |       |
| Separate  account liabilities                                                               |       | 56,412                   |       | 54,267                      |       |
| Total  liabilities                                                                          |       | 88,316                   |       | 87,028                      |       |
| **Shareholder’s equity:**                                                              |       |                     |       |                        |       |
| Common  stock, $30 par value; 100,000 shares authorized, issued and outstanding             |       | 3                        |       | 3                           |       |
| Additional  paid-in capital                                                                 |       | 2,445                    |       | 2,445                       |       |
| Retained  earnings                                                                          |       | 2,863                    |       | 3,114                       |       |
| Accumulated  other comprehensive income, net of tax                                         |       | 526                      |       | 382                         |       |
| Total  shareholder’s equity                                                            |       | 5,837                    |       | 5,944                       |       |
|                                                                                        |       |                     |       |                        |       |
| Total  liabilities and shareholder’s equity                                            |       | $                        | 94,153     |                        | $          | 92,972 |   |

 

*See Notesto Consolidated Financial Statements.*

 

1

----

Tableof Contents

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)**

**(inmillions)**

 
| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| **Revenues**                                                          |       |                                   |       |   |   |
| Premiums                                                              |       | $                                      | 115        |   | $ | 110 |   |
| Net  investment income                                                |       | 408                                    |       | 321 |   |
| Policy  and contract charges                                          |       | 325                                    |       | 284 |   |
| Other  revenues                                                       |       | 68                                     |       | 47 |   |
| Net  realized investment gains                                        |       | 5                                      |       | 27 |   |
|                                                                  |       |                                   |       |   |   |
| Total  revenues                                                       |       | 921                                    |       | 789 |   |
|                                                                  |       |                                   |       |   |   |
| **Benefits and expenses**                                             |       |                                   |       |   |   |
| Benefits,  claims, losses and settlement expenses                     |       | 225                                    |       | (20 | ) |
| Interest  credited to fixed accounts                                  |       | 228                                    |       | 205 |   |
| Amortization  of deferred acquisition costs                           |       | 99                                     |       | 267 |   |
| Other  insurance and operating expenses                               |       | 135                                    |       | 148 |   |
|                                                                  |       |                                   |       |   |   |
| Total  benefits and expenses                                          |       | 687                                    |       | 600 |   |
|                                                                  |       |                                   |       |   |   |
| Pretax  income                                                        |       | 234                                    |       | 189 |   |
| Income  tax provision                                                 |       | 60                                     |       | 37 |   |
|                                                                  |       |                                   |       |   |   |
| Net  income                                                           |       | $                                      | 174        |   | $ | 152 |   |
|                                                                  |       |                                   |       |   |   |
| Supplemental  Disclosures:                                            |       |                                   |       |   |   |
| Net  realized investment gains:                                       |       |                                   |       |   |   |
| Net  realized investment gains before impairment losses on securities |       | $                                      | 28         |   | $ | 47 |   |
| Total  other-than-temporary impairment losses on securities           |       | (22                                    | )          | (20 | ) |
| Portion  of loss recognized in other comprehensive income             |       | (1                                     | )          | — |   |
| Net  impairment losses recognized in net realized investment gains    |       | (23                                    | )          | (20 | ) |
| Net  realized investment gains                                        |       | $                                      | 5          |   | $ | 27 |   |

 

*See Notes to Consolidated Financial Statements.*

 

2

----

Tableof Contents

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

**(inmillions)**

 
| ** **                                                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| **Cash Flows from Operating  Activities**                                                                        |       |                                   |       |   |   |
| Net income                                                                                                       |       | $                                      | 174        |   | $ | 152 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities:                     |       |                                   |       |   |   |
| Capitalization of deferred acquisition and sales  inducement costs                                               |       | (102                                   | )          | (212 | ) |
| Amortization of deferred acquisition and sales  inducement costs                                                 |       | 111                                    |       | 316 |   |
| Depreciation, amortization and accretion, net                                                                    |       | (20                                    | )          | 3 |   |
| Deferred income tax expense (benefit)                                                                            |       | 321                                    |       | (37 | ) |
| Contractholder and policyholder charges, non-cash                                                                |       | (65                                    | )          | (65 | ) |
| Net realized investment gains                                                                                    |       | (31                                    | )          | (47 | ) |
| Other-than-temporary impairments and provision for  loan losses recognized in net realized investment gains |       | 26                                     |       | 20 |   |
| Change in operating assets and liabilities:                                                                      |       |                                   |       |   |   |
| Trading securities and equity method investments,  net                                                           |       | 3                                      |       | (288 | ) |
| Future policy benefits for traditional life,  disability income and long term care insurance                     |       | 62                                     |       | 63 |   |
| Policy claims and other policyholders’ funds                                                                |       | 20                                     |       | 45 |   |
| Reinsurance recoverables                                                                                         |       | (38                                    | )          | (42 | ) |
| Other receivables                                                                                                |       | (1                                     | )          | 16 |   |
| Accrued investment income                                                                                        |       | 9                                      |       | (16 | ) |
| Derivatives collateral, net                                                                                      |       | (80                                    | )          | (625 | ) |
| Other assets and liabilities, net                                                                                |       | (321                                   | )          | 127 |   |
| Net cash provided by (used in) operating activities                                                              |       | 68                                     |       | (590 | ) |
| **Cash Flows from Investing  Activities**                                                                        |       |                                   |       |   |   |
| Available-for-Sale securities:                                                                                   |       |                                   |       |   |   |
| Proceeds from sales                                                                                              |       | 1,500                                  |       | 1,153 |   |
| Maturities, sinking fund payments and calls                                                                      |       | 894                                    |       | 879 |   |
| Purchases                                                                                                        |       | (1,953                                 | )          | (3,122 | ) |
| Proceeds from sales and maturities of commercial  mortgage loans                                                 |       | 53                                     |       | 47 |   |
| Funding of commercial mortgage loans                                                                             |       | (49                                    | )          | (34 | ) |
| Proceeds from sales of other investments                                                                         |       | 23                                     |       | 5 |   |
| Purchases of other investments                                                                                   |       | —                                 |       | (10 | ) |
| Change in policy loans, net                                                                                      |       | —                                 |       | 7 |   |
| Net cash provided by (used in) investing activities                                                              |       | 468                                    |       | (1,075 | ) |
| **Cash Flows from Financing  Activities**                                                                        |       |                                   |       |   |   |
| Policyholder and contractholder account values:                                                                  |       |                                   |       |   |   |
| Considerations received                                                                                          |       | 430                                    |       | 2,417 |   |
| Net transfers (to) from separate accounts                                                                        |       | (39                                    | )          | 284 |   |
| Surrenders and other benefits                                                                                    |       | (358                                   | )          | (770 | ) |
| Payments on line of credit with Ameriprise  Financial, Inc.                                                 |       | (300                                   | )          | — |   |
| Deferred premium options, net                                                                                    |       | (36                                    | )          | 61 |   |
| Cash  dividend to Ameriprise  Financial, Inc.                                                               |       | (425                                   | )          | — |   |
| Net cash (used in) provided by financing activities                                                              |       | (728                                   | )          | 1,992 |   |
| Net increase (decrease) in cash and cash  equivalents                                                            |       | (192                                   | )          | 327 |   |
| Cash and cash equivalents at beginning of period                                                                 |       | 811                                    |       | 3,307 |   |
| Cash and cash equivalents at end of period                                                                       |       | $                                      | 619        |   | $ | 3,634 |   |
| Supplemental Disclosures:                                                                                        |       |                                   |       |   |   |
| Income taxes paid, net                                                                                           |       | $                                      | 145        |   | $ | 1 |   |

 

*See Notesto Consolidated Financial Statements.*

 

3

----

Tableof Contents

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

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

**ThreeMonths Ended March 31, 2010 and 2009**

**(inmillions)**

** **
| ** **                                                                                                                         | ** ** | **Common  Shares** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other****Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|------------|-----------|------------|
| **Balances at January 1,  2009**                                                                                              |       | $                  | 3          |                             | $          | 2,116                  |       | $                                                      | 2,336      |      | $          | (716 | ) | $ | 3,739 |   |
| Change in accounting principles, net of tax                                                                                        |       | —             |       | —                           |       | 38                     |       | (38                                                    | )          | —    |       |
| Comprehensive income:                                                                                                              |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Net income                                                                                                                         |       | —             |       | —                           |       | 152                    |       | —                                                 |       | 152       |       |
| Other comprehensive income (loss), net of tax:                                                                                     |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Change in net unrealized securities losses                                                                                         |       | —             |       | —                           |       | —                 |       | 21                                                     |       | 21        |       |
| Change in noncredit related impairments on securities  and net unrealized securities losses on previously impaired securities |       | —             |       | —                           |       | —                 |       | (2                                                     | )          | (2        | )          |
| Change  in net unrealized derivative losses                                                                                        |       | —             |       | —                           |       | —                 |       | 1                                                      |       | 1         |       |
| Total comprehensive income                                                                                                         |       |               |       |                             |       |                   |       |                                                   |       | 172       |       |
| Tax adjustment on share-based incentive compensation  plan                                                                         |       | —             |       | (1                               | )          | —                 |       | —                                                 |       | (1        | )          |
| **Balances at March 31, 2009**                                                                                                |       | $                  | 3          |                             | $          | 2,115                  |       | $                                                      | 2,526      |      | $          | (734 | ) | $ | 3,910 |   |
| ** **                                                                                                                         |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| **Balances at January 1,  2010**                                                                                              |       | $                  | 3          |                             | $          | 2,445                  |       | $                                                      | 3,114      |      | $          | 382 |   | $ | 5,944 |   |
| Comprehensive income:                                                                                                              |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Net income                                                                                                                         |       | —             |       | —                           |       | 174                    |       | —                                                 |       | 174       |       |
| Other comprehensive income, net of tax:                                                                                            |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Change in net unrealized securities gains                                                                                          |       | —             |       | —                           |       | —                 |       | 142                                                    |       | 142       |       |
| Change in noncredit related impairments on securities  and net unrealized securities losses on previously impaired securities |       | —             |       | —                           |       | —                 |       | 1                                                      |       | 1         |       |
| Change  in net unrealized derivative losses                                                                                        |       | —             |       | —                           |       | —                 |       | 1                                                      |       | 1         |       |
| Total comprehensive income                                                                                                         |       |               |       |                             |       |                   |       |                                                   |       | 318       |       |
| Cash  dividend to Ameriprise Financial, Inc.                                                                                  |       | —             |       | —                           |       | (425                   | )          | —                                                 |       | (425      | )          |
| **Balances at March 31, 2010**                                                                                                |       | $                  | 3          |                             | $          | 2,445                  |       | $                                                      | 2,863      |      | $          | 526 |   | $ | 5,837 |   |

 

*See Notesto Consolidated Financial Statements.*

 

4

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

**1.**              Basis of Presentation

 

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned subsidiaries, RiverSource Life InsuranceCo. of New York and RiverSource Tax Advantaged Investments, Inc. (“RTA”).  RiverSource Life Insurance Company is a whollyowned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”).  All significant intercompany accounts andtransactions have been eliminated in consolidation.

 

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

 

The interim financialinformation in this report has not been audited.  In the opinion of management, all adjustmentsnecessary for a fair presentation of the consolidated financial position andresults of operations for the interim periods have been made.  All adjustments made were of a normalrecurring nature.

 

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.  Results of operations reported for interimperiods are not necessarily indicative of results for the entire year.  These Consolidated Financial Statements andNotes should be read in conjunction with the Consolidated Financial Statementsand Notes in RiverSource Life’s Annual Report on Form 10-K for the yearended December 31, 2009 filed with the Securities and Exchange Commission(“SEC”) on February 24, 2010.

 

RiverSource Lifeevaluated events or transactions that may have occurred after the balance sheetdate for potential recognition or disclosure through the date the financialstatements were issued.

 

**2.**              Recent Accounting Pronouncements

** **

**Adoption of New Accounting Standards**

** **

*Consolidationof Variable Interest Entities*

* *

In June 2009, theFinancial Accounting Standards Board (“FASB”) updated the accounting standardsrelated to the consolidation of variable interest entities (“VIEs”).  The standard amends the guidance on thedetermination of the primary beneficiary of a VIE from a quantitative model toa qualitative model and requires additional disclosures about an enterprise’sinvolvement in VIEs.  In February 2010,the FASB amended this guidance to defer application of the consolidationrequirements for certain investment funds. The standards are effective forinterim and annual reporting periods beginning after November 15,2009.  RiverSource Life adopted thestandards effective January 1, 2010 which did not impact its consolidatedfinancial condition and results of operations.

 

*Subsequent* Events

* *

In February 2010,the FASB amended the accounting standards related to the recognition anddisclosure of subsequent events.  Theamendments remove the requirement to disclose the date through which subsequentevents are evaluated for SEC filers.  Thestandard is effective upon issuance and shall be applied prospectively.  RiverSource Life adopted the standard in thefirst quarter of 2010 which did not have any effect on RiverSource Life’sconsolidated financial condition and results of operations.

 

*FairValue*

* *

In January 2010, theFASB updated the accounting standards related to disclosures on fair valuemeasurements.  The standard expands thecurrent disclosure requirements to include additional detail about significanttransfers between Levels 1 and 2 within the fair value hierarchy and presentsactivity in the rollforward of Level 3 activity on a gross basis.  The standard also clarifies existingdisclosure requirements related to the level of disaggregation to be used forassets and liabilities as well as disclosures on the inputs and valuationtechniques used to measure fair value. The standard is effective for interim and annual reporting periodsbeginning after December 15, 2009, except for the disclosure requirementsrelated to the Level 3 rollforward, which are effective for interim and annualperiods beginning after December 15, 2010. RiverSource Life adopted the standard in the first quarter of 2010,except for the additional disclosures related to the Level 3 rollforward, whichRiverSource Life will adopt in the first quarter of 2011.  The adoption did not have any effect onRiverSource Life’s consolidated financial condition and results of operations.

 

5

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

*Recognitionand Presentation of Other-Than-Temporary Impairments (“OTTI”)*

* *

In April 2009, theFASB updated the accounting standards for the recognition and presentation ofother-than-temporary impairments. The standard amends existing guidance onother-than-temporary impairments for debt securities and requires that thecredit portion of other-than-temporary impairments be recorded in earnings andthe noncredit portion of losses be recorded in other comprehensive income(loss) when the entity does not intend to sell the security and it is morelikely than not that the entity will not be required to sell the security priorto recovery of its cost basis. The standard requires separate presentation ofboth the credit and noncredit portions of other-than-temporary impairments onthe financial statements and additional disclosures. This standard is effectivefor interim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009. At thedate of adoption, the portion of previously recognized other-than-temporaryimpairments that represent the noncredit related loss component shall berecognized as a cumulative effect of adoption with an adjustment to the openingbalance of retained earnings with a corresponding adjustment to accumulatedother comprehensive income (loss). RiverSource Life adopted the standard in thefirst quarter of 2009 and recorded a cumulative effect increase to the openingbalance of retained earnings of $38 million, net of deferred acquisitioncosts (“DAC”) and deferred sales inducement costs (“DSIC”) amortization,certain benefit reserves and income taxes, and a corresponding increase toaccumulated other comprehensive loss, net of impacts to DAC and DSICamortization, certain benefit reserves and income taxes. See Note 4 forRiverSource Life’s required disclosures.

 

**3.**              Variable Interest Entities

** **

RTA, a subsidiary ofRiverSource Life Insurance Company, has variable interests in affordablehousing partnerships for which it is not the primary beneficiary and,therefore, does not consolidate.

 

RTA’s maximum exposure toloss as a result of its investment in the affordable housing partnerships islimited to the carrying values.  Thecarrying values are reflected in trading securities and other investments andwere $25 million and $28 million as of March 31, 2010 and December 31,2009, respectively.  RTA has noobligation to provide further financial or other support to the affordablehousing partnerships nor has it provided any additional support to theaffordable housing partnerships. RiverSource Life had no liabilities recorded as of March 31, 2010and December 31, 2009 related to the affordable housing partnerships.

 

**4.**              Investments

** **

Available-for-Salesecurities distributed by type were as follows:

 
| ** **                                | ** ** | **March 31, 2010** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| **Description  of Securities**            | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Non-Credit  OTTI(1)** | ** ** |
| ** **                                | ** ** | **(in millions)**       | ** ** |
| Fixed  maturities:                        |       |                    |       |   |   |   |   |   |   |   |   |
| Corporate  debt securities                |       | $                       | 13,844     |   | $ | 948 |   | $ | (51 | ) | $ | 14,741 |   | $ | 1 |   |
| Residential  mortgage backed securities   |       | 4,841                   |       | 221 |   | (196 | ) | 4,866 |   | (41 | ) |
| Commercial  mortgage backed securities    |       | 3,700                   |       | 257 |   | (3 | ) | 3,954 |   | — |   |
| Asset  backed securities                  |       | 794                     |       | 37 |   | (21 | ) | 810 |   | — |   |
| State  and municipal obligations          |       | 758                     |       | 19 |   | (39 | ) | 738 |   | — |   |
| U.S.  government and agencies obligations |       | 109                     |       | 7 |   | — |   | 116 |   | — |   |
| Foreign  government bonds and obligations |       | 93                      |       | 15 |   | — |   | 108 |   | — |   |
| Other  structured investments             |       | 4                       |       | 7 |   | — |   | 11 |   | 7 |   |
| Total  fixed maturities                   |       | 24,143                  |       | 1,511 |   | (310 | ) | 25,344 |   | (33 | ) |
| Common  and preferred stocks              |       | 30                      |       | — |   | (3 | ) | 27 |   | — |   |
| Total                                     |       | $                       | 24,173     |   | $ | 1,511 |   | $ | (313 | ) | $ | 25,371 |   | $ | (33 | ) |

 

6

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 
| ** **                                | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| **Description  of Securities**            | ** ** | **Amortized  Cost**        | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Non-Credit  OTTI(1)** | ** ** |
| ** **                                | ** ** | **(in millions)**          | ** ** |
| Fixed  maturities:                        |       |                       |       |   |   |   |   |   |   |   |   |
| Corporate  debt securities                |       | $                          | 14,245     |   | $ | 855 |   | $ | (106 | ) | $ | 14,994 |   | $ | 1 |   |
| Residential  mortgage backed securities   |       | 5,249                      |       | 185 |   | (238 | ) | 5,196 |   | (41 | ) |
| Commercial  mortgage backed securities    |       | 3,874                      |       | 182 |   | (16 | ) | 4,040 |   | — |   |
| Asset  backed securities                  |       | 877                        |       | 32 |   | (29 | ) | 880 |   | — |   |
| State  and municipal obligations          |       | 647                        |       | 12 |   | (46 | ) | 613 |   | — |   |
| U.S.  government and agencies obligations |       | 152                        |       | 7 |   | (1 | ) | 158 |   | — |   |
| Foreign  government bonds and obligations |       | 94                         |       | 14 |   | (1 | ) | 107 |   | — |   |
| Other  structured investments             |       | 4                          |       | 7 |   | — |   | 11 |   | 7 |   |
| Total  fixed maturities                   |       | 25,142                     |       | 1,294 |   | (437 | ) | 25,999 |   | (33 | ) |
| Common  and preferred stocks              |       | 30                         |       | — |   | (7 | ) | 23 |   | — |   |
| Total                                     |       | $                          | 25,172     |   | $ | 1,294 |   | $ | (444 | ) | $ | 26,022 |   | $ | (33 | ) |

 

----

(1)          Represents the amount of other-than-temporary impairment losses inAccumulated Other Comprehensive Income. Amount includes unrealized gains and losses on impaired securitiessubsequent to the impairment measurement date. These amounts are included in gross unrealized gains and losses as ofthe end of the period.

 

At both March 31,2010 and December 31, 2009, fixed maturity securities comprisedapproximately 88% of RiverSource Life’s total investments.  These securities were rated by Moody’sInvestors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”)and Fitch Ratings Ltd. (“Fitch”), except for approximately $1.1 billion ofsecurities at both March 31, 2010 and December 31, 2009, which wererated by RiverSource Investments, LLC’s internal analysts using criteriasimilar to Moody’s, S&P and Fitch. Ratings on fixed maturity securities are presented using the median ofratings from Moody’s, S&P and Fitch. If only two of the ratings are available, the lower rating is used.

 

A summary of fixedmaturity securities by rating was as follows:

 
| ** **              | ** ** | **March 31, 2010**               | ** ** | **December 31, 2009** | ** ** |
|-------------------------|------------|---------------------------------------|------------|----------------------------|------------|
| **Ratings**             | ** ** | **Amortized  Cost**                   | ** ** | **Fair********Value**      | ** ** | **Percent of  Total Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair********Value** | ** ** | **Percent of  Total Fair  Value** | ** ** |
| ** **              | ** ** | **(in millions, except percentages)** | ** ** |
| AAA                     |       | $                                     | 8,584      |                       | $          | 9,035 |   | 36 | % | $ | 9,194 |   | $ | 9,520 |   | 37 | % |
| AA                      |       | 1,073                                 |       | 1,098                      |       | 4 |   | 1,081 |   | 1,084 |   | 4 |   |
| A                       |       | 3,983                                 |       | 4,160                      |       | 16 |   | 4,182 |   | 4,326 |   | 17 |   |
| BBB                     |       | 9,152                                 |       | 9,837                      |       | 39 |   | 9,276 |   | 9,826 |   | 38 |   |
| Below investment  grade |       | 1,351                                 |       | 1,214                      |       | 5 |   | 1,409 |   | 1,243 |   | 4 |   |
| Total fixed  maturities |       | $                                     | 24,143     |                       | $          | 25,344 |   | 100 | % | $ | 25,142 |   | $ | 25,999 |   | 100 | % |

 

At March 31, 2010and December 31, 2009, approximately 32% and 33%, respectively, of thesecurities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.  No holdings of any other issuer were greaterthan 10% of shareholder’s equity.

 

7

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

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:

 
| ** **                                | ** ** | **March 31,  2010**                        | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                | ** ** | **Less  than 12 months**                        | ** ** | **12 mo­nths  or more** | ** ** | **Total** | ** ** |
| **Description of Securities**             | ** ** | **Number  of  Securities**                      | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                                | ** ** | **(in  millions, except number of securities)** | ** ** |
| Corporate  debt  securities               |       | 109                                             |       | $ | 714 |   | $ | (10 | ) | 117 |   | $ | 966 |   | $ | (41 | ) | 226 |   | $ | 1,680 |   | $ | (51 | ) |
| Residential  mortgage backed securities   |       | 36                                              |       | 1,041 |   | (27 | ) | 69 |   | 385 |   | (169 | ) | 105 |   | 1,426 |   | (196 | ) |
| Commercial  mortgage backed securities    |       | 4                                               |       | 40 |   | — |   | 14 |   | 145 |   | (3 | ) | 18 |   | 185 |   | (3 | ) |
| Asset  backed  securities                 |       | 3                                               |       | 43 |   | (2 | ) | 18 |   | 89 |   | (19 | ) | 21 |   | 132 |   | (21 | ) |
| State  and municipal obligations          |       | 25                                              |       | 141 |   | (4 | ) | 2 |   | 100 |   | (35 | ) | 27 |   | 241 |   | (39 | ) |
| U.S.  government and agencies obligations |       | 1                                               |       | 50 |   | — |   | — |   | — |   | — |   | 1 |   | 50 |   | — |   |
| Other  structured investments             |       | —                                          |       | — |   | — |   | 2 |   | — |   | — |   | 2 |   | — |   | — |   |
| Common  and preferred stock          |       | —                                          |       | — |   | — |   | 2 |   | 27 |   | (3 | ) | 2 |   | 27 |   | (3 | ) |
| Total                                     |       | 178                                             |       | $ | 2,029 |   | $ | (43 | ) | 224 |   | $ | 1,712 |   | $ | (270 | ) | 402 |   | $ | 3,741 |   | $ | (313 | ) |

** **
| ** **                                 | ** ** | **December 31,  2009**                     | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                 | ** ** | **Less  than 12 months**                        | ** ** | **12  months or more** | ** ** | **Total** | ** ** |
| **Description of Securities**              | ** ** | **Number  of Securities**                       | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** | **Number  of Securities** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** | **Number  of Securities** | ** ** | **Fair********Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                                 | ** ** | **(in  millions, except number of securities)** | ** ** |
| Corporate  debt securities                 |       | 133                                             |       | $ | 1,088 |   | $ | (18 | ) | 165 |   | $ | 1,313 |   | $ | (88 | ) | 298 |   | $ | 2,401 |   | $ | (106 | ) |
| Residential  mortgage backed securities    |       | 43                                              |       | 1,184 |   | (34 | ) | 68 |   | 363 |   | (204 | ) | 111 |   | 1,547 |   | (238 | ) |
| Commercial  mortgage backed securities     |       | 33                                              |       | 353 |   | (4 | ) | 26 |   | 297 |   | (12 | ) | 59 |   | 650 |   | (16 | ) |
| Asset  backed securities                   |       | 7                                               |       | 70 |   | (1 | ) | 18 |   | 87 |   | (28 | ) | 25 |   | 157 |   | (29 | ) |
| State  and municipal obligations           |       | 32                                              |       | 232 |   | (9 | ) | 2 |   | 99 |   | (37 | ) | 34 |   | 331 |   | (46 | ) |
| U.S.  government and agencies obligations  |       | 2                                               |       | 89 |   | (1 | ) | — |   | — |   | — |   | 2 |   | 89 |   | (1 | ) |
| Foreign  government  bonds and obligations |       | —                                          |       | — |   | — |   | 2 |   | 4 |   | (1 | ) | 2 |   | 4 |   | (1 | ) |
| Other  structured investments              |       | —                                          |       | — |   | — |   | 2 |   | — |   | — |   | 2 |   | — |   | — |   |
| Common  and preferred stock                |       | —                                          |       | — |   | — |   | 2 |   | 23 |   | (7 | ) | 2 |   | 23 |   | (7 | ) |
| Total                                      |       | 250                                             |       | $ | 3,016 |   | $ | (67 | ) | 285 |   | $ | 2,186 |   | $ | (377 | ) | 535 |   | $ | 5,202 |   | $ | (444 | ) |

 

As part of RiverSourceLife’s ongoing monitoring process, management determined that a majority of thegross unrealized losses on its Available-for-Sale securities are attributableto credit spreads.  The primary driver oflower unrealized losses at March 31, 2010 was the tightening of creditspreads across sectors.

 

8

----

Table of Contents

** **

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

The following tablepresents a rollforward of the cumulative amounts recognized in the ConsolidatedStatements of Income for other-than-temporary impairments related to creditlosses on securities for which a portion of the securities’ totalother-than-temporary impairments was recognized in other comprehensive income(loss):

 
| ** **                                                                                                                                                                             | ** ** | **2010**          | ** ** | **2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                                                                                                                                                             | ** ** | **(in millions)** | ** ** |
| Beginning  balance of credit losses on securities held as of January 1 for which a  portion of other-than-temporary impairment was recognized in other  comprehensive income |       | $                 | 82         |     | $          | 101 |   |
| Additional  amount related to credit losses for which an other-than-temporary impairment was  not previously recognized                                                           |       | 14                |       | 8        |       |
| Additional  increases to the amount related to credit losses for which an  other-than-temporary impairment was previously recognized                                                   |       | 7                 |       | 4        |       |
| Ending  balance of credit losses on securities held as of March 31 for which a  portion of other-than-temporary impairment was recognized in other  comprehensive income     |       | $                 | 103        |     | $          | 113 |   |

 

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

 

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

 
| ** **                                                               | ** ** | **Net********Unrealized********Investment********Gains (Losses)** | ** ** | **Deferred********Income  Tax** | ** ** | **Accumulated Other********Comprehensive Income  (Loss) Related to Net  Unrealized Investment  Gains (Losses)** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | ** **                                                        | ** ** | **(in millions)**               | ** ** | ** **                                                                                                      | ** ** |
| Balance  at January 1, 2009                                         |       | $                                                                 | (1,043     | )                               | $          | 365                                                                                                             |       | $ | (678 | ) |
| Cumulative  effect of accounting change                                  |       | (58                                                               | )(1)       | 20                              |       | (38                                                                                                             | )          |
| Net  unrealized investment gains arising during the  period              |       | 129                                                               |       | (44                             | )          | 85                                                                                                              |       |
| Reclassification  of gains included in net income                        |       | (27                                                               | )          | 9                               |       | (18                                                                                                             | )          |
| Impact  on DAC, DSIC, benefit reserves and reinsurance recoverables |       | (74                                                               | )          | 26                              |       | (48                                                                                                             | )          |
| Balance  at March 31, 2009                                          |       | $                                                                 | (1,073     | )                               | $          | 376                                                                                                             |       | $ | (697 | )(2) |
|                                                                     |       |                                                              |       |                            |       |                                                                                                            |       |
| Balance at January 1, 2010                                          |       | $                                                                 | 638        |                            | $          | (222                                                                                                            | )          | $ | 416 |   |
| Net  unrealized investment gains arising during the period               |       | 356                                                               |       | (126                            | )          | 230                                                                                                             |       |
| Reclassification  of gains included in net income                        |       | (8                                                                | )          | 3                               |       | (5                                                                                                              | )          |
| Impact  on DAC, DSIC, benefit reserves and reinsurance recoverables |       | (127                                                              | )          | 44                              |       | (83                                                                                                             | )          |
| Balance  at March 31, 2010                                          |       | $                                                                 | 859        |                            | $          | (301                                                                                                            | )          | $ | 558 | (2) |

 

----

(1)          Amountrepresents the cumulative effect of adopting a new accounting standard on January 1,2009.  See Note 2 for additionalinformation on the adoption impact.

 

(2)          At March 31,2010 and 2009, Accumulated Other Comprehensive Income (Loss) Related to NetUnrealized Investment Gains included $(15) million and $(38) million,respectively, of noncredit related impairments on securities and net unrealizedsecurities losses on previously impaired securities.

 

9

----

Table of Contents

** **

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

Net realized gains and losses on Available-for-Sale securities,determined using the specific identification method, recognized in net realizedinvestment gains were as follows:

 
| ** **                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                         | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                                         | ** ** | **(in millions)**                      | ** ** |
| Gross realized investment gains from sales         |       | $                                      | 32         |   | $ | 48 |   |
| Gross realized investment losses from sales        |       | (1                                     | )          | (1 | ) |
| Other-than-temporary impairments related to credit |       | (23                                    | )          | (20 | ) |
|                                                    |            |                                        |            |  |  |  |  |

 

The $23 million ofother-than-temporary impairments for the three months ended March 31, 2010were primarily related to credit losses on non-agency residential mortgagebacked securities as well as corporate debt securities in the gamingindustry.  The $20 million ofother-than-temporary impairments for the three months ended March 31, 2009were primarily related to credit losses on non-agency residential mortgagebacked securities and corporate debt securities primarily in the gamingindustries.

 

Available-for-Salesecurities by contractual maturity at March 31, 2010 were as follows:

 
| ** **                              | ** ** | **Amortized Cost**       | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|----------------|------------|
| ** **                              | ** ** | **(in****millions****)** | ** ** |
| Due  within one year                    |       | $                        | 958        |           | $          | 977 |   |
| Due  after one year through five years  |       | 5,962                    |       | 6,249          |       |
| Due  after five years through 10 years  |       | 4,669                    |       | 5,020          |       |
| Due  after 10 years                     |       | 3,215                    |       | 3,457          |       |
|                                    |       | 14,804                   |       | 15,703         |       |
| Residential  mortgage backed securities |       | 4,841                    |       | 4,866          |       |
| Commercial  mortgage backed securities  |       | 3,700                    |       | 3,954          |       |
| Asset  backed securities                |       | 794                      |       | 810            |       |
| Other  structured investments           |       | 4                        |       | 11             |       |
| Common  and preferred stocks            |       | 30                       |       | 27             |       |
| Total                                   |       | $                        | 24,173     |           | $          | 25,371 |   |

 

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

 

**5**.              Deferred Acquisition Costs and Deferred Sales InducementCosts

** **

The balances of andchanges in DAC were as follows:

 
| ** **                                          | ** ** | **2010**          | ** ** | **2009** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                          | ** ** | **(in millions)** | ** ** |
| Balance at January 1                           |       | $                 | 4,285      |     | $          | 4,324 |   |
| Capitalization of acquisition costs                 |       | 87                |       | 190      |       |
| Amortization                                        |       | (99               | )          | (267     | )          |
| Impact of change in net unrealized securities gains |       | (77               | )          | (67      | )          |
| Balance at March 31                            |       | $                 | 4,196      |     | $          | 4,180 |   |

 

The balances of andchanges in DSIC were as follows:

 
| ** **                                          | ** ** | **2010**               | ** ** | **2009** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                          | ** ** | **(in millions)** | ** ** |
| Balance at January 1                           |       | $                      | 524        |     | $          | 518 |   |
| Capitalization of sales inducement costs            |       | 15                     |       | 22       |       |
| Amortization                                        |       | (12                    | )          | (49      | )          |
| Impact of change in net unrealized securities gains |       | (13                    | )          | (14      | )          |
| Balance at March 31                            |       | $                      | 514        |     | $          | 477 |   |

 

10

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

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

** **

Future policy benefitsand policy claims and other policyholders’ funds consisted of the following:

 
|                                                                                 |   | **March 31, 2010** |   | **December 31, 2009** |   |
|--------------------------------------------------------------------------------------|--------|-------------------------|--------|----------------------------|--------|
|                                                                                 |   | **(in millions)**  |   |
| Fixed  annuities                                                                     |   | $                       | 16,571 |                       | $      | 16,558 |   |
| Equity  indexed annuities (“EIA”) accumulated host values                  |   | 141                     |   | 159                        |   |
| EIA  embedded derivatives                                                            |   | 7                       |   | 9                          |   |
| Variable  annuities fixed sub-accounts                                               |   | 6,123                   |   | 6,127                      |   |
| Variable  annuity guaranteed minimum withdrawal benefits (“GMWB”)          |   | 121                     |   | 204                        |   |
| Variable  annuity guaranteed minimum accumulation benefits (“GMAB”)        |   | 78                      |   | 100                        |   |
| Other  variable annuity guarantees                                                   |   | 10                      |   | 12                         |   |
| Total  annuities                                                                     |   | 23,051                  |   | 23,169                     |   |
| Variable  universal life (“VUL”)/universal life (“UL”) insurance |   | 2,609                   |   | 2,595                      |   |
| Other  life, disability income and long term care insurance                          |   | 4,678                   |   | 4,619                      |   |
| Total  future policy benefits                                                        |   | 30,338                  |   | 30,383                     |   |
| Policy  claims and other policyholders’ funds                                   |   | 142                     |   | 123                        |   |
| Total  future policy benefits and policy claims and other policyholders’ funds  |   | $                       | 30,480 |                       | $      | 30,506 |   |

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                              | ** ** | **(in millions)**       | ** ** |
| Variable  annuity variable sub-accounts |       | $                       | 50,921     |                       | $          | 48,982 |   |
| VUL  insurance variable sub-accounts    |       | 5,446                   |       | 5,239                      |       |
| Other  insurance variable sub-accounts  |       | 45                      |       | 46                         |       |
| Total  separate account liabilities     |       | $                       | 56,412     |                       | $          | 54,267 |   |

** **

**7.**              Variable Annuity and Insurance 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 GMWB and GMAB provisions. RiverSource Life previously offered contracts containing guaranteedminimum income benefit (“GMIB”) provisions.

 

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

 

11

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

The following tableprovides information related to variable annuity guarantees for whichRiverSource Life has established additional liabilities:

 
| ** **                                             | ** ** | **March 31, 2010**       | ** ** | **Dece­mber 31, 2009**           | ** ** |
|--------------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|
| **Variable annuity   guarantees by benefit  type (1)** | ** ** | **Total  contract  value**    | ** ** | **Contract  value in  separate  accounts** | ** ** | **Net  amount   at risk(2)** | ** ** | **Weighted  average  attained  age** | ** ** | **Total  contract  value** | ** ** | **Contract  value in  separate  accounts** | ** ** | **Net  amount  at risk(2)** | ** ** | **Weighted  average  attained  age** | ** ** |
| ** **                                             | ** ** | **(in millions, except age)** | ** ** |
| **GMDB:**                                              |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Return  of premium                                     |       | $                             | 32,513     |                                       | $          | 29,959 |   | $ | 614 |   | 62 |   | $ | 30,938 |   | $ | 28,415 |   | $ | 974 |   | 61 |   |
| Five/six-year  reset                                   |       | 13,998                        |       | 11,325                                     |       | 691 |   | 62 |   | 13,919 |   | 11,223 |   | 929 |   | 61 |   |
| One-year  ratchet                                      |       | 7,284                         |       | 6,620                                      |       | 666 |   | 63 |   | 7,081 |   | 6,400 |   | 873 |   | 63 |   |
| Five-year  ratchet                                     |       | 1,309                         |       | 1,223                                      |       | 25 |   | 59 |   | 1,256 |   | 1,171 |   | 38 |   | 59 |   |
| Other                                                  |       | 565                           |       | 535                                        |       | 84 |   | 67 |   | 549 |   | 516 |   | 95 |   | 67 |   |
| Total  — GMDB                                     |       | $                             | 55,669     |                                       | $          | 49,662 |   | $ | 2,080 |   | 62 |   | $ | 53,743 |   | $ | 47,725 |   | $ | 2,909 |   | 61 |   |
|                                                   |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU death benefit**                                  |       | $                             | 887        |                                       | $          | 806 |   | $ | 72 |   | 63 |   | $ | 853 |   | $ | 775 |   | $ | 70 |   | 63 |   |
|                                                   |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                               |       | $                             | 631        |                                       | $          | 588 |   | $ | 110 |   | 63 |   | $ | 628 |   | $ | 582 |   | $ | 126 |   | 63 |   |
|                                                   |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                              |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                   |       | $                             | 4,273      |                                       | $          | 4,141 |   | $ | 322 |   | 64 |   | $ | 4,196 |   | $ | 4,067 |   | $ | 454 |   | 64 |   |
| GMWB  for life                                         |       | 16,051                        |       | 15,379                                     |       | 526 |   | 63 |   | 14,988 |   | 14,333 |   | 795 |   | 63 |   |
| Total  — GMWB                                     |       | $                             | 20,324     |                                       | $          | 19,520 |   | $ | 848 |   | 63 |   | $ | 19,184 |   | $ | 18,400 |   | $ | 1,249 |   | 63 |   |
|                                                   |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                               |       | $                             | 3,063      |                                       | $          | 2,986 |   | $ | 98 |   | 56 |   | $ | 2,926 |   | $ | 2,853 |   | $ | 153 |   | 56 |   |

 

----

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

 

(2)          Represents thecurrent guaranteed benefit amount in excess of the current contract value.  GMIB, GMWB and GMAB benefits are subject towaiting periods and payment periods specified in the contract.

 

Changes in additionalliabilities were as follows:

 
| ** **                                 | ** ** | **GMDB &   GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                 | ** ** | **(in millions)**         | ** ** |
| Liability  balance at January 1, 2009 |       | $                              | 55         |     | $          | 12       |       | $        | 1,471      |   | $          | 367 |   | $ | 7 |   |
| Incurred  claims                           |       | 23                             |       | 1        |       | (272     | )          | (37      | )          | 2      |       |
| Paid  claims                               |       | (26                            | )          | —   |       | —   |       | —   |       | — |       |
| Liability  balance at March 31, 2009  |       | $                              | 52         |     | $          | 13       |       | $        | 1,199      |   | $          | 330 |   | $ | 9 |   |
|                                       |       |                           |       |     |       |     |       |     |       |   |       |   |   |   |   |   |
| Liability  balance at January 1, 2010 |       | $                              | 6          |     | $          | 6        |       | $        | 204        |   | $          | 100 |   | $ | 15 |   |
| Incurred  claims                           |       | 3                              |       | —   |       | (83      | )          | (22      | )          | 4      |       |
| Paid  claims                               |       | (5                             | )          | —   |       | —   |       | —   |       | (2     | )          |
| Liability  balance at March 31, 2010  |       | $                              | 4          |     | $          | 6        |       | $        | 121        |   | $          | 78 |   | $ | 17 |   |

** **

**8.**              Line of Credit

** **

RiverSource LifeInsurance Company, as the borrower, had an outstanding balance at December 31,2009 of $300 million under a revolving credit agreement with Ameriprise Financialas the lender.  The aggregate amountoutstanding under the line of credit may not exceed $800 million at anytime.  The interest rate for anyborrowing under the agreement is established by reference to LIBOR plus 28basis points.  Amounts borrowed may berepaid at any time with no prepayment penalty. The outstanding balance was paid in full during the first quarter of2010.

 

12

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

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

** **

GAAP defines fair valueas the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subjectto a forced liquidation or distressed sale.

 

**Valuation Hierarchy**

** **

RiverSource Lifecategorizes its fair value measurements according to a three-levelhierarchy.  The hierarchy prioritizes theinputs used by RiverSource 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.  Thethree levels of the fair value hierarchy are defined as follows:

 

Level 1                Unadjusted quotedprices for identical assets or liabilities in active markets that are accessibleat the measurement date.

 

Level 2                Prices orvaluations based on observable inputs other than quoted prices in activemarkets for identical assets and liabilities.

 

Level 3                Prices orvaluations that require inputs that are both significant to the fair valuemeasurement and unobservable.

 

**Determination of 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 market approach uses pricesand other relevant information generated by market transactions involvingidentical or comparable assets or liabilities. RiverSource Life’s income approach uses valuation techniques to convertfuture projected cash flows to a single discounted present value amount.  When applying either approach, RiverSourceLife maximizes the use of observable inputs and minimizes the use ofunobservable inputs.

 

The following is adescription of the valuation techniques used to measure fair value and thegeneral classification of these instruments pursuant to the fair valuehierarchy.

 

**Assets**

** **

*CashEquivalents*

* *

Cash equivalents includehighly liquid investments with original maturities of 90 days or less.  Actively traded money market funds aremeasured at their net asset value (“NAV”) and classified as Level 1.  RiverSource Life’s remaining cash equivalentsare classified as Level 2 and 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, the fairvalue of securities is based on quoted prices in active markets.  If quoted prices are not available, fairvalues are obtained from nationally-recognized pricing services, broker quotes,or other model-based valuation techniques. Level 1 securities include U.S. Treasuries.  Level 2 securities include municipal andcorporate bonds, agency mortgage backed securities, commercial mortgage backedsecurities, asset backed securities and U.S. and foreign government and agencysecurities.  The fair value of theseLevel 2 securities is based on a market approach with prices obtained fromnationally-recognized pricing services. Observable inputs used to value these securities can include: reportedtrades, benchmark yields, issuer spreads and broker/dealer quotes.  Level 3 securities include corporate bonds, non-agencyresidential mortgage backed securities, commercial mortgage backed securitiesand asset backed securities.  The fairvalue of these Level 3 securities is typically based on a single broker quote,except for the valuation of non-agency residential mortgage backed securities,described in detail below.

 

While RiverSource Lifebelieves the market for non-agency residential mortgage backed securities isstill inactive, effective March 31, 2010, RiverSource Life returned tousing prices from nationally-recognized pricing services to determine the fairvalue of certain non-agency residential mortgage backed securities because thedifference between these prices and the results of RiverSource Life’sdiscounted cash flows was not significant.

 

13

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

*SeparateAccount Assets*

* *

The fair value of assetsheld by separate accounts is determined by the NAV of the funds in which thoseseparate accounts are invested.  The NAVrepresents the exit price for the separate account.  Separate account assets are classified asLevel 2 as they are traded in principal-to-principal markets with littlepublicly released pricing information.

 

*OtherAssets*

* *

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.  Thesemeasurements are classified as Level 2 within the fair value hierarchy andinclude interest rate swaps and options. Derivatives that are valued using pricing models that have significantunobservable inputs are classified as Level 3 measurements.

 

**Liabilities**

** **

*FuturePolicy Benefits*

* *

RiverSource Life valuesthe embedded derivative liability attributable to the provisions of certainvariable annuity riders using internal valuation models.  These models calculate fair value bydiscounting expected cash flows from benefits plus margins for profit, risk andexpenses less embedded derivative fees. The projected cash flows used by these models include observable capitalmarket assumptions (such as market implied equity volatility and the LIBOR swapcurve) and incorporate significant unobservable inputs related tocontractholder behavior assumptions (such as withdrawals and lapse rates) andmargins for risk, profit and expenses that RiverSource Life believes an exitmarket participant would expect.  Thefair value of these embedded derivatives also reflects a current estimate ofRiverSource Life’s nonperformance risk specific to these liabilities.  Given the significant unobservable inputs tothis valuation, these measurements are classified as Level 3.  The embedded derivative liabilityattributable to these provisions is recorded in future policy benefits.  RiverSource Life uses various Black-Scholescalculations to determine the fair value of the embedded derivative liabilityassociated with the provisions of its equity indexed annuities.  The inputs to these calculations areprimarily market observable and include interest rates, volatilities and equityindex levels.  As a result, thesemeasurements are classified as Level 2.

 

*OtherLiabilities*

* *

Thefair value of the derivatives that are traded in less active over-the-countermarkets are generally measured using pricing models with market observableinputs such as interest rates and equity index levels.  These measurements are classified as Level 2within the fair value hierarchy and include interest rate swaps and options.

 

14

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

The following tablespresent the balances of assets and liabilities measured at fair value on arecurring basis:

 
| ** **                                             | ** ** | **March 31, 2010** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Level 1**             | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **(in millions)**       | ** ** |
|                                                   |       |                    |       |   |   |   |   |   |   |
| Assets                                                 |       |                    |       |   |   |   |   |   |   |
| Available-for-Sale  securities:                        |       |                    |       |   |   |   |   |   |   |
| Fixed  maturities:                                     |       |                    |       |   |   |   |   |   |   |
| Corporate debt  securities                             |       | $                       | —     |   | $ | 13,492 |   | $ | 1,249 |   | $ | 14,741 |   |
| Residential  mortgage backed securities                |       | —                  |       | 2,184 |   | 2,682 |   | 4,866 |   |
| Commercial  mortgage backed securities                 |       | —                  |       | 3,874 |   | 80 |   | 3,954 |   |
| Asset  backed securities                               |       | —                  |       | 595 |   | 215 |   | 810 |   |
| State and  municipal obligations                       |       | —                  |       | 738 |   | — |   | 738 |   |
| U.S. government  and agencies obligations              |       | 10                      |       | 106 |   | — |   | 116 |   |
| Foreign  government bonds and obligations              |       | —                  |       | 108 |   | — |   | 108 |   |
| Other structured  investments                          |       | —                  |       | — |   | 11 |   | 11 |   |
| Total  Available-for-Sale securities: Fixed maturities |       | 10                      |       | 21,097 |   | 4,237 |   | 25,344 |   |
| Common and  preferred stocks                           |       | —                  |       | 27 |   | — |   | 27 |   |
| Trading  securities                                    |       | —                  |       | 36 |   | — |   | 36 |   |
| Cash equivalents                                       |       | 9                       |       | 610 |   | — |   | 619 |   |
| Other assets:                                          |       |                    |       |   |   |   |   |   |   |
| Interest rate  derivative contracts                    |       | —                  |       | 166 |   | — |   | 166 |   |
| Equity derivative  contracts                           |       | —                  |       | 326 |   | — |   | 326 |   |
| Total Other  assets                                    |       | —                  |       | 492 |   | — |   | 492 |   |
| Separate account  assets                               |       | —                  |       | 56,412 |   | — |   | 56,412 |   |
| Total assets at  fair value                            |       | $                       | 19         |   | $ | 78,674 |   | $ | 4,237 |   | $ | 82,930 |   |
|                                                   |       |                    |       |   |   |   |   |   |   |
| Liabilities                                            |       |                    |       |   |   |   |   |   |   |
| Future policy  benefits:                               |       |                    |       |   |   |   |   |   |   |
| EIA embedded  derivatives                              |       | $                       | —     |   | $ | 7 |   | $ | — |   | $ | 7 |   |
| GMWB and GMAB  embedded derivatives                    |       | —                  |       | — |   | 193 |   | 193 |   |
| Total Future  policy benefits                          |       | —                  |       | 7 |   | 193 |   | 200 |   |
| Other  liabilities:                                    |       |                    |       |   |   |   |   |   |   |
| Interest rate  derivative contracts                    |       | —                  |       | 195 |   | — |   | 195 |   |
| Equity  derivative contracts                           |       | —                  |       | 591 |   | — |   | 591 |   |
| Total Other  liabilities                               |       | —                  |       | 786 |   | — |   | 786 |   |
| Total  liabilities at fair value                       |       | $                       | —     |   | $ | 793 |   | $ | 193 |   | $ | 986 |   |

 

15

----

Table of Contents

** **

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 
| ** **                                             | ** ** | **December 31, 2009** | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|
| ** **                                             | ** ** | **Level 1**                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **(in millions)**          | ** ** |
| Assets                                                 |       |                       |       |   |   |   |   |   |   |
| Available-for-Sale  securities:                        |       |                       |       |   |   |   |   |   |   |
| Fixed maturities:                                      |       |                       |       |   |   |   |   |   |   |
| Corporate debt  securities                             |       | $                          | —     |   | $ | 13,755 |   | $ | 1,239 |   | $ | 14,994 |   |
| Residential  mortgage backed securities                |       | —                     |       | 2,424 |   | 2,772 |   | 5,196 |   |
| Commercial  mortgage backed securities                 |       | —                     |       | 3,968 |   | 72 |   | 4,040 |   |
| Asset  backed securities                               |       | —                     |       | 665 |   | 215 |   | 880 |   |
| State and  municipal obligations                       |       | —                     |       | 613 |   | — |   | 613 |   |
| U.S. government  and agencies obligations              |       | 11                         |       | 147 |   | — |   | 158 |   |
| Foreign  government bonds and obligations              |       | —                     |       | 107 |   | — |   | 107 |   |
| Other structured  investments                          |       | —                     |       | — |   | 11 |   | 11 |   |
| Total  Available-for-Sale securities: Fixed maturities |       | 11                         |       | 21,679 |   | 4,309 |   | 25,999 |   |
| Common and  preferred stocks                           |       | —                     |       | 23 |   | — |   | 23 |   |
| Trading  securities                                    |       | —                     |       | 36 |   | — |   | 36 |   |
| Cash equivalents                                       |       | 2                          |       | 801 |   | — |   | 803 |   |
| Other assets                                           |       | —                     |       | 615 |   | — |   | 615 |   |
| Separate account  assets                               |       | —                     |       | 54,267 |   | — |   | 54,267 |   |
| Total assets at  fair value                            |       | $                          | 13         |   | $ | 77,421 |   | $ | 4,309 |   | $ | 81,743 |   |
|                                                   |       |                       |       |   |   |   |   |   |   |
| Liabilities                                            |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Future policy  benefits                                |       | $                          | —     |   | $ | 9 |   | $ | 299 |   | $ | 308 |   |
| Other  liabilities                                     |       | —                     |       | 757 |   | — |   | 757 |   |
| Total  liabilities at fair value                       |       | $                          | —     |   | $ | 766 |   | $ | 299 |   | $ | 1,065 |   |

 

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

 
|                                    |   |                                            |       | **Total Gains   (Losses) Included in** |       | **Purchases, Sales,  Issuances**       |       |                       |       |                                            |       |
|-----------------------------------------|--------|-------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------|------------|-------------------------------------------------|------------|
|                                    |   | **Balance,********January 1,********2010** | ** ** | **Net********Income**                  | ** ** | **Other********Comprehensive  Income** | ** ** | **and   Settlements, Net** | ** ** | **Transfers********In/(Out) of********Level 3** | ** ** | **Balance,********March 31, 2010** |   |
|                                    |   | **(in millions)**                               |       |
| Available-for-Sale  securities:         |   |                                            |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Fixed  maturities:                      |   |                                            |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Corporate  debt securities              |   | $                                               | 1,239      |                                   | $          | —                                 |       | $                          | 19         |                                            | $          | (9 | ) | $ | — |   | $ | 1,249 |   |
| Residential  mortgage backed securities |   | 2,772                                           |       | (2                                     | )          | 60                                     |       | (148                       | )          | —                                          |       | 2,682 |   |
| Commercial  mortgage backed securities  |   | 72                                              |       | —                                 |       | 8                                      |       | —                     |       | —                                          |       | 80 |   |
| Asset  backed securities                |   | 215                                             |       | 3                                      |       | 10                                     |       | (13                        | )          | —                                          |       | 215 |   |
| Other  structured investments           |   | 11                                              |       | 1                                      |       | —                                 |       | (1                         | )          | —                                          |       | 11 |   |
| Total  Available-for-Sale securities:   |   |                                            |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Fixed  maturities                       |   | 4,309                                           |       | 2                                      | (1)        | 97                                     |       | (171                       | )          | —                                          |       | 4,237 |   |
|                                    |   |                                            |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Future  policy benefits:                |   |                                            |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| GMWB  and GMAB embedded derivatives     |   | (299                                            | )          | 134                                    | (2)        | —                                 |       | (28                        | )          | —                                          |       | (193 | ) |
|                                         |        |                                                 |            |                                        |            |                                        |            |                            |            |                                                 |            |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $19 million loss included in net realized investmentgains and a $21 million gain included in net investment income in theConsolidated Statements of Income.

 

(2)          Included inbenefits, claims, losses and settlement expenses in the Consolidated Statementsof Income.

 

16

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 
|                                    |   |                                            |   | **Total  Gains  (Losses) Included in** |   | **Purchases,  Sales,  Issuances**    |   |                       |   |                                            |   |
|-----------------------------------------|--------|-------------------------------------------------|--------|----------------------------------------|--------|--------------------------------------|--------|----------------------------|--------|-------------------------------------------------|--------|
|                                    |   | **Balance,********January 1,********2009** |   | **Net********Income**                  |   | **Other********Comprehensive  Loss** |   | **and  Settlements,  Net** |   | **Transfers********In/(Out) of********Level 3** |   | **Balance,********March 31,********2009** |   |
|                                    |   | **(in  millions)**                              |   |
| Available-for-Sale  securities:         |   |                                            |   |                                   |   |                                 |   |                       |   |                                            |   |   |   |
| Fixed  maturities:                      |   |                                            |   |                                   |   |                                 |   |                       |   |                                            |   |   |   |
| Corporate  debt securities              |   | $                                               | 1,086  |                                   | $      | —                               |   | $                          | 24     |                                            | $      | (39 | ) | $ | (14 | )(3) | $ | 1,057 |   |
| Residential  mortgage backed securities |   | 520                                             |   | 2                                      |   | (29                                  | )      | 1,247                      |   | —                                          |   | 1,740 |   |
| Commercial  mortgage backed securities  |   | 3                                               |   | —                                 |   | —                               |   | —                     |   | —                                          |   | 3 |   |
| Asset  backed securities                |   | 95                                              |   | 1                                      |   | (4                                   | )      | 20                         |   | —                                          |   | 112 |   |
| Other  structured investments           |   | 9                                               |   | —                                 |   | (1                                   | )      | —                     |   | —                                          |   | 8 |   |
| Total  Available-for-Sale securities:   |   |                                            |   |                                   |   |                                 |   |                       |   |                                            |   |   |   |
| Fixed maturities                        |   | 1,713                                           |   | 3                                      | (1)    | (10                                  | )      | 1,228                      |   | (14                                             | )      | 2,920 |   |
|                                    |   |                                            |   |                                   |   |                                 |   |                       |   |                                            |   |   |   |
| Other  assets                           |   | 200                                             |   | (4                                     | )(2)   | —                               |   | (71                        | )      | —                                          |   | 125 |   |
| Future  policy benefits                 |   | (1,832                                          | )      | 331                                    | (2)    | —                               |   | (15                        | )      | —                                          |   | (1,516 | ) |
|                                         |        |                                                 |        |                                        |        |                                      |        |                            |        |                                                 |        |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $4 million loss included in net realizedinvestment gains (losses) and a $7 million gain included in net investmentincome in the Consolidated Statements of Income.

 

(2)          Included inbenefits, claims, losses and settlement expenses in the Consolidated Statementsof Income.

 

(3)          Represents asecurity transferred to Level 2 as the fair value is now obtained from anationally-recognized pricing service. Previously, the fair value of the security was based on broker quotes.

 

RiverSource Liferecognizes transfers between levels of the fair value hierarchy as of thebeginning of the quarter in which each transfer occurred.  There were no transfers between Level 1 andLevel 2 during the three months ended March 31, 2010.

 

The following tablepresents the changes in unrealized gains (losses) included in net incomerelated to Level 3 assets and liabilities held at March 31 for the threemonths then ended:

 
| ** **                              | ** ** | **2010**                    | ** ** | **2009**                                      | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|
| ** **                              | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement**

**Expenses** | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** |
| ** **                              | ** ** | **(in millions)**           | ** ** |
| Available-for-Sale  securities:         |       |                        |       |                                          |       |   |   |   |   |   |   |   |   |
| Fixed maturities:                  |       |                        |       |                                          |       |   |   |   |   |   |   |   |   |
| Residential  mortgage backed securities |       | $                           | 19         |                                          | $          | (21 | ) | $ | — |   | $ | 7 |   | $ | (4 | ) | $ | — |   |
| Asset  backed securities                |       | 2                           |       | —                                        |       | — |   | — |   | — |   | — |   |
| Total  Available-for-Sale securities:   |       |                        |       |                                          |       |   |   |   |   |   |   |   |   |
| Fixed maturities                        |       | 21                          |       | (21                                           | )          | — |   | 7 |   | (4 | ) | — |   |
| Future  policy benefits                 |       | —                      |       | —                                        |       | 132 |   | — |   | — |   | 322 |   |
|                                         |            |                             |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

During the reportingperiods, there were no material assets or liabilities measured at fair value ona nonrecurring basis.

 

17

----

Tableof Contents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

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

 

The following tableprovides the carrying value and the estimated fair value of financial instrumentsthat are not reported at fair value.  Allother financial instruments that are reported at fair value have been includedabove in the table with balances of assets and liabilities measured at fairvalue on a recurring basis.

 
| ** **                                | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **Carrying  Value**     | ** ** | **Fair Value**             | ** ** | **Carrying  Value** | ** ** | **Fair Value** | ** ** |
| ** **                                | ** ** | **(in millions)**       | ** ** |
| **Financial Assets**                      |       |                    |       |                       |       |   |   |   |   |
| Commercial  mortgage loans, net           |       | $                       | 2,522      |                       | $          | 2,541 |   | $ | 2,532 |   | $ | 2,519 |   |
| Policy  loans                             |       | 715                     |       | 764                        |       | 715 |   | 790 |   |
| Other  investments                        |       | 212                     |       | 232                        |       | 226 |   | 245 |   |
| Restricted  cash                          |       | 208                     |       | 208                        |       | 184 |   | 184 |   |
| **Financial Liabilities**                 |       |                    |       |                       |       |   |   |   |   |
| Future  policy benefits                   |       | $                       | 15,492     |                       | $          | 15,413 |   | $ | 15,540 |   | $ | 15,657 |   |
| Separate  account liabilities             |       | 409                     |       | 409                        |       | 406 |   | 406 |   |
| Line  of credit with Ameriprise Financial |       | —                  |       | —                     |       | 300 |   | 300 |   |

* *

*CommercialMortgage Loans, Net*

* *

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

 

*PolicyLoans*

* *

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

 

*OtherInvestments*

* *

Other investments primarilyconsist of syndicated loans and an investment in Federal Home Loan Bank (“FHLB”)of Des Moines.  The fair value ofsyndicated loans is obtained from a nationally-recognized pricing service.  The carrying value of the investment in FHLBis considered a reasonable estimate of the fair value, as this represents thestated exit price for this investment.

 

*Restricted Cash*

 

Restricted cash isgenerally set aside for specific business transactions and restrictions arespecific to RiverSource Life and do not transfer to third party marketparticipants, therefore, the carrying value amount is a reasonable estimate offair value.

 

*FuturePolicy Benefits*

* *

The fair value of fixedannuities, in deferral status, is determined by discounting cash flows using arisk neutral discount rate with adjustments for profit margin, expense margin,early policy surrender behavior, a provision for adverse deviation fromestimated early policy surrender behavior and RiverSource Life’s nonperformancerisk specific to these liabilities.  Thefair value of other liabilities including non-life contingent fixed annuitiesin payout status, equity indexed annuity host contracts and the fixed portionof a small number of variable annuity contracts classified as investmentcontracts is determined in a similar manner.

 

*SeparateAccount Liabilities*

* *

Certain separate accountliabilities are classified as investment contracts and are carried at an amountequal to the related separate account assets. Carrying value is a reasonable estimate of the fair value as itrepresents the exit value as evidenced by withdrawal transactions betweencontractholders and RiverSource Life.  Anon-performance adjustment is not included as the related separate account assetsact as collateral for these liabilities and minimize non-performance risk.

 

18

----

Table of Contents

** **

**RIVERSOURCELIFE INSURANCE COMPANY**

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

 

*Line ofCredit with Ameriprise Financial*

 

The fair value of theline of credit is determined by discounting cash flows with an adjustment forRiverSource Life’s nonperformance risk specific to this liability.  Due to the short-term nature of the line ofcredit, the carrying value is an approximation of the fair value.

 

**10.**       Derivativesand Hedging Activities

** **

Derivative instrumentsenable RiverSource Life to manage its exposure to various market risks.  The value of such instruments is derivedfrom an underlying variable or multiple variables, including equity and interestrate indices or prices.  RiverSource Lifeprimarily enters into derivative agreements for risk management purposesrelated to RiverSource Life’s products and operations.

 

RiverSource Life usesderivatives as economic hedges and occasionally holds derivatives designatedfor hedge accounting.  The followingtable presents the balance sheet location and the gross fair value ofderivative instruments, including embedded derivatives, by type of derivativeand product:

 
| ** **                                             | ** ** | ** **                  | ** ** | **Asset**                | ** ** | ** **                  | ** ** | **Liability**               | ** ** |
|--------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Derivatives not designated  as hedging instruments** | ** ** | **Balance Sheet  Location** | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** | **Balance Sheet  Location** | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
| ** **                                             | ** ** | ** **                  | ** ** | **(in millions)**        | ** ** | ** **                  | ** ** | **(in millions)**           | ** ** |
| **Interest rate contracts**                            | ** ** | ** **                  | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| GMWB  and GMAB                                         |       | Other assets                |       | $                        | 166        | ** **                  | **$**      | 176                         |       | Other  liabilities |   | $ | 195 |   | $ | 280 |   |
| **Equity contracts**                                   | ** ** | ** **                  |       |                     | ** ** | ** **                  | ** ** | ** **                  |       |   |   |   |   |
| GMWB  and GMAB                                         |       | Other assets                |       | 326                      |       | 437                         |       | Other  liabilities          |       | 589 |   | 474 |   |
| GMDB                                                   |       |                        |       | —                   |       | —                      |       | Other  liabilities          |       | 2 |   | 2 |   |
| EIA                                                    |       | Other assets                |       | 1                        |       | 2                           |       |                        |       | — |   | — |   |
| EIA  embedded derivatives                              | ** ** | ** **                  | ** ** | **—**               | ** ** | **—**                  |       | Future  policy benefits     |       | 7 |   | 9 |   |
| **Other**                                              |       |                        |       |                     |       |                        |       |                        |       |   |   |   |   |
| GMWB  and GMAB embedded derivatives(1)                 |       |                        |       | —                   |       | —                      |       | Future  policy benefits     |       | 193 |   | 299 |   |
| Total                                                  |       |                        |       | $                        | 493        |                        | $          | 615                         |       |   |   | $ | 986 |   | $ | 1,064 |   |

 

----

(1)          The fair valuesof GMWB and GMAB embedded derivatives fluctuate primarily based on changes inequity, interest rate and credit markets.

 

See Note 9 foradditional information regarding RiverSource Life’s fair value measurement ofderivative instruments.

 

19

----

Tableof Contents

 

**RIVERSOURCELIFE INSURANCE COMPANY**

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

 

***DerivativesNot Designated as Hedges***

 

The following tablepresents a summary of the impact of derivatives not designated as hedginginstruments on the Consolidated Statements of Income:

 
| ** **                                             | ** ** | ** **                                                       | ** ** | **Amount of Gain (Loss) on Derivatives  Recognized in Income** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| **Derivatives not designated as  hedging instruments** | ** ** | **Location of Gain (Loss)  on Derivatives Recognized in Income** | ** ** | **Three Months Ended  March 31, 2010**                    | ** ** | **Three Months Ended  March 31, 2009** | ** ** |
| ** **                                             | ** ** | ** **                                                       | ** ** | **(in millions)**                                              | ** ** |
| **Interest rate contracts**                            | ** ** | ** **                                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| GMWB  and GMAB                                         |       | Benefits,  claims, losses and settlement expenses                |       | $                                                              | 26         |   | $ | (123 | ) |
| **Equity contracts**                                   |       |                                                             |       |                                                           |       |   |   |
| GMWB  and GMAB                                         |       | Benefits,  claims, losses and settlement expenses                |       | (183                                                           | )          | 61 |   |
| GMDB                                                   |       | Benefits,  claims, losses and settlement expenses                |       | (3                                                             | )          | — |   |
| EIA                                                    |       | Interest  credited to fixed accounts                             |       | 1                                                              |       | (2 | ) |
| EIA  embedded derivatives                              |       | Interest  credited to fixed accounts                             |       | 2                                                              |       | 1 |   |
| **Other**                                              |       |                                                             |       |                                                           |       |   |   |
| GMWB  and GMAB embedded derivatives                    |       | Benefits,  claims, losses and settlement expenses                |       | 106                                                            |       | 316 |   |
| Total                                                  |       |                                                             |       | $                                                              | (51        | ) | $ | 253 |   |

 

RiverSource Life holdsderivative instruments that either do not qualify or are not designated forhedge accounting treatment.  Thesederivative instruments are used as economic hedges of equity and interest raterisk related to various RiverSource Life products and transactions.

 

The majority ofRiverSource Life’s annuity contracts contain GMDB provisions, which may resultin a death benefit payable that exceeds the contract accumulation value whenmarket values of customers’ accounts decline. Certain annuity contracts contain GMWB or GMAB provisions, whichguarantee the right to make limited partial withdrawals each contract yearregardless of the volatility inherent in the underlying investments orguarantee a minimum accumulation value of considerations received at thebeginning of the contract period, after a specified holding period,respectively.  RiverSource Lifeeconomically hedges the exposure related to non-life contingent GMWB and GMABprovisions using various equity futures, equity options, total return swaps,interest rate swaptions and interest rate swaps.  In 2009, RiverSource Life entered into alimited number of derivative contracts to economically hedge equity exposurerelated to GMDB provisions on variable annuity contracts written previously in2009.  At March 31, 2010, the grossnotional amount of these contracts was $36.5 billion and $78 million forRiverSource Life’s GMWB and GMAB provisions and GMDB provisions,respectively.  At December 31, 2009,the gross notional amount of these contracts was $38.7 billion and $77 millionfor RiverSource Life’s GMWB and GMAB provisions and GMDB provisions,respectively.  The premiumassociated with certain of the above options is paid or received semi-annuallyover the life of the option contract.

 

The following is asummary of the payments RiverSource Life is scheduled to make and receive forthese options:

 
| ** ** | ** ** | **Premiums  Payable** | ** ** | **Premiums  Receivable** | ** ** |
|------------|------------|-----------------------|------------|--------------------------|------------|
| ** ** | ** ** | **(in millions)**     | ** ** |
| 2010(1)    |       | $                     | 166        |                     | $          | 5 |   |
| 2011       |       | 204                   |       | 4                        |       |
| 2012       |       | 174                   |       | 3                        |       |
| 2013       |       | 151                   |       | 2                        |       |
| 2014       |       | 126                   |       | 1                        |       |
| 2015-2024  |       | 434                   |       | 4                        |       |
|            |            |                       |            |                          |            |  |  |

 

----

(1)   2010 amounts represent theamounts payable and receivable for the period from April 1, 2010 to December 31,2010.

 

Actual timing and paymentamounts may differ due to future contract settlements, modifications orexercises of options prior to the full premium being paid or received.

 

20

----

Tableof Contents

 

**RIVERSOURCELIFE INSURANCE COMPANY**

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

 

Equity indexed annuitieshave returns tied to the performance of equity markets.  As a result of fluctuations in equitymarkets, the obligation incurred by RiverSource Life related to equity indexedannuities products will positively or negatively impact earnings over the lifeof these products.  As a means of economicallyhedging its obligations under the provisions of these products, RiverSourceLife enters into index options and occasionally enters into futurescontracts.  The gross notional amount ofthese derivative contracts was $104 million and $129 million at March 31,2010 and December 31, 2009, respectively.

 

**Embedded Derivatives**

** **

Certain annuities containGMAB and non-life contingent GMWB provisions, which are considered embeddedderivatives.  In addition,the equity component of the equity indexed annuity product obligations isalso considered an embedded derivative. As captured in the tables above, embedded derivatives are bifurcatedfrom their host contracts and reported on the Consolidated Balance Sheets at fairvalue with changes in fair value reported in earnings.  As noted above, RiverSource Life usesderivatives to mitigate the financial statement impact of these embeddedderivatives.

 

**Cash Flow Hedges**

** **

RiverSourceLife has amounts classified in accumulated other comprehensive income relatedto gains and losses associated with the effective portion of previouslydesignated cash flow hedges.  RiverSourceLife reclassifies these amounts into income as the forecasted transactionsimpact earnings.  During the three monthsended March 31, 2010, RiverSource Life held no derivatives that weredesignated as cash flow hedges.

 

Thefollowing is a summary of unrealized derivatives losses included in accumulatedother comprehensive income related to cash flow hedges:

 
| ** **                                           | ** ** | **2010**          | ** ** | **2009** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                           | ** ** | **(in millions)** | ** ** |
| Net  unrealized derivatives losses at January 1 |       | $                 |  (34  | )        | $          |  (38 | ) |
| Reclassification  of realized losses(1)              |       | 2                 |       | 2        |       |
| Income  tax benefit                                  |       | (1                | )          | (1       | )          |
| Net  unrealized derivatives losses at March 31  |       | $                 |  (33  | )        | $          |  (37 | ) |

 

----

(1)          Loss reclassified fromAccumulated Other Comprehensive Loss to Net Investment Income on ConsolidatedStatements of Income.

 

At March 31,2010, RiverSource Life expects to reclassify $6 million of deferred losson derivative instruments from accumulated other comprehensive income (loss) toearnings during the next 12 months that will be recorded in net investmentincome.  These were originally losses onderivative instruments related to interest rate swaptions.  For any hedge relationships that arediscontinued because the forecasted transaction is not expected to occuraccording to the original strategy, any related amounts previously recorded inaccumulated other comprehensive income are recognized in earningsimmediately.  No hedge relationships werediscontinued during the three months ended March 31, 2010 and 2009 due toforecasted transactions no longer being expected to occur according to theoriginal hedge strategy.  For the threemonths ended March 31, 2010 and 2009, amounts recognized in earnings onderivative transactions that were ineffective were nil.

 

Currently, the longestperiod of time over which RiverSource Life is hedging exposure to thevariability in future cash flows is 9 years and relates to interest credited onforecasted fixed premium product sales.

 

**Credit Risk**

** **

Credit risk associatedwith RiverSource Life’s derivatives is the risk that a derivative counterpartywill not perform in accordance with the terms of the applicable derivativecontract.  To mitigate such risk,RiverSource Life has established guidelines and oversight of credit riskthrough a comprehensive enterprise risk management program that includesmembers of senior management.  Keycomponents of this program are to require preapproval of counterparties and theuse of master netting arrangements and collateral arrangements whereverpractical.  As of March 31, 2010 andDecember 31, 2009, RiverSource Life held $32 million and $88 million,respectively, in cash and cash equivalents and recorded a correspondingliability in other liabilities for collateral RiverSource Life is obligated toreturn to counterparties.  As of March 31,2010 and December 31, 2009, RiverSource Life had accepted additionalcollateral consisting of various securities with a fair market value of nil and$22 million, respectively, which are not reflected on the Consolidated BalanceSheets.  As of March 31, 2010 and December 31,2009, RiverSource Life’s maximum credit exposure related to derivative assetsafter considering 

 

21

----

Tableof Contents

 

**RIVERSOURCELIFE INSURANCE COMPANY**

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

 

netting arrangements withcounterparties and collateral arrangements was approximately $22 million and$53 million, respectively.

 

Certain of RiverSourceLife’s derivative instruments contain provisions that adjust the level ofcollateral RiverSource Life is required to post based on RiverSource Life’sfinancial strength rating (or based on the debt rating of RiverSource Life’sparent, Ameriprise Financial). Additionally, certain of RiverSource Life’s derivative contracts containprovisions that allow the counterparty to terminate the contract if RiverSourceLife does not maintain a specific financial strength rating or AmeripriseFinancial’s debt does not maintain a specific credit rating (generally aninvestment grade rating).  If thesetermination provisions were to be triggered, RiverSource Life’s counterpartycould require immediate settlement of any net liability position.  At March 31, 2010 and December 31,2009, the aggregate fair value of all derivative instruments in a net liabilityposition containing such credit risk features was $347 million and $296million, respectively.  The aggregatefair value of assets posted as collateral for such instruments as of March 31,2010 and December 31, 2009 were $336 million and $269 million,respectively.  If the credit riskfeatures of derivative contracts that were in a net liability position at March 31,2010 and December 31, 2009 were triggered, the additional fair value ofassets needed to settle these derivative liabilities would have been $11million and $27 million, respectively.

 

**11.**       IncomeTaxes

** **

RiverSource Life’seffective tax rates were 26% and 20% for the three months ended March 31,2010 and 2009, respectively.  Theincrease in the effective tax rate primarily reflects an increase in pretaxincome relative to a decrease of tax advantaged items for the three monthsended March 31, 2010.

 

RiverSource Life isrequired to establish a valuation allowance for any portion of the deferredincome tax assets that management believes will not be realized.  Included in RiverSource Life’s deferred taxassets is a significant deferred tax asset relating to capital losses that havebeen recognized for financial statement purposes but not yet for tax returnpurposes.  Under current U.S. federalincome tax law, capital losses generally must be used against capital gainincome within five years of the year in which the capital losses are recognizedfor tax purposes.  Significant judgmentis required in determining if a valuation allowance should be established, andthe amount of such allowance if required. Factors used in making this determination include estimates relating tothe performance of the business including the ability to generate capitalgains.  Consideration is given to, amongother things in making this determination, i) future taxable income exclusive ofreversing temporary differences and carryforwards, ii) future reversals ofexisting taxable temporary differences, iii) taxable income in prior carrybackyears, and iv) tax planning strategies. Based on analysis of RiverSource Life’s tax position, managementbelieves it is more likely than not that the results of future operations andimplementation of tax planning strategies will generate sufficient taxableincome to enable RiverSource Life to utilize all of its deferred taxassets.  Accordingly, no valuationallowance for deferred tax assets has been established as of March 31,2010 and December 31, 2009.

 

Additionally, RiverSourceLife has net operating loss carryforwards of $14 million which will expirebeginning December 31, 2025.

 

As of March 31, 2010and December 31, 2009, RiverSource Life had an $8 million grossunrecognized tax benefit and a $77 million gross unrecognized tax expense,respectively.  If recognized,approximately $49 million, net of federal tax benefits, of unrecognized taxbenefits at both March 31, 2010 and December 31, 2009, would affectthe effective tax rate.

 

RiverSource Liferecognizes interest and penalties related to unrecognized tax benefits as acomponent of the income tax provision. RiverSource Life recognized a net reduction of $1 million in interestand penalties for the three months ended March 31, 2010.  As of March 31, 2010 and December 31,2009, RiverSource Life had a receivable of $17 million and $16 million,respectively, related to the accrual of interest and penalties.

 

It is reasonably possiblethat the total amounts of unrecognized tax benefits will change in the next 12months.   Based on the current auditposition of RiverSource Life it is estimated that the total amount of grossunrecognized tax benefits may increase by $20 million to $25 million in thenext 12 months.

 

RiverSource Life or oneor more of its subsidiaries files income tax returns in the U.S. federaljurisdiction and various state jurisdictions. With few exceptions, RiverSource Life is no longer subject to U.S. federalor state and local income tax examinations by tax authorities for years before1997.  The Internal Revenue Service (“IRS”),as part of the overall examination of the American Express Company consolidatedreturn, completed its field examination of RiverSource Life’s income taxreturns for 1997 through 2002 during 2008 and completed its field examinationof 2003 through 2004 in the third quarter of 2009.  However, for federal income tax purposes,these years continue to remain open as a consequence of certain issues underappeal.  In the fourth quarter of 2008,the IRS commenced an examination of RiverSource Life’s U.S. income tax returnsfor 2005 through 2007 which is expected to be completed in the second quarterof 2010.  RiverSource Life or 

 

22

----

Tableof Contents

 

**RIVERSOURCELIFE INSURANCE COMPANY**

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

 

certain of itssubsidiaries’ state income tax returns are currently under examination byvarious jurisdictions for years ranging from 1998 through 2006.

 

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.  Revenue Ruling 2007-61 suspended a revenueruling issued in August 2007 that purported to change accepted industryand IRS interpretations of the statutes governing these computationalquestions.

 

Management believes thatthe IRS will concede this issue for open tax years and it is likely that anyregulations that would result from a regulation project would applyprospectively only.  Any regulations thatthe IRS ultimately proposes for issuance in this area will be subject to publicnotice and comment, at which time insurance companies and other members of thepublic will have the opportunity to raise legal and practical questions aboutthe content, scope and application of such regulations.  As a result, the ultimate timing andsubstance of any such regulations are unknown at this time, but they may resultin the elimination of some or all of the separate account DRD tax benefit thatRiverSource Life receives.  Additionally,included in the Administration’s 2011 Revenue Proposals is a provision tomodify the DRD for life insurance company’s separate accounts, which, ifenacted, could significantly reduce the DRD tax benefits RiverSource Life wouldreceive, prospectively, beginning in 2011.

 

**12.**       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.

 

23

----

Table of Contents

 

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

** **

Thefollowing information should be read in conjunction with RiverSource LifeInsurance Company’s Consolidated Financial Statements and Notes presented in Part I,Item 1.  RiverSource Life InsuranceCompany and its subsidiaries are referred to collectively in this Form 10-Qas “RiverSource Life”.  This narrativeanalysis may contain forward-looking statements that reflect RiverSource Life’splans, estimates and beliefs.  Actualresults could differ materially from those discussed in these forward-lookingstatements.  Factors that could cause orcontribute to these differences include, but are not limited to, thosediscussed under “Forward-Looking Statements.” RiverSource Life believes it is useful to read this narrative analysisin conjunction with its Annual Report on Form 10-K for the year ended December 31,2009, filed with the Securities and Exchange Commission (“SEC”) on February 24,2010 (“2009 10-K”), as well as its current reports on Form 8-K and otherpublicly available information.

 

RiverSourceLife follows U.S. generally accepted accounting principles (“GAAP”), and thefollowing discussion is presented on a consolidated basis consistent withGAAP.  Prior period amounts werereclassified to conform to the current presentation.

 

Management’snarrative analysis of the results of operations is presented in lieu ofmanagement’s discussion and analysis of financial condition and results ofoperations, pursuant to General Instructions H(2)(a) of Form 10-Q.

 

**Overview**

 

RiverSourceLife Insurance Company is a stock life insurance company with one wholly ownedoperating subsidiary, RiverSource Life Insurance Co. of New York (“RiverSourceLife of NY”).  RiverSource Life InsuranceCompany is a wholly owned subsidiary of Ameriprise Financial, Inc. (“AmeripriseFinancial”).

 

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

 

·                  RiverSource Lifeof NY is a stock life insurance company domiciled in New York, which holdsCertificates of Authority in New York and Delaware.  Effective in March 2010, RiverSourceLife of NY withdrew its Certificate of Authority from the State of North Dakotaas it does not conduct business in that state. RiverSource Life of NY issues insurance and annuity products.

 

RiverSource LifeInsurance Company also wholly owns RiverSource Tax Advantaged Investments, Inc.which is domiciled in Delaware and is a limited partner in affordable housingpartnership investments.

 

**CriticalAccounting Policies**

 

The accounting andreporting policies that RiverSource Life uses affect its Consolidated FinancialStatements.  Certain of RiverSourceLife’s accounting and reporting policies are critical to an understanding ofRiverSource Life’s financial condition and results of operations and, in somecases, the application of these policies can be significantly affected by theestimates, judgments and assumptions made by management during the preparationof the Consolidated Financial Statements. These accounting policies are discussed in detail in “Management’sNarrative Analysis — Critical Accounting Policies” in RiverSource Life’s 200910-K.

 

**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.

 

24

----

Tableof Contents

 

**Results of Operations for the****Three Months Ended March 31,2010 compared to the Three Months Ended March 31, 2009**

 

The following tablepresents RiverSource Life’s consolidated results of operations:

 
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                                        | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **Change** | ** ** |
| ** **                                        | ** ** | **(in millions, except  percentages)** | ** ** |
| **Revenues**                                      |       |                                   |       |       |       |   |   |   |   |
| Premiums                                          |       | $                                      | 115        |       | $          | 110 |   | $ | 5 |   | 5 | % |
| Net  investment income                            |       | 408                                    |       | 321        |       | 87 |   | 27 |   |
| Policy  and contract charges                      |       | 325                                    |       | 284        |       | 41 |   | 14 |   |
| Other  revenue                                    |       | 68                                     |       | 47         |       | 21 |   | 45 |   |
| Net  realized investment gains                    |       | 5                                      |       | 27         |       | (22 | ) | (81 | ) |
|                                              |       |                                   |       |       |       |   |   |   |   |
| Total  revenues                                   |       | 921                                    |       | 789        |       | 132 |   | 17 |   |
| ** **                                        |       |                                   |       |       |       |   |   |   |   |
| **Benefits and expenses**                         |       |                                   |       |       |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 225                                    |       | (20        | )          | 245 |   | NM |   |
| Interest  credited to fixed accounts              |       | 228                                    |       | 205        |       | 23 |   | 11 |   |
| Amortization  of deferred acquisition costs       |       | 99                                     |       | 267        |       | (168 | ) | (63 | ) |
| Other  insurance and operating expenses           |       | 135                                    |       | 148        |       | (13 | ) | (9 | ) |
|                                              |       |                                   |       |       |       |   |   |   |   |
| Total  benefits and expenses                      |       | 687                                    |       | 600        |       | 87 |   | 15 |   |
|                                              |       |                                   |       |       |       |   |   |   |   |
| Pretax  income                                    |       | 234                                    |       | 189        |       | 45 |   | 24 |   |
| Income  tax provision                             |       | 60                                     |       | 37         |       | 23 |   | 62 |   |
|                                              |       |                                   |       |       |       |   |   |   |   |
| Net  income                                       |       | $                                      | 174        |       | $          | 152 |   | $ | 22 |   | 14 | % |

 

NM  Not Meaningful.

 

*Overview*

 

Consolidated net incomewas $174 million for the three months endedMarch 31, 2010 compared to $152 million for the three months ended March 31, 2009, an increaseof $22 million or 14%.  Pretax incomeincreased $45 million to $234 million for the three months ended March 31, 2010 from $189 millionfor the three months ended March 31,2009.  The increase was primarilydriven by an increase in net investment income, policy and contract charges anda decrease in amortization of deferred acquisition costs (‘DAC”).  These increases to net income were partiallyoffset by a decrease in net realized investment gains and an increase inbenefits, claims, losses and settlement expenses.

 

*Revenues*

 

Totalrevenues increased $132 million or 17% to $921 million for the three monthsended March 31, 2010 compared to $789 million for the prior year period.

 

Premiumsincreased $5 million or 5% to $115 million for the three months ended March 31,2010 compared to $110 million in the prior year period.  The increase is primarily due to higher salesof immediate annuities with life contingencies.

 

Netinvestment income increased $87 million or 27% to $408 million for the threemonths ended March 31, 2010 compared to $321million in the prior year period.  Theincrease is due to income on fixed maturity securities driven by higher fixedannuity account balances and higher investment yields.  In the first quarter of 2010, management tookaction related to the introduction of changes in RiverSource Life’s variableproduct asset allocation program, increasing the liquidity in general accountassets in preparation to move those assets to separate accounts.

 

Policy and contractcharges increased $41 million or 14% to $325 million for the three months endedMarch 31, 2010 compared to $284 million in the prior year period primarilydue to increased separate account fee revenue as a result of the increase inaverage separate account assets. Average separate account assets increased $14.9 billion or 38% from theprior year period primarily due to market appreciation and net inflows.

 

Other revenue increased$21 million or 45% to $68 million forthe three months ended March 31,2010 compared to $47 million in the prior year period reflecting highermarketing support and administrative fees due to higher average underlyingseparate account asset values.

 

Net realized investmentgains decreased $22 million or 81% to $5 million for the three months endedMarch 31, 2010 compared to $27 million in the prior year period.  In the three months ended March 31, 2010, net realizedgains from sales of Available-for-

 

25

----

Table of Contents

 

Sale securities were $31million and other-than-temporary impairments recognized in earnings were $23million which primarily related to credit losses on non-agency residentialmortgage backed securities.  For thethree months ended March 31, 2010, the reserves on commercial mortgageloans increased by $6 million offset by a $3 million decrease to the allowancefor loan losses on below investment grade syndicated loans.  In the three months ended March 31,2009, net realized gains from sales of Available-for-Sale securities were $47million and other-than-temporary impairments recognized in earnings were $20million which primarily related to credit losses on non-agency residentialmortgage backed securities and corporate debt securities primarily in thegaming industries.

 

*Benefitsand Expenses*

 

Total benefits andexpenses increased $87 million or 15% to $687 million for the three monthsended March 31, 2010 compared to$600 million in the prior year period. This increase is primarily due to increases in benefits, claims, lossesand settlement expenses and interest credited to fixed accounts partiallyoffset by a decrease in DAC amortization.

 

Benefits, claims, losses and settlementexpenses increased $245 million to $225 million for the three months ended March 31, 2010 compared to a benefit of$20 million for the three months ended March 31, 2009 driven by anincrease in expenses from variable annuity benefit guarantees.  The mark-to-market impact on variable annuityliving benefit expenses, net of hedges and deferred sales inducement costs (“DSIC”),increased benefits expense by $23 million in the first quarter of 2010primarily driven by model changes, the impact of risk margins andnonperformance spread on the fair value of living benefit liabilities and basisrisk.  Changes to the variable productasset allocation program RiverSource Life will introduce in 2010 are designed,among other things, to improve the mitigation of basis risk.  The mark-to-market impact of variable annuityliving benefits, net of hedges and DSIC, decreased benefits expense by $231million in the first quarter of 2009 primarily due to the impact ofnonperformance spread widening on the fair value of living benefitliabilities.  Benefits, claims, lossesand settlement expenses related to immediate annuities with life contingenciesincreased compared to the prior period primary due to higher business volumes.

 

Interest credited tofixed accounts increased $23 million or 11% to $228 million for the three months ended March 31, 2010compared to $205 million in the prior year period primarily due to higheraverage fixed annuity account balances and higher average fixed annuitycrediting rates compared to the prior year period.  Average fixed annuities contract accumulationvalues increased $1.6 billion, or 12% compared to the prior year period.  The average fixed annuity crediting rateexcluding capitalized interest increased to 3.9% in the 2010 period compared to3.8% in the prior year period.

 

Amortization of DACdecreased $168 million or 63% to $99 million for the three months ended March 31,2010 compared to $267 million in the prior year period.  DAC amortization in the first quarter of 2010was reduced by $13 million due to market impacts, including $6 millionoffsetting higher variable annuity guaranteed living benefits expense, net ofhedges.  DAC amortization in the firstquarter of 2009 was increased by $186 million due to market impacts, includinga $146 million expense offsetting gains in variable annuity guaranteed livingbenefits, net of hedges.  The benefit ofDAC amortization from market impacts compared to the prior period was partiallyoffset by an increase in variable annuity amortization due to higherperiod-over-period account values and associated asset fees.

 

Otherinsurance and operating expenses decreased $13 million or9% to $135 million for the threemonths ended March 31, 2010 compared to $148 million in the prior yearperiod.  The decrease was primarily dueto decreased sales and marketing expenses and lower corporate overheadexpenses.

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 26% for the threemonths ended March 31, 2010, compared to 20% for the three monthsended March 31, 2009.  The increasein the effective tax rate primarily reflects an increase in pretax incomerelative to a decrease of tax advantaged items, including the dividendsreceived deduction for the three months ended March 31, 2010.

 

On September 25,2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 inwhich it announced that it intends to issue regulations with respect to certaincomputational aspects of the Dividends Received Deduction (“DRD”) related toseparate account assets held in connection with variable contracts of lifeinsurance companies.  Revenue Ruling2007-61 suspended a revenue ruling issued in August 2007 that purported tochange accepted industry and IRS interpretations of the statutes governingthese computational questions.

 

Managementbelieves that the IRS will concede this issue for open tax years and it islikely that any regulations that would result from a regulation project wouldapply prospectively only.  Anyregulations that the IRS ultimately proposes for issuance in this area will besubject to public notice and comment, at which time insurance companies andother members of the public will have the opportunity to raise legal andpractical questions about the content, scope and application of suchregulations.  As a result, the ultimatetiming and substance of any such regulations are unknown at this time, but theymay result in the elimination of some or all of the separate account DRD taxbenefit that RiverSource Life receives. Additionally, included in the Administration’s 2011 

 

26

----

Table ofContents

 

Revenue Proposalsis a provision to modify the DRD for life insurance company’s separateaccounts, which, if enacted, could significantly reduce the DRD tax benefitsRiverSource Life would receive, prospectively, beginning in 2011.

 

***Fair Value Measurements***

* *

RiverSource Life reports certainassets and liabilities at fair value; specifically, separate account assets,derivatives, embedded derivatives, most investments and cash equivalents.  Fair value assumes the exchange of assets orliabilities occurs in orderly transactions. Companies are not permitted to use market prices that are the result ofa forced liquidation or distressed sale. RiverSource Life includes actual market prices, or observable inputs, inits fair value measurements to the extent available.  Broker quotes are obtained when quotes from pricingservices are not available.  RiverSourceLife validates prices obtained from third parties through a variety of meanssuch as: price variance analysis, subsequent sales testing, stale price review,price comparison across pricing vendors and due diligence reviews of vendors.

 

*Non-AgencyResidential Mortgage Backed Securities Backed by Sub-prime, Alt-A or PrimeCollateral*

 

Sub-prime mortgage lending is theorigination of residential mortgage loans to customers with weak creditprofiles.  Alt-A mortgage lending is theorigination of residential mortgage loans to customers who have credit ratingsabove sub-prime but may not conform to government-sponsored standards.  Prime mortgage lending is the origination ofresidential mortgage loans to customers with good credit profiles.  RiverSource Life has exposure to these typesof loans predominantly through mortgage backed and asset backedsecurities.  The slow down in the U.S.housing market, combined with relaxed underwriting standards by someoriginators, has led to higher delinquency and loss rates for some of theseinvestments.  Market conditions haveincreased the likelihood of other-than-temporary impairments for certainnon-agency residential mortgage backed securities.  As a part of RiverSource Life’s riskmanagement process, an internal rating system is used in conjunction withmarket data as the basis of analysis to assess the likelihood that RiverSourceLife will not receive all contractual principal and interest payments for theseinvestments.  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.

 

27

----

Table of Contents

 

The following table presents, as of March 31,2010, RiverSource Life’s non-agency residential mortgage backed and assetbacked securities backed by sub-prime, Alt-A or prime mortgage loans by creditrating and vintage year:

 
| ** **             | ** ** | **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** | ** ** |
| ** **             | ** ** | **(in  millions)**  | ** ** |
| **Sub-prime**          |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | —     |            | $          | —              |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| 2004                   |       | 3                   |       | 2               |       | 7                   |       | 4               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 10 |   | 6 |   |
| 2005                   |       | 38                  |       | 36              |       | 11                  |       | 7               |       | 12                       |       | 12              |       | 7 |   | 7 |   | 18 |   | 13 |   | 86 |   | 75 |   |
| 2006                   |       | —              |       | —          |       | 6                   |       | 5               |       | —                   |       | —          |       | — |   | — |   | 4 |   | 4 |   | 10 |   | 9 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | —              |       | —          |       | 7                   |       | 6               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 7 |   | 6 |   |
| Total Sub-prime        |       | $                   | 41         |            | $          | 38                  |       | $               | 31         |                     | $          | 22              |       | $ | 12 |   | $ | 12 |   | $ | 7 |   | $ | 7 |   | $ | 22 |   | $ | 17 |   | $ | 113 |   | $ | 96 |   |
|                   |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 14         |            | $          | 15                  |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 14 |   | $ | 15 |   |
| 2004                   |       | 7                   |       | 7               |       | 59                  |       | 54              |       | 5                        |       | 3               |       | — |   | — |   | 13 |   | 7 |   | 84 |   | 71 |   |
| 2005                   |       | 5                   |       | 4               |       | 37                  |       | 28              |       | 31                       |       | 24              |       | — |   | — |   | 169 |   | 113 |   | 242 |   | 169 |   |
| 2006                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 12 |   | 6 |   | 12 |   | 6 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 29 |   | 15 |   | 29 |   | 15 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total Alt-A       |       | $                   | 26         |            | $          | 26                  |       | $               | 96         |                     | $          | 82              |       | $ | 36 |   | $ | 27 |   | $ | — |   | $ | — |   | $ | 223 |   | $ | 141 |   | $ | 381 |   | $ | 276 |   |
|                   |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Prime**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 199        |            | $          | 194                 |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 199 |   | $ | 194 |   |
| 2004                   |       | 24                  |       | 24              |       | —              |       | —          |       | 27                       |       | 27              |       | 12 |   | 13 |   | — |   | — |   | 63 |   | 64 |   |
| 2005                   |       | 12                  |       | 15              |       | 35                  |       | 40              |       | 66                       |       | 68              |       | 23 |   | 20 |   | 85 |   | 41 |   | 221 |   | 184 |   |
| 2006                   |       | 20                  |       | 22              |       | —              |       | —          |       | 6                        |       | 2               |       | 33 |   | 37 |   | — |   | — |   | 59 |   | 61 |   |
| 2007                   |       | 41                  |       | 43              |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 15 |   | 11 |   | 56 |   | 54 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Re-Remic(1)            |       | 1,743               |       | 1,850           |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 1,743 |   | 1,850 |   |
| Total Prime       |       | $                   | 2,039      |            | $          | 2,148               |       | $               | 35         |                     | $          | 40              |       | $ | 99 |   | $ | 97 |   | $ | 68 |   | $ | 70 |   | $ | 100 |   | $ | 52 |   | $ | 2,341 |   | $ | 2,407 |   |
| **Grand  Total**       |       | $                   | 2,106      |            | $          | 2,212               |       | $               | 162        |                     | $          | 144             |       | $ | 147 |   | $ | 136 |   | $ | 75 |   | $ | 77 |   | $ | 345 |   | $ | 210 |   | $ | 2,835 |   | $ | 2,779 |   |

 

----

(1)    Re-Remics of mortgage backedsecurities are prior vintages with cash flows structured into senior andsubordinated bonds.  Credit enhancementon senior bonds is increased through the Re-Remic process.  All senior bonds are rated AAA by Moody’sInvestors Service, Standard & Poor’s Rating Services or Fitch RatingsLtd. RiverSource Life did not have any exposure to subordinate tranches as of March 31,2010.

 

*Fair Value ofLiabilities and Nonperformance Risk*

 

Companies are required to measurethe fair value of liabilities at the price that would be received to transferthe liability to a market participant (an exit price).  Since there is not a market for RiverSourceLife’s obligations of its variable annuity riders, RiverSource Life considersthe assumptions participants in a hypothetical market would make to reflect anexit price.  As a result, RiverSourceLife adjusts the valuation of variable annuity riders by updating certaincontractholder assumptions, adding explicit margins to provide for profit, riskand expenses, and adjusting the rates used to discount expected cash flows toreflect a current market estimate of RiverSource Life’s nonperformancerisk.  The nonperformance risk adjustmentis based on broker quotes for credit default swaps that are adjusted toestimate the risk of RiverSource Life not fulfilling these liabilities.  Consistent with general market conditions,this estimate resulted in a spread over the LIBOR swap curve as of March 31,2010.  As RiverSource Life’s estimate ofthis spread widens or tightens, the liability will decrease or increase.  If this nonperformance credit spread moves toa zero spread over the LIBOR swap curve, the reduction to net income would beapproximately $47 million, net of DAC and DSIC amortization and income taxes,based on March 31, 2010 credit spreads.

 

28

----

Table of Contents

 

**Liquidityand Capital Resources**

 

*Liquidity Strategy*

 

The liquidityrequirements of RiverSource Life are generally met by funds provided byinvestment income, maturities and periodic repayments of investments, deposits,premiums and proceeds from sales of investments as well as capitalcontributions from Ameriprise Financial. Other liquidity sources RiverSource Life has established are repurchaseagreements and available lines of credit with Ameriprise Financial aggregating$1 billion.

 

Also, in March 2009,RiverSource Life Insurance Company became a member of the Federal Home LoanBank (“FHLB”) of Des Moines, which provides RiverSource Life Insurance Companyaccess to collateralized borrowings.  At March 31,2010 and 2009, RiverSource Life had no securities sold under repurchaseagreements and there were no borrowings from the FHLB.  The primary uses of funds are policybenefits, commissions, other product-related acquisition and sales inducementcosts, operating expenses, policy loans, dividends to Ameriprise Financial andinvestment purchases.  RiverSource Liferoutinely reviews its sources and uses of funds in order to meet its ongoingobligations.

 

On March 29,2010, RiverSource Life Insurance Company paid a cash dividend of $425 millionto Ameriprise Financial.  There were nodividends paid to Ameriprise Financial during the three months ended March 31,2009.

 

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

 
| ** **                                  | ** ** | **Actual  Capital****(a)** | ** ** | **Regulatory  Capital  Requirement(b)** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| ** **                                  | ** ** | **March 31,****2010** | ** ** | **December 31,  2009**             | ** ** | **December 31,  2009** | ** ** |
| ** **                                  | ** ** | **(in millions)**          | ** ** |
| RiverSource Life Insurance  Company         |       | $                          | 3,324      |                                    | $          | 3,450 |   | $ | 803 |   |
| RiverSource Life Insurance  Co. of New York |       | 313                        |       | 286                                     |       | 44 |   |
|                                             |            |                            |            |                                         |            |  |  |  |  |  |

 

----

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

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

 

**Forward-LookingStatements**

 

This report contains forward-lookingstatements that reflect RiverSource Life’s plans, estimates and beliefs.  RiverSource Life’s actual results coulddiffer materially from those described in these forward-lookingstatements.  Examples of suchforward-looking statements include:

 

·                  statements ofRiverSource Life’s plans, intentions, expectations, objectives, or goals,including those related to the consolidated tax rate (including anyexpectations regarding the effectiveness or other terms of any regulatorychange or interpretation applicable to the DRD);

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

·                  statements ofassumptions underlying such statements.

 

The words “believe,” “expect,”“anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,”“would,” “likely,” “forecast,” “on pace,” “project” and similar expressions areintended to identify forward-looking statements but are not the exclusive meansof identifying such statements. Forward-looking statements are subject to risks and uncertainties thatcould cause actual results to differ materially from such statements.

 

Such factors include, butare not limited to:

 

·                  changes in thevaluations, liquidity and volatility in the interest rate, credit defaultequity market, and foreign exchange environments;

·                  changes in thelitigation and regulatory environment, including ongoing legal proceedings andregulatory actions, the frequency and extent of legal claims threatened orinitiated by clients, other persons and regulators, and developments inregulation and legislation;

·                  RiverSource Life’sinvestment management performance and consumer acceptance of RiverSource Life’sproducts;

·                  the ability ofRiverSource Life to implement planned changes to its variable product assetallocation program and the effectiveness of those changes in improving themitigation of basis risk;

·                  effects ofcompetition in the financial services industry and changes in RiverSource Life’sproduct distribution mix and distribution channels;

 

29

----

Tableof Contents

 

·                  changes toRiverSource Life’s reputation that may arise from employee or affiliatedadvisor misconduct, legal or regulatory actions, improper management ofconflicts of interest or otherwise;

·                  RiverSource Life’scapital structure as a subsidiary of Ameriprise Financial, including theability of its parent to support its financial strength and ratings, as well asthe opinions of rating agencies and other analysts or RiverSource Life’sregulators, distributors or policyholders and contractholders in response toany change or prospect of change in any such opinion;

·                  risks of defaultby issuers or guarantors of investments RiverSource Life owns or bycounterparties to hedge derivative, insurance or reinsurance arrangements,experience deviations from RiverSource Life’s assumptions regarding such risksand the evaluations or the prospect of changes in evaluations of any such thirdparties published by rating agencies or other analysts and the reactions ofother market participants or RiverSource Life’s regulators, distributionpartners or customers in response to any such evaluation or prospect of changesin evaluation;

·                  experiencedeviations from RiverSource Life’s assumptions regarding morbidity, mortalityand persistency in certain annuity and insurance products, or from assumptionsregarding market returns assumed in valuing DAC and DSIC or market volatilityunderlying RiverSource Life’s valuation and hedging of guaranteed livingbenefit annuity riders;

·                  successfullycross-selling insurance and annuity products and services to AmeripriseFinancial’s customer base;

·                  RiverSource Life’sability to effectively hedge risks relating to guaranteed benefit riders andcertain other products;

·                  the impact ofintercompany allocations to RiverSource Life from Ameriprise Financial and itsaffiliates;

·                  AmeripriseFinancial’s ability to attract, recruit and retain qualified advisors andemployees and its ability to distribute RiverSource Life’s products throughcurrent and future distribution channels;

·                  changes incapital requirements that may be indicated, required or advised by regulatorsor rating agencies;

·                  the impact ofAmeriprise Financial’s efforts to improve distribution economics and ofRiverSource Life’s efforts to grow third party distribution and to realizebenefits from reengineering and tax planning;

·                  changes in U.S.federal income or estate tax laws potentially making RiverSource Life’sproducts less attractive to clients;

·                  RiverSource Life’sability to recover from catastrophes, both natural and man-made;

·                  changes in thecapital markets and competitive environments induced or resulting from thepartial or total ownership or other support by central governments of certainfinancial services firms for financial assets; and

·                  general economicand political factors, including consumer confidence in the economy, theability and inclination of consumers generally to invest, as well as theirability and inclination to invest in financial instruments and products otherthan cash and cash equivalents, the costs of products and services RiverSourceLife consumes in the conduct of its business, and applicable legislation and regulationand changes therein, including tax laws, tax treaties, fiscal and centralgovernment treasury policy, and policies regarding the financial servicesindustry and regulatory rulings and pronouncements.

 

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

 

The foregoing list offactors should be read in conjunction with the “Risk Factors” discussion as Part I,Item 1A in RiverSource Life’s 2009 10-K and Part II, Item 1A of thisreport.

 

30

----

Tableof Contents

 

**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 in and pursuant to Securitiesand Exchange Commission (“SEC”) regulations, including controls and proceduresdesigned to ensure that this information is accumulated and communicated toRiverSource Life’s management, including its principal executive officer andchief financial officer, as appropriate, to allow timely decisions regardingthe required disclosure.  It should benoted that, because of inherent limitations, RiverSource Life’s disclosurecontrols and procedures, however well designed and operated, can provide onlyreasonable, and not absolute, assurance that the objectives of the disclosurecontrols and procedures are met.

 

RiverSource Life’smanagement, under the supervision and with the participation of RiverSourceLife’s principal executive officer and chief financial officer, evaluated theeffectiveness of the disclosure controls and procedures as of the end of theperiod covered by this report.  Basedupon that evaluation, RiverSource Life’s principal executive officer and chieffinancial officer have concluded that RiverSource Life’s disclosure controlsand procedures were effective at a reasonable level of assurance as of March 31,2010.

 

**Changes in Internal Control overFinancial Reporting**

 

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

 

**PART II.**                  OTHER INFORMATION

** **

**ITEM 1.**                       LEGAL PROCEEDINGS

** **

The information set forthin Note 12 to the Consolidated Financial Statements in Part I, Item 1 isincorporated herein by reference.

 

**ITEM 1A.     RISKFACTORS**

 

Part I, Item 1A ofRiverSource Life’s 2009 10-K sets forth information relating to the materialrisks and uncertainties that affect its business. In addition to those riskfactors, RiverSource Life believes the following risk factor is also relevantto an understanding of its business, financial condition and results ofoperations.

 

***Changes in accounting standards could have a material impacton RiverSource Life’s financial statements.***

 

Fromtime to time, the FASB, the SEC, and other regulators change the financialaccounting and reporting standards governing the preparation of RiverSourceLife’s financial statements. In some cases, RiverSource Life could be requiredto apply a new or revised standard retroactively, resulting in the restating ofprior period financial statements. These changes are difficult to predict andcan materially impact how RiverSource Life records and reports its financialcondition and results of operations and other financial data, even in instanceswhere they may not have an economic impact on its business.

 

**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.

 

31

----

Tableof Contents

 

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

 

**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: May 4, 2010 | By                                 | /s/ John R. Woerner |
|                   |                               | John R. Woerner |
|                   |                               | President |
|                   |                               |   |
|                   |                               |   |
| Date: May 4, 2010 | By                                 | /s/ Brian J. McGrane |
|                   |                               | Brian J. McGrane |
|                   |                               | Executive Vice President and Chief Financial Officer |

 

32

----

Table of Contents

 

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

 

**EXHIBITINDEX**

 

The following exhibits are filed as part of thisQuarterly Report:

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                  |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                                                                                                                       |
| 3.1         |       | Copy of Certificate of Incorporation of IDS Life  Insurance Company filed as Exhibit 3.1 to Post-Effective Amendment  No. 5 to Registration Statement No. 33-28976 is incorporated by  reference.                                                 |
|        |       |                                                                                                                                                                                                                                                             |
| 3.1.1       |       | Copy of  Certificate of Amendment of Certificate of Incorporation of IDS Life  Insurance Company dated June 22, 2006, filed as Exhibit 3.1 to  Form 8-K filed on Jan. 5, 2007 is incorporated by reference.                                  |
|        |       |                                                                                                                                                                                                                                                             |
| 3.2         |       | Copy of Amended  and Restated By-Laws of RiverSource Life Insurance Company dated  June 22, 2006, filed as Exhibit 27(f)(2) to Post-Effective  Amendment No. 28 to Registration Statement No. 333-69777, is incorporated  by reference. |
|        |       |                                                                                                                                                                                                                                                             |
| * 31.1      |       | Certification  of John R. Woerner,  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        |       | Certification of  John R. Woerner, 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.                                               |

 

----

*                                         Filedelectronically herewith.

 

E-1

----