Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 

**x****      QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For theQuarterly Period Ended June 30, 2010**

 

**OR**

 

**o****         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the Transition Period from                to                **

 

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

 

**RIVERSOURCELIFE INSURANCE COMPANY**

(Exact name of registrant asspecified in its charter)

 

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

 

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

 

Former name, former addressand former fiscal year, if changed since last report:  **NotApplicable**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

----

Table of Contents

 

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

 

**FORM 10-Q**

 

**INDEX**

 
| Part I.  | Financial Information: |                                                                                                      |
|---------------|------------------------|-----------------------------------------------------------------------------------------------------------|
|          | Item 1.                | Financial Statements                                                                                      |   |
|          |                   | Consolidated  Balance Sheets — June 30, 2010 and December 31, 2009                         | 1 |
|          |                   | Consolidated Statements of Income — Three months and  six months ended June 30, 2010 and 2009   | 2 |
|          |                   | Consolidated Statements of Cash Flows — Six months  ended June 30, 2010 and 2009                | 3 |
|          |                   | Consolidated Statements of Shareholder’s Equity — Six  months ended June 30, 2010 and 2009 | 4 |
|          |                   | Notes to Consolidated Financial Statements                                                                | 5 |
|          | Item  2.               | Management’s  Narrative Analysis                                                                     | 25 |
|          | Item 4T.               | Controls  and Procedures                                                                                  | 33 |
| Part II. | Other  Information:    |                                                                                                      |
|          | Item 1.                | Legal  Proceedings                                                                                        | 34 |
|          | Item 1A.               | Risk Factors                                                                                              | 34 |
|          | Item 6.                | Exhibits                                                                                                  | 34 |
|          | Signatures             | 35                                                                                                        |
|          | Exhibit Index     | E-1                                                                                                       |

 

----

Table of Contents

 

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

**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

**CONSOLIDATEDBALANCE SHEETS**

(inmillions, except share amounts)

 
| ** **                                                                                 | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                 | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **Assets**                                                                                 |       |                    |       |                        |       |
| Investments:                                                                               |       |                    |       |                        |       |
| Available-for-Sale:                                                                        |       |                    |       |                        |       |
| Fixed maturities, at fair  value (amortized cost: 2010, $24,224; 2009, $25,142)            |       | $                       | 25,935     |                        | $          | 25,999 |   |
| Common and preferred  stocks, at fair value (cost: 2010 and  2009, $30)                    |       | 26                      |       | 23                          |       |
| Commercial mortgage loans,  at cost (less allowance for loan losses: 2010, $36; 2009, $30) |       | 2,513                   |       | 2,532                       |       |
| Policy loans                                                                               |       | 721                     |       | 715                         |       |
| Trading securities and  other investments                                                  |       | 273                     |       | 310                         |       |
| Total investments                                                                          |       | 29,468                  |       | 29,579                      |       |
| Cash and cash equivalents                                                                  |       | 825                     |       | 811                         |       |
| Restricted cash                                                                            |       | 30                      |       | 184                         |       |
| Reinsurance recoverables                                                                   |       | 1,767                   |       | 1,688                       |       |
| Deferred income taxes, net                                                                 |       | —                  |       | 63                          |       |
| Other receivables                                                                          |       | 160                     |       | 332                         |       |
| Accrued investment income                                                                  |       | 300                     |       | 303                         |       |
| Deferred acquisition costs                                                                 |       | 4,078                   |       | 4,285                       |       |
| Deferred sales inducement  costs                                                           |       | 493                     |       | 524                         |       |
| Other assets                                                                               |       | 1,937                   |       | 936                         |       |
| Separate account assets                                                                    |       | 54,206                  |       | 54,267                      |       |
|                                                                                       |       |                    |       |                        |       |
| Total assets                                                                               |       | $                       | 93,264     |                        | $          | 92,972 |   |
| **Liabilities  and Shareholder’s Equity Liabilities:**                                |       |                    |       |                        |       |
| Future policy benefits                                                                     |       | $                       | 30,167     |                        | $          | 30,383 |   |
| Policy claims and other  policyholders’ funds                                         |       | 118                     |       | 123                         |       |
| Deferred income taxes, net                                                                 |       | 460                     |       | —                      |       |
| Borrowings under  repurchase agreements                                                    |       | 484                     |       | —                      |       |
| Line of credit with  Ameriprise Financial, Inc.                                       |       | —                  |       | 300                         |       |
| Other liabilities                                                                          |       | 1,572                   |       | 1,955                       |       |
| Separate account  liabilities                                                              |       | 54,206                  |       | 54,267                      |       |
| Total liabilities                                                                          |       | 87,007                  |       | 87,028                      |       |
| **Shareholder’s equity:**                                                             |       |                    |       |                        |       |
| Common stock, $30 par  value; 100,000 shares authorized, issued and outstanding            |       | 3                       |       | 3                           |       |
| Additional paid-in capital                                                                 |       | 2,445                   |       | 2,445                       |       |
| Retained earnings                                                                          |       | 3,069                   |       | 3,114                       |       |
| Accumulated other  comprehensive income, net of tax                                        |       | 740                     |       | 382                         |       |
| Total shareholder’s equity                                                            |       | 6,257                   |       | 5,944                       |       |
|                                                                                       |       |                    |       |                        |       |
| Total liabilities and  shareholder’s equity                                           |       | $                       | 93,264     |                        | $          | 92,972 |   |

 

*See Notes to Consolidated Financial Statements.*

 

1

----

Table of Contents

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

(in millions)

 
| ** **                                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Revenues**                                                          |       |                                  |       |                                |       |   |   |   |   |
| Premiums                                                              |       | $                                     | 128        |                                | $          | 109 |   | $ | 243 |   | $ | 219 |   |
| Net investment income                                                 |       | 401                                   |       | 387                                 |       | 809 |   | 708 |   |
| Policy and contract  charges                                          |       | 345                                   |       | 295                                 |       | 670 |   | 579 |   |
| Other revenues                                                        |       | 69                                    |       | 55                                  |       | 137 |   | 102 |   |
| Net realized investment  gains                                        |       | 6                                     |       | 8                                   |       | 11 |   | 35 |   |
| Total revenues                                                        |       | 949                                   |       | 854                                 |       | 1,870 |   | 1,643 |   |
| **Benefits  and expenses**                                            |       |                                  |       |                                |       |   |   |   |   |
| Benefits, claims, losses  and settlement expenses                     |       | 165                                   |       | 464                                 |       | 390 |   | 444 |   |
| Interest credited to fixed  accounts                                  |       | 231                                   |       | 237                                 |       | 459 |   | 442 |   |
| Amortization of deferred  acquisition costs                           |       | 154                                   |       | (143                                | )          | 253 |   | 123 |   |
| Other insurance and  operating expenses                               |       | 147                                   |       | 137                                 |       | 282 |   | 286 |   |
| Total benefits and  expenses                                          |       | 697                                   |       | 695                                 |       | 1,384 |   | 1,295 |   |
| Pretax income                                                         |       | 252                                   |       | 159                                 |       | 486 |   | 348 |   |
| Income tax provision                                                  |       | 46                                    |       | 44                                  |       | 106 |   | 81 |   |
| Net income                                                            |       | $                                     | 206        |                                | $          | 115 |   | $ | 380 |   | $ | 267 |   |
|                                                                  |       |                                  |       |                                |       |   |   |   |   |
| Supplemental Disclosures:                                             |       |                                  |       |                                |       |   |   |   |   |
| Net realized investment  gains:                                       |       |                                  |       |                                |       |   |   |   |   |
| Net realized investment  gains before impairment losses on securities |       | $                                     | 7          |                                | $          | 29 |   | $ | 35 |   | $ | 76 |   |
| Total other-than-temporary  impairment losses on securities           |       | —                                |       | (11                                 | )          | (22 | ) | (30 | ) |
| Portion of loss recognized  in other comprehensive income             |       | (1                                    | )          | (10                                 | )          | (2 | ) | (11 | ) |
| Net impairment losses  recognized in net realized investment gains    |       | (1                                    | )          | (21                                 | )          | (24 | ) | (41 | ) |
| Net realized investment  gains                                        |       | $                                     | 6          |                                | $          | 8 |   | $ | 11 |   | $ | 35 |   |

 

*See Notes to ConsolidatedFinancial Statements.*

 

2

----

Table ofContents

 

**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

(in millions)

 
| ** **                                                                                                   | ** ** | **Six  Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| **Cash  Flows from Operating Activities**                                                                    |       |                                 |       |   |   |
| Net income                                                                                                   |       | $                                    | 380        |   | $ | 267 |   |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities:                 |       |                                 |       |   |   |
| Capitalization of deferred  acquisition and sales inducement costs                                           |       | (227                                 | )          | (372 | ) |
| Amortization of deferred  acquisition and sales inducement costs                                             |       | 288                                  |       | 129 |   |
| Depreciation, amortization  and accretion, net                                                               |       | (38                                  | )          | (21 | ) |
| Deferred income tax  expense (benefit)                                                                       |       | 327                                  |       | (22 | ) |
| Contractholder and  policyholder charges, non-cash                                                           |       | (129                                 | )          | (130 | ) |
| Net realized investment gains                                                                                |       | (36                                  | )          | (85 | ) |
| Other-than-temporary  impairments and provision for loan losses recognized in net realized  investment gains |       | 25                                   |       | 50 |   |
| Change in operating assets  and liabilities:                                                                 |       |                                 |       |   |   |
| Trading securities and  equity method investments, net                                                       |       | 7                                    |       | (296 | ) |
| Future policy benefits for  traditional life, disability income and long term care insurance                 |       | 133                                  |       | 134 |   |
| Policy claims and other  policyholders’ funds                                                           |       | (5                                   | )          | (52 | ) |
| Reinsurance recoverables                                                                                     |       | (79                                  | )          | (87 | ) |
| Other receivables                                                                                            |       | (15                                  | )          | 7 |   |
| Accrued investment income                                                                                    |       | 2                                    |       | (41 | ) |
| Derivatives collateral,  net                                                                                 |       | 467                                  |       | (1,594 | ) |
| Other assets and  liabilities, net                                                                           |       | (268                                 | )          | 528 |   |
| Net cash provided by (used  in) operating activities                                                         |       | 832                                  |       | (1,585 | ) |
| **Cash  Flows from Investing Activities**                                                                    |       |                                 |       |   |   |
| Available-for-Sale  securities:                                                                              |       |                                 |       |   |   |
| Proceeds from sales                                                                                          |       | 1,791                                |       | 2,047 |   |
| Maturities, sinking fund  payments and calls                                                                 |       | 1,801                                |       | 1,667 |   |
| Purchases                                                                                                    |       | (2,999                               | )          | (7,080 | ) |
| Proceeds from sales and  maturities of commercial mortgage loans                                             |       | 94                                   |       | 148 |   |
| Funding of commercial  mortgage loans                                                                        |       | (82                                  | )          | (57 | ) |
| Proceeds from sales of  other investments                                                                    |       | 44                                   |       | 15 |   |
| Purchases of other  investments                                                                              |       | (7                                   | )          | (10 | ) |
| Change in policy loans,  net                                                                                 |       | (6                                   | )          | 13 |   |
| Net cash provided by (used  in) investing activities                                                         |       | 636                                  |       | (3,257 | ) |
| **Cash  Flows from Financing Activities**                                                                    |       |                                 |       |   |   |
| Policyholder and contractholder  account values:                                                             |       |                                 |       |   |   |
| Considerations received                                                                                      |       | 833                                  |       | 3,726 |   |
| Net transfers (to) from  separate accounts                                                                   |       | (1,277                               | )          | 239 |   |
| Surrenders and other  benefits                                                                               |       | (692                                 | )          | (1,224 | ) |
| Borrowings under  repurchase agreements, net                                                                 |       | 484                                  |       | — |   |
| Payments on line of credit  with Ameriprise Financial, Inc.                                             |       | (300                                 | )          | — |   |
| Deferred premium options,  net                                                                               |       | (77                                  | )          | (6 | ) |
| Cash dividend to Ameriprise  Financial, Inc.                                                            |       | (425                                 | )          | — |   |
| Net cash (used in)  provided by financing activities                                                         |       | (1,454                               | )          | 2,735 |   |
| Net increase (decrease) in  cash and cash equivalents                                                        |       | 14                                   |       | (2,107 | ) |
| Cash and cash equivalents  at beginning of period                                                            |       | 811                                  |       | 3,307 |   |
| Cash and cash equivalents  at end of period                                                                  |       | $                                    | 825        |   | $ | 1,200 |   |
| Supplemental Disclosures:                                                                                    |       |                                 |       |   |   |
| Income taxes paid, net                                                                                       |       | $                                    | 54         |   | $ | 2 |   |
| Interest paid on  borrowings                                                                                 |       | 1                                    |       | — |   |

 

*See Notes to ConsolidatedFinancial Statements.*

 

3

----

Table of Contents

 

**RIVERSOURCELIFE INSURANCE COMPANY**

 

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

**Six Months Ended June 30, 2010 and 2009**

(in millions)

 
| ** **                                                                                                                     | ** ** | **Common  Shares** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other****Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|------------------------|------------|--------------------------------------------------------|------------|-----------|------------|
| **Balances  at January 1, 2009**                                                                                          |       | $                  | 3          |                             | $          | 2,116                  |       | $                                                      | 2,336      |      | $          | (716 | ) | $ | 3,739 |   |
| Change  in accounting principles, net of tax                                                                                   |       | —             |       | —                           |       | 38                     |       | (38                                                    | )          | —    |       |
| Comprehensive income:                                                                                                          |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Net  income                                                                                                                    |       | —             |       | —                           |       | 267                    |       | —                                                 |       | 267       |       |
| Other  comprehensive income, net of tax:                                                                                       |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Change  in net unrealized securities losses                                                                                    |       | —             |       | —                           |       | —                 |       | 567                                                    |       | 567       |       |
| Change  in noncredit related impairments on securities and net unrealized securities  losses on previously impaired securities |       | —             |       | —                           |       | —                 |       | 26                                                     |       | 26        |       |
| Change in net unrealized  derivative losses                                                                                    |       | —             |       | —                           |       | —                 |       | 2                                                      |       | 2         |       |
| Total  comprehensive income                                                                                                    |       |               |       |                             |       |                   |       |                                                   |       | 862       |       |
| Tax  adjustment on share-based incentive compensation plan                                                                     |       | —             |       | (1                               | )          | —                 |       | —                                                 |       | (1        | )          |
| **Balances  at June 30, 2009**                                                                                            |       | $                  | 3          |                             | $          | 2,115                  |       | $                                                      | 2,641      |      | $          | (159 | ) | $ | 4,600 |   |
|                                                                                                                           |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| **Balances  at January 1, 2010**                                                                                          |       | $                  | 3          |                             | $          | 2,445                  |       | $                                                      | 3,114      |      | $          | 382 |   | $ | 5,944 |   |
| Comprehensive income:                                                                                                          |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Net  income                                                                                                                    |       | —             |       | —                           |       | 380                    |       | —                                                 |       | 380       |       |
| Other  comprehensive income, net of tax:                                                                                       |       |               |       |                             |       |                   |       |                                                   |       |      |       |
| Change  in net unrealized securities gains                                                                                     |       | —             |       | —                           |       | —                 |       | 356                                                    |       | 356       |       |
| Change in net unrealized  derivative losses                                                                                    |       | —             |       | —                           |       | —                 |       | 2                                                      |       | 2         |       |
| Total  comprehensive income                                                                                                    |       |               |       |                             |       |                   |       |                                                   |       | 738       |       |
| Cash dividend to  Ameriprise Financial, Inc.                                                                              |       | —             |       | —                           |       | (425                   | )          | —                                                 |       | (425      | )          |
| **Balances  at June 30, 2010**                                                                                            |       | $                  | 3          |                             | $          | 2,445                  |       | $                                                      | 3,069      |      | $          | 740 |   | $ | 6,257 |   |

 

*See Notes to ConsolidatedFinancial Statements.*

 

4

----

Table of Contents

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

**1.****             ****Basisof Presentation**

 

The accompanying Consolidated Financial Statementsinclude the accounts of RiverSource Life Insurance Company and its wholly ownedsubsidiaries, RiverSource Life Insurance Co. of New York and RiverSource TaxAdvantaged Investments, Inc. (“RTA”). RiverSource Life Insurance Company is a wholly owned subsidiary of AmeripriseFinancial, Inc. (“Ameriprise Financial”). All significant intercompany accounts and transactions have beeneliminated in consolidation.

 

RiverSource Life Insurance Company and itssubsidiaries are referred to collectively in this Form 10-Q as “RiverSourceLife”.

 

The interim financial information in this report hasnot been audited.  In the opinion ofmanagement, all adjustments necessary for a fair presentation of theconsolidated financial position and results of operations for the interim periodshave been made.  Except for theadjustment described below, all adjustments made were of a normal recurringnature.

 

In the second quarter of 2010, RiverSource Life madean adjustment for revisions to certain calculations in its valuation ofdeferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”)which resulted in increases to the DAC and DSIC balances and decreases toamortization of DAC and benefits expense totaling $33 million.  The impact to RiverSource Life’s net incomewas $21 million.

 

The accompanying Consolidated Financial Statementsare prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).  Certain reclassifications of prior periodamounts have been made to conform to the current presentation.  Results of operations reported for interimperiods are not necessarily indicative of results for the entire year.  These Consolidated Financial Statements andNotes should be read in conjunction with the Consolidated Financial Statementsand Notes in RiverSource Life’s Annual Report on Form 10-K for the yearended December 31, 2009 filed with the Securities and Exchange Commission(“SEC”) on February 24, 2010.

 

RiverSource Life evaluated events or transactionsthat may have occurred after the balance sheet date for potential recognitionor disclosure through the date the financial statements were issued.

 

**2.****             ****RecentAccounting****Pronouncements**

 

**Adoption of New Accounting Standards**

 

*Consolidation of VariableInterest Entities*

 

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

 

*Subsequent**Events*

 

In February 2010, the FASB amended theaccounting standards related to the recognition and disclosure of subsequentevents.  The amendments remove therequirement to disclose the date through which subsequent events are evaluatedfor SEC filers.  The standard iseffective upon issuance and shall be applied prospectively.  RiverSource Life adopted the standard in thefirst quarter of 2010 which did not have any effect on RiverSource Life’sconsolidated financial condition and results of operations.

 

*Fair Value*

 

In January 2010, theFASB updated the accounting standards related to disclosures on fair valuemeasurements.  The standard expands thecurrent disclosure requirements to include additional detail about significanttransfers between Levels 1 and 2 within the fair value hierarchy and presentsactivity in the rollforward of Level 3 activity on a gross basis.  The standard also clarifies existingdisclosure requirements related to the level of disaggregation to be used forassets and liabilities as well as disclosures on the inputs and valuationtechniques used to measure fair value. The standard is effective for interim and annual reporting periodsbeginning after December 15, 2009, except for the disclosure requirementsrelated to the Level 3 rollforward, which are effective for interim and annualperiods beginning after December 15, 2010.

 

5

----

Table of Contents

 

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

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

 

RiverSource Life adopted the standard in the firstquarter of 2010, except for the additional disclosures related to the Level 3rollforward, which RiverSource Life will adopt in the first quarter of2011.  The adoption did not have anyeffect on RiverSource Life’s consolidated financial condition and results ofoperations.

 

*Recognition and Presentation ofOther-Than-Temporary Impairments (“OTTI”)*

 

In April 2009, the FASB updated the accountingstandards for the recognition and presentation of other-than-temporaryimpairments. The standard amends existing guidance on other-than-temporaryimpairments for debt securities and requires that the credit portion ofother-than-temporary impairments be recorded in earnings and the noncreditportion of losses be recorded in other comprehensive income (loss) when theentity does not intend to sell the security and it is more likely than not thatthe entity will not be required to sell the security prior to recovery of itscost basis. The standard requires separate presentation of both the credit andnoncredit portions of other-than-temporary impairments on the financialstatements and additional disclosures. This standard is effective for interim andannual reporting periods ending after June 15, 2009, with early adoptionpermitted for periods ending after March 15, 2009. At the date ofadoption, the portion of previously recognized other-than-temporary impairmentsthat represent the noncredit related loss component shall be recognized as acumulative effect of adoption with an adjustment to the opening balance ofretained earnings with a corresponding adjustment to accumulated othercomprehensive income (loss). RiverSource Life adopted the standard in the firstquarter of 2009 and recorded a cumulative effect increase to the openingbalance of retained earnings of $38 million, net of DAC and DSICamortization, certain benefit reserves and income taxes, and a correspondingincrease to accumulated other comprehensive loss, net of impacts to DAC andDSIC amortization, certain benefit reserves and income taxes. See Note 4 forRiverSource Life’s required disclosures.

 

**Future Adoption of New Accounting Standards**

 

*Receivables*

 

In July 2010, theFASB updated the accounting standards for disclosures about the credit qualityof financing receivables and the allowance for credit losses. The standardrequires additional disclosure related to the credit quality of financingreceivables, troubled debt restructurings and significant purchases or sales offinancing receivables during the period. The standard requires that thesedisclosures and existing disclosures be presented on a disaggregated basis,similar to the manner that the entity uses to evaluate its credit losses.Disclosures of information as of the end of a reporting period are effectivefor interim and annualperiods ending after December 15, 2010 and disclosures of activity thatoccurred during a reporting period are effective for interim and annual periodsbeginning after December 15, 2010. RiverSource Life is currentlyevaluating the impact of the standard on its disclosures. RiverSource Life’sadoption of the standard will not impact its consolidated financial conditionand results of operations.

 

*How Investments Held throughSeparate Accounts Affect an Insurer’s Consolidation Analysis of ThoseInvestments*

 

In April 2010, the FASB updated the accountingstandards regarding accounting for investment funds determined to be VIEs.Under this standard an insurance enterprise would not be required toconsolidate a voting-interest investment fund when it holds the majority of thevoting interests of the fund through its separate accounts. In addition, theenterprise would not consider the interests held through separate accounts inevaluating its economic interests in a VIE, unless the separate accountcontract holder is a related party. The standard is effective for financialstatements issued for fiscal years and interim periods beginning afterDecember 15, 2010. The adoption of the standard is not expected to have amaterial impact on RiverSource Life’s consolidated financial condition andresults of operations.

 

**3.****             ****VariableInterest Entities**

 

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

 

RTA’s maximum exposure to loss as a result of itsinvestment in the affordable housing partnerships is limited to the carryingvalues.  The carrying values arereflected in trading securities and other investments and were $21 million and$28 million as of June 30, 2010 and December 31, 2009,respectively.  RTA has no obligation toprovide further financial or other support to the affordable housingpartnerships nor has it provided any additional support to the affordablehousing partnerships.  RiverSource Lifehad no liabilities recorded as of June 30, 2010 and December 31, 2009related to the affordable housing partnerships.

 

6

----

Table of Contents

 

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

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

 

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

 

Available-for-Sale securities distributed by typewere as follows:

 
| ** **                                | ** ** | **June 30, 2010** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| **Description of Securities**             | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Noncredit  OTTI(1)** | ** ** |
| ** **                                | ** ** | **(in millions)**      | ** ** |
| Fixed maturities:                         |       |                   |       |   |   |   |   |   |   |   |   |
| Corporate debt securities                 |       | $                      | 13,995     |   | $ | 1,250 |   | $ | (55 | ) | $ | 15,190 |   | $ | — |   |
| Residential mortgage  backed securities   |       | 4,681                  |       | 316 |   | (174 | ) | 4,823 |   | (38 | ) |
| Commercial mortgage backed  securities    |       | 3,836                  |       | 299 |   | — |   | 4,135 |   | — |   |
| Asset backed securities                   |       | 794                    |       | 47 |   | (18 | ) | 823 |   | — |   |
| State and municipal  obligations          |       | 763                    |       | 55 |   | (41 | ) | 777 |   | — |   |
| U.S. government and  agencies obligations |       | 57                     |       | 8 |   | — |   | 65 |   | — |   |
| Foreign government bonds  and obligations |       | 93                     |       | 17 |   | — |   | 110 |   | — |   |
| Other structured  investments             |       | 5                      |       | 7 |   | — |   | 12 |   | 7 |   |
| Total fixed maturities                    |       | 24,224                 |       | 1,999 |   | (288 | ) | 25,935 |   | (31 | ) |
| Common and preferred  stocks              |       | 30                     |       | — |   | (4 | ) | 26 |   | — |   |
| Total                                     |       | $                      | 24,254     |   | $ | 1,999 |   | $ | (292 | ) | $ | 25,961 |   | $ | (31 | ) |

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

 

----

(1)          Represents the amount ofother-than-temporary impairment losses in Accumulated Other ComprehensiveIncome.  Amount includes unrealized gainsand losses on impaired securities subsequent to the initial impairmentmeasurement date.  These amounts areincluded in gross unrealized gains and losses as of the end of the period.

 

At both June 30, 2010 and December 31,2009, fixed maturity securities comprised approximately 88% of RiverSource Life’stotal investments.  These securities wererated by Moody’s Investors Service (“Moody’s”), Standard & Poor’sRatings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”), except forapproximately $1.1 billion of securities at both June 30, 2010 and December 31,2009, which were rated by Columbia Management Investment Advisors, LLC’s(formerly known as RiverSource Investments, LLC) internal analysts usingcriteria similar to Moody’s, S&P and Fitch. Ratings on fixed maturity securities are presented using the median ofratings from Moody’s, S&P and Fitch. If only two of the ratings are available, the lower rating is used.

 

7

----

Table ofContents

 

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

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

 

A summary of fixed maturity securities by rating wasas follows:

 
| ** **             | ** ** | **June 30, 2010**                | ** ** | **December 31, 2009** | ** ** |
|------------------------|------------|---------------------------------------|------------|----------------------------|------------|
| **Ratings**            | ** ** | **Amortized  Cost**                   | ** ** | **Fair********Value**      | ** ** | **Percent of  Total Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair********Value** | ** ** | **Percent of  Total Fair  Value** | ** ** |
| ** **             | ** ** | **(in millions, except percentages)** | ** ** |
| AAA                    |       | $                                     | 8,496      |                       | $          | 9,115 |   | 35 | % | $ | 9,194 |   | $ | 9,520 |   | 37 | % |
| AA                     |       | 1,254                                 |       | 1,346                      |       | 5 |   | 1,081 |   | 1,084 |   | 4 |   |
| A                      |       | 3,862                                 |       | 4,118                      |       | 16 |   | 4,182 |   | 4,326 |   | 17 |   |
| BBB                    |       | 9,217                                 |       | 10,106                     |       | 39 |   | 9,276 |   | 9,826 |   | 38 |   |
| Below investment grade |       | 1,395                                 |       | 1,250                      |       | 5 |   | 1,409 |   | 1,243 |   | 4 |   |
| Total fixed maturities |       | $                                     | 24,224     |                       | $          | 25,935 |   | 100 | % | $ | 25,142 |   | $ | 25,999 |   | 100 | % |

 

At June 30, 2010 and December 31, 2009,approximately 30% and 33%, 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 shareholder’sequity.

 

The following tables provide information aboutAvailable-for-Sale securities with gross unrealized losses and the length oftime that individual securities have been in a continuous unrealized lossposition:

 
| ** **                               | ** ** | **June 30, 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                |       | 76                                              |       | $ | 419 |   | $ | (17 | ) | 79 |   | $ | 640 |   | $ | (38 | ) | 155 |   | $ | 1,059 |   | $ | (55 | ) |
| Residential mortgage backed securities   |       | 23                                              |       | 305 |   | (4 | ) | 63 |   | 323 |   | (170 | ) | 86 |   | 628 |   | (174 | ) |
| Commercial mortgage backed securities    |       | 6                                               |       | 35 |   | — |   | 1 |   | 12 |   | — |   | 7 |   | 47 |   | — |   |
| Asset backed securities                  |       | 5                                               |       | 71 |   | (1 | ) | 18 |   | 86 |   | (17 | ) | 23 |   | 157 |   | (18 | ) |
| State and municipal obligations          |       | 6                                               |       | 44 |   | (1 | ) | 2 |   | 95 |   | (40 | ) | 8 |   | 139 |   | (41 | ) |
| Foreign government bonds and obligations |       | 2                                               |       | 1 |   | — |   | — |   | — |   | — |   | 2 |   | 1 |   | — |   |
| Other structured investments             |       | —                                          |       | — |   | — |   | 2 |   | — |   | — |   | 2 |   | — |   | — |   |
| Common and preferred stock               |       | —                                          |       | — |   | — |   | 2 |   | 26 |   | (4 | ) | 2 |   | 26 |   | (4 | ) |
| Total                                    |       | 118                                             |       | $ | 875 |   | $ | (23 | ) | 167 |   | $ | 1,182 |   | $ | (269 | ) | 285 |   | $ | 2,057 |   | $ | (292 | ) |

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

 

8

----

Table of Contents

 

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

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

 

As part of RiverSource Life’s ongoing monitoringprocess, management determined that a majority of the gross unrealized losseson its Available-for-Sale securities are attributable to credit spreads.  The primary driver of lower unrealized lossesat June 30, 2010 was the decline of interest rates during the period.

 

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

 
| ** **                                                                                                                                                                  | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                                                                                                                                  | ** ** | **(in millions)**                     | ** ** | **(in millions)**                   | ** ** |
| Beginning balance of  credit losses on securities held for which a portion of other-than-temporary  impairment was recognized in other comprehensive income                 |       | $                                     | 103        |                                | $          | 113 |   | $ | 82 |   | $ | 101 |   |
| Additional amount related  to credit losses for which an other-than-temporary impairment was not  previously recognized                                                     |       | —                                |       | —                              |       | 14 |   | 8 |   |
| Reductions for securities  sold during the period (realized)                                                                                                                |       | —                                |       | (3                                  | )          | — |   | (3 | ) |
| Additional increases to  the amount related to credit losses for which an other-than-temporary  impairment was previously recognized                                        |       | 1                                     |       | 21                                  |       | 8 |   | 25 |   |
| Ending balance of credit  losses on securities held as of June 30 for which a portion of  other-than-temporary impairment was recognized in other comprehensive income |       | $                                     | 104        |                                | $          | 131 |   | $ | 104 |   | $ | 131 |   |

 

The change in net unrealized securities gains(losses) in other comprehensive income includes three components, net of tax: (i) unrealizedgains (losses) that arose from changes in the market value of securities thatwere held during the period; (ii) (gains) losses that were previouslyunrealized, but have been recognized in current period net income due to salesof Available-for-Sale securities and due to the reclassification of noncreditother-than-temporary impairment losses to credit losses and (iii) otheritems primarily consisting of adjustments in asset and liability balances, suchas DAC, DSIC, benefit reserves and reinsurance recoverables, to reflect theexpected impact on their carrying values had the unrealized gains (losses) beenrealized as of the respective balance sheet dates.

 

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

 
| ** **                                                          | ** ** | **Net********Unrealized********Securities********Gains (Losses)** | ** ** | **Deferred********Income  Tax** | ** ** | **Accumulated Other********Comprehensive Income  (Loss) Related to Net  Unrealized Securities********Gains (Losses)** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **(in millions)**                                                 | ** ** |
| Balance at January 1,  2009                                    |       | $                                                                      | (1,043     | )                               | $          | 365                                                                                                                                                      |       | $ | (678 | ) |
| Cumulative effect of  accounting change                             |       | (58                                                                    | )(1)       | 20                              |       | (38                                                                                                                                                      | )          |
| Net unrealized securities  gains arising during the period(3)       |       | 1,236                                                                  |       | (433                            | )          | 803                                                                                                                                                      |       |
| Reclassification of gains  included in net income                   |       | (44                                                                    | )          | 16                              |       | (28                                                                                                                                                      | )          |
| Impact on DAC, DSIC,  benefit reserves and reinsurance recoverables |       | (280                                                                   | )          | 98                              |       | (182                                                                                                                                                     | )          |
| Balance at June 30,  2009                                      |       | $                                                                      | (189       | )                               | $          | 66                                                                                                                                                       |       | $ | (123 | )(2) |
|                                                                |       |                                                                   |       |                            |       |                                                                                                                                                     |       |
| Balance at January 1,  2010                                    |       | $                                                                      | 638        |                            | $          | (222                                                                                                                                                     | )          | $ | 416 |   |
| Net unrealized securities gains  arising during the period(3)       |       | 869                                                                    |       | (304                            | )          | 565                                                                                                                                                      |       |
| Reclassification of gains  included in net income                   |       | (13                                                                    | )          | 4                               |       | (9                                                                                                                                                       | )          |
| Impact on DAC, DSIC,  benefit reserves and reinsurance recoverables |       | (307                                                                   | )          | 107                             |       | (200                                                                                                                                                     | )          |
| Balance at June 30,  2010                                      |       | $                                                                      | 1,187      |                            | $          | (415                                                                                                                                                     | )          | $ | 772 | (2) |

 

----

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

 

(2)          At June 30, 2010 and2009, Accumulated Other Comprehensive Income Related to Net UnrealizedSecurities Gains included $(15) million and $(12) million, respectively, ofnoncredit related impairments on securities and net unrealized securitieslosses on previously impaired securities.

 

(3)          Net unrealized securities gainsarising during the period includes other-than-temporary impairment losses onAvailable-for-Sale securities related to factors other than credit that wererecognized in other comprehensive income during the period.

 

9

----

Table ofContents

 

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

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

 

Net realizedgains and losses on Available-for-Sale securities, determined using thespecific identification method, recognized in net realized investment gainswere as follows:

 
| ** **                                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                           | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                           | ** ** | **(in millions)**                     | ** ** |
| Gross  realized investment gains from sales          |       | $                                     | 6          |                                | $          | 47 |   | $ | 38 |   | $ | 95 |   |
| Gross  realized investment losses from sales         |       | —                                |       | (9                                  | )          | (1 | ) | (10 | ) |
| Other-than-temporary  impairments  related to credit |       | (1                                    | )          | (21                                 | )          | (24 | ) | (41 | ) |
|                                                      |            |                                       |            |                                     |            |  |  |  |  |  |  |  |  |

 

The other-than-temporary impairments for the threemonths and six months ended June 30, 2010 were primarily related to creditlosses on non-agency residential mortgage backed securities as well ascorporate debt securities in the gaming industry.  The other-than-temporary impairments for thethree months and six months ended June 30, 2009 were related to creditlosses on non-agency residential mortgage backed securities and corporate debtsecurities primarily in the gaming industry.

 

Available-for-Sale securities by contractualmaturity at June 30, 2010 were as follows:

 
| ** **                              | ** ** | **Amortized Cost**       | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|----------------|------------|
| ** **                              | ** ** | **(in****millions****)** | ** ** |
| Due within one year                     |       | $                        | 1,123      |           | $          | 1,140 |   |
| Due after one year through  five years  |       | 5,771                    |       | 6,084          |       |
| Due after five years  through 10 years  |       | 4,716                    |       | 5,207          |       |
| Due after 10 years                      |       | 3,298                    |       | 3,711          |       |
|                                    |       | 14,908                   |       | 16,142         |       |
| Residential mortgage  backed securities |       | 4,681                    |       | 4,823          |       |
| Commercial mortgage backed  securities  |       | 3,836                    |       | 4,135          |       |
| Asset backed securities                 |       | 794                      |       | 823            |       |
| Other structured  investments           |       | 5                        |       | 12             |       |
| Common and preferred  stocks            |       | 30                       |       | 26             |       |
| Total                                   |       | $                        | 24,254     |           | $          | 25,961 |   |

 

Actual maturities may differ from contractualmaturities because issuers may have the right to call or prepayobligations.  Residential mortgage backedsecurities, commercial mortgage backed securities, asset backed securities andother structured investments are not due at a single maturity date.  As such, these securities, as well as commonand preferred stocks, were not included in the maturities distribution.

 

**5****.****             ****Deferred****Acquisition****Costs****andDeferred Sales Inducement Costs**

 

The balances of and changes in DAC were as follows:

 
| ** **                                           | ** ** | **2010**           | ** ** | **2009** | ** ** |
|------------------------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                                           | ** ** | **(in  millions)** | ** ** |
| Balance at  January 1                           |       | $                  | 4,285      |     | $          | 4,324 |   |
| Capitalization of  acquisition costs                 |       | 201                |       | 333      |       |
| Amortization                                         |       | (253               | )          | (123     | )          |
| Impact of change in net  unrealized securities gains |       | (155               | )          | (227     | )          |
| Balance at June 30                              |       | $                  | 4,078      |     | $          | 4,307 |   |

 

The balances of and changes in DSIC were as follows:

 
| ** **                                           | ** ** | **2010**               | ** ** | **2009** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                           | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                           |       | $                      | 524        |     | $          | 518 |   |
| Capitalization of sales  inducement costs            |       | 26                     |       | 39       |       |
| Amortization                                         |       | (35                    | )          | (6       | )          |
| Impact of change in net  unrealized securities gains |       | (22                    | )          | (33      | )          |
| Balance at June 30                              |       | $                      | 493        |     | $          | 518 |   |

 

10

----

Table of Contents

 

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

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

 

**6.****             ****FuturePolicy Benefits, Policy Claims and Other Policyholders’ Funds and SeparateAccount Liabilities**

 

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

 
| ** **                                                                           | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                           | ** ** | **(in millions)** | ** ** |
| Fixed annuities                                                                      |       | $                      | 16,633     |                       | $          | 16,558 |   |
| Equity indexed annuities  (“EIA”) accumulated host values                  |       | 123                    |       | 159                        |       |
| EIA embedded derivatives                                                             |       | 3                      |       | 9                          |       |
| Variable annuity fixed  sub-accounts                                                 |       | 4,918                  |       | 6,127                      |       |
| Variable annuity  guaranteed minimum withdrawal benefits (“GMWB”)          |       | 842                    |       | 204                        |       |
| Variable annuity  guaranteed minimum accumulation benefits (“GMAB”)        |       | 247                    |       | 100                        |       |
| Other variable annuity  guarantees                                                   |       | 14                     |       | 12                         |       |
| Total annuities                                                                      |       | 22,780                 |       | 23,169                     |       |
| Variable universal life  (“VUL”)/universal life (“UL”) insurance |       | 2,643                  |       | 2,595                      |       |
| Other life, disability  income and long term care insurance                          |       | 4,744                  |       | 4,619                      |       |
| Total future policy  benefits                                                        |       | 30,167                 |       | 30,383                     |       |
| Policy claims and other  policyholders’ funds                                   |       | 118                    |       | 123                        |       |
| Total future policy  benefits and policy claims and other policyholders’ funds  |       | $                      | 30,285     |                       | $          | 30,506 |   |

 

Separate account liabilities consisted of thefollowing:

 
| ** **                              | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **(in millions)**       | ** ** |
| Variable annuity variable  sub-accounts |       | $                       | 49,176     |                        | $          | 48,982 |   |
| VUL insurance variable  sub-accounts    |       | 4,989                   |       | 5,239                       |       |
| Other insurance variable  sub-accounts  |       | 41                      |       | 46                          |       |
| Total separate account  liabilities     |       | $                       | 54,206     |                        | $          | 54,267 |   |

 

**7.****             ****VariableAnnuity and Insurance Guarantees**

 

The majority of the variable annuity contractsoffered by RiverSource Life contain guaranteed minimum death benefit (“GMDB”)provisions.  RiverSource Life also offersvariable annuities with death benefit provisions that gross up the amountpayable by a certain percentage of contract earnings, which are referred to asgain gross-up (“GGU”) benefits.  Inaddition, RiverSource Life offers contracts with GMWB and GMAB provisions.  RiverSource Life previously offered contractscontaining guaranteed minimum income benefit (“GMIB”) provisions.

 

Certain universal life contracts offered byRiverSource Life provide secondary guarantee benefits.  The secondary guarantee ensures that, subjectto specified conditions, the policy will not terminate and will continue toprovide a death benefit even if there is insufficient policy value to cover themonthly deductions and charges.

 

11

----

Table of Contents

 

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

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

 

The following table provides information related tovariable annuity guarantees for which RiverSource Life has establishedadditional liabilities:

 
| ** **                                            | ** ** | **June 30, 2010**        | ** ** | **December 31, 2009**                 | ** ** |
|-------------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|
| **Variable Annuity  Guarantees by Benefit  Type (1)** | ** ** | **Total  Contract  Value**    | ** ** | **Contract  Value in  Separate  Accounts** | ** ** | **Net  Amount  at Risk(2)** | ** ** | **Weighted  Average  Attained  Age** | ** ** | **Total  Contract  Value** | ** ** | **Contract  Value in  Separate  Accounts** | ** ** | **Net  Amount  at Risk(2)** | ** ** | **Weighted  Average  Attained  Age** | ** ** |
| ** **                                            | ** ** | **(in millions, except age)** | ** ** |
| **GMDB:**                                             |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Return of premium                                     |       | $                             | 31,381     |                                       | $          | 29,706 |   | $ | 1,420 |   | 62 |   | $ | 30,938 |   | $ | 28,415 |   | $ | 974 |   | 61 |   |
| Five/six-year reset                                   |       | 12,781                        |       | 10,209                                     |       | 1,117 |   | 62 |   | 13,919 |   | 11,223 |   | 929 |   | 61 |   |
| One-year ratchet                                      |       | 6,839                         |       | 6,311                                      |       | 1,030 |   | 63 |   | 7,081 |   | 6,400 |   | 873 |   | 63 |   |
| Five-year ratchet                                     |       | 1,249                         |       | 1,196                                      |       | 59 |   | 60 |   | 1,256 |   | 1,171 |   | 38 |   | 59 |   |
| Other                                                 |       | 528                           |       | 497                                        |       | 120 |   | 67 |   | 549 |   | 516 |   | 95 |   | 67 |   |
| Total — GMDB                                     |       | $                             | 52,778     |                                       | $          | 47,919 |   | $ | 3,746 |   | 62 |   | $ | 53,743 |   | $ | 47,725 |   | $ | 2,909 |   | 61 |   |
|                                                  |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU death benefit**                                 |       | $                             | 845        |                                       | $          | 783 |   | $ | 71 |   | 64 |   | $ | 853 |   | $ | 775 |   | $ | 70 |   | 63 |   |
|                                                  |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                              |       | $                             | 559        |                                       | $          | 518 |   | $ | 158 |   | 64 |   | $ | 628 |   | $ | 582 |   | $ | 126 |   | 63 |   |
|                                                  |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                             |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                  |       | $                             | 3,937      |                                       | $          | 3,913 |   | $ | 564 |   | 64 |   | $ | 4,196 |   | $ | 4,067 |   | $ | 454 |   | 64 |   |
| GMWB for life                                         |       | 15,913                        |       | 15,810                                     |       | 1,169 |   | 63 |   | 14,988 |   | 14,333 |   | 795 |   | 63 |   |
| Total — GMWB                                     |       | $                             | 19,850     |                                       | $          | 19,723 |   | $ | 1,733 |   | 63 |   | $ | 19,184 |   | $ | 18,400 |   | $ | 1,249 |   | 63 |   |
|                                                  |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                              |       | $                             | 2,936      |                                       | $          | 2,924 |   | $ | 228 |   | 56 |   | $ | 2,926 |   | $ | 2,853 |   | $ | 153 |   | 56 |   |

 

----

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

 

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

 

Changes in additional liabilities were as follows:

 
| ** **                                 | ** ** | **GMDB &  GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                 | ** ** | **(in millions)**   | ** ** |
| Liability balance at  January 1, 2009 |       | $                        | 55         |     | $          | 12       |       | $        | 1,471      |   | $          | 367 |   | $ | 7 |   |
| Incurred claims                            |       | 12                       |       | (1       | )          | (887     | )          | (187     | )          | 6      |       |
| Paid claims                                |       | (42                      | )          | —   |       | —   |       | —   |       | (1     | )          |
| Liability balance at  June 30, 2009   |       | $                        | 25         |     | $          | 11       |       | $        | 584        |   | $          | 180 |   | $ | 12 |   |
|                                       |       |                     |       |     |       |     |       |     |       |   |       |   |   |   |   |   |
| Liability balance at  January 1, 2010 |       | $                        | 6          |     | $          | 6        |       | $        | 204        |   | $          | 100 |   | $ | 15 |   |
| Incurred claims                            |       | 11                       |       | 1        |       | 638      |       | 147      |       | 8      |       |
| Paid claims                                |       | (10                      | )          | —   |       | —   |       | —   |       | (3     | )          |
| Liability balance at  June 30, 2010   |       | $                        | 7          |     | $          | 7        |       | $        | 842        |   | $          | 247 |   | $ | 20 |   |

 

The following table summarizes the distribution ofseparate account balances by asset type for variable annuity contractsproviding guaranteed benefits:

 
| ** **         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|-------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| ** **         | ** ** | **(in millions)** | ** ** |
| Mutual funds:      |       |              |       |                  |       |
| Equity             |       | $                 | 28,605     |                  | $          | 29,379 |   |
| Bond               |       | 18,023            |       | 16,537                |       |
| Other              |       | 2,397             |       | 2,889                 |       |
| Total mutual funds |       | $                 | 49,025     |                  | $          | 48,805 |   |

 

12

----

Table of Contents

 

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

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

 

**8.****             ****Line ofCredit**

 

RiverSource Life Insurance Company, as the borrower,had an outstanding balance at December 31, 2009 of $300 million under arevolving credit agreement with Ameriprise Financial as the lender.  The aggregate amount outstanding under theline of credit may not exceed $800 million at any time.  The interest rate for any borrowing under theagreement is established by reference to LIBOR plus 28 basis points.  Amounts borrowed may be repaid at any timewith no prepayment penalty.  Theoutstanding balance was paid in full during the first quarter of 2010.

 

**9.****             ****Borrowingsunder Repurchase Agreements**

 

During 2010, RiverSource Life entered intorepurchase agreements in exchange for cash which it accounts for as a securedborrowing.  RiverSource Life has pledgedAvailable-for-Sale securities consisting of commercial mortgage backed securities,agency residential mortgage backed securities and corporate debt securities tocollateralize its obligation under the repurchase agreements. The fair value ofthe securities pledged, which are recorded in investments, was $549 million at June 30,2010. The amount of RiverSource Life’s liability as of June 30, 2010 was$491 million, consisting of $484 million recorded in borrowings underrepurchase agreements and $7 million recorded in other liabilities for accruedinterest and cash collateral posted by counterparties. The weighted averageinterest rate on the repurchase agreements was 0.54% as of June 30, 2010.

 

**10.****      ****Fair Values of Assets andLiabilities**

 

GAAP defines fair value as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date; that is, anexit price.  The exit price assumes theasset or liability is not exchanged subject to a forced liquidation or distressedsale.

 

**Valuation Hierarchy**

 

RiverSource Life categorizes its fair valuemeasurements according to a three-level hierarchy.  The hierarchy prioritizes the inputs used byRiverSource Life’s valuation techniques. A level is assigned to each fair value measurement based on the lowestlevel input that is significant to the fair value measurement in itsentirety.  The three levels of the fairvalue hierarchy are defined as follows:

 

Level 1                Unadjusted quoted prices foridentical assets or liabilities in active markets that are accessible at themeasurement date.

 

Level 2                Prices or valuations basedon observable inputs other than quoted prices in active markets for identicalassets and liabilities.

 

Level 3                Prices or valuations thatrequire inputs that are both significant to the fair value measurement andunobservable.

 

**Determination of Fair Value**

 

RiverSource Life uses valuation techniquesconsistent with the market and income approaches to measure the fair value ofits assets and liabilities.  RiverSourceLife’s market approach uses prices and other relevant information generated bymarket transactions involving identical or comparable assets orliabilities.  RiverSource Life’s incomeapproach uses valuation techniques to convert future projected cash flows to asingle discounted present value amount. When applying either approach, RiverSource Life maximizes the use ofobservable inputs and minimizes the use of unobservable inputs.

 

The following is a description of the valuationtechniques used to measure fair value and the general classification of theseinstruments pursuant to the fair value hierarchy.

 

**Assets**

 

*Cash Equivalents*

 

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

 

13

----

Table of Contents

 

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

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

 

*Available-for-Sale Securities*

 

When available, the fair value of securities isbased on quoted prices in active markets. If quoted prices are not available, fair values are obtained fromnationally-recognized pricing services, broker quotes, or other model-basedvaluation techniques.  Level 1 securitiesinclude U.S. Treasuries.  Level 2securities include municipal and corporate bonds, agency mortgage backedsecurities, commercial mortgage backed securities, asset backed securities andU.S. and foreign government and agency securities.  The fair value of these Level 2 securities isbased on a market approach with prices obtained from nationally-recognizedpricing services.  Observable inputs usedto value these securities can include: reported trades, benchmark yields,issuer spreads and broker/dealer quotes. Level 3 securities include corporate bonds, non-agency residentialmortgage backed securities, commercial mortgage backed securities and assetbacked securities.  The fair value ofthese Level 3 securities is typically based on a single broker quote, exceptfor the valuation of non-agency residential mortgage backed securities.RiverSource Life believes the market for non-agency residential mortgage backedsecurities is inactive and effective March 31, 2010, RiverSource Lifereturned to using prices from nationally-recognized pricing services todetermine the fair value of non-agency residential mortgage backed securitiesbecause the difference between these prices and the results of RiverSource Life’sdiscounted cash flows was not significant.

 

*Separate Account Assets*

 

The fair value of assets held by separate accountsis determined by the NAV of the funds in which those separate accounts areinvested.  The NAV represents the exit pricefor the separate account.  Separateaccount assets are classified as Level 2 as they are traded inprincipal-to-principal markets with little publicly released pricinginformation.

 

*Other Assets*

 

The fair value of derivatives that are traded incertain over-the-counter markets are generally measured using pricing modelswith market observable inputs such as interest rates and equity indexlevels.  These measurements areclassified as Level 2 within the fair value hierarchy and include swaps andoptions.  Derivatives that are valuedusing pricing models that have significant unobservable inputs are classifiedas Level 3 measurements.

 

**Liabilities**

 

*Future Policy Benefits*

 

RiverSource Life values the embedded derivativeliability attributable to the provisions of certain variable annuity ridersusing internal valuation models.  Thesemodels calculate fair value by discounting expected cash flows from benefitsplus margins for profit, risk and expenses less embedded derivative fees.  The projected cash flows used by these modelsinclude observable capital market assumptions (such as market implied equityvolatility and the LIBOR swap curve) and incorporate significant unobservableinputs related to contractholder behavior assumptions (such as withdrawals and lapserates) and margins for risk, profit and expenses that RiverSource Life believesan exit market participant would expect. The fair value of these embedded derivatives also reflects a currentestimate of RiverSource Life’s nonperformance risk specific to theseliabilities.  Given the significantunobservable inputs to this valuation, these measurements are classified asLevel 3.  The embedded derivativeliability attributable to these provisions is recorded in future policybenefits.  RiverSource Life uses variousBlack-Scholes calculations to determine the fair value of the embeddedderivative liability associated with the provisions of its equity indexedannuities.  The inputs to thesecalculations are primarily market observable and include interest rates,volatilities and equity index levels.  Asa result, these measurements are classified as Level 2.

 

*Other Liabilities*

 

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

 

14

----

Table of Contents

 

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

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

 

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

 
| ** **                                             | ** ** | **June 30, 2010** | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|
| ** **                                             | ** ** | **Level 1**            | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **(in millions)**      | ** ** |
| Assets                                                 |       |                   |       |   |   |   |   |   |   |
| Available-for-Sale securities:                         |       |                   |       |   |   |   |   |   |   |
| Fixed maturities:                                      |       |                   |       |   |   |   |   |   |   |
| Corporate  debt securities                             |       | $                      | —     |   | $ | 13,955 |   | $ | 1,235 |   | $ | 15,190 |   |
| Residential mortgage  backed securities                |       | —                 |       | 2,039 |   | 2,784 |   | 4,823 |   |
| Commercial mortgage backed securities                  |       | —                 |       | 3,991 |   | 144 |   | 4,135 |   |
| Asset backed securities                                |       | —                 |       | 597 |   | 226 |   | 823 |   |
| State and municipal obligations                        |       | —                 |       | 777 |   | — |   | 777 |   |
| U.S. government and agencies obligations               |       | 10                     |       | 55 |   | — |   | 65 |   |
| Foreign government bonds and obligations               |       | —                 |       | 110 |   | — |   | 110 |   |
| Other structured investments                           |       | —                 |       | — |   | 12 |   | 12 |   |
| Total Available-for-Sale securities: Fixed  maturities |       | 10                     |       | 21,524 |   | 4,401 |   | 25,935 |   |
| Common and preferred stocks                            |       | —                 |       | 26 |   | — |   | 26 |   |
| Trading securities                                     |       | —                 |       | 36 |   | — |   | 36 |   |
| Cash equivalents                                       |       | 27                     |       | 782 |   | — |   | 809 |   |
| Other assets:                                          |       |                   |       |   |   |   |   |   |   |
| Interest rate derivatives                              |       | —                 |       | 425 |   | — |   | 425 |   |
| Equity derivatives                                     |       | —                 |       | 1,013 |   | — |   | 1,013 |   |
| Total Other assets                                     |       | —                 |       | 1,438 |   | — |   | 1,438 |   |
| Separate account assets                                |       | —                 |       | 54,206 |   | — |   | 54,206 |   |
| Total assets at fair value                             |       | $                      | 37         |   | $ | 78,012 |   | $ | 4,401 |   | $ | 82,450 |   |
|                                                   |       |                   |       |   |   |   |   |   |   |
| Liabilities                                            |       |                   |       |   |   |   |   |   |   |
| Future policy benefits:                                |       |                   |       |   |   |   |   |   |   |
| EIA embedded derivatives                               |       | $                      | —     |   | $ | 3 |   | $ | — |   | $ | 3 |   |
| GMWB and GMAB embedded derivatives                     |       | —                 |       | — |   | 1,083 |   | 1,083 |   |
| Total Future policy benefits                           |       | —                 |       | 3 |   | 1,083 |   | 1,086 |   |
| Other liabilities:                                     |       |                   |       |   |   |   |   |   |   |
| Interest rate derivatives                              |       | —                 |       | 278 |   | — |   | 278 |   |
| Equity derivatives                                     |       | —                 |       | 388 |   | — |   | 388 |   |
| Credit derivatives                                     |       | —                 |       | 10 |   | — |   | 10 |   |
| Total Other liabilities                                |       | —                 |       | 676 |   | — |   | 676 |   |
| Total liabilities at fair value                        |       | $                      | —     |   | $ | 679 |   | $ | 1,083 |   | $ | 1,762 |   |

 

15

----

Table of Contents

 

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

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

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

 

Thefollowing tables provide a summary of changes in Level 3 assets and liabilitiesmeasured at fair value on a recurring basis:

 
| ** **                              | ** ** | ** **                                    | ** ** | **Total  Gains (Losses)  Included in** | ** ** | **Purchases,  Sales,  Issuances**      | ** ** | ** **                 | ** ** | ** **                                      | ** ** |
|-----------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **Balance,********April 1,********2010** | ** ** | **Net********Income**                  | ** ** | **Other********Comprehensive  Income** | ** ** | **and  Settlements,  Net** | ** ** | **Transfers********In/(Out) of********Level 3** | ** ** | **Balance,********June 30,  2010** | ** ** |
| ** **                              | ** ** | **(in  millions)**                            | ** ** |
| Available-for-Sale  securities:         |       |                                          |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Fixed maturities:                       |       |                                          |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Corporate debt securities               |       | $                                             | 1,249      |                                   | $          | 1                                      |       | $                          | 24         |                                            | $          | (39 | ) | $ | — |   | $ | 1,235 |   |
| Residential mortgage  backed securities |       | 2,682                                         |       | 18                                     |       | 83                                     |       | 1                          |       | —                                          |       | 2,784 |   |
| Commercial mortgage backed  securities  |       | 80                                            |       | 1                                      |       | 1                                      |       | 62                         |       | —                                          |       | 144 |   |
| Asset backed securities                 |       | 215                                           |       | 1                                      |       | 9                                      |       | 13                         |       | (12                                             | )          | 226 |   |
| Other structured  investments           |       | 11                                            |       | —                                 |       | —                                 |       | 1                          |       | —                                          |       | 12 |   |
| Total Available-for-Sale  securities:   |       |                                          |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Fixed maturities                        |       | 4,237                                         |       | 21                                     | (1)        | 117                                    |       | 38                         |       | (12)                                            | (3)        | 4,401 |   |
|                                    |       |                                          |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| Future policy benefits:                 |       |                                          |       |                                   |       |                                   |       |                       |       |                                            |       |   |   |
| GMWB and GMAB embedded  derivatives     |       | (193                                          | )          | (851)                                  | (2)        | —                                 |       | (39                        | )          | —                                          |       | (1,083 | ) |
|                                         |            |                                               |            |                                        |            |                                        |            |                            |            |                                                 |            |  |  |  |  |  |  |  |  |

 

----

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

 

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

 

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

 

16

----

Table of Contents

 

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

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

 
| ** **                              | ** ** | ** **                        | ** ** | **Total  Gains (Losses)  Included in** | ** ** | **Purchases,  Sales,  Issuances** | ** ** | ** **                 | ** ** | ** **                                      | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **Balance,  April 1,  2009** | ** ** | **Net********Income**                  | ** ** | **Other  Comprehensive  Income**  | ** ** | **and  Settlements,  Net** | ** ** | **Transfers********In/(Out) of********Level 3** | ** ** | **Balance,  June 30,  2009** | ** ** |
| ** **                              | ** ** | **(in  millions)**                | ** ** |
| Available-for-Sale  securities:         |       |                              |       |                                   |       |                              |       |                       |       |                                            |       |   |   |
| Fixed maturities                        |       |                              |       |                                   |       |                              |       |                       |       |                                            |       |   |   |
| Corporate debt securities               |       | $                                 | 1,057      |                                   | $          | —                            |       | $                          | 53         |                                            | $          | 37 |   | $ | — |   | $ | 1,147 |   |
| Residential mortgage  backed securities |       | 1,740                             |       | 22                                     |       | 78                                |       | 546                        |       | —                                          |       | 2,386 |   |
| Commercial mortgage backed  securities  |       | 3                                 |       | —                                 |       | —                            |       | 61                         |       | —                                          |       | 64 |   |
| Asset backed securities                 |       | 112                               |       | 5                                      |       | 2                                 |       | 42                         |       | —                                          |       | 161 |   |
| Other structured  investments           |       | 8                                 |       | —                                 |       | 1                                 |       | —                     |       | —                                          |       | 9 |   |
| Total Available-for-Sale  securities:   |       |                              |       |                                   |       |                              |       |                       |       |                                            |       |   |   |
| Fixed maturities                        |       | 2,920                             |       | 27                                     | (1)        | 134                               |       | 686                        |       | —                                          |       | 3,767 |   |
|                                    |       |                              |       |                                   |       |                              |       |                       |       |                                            |       |   |   |
| Other assets                            |       | 125                               |       | (34                                    | )(2)       | —                            |       | (91                        | )          | —                                          |       | — |   |
| Future policy benefits                  |       | (1,516                            | )          | 773                                    | (2)        | —                            |       | (16                        | )          | —                                          |       | (759 | ) |
|                                         |            |                                   |            |                                        |            |                                   |            |                            |            |                                                 |            |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $2million gain included in net realized investment gains (losses) and a $25million gain included in net investment income in the Consolidated Statementsof Income.

 

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

 

RiverSource Life recognizes transfers between levelsof the fair value hierarchy as of the beginning of the quarter in which eachtransfer occurred.

 

The following table presents the changes inunrealized gains (losses) included in net income related to Level 3 assets andliabilities held at June 30 for the three months then ended:

 
| ** **                              | ** ** | **2010**                    | ** ** | **2009**                                       | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|------------------------------------------------|------------|
| ** **                              | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** |
| ** **                              | ** ** | **(in  millions)**          | ** ** |
| Available-for-Sale  securities:         |       |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Fixed maturities:                       |       |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Residential mortgage  backed securities |       | $                           | 18         |                                           | $          | (1 | ) | $ | — |   | $ | 23 |   | $ | (21 | ) | $ | — |   |
| Asset backed securities                 |       | 1                           |       | —                                         |       | — |   | 1 |   | — |   | — |   |
| Commercial mortgage backed  securities  |       | 1                           |       | —                                         |       | — |   | — |   | — |   | — |   |
| Total Available-for-Sale  securities:   |       |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Fixed maturities                        |       | 20                          |       | (1                                             | )          | — |   | 24 |   | (21 | ) | — |   |
| Future policy benefits                  |       | —                      |       | —                                         |       | (852 | ) | — |   | — |   | 766 |   |
|                                         |            |                             |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

17

----

Table of Contents

 

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

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

 

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

 
| ** **                              | ** ** | ** **                          | ** ** | **Total  Gains (Losses)  Included in** | ** ** | **Purchases,  Sales,  Issuances** | ** ** | ** **                 | ** ** | ** **                          | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **Balance,  January 1,  2010** | ** ** | **Net  Income**                        | ** ** | **Other  Comprehensive  Income**  | ** ** | **and  Settlements,  Net** | ** ** | **Transfers  In/(Out) of  Level 3** | ** ** | **Balance,********June 30,  2010** | ** ** |
| ** **                              | ** ** | **(in  millions)**                  | ** ** |
| Available-for-Sale  securities:         |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Fixed maturities:                       |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Corporate debt securities               |       | $                                   | 1,239      |                                   | $          | 1                                 |       | $                          | 43         |                                | $          | (48 | ) | $ | — |   | $ | 1,235 |   |
| Residential mortgage  backed securities |       | 2,772                               |       | 16                                     |       | 143                               |       | (147                       | )          | —                              |       | 2,784 |   |
| Commercial mortgage backed  securities  |       | 72                                  |       | 1                                      |       | 10                                |       | 61                         |       | —                              |       | 144 |   |
| Asset backed securities                 |       | 215                                 |       | 4                                      |       | 19                                |       | —                     |       | (12                                 | )          | 226 |   |
| Other structured  investments           |       | 11                                  |       | 1                                      |       | —                            |       | —                     |       | —                              |       | 12 |   |
| Total Available-for-Sale  securities:   |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Fixed maturities                        |       | 4,309                               |       | 23                                     | (1)        | 215                               |       | (134                       | )          | (12                                 | )(3)       | 4,401 |   |
|                                    |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Future policy benefits:                 |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| GMWB and GMAB embedded  derivatives     |       | (299                                | )          | (716                                   | )(2)       | —                            |       | (68                        | )          | —                              |       | (1,083 | ) |
|                                         |            |                                     |            |                                        |            |                                   |            |                            |            |                                     |            |  |  |  |  |  |  |  |  |

 

----

(1)          Represents an$18 million loss included in net realized investment gains and a $41 milliongain included in net investment income in the Consolidated Statements ofIncome.

 

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

 

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

 
| ** **                              | ** ** | ** **                          | ** ** | **Total  Gains (Losses)  Included in** | ** ** | **Purchases,  Sales,  Issuances** | ** ** | ** **                 | ** ** | ** **                          | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **Balance,  January 1,  2009** | ** ** | **Net  Income**                        | ** ** | **Other  Comprehensive  Income**  | ** ** | **and  Settlements,  Net** | ** ** | **Transfers  In/(Out) of  Level 3** | ** ** | **Balance,********June 30,********2009** | ** ** |
| ** **                              | ** ** | **(in  millions)**                  | ** ** |
| Available-for-Sale  securities:         |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Fixed maturities                        |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Corporate debt securities               |       | $                                   | 1,086      |                                   | $          | —                            |       | $                          | 78         |                                | $          | (3 | ) | $ | (14 | ) | $ | 1,147 |   |
| Residential mortgage  backed securities |       | 520                                 |       | 25                                     |       | 49                                |       | 1,792                      |       | —                              |       | 2,386 |   |
| Commercial mortgage backed  securities  |       | 3                                   |       | —                                 |       | —                            |       | 61                         |       | —                              |       | 64 |   |
| Asset backed securities                 |       | 95                                  |       | 6                                      |       | (3                                | )          | 63                         |       | —                              |       | 161 |   |
| Other structured  investments           |       | 9                                   |       | —                                 |       | —                            |       | —                     |       | —                              |       | 9 |   |
| Total Available-for-Sale  securities:   |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Fixed maturities                        |       | 1,713                               |       | 31                                     | (1)        | 124                               |       | 1,913                      |       | (14                                 | )(3)       | 3,767 |   |
|                                    |       |                                |       |                                   |       |                              |       |                       |       |                                |       |   |   |
| Other assets                            |       | 200                                 |       | (37                                    | )(2)       | —                            |       | (163                       | )          | —                              |       | — |   |
| Future policy benefits                  |       | (1,832                              | )          | 1,104                                  | (2)        | —                            |       | (31                        | )          | —                              |       | (759 | ) |
|                                         |            |                                     |            |                                        |            |                                   |            |                            |            |                                     |            |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $2million loss included in net realized investment gains (losses) and a $33million gain included in net investment income in the Consolidated Statementsof Income.

 

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

 

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

 

18

----

Table of Contents

 

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

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

 

The following table presents the changes inunrealized gains (losses) included in net income related to Level 3 assets andliabilities held at June 30 for the six months then ended:

 
| ** **                              | ** ** | **2010**                    | ** ** | **2009**                                       | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|------------------------------------------------|------------|
| ** **                              | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** |
| ** **                              | ** ** | **(in  millions)**          | ** ** |
| Available-for-Sale  securities:         |       |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Fixed maturities:                       |       |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Residential mortgage  backed securities |       | $                           | 37         |                                           | $          | (21 | ) | $ | — |   | $ | 30 |   | $ | (26 | ) | $ | — |   |
| Asset backed securities                 |       | 3                           |       | —                                         |       | — |   | 1 |   | — |   | — |   |
| Commercial mortgage backed  securities  |       | 1                           |       | —                                         |       | — |   | — |   | — |   | — |   |
| Total Available-for-Sale  securities:   |       |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Fixed maturities                        |       | 41                          |       | (21                                            | )          | — |   | 31 |   | (26 | ) | — |   |
| Future policy benefits                  |       | —                      |       | —                                         |       | (719 | ) | — |   | — |   | 1,088 |   |
|                                         |            |                             |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

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

 
| ** **                                | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **Carrying  Value**    | ** ** | **Fair Value**             | ** ** | **Carrying  Value** | ** ** | **Fair Value** | ** ** |
| ** **                                | ** ** | **(in millions)**      | ** ** |
| **Financial Assets**                      |       |                   |       |                       |       |   |   |   |   |
| Commercial mortgage loans,  net           |       | $                      | 2,513      |                       | $          | 2,622 |   | $ | 2,532 |   | $ | 2,519 |   |
| Policy loans                              |       | 721                    |       | 784                        |       | 715 |   | 790 |   |
| Other investments                         |       | 201                    |       | 212                        |       | 226 |   | 245 |   |
| Restricted cash                           |       | 30                     |       | 30                         |       | 184 |   | 184 |   |
| **Financial Liabilities**                 |       |                   |       |                       |       |   |   |   |   |
| Future policy benefits                    |       | $                      | 15,449     |                       | $          | 15,666 |   | $ | 15,540 |   | $ | 15,657 |   |
| Separate account  liabilities             |       | 358                    |       | 358                        |       | 406 |   | 406 |   |
| Line of credit with  Ameriprise Financial |       | —                 |       | —                     |       | 300 |   | 300 |   |
| Borrowings under  repurchase agreements   |       | 484                    |       | 484                        |       | — |   | — |   |

 

*Commercial Mortgage Loans, Net*

 

The fair value of commercial mortgage loans, exceptthose with significant credit deterioration, is determined by discountingcontractual cash flows using discount rates that reflect current pricing forloans with similar remaining maturities and characteristics includingloan-to-value ratio, occupancy rate, refinance risk, debt-service coverage,location, and property condition.  Forcommercial mortgage loans with significant credit deterioration, fair value isdetermined using the same adjustments as above with an additional adjustmentfor RiverSource Life’s estimate of the amount recoverable on the loan.

 

*Policy Loans*

 

The fair value of policy loans is determined usingdiscounted cash flows.

 

*Other Investments*

 

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

 

19

----

Table of Contents

 

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

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

 

*RestrictedCash*

 

Restricted cash is generally set aside for specificbusiness transactions and restrictions are specific to RiverSource Life and donot transfer to third party market participants; therefore, the carrying valueamount is a reasonable estimate of fair value.

 

*Future Policy Benefits*

 

The fair value of fixed annuities, in deferralstatus, is determined by discounting cash flows using a risk neutral discountrate with adjustments for profit margin, expense margin, early policy surrenderbehavior, a provision for adverse deviation from estimated early policysurrender behavior and RiverSource Life’s nonperformance risk specific to theseliabilities.  The fair value of otherliabilities including non-life contingent fixed annuities in payout status,equity indexed annuity host contracts and the fixed portion of a small numberof variable annuity contracts classified as investment contracts is determinedin a similar manner.

 

*Separate Account Liabilities*

 

Certain separate account liabilities are classifiedas investment contracts and are carried at an amount equal to the relatedseparate account assets.  Carrying valueis a reasonable estimate of the fair value as it represents the exit value asevidenced by withdrawal transactions between contractholders and RiverSourceLife.  A nonperformance adjustment is notincluded as the related separate account assets act as collateral for theseliabilities and minimize nonperformance risk.

 

*Line of Credit with Ameriprise Financial*

 

The fair value of the line of credit is determinedby discounting cash flows with an adjustment for RiverSource Life’snonperformance risk specific to this liability. Due to the short-term nature of the line of credit, the carrying valueis an approximation of the fair value.

 

*Borrowings under Repurchase Agreement*

 

The fair value of borrowings under agreements torepurchase is determined by discounting cash flows. A nonperformance adjustmentis not included as collateral requirements for these borrowings minimize thenonperformance risk.

 

**11.****      ****Derivatives and HedgingActivities**

 

Derivative instruments enable RiverSource Life tomanage its exposure to various market risks. The value of such instruments is derived from an underlyingvariable or multiple variables, including equity and interest rate indices orprices.  RiverSource Life primarilyenters into derivative agreements for risk management purposes related toRiverSource Life’s products and operations.

 

20

----

Table of Contents

 

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

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

 

RiverSource Life uses derivatives as economic hedgesand occasionally holds derivatives designated for hedge accounting.  The following table presents the balancesheet location and the gross fair value of derivative instruments, includingembedded derivatives, by type of derivative and product:

 
| ** **                                             | ** ** | ** **                   | ** ** | **Asset**               | ** ** | ** **                  | ** ** | **Liability**                | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|-----------------------------|------------|------------------------------|------------|
| **Derivatives not designated  as hedging instruments** | ** ** | **Balance  Sheet  Location** | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** | **Balance  Sheet  Location** | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
| ** **                                             | ** ** | ** **                   | ** ** | **(in  millions)**      | ** ** | ** **                  | ** ** | **(in  millions)**           | ** ** |
| **Interest  rate**                                     | ** ** | ** **                   | ** ** | ** **              | ** ** | ** **                  | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| GMWB and GMAB                                          |       | Other assets                 |       | $                       | 425        | ** **                  | **$**      | 176                          |       | Other liabilities |   | $ | 278 |   | $ | 280 |   |
| **Equity**                                             |       |                         |       |                    | ** ** | ** **                  |       |                         |       |   |   |   |   |
| GMWB and GMAB                                          |       | Other assets                 |       | 1,012                   |       | 425                         |       | Other liabilities            |       | 388 |   | 474 |   |
| GMDB                                                   |       | Other assets                 |       | 1                       |       | —                      |       | Other liabilities            |       | — |   | 2 |   |
| EIA                                                    |       | Other assets                 |       | —                  |       | 2                           |       |                         |       | — |   | — |   |
| EIA embedded derivatives                               |       |                         | ** ** | **—**              | ** ** | **—**                  |       | Future policy benefits       |       | 3 |   | 9 |   |
| **Credit**                                             |       |                         |       |                    | ** ** | ** **                  |       |                         |       |   |   |   |   |
| GMWB and GMAB                                          |       | Other assets                 |       | —                  |       | 12                          |       | Other liabilities            |       | 10 |   | — |   |
| **Other**                                              |       |                         |       |                    |       |                        |       |                         |       |   |   |   |   |
| GMWB and GMAB embedded  derivatives(1)                 |       |                         |       | —                  |       | —                      |       | Future policy benefits       |       | 1,083 |   | 299 |   |
| Total                                                  |       |                         |       | $                       | 1,438      |                        | $          | 615                          |       |   |   | $ | 1,762 |   | $ | 1,064 |   |

 

----

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

 

See Note 10 for additional informationregarding RiverSource Life’s fair value measurement of derivative instruments.

 

**Derivatives Not Designated as Hedges**

 

The following table presents a summary of the impactof derivatives not designated as hedging instruments on the ConsolidatedStatements of Income:

 
| ** **                          | ** ** | ** **                                        | ** ** | **Amount of  Gain (Loss) on Derivatives  Recognized in Income** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **Derivatives not designated**      | ** ** | **Location  of Gain (Loss) on**                   | ** ** | **Three  Months Ended  June 30,**                          | ** ** | **Six Months  Ended  June 30,** | ** ** |
| **as hedging instruments**          | ** ** | **Derivatives  Recognized in Income**             | ** ** | **2010**                                                        | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                          | ** ** | ** **                                        | ** ** | **(in millions)**                                          | ** ** |
| **Interest  rate**                  | ** ** | ** **                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| GMWB and GMAB                       |       | Benefits, claims, losses  and settlement expenses |       | $                                                               | 185        |   | $ | (262 | ) | $ | 211 |   | $ | (385 | ) |
| **Equity**                          |       |                                              |       |                                                            |       |   |   |   |   |   |   |
| GMWB and GMAB                       |       | Benefits, claims, losses  and settlement expenses |       | 747                                                             |       | (851 | ) | 574 |   | (790 | ) |
| GMDB                                |       | Benefits, claims, losses  and settlement expenses |       | 8                                                               |       | — |   | 5 |   | — |   |
| EIA                                 |       | Interest credited to fixed  accounts              |       | (1                                                              | )          | — |   | — |   | (2 | ) |
| EIA embedded derivatives            |       | Interest credited to fixed  accounts              |       | 4                                                               |       | — |   | 6 |   | 1 |   |
| **Credit**                          |       |                                              |       |                                                            |       |   |   |   |   |   |   |
| GMWB and GMAB                       |       | Benefits, claims, losses  and settlement expenses |       | (20                                                             | )          | (22 | ) | (30 | ) | (22 | ) |
| **Other**                           |       |                                              |       |                                                            |       |   |   |   |   |   |   |
| GMWB and GMAB embedded  derivatives |       | Benefits, claims, losses  and settlement expenses |       | (890                                                            | )          | 757 |   | (784 | ) | 1,073 |   |
| Total                               |       |                                              |       | $                                                               | 33         |   | $ | (378 | ) | $ | (18 | ) | $ | (125 | ) |

 

RiverSource Life holds derivative instruments thateither do not qualify or are not designated for hedge accountingtreatment.  These derivative instrumentsare used as economic hedges of equity, interest rate and credit risk related tovarious RiverSource Life products and transactions.

 

21

----

Table of Contents

 

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

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

 

The majority of RiverSource Life’s annuity contractscontain GMDB provisions, which may result in a death benefit payable thatexceeds the contract accumulation value when market values of customers’accounts decline.  Certain annuitycontracts contain GMWB or GMAB provisions, which guarantee the right to makelimited partial withdrawals each contract year regardless of the volatilityinherent in the underlying investments or guarantee a minimum accumulationvalue of considerations received at the beginning of the contract period, aftera specified holding period, respectively. RiverSource Life economically hedges the exposure related to non-lifecontingent GMWB and GMAB provisions using various equity futures, equityoptions, total return swaps, interest rate swaptions, interest rate swaps andcredit default swaps.  In 2009,RiverSource Life entered into a limited number of derivative contracts toeconomically hedge equity exposure related to GMDB provisions on variableannuity contracts written previously in 2009. At June 30, 2010, the gross notional amount of these contracts was$45.3 billion and $74 million for RiverSource Life’s GMWB and GMAB provisionsand GMDB provisions, respectively.  At December 31,2009, the gross notional amount of these contracts was $38.7 billion and $77 millionfor RiverSource Life’s GMWB and GMAB provisions and GMDB provisions,respectively.  The premiumassociated with certain of the above options is paid or received semi-annuallyover the life of the option contract.

 

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

 
| ** ** | ** ** | **Premiums   Payable** | ** ** | **Premiums  Receivable** | ** ** |
|------------|------------|------------------------|------------|--------------------------|------------|
| ** ** | ** ** | **(in  millions)**     | ** ** |
| 2010(1)    |       | $                      | 118        |                     | $          | 2 |   |
| 2011       |       | 228                    |       | 4                        |       |
| 2012       |       | 208                    |       | 3                        |       |
| 2013       |       | 185                    |       | 2                        |       |
| 2014       |       | 160                    |       | 1                        |       |
| 2015-2024  |       | 530                    |       | 4                        |       |
|            |            |                        |            |                          |            |  |  |

 

----

(1)   2010 amountsrepresent the amounts payable and receivable for the period from July 1,2010 to December 31, 2010.

 

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

 

Equity indexed annuities have returns tied to theperformance of equity markets.  As aresult of fluctuations in equity markets, the obligation incurred byRiverSource Life related to equity indexed annuities products will positivelyor negatively impact earnings over the life of these products.  As a means of economically hedging itsobligations under the provisions of these products, RiverSource Life entersinto index options and occasionally enters into futures contracts.  The gross notional amount of these derivativecontracts was $96 million and $129 million at June 30, 2010 and December 31,2009, respectively.

 

**Embedded Derivatives**

 

Certain annuities contain GMAB and non-lifecontingent GMWB provisions, which are considered embedded derivatives.  In addition, the equity component of theequity indexed annuity product obligations is also considered an embeddedderivative.  These embedded derivativesare bifurcated from their host contracts and reported on the ConsolidatedBalance Sheets at fair value with changes in fair value reported inearnings.  As noted above, RiverSourceLife uses derivatives to mitigate the financial statement impact of theseembedded derivatives.

 

**Cash Flow Hedges**

 

RiverSource Life has amountsclassified in accumulated other comprehensive income related to gains andlosses associated with the effective portion of previously designated cash flowhedges.  RiverSource Life reclassifiesthese amounts into income as the forecasted transactions impact earnings.  During the six months ended June 30,2010, RiverSource Life held no derivatives that were designated as cash flowhedges.

 

At June 30, 2010, RiverSource Life expectsto reclassify $6 million of deferred loss on derivative instruments fromaccumulated other comprehensive income (loss) to earnings during the next12 months that will be recorded in net investment income.  These were originally losses on derivativeinstruments related to interest rate swaptions. For any hedge relationships that are discontinued because theforecasted transaction is not expected to occur according to the originalstrategy, any related amounts previously recorded in accumulated othercomprehensive income are recognized in earnings immediately.  No hedge relationships were discontinuedduring the six months ended June 30, 2010 and 2009 due to forecastedtransactions no longer being expected to occur according to the original hedgestrategy.  For the six months ended June 30,2010 and 2009, amounts recognized in earnings on derivative transactions thatwere ineffective were nil.

 

22

----

Table of Contents

 

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

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

 

The following is a summaryof unrealized derivatives losses included in accumulated other comprehensiveincome related to cash flow hedges:

 
| ** **                                           | ** ** | **2010**          | ** ** | **2009** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                           | ** ** | **(in millions)** | ** ** |
| Net unrealized derivatives  losses at January 1 |       | $                 | (34        | )        | $          | (38 | ) |
| Reclassification of  realized losses(1)              |       | 3                 |       | 3        |       |
| Income tax benefit                                   |       | (1                | )          | (1       | )          |
| Net unrealized derivatives  losses at June 30   |       | $                 | (32        | )        | $          | (36 | ) |

 

----

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

 

Currently, the longest period of time over whichRiverSource Life is hedging exposure to the variability in future cash flows is9 years and relates to interest credited on forecasted fixed premium productsales.

 

**Credit Risk**

 

Credit risk associated with RiverSource Life’sderivatives is the risk that a derivative counterparty will not perform inaccordance with the terms of the applicable derivative contract.  To mitigate such risk, RiverSource Life hasestablished guidelines and oversight of credit risk through a comprehensiveenterprise risk management program that includes members of seniormanagement.  Key components of thisprogram are to require preapproval of counterparties and the use of masternetting arrangements and collateral arrangements whenever practical.  As of June 30, 2010 and December 31,2009, RiverSource Life held $401 million and $88 million, respectively, in cashand cash equivalents and recorded a corresponding liability in otherliabilities for collateral RiverSource Life is obligated to return tocounterparties.  As of June 30, 2010and December 31, 2009, RiverSource Life had accepted additional collateralconsisting of various securities with a fair value of $83 million and $22million, respectively, which are not reflected on the Consolidated BalanceSheets.  As of June 30, 2010 and December 31,2009, RiverSource Life’s maximum credit exposure related to derivative assetsafter considering netting arrangements with counterparties and collateral arrangementswas approximately $290 million and $53 million, respectively.

 

Certain of RiverSource Life’s derivative instrumentscontain provisions that adjust the level of collateral RiverSource Life isrequired to post based on RiverSource Life’s financial strength rating (orbased on the debt rating of RiverSource Life’s parent, AmeripriseFinancial).  Additionally, certain ofRiverSource Life’s derivative contracts contain provisions that allow thecounterparty to terminate the contract if RiverSource Life does not maintain aspecific financial strength rating or Ameriprise Financial’s debt does notmaintain a specific credit rating (generally an investment grade rating).  If these termination provisions were to betriggered, RiverSource Life’s counterparty could require immediate settlementof any net liability position.  At June 30,2010 and December 31, 2009, the aggregate fair value of all derivativeinstruments in a net liability position containing such credit risk featureswas $38 million and $296 million, respectively. The aggregate fair value of assets posted as collateral for suchinstruments as of June 30, 2010 and December 31, 2009 were $35million and $269 million, respectively. If the credit risk features of derivative contracts that were in a netliability position at June 30, 2010 and December 31, 2009 weretriggered, the additional fair value of assets needed to settle thesederivative liabilities would have been $3 million and $27 million,respectively.

 

**12.****      ****Income Taxes**

 

RiverSource Life’s effective tax rates were 18% and22% for the three months and six months ended June 30, 2010,respectively.  RiverSource Life’seffective tax rates were 28% and 23% for the three months and six months ended June 30,2009, respectively. The decrease in the effective tax rate primarily reflectsbenefits from tax planning and completion of certain audits which offset theimpact of an increase in pretax income relative to tax advantaged items for thethree months and six months ended June 30, 2010.

 

RiverSource Life is required to establish avaluation allowance for any portion of the deferred income tax assets thatmanagement believes will not be realized. Included in RiverSource Life’s deferred tax assets is a significantdeferred tax asset relating to capital losses that have been recognized forfinancial statement purposes but not yet for tax return purposes.  Under current U.S. federal income tax law,capital losses generally must be used against capital gain income within fiveyears of the year in which the capital losses are recognized for taxpurposes.  Significant judgment isrequired in determining if a valuation allowance should be established, and theamount of such allowance if required. Factors used in making this determination include estimates relating tothe performance of the business including the ability to generate capitalgains.  Consideration is given to, amongother things in making this determination, i) future taxable income exclusiveof reversing temporary differences and carryforwards, ii) future reversals ofexisting taxable temporary differences, iii) taxable income in prior carrybackyears, and iv) tax planning strategies. Based on analysis of RiverSource Life’s tax position, managementbelieves it is more likely than not that the results of future operations andimplementation of tax planning strategies will 

 

23

----

Table of Contents

 

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

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

 

generate sufficient taxable income to enableRiverSource Life to utilize all of its deferred tax assets.  Accordingly, no valuation allowance fordeferred tax assets has been established as of June 30, 2010 and December 31,2009.

 

Additionally, RiverSource Life has net operatingloss carryforwards of $14 million which will expire beginning December 31,2025.

 

As of June 30, 2010 and December 31, 2009,RiverSource Life had a $28 million gross unrecognized tax benefit and a $77million gross unrecognized tax expense, respectively.  If recognized, approximately $41 million and$49 million, net of federal tax benefits, of unrecognized tax benefits as of June 30,2010 and December 31, 2009, respectively, would affect the effective taxrate.

 

RiverSource Life recognizes interest and penaltiesrelated to unrecognized tax benefits as a component of the income taxprovision.  RiverSource Life recognized anet reduction of $9 million in interest and penalties for the six months ended June 30,2010.  As of June 30, 2010 and December 31,2009, RiverSource Life had a receivable of $25 million and $16 million,respectively, related to the accrual of interest and penalties.

 

It is reasonably possible that the total amounts ofunrecognized tax benefits will change in the next 12 months.   Based on the current audit position ofRiverSource Life it is estimated that the total amount of gross unrecognizedtax benefits may decrease by $3 million to $5 million in the next 12 months.

 

RiverSource Life or one or more of its subsidiariesfiles income tax returns in the U.S. federal jurisdiction and various statejurisdictions.  With few exceptions,RiverSource Life is no longer subject to U.S. federal or state and local incometax examinations by tax authorities for years before 1997.  The Internal Revenue Service (“IRS”), as partof the overall examination of the American Express Company consolidated return,completed its field examination of RiverSource Life’s income tax returns for1997 through 2002 during 2008 and completed its field examination of 2003through 2004 in the third quarter of 2009. However, for federal income tax purposes, these years continue to remainopen as a consequence of certain issues under appeal.  In the fourth quarter of 2008, the IRScommenced an examination of RiverSource Life’s U.S. income tax returns for 2005through 2007 of which 2006 through 2007 was completed in the second quarter of2010. The examination of 2005 is expected to be completed in the third quarterof 2010.  RiverSource Life or certain ofits subsidiaries’ state income tax returns are currently under examination byvarious jurisdictions for years ranging from 1998 through 2008.

 

On September 25, 2007, the IRS issued RevenueRuling 2007-61 in which it announced that it intends to issue regulations withrespect to certain computational aspects of the Dividends Received Deduction (“DRD”)related to separate account assets held in connection with variable contractsof life insurance companies.  RevenueRuling 2007-61 suspended a revenue ruling issued in August 2007 thatpurported to change accepted industry and IRS interpretations of the statutesgoverning these computational questions.

 

Management believes that the IRS will concede thisissue for open tax years and it is likely that any regulations that wouldresult from a regulation project would apply prospectively only.  Any regulations that the IRS ultimatelyproposes for issuance in this area will be subject to public notice andcomment, at which time insurance companies and other members of the public willhave 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 regulationsare unknown at this time, but they may result in the elimination of some or allof the separate account DRD tax benefit that RiverSource Life receives.

 

**13.****      ****Contingencies**

 

The SEC, the Financial Industry RegulatoryAuthority, commonly referred to as FINRA, and several state authorities havebrought proceedings challenging several mutual fund and variable productfinancial practices, generally including suitability, late trading, markettiming, compensation and disclosure of revenue sharing arrangements.  RiverSource Life has received requests forinformation and has been contacted by regulatory authorities concerning itspractices and is cooperating fully with these inquiries.

 

RiverSource Life is involved in the normal course ofbusiness in a number of other legal and arbitration proceedings concerningmatters arising in connection with the conduct of its business activities.  RiverSource Life believes that it is not aparty to, nor are any of its properties the subject of, any pending legal,arbitration or regulatory proceedings that would have a material adverse effecton its consolidated financial condition, results of operations orliquidity.  However, it is possible thatthe outcome of any such proceedings could have a material impact on results ofoperations in any particular reporting period as the proceedings are resolved.

 

24

----

Table of Contents

 

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

 

Thefollowing information should be read in conjunction with RiverSource LifeInsurance Company’s Consolidated Financial Statements and Notes presented in Part I, Item1.  RiverSource Life Insurance Companyand its subsidiaries are referred to collectively in this Form 10-Q as “RiverSourceLife”.  This narrative analysis maycontain forward-looking statements that reflect RiverSource Life’s plans,estimates and beliefs.  Actual resultscould differ materially from those discussed in these forward-lookingstatements.  Factors that could cause orcontribute to these differences include, but are not limited to, thosediscussed under “Forward-Looking Statements.” RiverSource Life believes it is useful to read this narrative analysisin conjunction with its Annual Report on Form 10-K for the year ended December 31,2009, filed with the Securities and Exchange Commission (“SEC”) on February 24,2010 (“2009 10-K”), as well as its current reports on Form 8-K and otherpublicly available information.

 

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

 

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

 

**Overview**

 

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

 

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

 

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

 

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

 

**Critical Accounting Policies**

 

Theaccounting and reporting policies that RiverSource Life uses affect itsConsolidated Financial Statements. Certain of RiverSource Life’s accounting and reporting policies arecritical to an understanding of RiverSource Life’s financial condition andresults of operations and, in some cases, the application of these policies canbe significantly affected by the estimates, judgments and assumptions made bymanagement during the preparation of the Consolidated FinancialStatements.  These accounting policiesare discussed in detail in “Management’s Narrative Analysis — CriticalAccounting Policies” in RiverSource Life’s 2009 10-K.

 

**Recent Accounting Pronouncements**

 

Forinformation regarding recent accounting pronouncements and their expectedimpact on future consolidated financial condition or results of operations, seeNote 2 to the Consolidated Financial Statements.

 

25

----

Table of Contents

 

**Resultsof Operations for the****Six Months Ended June 30,2010 compared to the Six Months Ended June 30, 2009**

 

Thefollowing table presents RiverSource Life’s consolidated results of operations:

 
| ** **                                        | ** ** | **Six Months Ended  June 30,**    | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|------------|------------|------------|------------|
| ** **                                        | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **Change** | ** ** |
| ** **                                        | ** ** | **(in millions, except  percentages)** | ** ** |
| **Revenues**                                      |       |                                   |       |       |       |       |       |   |   |
| Premiums                                          |       | $                                      | 243        |       | $          | 219        |       | $ | 24 |   | 11 | % |
| Net investment income                             |       | 809                                    |       | 708        |       | 101        |       | 14 |   |
| Policy and contract  charges                      |       | 670                                    |       | 579        |       | 91         |       | 16 |   |
| Other revenue                                     |       | 137                                    |       | 102        |       | 35         |       | 34 |   |
| Net realized investment  gains                    |       | 11                                     |       | 35         |       | (24        | )          | (69 | ) |
| Total revenues                                    |       | 1,870                                  |       | 1,643      |       | 227        |       | 14 |   |
| **Benefits  and expenses**                        |       |                                   |       |       |       |       |       |   |   |
| Benefits, claims, losses  and settlement expenses |       | 390                                    |       | 444        |       | (54        | )          | (12 | ) |
| Interest credited to fixed  accounts              |       | 459                                    |       | 442        |       | 17         |       | 4 |   |
| Amortization of deferred  acquisition costs       |       | 253                                    |       | 123        |       | 130        |       | NM |   |
| Other insurance and  operating expenses           |       | 282                                    |       | 286        |       | (4         | )          | (1 | ) |
| Total benefits and  expenses                      |       | 1,384                                  |       | 1,295      |       | 89         |       | 7 |   |
| Pretax income                                     |       | 486                                    |       | 348        |       | 138        |       | 40 |   |
| Income tax provision                              |       | 106                                    |       | 81         |       | 25         |       | 31 |   |
| Net income                                        |       | $                                      | 380        |       | $          | 267        |       | $ | 113 |   | 42 | % |

 

NM  Not Meaningful.

 

*Overview*

 

Consolidatednet income was $380 million for the six months ended June 30, 2010 compared to $267 million for the sixmonths ended June 30, 2009,an increase of $113 million or 42%. Pretax income increased $138 million to $486 million for the six monthsended June 30, 2010 from$348 million for the six months ended June 30,2009.  The increase was primarilydriven by an increase in net investment income, policy and contract charges anda decrease in benefits, claims, losses and settlement expenses.  These increases to net income were partiallyoffset by a decrease in net realized investment gains and an increase inamortization of deferred acquisition costs (“DAC”).

 

*Revenues*

 

Total revenues increased$227 million or 14% to $1.9 billion for the six months ended June 30, 2010compared to $1.6 billion for the prior year period.

 

Premiums increased $24million or 11% to $243 million for the six months ended June 30, 2010compared to $219 million in the prior year period.  The increase was primarily due to highersales of immediate annuities with life contingencies.

 

Net investment incomeincreased $101 million or 14% to $809 million for the six months ended June 30, 2010 compared to $708million in the prior year period.  Theincrease is due to income on fixed maturity securities driven by higher fixedannuity account balances and higher investment yields on the general portfolio.The yield on the general portfolio increased as the percentage of the portfolioinvested in cash and cash equivalents decreased significantly.

 

Policy and contract charges increased $91 million or16% to $670 million for the six months ended June 30, 2010 compared to$579 million in the prior year period primarily due to increased separateaccount fee revenue as a result of the increase in average separate accountassets.  Average separate accountassets increased $13.3 billionor 32% from the prior year period primarily due to market appreciation and netinflows.

 

Otherrevenue increased $35 million or 34% to $137 million for the six months ended June 30,2010 compared to $102 million in the prior year period reflecting highermarketing support and administrative fees due to higher average underlyingseparate account asset values.

 

Netrealized investment gains decreased $24 million or 69% to $11 million for the six months ended June 30, 2010 compared to $35million in the prior year period. In the six months ended June 30,2010, net realized gains from sales of Available-for-Sale securitieswere $37 million and other-than-temporary impairments recognized in earningswere $24 million which primarily

 

26

----

Table of Contents

 

relatedto credit losses on non-agency residential mortgage backed securities as wellas corporate debt securities in the gaming industry.  For the six months ended June 30, 2010,the reserves on commercial mortgage loans increased by $6 million offset by a$4 million decrease to the allowance for loan losses on below investment gradesyndicated loans.  In the six monthsended June 30, 2009, net realized gains from sales of Available-for-Salesecurities were $85 million and other-than-temporary impairments recognized inearnings were $41 million which primarily related to credit losses onnon-agency residential mortgage backed securities and corporate debt securitiesprimarily in the gaming industry.  In thesix months ended June 30, 2009, the reserves on commercial mortgage loansincreased by $8 million.

 

*Benefits and Expenses*

 

Totalbenefits and expenses increased $89 million or 7% to $1.4 billion for the sixmonths ended June 30, 2010compared to $1.3 billion in the prior year period.  This increase is primarily due to increasesin amortization of DAC and interest credited to fixed accounts partially offsetby a decrease in benefits, claims, losses and settlement expenses.

 

Benefits, claims, losses and settlementexpenses decreased $54 million or 12% to $390 million for the six months ended June 30, 2010compared to $444 million for the six months ended June 30, 2009 driven bya decrease in expenses from variable annuity benefit guarantees.  The mark-to-market impact on variable annuityliving benefit expenses, net of hedges and deferred sales inducement costs (“DSIC”),decreased benefits expense by $41 million in the first half of 2010 primarilydriven by the impact of nonperformance spread on the valuation of livingbenefit liabilities, which RiverSource Life does not hedge.  This decrease was partially offset by anincrease in benefits expense of $17 million, net of DSIC, as a result of theimplementation of changes to thePortfolio Navigator program (“PN program”) offered in connection withRiverSource Life’s variable life and annuity products.  With these changes, assets of clientsparticipating in the PN program were reallocated, pursuant to their consent.This reallocation in part resulted in a shift of assets from interest bearinginstruments in the general account into separate accounts. Themark-to-market impact of variable annuity living benefits, net of hedges andDSIC, increased benefits expense by $80 million in the first half of 2009primarily due to the impact of nonperformance spread on the valuation of livingbenefit liabilities, which RiverSource Life does not hedge.  Benefits, claims, losses and settlementexpenses related to immediate annuities with life contingencies increasedcompared to the prior period primarily due to higher business volumes.

 

Amortizationof DAC increased $130 million to $253 million for the six months ended June 30,2010 compared to $123 million in the prior year period.  DAC amortization in the first half of 2010increased by $59 million due to market impacts, including $33 millionoffsetting lower variable annuity guaranteed living benefits expense, net ofhedges.  These increases were partiallyoffset by a $17 million decrease as a result of the implementation of changesto the PN program and a $28 million decrease related to an adjustment forrevisions to certain calculations in RiverSource Life’s valuation of DAC.  DAC amortization in the first half of 2009decreased by $59 million due to market impacts, including a $60 million benefitoffsetting higher variable annuity guaranteed living benefits, net of hedges.DAC amortization also increased due to higher variable annuity gross profitscompared to the prior year period.

 

*Income Taxes*

 

RiverSource Life’s effectivetax rate was 22% for the six monthsended June 30, 2010, compared to 23% for the six months ended June 30,2009.  The decrease in the effective taxrate primarily reflects benefits from tax planning and completion of certainaudits which offset the impact of an increase in pretax income relative to taxadvantaged items, including the dividends received deduction for the six monthsended June 30, 2010.

 

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

 

Management believes that theIRS will concede this issue for open tax years and it is likely that anyregulations that would result from a regulation project would applyprospectively only.  Any regulations thatthe IRS ultimately proposes for issuance in this area will be subject to publicnotice and comment, at which time insurance companies and other members of thepublic will have the opportunity to raise legal and practical questions aboutthe content, scope and application of such regulations.  As a result, the ultimate timing and substanceof any such regulations are unknown at this time, but they may result in theelimination of some or all of the separate account DRD tax benefit thatRiverSource Life receives.

 

**MarketRisk**

 

Equity price and interestrate fluctuations can have a significant impact on RiverSource Life’s resultsof operations, primarily due to the effects on asset-based fees and expenses,the “spread” income generated on its annuities and universal life (“UL”) 

 

27

----

Table of Contents

 

insurance products, thevalue of DAC and DSIC, assets associated with variable annuity and variable ULproducts, the values of liabilities for guaranteed benefits associated with itsvariable annuities and the values of derivatives held to hedge these benefits.

 

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

 

RiverSource Life continuesto utilize a hedging program which attempts to match the sensitivity of theassets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities willproduce a highly effective hedging result. This program can generally be described as a “Static 3-Greek” hedgingprogram.  This style of hedging focusesmainly on first order sensitivities of the assets and liabilities; EquityMarket Level (Delta), Interest Rate Level (Rho) and Volatility(Vega).  Additionally, various secondorder sensitivities are managed. RiverSource Life uses various index options across the term structure,interest rate swaps and swaptions, total return swaps and futures to manage therisk exposures.  The exposures aremeasured and monitored daily and adjustments to the hedge portfolio are made asnecessary.

 

To evaluate interest rateand equity market price, RiverSource Life performs sensitivity testing whichmeasures the impact on pretax income from the sources listed below for a 12month period following a hypothetical 100 basis point increase in interestrates or a hypothetical 10% decline in equity prices.  The interest rate risk test assumes a sudden100 basis point parallel shift in the yield curve, with rates then staying atthose levels for the next 12 months. The equity price risk test assumes asudden 10% drop in equity prices, with equity prices then staying at thoselevels for the next 12 months. In estimating the values of variable annuityriders, equity indexed annuities and the associated hedge assets, RiverSourceLife assumed no change in implied market volatility despite the 10% drop inequity prices.

 

Thenumbers below show RiverSource Life’s estimate of the pretax impacts on incomefrom these hypothetical market movements, net of hedging, as of June 30,2010.

 
| ** **                       | ** ** | **Equity Price Exposure to Pretax Income** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| **Equity Price Decline 10%**     | ** ** | **Before  Hedge Impact**                   | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                       | ** ** | **(in millions)**                          | ** ** |
| Asset-based fees and  expenses   |       | $                                          | (66        | ) | $ | — |   | $ | (66 | ) |
| DAC and DSIC  amortization(1)(2) |       | (116                                       | )          | — |   | (116 | ) |
| Variable annuity riders:         |       |                                       |       |   |   |   |   |
| GMDB and GMIB(2)                 |       | (38                                        | )          | 1 |   | (37 | ) |
| GMWB                             |       | (77                                        | )          | 88 |   | 11 |   |
| GMAB                             |       | (25                                        | )          | 29 |   | 4 |   |
| DAC and DSIC amortization(3)     |       | N/A                                        |       | N/A |   | (6 | ) |
| Total variable annuity  riders   |       | (140                                       | )          | 118 |   | (28 | ) |
| Equity indexed annuities         |       | 1                                          |       | (1 | ) | — |   |
| Total                            |       | $                                          | (321       | ) | $ | 117 |   | $ | (210 | ) |

 
| ** **                                                                         | ** ** | **Interest Rate Exposure to Pretax Income** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **Interest Rate Increase 100 Basis Points**                                        | ** ** | **Before  Hedge Impact**                    | ** ** | **Hedge  Impact** | ** ** | **Net  Impact** | ** ** |
| ** **                                                                         | ** ** | **(in millions)**                           | ** ** |
| Asset-based fees and  expenses                                                     |       | $                                           | (9         | ) | $ | — |   | $ | (9 | ) |
| Variable annuity riders:                                                           |       |                                        |       |   |   |   |   |
| GMWB                                                                               |       | 257                                         |       | (299 | ) | (42 | ) |
| GMAB                                                                               |       | 45                                          |       | (51 | ) | (6 | ) |
| DAC and DSIC amortization(3)                                                       |       | N/A                                         |       | N/A |   | 18 |   |
| Total variable annuity  riders                                                     |       | 302                                         |       | (350 | ) | (30 | ) |
| Fixed annuities, fixed portion  of variable annuities and fixed insurance products |       | 14                                          |       | — |   | 14 |   |
| Total                                                                              |       | $                                           | 307        |   | $ | (350 | ) | $ | (25 | ) |

 

----

N/A    Not Applicable.

(1)   Market impact on DAC andDSIC amortization resulting from lower projected profits.

(2)   In estimating the impact onDAC and DSIC amortization resulting from lower projected profits, RiverSourceLife has not changed its assumed equity asset growth rates. This is asignificantly more conservative estimate than if RiverSource Life assumedmanagement follows its mean reversion guideline and increased near-term ratesto recover the drop in equity values over a five-year period. RiverSource Lifemakes the same conservative assumption in estimating the impact from GMDB andGMIB riders.

(3)   Market impact on DAC andDSIC amortization related to variable annuity riders is modeled net of hedgeimpact.

 

28

----

Table of Contents

 

The above results compare toestimated negative net impacts to pretax income of $211 million related to a10% equity price decline and $66 million related to a 100 basis point increasein interest rates as of December 31, 2009. The interest rate exposure decreased at June 30, 2010 due to thesignificant fall in rates from December 31, 2009.

 

Net impacts shown in theabove table from GMWB and GMAB riders result largely from differences betweenthe liability valuation basis and the hedging basis. Liabilities are valuedusing fair value accounting principles, with key policyholder behaviorassumptions loaded to provide risk margins and with discount rates increased toreflect a current market estimate of RiverSource Life’s risk of nonperformancespecific to these liabilities. Management has elected to hedge based on bestestimate policyholder assumptions and explicitly does not hedge nonperformancespread risk. Net impacts shown in the above table from GMDB and GMIB reflectthe fact that these guaranteed benefits are primarily retained by RiverSourceLife and not hedged.  In 2009,RiverSource Life entered into a limited number of derivative contracts toeconomically hedge equity exposure related to GMDB provisions on variableannuity contracts written previously in 2009.

 

Actual results could differmaterially from those illustrated above as they are based on a number ofestimates and assumptions. These include assuming that implied marketvolatility does not change when equity values fall by 10%, that management doesnot increase assumed equity asset growth rates to anticipate recovery of thedrop in equity values when valuing DAC, DSIC and GMDB and GMIB liability valuesand that the 100 basis point increase in interest rates is a parallel shift ofthe yield curve. Furthermore, RiverSource Life has not tried to anticipatechanges in client preferences for different types of assets or other changes inclient behavior, nor has RiverSource Life tried to anticipate actionsmanagement might take to increase revenues or reduce expenses in thesescenarios.

 

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

 

**Fair Value Measurements**

 

RiverSource Life reportscertain assets and liabilities at fair value; specifically, separate accountassets, derivatives, embedded derivatives, most investments and cashequivalents.  Fair value assumes theexchange of assets or liabilities occurs in orderly transactions.  Companies are not permitted to use market pricesthat are the result of a forced liquidation or distressed sale.  RiverSource Life includes actual marketprices, or observable inputs, in its fair value measurements to the extentavailable.  Broker quotes are obtainedwhen quotes from pricing services are not available.  RiverSource Life validates prices obtainedfrom third parties through a variety of means such as: price variance analysis,subsequent sales testing, stale price review, price comparison across pricingvendors and due diligence reviews of vendors.

 

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

 

Sub-prime mortgage lendingis the origination of residential mortgage loans to customers with weak creditprofiles.  Alt-A mortgage lending is theorigination of residential mortgage loans to customers who have credit ratingsabove sub-prime but may not conform to government-sponsored standards.  Prime mortgage lending is the origination ofresidential mortgage loans to customers with good credit profiles.  RiverSource Life has exposure to each ofthese types of loans predominantly through mortgage backed and asset backedsecurities.  The slowdown in the U.S.housing market, combined with relaxed underwriting standards by someoriginators, has led to higher delinquency and loss rates for some of theseinvestments.  Market conditions haveincreased the likelihood of other-than-temporary impairments for certainnon-agency residential mortgage backed securities.  As a part of RiverSource Life’s riskmanagement process, an internal rating system is used in conjunction withmarket data as the basis of analysis to assess the likelihood that RiverSourceLife will not receive all contractual principal and interest payments for theseinvestments.  For the investments thatare more at risk for impairment, RiverSource Life performs its own assessmentof projected cash flows incorporating assumptions about default rates,prepayment speeds, loss severity, and geographic concentrations to determine ifan other-than-temporary impairment should be recognized.

 

29

----

Table of Contents

 

The following tablepresents, as of June 30, 2010, RiverSource Life’s non-agency residentialmortgage backed and asset backed securities backed by sub-prime, Alt-A or primemortgage 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                   |       | 3               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 9 |   | 5 |   |
| 2005                   |       | 19                  |       | 19              |       | 10                  |       | 8               |       | 26                       |       | 26              |       | 7 |   | 6 |   | 18 |   | 12 |   | 80 |   | 71 |   |
| 2006                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | 5 |   | 5 |   | 4 |   | 3 |   | 9 |   | 8 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | —              |       | —          |       | 6                   |       | 6               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 6 |   | 6 |   |
| Total  Sub-prime       |       | $                   | 21         |            | $          | 21                  |       | $               | 23         |                     | $          | 17              |       | $ | 26 |   | $ | 26 |   | $ | 12 |   | $ | 11 |   | $ | 22 |   | $ | 15 |   | $ | 104 |   | $ | 90 |   |
| ** **             |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 14         |            | $          | 16                  |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 14 |   | $ | 16 |   |
| 2004                   |       | 7                   |       | 7               |       | 57                  |       | 54              |       | 5                        |       | 3               |       | — |   | — |   | 13 |   | 6 |   | 82 |   | 70 |   |
| 2005                   |       | 5                   |       | 4               |       | 36                  |       | 28              |       | 29                       |       | 23              |       | — |   | — |   | 164 |   | 109 |   | 234 |   | 164 |   |
| 2006                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 11 |   | 6 |   | 11 |   | 6 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 27 |   | 14 |   | 27 |   | 14 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total Alt-A       |       | $                   | 26         |            | $          | 27                  |       | $               | 93         |                     | $          | 82              |       | $ | 34 |   | $ | 26 |   | $ | — |   | $ | — |   | $ | 215 |   | $ | 135 |   | $ | 368 |   | $ | 270 |   |
| ** **             |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Prime**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 189        |            | $          | 187                 |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 189 |   | $ | 187 |   |
| 2004                   |       | 23                  |       | 25              |       | —              |       | —          |       | 26                       |       | 26              |       | 11 |   | 12 |   | — |   | — |   | 60 |   | 63 |   |
| 2005                   |       | 12                  |       | 16              |       | 22                  |       | 26              |       | 51                       |       | 53              |       | 14 |   | 15 |   | 116 |   | 69 |   | 215 |   | 179 |   |
| 2006                   |       | —              |       | —          |       | 19                  |       | 20              |       | —                   |       | —          |       | — |   | — |   | 38 |   | 36 |   | 57 |   | 56 |   |
| 2007                   |       | 40                  |       | 42              |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 14 |   | 11 |   | 54 |   | 53 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Re-Remic(1)            |       | 1,731               |       | 1,888           |       | 53                  |       | 63              |       | —                   |       | —          |       | 13 |   | 25 |   | — |   | — |   | 1,797 |   | 1,976 |   |
| Total Prime       |       | $                   | 1,995      |            | $          | 2,158               |       | $               | 94         |                     | $          | 109             |       | $ | 77 |   | $ | 79 |   | $ | 38 |   | $ | 52 |   | $ | 168 |   | $ | 116 |   | $ | 2,372 |   | $ | 2,514 |   |
| **Grand Total**        |       | $                   | 2,042      |            | $          | 2,206               |       | $               | 210        |                     | $          | 208             |       | $ | 137 |   | $ | 131 |   | $ | 50 |   | $ | 63 |   | $ | 405 |   | $ | 266 |   | $ | 2,844 |   | $ | 2,874 |   |

 

----

(1)          Re-Remics of mortgage backedsecurities are prior vintages with cash flows structured into senior andsubordinated bonds.  Credit enhancementon senior bonds is increased through the Re-Remic process.  RiverSource Life did not have any exposure tosubordinate tranches as of June 30, 2010.

 

*Fair Value of Liabilities andNonperformance Risk*

 

Companies are required tomeasure the fair value of liabilities at the price that would be received totransfer the liability to a market participant (an exit price).  Since there is not a market for RiverSourceLife’s obligations of its variable annuity riders, RiverSource Life considersthe assumptions participants in a hypothetical market would make to reflect anexit price.  As a result, RiverSourceLife adjusts the valuation of variable annuity riders by updating certaincontractholder assumptions, adding explicit margins to provide for profit, riskand expenses, and adjusting the rates used to discount expected cash flows toreflect a current market estimate of RiverSource Life’s nonperformancerisk.  The nonperformance risk adjustmentis based on broker quotes for credit default swaps that are adjusted toestimate the risk of RiverSource Life not fulfilling these liabilities.  Consistent with general market conditions,this estimate resulted in a spread over the LIBOR swap curve as of June 30,2010.  As RiverSource Life’s estimate ofthis spread widens or tightens, the liability will decrease or increase.  If this nonperformance credit spread moves toa zero spread over the LIBOR swap curve, the reduction to net income would beapproximately $115 million, net of DAC and DSIC amortization and income taxes,based on June 30, 2010 credit spreads.

 

30

----

Table of Contents

 

**Liquidity and Capital Resources**

 

*Liquidity Strategy*

 

The liquidity requirementsof RiverSource Life are generally met by funds provided by investment income,maturities and periodic repayments of investments, deposits, premiums andproceeds from sales of investments as well as capital contributions fromAmeriprise Financial.  Other liquiditysources RiverSource Life has established are repurchase agreements and availablelines of credit with Ameriprise Financial aggregating $1 billion.

 

Also, in March 2009,RiverSource Life Insurance Company became a member of the Federal Home LoanBank (“FHLB”) of Des Moines, which provides RiverSource Life Insurance Companyaccess to collateralized borrowings.  At June 30,2010 and 2009, RiverSource Life had no borrowings from the FHLB.  In 2010, RiverSource Life entered intorepurchase agreements to reduce reinvestment risk from higher levels ofexpected annuity net cash flows. Repurchase agreements allow RiverSource Lifeto receive cash to reinvest in longer-duration assets, while paying back theshort-term debt with cash flows generated by the fixed income portfolio. Thebalance of repurchase agreements at June 30, 2010 was $484 million, whichis collateralized with commercial mortgage backed securities, agencyresidential mortgage backed securities and corporate debt securities fromRiverSource Life’s investment portfolio.

 

The primary uses of fundsare policy benefits, commissions, other product-related acquisition and salesinducement costs, operating expenses, policy loans, dividends to AmeripriseFinancial and investment purchases. RiverSource Life routinely reviews its sources and uses of funds inorder to meet its ongoing obligations.

 

On March 29, 2010,RiverSource Life Insurance Company paid a cash dividend of $425 million toAmeriprise Financial.  There were nodividends paid to Ameriprise Financial during the six months ended June 30,2009.

 

RiverSource Life InsuranceCompany and RiverSource Life of NY aresubject to regulatory capital requirements as follows:

 
| ** **                                  | ** ** | **Actual Capital****(a)** | ** ** | **Regulatory Capital  Requirement(b)** | ** ** |
|---------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **June 30,****2010** | ** ** | **December 31,  2009**            | ** ** | **December 31,  2009** | ** ** |
| ** **                                  | ** ** | **(in  millions)**        | ** ** |
| RiverSource  Life Insurance Company         |       | $                         | 3,669      |                                   | $          | 3,450 |   | $ | 803 |   |
| RiverSource  Life Insurance Co. of New York |       | 327                       |       | 286                                    |       | 44 |   |
|                                             |            |                           |            |                                        |            |  |  |  |  |  |

 

----

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

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

 

**ContractualCommitments**

 

There have been no materialchanges to RiverSource Life’s contractual obligations disclosed in RiverSourceLife’s 2009 10-K.

 

**Forward-LookingStatements**

 

This report containsforward-looking statements that reflect RiverSource Life’s plans, estimates andbeliefs.  RiverSource Life’s actualresults could differ materially from those described in these forward-lookingstatements.  Examples of suchforward-looking statements include:

 

·                  statements of RiverSource Life’s plans,intentions, expectations, objectives, or goals, including those related to theconsolidated tax rate (including any expectations regarding the effectivenessor other terms of any regulatory change or interpretation applicable to theDRD);

 

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

 

·                  statements of assumptions underlying suchstatements.

 

Thewords “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 butare not the exclusive means of identifying such statements.  Forward-looking statements are subject torisks and uncertainties which could cause actual results to differ materiallyfrom such statements.

 

Suchfactors include, but are not limited to:

 

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

 

31

----

Table of Contents

 

·                  changes in relevant accounting standards, aswell as changes in the litigation and regulatory environment, including ongoinglegal proceedings and regulatory actions, the frequency and extent of legalclaims threatened or initiated by clients, other persons and regulators, anddevelopments in regulation and legislation, including the recent enactment ofthe Dodd-Frank Wall Street Reform and Consumer Protection Act;

 

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

 

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

 

·                  changes to RiverSource Life’s reputation thatmay arise from employee or affiliated advisor misconduct, legal or regulatoryactions, improper management of conflicts of interest or otherwise;

 

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

 

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

 

·                  experience deviations from RiverSource Life’sassumptions regarding morbidity, mortality and persistency in certain annuityand insurance products, or from assumptions regarding market returns assumed invaluing DAC and DSIC or market volatility underlying RiverSource Life’svaluation and hedging of guaranteed living benefit annuity riders;

 

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

 

·                  RiverSource Life’s ability to effectivelyhedge risks relating to guaranteed benefit riders and certain other products;

 

·                  the impact of intercompany allocations toRiverSource Life from Ameriprise Financial and its affiliates;

 

·                  Ameriprise Financial’s ability to attract,recruit and retain qualified advisors and employees and its ability todistribute RiverSource Life’s products through current and future distributionchannels;

 

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

 

·                  the impact of Ameriprise Financial’s effortsto improve distribution economics and of RiverSource Life’s efforts to growthird party distribution and to realize benefits from reengineering and taxplanning;

 

·                  changes in U.S. federal income or estate taxlaws potentially making RiverSource Life’s products less attractive to clients;

 

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

 

·                  changes in the capital markets andcompetitive environments induced or resulting from the partial or totalownership or other support by central governments of certain financial servicesfirms for financial assets; and

 

·                  general economic and political factors,including consumer confidence in the economy, the ability and inclination ofconsumers generally to invest, as well as their ability and inclination toinvest in financial instruments and products other than cash and cashequivalents, the costs of products and services RiverSource Life consumes inthe conduct of its business, and applicable legislation and regulation andchanges therein, including tax laws, tax treaties, fiscal and centralgovernment treasury policy, and policies regarding the financial servicesindustry and regulatory rulings and pronouncements.

 

RiverSourceLife cautions the reader that the foregoing list of factors is notexhaustive.  There may also be otherrisks that RiverSource Life is unable to predict at this time that may causeactual results to differ materially from those in forward-lookingstatements.  Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date on which they are made. RiverSource Life undertakes no obligation to update or revise anyforward-looking statements.

 

Theforegoing list of factors should be read in conjunction with the “Risk Factors”discussion as Part I, Item 1A in RiverSource Life’s 2009 10-K and in Part II, Item1A of this report.

 

32

----

Table of Contents

 

**ITEM 4T.  CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

RiverSourceLife maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) designed to provide reasonable assurance that the information requiredto be reported in the Exchange Act filings is recorded, processed, summarizedand reported within the time periods specified in and pursuant to Securitiesand Exchange Commission (“SEC”) regulations, including controls and proceduresdesigned to ensure that this information is accumulated and communicated toRiverSource Life’s management, including its principal executive officer andchief financial officer, as appropriate, to allow timely decisions regardingthe required disclosure.  It should benoted that, because of inherent limitations, RiverSource Life’s disclosurecontrols and procedures, however well designed and operated, can provide onlyreasonable, and not absolute, assurance that the objectives of the disclosurecontrols and procedures are met.

 

RiverSourceLife’s management, under the supervision and with the participation ofRiverSource Life’s principal executive officer and chief financial officer,evaluated the effectiveness of the disclosure controls and procedures as of theend of the period covered by this report. Based upon that evaluation, RiverSource Life’s principal executiveofficer and chief financial officer have concluded that RiverSource Life’sdisclosure controls and procedures were effective at a reasonable level ofassurance as of June 30, 2010.

 

**Changes in Internal Control over Financial Reporting**

 

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

 

33

----

Table of Contents

 

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

 

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

 

Theinformation set forth in Note 13 to the Consolidated Financial Statements in Part I, Item1 is incorporated herein by reference.

 

**ITEM 1A.     RISK FACTORS**

 

Part I, Item1A of RiverSource Life’s 2009 10-K sets forth information relating to thematerial risks and uncertainties that affect its business. In addition, thefollowing factors should be read in conjunction with and supplement and amendthe risk factors set forth in RiverSource Life’s 2009 10-K that may affect itsbusiness, financial condition and results of operations.

 

***Changes in accounting standardscould have a material impact on RiverSource Life’s financial statements.***

 

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

 

***Recent changes in the supervisionand regulation of the financial industry, including those set forth under theDodd-Frank Wall Street Reform and Consumer Protection Act, could materiallyimpact RiverSource Life’s business.***

 

OnJuly 21, 2010, President Obama signed the Dodd-Frank Wall Street Reformand Consumer Protection Act (the “Act”) into law.  The Act calls for sweeping changes in thesupervision and regulation of the financial industry designed to provide forgreater oversight of financial industry participants, reduce risk in bankingpractices and in securities and derivatives trading, enhance public companycorporate governance practices and executive compensation disclosures, andprovide greater protections to individual consumers and investors.  Certain elements of the Act became effectiveimmediately, though the details of many provisions are subject to additionalstudies and will not be known until final rules are adopted by applicableregulatory agencies.  The impact of theAct on RiverSource Life, the financial industry and the economy cannot be knownuntil all such rules and regulations called for under the Act have beenfinalized, and, in some cases, implemented over time.

 

Insurancecompanies and the business of insurance are exempted from several majorprovisions of the Act. However, because the Act significantly changes theregulation of the financial services industry and financial markets generally,and because the Act will apply directly to certain key affiliates ofRiverSource Life, implementation of the Act could nevertheless materiallyimpact RiverSource Life’s business. For example, to the extent that RiverSourceLife invests in debt securities issued by a financial company that becomessubject to the orderly liquidation authority under the Act, RiverSource Life’srights as a creditor could be adversely affected. RiverSource Life could alsobe subject to assessments to repay federal funding advanced to liquidatedfinancial companies. Further, RiverSource Life may be impacted by the creationof the Federal Insurance Office within the Department of the Treasury, which isrequired to monitor the insurance industry and gather relevant information,including issues or gaps in the current state-based solvency regulation system.

 

OnJuly 21, 2010, the SEC proposed certain measures that would establish anew framework to replace the requirements of Rule 12b-1 under theInvestment Company Act of 1940, with respect to how mutual funds and underlyingfunds of separate accounts collect and pay fees to cover the costs of sellingand marketing their shares.  The proposedchanges are subject to public comment and, following any enactment, would bephased in over a number of years. As these measures are not final norundergoing implementation throughout the financial services industry, theimpact of changes such as those currently proposed cannot be predicted at thistime.

 

**ITEM 6.        EXHIBITS**

 

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

 

34

----

Table of Contents

 

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

 

**SIGNATURES**

 

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

 
|                      | RIVERSOURCE LIFE INSURANCE  COMPANY |
|---------------------------|-------------------------------------|
|                      | (Registrant)                        |
|                      |                                |   |
|                      |                                |   |
| Date: August 4, 2010 | By                                  | /s/ John R. Woerner |
|                      |                                | John R. Woerner |
|                      |                                | President |
|                      |                                |   |
|                      |                                |   |
| Date: August 4, 2010 | By                                  | /s/ Brian J. McGrane |
|                      |                                | Brian J. McGrane |
|                      |                                | Executive Vice President  and |
|                      |                                | Chief Financial Officer |

 

35

----

Table of Contents

 

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

 

**EXHIBIT INDEX**

 

The following exhibits arefiled 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, President, pursuant to Rule 13a-14(a) promulgated under  the Securities Exchange Act of 1934, as amended.                                                                                                            |
|        |       |                                                                                                                                                                                                                                                             |
| * 31.2      |       | Certification  of Brian J. McGrane, Chief Financial Officer, pursuant to  Rule 13a-14(a) promulgated under the Securities Exchange Act of  1934, as amended.                                                                                           |
|        |       |                                                                                                                                                                                                                                                             |
| *  32       |       | Certification  of John R. Woerner, President,  and Brian J. McGrane, Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                              |

 

----

*                  Filed electronically herewith.

 

E-1

----