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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

** **

**FORM 10-Q**

 

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

 

**For the Quarterly Period Ended March 31, 2011**

 

**OR**

 

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

 

**For the Transition Period from                 to**

 

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

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name of registrant 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 telephone number, including area code:  **(612) 671-3131**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

| **Class**                              | ** ** | **Outstanding   at****May 2, 2011** |
|----------------------------------------|------------|------------------------------------------|
| Common Stock (par value $30 per share) |       | 100,000****shares                        |

 

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

 

 

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| Part I.  | Financial Information: |                                                                                                          |
|---------------|------------------------|---------------------------------------------------------------------------------------------------------------|
|          | Item 1.                | Financial Statements                                                                                          |   |
|          |                   | Consolidated Balance Sheets —   March 31, 2011 and December 31, 2010                           | 1 |
|          |                   | Consolidated Statements of   Income — Three months ended March 31, 2011 and 2010                    | 2 |
|          |                   | Consolidated Statements of   Cash Flows — Three months ended March 31, 2011 and 2010                | 3 |
|          |                   | Consolidated Statements of   Shareholder’s Equity — Three months ended March 31, 2011 and 2010 | 4 |
|          |                   | Notes to   Consolidated Financial Statements                                                                  | 5 |
|          | Item 2.                | Management’s   Narrative Analysis                                                                        | 24 |
|          | Item 4.                | Controls and   Procedures                                                                                     | 30 |
| Part II. | Other Information:     |                                                                                                          |
|          | Item 1.                | Legal Proceedings                                                                                             | 30 |
|          | Item 1A.               | Risk Factors                                                                                                  | 30 |
|          | Item 6.                | Exhibits                                                                                                      | 30 |
|          | Signatures             |                                                                                                          | 31 |
|          | Exhibit Index     | E-1                                                                                                           |

 

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

 

**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                                  | ** ** | **March 31,   2011** | ** ** | **December 31,   2010** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**           | ** ** | ** **                   | ** ** |
| **Assets**                                                                                  |       |                      |       |                         |       |
| Investments:                                                                                |       |                      |       |                         |       |
| Available-for-Sale:                                                                         |       |                      |       |                         |       |
| Fixed maturities, at fair value (amortized cost:   2011, $25,270; 2010, $24,818)            |       | $                         | 26,796     |                         | $          | 26,442 |   |
| Common stocks, at fair value (cost: 2011 and 2010,   $1)                                    |       | 2                         |       | 2                            |       |
| Commercial mortgage loans, at cost (less allowance   for loan losses: 2011, $34; 2010, $36) |       | 2,445                     |       | 2,470                        |       |
| Policy loans                                                                                |       | 728                       |       | 729                          |       |
| Trading securities and other investments                                                    |       | 518                       |       | 496                          |       |
| Total investments                                                                           |       | 30,489                    |       | 30,139                       |       |
| Cash and cash equivalents                                                                   |       | 141                       |       | 76                           |       |
| Restricted cash                                                                             |       | 27                        |       | 66                           |       |
| Reinsurance recoverables                                                                    |       | 1,855                     |       | 1,829                        |       |
| Other receivables                                                                           |       | 186                       |       | 166                          |       |
| Accrued investment income                                                                   |       | 301                       |       | 309                          |       |
| Deferred acquisition costs                                                                  |       | 4,598                     |       | 4,578                        |       |
| Deferred sales inducement costs                                                             |       | 536                       |       | 545                          |       |
| Other assets                                                                                |       | 999                       |       | 1,123                        |       |
| Separate account assets                                                                     |       | 66,168                    |       | 63,795                       |       |
| Total assets                                                                                |       | $                         | 105,300    |                         | $          | 102,626 |   |
| **Liabilities and Shareholder’s   Equity**                                             |       |                      |       |                         |       |
| **Liabilities:**                                                                            |       |                      |       |                         |       |
| Future policy benefits                                                                      |       | $                         | 29,288     |                         | $          | 29,680 |   |
| Policy claims and other policyholders’ funds                                           |       | 134                       |       | 134                          |       |
| Deferred income taxes, net                                                                  |       | 488                       |       | 514                          |       |
| Borrowings under repurchase agreements                                                      |       | 497                       |       | 397                          |       |
| Line of credit with Ameriprise Financial, Inc.                                         |       | 300                       |       | 3                            |       |
| Other liabilities                                                                           |       | 1,880                     |       | 1,555                        |       |
| Separate account liabilities                                                                |       | 66,168                    |       | 63,795                       |       |
| Total liabilities                                                                           |       | 98,755                    |       | 96,078                       |       |
| **Shareholder’s equity:**                                                              |       |                      |       |                         |       |
| Common stock, $30 par value; 100,000 shares   authorized, issued and outstanding            |       | 3                         |       | 3                            |       |
| Additional paid-in capital                                                                  |       | 2,461                     |       | 2,460                        |       |
| Retained earnings                                                                           |       | 3,442                     |       | 3,410                        |       |
| Accumulated other comprehensive income, net of tax                                          |       | 639                       |       | 675                          |       |
| Total shareholder’s equity                                                             |       | 6,545                     |       | 6,548                        |       |
|                                                                                        |       |                      |       |                         |       |
| Total liabilities and shareholder’s equity                                             |       | $                         | 105,300    |                         | $          | 102,626 |   |

 

*See Notes to Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

(in millions)

 
| ** **                                                                      | ** ** | **Three Months Ended   March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2011**                                          | ** ** | **2010** | ** ** |
| **Revenues**                                                                    |       |                                              |       |   |   |
| Premiums                                                                        |       | $                                                 | 116        |   | $ | 115 |   |
| Net investment income                                                           |       | 403                                               |       | 406 |   |
| Policy and contract charges                                                     |       | 381                                               |       | 325 |   |
| Other revenues                                                                  |       | 73                                                |       | 68 |   |
| Net realized investment gains (losses)                                          |       | (5                                                | )          | 5 |   |
| Total revenues                                                                  |       | 968                                               |       | 919 |   |
| **Benefits and expenses**                                                       |       |                                              |       |   |   |
| Benefits, claims, losses and settlement expenses                                |       | 241                                               |       | 225 |   |
| Interest credited to fixed accounts                                             |       | 207                                               |       | 228 |   |
| Amortization of deferred acquisition costs                                      |       | 97                                                |       | 99 |   |
| Other insurance and operating expenses                                          |       | 165                                               |       | 133 |   |
| Total benefits and expenses                                                     |       | 710                                               |       | 685 |   |
| Pretax income                                                                   |       | 258                                               |       | 234 |   |
| Income tax provision                                                            |       | 26                                                |       | 60 |   |
| Net income                                                                      |       | $                                                 | 232        |   | $ | 174 |   |
|                                                                            |       |                                              |       |   |   |
| Supplemental Disclosures:                                                       |       |                                              |       |   |   |
| Net realized investment gains:                                                  |       |                                              |       |   |   |
| Net realized investment gains (losses) before   impairment losses on securities |       | $                                                 | (4         | ) | $ | 28 |   |
| Total other-than-temporary impairment losses on   securities                    |       | —                                            |       | (22 | ) |
| Portion of loss recognized in other comprehensive   income                      |       | (1                                                | )          | (1 | ) |
| Net impairment losses recognized in net realized   investment gains (losses)    |       | (1                                                | )          | (23 | ) |
| Net realized investment gains (losses)                                          |       | $                                                 | (5         | ) | $ | 5 |   |

 

*See Notes to Consolidated Financial Statements.*

 

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** RIVERSOURCE LIFE INSURANCE COMPANY**

 

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

(in millions)

** **
| ** **                                                                                                    | ** ** | **Three Months Ended   March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2011**                                          | ** ** | **2010** | ** ** |
| **Cash Flows from Operating   Activities**                                                                    |       |                                              |       |   |   |
| Net income                                                                                                    |       | $                                                 | 232        |   | $ | 174 |   |
| Adjustments to reconcile net income to net cash   provided by operating activities:                           |       |                                              |       |   |   |
| Capitalization of deferred acquisition and sales   inducement costs                                           |       | (108                                              | )          | (102 | ) |
| Amortization of deferred acquisition and sales   inducement costs                                             |       | 110                                               |       | 111 |   |
| Depreciation, amortization and accretion, net                                                                 |       | (17                                               | )          | (20 | ) |
| Deferred income tax expense (benefit)                                                                         |       | (7                                                | )          | 321 |   |
| Contractholder and policyholder charges, non-cash                                                             |       | (66                                               | )          | (65 | ) |
| Net realized investment losses (gains)                                                                        |       | 4                                                 |       | (31 | ) |
| Other-than-temporary impairments and provision for   loan losses recognized in net realized investment losses |       | 1                                                 |       | 26 |   |
| Change in operating assets and liabilities:                                                                   |       |                                              |       |   |   |
| Trading securities and equity method investments,   net                                                       |       | 8                                                 |       | 3 |   |
| Future policy benefits for traditional life,   disability income and long term care insurance                 |       | 60                                                |       | 62 |   |
| Policy claims and other policyholders’ funds                                                             |       | —                                            |       | 20 |   |
| Reinsurance recoverables                                                                                      |       | (26                                               | )          | (38 | ) |
| Other receivables                                                                                             |       | 3                                                 |       | (1 | ) |
| Accrued investment income                                                                                     |       | 8                                                 |       | 9 |   |
| Derivatives collateral, net                                                                                   |       | 14                                                |       | (80 | ) |
| Other assets and liabilities, net                                                                             |       | 176                                               |       | (318 | ) |
| Net cash provided by operating activities                                                                     |       | 392                                               |       | 71 |   |
| **Cash Flows from Investing   Activities**                                                                    |       |                                              |       |   |   |
| Available-for-Sale securities:                                                                                |       |                                              |       |   |   |
| Proceeds from sales                                                                                           |       | 397                                               |       | 786 |   |
| Maturities, sinking fund payments and calls                                                                   |       | 948                                               |       | 894 |   |
| Purchases                                                                                                     |       | (1,668                                            | )          | (1,239 | ) |
| Proceeds from sales, maturities and repayments of   commercial mortgage loans                                 |       | 47                                                |       | 53 |   |
| Funding of commercial mortgage loans                                                                          |       | (24                                               | )          | (49 | ) |
| Proceeds from sales of other investments                                                                      |       | 39                                                |       | 23 |   |
| Purchase of other investments                                                                                 |       | (80                                               | )          | (1 | ) |
| Purchase of land, buildings, equipment and   software                                                         |       | (1                                                | )          | (2 | ) |
| Change in policy loans, net                                                                                   |       | 1                                                 |       | — |   |
| Net cash provided by (used in) investing   activities                                                         |       | (341                                              | )          | 465 |   |
| **Cash Flows from Financing   Activities**                                                                    |       |                                              |       |   |   |
| Policyholder and contractholder account values:                                                               |       |                                              |       |   |   |
| Considerations received                                                                                       |       | 291                                               |       | 430 |   |
| Net transfers to separate accounts                                                                            |       | (46                                               | )          | (39 | ) |
| Surrenders and other benefits                                                                                 |       | (371                                              | )          | (358 | ) |
| Change in borrowings under repurchase agreements,   net                                                       |       | 100                                               |       | — |   |
| Proceeds from line of credit with Ameriprise   Financial, Inc.                                           |       | 315                                               |       | — |   |
| Payments on line of credit with Ameriprise   Financial, Inc.                                             |       | (18                                               | )          | (300 | ) |
| Deferred premium options, net                                                                                 |       | (58                                               | )          | (36 | ) |
| Tax adjustment on share-based incentive   compensation plan                                                   |       | 1                                                 |       | — |   |
| Cash dividend to Ameriprise Financial, Inc.                                                              |       | (200                                              | )          | (425 | ) |
| Net cash provided by (used in) financing   activities                                                         |       | 14                                                |       | (728 | ) |
| Net increase (decrease) in cash and cash equivalents                                                          |       | 65                                                |       | (192 | ) |
| Cash and cash equivalents at beginning of period                                                              |       | 76                                                |       | 811 |   |
| Cash and cash equivalents at end of period                                                                    |       | $                                                 | 141        |   | $ | 619 |   |
| Supplemental Disclosures:                                                                                     |       |                                              |       |   |   |
| Income taxes paid, net                                                                                        |       | $                                                 | 6          |   | $ | 145 |   |
| Interest paid on borrowings                                                                                   |       | 1                                                 |       | — |   |

 

*See Notes to Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)**

(in millions)

 
| ** **                                                                                                                       | ** ** | **Common   Shares** | ** ** | **Additional   Paid-In   Capital** | ** ** | **Retained   Earnings** | ** ** | **Accumulated   Other   Comprehensive   Income** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------------------|------------|-------------------------|------------|--------------------------------------------------|------------|-----------|------------|
| **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 |   |
|                                                                                                                             |       |                |       |                               |       |                    |       |                                             |       |      |       |
| **Balances at January 1,   2011**                                                                                           |       | $                   | 3          |                               | $          | 2,460                   |       | $                                                | 3,410      |      | $          | 675 |   | $ | 6,548 |   |
| Comprehensive income:                                                                                                            |       |                |       |                               |       |                    |       |                                             |       |      |       |
| Net income                                                                                                                       |       | —              |       | —                             |       | 232                     |       | —                                           |       | 232       |       |
| Other comprehensive income, net of tax:                                                                                          |       |                |       |                               |       |                    |       |                                             |       |      |       |
| Change in net unrealized securities gains                                                                                        |       | —              |       | —                             |       | —                  |       | (43                                              | )          | (43       | )          |
| Change in noncredit related impairments on   securities and net unrealized securities losses on previously impaired   securities |       | —              |       | —                             |       | —                  |       | 6                                                |       | 6         |       |
| Change in net unrealized derivatives losses                                                                                      |       | —              |       | —                             |       | —                  |       | 1                                                |       | 1         |       |
| Total comprehensive income                                                                                                       |       |                |       |                               |       |                    |       |                                             |       | 196       |       |
| Tax adjustment on share-based incentive   compensation plan                                                                      |       | —              |       | 1                                  |       | —                  |       | —                                           |       | 1         |       |
| Cash dividend to Ameriprise Financial, Inc.                                                                                 |       | —              |       | —                             |       | (200                    | )          | —                                           |       | (200      | )          |
| **Balances at March 31, 2011**                                                                                              |       | $                   | 3          |                               | $          | 2,461                   |       | $                                                | 3,442      |      | $          | 639 |   | $ | 6,545 |   |

 

*See Notes to Consolidated Financial Statements.*

 

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

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

 

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

 

RiverSource Life Insurance Company is a stock life insurance company with two wholly owned subsidiaries, RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”) and RiverSource Tax Advantaged Investments, Inc. (“RTA”).  RiverSource Life Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”).

 

The accompanying Consolidated Financial Statements include the accounts of RiverSource Life Insurance Company and companies in which it directly or indirectly has a controlling financial interest (collectively, the “Company”). All material intercompany transactions and balances have been eliminated in consolidation.

 

The interim financial information in this report has not been audited.  In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been made.  All adjustments made were of a normal recurring nature.

 

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).  Certain reclassifications of prior period amounts have been made to conform to the current presentation.  Results of operations reported for interim periods are not necessarily indicative of results for the entire year.  These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) on February 23, 2011.

 

The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued.

 

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

 

**Adoption of New Accounting Standards**

 

*How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments*

 

In April 2010, the Financial Accounting Standards Board (“FASB”) updated the accounting standards regarding investment funds determined to be variable interest entities (“VIEs”). Under this standard an insurance enterprise would not be required to consolidate a voting-interest investment fund when it holds the majority of the voting interests of the fund through its separate accounts. In addition, the enterprise would not consider the interests held through separate accounts in evaluating its economic interests in a VIE, unless the separate account contract holder is a related party. The standard is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2010. The adoption of the standard did not impact the Company’s consolidated financial condition and results of operations.

 

*Fair Value*

 

In January 2010, the FASB updated the accounting standards related to disclosures on fair value measurements.  The standard expands the current disclosure requirements to include additional detail about significant transfers between Levels 1 and 2 within the fair value hierarchy and presents activity in the rollforward of Level 3 activity on a gross basis.  The standard also clarifies existing disclosure requirements related to the level of disaggregation to be used for assets and liabilities as well as disclosures on the inputs and valuation techniques used to measure fair value.  The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the Level 3 rollforward, which are effective for interim and annual periods beginning after December 15, 2010.  The Company adopted the standard in the first quarter of 2010, except for the additional disclosures related to the Level 3 rollforward, which the Company adopted in the first quarter of 2011.  The adoption did not impact the Company’s consolidated financial condition and results of operations.  See Note 11 for the required disclosures.

 

**Future Adoption of New Accounting Standards**

 

*Receivables*

 

In April 2011, the FASB updated the accounting standards for troubled debt restructurings. The new standard includes indicators that a lender should consider in determining whether a borrower is experiencing financial difficulties and provides clarification for determining whether the lender has granted a concession to the borrower. The standard sets the effective dates for troubled debt restructuring disclosures required by recent guidance on credit quality disclosures. The standard is effective for interim and annual periods beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. For purposes of measuring impairments of receivables that are considered impaired as a result of applying the new guidance, the standard should be applied prospectively for the interim or annual period beginning on or after June 15, 2011. The adoption of the standard is not expected to have a material impact on the Company’s consolidated financial condition and results of operations.

 

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

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

 

*Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts*

 

In October 2010, the FASB updated the accounting standards for deferred acquisition costs (“DAC”). Under this new standard, only the following costs incurred in the acquisition of new and renewal insurance contracts would be capitalizable as DAC: (i) incremental direct costs of a successful contract acquisition, (ii) portions of employees’ salaries and benefits directly related to time spent performing specified acquisition activities (that is, underwriting, policy issuance and processing, medical and inspection, and sales force contract selling) for a contract that has actually been acquired, (iii) other costs related to the specified acquisition activities that would not have been incurred had the acquisition contract not occurred, and (iv) advertising costs that meet the capitalization criteria in other GAAP guidance for certain direct-response marketing. All other costs are to be expensed as incurred. The standard is effective for interim and annual periods beginning after December 15, 2011, with earlier adoption permitted if it is at the beginning of an entity’s annual reporting period. The standard is to be applied prospectively; however, retrospective application to all prior periods presented is permitted but not required. The Company will adopt the standard on January 1, 2012.  The Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.

 

**3.****             ****Variable Interest Entities**

 

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

 

RTA’s maximum exposure to loss as a result of its investment in the affordable housing partnerships is limited to the carrying values.  The carrying values are reflected in trading securities and other investments and were $236 million and $244 million as of March 31, 2011 and December 31, 2010, respectively.  RTA has no obligation to provide financial or other support to the affordable housing partnerships in addition to liabilities already recorded for future funding commitments nor has it provided any additional support to the affordable housing partnerships.  The Company had liabilities of $179 million and $188 million recorded in other liabilities as of March 31, 2011 and December 31, 2010, respectively, related to the future funding commitments for affordable housing partnerships.

 

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

 

Available-for-Sale securities distributed by type were as follows:

 
| ** **                               | ** ** | **March 31, 2011** | ** ** |
|------------------------------------------|------------|------------------------------|------------|
| **Description of Securities**  | ** ** | **Amortized   Cost**         | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair   Value** | ** ** | **Noncredit   OTTI(1)** | ** ** |
| ** **                               | ** ** | **(in millions)**       | ** ** |
| Fixed maturities:                        |       |                         |       |   |   |   |   |   |   |   |   |
| Corporate debt securities                |       | $                            | 15,069     |   | $ | 1,148 |   | $ | (53 | ) | $ | 16,164 |   | $ | — |   |
| Residential mortgage backed securities   |       | 4,548                        |       | 276 |   | (125 | ) | 4,699 |   | (18 | ) |
| Commercial mortgage backed securities    |       | 3,667                        |       | 264 |   | (4 | ) | 3,927 |   | — |   |
| State and municipal obligations          |       | 983                          |       | 18 |   | (56 | ) | 945 |   | — |   |
| Asset backed securities                  |       | 851                          |       | 42 |   | (13 | ) | 880 |   | — |   |
| Foreign government bonds and obligations |       | 93                           |       | 15 |   | — |   | 108 |   | — |   |
| U.S. government and agencies obligations |       | 52                           |       | 7 |   | — |   | 59 |   | — |   |
| Other structured investments             |       | 7                            |       | 7 |   | — |   | 14 |   | 7 |   |
| Total fixed maturities                   |       | 25,270                       |       | 1,777 |   | (251 | ) | 26,796 |   | (11 | ) |
| Common stocks                            |       | 1                            |       | 1 |   | — |   | 2 |   | — |   |
| Total                                    |       | $                            | 25,271     |   | $ | 1,778 |   | $ | (251 | ) | $ | 26,798 |   | $ | (11 | ) |

 

6

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Table of Contents

 

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

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

 
| ** **                               | ** ** | **December 31, 2010** | ** ** |
|------------------------------------------|------------|---------------------------------|------------|
| **Description of Securities**  | ** ** | **Amortized   Cost**            | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair   Value** | ** ** | **Noncredit   OTTI(1)** | ** ** |
| ** **                               | ** ** | **(in millions)**          | ** ** |
| Fixed maturities:                        |       |                            |       |   |   |   |   |   |   |   |   |
| Corporate debt securities                |       | $                               | 14,792     |   | $ | 1,218 |   | $ | (56 | ) | $ | 15,954 |   | $ | 1 |   |
| Residential mortgage backed securities   |       | 4,364                           |       | 308 |   | (139 | ) | 4,533 |   | (30 | ) |
| Commercial mortgage backed securities    |       | 3,817                           |       | 282 |   | (4 | ) | 4,095 |   | — |   |
| Asset backed securities                  |       | 883                             |       | 43 |   | (18 | ) | 908 |   | — |   |
| State and municipal obligations          |       | 809                             |       | 18 |   | (57 | ) | 770 |   | — |   |
| Foreign government bonds and obligations |       | 91                              |       | 16 |   | — |   | 107 |   | — |   |
| U.S. government and agencies obligations |       | 55                              |       | 7 |   | — |   | 62 |   | — |   |
| Other structured investments             |       | 7                               |       | 6 |   | — |   | 13 |   | 6 |   |
| Total fixed maturities                   |       | 24,818                          |       | 1,898 |   | (274 | ) | 26,442 |   | (23 | ) |
| Common stocks                            |       | 1                               |       | 1 |   | — |   | 2 |   | — |   |
| Total                                    |       | $                               | 24,819     |   | $ | 1,899 |   | $ | (274 | ) | $ | 26,444 |   | $ | (23 | ) |

 

----

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

 

At both March 31, 2011 and December 31, 2010, fixed maturity securities comprised approximately 88% of the Company’s total investments.  Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”).  The Company uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. At both March 31, 2011 and December 31, 2010, approximately $1.2 billion of securities were internally rated by Columbia Management Investment Advisers, LLC using criteria similar to those used by NRSROs.

 

A summary of fixed maturity securities by rating was as follows:

 
| ** **             | ** ** | **March 31, 2011**                         | ** ** | **December 31, 2010** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| **Ratings**            | ** ** | **Amortized   Cost**                                 | ** ** | **Fair********Value**           | ** ** | **Percent of   Total Fair   Value** | ** ** | **Amortized   Cost** | ** ** | **Fair********Value** | ** ** | **Percent of   Total Fair   Value** | ** ** |
| ** **             | ** ** | **(in millions, except percentages)** | ** ** |
| AAA                    |       | $                                                    | 8,179      |                            | $          | 8,703 |   | 32 | % | $ | 8,067 |   | $ | 8,647 |   | 33 | % |
| AA                     |       | 1,293                                                |       | 1,346                           |       | 5 |   | 1,360 |   | 1,426 |   | 5 |   |
| A                      |       | 4,037                                                |       | 4,257                           |       | 16 |   | 4,025 |   | 4,259 |   | 16 |   |
| BBB                    |       | 10,411                                               |       | 11,249                          |       | 42 |   | 9,831 |   | 10,721 |   | 41 |   |
| Below investment grade |       | 1,350                                                |       | 1,241                           |       | 5 |   | 1,535 |   | 1,389 |   | 5 |   |
| Total fixed maturities |       | $                                                    | 25,270     |                            | $          | 26,796 |   | 100 | % | $ | 24,818 |   | $ | 26,442 |   | 100 | % |

 

At March 31, 2011 and December 31, 2010, approximately 32% and 29%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.  No holdings of any other issuer were greater than 10% of total equity.

 

7

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

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

 

The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:

 
|                                          |       | **March 31, 2011**                                            |       |
|-----------------------------------------------|------------|-------------------------------------------------------------------------|------------|
|                                          |       | **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                     |       | 141                                                                     |       | $ | 2,315 |   | $ | (46 | ) | 9 |   | $ | 136 |   | $ | (7 | ) | 150 |   | $ | 2,451 |   | $ | (53 | ) |
| Residential mortgage backed securities        |       | 80                                                                      |       | 802 |   | (10 | ) | 45 |   | 318 |   | (115 | ) | 125 |   | 1,120 |   | (125 | ) |
| Commercial mortgage backed securities         |       | 9                                                                       |       | 183 |   | (4 | ) | — |   | — |   | — |   | 9 |   | 183 |   | (4 | ) |
| State and municipal obligations               |       | 24                                                                      |       | 324 |   | (10 | ) | 2 |   | 89 |   | (46 | ) | 26 |   | 413 |   | (56 | ) |
| Asset backed securities                       |       | 9                                                                       |       | 140 |   | (3 | ) | 16 |   | 75 |   | (10 | ) | 25 |   | 215 |   | (13 | ) |
| U.S. government and agencies obligations      |       | 1                                                                       |       | 13 |   | — |   | — |   | — |   | — |   | 1 |   | 13 |   | — |   |
| Common stocks                                 |       | 1                                                                       |       | 1 |   | — |   | 1 |   | — |   | — |   | 2 |   | 1 |   | — |   |
| Total                                         |       | 265                                                                     |       | $ | 3,778 |   | $ | (73 | ) | 73 |   | $ | 618 |   | $ | (178 | ) | 338 |   | $ | 4,396 |   | $ | (251 | ) |

 
|                                          |       | **December 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                     |       | 107                                                                     |       | $ | 1,785 |   | $ | (44 | ) | 13 |   | $ | 153 |   | $ | (12 | ) | 120 |   | $ | 1,938 |   | $ | (56 | ) |
| Residential mortgage backed securities        |       | 71                                                                      |       | 310 |   | (7 | ) | 45 |   | 282 |   | (132 | ) | 116 |   | 592 |   | (139 | ) |
| Commercial mortgage backed securities         |       | 10                                                                      |       | 238 |   | (4 | ) | — |   | — |   | — |   | 10 |   | 238 |   | (4 | ) |
| Asset backed securities                       |       | 10                                                                      |       | 186 |   | (6 | ) | 15 |   | 69 |   | (12 | ) | 25 |   | 255 |   | (18 | ) |
| State and municipal obligations               |       | 20                                                                      |       | 256 |   | (9 | ) | 2 |   | 87 |   | (48 | ) | 22 |   | 343 |   | (57 | ) |
| U.S. government and agencies obligations      |       | 1                                                                       |       | 15 |   | — |   | — |   | — |   | — |   | 1 |   | 15 |   | — |   |
| Common stocks                                 |       | 2                                                                       |       | 1 |   | — |   | 1 |   | — |   | — |   | 3 |   | 1 |   | — |   |
| Total                                         |       | 221                                                                     |       | $ | 2,791 |   | $ | (70 | ) | 76 |   | $ | 591 |   | $ | (204 | ) | 297 |   | $ | 3,382 |   | $ | (274 | ) |

 

As part of the Company’s ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to movement in credit spreads.

 

The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Income for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income:

 
| ** **                                                                                                                                                                         | ** ** | **2011**               | ** ** | **2010** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                                                                                                                                         | ** ** | **(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 |       | $                      | 108        |     | $          | 82 |   |
| Additional amount related to credit losses for   which an other-than-temporary impairment was not previously recognized                                                            |       | —                 |       | 14       |       |
| Reductions for securities sold during the period   (realized)                                                                                                                      |       | (16                    | )          | —   |       |
| Additional increases to the amount related to   credit losses for which an other-than-temporary impairment was previously   recognized                                             |       | 1                      |       | 7        |       |
| 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     |       | $                      | 93         |     | $          | 103 |   |

 

The change in net unrealized securities gains (losses) in other comprehensive income includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit

 

8

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

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

 

losses and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC, deferred sales inducement costs (“DSIC”), benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.

 

The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income:

 
| ** **                                                           | ** ** | **Net********Unrealized********Securities********Gains (Losses)** | ** ** | **Deferred********Income   Tax** | ** ** | **Accumulated   Other********Comprehensive   Income Related to   Net Unrealized   Securities********Gains (Losses)** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **(in millions)**                                                 | ** ** |
| Balance   at January 1, 2010                                    |       | $                                                                      | 638        |                             | $          | (222                                                                                                                                     | )          | $ | 416 |   |
| Net   unrealized securities gains arising during the period(2)       |       | 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 | (1) |
|                                                                 |       |                                                                   |       |                             |       |                                                                                                                                     |       |
| Balance   at January 1, 2011                                    |       | $                                                                      | 1,084      |                             | $          | (379                                                                                                                                     | )          | $ | 705 |   |
| Net   unrealized securities losses arising during the period(2)      |       | (103                                                                   | )          | 36                               |       | (67                                                                                                                                      | )          |
| Reclassification   of losses included in net income                  |       | 5                                                                      |       | (2                               | )          | 3                                                                                                                                        |       |
| Impact   on DAC, DSIC, benefit reserves and reinsurance recoverables |       | 42                                                                     |       | (15                              | )          | 27                                                                                                                                       |       |
| Balance   at March 31, 2011                                     |       | $                                                                      | 1,028      |                             | $          | (360                                                                                                                                     | )          | $ | 668 | (1) |

 

----

(1)          At March 31, 2011 and 2010, Accumulated Other Comprehensive Income Related to Net Unrealized Securities Gains included $(5) million and $(15) million, respectively, of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities.

 

(2)          Net unrealized securities gains (losses) arising during the period include other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income during the period.

 

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

 
| ** **                                  | ** ** | **Three Months Ended   March 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                  | ** ** | **2011**                                          | ** ** | **2010** | ** ** |
| ** **                                  | ** ** | **(in millions)**                            | ** ** |
| Gross realized investment gains from sales  |       | $                                                 | 13         |   | $ | 32 |   |
| Gross realized investment losses from sales |       | (17                                               | )          | (1 | ) |
| Other-than-temporary impairments            |       | (1                                                | )          | (23 | ) |
|                                             |            |                                                   |            |  |  |  |  |

 

The other-than-temporary impairments for the three months ended March 31, 2011 and 2010 primarily related to credit losses on non-agency residential mortgage backed securities.

 

9

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

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

 

Available-for-Sale securities by contractual maturity at March 31, 2011 were as follows:

 
| ** **                             | ** ** | **Amortized Cost**        | ** ** | **Fair Value** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|---------------------|------------|
| ** **                             | ** ** | **(in ****millions****)** | ** ** |
| Due within one year                    |       | $                              | 907        |                | $          | 924 |   |
| Due after one year through five years  |       | 5,237                          |       | 5,540               |       |
| Due after five years through 10 years  |       | 6,301                          |       | 6,777               |       |
| Due after 10 years                     |       | 3,752                          |       | 4,035               |       |
|                                   |       | 16,197                         |       | 17,276              |       |
| Residential mortgage backed securities |       | 4,548                          |       | 4,699               |       |
| Commercial mortgage backed securities  |       | 3,667                          |       | 3,927               |       |
| Asset backed securities                |       | 851                            |       | 880                 |       |
| Other structured investments           |       | 7                              |       | 14                  |       |
| Common stocks                          |       | 1                              |       | 2                   |       |
| Total                                  |       | $                              | 25,271     |                | $          | 26,798 |   |

 

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.  Residential mortgage backed securities, commercial mortgage backed securities, asset backed securities and other structured investments are not due at a single maturity date.  As such, these securities, as well as common stocks, were not included in the maturities distribution.

 

**5.****             ****Financing Receivables**

 

The Company’s financing receivables include commercial mortgage loans, syndicated loans and policy loans.  The Company does not hold any loans acquired with deteriorated credit quality.

 

**Allowance for Loan Losses**

 

The following table presents a rollforward of the allowance for loan losses and the ending balance of the allowance for loan losses by impairment method and type of loan:

 
| ** **                                              | ** ** | **March 31, 2011**      | ** ** | **March 31, 2010** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------|------------|------------------------------|------------|
| ** **                                              | ** ** | **Commercial   Mortgage   Loans** | ** ** | **Syndicated   Loans**       | ** ** | **Total** | ** ** | **Commercial   Mortgage   Loans** | ** ** | **Syndicated   Loans** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in millions)**            | ** ** |
| Beginning balance                                       |       | $                                 | 36         |                         | $          | 5 |   | $ | 41 |   | $ | 30 |   | $ | 12 |   | $ | 42 |   |
| Charge-offs                                             |       | (2                                | )          | —                       |       | (2 | ) | — |   | — |   | — |   |
| Provisions                                              |       | —                            |       | —                       |       | — |   | 6 |   | (3 | ) | 3 |   |
| Ending balance                                          |       | $                                 | 34         |                         | $          | 5 |   | $ | 39 |   | $ | 36 |   | $ | 9 |   | $ | 45 |   |
| Ending balance: Individually evaluated for   impairment |       | $                                 | 8          |                         | $          | — |   | $ | 8 |   | $ | 4 |   | $ | — |   | $ | 4 |   |
| Ending balance: Collectively evaluated for   impairment |       | 26                                |       | 5                            |       | 31 |   | 32 |   | 9 |   | 41 |   |

 

The recorded investment in financing receivables by impairment method and type of loan was as follows:

 
| ** **                                              | ** ** | **March 31, 2011**      | ** ** | **December 31, 2010** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| ** **                                              | ** ** | **Commercial   Mortgage   Loans** | ** ** | **Syndicated   Loans**          | ** ** | **Total** | ** ** | **Commercial   Mortgage   Loans** | ** ** | **Syndicated   Loans** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in millions)**            | ** ** |
| Ending balance: Individually evaluated for   impairment |       | $                                 | 67         |                            | $          | — |   | $ | 67 |   | $ | 75 |   | $ | — |   | $ | 75 |   |
| Ending balance: Collectively evaluated for   impairment |       | 2,412                             |       | 236                             |       | 2,648 |   | 2,431 |   | 205 |   | 2,636 |   |
| Ending balance                                          |       | $                                 | 2,479      |                            | $          | 236 |   | $ | 2,715 |   | $ | 2,506 |   | $ | 205 |   | $ | 2,711 |   |

 

As of March 31, 2011 and December 31, 2010, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $9 million and $19 million, respectively.

 

10

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Table of Contents

 

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

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

 

During the three months ended March 31, 2011 and 2010, the Company purchased $63 million and nil and sold $1 million and $1 million, respectively, of syndicated loans.

 

**Credit Quality Information**

 

Nonperforming loans, which are generally loans 90 days or more past due, were $3 million and $8 million as of March 31, 2011 and December 31, 2010, respectively.  All other loans were considered to be performing.

 

*Commercial Mortgage Loans*

 

The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans.  Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 3% of commercial mortgage loans at both March 31, 2011 and December 31, 2010. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure in the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.

 

Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:

 
| ** **                      | ** ** | **March 31, 2011**                         | ** ** | **December 31, 2010** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **Loans**                                            | ** ** | **Percent of   Loans**     | ** ** | **Funding   Commitments** | ** ** | **Loans** | ** ** | **Percent of   Loans** | ** ** | **Funding   Commitments** | ** ** |
| ** **                      | ** ** | **(in millions, except percentages)** | ** ** |
| South Atlantic                  |       | $                                                    | 586        |                            | 24         | % | $ | 8 |   | $ | 590 |   | 24 | % | $ | 4 |   |
| Pacific                         |       | 536                                                  |       | 22                              |       | 14 |   | 530 |   | 21 |   | 15 |   |
| Mountain                        |       | 280                                                  |       | 11                              |       | — |   | 286 |   | 11 |   | — |   |
| West North Central              |       | 245                                                  |       | 10                              |       | 1 |   | 251 |   | 10 |   | — |   |
| East North Central              |       | 235                                                  |       | 9                               |       | — |   | 240 |   | 10 |   | — |   |
| Middle Atlantic                 |       | 216                                                  |       | 9                               |       | 1 |   | 212 |   | 8 |   | — |   |
| West South Central              |       | 178                                                  |       | 7                               |       | — |   | 183 |   | 7 |   | — |   |
| New England                     |       | 138                                                  |       | 5                               |       | — |   | 148 |   | 6 |   | 2 |   |
| East South Central              |       | 65                                                   |       | 3                               |       | — |   | 66 |   | 3 |   | — |   |
|                            |       | 2,479                                                |       | 100                             | %          | $ | 24 |   | 2,506 |   | 100 | % | $ | 21 |   |
| Less: allowance for loan losses |       | (34                                                  | )          |                            |       |   |   | (36 | ) |   |   |   |   |
| Total                           |       | $                                                    | 2,445      |                            |       |   |   |   | $ | 2,470 |   |   |   |   |   |

 

Concentrations of credit risk of commercial mortgage loans by property type were as follows:

 
| ** **                      | ** ** | **March 31, 2011**                         | ** ** | **December 31, 2010** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **Loans**                                            | ** ** | **Percent of   Loans**     | ** ** | **Funding   Commitments** | ** ** | **Loans** | ** ** | **Percent of   Loans** | ** ** | **Funding   Commitments** | ** ** |
| ** **                      | ** ** | **(in millions, except percentages)** | ** ** |
| Retail                          |       | $                                                    | 816        |                            | 33         | % | $ | 9 |   | $ | 820 |   | 33 | % | $ | 10 |   |
| Office                          |       | 691                                                  |       | 28                              |       | — |   | 717 |   | 29 |   | — |   |
| Industrial                      |       | 452                                                  |       | 18                              |       | 7 |   | 456 |   | 18 |   | 6 |   |
| Apartments                      |       | 323                                                  |       | 13                              |       | 8 |   | 326 |   | 13 |   | — |   |
| Hotel                           |       | 56                                                   |       | 2                               |       | — |   | 57 |   | 2 |   | — |   |
| Mixed Use                       |       | 42                                                   |       | 2                               |       | — |   | 43 |   | 2 |   | — |   |
| Other                           |       | 99                                                   |       | 4                               |       | — |   | 87 |   | 3 |   | 5 |   |
|                            |       | 2,479                                                |       | 100                             | %          | $ | 24 |   | 2,506 |   | 100 | % | $ | 21 |   |
| Less: allowance for loan losses |       | (34                                                  | )          |                            |       |   |   | (36 | ) |   |   |   |   |
| Total                           |       | $                                                    | 2,445      |                            |       |   |   |   | $ | 2,470 |   |   |   |   |   |

 

11

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Table of Contents

 

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

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

 

*Syndicated Loans*

 

The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at both March 31, 2011 and December 31, 2010 were $1 million.

 

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

 

The balances of and changes in DAC were as follows:

 
| ** **                                                     | ** ** | **2011**               | ** ** | **2010** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                     | ** ** | **(in millions)** | ** ** |
| Balance at   January 1                                    |       | $                      | 4,578      |     | $          | 4,285 |   |
| Capitalization of   acquisition costs                          |       | 105                    |       | 87       |       |
| Amortization                                                   |       | (97                    | )          | (99      | )          |
| Impact of change in net   unrealized securities losses (gains) |       | 12                     |       | (77      | )          |
| Balance at March 31                                       |       | $                      | 4,598      |     | $          | 4,196 |   |

 

The balances of and changes in DSIC were as follows:

 
| ** **                                                     | ** ** | **2011**               | ** ** | **2010** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                     | ** ** | **(in millions)** | ** ** |
| Balance at   January 1                                    |       | $                      | 545        |     | $          | 524 |   |
| Capitalization of sales   inducement costs                     |       | 3                      |       | 15       |       |
| Amortization                                                   |       | (13                    | )          | (12      | )          |
| Impact of change in net   unrealized securities losses (gains) |       | 1                      |       | (13      | )          |
| Balance at March 31                                       |       | $                      | 536        |     | $          | 514 |   |

 

**7.****             ****Future Policy Benefits, Policy Claims and Other Policyholders’ Funds and Separate Account Liabilities**

 

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

 
| ** **                                                                            | ** ** | **March 31, 2011** | ** ** | **December 31, 2010** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                                            | ** ** | **(in millions)**       | ** ** |
| Fixed annuities                                                                       |       | $                            | 16,395     |                            | $          | 16,520 |   |
| Equity indexed annuities (“EIA”) accumulated host   values                  |       | 86                           |       | 100                             |       |
| EIA embedded derivatives                                                              |       | 3                            |       | 3                               |       |
| Variable annuity fixed sub-accounts                                                   |       | 4,795                        |       | 4,868                           |       |
| Variable annuity guaranteed minimum withdrawal   benefits (“GMWB”)          |       | 164                          |       | 337                             |       |
| Variable annuity guaranteed minimum accumulation   benefits (“GMAB”)        |       | 49                           |       | 104                             |       |
| Other variable annuity guarantees                                                     |       | 12                           |       | 13                              |       |
| Total annuities                                                                       |       | 21,504                       |       | 21,945                          |       |
| Variable universal life (“VUL”)/universal life   (“UL”) insurance |       | 2,590                        |       | 2,588                           |       |
| VUL/UL insurance additional liabilities                                               |       | 152                          |       | 143                             |       |
| Other life, disability income and long term care   insurance                          |       | 5,042                        |       | 5,004                           |       |
| Total future policy benefits                                                          |       | 29,288                       |       | 29,680                          |       |
| Policy claims and other policyholders’ funds                                     |       | 134                          |       | 134                             |       |
| Total future policy benefits and policy claims and   other policyholders’ funds  |       | $                            | 29,422     |                            | $          | 29,814 |   |

 

Separate account liabilities consisted of the following:

 
| ** **                             | ** ** | **March 31, 2011** | ** ** | **December 31, 2010** | ** ** |
|----------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | **(in millions)**       | ** ** |
| Variable annuity variable sub-accounts |       | $                            | 60,018     |                            | $          | 57,862 |   |
| VUL insurance variable sub-accounts    |       | 6,104                        |       | 5,887                           |       |
| Other insurance variable sub-accounts  |       | 46                           |       | 46                              |       |
| Total                                  |       | $                            | 66,168     |                            | $          | 63,795 |   |

 

**8.****             ****Variable Annuity and Insurance Guarantees**

 

The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions.  The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits.  In addition,

 

12

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Table of Contents

 

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

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

 

the Company offers contracts with GMWB and GMAB provisions.  The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.

 

Certain UL contracts offered by the Company provide secondary guarantee benefits.  The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

 

The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:

 
| ** **                                                                  | ** ** | **March 31, 2011**                 | ** ** | **December 31, 2010**                    | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------|------------|
| **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                                                           |       | $                                            | 39,612     |                                               | $          | 37,951 |   | $ | 109 |   | 62 |   | $ | 37,714 |   | $ | 36,028 |   | $ | 173 |   | 62 |   |
| Five/six-year reset                                                         |       | 13,638                                       |       | 11,127                                             |       | 226 |   | 62 |   | 13,689 |   | 11,153 |   | 312 |   | 62 |   |
| One-year ratchet                                                            |       | 7,885                                        |       | 7,404                                              |       | 184 |   | 64 |   | 7,741 |   | 7,242 |   | 287 |   | 63 |   |
| Five-year ratchet                                                           |       | 1,525                                        |       | 1,474                                              |       | 5 |   | 60 |   | 1,466 |   | 1,414 |   | 8 |   | 60 |   |
| Other                                                                       |       | 721                                          |       | 694                                                |       | 51 |   | 67 |   | 680 |   | 649 |   | 61 |   | 67 |   |
| Total — GMDB                                                           |       | $                                            | 63,381     |                                               | $          | 58,650 |   | $ | 575 |   | 62 |   | $ | 61,290 |   | $ | 56,486 |   | $ | 841 |   | 62 |   |
|                                                                        |       |                                         |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU death benefit**                                                       |       | $                                            | 997        |                                               | $          | 940 |   | $ | 83 |   | 64 |   | $ | 970 |   | $ | 912 |   | $ | 79 |   | 64 |   |
|                                                                        |       |                                         |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                                                    |       | $                                            | 585        |                                               | $          | 551 |   | $ | 62 |   | 64 |   | $ | 597 |   | $ | 561 |   | $ | 76 |   | 64 |   |
|                                                                        |       |                                         |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                                                   |       |                                         |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                                        |       | $                                            | 4,367      |                                               | $          | 4,345 |   | $ | 58 |   | 65 |   | $ | 4,341 |   | $ | 4,317 |   | $ | 106 |   | 64 |   |
| GMWB for life                                                               |       | 21,899                                       |       | 21,804                                             |       | 62 |   | 64 |   | 20,374 |   | 20,259 |   | 129 |   | 63 |   |
| Total — GMWB                                                           |       | $                                            | 26,266     |                                               | $          | 26,149 |   | $ | 120 |   | 64 |   | $ | 24,715 |   | $ | 24,576 |   | $ | 235 |   | 63 |   |
|                                                                        |       |                                         |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                                                    |       | $                                            | 3,677      |                                               | $          | 3,665 |   | $ | 9 |   | 56 |   | $ | 3,540 |   | $ | 3,523 |   | $ | 22 |   | 56 |   |

 

----

(1)          Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type.  Variable annuity contracts for which the death benefit equals the account value are not shown in this table.

 

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

 

Changes in additional liabilities for variable annuity and insurance guarantees were as follows:

 
| ** **                                | ** ** | **GMDB &   GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|-------------------------------------------|------------|---------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                | ** ** | **(in millions)**    | ** ** |
| 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 |   |
|                                      |       |                      |       |     |       |     |       |     |       |   |       |
| Liability balance at January 1, 2011 |       | $                         | 5          |     | $          | 8        |       | $        | 337        |   | $          | 104 |   | $ | 68 |   |
| Incurred claims                           |       | 2                         |       | —   |       | (173     | )          | (55      | )          | 12     |       |
| Paid claims                               |       | (2                        | )          | (1       | )          | —   |       | —   |       | (2     | )          |
| Liability balance at March 31, 2011  |       | $                         | 5          |     | $          | 7        |       | $        | 164        |   | $          | 49 |   | $ | 78 |   |

 

The liabilities for guaranteed benefits are supported by general account assets.

 

13

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

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

 

The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:

 
| ** **         | ** ** | **March 31,**     | ** ** | **December 31,** | ** ** |
|--------------------|------------|------------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2011**               | ** ** | **2010**              | ** ** |
| ** **         | ** ** | **(in millions)** | ** ** |
| Mutual funds:      |       |                   |       |                  |       |
| Equity             |       | $                      | 33,777     |                  | $          | 32,310 |   |
| Bond               |       | 23,020                 |       | 22,319                |       |
| Other              |       | 2,185                  |       | 2,208                 |       |
| Total mutual funds |       | $                      | 58,982     |                  | $          | 56,837 |   |

 

**9.****             ****Line of Credit**

 

RiverSource Life Insurance Company, as the borrower, had an outstanding balance at March 31, 2011 and December 31, 2010 of $300 million and $3 million, respectively, under a revolving credit agreement with Ameriprise Financial as the lender.  The aggregate amount outstanding under the line of credit may not exceed $800 million at any time.  Prior to January 2011, the interest rate for any borrowing under the agreement was established by reference to LIBOR plus 28 basis points.  In January 2011, an amendment to this agreement increased the interest rate to LIBOR plus 115 basis points.  Amounts borrowed may be repaid at any time with no prepayment penalty.  The outstanding balance at December 31, 2010 was paid in full with a payment in January 2011.

 

**10.****      ****Borrowings under Repurchase Agreements**

 

The Company enters into repurchase agreements in exchange for cash which it accounts for as secured borrowings.  The Company has pledged Available-for-Sale securities consisting of agency residential mortgage backed securities and commercial mortgage backed securities to collateralize its obligation under the repurchase agreements. The fair value of the securities pledged is recorded in investments and was $521 million and $412 million at March 31, 2011 and December 31, 2010, respectively. The amount of the Company’s liability including accrued interest as of March 31, 2011 and December 31, 2010 was $497 million and $397 million, respectively.  The weighted average annualized interest rate on the repurchase agreements held as of both March 31, 2011 and December 31, 2010 was 0.3%.

 

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

 

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

 

**Valuation Hierarchy**

 

The Company categorizes its fair value measurements according to a three-level hierarchy.  The hierarchy prioritizes the inputs used by the Company’s valuation techniques.  A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety.  The three levels of the fair value hierarchy are defined as follows:

 

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

 

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

 

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

 

**Determination of Fair Value**

 

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities.  The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.  The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount.  When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

 

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

 

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

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

 

**Assets**

 

*Cash Equivalents*

 

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

 

*Available-for-Sale Securities*

 

When available, the fair value of securities is based on quoted prices in active markets.  If quoted prices are not available, fair values 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 and corporate bonds, agency mortgage backed securities, commercial mortgage backed securities, asset backed securities and U.S. and foreign government and agency securities.  The fair value of these Level 2 securities is based on a market approach with prices obtained from nationally-recognized pricing services.  Observable inputs used to value these securities can include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes.  Level 3 securities primarily include corporate bonds, non-agency residential mortgage backed securities and asset backed securities.  The fair value of these Level 3 securities is typically based on a single broker quote, except for the valuation of non-agency residential mortgage backed securities. The Company uses prices from nationally-recognized pricing services to determine the fair value of non-agency residential mortgage backed securities.  The Company continues to classify its non-agency residential mortgage backed securities as Level 3 because it believes the market for these securities is still inactive and their valuation includes significant unobservable inputs.

 

*Separate Account Assets*

 

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

 

*Other Assets*

 

Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchanged-traded, are classified as Level 1 measurements.  The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels.  These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options.

 

**Liabilities**

 

*Future Policy Benefits*

 

The Company values the embedded derivative liability attributable to the provisions of certain variable annuity riders using internal valuation models.  These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees.  The projected cash flows used by these models include observable capital market assumptions (such as market implied equity volatility and the LIBOR swap curve) and incorporate significant unobservable inputs related to contractholder behavior assumptions (such as withdrawals and lapse rates) and margins for risk, profit and expenses that the Company believes an exit market participant would expect.  The fair value of these embedded derivatives also reflects a current estimate of the Company’s nonperformance risk specific to these liabilities.  Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3.  The embedded derivative liability attributable to these provisions is recorded in future policy benefits.  The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its EIAs.  The inputs to these calculations are primarily market observable and include interest rates, volatilities and equity index levels.  As a result, these measurements are classified as Level 2.

 

*Other Liabilities*

 

Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements.  The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels.  These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options.

 

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

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

 

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

 
| ** **                                              | ** ** | **March 31, 2011** | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|
| ** **                                              | ** ** | **Level 1**             | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in millions)**       | ** ** |
| Assets                                                  |       |                         |       |   |   |   |   |   |   |
| Available-for-Sale securities:                          |       |                         |       |   |   |   |   |   |   |
| Fixed maturities:                                       |       |                         |       |   |   |   |   |   |   |
| Corporate debt securities                               |       | $                            | —     |   | $ | 14,853 |   | $ | 1,311 |   | $ | 16,164 |   |
| Residential mortgage backed securities                  |       | —                       |       | 2,232 |   | 2,467 |   | 4,699 |   |
| Commercial mortgage backed securities                   |       | —                       |       | 3,926 |   | 1 |   | 3,927 |   |
| Asset backed securities                                 |       | —                       |       | 656 |   | 224 |   | 880 |   |
| State and municipal obligations                         |       | —                       |       | 945 |   | — |   | 945 |   |
| U.S. government and agencies obligations                |       | 11                           |       | 48 |   | — |   | 59 |   |
| Foreign government bonds and obligations                |       | —                       |       | 108 |   | — |   | 108 |   |
| Other structured investments                            |       | —                       |       | — |   | 14 |   | 14 |   |
| Total Available-for-Sale securities: Fixed   maturities |       | 11                           |       | 22,768 |   | 4,017 |   | 26,796 |   |
| Common stocks                                           |       | 1                            |       | 1 |   | — |   | 2 |   |
| Trading securities                                      |       | —                       |       | 26 |   | — |   | 26 |   |
| Cash equivalents                                        |       | —                       |       | 111 |   | — |   | 111 |   |
| Other assets:                                           |       |                         |       |   |   |   |   |   |   |
| Interest rate contracts                                 |       | —                       |       | 354 |   | — |   | 354 |   |
| Equity contracts                                        |       | 42                           |       | 230 |   | — |   | 272 |   |
| Foreign currency contracts                              |       | —                       |       | 1 |   | — |   | 1 |   |
| Total other assets                                      |       | 42                           |       | 585 |   | — |   | 627 |   |
| Separate account assets                                 |       | —                       |       | 66,168 |   | — |   | 66,168 |   |
| Total assets at fair value                              |       | $                            | 54         |   | $ | 89,659 |   | $ | 4,017 |   | $ | 93,730 |   |
|                                                    |       |                         |       |   |   |   |   |   |   |
| Liabilities                                             |       |                         |       |   |   |   |   |   |   |
| Future policy benefits:                                 |       |                         |       |   |   |   |   |   |   |
| EIA embedded derivatives                                |       | $                            | —     |   | $ | 3 |   | $ | — |   | $ | 3 |   |
| GMWB and GMAB embedded derivatives                      |       | —                       |       | — |   | 190 |   | 190 |   |
| Total future policy benefits                            |       | —                       |       | 3 |   | 190 |   | 193 |   |
| Other liabilities:                                      |       |                         |       |   |   |   |   |   |   |
| Interest rate contracts                                 |       | —                       |       | 410 |   | — |   | 410 |   |
| Equity contracts                                        |       | 52                           |       | 773 |   | — |   | 825 |   |
| Credit contracts                                        |       | —                       |       | 1 |   | — |   | 1 |   |
| Total other liabilities                                 |       | 52                           |       | 1,184 |   | — |   | 1,236 |   |
| Total liabilities at fair value                         |       | $                            | 52         |   | $ | 1,187 |   | $ | 190 |   | $ | 1,429 |   |

 

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

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

 
| ** **                                              | ** ** | **December 31, 2010** | ** ** |
|---------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                              | ** ** | **Level 1**                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in millions)**          | ** ** |
| Assets                                                  |       |                            |       |   |   |   |   |   |   |
| Available-for-Sale securities:                          |       |                            |       |   |   |   |   |   |   |
| Fixed maturities:                                       |       |                            |       |   |   |   |   |   |   |
| Corporate debt securities                               |       | $                               | —     |   | $ | 14,637 |   | $ | 1,317 |   | $ | 15,954 |   |
| Residential mortgage backed securities                  |       | —                          |       | 1,915 |   | 2,618 |   | 4,533 |   |
| Commercial mortgage backed securities                   |       | —                          |       | 4,065 |   | 30 |   | 4,095 |   |
| Asset backed securities                                 |       | —                          |       | 681 |   | 227 |   | 908 |   |
| State and municipal obligations                         |       | —                          |       | 770 |   | — |   | 770 |   |
| U.S. government and agencies obligations                |       | 11                              |       | 51 |   | — |   | 62 |   |
| Foreign government bonds and obligations                |       | —                          |       | 107 |   | — |   | 107 |   |
| Other structured investments                            |       | —                          |       | — |   | 13 |   | 13 |   |
| Total Available-for-Sale securities: Fixed   maturities |       | 11                              |       | 22,226 |   | 4,205 |   | 26,442 |   |
| Common stocks                                           |       | 1                               |       | 1 |   | — |   | 2 |   |
| Trading securities                                      |       | —                          |       | 26 |   | — |   | 26 |   |
| Cash equivalents                                        |       | —                          |       | 76 |   | — |   | 76 |   |
| Other assets:                                           |       |                            |       |   |   |   |   |   |   |
| Interest rate contracts                                 |       | —                          |       | 366 |   | — |   | 366 |   |
| Equity contracts                                        |       | 32                              |       | 323 |   | — |   | 355 |   |
| Credit contracts                                        |       | —                          |       | 4 |   | — |   | 4 |   |
| Total other assets                                      |       | 32                              |       | 693 |   | — |   | 725 |   |
| Separate account assets                                 |       | —                          |       | 63,795 |   | — |   | 63,795 |   |
| Total assets at fair value                              |       | $                               | 44         |   | $ | 86,817 |   | $ | 4,205 |   | $ | 91,066 |   |
|                                                    |       |                            |       |   |   |   |   |   |   |
| Liabilities                                             |       |                            |       |   |   |   |   |   |   |
| Future policy benefits:                                 |       |                            |       |   |   |   |   |   |   |
| EIA embedded derivatives                                |       | $                               | —     |   | $ | 3 |   | $ | — |   | $ | 3 |   |
| GMWB and GMAB embedded derivatives                      |       | —                          |       | — |   | 421 |   | 421 |   |
| Total future policy benefits                            |       | —                          |       | 3 |   | 421 |   | 424 |   |
| Other liabilities:                                      |       |                            |       |   |   |   |   |   |   |
| Interest rate contracts                                 |       | —                          |       | 379 |   | — |   | 379 |   |
| Equity contracts                                        |       | 18                              |       | 647 |   | — |   | 665 |   |
| Credit contracts                                        |       | —                          |       | 1 |   | — |   | 1 |   |
| Total other liabilities                                 |       | 18                              |       | 1,027 |   | — |   | 1,045 |   |
| Total liabilities at fair value                         |       | $                               | 18         |   | $ | 1,030 |   | $ | 421 |   | $ | 1,469 |   |

 

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

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

 

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:

 
| ** **                                          | ** ** | **Available-for-Sale Securities: Fixed Maturities** | ** ** | **Future Policy   Benefits:**               | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                          | ** ** | **Corporate   Debt   Securities**                                  | ** ** | **Residential   Mortgage   Backed   Securities** | ** ** | **Commercial   Mortgage   Backed   Securities** | ** ** | **Asset   Backed   Securities** | ** ** | **Other   Structured   Investments** | ** ** | **Total** | ** ** | **GMWB and   GMAB   Embedded   Derivatives** | ** ** |
| ** **                                          | ** ** | **(in millions)**                                             | ** ** |
| Balance,   January 1, 2011                     |       | $                                                                  | 1,317      |                                             | $          | 2,618 |   | $ | 30 |   | $ | 227 |   | $ | 13 |   | $ | 4,205 |   | $ | (421 | ) |
| Total   gains (losses) included in:                 |       |                                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Net   income                                        |       | —                                                             |       | 6                                                |       | — |   | 1 |   | 1 |   | 8 | (1) | 263 | (2) |
| Other   comprehensive income                        |       | 1                                                                  |       | (3                                               | )          | — |   | 3 |   | — |   | 1 |   | — |   |
| Purchases                                           |       | 37                                                                 |       | 26                                               |       | — |   | — |   | — |   | 63 |   | — |   |
| Sales                                               |       | —                                                             |       | (2                                               | )          | — |   | — |   | — |   | (2 | ) | — |   |
| Issuances                                           |       | —                                                             |       | —                                           |       | — |   | — |   | — |   | — |   | (32 | ) |
| Settlements                                         |       | (34                                                                | )          | (178                                             | )          | — |   | (7 | ) | — |   | (219 | ) | — |   |
| Transfers   into (out of) of Level 3                |       | (10                                                                | )          | —                                           |       | (29 | ) | — |   | — |   | (39 | )(3) | — |   |
| Balance,   March 31, 2011                      |       | $                                                                  | 1,311      |                                             | $          | 2,467 |   | $ | 1 |   | $ | 224 |   | $ | 14 |   | $ | 4,017 |   | $ | (190 | ) |
|                                                |       |                                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Changes   in unrealized gains (losses) included in: |       |                                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Net   investment income                             |       | $                                                                  | —     |                                             | $          | 18 |   | $ | — |   | $ | 1 |   | $ | 1 |   | $ | 20 |   | $ | — |   |
| Net   realized investment gains (losses)            |       | —                                                             |       | (1                                               | )          | — |   | — |   | 1 |   | — |   | — |   |
| Benefits,   claims, losses and settlement expenses  |       | —                                                             |       | —                                           |       | — |   | — |   | — |   | — |   | 257 |   |

 

----

(1)     Represents a $12 million loss included in net realized investment gains and a $20 million gain included in net investment income in the Consolidated Statements of Income.

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

(3)     Represents securities with a fair value of $40 million that were transferred to Level 2 as the fair value of the securities is now obtained from a nationally-recognized pricing service with observable inputs and a security with a fair value of $1 million that was transferred to Level 3 as the fair value of the security is now based on a single broker quote.

 
| ** **                                        | ** ** | **Available-for-Sale Securities: Fixed Maturities** | ** ** | **Future Policy   Benefits:**               | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **Corporate   Debt   Securities**                                  | ** ** | **Residential   Mortgage   Backed   Securities** | ** ** | **Commercial   Mortgage   Backed   Securities** | ** ** | **Asset   Backed   Securities** | ** ** | **Other   Structured   Investments** | ** ** | **Total** | ** ** | **GMWB and   GMAB   Embedded   Derivatives** | ** ** |
| ** **                                        | ** ** | **(in millions)**                                             | ** ** |
| Balance, January 1, 2010                     |       | $                                                                  | 1,239      |                                             | $          | 2,772 |   | $ | 72 |   | $ | 215 |   | $ | 11 |   | $ | 4,309 |   | $ | (299 | ) |
| Total gains (losses) included in:                 |       |                                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                        |       | —                                                             |       | (2                                               | )          | — |   | 3 |   | 1 |   | 2 | (1) | 134 | (2) |
| Other comprehensive income                        |       | 19                                                                 |       | 60                                               |       | 8 |   | 10 |   | — |   | 97 |   | — |   |
| Purchases, sales, issuances and settlements, net  |       | (9                                                                 | )          | (148                                             | )          | — |   | (13 | ) | (1 | ) | (171 | ) | (28 | ) |
| Balance, March 31, 2010                      |       | $                                                                  | 1,249      |                                             | $          | 2,682 |   | $ | 80 |   | $ | 215 |   | $ | 11 |   | $ | 4,237 |   | $ | (193 | ) |
|                                              |       |                                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Changes in unrealized gains (losses) included in: |       |                                                               |       |                                             |       |   |   |   |   |   |   |   |   |   |   |
| Net investment income                             |       | $                                                                  | —     |                                             | $          | 19 |   | $ | — |   | $ | 2 |   | $ | — |   | $ | 21 |   | $ | — |   |
| Net realized investment losses                    |       | —                                                             |       | (21                                              | )          | — |   | — |   | — |   | (21 | ) | — |   |
| Benefits, claims, losses and settlement expenses  |       | —                                                             |       | —                                           |       | — |   | — |   | — |   | — |   | 132 |   |

 

----

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

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

 

The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred.

 

During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

 

18

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

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

 

The following table provides the carrying value and the estimated fair value of financial instruments that are not reported at fair value.  All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities measured at fair value on a recurring basis.

 
| ** **                               | ** ** | **March 31, 2011** | ** ** | **December 31, 2010** | ** ** |
|------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **Carrying   Value**         | ** ** | **Fair Value**             | ** ** | **Carrying   Value** | ** ** | **Fair Value** | ** ** |
| ** **                               | ** ** | **(in millions)**       | ** ** |
| **Financial Assets**                     |       |                         |       |                            |       |   |   |   |   |
| Commercial mortgage loans, net           |       | $                            | 2,445      |                            | $          | 2,528 |   | $ | 2,470 |   | $ | 2,558 |   |
| Policy loans                             |       | 728                          |       | 743                             |       | 729 |   | 805 |   |
| Other investments                        |       | 242                          |       | 254                             |       | 210 |   | 224 |   |
| Restricted cash                          |       | 27                           |       | 27                              |       | 66 |   | 66 |   |
| **Financial Liabilities**                |       |                         |       |                            |       |   |   |   |   |
| Future policy benefits                   |       | $                            | 15,206     |                            | $          | 15,571 |   | $ | 15,328 |   | $ | 15,768 |   |
| Separate account liabilities             |       | 404                          |       | 404                             |       | 395 |   | 395 |   |
| Line of credit with Ameriprise Financial |       | 300                          |       | 298                             |       | 3 |   | 3 |   |
| Borrowings under repurchase agreements   |       | 497                          |       | 497                             |       | 397 |   | 397 |   |
| Other liabilities                        |       | 179                          |       | 174                             |       | 188 |   | 182 |   |

 

*Commercial Mortgage Loans, Net*

 

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

 

*Policy Loans*

 

The fair value of policy loans is determined using discounted cash flows.

 

*Other Investments*

 

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

 

*Restricted Cash*

 

Restricted cash is generally set aside for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value.

 

*Future Policy Benefits*

 

The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a provision for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities.  The fair value of other liabilities including non-life contingent fixed annuities in payout status, EIA host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner.

 

*Separate Account Liabilities*

 

Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets.  Carrying value is a reasonable estimate of the fair value as it represents the exit value as evidenced by withdrawal transactions between contractholders and the Company.  A nonperformance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize nonperformance risk.

 

*Line of Credit with Ameriprise Financial*

 

The fair value of the line of credit is determined by discounting cash flows with an adjustment for the Company’s nonperformance risk specific to this liability.

 

19

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Table of Contents

 

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

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

 

*Borrowings under Repurchase Agreements*

 

The fair value of borrowings under agreements to repurchase is obtained from a nationally-recognized pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk.

 

*Other Liabilities*

 

Other liabilities consisted of future funding commitments to affordable housing partnerships.  The fair value of the future funding commitments is determined by discounting cash flows.

 

**12.****      ****Derivatives and Hedging Activities**

 

Derivative instruments enable the Company to manage its exposure to various market risks.  The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices.  The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.

 

The Company currently uses derivatives as economic hedges and accounting hedges.  The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives:

 
| ** **                                                                  | ** ** | ** **                        | ** ** | **Asset**                 | ** ** | ** **                   | ** ** | **Liability**                     | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------|------------|---------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| **Derivatives not designated   as hedging instruments** | ** ** | **Balance Sheet   Location** | ** ** | **March 31,   2011** | ** ** | **December 31,   2010** | ** ** | **Balance Sheet   Location** | ** ** | **March 31,   2011** | ** ** | **December 31,   2010** | ** ** |
| ** **                                                                  | ** ** | ** **                        | ** ** | **(in millions)**    | ** ** | ** **                   | ** ** | **(in millions)**            | ** ** |
| **GMWB and GMAB******                                                       | ** ** | ** **                        | ** ** | ** **                | ** ** | ** **                   | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest rate contracts                                                     |       | Other   assets                    |       | $                         | 354        | ** **                   | **$**      | 366                               |       | Other   liabilities |   | $ | 410 |   | $ | 379 |   |
| Equity contracts                                                            |       | Other   assets                    |       | 271                       |       | 354                          |       | Other   liabilities               |       | 825 |   | 665 |   |
| Credit contracts                                                            |       | Other   assets                    |       | —                    |       | 4                            |       | Other   liabilities               |       | 1 |   | 1 |   |
| Foreign currency contracts                                                  |       | Other   assets                    |       | 1                         |       | —                       |       | Other   liabilities               |       | — |   | — |   |
| Embedded derivatives(1)                                                     |       | Not   applicable                  |       | —                    |       | —                       |       | Future   policy benefits          |       | 190 |   | 421 |   |
| Total GMWB and GMAB                                                         |       |                              |       | 626                       |       | 724                          |       |                              |       | 1,426 |   | 1,466 |   |
| **Other derivatives:**                                                      |       |                              |       |                      |       |                         |       |                              |       |   |   |   |   |
| **Equity**                                                                  |       |                              |       |                      |       |                         |       |                              |       |   |   |   |   |
| EIA                                                                         |       | Other   assets                    |       | 1                         |       | 1                            |       | Other   liabilities               |       | — |   | — |   |
| EIA embedded derivatives                                                    |       | Not   applicable                  | ** ** | **—**                | ** ** | **—**                   |       | Future   policy benefits          |       | 3 |   | 3 |   |
| Total other                                                                 |       |                              |       | 1                         |       | 1                            |       |                              |       | 3 |   | 3 |   |
| Total derivatives                                                           |       |                              |       | $                         | 627        |                         | $          | 725                               |       |   |   | $ | 1,429 |   | $ | 1,469 |   |

 

----

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

 

See Note 11 for additional information regarding the Company’s fair value measurement of derivative instruments.

 

The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Income for the three months ended March 31:

 
| **Derivatives not designated** | ** ** | **Location of Gain (Loss) on**  | ** ** | **Amount of Gain (Loss) on   Derivatives Recognized in Income** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| **as hedging instruments**     | ** ** | **Derivatives Recognized in Income** | ** ** | **2011**                                                                                           | ** ** | **2010** | ** ** |
| ** **                               | ** ** | ** **                                          | ** ** | **(in millions)**                                                                             | ** ** |
| **GMWB and GMAB******                    | ** ** | ** **                                          | ** ** | ** **                                                                                         | ** ** | ** ** | ** ** |
| Interest rate contracts                  |       | Benefits,   claims, losses and settlement expenses  |       | $                                                                                                  | (25        | ) | $ | 26 |   |
| Equity contracts                         |       | Benefits,   claims, losses and settlement expenses  |       | (255                                                                                               | )          | (173 | ) |
| Credit contracts                         |       | Benefits,   claims, losses and settlement expenses  |       | (2                                                                                                 | )          | (10 | ) |
| Foreign currency   contracts             |       | Benefits,   claims, losses and settlement expenses  |       | (2                                                                                                 | )          | — |   |
| Embedded derivatives(1)                  |       | Benefits,   claims, losses and settlement expenses  |       | 230                                                                                                |       | 106 |   |
| Total GMWB and GMAB                      |       |                                                |       | (54                                                                                                | )          | (51 | ) |
| **Other derivatives:**                   |       |                                                |       |                                                                                               |       |   |   |
| **Equity**                               |       |                                                |       |                                                                                               |       |   |   |
| GMDB                                     |       | Benefits,   claims, losses and settlement expenses  |       | —                                                                                             |       | (3 | ) |
| EIA                                      |       | Interest   credited to fixed accounts               |       | 1                                                                                                  |       | 1 |   |
| EIA embedded derivatives                 |       | Interest   credited to fixed accounts               |       | —                                                                                             |       | 2 |   |
| Total other                              |       |                                                |       | 1                                                                                                  |       | — |   |
| Total derivatives                        |       |                                                |       | $                                                                                                  | (53        | ) | $ | (51 | ) |

 

----

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

 

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

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

 

The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment.  These derivative instruments are used as economic hedges of equity, interest rate and credit risk related to various products and transactions of the Company.

 

The majority of the Company’s annuity contracts contain GMDB provisions, which may result in a death benefit payable that exceeds the contract accumulation value when market values of customers’ accounts decline.  Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively.  The Company economically hedges the exposure related to non-life contingent GMWB and GMAB provisions primarily using various futures, options, total return swaps, interest rate swaptions, interest rate swaps, variance swaps and credit default swaps.  At March 31, 2011 and December 31, 2010, the gross notional amount of derivative contracts for the Company’s GMWB and GMAB provisions was $59.7 billion and $55.5 billion, respectively.  The Company had previously entered into a limited number of derivative contracts to economically hedge equity exposure related to GMDB provisions on variable annuity contracts written in 2009.  At both March 31, 2011 and December 31, 2010, the Company did not have any outstanding hedges on its GMDB provisions.  The deferred premium associated with some of the above options is paid or received semi-annually over the life of the option contract.

 

The following is a summary of the payments the Company is scheduled to make and receive for these options:

 
| ** ** | ** ** | **Premiums   Payable** | ** ** | **Premiums   Receivable** | ** ** |
|------------|------------|------------------------|------------|---------------------------|------------|
| ** ** | ** ** | **(in millions)** | ** ** |
| 2011(1)    |       | $                      | 217        |                      | $          | 19 |   |
| 2012       |       | 262                    |       | 23                        |       |
| 2013       |       | 239                    |       | 18                        |       |
| 2014       |       | 213                    |       | 16                        |       |
| 2015       |       | 189                    |       | 14                        |       |
| 2016-2026  |       | 647                    |       | 26                        |       |
|            |            |                        |            |                           |            |  |  |

 

----

(1)   2011 amounts represent the amounts payable and receivable for the period from April 1, 2011 to December 31, 2011.

 

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

 

EIAs have returns tied to the performance of equity markets.  As a result of fluctuations in equity markets, the obligation incurred by the Company related to EIA products will positively or negatively impact earnings over the life of these products.  As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and occasionally enters into futures contracts.  The gross notional amount of these derivative contracts was $83 million and $89 million at March 31, 2011 and December 31, 2010, respectively.

 

**Embedded Derivatives**

 

Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives.  In addition, the equity component of the EIA product obligations is also considered an embedded derivative.  These embedded derivatives are bifurcated from their host contracts and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings.  As discussed above, the Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.

 

**Cash Flow Hedges**

 

The Company has amounts classified in accumulated other comprehensive income related to gains and losses associated with the effective portion of previously designated cash flow hedges.  The Company reclassifies these amounts into income as the forecasted transactions impact earnings.  During the three months ended March 31, 2011, the Company held no derivatives that were designated as cash flow hedges.

 

At March 31, 2011, the Company expects to reclassify $6 million of deferred loss on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months that will be recorded in net investment income.  These were originally losses on derivative instruments related to interest rate swaptions.  During the three months ended March 31, 2011 and 2010, no hedge relationships were discontinued due to forecasted transactions no longer being expected to occur according to the original hedge strategy.  For the three months ended March 31, 2011 and 2010, amounts recognized in earnings on derivative transactions that were ineffective were not material.

 

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

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

 

The following is a summary of unrealized derivatives losses included in accumulated other comprehensive income related to cash flow hedges:

 
| ** **                                            | ** ** | **2011**               | ** ** | **2010** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                            | ** ** | **(in millions)** | ** ** |
| Net unrealized derivatives losses at   January 1 |       | $                      | (30        | )        | $          | (34 | ) |
| Reclassification of realized losses(1)                |       | 2                      |       | 2        |       |
| Income tax benefit                                    |       | (1                     | )          | (1       | )          |
| Net unrealized derivatives losses at March 31    |       | $                      | (29        | )        | $          | (33 | ) |

 

----

(1)    Loss reclassified from Accumulated Other Comprehensive Income to Net Investment Income on Consolidated Statements of Income.

 

Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 7 years and relates to interest credited on forecasted fixed premium product sales.

 

**Credit Risk**

 

Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract.  To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management.  Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical.  As of March 31, 2011 and December 31, 2010, the Company held nil and $25 million, respectively, in cash and cash equivalents and recorded a corresponding liability in other liabilities for collateral the Company is obligated to return to counterparties.  As of March 31, 2011 and December 31, 2010, the Company had accepted additional collateral consisting of various securities with a fair value of $7 million and $23 million, respectively, which are not reflected on the Consolidated Balance Sheets.  As of March 31, 2011 and December 31, 2010, the Company’s maximum credit exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was approximately $6 million and $25 million, respectively.

 

Certain of the Company’s derivative instruments contain provisions that adjust the level of collateral the Company is required to post based on the Company’s financial strength rating (or based on the debt rating of the Company’s parent, Ameriprise Financial).  Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company does not maintain a specific financial strength rating or Ameriprise Financial’s debt does not maintain a specific credit rating (generally an investment grade rating).  If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position.  At March 31, 2011 and December 31, 2010, the aggregate fair value of all derivative instruments in a net liability position containing such credit risk features was $654 million and $412 million, respectively.  The aggregate fair value of assets posted as collateral for such instruments as of March 31, 2011 and December 31, 2010 was $630 million and $406 million, respectively.  If the credit risk features of derivative contracts that were in a net liability position at March 31, 2011 and December 31, 2010 were triggered, the additional fair value of assets needed to settle these derivative liabilities would have been $24 million and $6 million, respectively.

 

**13.****      ****Income Taxes**

 

The Company’s effective tax rate was 10% and 26% for the three months ended March 31, 2011 and 2010, respectively.  The decrease in the effective tax rate primarily reflects benefits from tax planning and completion of certain audits which offset the impact of an increase in pretax income relative to tax advantaged items for the three months ended March 31, 2011.

 

The Company is required to establish a valuation allowance for any portion of the deferred income tax assets that management believes will not be realized.  Included in deferred income tax assets are a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes and future deductible capital losses realized for tax return purposes.  Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes.  Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required.  Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains.  Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies.  Based on analysis of the Company’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable the Company to

 

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

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

 

utilize all of its deferred tax assets.  Accordingly, no valuation allowance for deferred tax assets has been established as of March 31, 2011 and December 31, 2010.

 

The Company has tax benefits related to capital loss carryforwards of $36 million which expire beginning December 31, 2015 as well as tax credit carryforwards of $2 million which will expire beginning December 31, 2019.

 

As of March 31, 2011 and December 31, 2010, the Company had gross unrecognized tax benefits of $119 million and $83 million, respectively.  If recognized, approximately $18 million and $39 million, net of federal tax benefits, of unrecognized tax benefits as of March 31, 2011 and December 31, 2010, respectively, would affect the effective tax rate.

 

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision.  The Company recognized a net reduction of $2 million in interest and penalties for the three months ended March 31, 2011.  As of March 31, 2011and December 31, 2010, the Company had a receivable of $26 million and $24 million, respectively, related to the accrual of interest and penalties.

 

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months.   Based on the current audit position of the Company, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $55 million to $60 million in the next 12 months.

 

The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by tax authorities for years before 1997.  The Internal Revenue Service (“IRS”) completed its field examination of the Company’s income tax returns for 2005 through 2007 during the third and fourth quarters of 2010.  The IRS had completed its field examination of the 1997 through 2004 tax returns in recent years.  However, for federal income tax purposes, these years continue to remain open as a consequence of certain issues under appeal.  In the fourth quarter of 2010, the IRS commenced an examination of the Company’s income tax returns for 2008 and 2009.  The Company or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2009.

 

On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies.  Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations.  As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that the Company receives.

 

**14.****      ****Contingencies**

 

Insurance companies and their affiliated broker-dealers have been the subject of increasing regulatory, legislative and judicial scrutiny. The SEC, the Financial Industry Regulatory Authority, commonly referred to as FINRA, state insurance and securities regulators, state attorneys general and various other governmental and quasi-governmental authorities and several state authorities have commenced examinations and other inquiries of insurance companies and their affiliated broker-dealers on behalf of themselves or clients regarding sales and marketing practices (including sales to older consumers and disclosure practices), product features, compensation arrangements and risk management practices.  The Company has cooperated and will continue to cooperate with applicable regulators regarding any such inquiries.

 

The Company is involved in the normal course of business in a number of other legal and arbitration proceedings concerning matters arising in connection with the conduct of its business activities.  The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration or regulatory proceeding that is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity.  Notwithstanding the forgoing, it is possible that the outcome of any current or future legal, arbitration or regulatory proceeding could have a material impact on results of operations in any particular reporting period as the proceedings are resolved.

 

Uncertain economic conditions, heightened volatility in the financial markets, such as those which have been experienced from the latter part of 2007 through 2009, and significant recently enacted financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the insurance industry generally.

 

**15.  Subsequent Event**

 

On April 25, 2011, the Company’s board of directors declared a cash dividend of $400 million to Ameriprise Financial, payable on or after May 16, 2011.

 

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

 

The following information should be read in conjunction with RiverSource Life Insurance Company’s Consolidated Financial Statements and Notes presented in Part I, Item 1.  RiverSource Life Insurance Company and its subsidiaries are referred to collectively in this Form 10-Q as the “Company”.  This narrative analysis may contain forward-looking statements that reflect the Company’s plans, estimates and beliefs.  Actual results could differ materially from those discussed in these forward-looking statements.  Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.”  The Company believes it is useful to read this narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2011 (“2010 10-K”), as well as its current reports on Form 8-K and other publicly available information.

 

The Company follows U.S. generally accepted accounting principles (“GAAP”), and the following discussion is presented on a consolidated basis consistent with GAAP.  Certain reclassifications of prior year amounts have been made to conform to the current presentation.

 

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

 

**Overview**

 

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

 

·                  RiverSource Life Insurance Company is domiciled in Minnesota and holds Certificates of Authority in American Samoa, the District of Columbia and all states except New York.  RiverSource Life Insurance Company issues insurance and annuity products.

 

·                  RiverSource Life of NY is domiciled and holds a Certificate of Authority in New York.  RiverSource Life of NY issues insurance and annuity products.

 

RiverSource Life Insurance Company also wholly owns RiverSource Tax Advantaged Investments, Inc. (“RTA”).  RTA is a stock company domiciled in Delaware and is a limited partner in affordable housing partnership investments.

 

**Critical Accounting Policies**

 

The accounting and reporting policies that the Company uses affect its Consolidated Financial Statements.  Certain of the Company’s accounting and reporting policies are critical to an understanding of the Company’s financial condition and results of operations and, in some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of the Consolidated Financial Statements.  These accounting policies are discussed in detail in “Management’s Narrative Analysis — Critical Accounting Policies” in the Company’s 2010 10-K.

 

**Recent Accounting Pronouncements**

 

For information regarding recent accounting pronouncements and their expected impact on future consolidated financial condition or results of operations, see Note 2 to the Consolidated Financial Statements.

 

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**Results of Operations for the****Three Months Ended March 31, 2011 and 2010**

 

The following table presents the Company’s consolidated results of operations (unaudited):

 
| ** **                                       | ** ** | **Three Months Ended****March 31****,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | **2011**                                               | ** ** | **2010**   | ** ** | **Change** | ** ** |
| ** **                                       | ** ** | **(in millions, except percentages)**   | ** ** |
| **Revenues**                                     |       |                                                   |       |       |       |       |       |   |   |
| Premiums                                         |       | $                                                      | 116        |       | $          | 115        |       | $ | 1 |   | 1 | % |
| Net investment income                            |       | 403                                                    |       | 406        |       | (3         | )          | (1 | ) |
| Policy and contract charges                      |       | 381                                                    |       | 325        |       | 56         |       | 17 |   |
| Other revenue                                    |       | 73                                                     |       | 68         |       | 5          |       | 7 |   |
| Net realized investment gains (losses)           |       | (5                                                     | )          | 5          |       | (10        | )          | NM |   |
| Total revenues                                   |       | 968                                                    |       | 919        |       | 49         |       | 5 |   |
| **Benefits and expenses**                        |       |                                                   |       |       |       |       |       |   |   |
| Benefits, claims, losses and settlement expenses |       | 241                                                    |       | 225        |       | 16         |       | 7 |   |
| Interest credited to fixed accounts              |       | 207                                                    |       | 228        |       | (21        | )          | (9 | ) |
| Amortization of deferred acquisition costs       |       | 97                                                     |       | 99         |       | (2         | )          | (2 | ) |
| Other insurance and operating expenses           |       | 165                                                    |       | 133        |       | 32         |       | 24 |   |
| Total benefits and expenses                      |       | 710                                                    |       | 685        |       | 25         |       | 4 |   |
| Pretax income                                    |       | 258                                                    |       | 234        |       | 24         |       | 10 |   |
| Income tax provision                             |       | 26                                                     |       | 60         |       | (34        | )          | (57 | ) |
| Net income                                       |       | $                                                      | 232        |       | $          | 174        |       | $ | 58 |   | 33 | % |

 

NM Not Meaningful.

 

*Overview*

 

Consolidated net income was $232 million for the three months ended March 31, 2011 compared to $174 million for the prior year period, an increase of $58 million or 33%.  Pretax income increased $24 million to $258 million for the three months ended March 31, 2011 from $234 million for the prior year period.  The increase was primarily driven by an increase in policy and contract charges and a decrease in interest credited to fixed accounts.  These increases to pretax income were partially offset by net realized investment losses and an increase in benefits, claims, losses and settlement expenses and other insurance and operating expenses.

 

*Revenues*

 

Total revenues increased $49 million or 5% to $968 million for the three months ended March 31, 2011 compared to $919 million for the prior year period.

 

Policy and contract charges increased $56 million or 17% to $381 million for the three months ended March 31, 2011 compared to $325 million in the prior year period primarily due to increased variable annuity fee revenue driven by higher separate account balances.  Average variable annuities contract accumulation values increased $9.6 billion or 19% from the prior year period primarily due to higher equity market levels and net inflows.

 

Other revenue increased $5 million or 7% to $73 million for the three months ended March 31, 2011 compared to $68 million in the prior year period reflecting higher marketing support and administrative fees due to higher separate account balances.

 

Net realized investment losses for the three months ended March 31, 2011 were $5 million compared to net realized investment gains of $5 million in the prior year period.  In the three months ended March 31, 2011, net realized losses from sales of Available-for-Sale securities were $4 million and other-than-temporary impairments recognized in earnings were $1 million which related to credit losses on non-agency residential mortgage backed securities.  In the three months ended March 31, 2010, net realized gains from sales of Available-for-Sale securities were $31 million and other-than-temporary impairments recognized in earnings were $23 million which primarily related to credit losses on non-agency residential mortgage backed securities.  In the three months ended March 31, 2010, the reserves on commercial mortgage loans increased by $6 million offset by a $3 million decrease to the allowance for loan losses on below investment grade syndicated loans.

 

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*Benefits and Expenses*

 

Total benefits and expenses increased $25 million or 4% to $710 million for the three months ended March 31, 2011 compared to $685 million in the prior year period.  This increase is primarily due to increases in benefits, claims, losses and settlement expenses and other insurance and operating expenses partially offset by a decrease in interest credited to fixed accounts.

 

Benefits, claims, losses and settlement expenses increased $16 million or 7% to $241 million for the three months ended March 31, 2011 compared to $225 million in the prior year period.  The market impact of variable annuity guaranteed living benefits, net of hedges and DSIC amortization, increased benefits expense by $27 million for the three months ended March 31, 2011 compared to $23 million in the prior year period. The market impact in both periods was primarily driven by the impact of nonperformance credit spread on the valuation of living benefit liabilities, which the Company does not hedge.  Benefits, claims, losses and settlement expenses related to immediate annuities with life contingencies increased compared to the prior year period primarily due to higher premiums.  In addition, benefits, claims, losses and settlement expenses increased as a result of higher long term care insurance claims and higher reserves for universal life products with secondary guarantees compared to the prior year period.

 

Interest credited to fixed accounts decreased $21 million or 9% to $207 million for the three months ended March 31, 2011 compared to $228 million in the prior year period driven by lower average variable annuities fixed sub-account balances and a lower average crediting rate on interest sensitive fixed annuities, as well as lower average fixed annuity account balances.  Average variable annuities fixed sub-account balances decreased $1.3 billion or 21% to $4.8 billion for the first quarter of 2011 compared to the prior year period primarily due to the implementation of changes to the Portfolio Navigator program in the second quarter of 2010.  The average fixed annuity crediting rate excluding capitalized interest decreased to 3.7% in the first quarter of 2011 compared to 3.9% in the prior year period.  Average fixed annuities contract accumulation values decreased $229 million or 2% to $14.4 billion for the first quarter of 2011 compared to the prior year period.

 

Other insurance and operating expenses increased $32 million or 24% to $165 million for the three months ended March 31, 2011 compared to $133 million in the prior year period.  The increase is primarily due to an increase in sales and marketing expenses and allocated corporate overhead expenses in the three months ended March 31, 2011 compared to the prior year period.

 

*Income Taxes*

 

The Company’s effective tax rate was 10% for the three months ended March 31, 2011, compared to 26% for the three months ended March 31, 2010.  The decrease in the effective tax rate primarily reflects benefits from tax planning and completion of certain audits which offset the impact of an increase in pretax income relative to tax advantaged items for the three months ended March 31, 2011.

 

On September 25, 2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies.  Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations.  As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that the Company receives.

 

**Fair Value Measurements**

 

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

 

***Non-Agency Residential Mortgage Backed Securities Backed by Sub-prime, Alt-A or Prime Collateral***

 

Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles.  Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above sub-prime but may not conform to government-sponsored standards.  Prime mortgage lending is the origination of residential mortgage loans to customers with good credit profiles.  The Company has exposure to each of these types of loans predominantly through mortgage backed and asset backed securities.  The slowdown in the U.S. housing market, combined with relaxed underwriting standards by some originators, has led to higher delinquency and loss rates for some of these investments.  Market conditions have increased the likelihood of other-than-temporary impairments for certain non-agency residential mortgage backed securities.  As a part of the Company’s risk management process, an internal rating system is used in conjunction with market data as the basis of analysis to assess the likelihood that the Company will not receive all contractual principal and interest payments for these investments.

 

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For the investments that are more at risk for impairment, the Company performs its own assessment of projected cash flows incorporating assumptions about default rates, prepayment speeds and loss severity to determine if an other-than-temporary impairment should be recognized.

 

The following table presents, as of March 31, 2011, the Company’s non-agency residential mortgage backed and asset backed securities backed by sub-prime, Alt-A or prime mortgage loans by credit rating 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                 |       | 2                      |       | 2                |       | —               |       | —           |       | —                       |       | —           |       | 7 |   | 4 |   | — |   | — |   | 9 |   | 6 |   |
| 2005                 |       | 3                      |       | 3                |       | 21                   |       | 19               |       | 17                           |       | 17               |       | 6 |   | 6 |   | 17 |   | 14 |   | 64 |   | 59 |   |
| 2006                 |       | —                 |       | —           |       | —               |       | —           |       | —                       |       | —           |       | 4 |   | 4 |   | 2 |   | 2 |   | 6 |   | 6 |   |
| 2007                 |       | —                 |       | —           |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                 |       | —                 |       | —           |       | 6                    |       | 5                |       | —                       |       | —           |       | — |   | — |   | — |   | — |   | 6 |   | 5 |   |
| Total Sub-prime |       | $                      | 5          |             | $          | 5                    |       | $                | 27         |                         | $          | 24               |       | $ | 17 |   | $ | 17 |   | $ | 17 |   | $ | 14 |   | $ | 19 |   | $ | 16 |   | $ | 85 |   | $ | 76 |   |
| **Alt-A**            |       |                   |       |             |       |                 |       |             |       |                         |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003   & prior   |       | $                      | —     |             | $          | —               |       | $                | 10         |                         | $          | 11               |       | $ | 2 |   | $ | 3 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 12 |   | $ | 14 |   |
| 2004                 |       | —                 |       | —           |       | 31                   |       | 28               |       | 16                           |       | 19               |       | 14 |   | 14 |   | 15 |   | 14 |   | 76 |   | 75 |   |
| 2005                 |       | —                 |       | —           |       | —               |       | —           |       | 2                            |       | 1                |       | — |   | — |   | 201 |   | 158 |   | 203 |   | 159 |   |
| 2006                 |       | —                 |       | —           |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | 9 |   | 5 |   | 9 |   | 5 |   |
| 2007                 |       | —                 |       | —           |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | 26 |   | 17 |   | 26 |   | 17 |   |
| 2008                 |       | —                 |       | —           |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Re-Remic(1)          |       | 17                     |       | 17               |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | — |   | — |   | 17 |   | 17 |   |
| Total Alt-A     |       | $                      | 17         |             | $          | 17                   |       | $                | 41         |                         | $          | 39               |       | $ | 20 |   | $ | 23 |   | $ | 14 |   | $ | 14 |   | $ | 251 |   | $ | 194 |   | $ | 343 |   | $ | 287 |   |
| **Prime**            |       |                   |       |             |       |                 |       |             |       |                         |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003   & prior   |       | $                      | 145        |             | $          | 145                  |       | $                | —     |                         | $          | —           |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 145 |   | $ | 145 |   |
| 2004                 |       | 21                     |       | 23               |       | —               |       | —           |       | 18                           |       | 17               |       | 8 |   | 9 |   | 5 |   | 7 |   | 52 |   | 56 |   |
| 2005                 |       | 11                     |       | 15               |       | 18                   |       | 23               |       | 31                           |       | 34               |       | 23 |   | 23 |   | 105 |   | 68 |   | 188 |   | 163 |   |
| 2006                 |       | —                 |       | —           |       | 16                   |       | 18               |       | —                       |       | —           |       | — |   | — |   | 32 |   | 31 |   | 48 |   | 49 |   |
| 2007                 |       | 33                     |       | 35               |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | 13 |   | 10 |   | 46 |   | 45 |   |
| 2008                 |       | —                 |       | —           |       | —               |       | —           |       | —                       |       | —           |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Re-Remic(1)          |       | 1,474                  |       | 1,616            |       | 56                   |       | 69               |       | 16                           |       | 16               |       | — |   | — |   | 11 |   | 21 |   | 1,557 |   | 1,722 |   |
| Total Prime     |       | $                      | 1,684      |             | $          | 1,834                |       | $                | 90         |                         | $          | 110              |       | $ | 65 |   | $ | 67 |   | $ | 31 |   | $ | 32 |   | $ | 166 |   | $ | 137 |   | $ | 2,036 |   | $ | 2,180 |   |
| **Grand Total**      |       | $                      | 1,706      |             | $          | 1,856                |       | $                | 158        |                         | $          | 173              |       | $ | 102 |   | $ | 107 |   | $ | 62 |   | $ | 60 |   | $ | 436 |   | $ | 347 |   | $ | 2,464 |   | $ | 2,543 |   |

 

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(1)          Re-Remics of mortgage backed securities are prior vintages with cash flows structured into senior and subordinated bonds.  Credit enhancement has been increased through the Re-Remic process on the securities the Company owns.

 

***Fair Value of Liabilities and Nonperformance Risk***

 

Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price).  Since there is not a market for the Company’s obligations of its variable annuity riders, the Company considers the assumptions participants in a hypothetical market would make to reflect an exit price.  As a result, the Company adjusts the valuation of variable annuity riders by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of the Company’s nonperformance risk.  The nonperformance risk adjustment is based on broker quotes for credit default swaps that are adjusted to estimate the risk of the Company not fulfilling these liabilities.  Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of March 31, 2011.  As the Company’s estimate of this spread widens or tightens, the liability will decrease or increase.  If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be approximately $59 million, net of DAC and DSIC amortization and income taxes, based on March 31, 2011 credit spreads.

 

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**Liquidity and Capital Resources**

 

*Liquidity Strategy*

 

The liquidity requirements of the Company are generally met by funds provided by investment income, maturities and periodic repayments of investments, deposits, premiums and proceeds from sales of investments as well as capital contributions from Ameriprise Financial.  Other liquidity sources the Company has established are repurchase agreements and available lines of credit with Ameriprise Financial aggregating $1 billion.

 

RiverSource Life Insurance Company is a member of the Federal Home Loan Bank of Des Moines (“FHLB”), which provides RiverSource Life Insurance Company access to collateralized borrowings.  At March 31, 2011 and December 31, 2010, the Company had no borrowings from the FHLB.  Beginning in 2010, the Company entered into repurchase agreements to reduce reinvestment risk from higher levels of expected annuity net cash flows. Repurchase agreements allow the Company to receive cash to reinvest in longer-duration assets, while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at March 31, 2011 and December 31, 2010 was $497 million and $397 million, respectively, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from the Company’s investment portfolio.

 

The primary uses of funds are policy benefits, commissions, other product-related acquisition and sales inducement costs, operating expenses, policy loans, dividends to Ameriprise Financial and investment purchases.  The Company routinely reviews its sources and uses of funds in order to meet its ongoing obligations.

 

As of March 31, 2011, the outstanding balance under the lines of credit with Ameriprise Financial was $300 million.  As of December 31, 2010, the outstanding balance under the lines of credit with Ameriprise Financial was $3 million which was repaid in full with a payment in January 2011.

 

On March 31, 2011, the Company paid a cash dividend of $200 million to Ameriprise Financial. On March 29, 2010, the Company paid a cash dividend of $425 million to Ameriprise Financial.

 

On April 25, 2011, the Company’s board of directors declared a cash dividend of $400 million to Ameriprise Financial, payable on or after May 16, 2011.

 

RiverSource Life Insurance Company and RiverSource Life of NY are subject to regulatory capital requirements as follows:

 
| ** **                                   | ** ** | **Actual Capital ****(a)** | ** ** | **Regulatory Capital   Requirement(b)** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|
| ** **                                   | ** ** | **March 31,****2011**           | ** ** | **December 31,   2010**                 | ** ** | **December 31,   2010** | ** ** |
| ** **                                   | ** ** | **(in millions)**               | ** ** |
| RiverSource   Life Insurance Company         |       | $                                    | 3,779      |                                         | $          | 3,813 |   | $ | 652 |   |
| RiverSource   Life Insurance Co. of New York |       | 302                                  |       | 291                                          |       | 38 |   |
|                                              |            |                                      |            |                                              |            |  |  |  |  |  |

 

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(a)          Actual capital, as defined by the National Association of Insurance Commissioners for purposes of meeting regulatory capital requirements, includes statutory capital and surplus, plus certain statutory valuation reserves.

(b)        Regulatory capital requirement is based on the statutory risk-based capital filing.

 

**Contractual Commitments**

 

There have been no material changes to the Company’s contractual obligations disclosed in the Company’s 2010 10-K.

 

**Forward-Looking Statements**

 

This report contains forward-looking statements that reflect the Company’s plans, estimates and beliefs.  The Company’s actual results could differ materially from those described in these forward-looking statements.  Examples of such forward-looking statements include:

 

·                  statements of the Company’s plans, intentions, expectations, objectives, or goals, including those related to the consolidated tax rate:

·                  other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and

·                  statements of assumptions 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 are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.  Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements.

 

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Such factors include, but are not limited to:

 

·                  changes in the valuations, liquidity and volatility in the interest rate, credit default equity market, and foreign exchange environments;

·                  changes in relevant accounting standards, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act;

·                  the Company’s investment management performance and consumer acceptance of the Company’s products;

·                  effects of competition in the financial services industry and changes in the Company’s product distribution mix and distribution channels;

·                  changes to the Company’s reputation that may arise from employee or affiliated advisor misconduct, legal or regulatory actions, improper management of conflicts of interest or otherwise;

·                  the Company’s capital structure as a subsidiary of Ameriprise Financial, including the ability of its parent to support its financial strength and ratings, as well as the opinions of rating agencies and other analysts or the Company’s regulators, distributors or policyholders and contractholders in response to any change or prospect of change in any such opinion;

·                  risks of default by issuers or guarantors of investments the Company owns or by counterparties to hedge derivative, insurance or reinsurance arrangements, experience deviations from the Company’s assumptions regarding such risks and the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts and the reactions of other market participants or the Company’s regulators, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;

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

·                  successfully cross-selling insurance and annuity products and services to Ameriprise Financial’s customer base;

·                  the Company’s ability to effectively hedge risks relating to guaranteed benefit riders and certain other products;

·                  the impact of intercompany allocations to the Company from Ameriprise Financial and its affiliates;

·                  Ameriprise Financial’s ability to attract, recruit and retain qualified advisors and employees and its ability to distribute the Company’s products through current and future distribution channels;

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

·                  the impacts of Ameriprise Financial’s efforts to improve distribution economics and realize benefits from reengineering and tax planning;

·                  changes in the capital markets and competitive environments induced or resulting from the partial or total ownership or other support by central governments of certain financial services firms or financial assets; and

·                  general economic and political factors, including consumer confidence in the economy, the ability and inclination of consumers generally to invest, as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and regulatory rulings and pronouncements.

 

The Company cautions the reader that the foregoing list of factors is not exhaustive.  There may also be other risks that the Company is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.  The Company undertakes no obligation to update publicly or revise any forward-looking statements.

 

The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion as Part I, Item 1A in the Company’s 2010 10-K.

 

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**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to Securities and Exchange Commission (“SEC”) regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its principal executive officer and chief financial officer, as appropriate, to allow timely decisions regarding the required disclosure.  It should be noted that, because of inherent limitations, the Company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

 

The Company’s management, under the supervision and with the participation of the Company’s principal executive officer and chief financial officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report.  Based upon that evaluation, the Company’s principal executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures were effective at a reasonable level of assurance as of March 31, 2011.

 

**Changes in Internal Control over Financial Reporting**

 

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

 

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

 

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

 

The information set forth in Note 14 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

 

**ITEM 1A.     RISK FACTORS**

 

There have been no material changes in the risk factors provided in Part I, Item 1A of RiverSource Life Insurance Company’s 2010 10-K.

 

**ITEM 6.        EXHIBITS**

 

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

 

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**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 2,   2011 | By                                   | /s/ John R. Woerner |
|                     |                                 | John R. Woerner |
|                     |                                 | Chairman and President |
|                     |                                 |
|                     |                                 |
| Date: May 2,   2011 | By                                   | /s/ Brian J. McGrane |
|                     |                                 | Brian J. McGrane |
|                     |                                 | Executive Vice President and |
|                     |                                 | Chief Financial Officer |

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**EXHIBIT INDEX**

 

The following exhibits are filed as part of this Quarterly 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, Chairman and 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, Chairman   and President, and Brian J. McGrane, Chief Financial Officer, pursuant to 18   U.S.C. Section 1350,   as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                 |

 

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*                                                     Filed electronically herewith.

 

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