**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION********WASHINGTON, D.C.20549**

 

**FORM 10-Q**

** **
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                              |
| ** ** | ** ** | **For the Quarterly Period Ended March 31,  2008**                                                 |
| ** ** | ** ** | ** **                                                                                              |
| ** ** | ** ** | **or**                                                                                                  |
| ** ** | ** ** | ** **                                                                                              |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the Transition Period from             to             **

 

**Commissionfile number 333-114888**

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name ofregistrant as specified in its charter)

 

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

 
| Registrant’s telephone  number, including area code | **(612) 671-3131** |
|----------------------------------------------------------|--------------------|

 

**Not Applicable**

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes         x           No           o

 

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

 

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

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 

Yes         o            No           x

 

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

 
| **Class**                              | ** ** | **Outstanding at****May 7,  2008** |
|----------------------------------------|------------|-----------------------------------------|
| Common Stock (par value $30 per share) |       | 100,000****shares                       |

 

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

 

 

----

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
|              |       |                       |                                                                                                         |   | **Page No.** |
|-------------------|------------|----------------------------|--------------------------------------------------------------------------------------------------------------|--------|--------------|
| **Part I.**  | ** ** | **Financial Information:** | ** **                                                                                                   |   |
|              |       | Item 1.                    | Financial Statements                                                                                         |   |         |
|              |       |                       | Consolidated Balance Sheets –  March 31, 2008 and December 31, 2007                           |   | 1            |
|              |       |                       | Consolidated Statements of  Income – Three months ended March 31, 2008 and 2007                    |   | 2            |
|              |       |                       | Consolidated Statements of  Cash Flows – Three months ended March 31, 2008 and 2007                |   | 3            |
|              |       |                       | Consolidated Statements of  Shareholder’s Equity – Three months ended March 31, 2008 and 2007 |   | 4            |
|              |       |                       | Notes to  Consolidated Financial Statements                                                                  |   | 5-14         |
|              |       | Item 2.                    | Management’s  Narrative Analysis                                                                        |   | 15-20        |
|              |       | Item 4T.                   | Controls and  Procedures                                                                                     |   | 21           |
| **Part II.** | ** ** | **Other Information:**     |                                                                                                         |   |
|              |       | Item 1.                    | Legal Proceedings                                                                                            |   | 21           |
|              |       | Item 1A.                   | Risk Factors                                                                                                 |   | 21           |
|              |       | Item 6.                    | Exhibits                                                                                                     |   | 21           |
|              |       | Signatures                 |                                                                                                         | 22     |
|              |       | Exhibit Index         |                                                                                                         | E-1    |
|                   |            |                            |                                                                                                              |        |              |  |

 

----

 

**PART I.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                               | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                               | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                               | ** ** | ** **         | ** ** | ** **            | ** ** |
| Investments:                                                                             |       |               |       |                  |       |
| Available-for-Sale:                                                                      |       |               |       |                  |       |
| Fixed  maturities, at fair value (amortized cost: 2008, $20,446; 2007, $21,020)          |       | $                  | 20,213     |                  | $          | 20,792 |   |
| Common and  preferred stocks, at fair value (cost:  2008 and 2007, $30)                  |       | 25                 |       | 29                    |       |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2008 and 2007, $16) |       | 2,906              |       | 2,892                 |       |
| Policy loans                                                                             |       | 706                |       | 697                   |       |
| Trading  securities and other investments                                                |       | 63                 |       | 67                    |       |
| Total  investments                                                                       |       | 23,913             |       | 24,477                |       |
|                                                                                     |       |               |       |                  |       |
| Cash equivalents                                                                         |       | 1,085              |       | 973                   |       |
| Reinsurance  recoverables                                                                |       | 1,377              |       | 1,290                 |       |
| Amounts due from  brokers                                                                |       | 2                  |       | 123                   |       |
| Other accounts  receivable                                                               |       | 109                |       | 118                   |       |
| Accrued  investment income                                                               |       | 252                |       | 252                   |       |
| Deferred  acquisition costs                                                              |       | 4,480              |       | 4,429                 |       |
| Deferred sales  inducement costs                                                         |       | 527                |       | 511                   |       |
| Other assets                                                                             |       | 551                |       | 539                   |       |
| Separate account  assets                                                                 |       | 54,865             |       | 58,070                |       |
|                                                                                     |       |               |       |                  |       |
| Total assets                                                                             |       | $                  | 87,161     |                  | $          | 90,782 |   |
|                                                                                     |       |               |       |                  |       |
| **Liabilities  and Shareholder’s Equity**                                           |       |               |       |                  |       |
| Liabilities:                                                                             |       |               |       |                  |       |
| Future policy  benefits                                                                  |       | $                  | 26,676     |                  | $          | 26,977 |   |
| Policy claims  and other policyholders’ funds                                       |       | 98                 |       | 91                    |       |
| Amounts due to  brokers                                                                  |       | 359                |       | 361                   |       |
| Deferred income  taxes, net                                                              |       | 21                 |       | 133                   |       |
| Other  liabilities                                                                       |       | 481                |       | 430                   |       |
| Separate account  liabilities                                                            |       | 54,865             |       | 58,070                |       |
| Total  liabilities                                                                       |       | 82,500             |       | 86,062                |       |
|                                                                                     |       |               |       |                  |       |
| Shareholder’s  equity:                                                              |       |               |       |                  |       |
| Common shares,  $30 par value; 100,000 shares authorized, issued and outstanding         |       | 3                  |       | 3                     |       |
| Additional  paid-in capital                                                              |       | 2,031              |       | 2,031                 |       |
| Retained  earnings                                                                       |       | 2,787              |       | 2,842                 |       |
| Accumulated  other comprehensive loss, net of tax                                        |       | (160               | )          | (156                  | )          |
| Total  shareholder’s equity                                                         |       | 4,661              |       | 4,720                 |       |
|                                                                                     |       |               |       |                  |       |
| Total  liabilities and shareholder’s equity                                         |       | $                  | 87,161     |                  | $          | 90,782 |   |

 

*See Notesto Consolidated Financial Statements.*

 

1

----

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)**

**(inmillions)**

** **
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| **Revenues**                                      |       |                                             |       |   |   |
| Premiums                                          |       | $                                                | 116        |   | $ | 117 |   |
| Net investment  income                            |       | 413                                              |       | 385 |   |
| Policy and  contract charges                      |       | 316                                              |       | 286 |   |
| Other revenue                                     |       | 66                                               |       | 57 |   |
| Net realized  investment gains (losses)           |       | (23                                              | )          | 7 |   |
|                                              |       |                                             |       |   |   |
| Total revenues                                    |       | 888                                              |       | 852 |   |
|                                              |       |                                             |       |   |   |
| **Benefits  and expenses**                        |       |                                             |       |   |   |
| Benefits,  claims, losses and settlement expenses |       | 294                                              |       | 151 |   |
| Interest  credited to fixed accounts              |       | 176                                              |       | 217 |   |
| Amortization of  deferred acquisition costs       |       | 135                                              |       | 112 |   |
| Separation costs                                  |       | —                                           |       | 38 |   |
| Other insurance  and operating expenses           |       | 188                                              |       | 185 |   |
|                                              |       |                                             |       |   |   |
| Total benefits  and expenses                      |       | 793                                              |       | 703 |   |
|                                              |       |                                             |       |   |   |
| Pretax income                                     |       | 95                                               |       | 149 |   |
| Income tax  provision (benefit)                   |       | (5                                               | )          | 33 |   |
|                                              |       |                                             |       |   |   |
| Net income                                        |       | $                                                | 100        |   | $ | 116 |   |

 

*See Notesto Consolidated Financial Statements.*

 

2

----

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

**(inmillions)**

** **
| ** **                                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| **Cash  Flows from Operating Activities**                                                    |       |                                             |       |   |   |
| Net income                                                                                   |       | $                                                | 100        |   | $ | 116 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:           |       |                                             |       |   |   |
| Amortization of  deferred acquisition costs and deferred sales inducement costs              |       | 152                                              |       | 128 |   |
| Capitalization  of deferred acquisition costs and deferred sales inducement costs            |       | (175                                             | )          | (212 | ) |
| Amortization of  premium, net                                                                |       | 16                                               |       | 19 |   |
| Deferred income  taxes                                                                       |       | (94                                              | )          | 35 |   |
| Contractholder  and policyholder charges, non-cash                                           |       | (58                                              | )          | (57 | ) |
| Net realized  investment losses (gains)                                                      |       | 23                                               |       | (7 | ) |
| Net realized  gain on trading securities and equity method investments in hedge funds        |       | —                                           |       | (2 | ) |
| Change in  operating assets and liabilities:                                                 |       |                                             |       |   |   |
| Trading  securities and equity method investments in hedge funds, net                        |       | —                                           |       | 78 |   |
| Future policy  benefits for traditional life, disability income and long term care insurance |       | 73                                               |       | 78 |   |
| Policy claims  and other policyholders’ funds                                           |       | 7                                                |       | 5 |   |
| Reinsurance  recoverables                                                                    |       | (87                                              | )          | (37 | ) |
| Other accounts  receivable                                                                   |       | 9                                                |       | (12 | ) |
| Accrued  investment income                                                                   |       | —                                           |       | 5 |   |
| Other assets and  liabilities, net                                                           |       | 235                                              |       | (32 | ) |
|                                                                                         |       |                                             |       |   |   |
| **Net  cash provided by operating activities**                                               |       | 201                                              |       | 105 |   |
| ** **                                                                                   |       |                                             |       |   |   |
| **Cash  Flows from Investing Activities**                                                    |       |                                             |       |   |   |
| Available-for-Sale  securities:                                                              |       |                                             |       |   |   |
| Proceeds from  sales                                                                         |       | 54                                               |       | 754 |   |
| Maturities,  sinking fund payments and calls                                                 |       | 677                                              |       | 449 |   |
| Purchases                                                                                    |       | (223                                             | )          | (128 | ) |
| Other  investments, excluding policy loans:                                                  |       |                                             |       |   |   |
| Proceeds from  sales, maturities, sinking fund payments and calls                            |       | 63                                               |       | 121 |   |
| Purchases                                                                                    |       | (73                                              | )          | (48 | ) |
| Change in policy  loans, net                                                                 |       | (9                                               | )          | (6 | ) |
|                                                                                         |       |                                             |       |   |   |
| **Net  cash provided by investing activities**                                               |       | 489                                              |       | 1,142 |   |
| ** **                                                                                   |       |                                             |       |   |   |
| **Cash  Flows from Financing Activities**                                                    |       |                                             |       |   |   |
| Activity related  to investment contracts and universal life-type insurance:                 |       |                                             |       |   |   |
| Considerations  received                                                                     |       | 350                                              |       | 222 |   |
| Net transfers  from (to) separate accounts                                                   |       | 14                                               |       | (102 | ) |
| Surrenders and  other benefits                                                               |       | (804                                             | )          | (991 | ) |
| Other                                                                                        |       | (13                                              | )          | — |   |
| Cash dividends to Ameriprise  Financial, Inc.                                           |       | (125                                             | )          | (150 | ) |
| **Net  cash used in financing activities**                                                   |       | (578                                             | )          | (1,021 | ) |
| ** **                                                                                   |       |                                             |       |   |   |
| **Net  increase in cash equivalents**                                                        |       | 112                                              |       | 226 |   |
| Cash equivalents  at beginning of period                                                     |       | 973                                              |       | 160 |   |
|                                                                                         |       |                                             |       |   |   |
| **Cash  equivalents at end of period**                                                       |       | $                                                | 1,085      |   | $ | 386 |   |
| ** **                                                                                   |       |                                             |       |   |   |
| Supplemental  Disclosures:                                                                   |       |                                             |       |   |   |
| Income taxes  paid                                                                           |       | $                                                | 19         |   | $ | 9 |   |

 

*See Notesto Consolidated Financial Statements.*

 

3

----

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED) THREE MONTHS ENDED MARCH 31,2008 AND 2007**

**(inmillions)**

** **
| ** **                                                         | ** ** | **Common  Shares** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income/(Loss)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|-----------|------------|
| **Balances at December 31, 2006**                             |       | $                  | 3          |                             | $          | 2,021                  |       | $                                                    | 3,455      |      | $          | (209 | ) | $ | 5,270 |   |
| ** **                                                         |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| Change in accounting principles                                    |       | —             |       | —                           |       | (134                   | )          | —                                               |       | (134      | )          |
| Other  comprehensive income:                                       |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| Net income                                                         |       | —             |       | —                           |       | 116                    |       | —                                               |       | 116       |       |
| Change in unrealized holding losses on securities, net             |       | —             |       | —                           |       | —                 |       | 56                                                   |       | 56        |       |
| Total other comprehensive  income                                  |       |               |       |                             |       |                   |       |                                                 |       | 172       |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (150                   | )          | —                                               |       | (150      | )          |
| Non-cash capital contribution from Ameriprise Financial, Inc. |       | —             |       | 9                                |       | —                 |       | —                                               |       | 9         |       |
| **Balances at March 31, 2007**                                |       | $                  | 3          |                             | $          | 2,030                  |       | $                                                    | 3,287      |      | $          | (153 | ) | $ | 5,167 |   |
|                                                               |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| **Balances at December 31, 2007**                             |       | $                  | 3          |                             | $          | 2,031                  |       | $                                                    | 2,842      |      | $          | (156 | ) | $ | 4,720 |   |
| Change in accounting principles                                    |       | —             |       | —                           |       | (30                    | )          | —                                               |       | (30       | )          |
| Other  comprehensive income:                                       |       |               |       |                             |       |                   |       | —                                               |       |      |       |
| Net income                                                         |       | —             |       | —                           |       | 100                    |       | —                                               |       | 100       |       |
| Change in unrealized holding losses on securities, net             |       | —             |       | —                           |       | —                 |       | (4                                                   | )          | (4        | )          |
| Total other comprehensive  income                                  |       |               |       |                             |       |                   |       |                                                 |       | 96        |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (125                   | )          | —                                               |       | (125      | )          |
| **Balances at March 31, 2008**                                |       | $                  | 3          |                             | $          | 2,031                  |       | $                                                    | 2,787      |      | $          | (160 | ) | $ | 4,661 |   |

 

*See Notesto Consolidated Financial Statements.*

 

4

----

** **

**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

**1.****              Basis ofPresentation**

 

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned operating subsidiary, RiverSource LifeInsurance Co. of New York.  RiverSourceLife Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc.(“Ameriprise Financial”).  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.  RiverSource LifeInsurance Company and its subsidiary are referred to collectively in this Form 10-Qas “RiverSource Life”.

 

**Reclassifications**

 

The accompanyingConsolidated Financial Statements are prepared in accordance with U.S. generallyaccepted accounting principles (“GAAP”). Certain reclassifications of prior period amounts have been made toconform to the current presentation, including new income statement captionswhich are described in Note 1 of RiverSource Life’s Annual Report on Form 10-Kfor the year ended December 31, 2007, filed with the Securities andExchange Commission (“SEC”) on February 29, 2008 (the “2007 10-K”).  These reclassifications were made to enhancetransparency and to better align the financial statement line captions with thekey drivers of the business.  RiverSourceLife did not change its revenue and expense recognition policies and thereclassifications did not result in any changes to consolidated net income or shareholder’sequity.  The interim financialinformation in this report has not been audited.  Results of operations reported for interimperiods are not necessarily indicative of results for the entire year. TheseConsolidated Financial Statements and Notes should be read in conjunction withthe Consolidated Financial Statements and Notes in RiverSource Life’s 200710-K.

 

***IncomeStatement Reclassifications***

 

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

 
| ** **                                        | ** ** | **Three Months Ended  March 31, 2007** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                        | ** ** | **Previously  Reported**                                   | ** ** | **Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                                     | ** ** |
| **Revenues**                                      |       |                                                       |       |   |   |
| Premiums                                          |       | $                                                          | 93         |   | $ | 117 |   |
| Net investment  income                            |       | 382                                                        |       | 385 |   |
| Policy and  contract charges                      |       | 164                                                        |       | 286 |   |
| Other revenue                                     |       | 188                                                        |       | 57 |   |
| Net realized  investment gains                    |       | 7                                                          |       | 7 |   |
|                                              |       |                                                       |       |   |   |
| Total revenues                                    |       | 834                                                        |       | 852 |   |
| ** **                                        |       |                                                       |       |   |   |
| **Benefits  and expenses**                        |       |                                                       |       |   |   |
| Benefits,  claims, losses and settlement expenses |       | 118                                                        |       | 151 |   |
| Interest  credited to fixed accounts              |       | 236                                                        |       | 217 |   |
| Amortization of  deferred acquisition costs       |       | 112                                                        |       | 112 |   |
| Separation costs                                  |       | 38                                                         |       | 38 |   |
| Other insurance  and operating expenses           |       | 181                                                        |       | 185 |   |
|                                              |       |                                                       |       |   |   |
| Total benefits  and expenses                      |       | 685                                                        |       | 703 |   |
|                                              |       |                                                       |       |   |   |
| Pretax income                                     |       | 149                                                        |       | 149 |   |
| Income tax  provision                             |       | 33                                                         |       | 33 |   |
|                                              |       |                                                       |       |   |   |
| **Net  income**                                   |       | $                                                          | 116        |   | $ | 116 |   |

 

5

----

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

**1.****              Basis ofPresentation (Continued)**

 

***Statement ofCash Flows Reclassifications***

 

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

 
| ** **                                                                       | ** ** | **Three Months  Ended  March 31, 2007** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **(in millions)**                                 | ** ** |
|                                                                             |       |                                                   |       |
| Net cash  provided by operating activities, previous presentation                |       | $                                                      | 10         |   |
| Reclassification  for annuity transfers                                          |       | 75                                                     |       |
| Reclassification  for policy loans                                               |       | (1                                                     | )          |
| Other  reclassifications                                                         |       | 21                                                     |       |
| Net cash  provided by operating activities, adjusted for these reclassifications |       | $                                                      | 105        |   |
|                                                                             |       |                                                   |       |
| Net cash  provided by investing activities, previous presentation                |       | $                                                      | 1,168      |   |
| Reclassification  for policy loans                                               |       | (6                                                     | )          |
| Other  reclassifications                                                         |       | (20                                                    | )          |
| Net cash  provided by investing activities, adjusted for these reclassifications |       | $                                                      | 1,142      |   |
|                                                                             |       |                                                   |       |
| Net cash used in  financing activities, previous presentation                    |       | $                                                      | (952       | ) |
| Reclassification  for annuity transfers                                          |       | (75                                                    | )          |
| Reclassification  for policy loans                                               |       | 7                                                      |       |
| Other  reclassifications                                                         |       | (1                                                     | )          |
| Net cash used in  financing activities, adjusted for these reclassifications     |       | $                                                      | (1,021     | ) |

 

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

 

In March 2008, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 161 “Disclosures about DerivativeInstruments and Hedging Activities – an amendment of FASB Statement No. 133”(“SFAS 161”). SFAS 161 intends to improve financial reporting about derivativeinstruments and hedging activities by requiring enhanced disclosures abouttheir impact on an entity’s financial position, financial performance, and cashflows. SFAS 161 requires disclosures regarding the objectives for usingderivative instruments, the fair values of derivative instruments and theirrelated gains and losses, and the accounting for derivatives and related hedgeditems. SFAS 161 is effective for fiscal years and interim periods beginningafter November 15, 2008, with early adoption permitted. RiverSource Lifeis currently evaluating the impact of SFAS 161 on its disclosures. RiverSourceLife’s adoption of SFAS 161 will not impact its consolidated financialcondition and results of operations.

 

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

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements – an amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 establishes the accounting andreporting for ownership interest in subsidiaries not attributable, directly orindirectly, to a parent.  SFAS 160requires that noncontrolling (minority) interests be classified as equity(instead of as a liability) within the Consolidated Balance Sheets, and netincome attributable to both the parent and the noncontrolling interest bedisclosed on the face of the Consolidated Statements of Income.  SFAS 160 is effective for fiscal years beginningafter December 15, 2008, and interim periods within those years with earlyadoption prohibited.  The provisions ofSFAS 160 are to be applied prospectively, except for the presentation anddisclosure requirements which are to be applied retrospectively to all periodspresented.  RiverSource Life is currentlyevaluating the impact of SFAS 160 on its consolidated financial condition andresults of operations.

 

6

----

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS157 defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements.  SFAS 157 applies under other accountingpronouncements that require or permit fair value measurements. Accordingly,SFAS 157 does not require any new fair value measurements. The provisions ofSFAS 157 are required to be applied prospectively as of the beginning of thefiscal year in which SFAS 157 is initially applied, except for certainfinancial instruments as defined in SFAS 157 that require retrospectiveapplication. Any retrospective application will be recognized as a cumulativeeffect adjustment to the opening balance of retained earnings for the fiscalyear of adoption. RiverSource Life adopted SFAS 157 effective January 1,2008 and recorded a cumulative effect reduction to the opening balance ofretained earnings of $30 million, net of deferred acquisition costs (“DAC”) anddeferred sales inducement costs (“DSIC”) amortization and income taxes. Thisreduction to retained earnings was related to adjusting the fair value ofcertain derivatives RiverSource Life uses to hedge its exposure to market riskrelated to certain variable annuity riders. RiverSource Life initially recorded these derivatives in accordance withEmerging Issues Task Force (“EITF”) Issue No. 02-3 “Issues Involved inAccounting for Derivative Contracts Held for Trading Purposes and ContractsInvolved in Energy Trading and Risk Management Activities” (“EITF 02-3”).  SFAS 157 nullifies the guidance in EITF 02-3and requires these derivatives to be marked to the price RiverSource Life wouldreceive to sell the derivatives to a market participant (an exit price).  The adoption of SFAS 157 also resulted inadjustments to the fair value of RiverSource Life’s embedded derivativeliabilities associated with certain variable annuity riders. Since there is nomarket for these liabilities, RiverSource Life considered the assumptionsparticipants in a hypothetical market would make to determine an exit price. Asa result, RiverSource Life adjusted the valuation of these liabilities byupdating certain policyholder assumptions, adding explicit margins to providefor profit, risk, and expenses and adjusting the rate used to discount expectedcash flows to reflect a current market estimate of RiverSource Life’s risk ofnonperformance specific to these liabilities. These adjustments resulted in anadoption impact of a $4 million increase in the current quarter’s earnings, netof DAC and DSIC amortization and income taxes, at January 1, 2008. The nonperformance risk component of theadjustment is specific to the risk of RiverSource Life not fulfilling theseliabilities. As RiverSource Life’s estimate of this credit spread widens ortightens, the liability will decrease or increase. If this nonperformancecredit spread moves to a zero spread over the LIBOR swap curve, the reductionto net income would be approximately $26 million, net of DAC and DSICamortization and income taxes based on March 31, 2008 credit spreads.

 

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

 

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

 

In September 2005, theAmerican Institute of Certified Public Accountants (“AICPA”) issued Statementof Position (“SOP”) 05-1, “Accounting by Insurance Enterprises for DeferredAcquisition Costs in Connection With Modifications or Exchanges of InsuranceContracts,” (“SOP 05-1”).  SOP 05-1provides clarifying guidance on accounting for DAC associated with an insuranceor annuity contract that is significantly modified or is internally replacedwith another contract.  Prior to adoption,RiverSource Life accounted for many of these transactions as contractcontinuations and continued amortizing existing DAC against revenue for the newor modified contract.  Effective January 1,2007, RiverSource Life adopted SOP 05-1 resulting in these transactions beingprospectively accounted for as contract terminations.  Consistent with this, RiverSource Life nowanticipates these transactions in establishing amortization periods and othervaluation assumptions.  As aresult of adopting SOP 05-1, RiverSource Life recorded as a cumulative changein accounting principle $206 million, reducing DAC by $204 million, DSIC by $11million and liabilities for future policy benefits by $9 million.  The after-tax decrease to retained earningsfor these changes was $134 million.

 

7

----

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

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

 

**4.****              Investments**

 

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

 
| **March 31, 2008**                | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Fixed  maturities:                          |       |                   |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $                      | 12,499     |                         | $          | 175                           |       | $               | (333       | ) | $ | 12,341 |   |
| Mortgage and  other asset-backed securities |       | 7,436                  |       | 59                           |       | (164                          | )          | 7,331           |       |
| U.S. government  and agencies obligations   |       | 248                    |       | 11                           |       | —                        |       | 259             |       |
| State and  municipal obligations            |       | 165                    |       | 5                            |       | (3                            | )          | 167             |       |
| Foreign  government bonds and obligations   |       | 96                     |       | 17                           |       | —                        |       | 113             |       |
| Structured  investments(a)                  |       | 2                      |       | —                       |       | —                        |       | 2               |       |
| Total fixed  maturities                     |       | 20,446                 |       | 267                          |       | (500                          | )          | 20,213          |       |
| Common and  preferred stocks                |       | 30                     |       | —                       |       | (5                            | )          | 25              |       |
| Total                                       |       | $                      | 20,476     |                         | $          | 267                           |       | $               | (505       | ) | $ | 20,238 |   |

 

----

(a)   Includes unconsolidated collateralized debt obligations.

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

 

----

(a)   Includes unconsolidated collateralized debt obligations.

 

8

----

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

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

 
| ** **                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(in millions)**                           | ** ** |
| Gross realized investment gains  |       | $                                                | 9          |   | $ | 13 |   |
| Gross realized investment losses |       | (2                                               | )          | (6 | ) |
| Other-than-temporary impairments |       | (30                                              | )          | — |   |
|                                  |            |                                                  |            |  |  |  |  |

 

The $30 million of other-than-temporary impairmentsfor the three months ended March 31, 2008 related to three Alt-Amortgage-backed securities.

 

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

 

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

 

**Valuation Hierarchy**

 

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

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

 

**Determinationof Fair Value**

 

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

 

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

 

**Assets**

 

*Cash Equivalents*

* *

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

 

9

----

** **

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

*Available-for-SaleSecurities*

* *

When available, thefair value of securities is based on quoted prices in active markets. If quotedprices are not available, fair values are measured using independent pricingmodels from nationally-recognized pricing services, broker quotes, or othermodel-based valuation techniques such as the present value of cash flows. Level1 securities include U.S. Treasuries. Level 2 securities include: agencymortgage-backed securities; certain non-agency mortgage-backed securities,asset-backed securities, municipal and corporate bonds; and certain U.S. andforeign government and agency securities. Level 3 securities include certainnon-agency mortgage-backed securities, asset-backed securities and corporatebonds.

 

*Separate AccountAssets*

* *

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

 

*Derivatives*

* *

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

 

**Liabilities**

 

*Embedded Derivatives*

* *

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

* *

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

 

*Equity Indexed Annuities*

* *

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

 

10

----

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

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

 

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

 

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

 
| ** **                       | ** ** | **March 31, 2008** | ** ** |
|----------------------------------|------------|------------------------------|------------|
| ** **                       | ** ** | **Level 1**             | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **(in millions)**       | ** ** |
| ** **                       | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Assets                           | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Available-for-Sale:              | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fixed maturities                 |       | $                            | 20         |   | $ | 18,384 |   | $ | 1,809 |   | $ | 20,213 |   |
| Common and  preferred stocks     |       | —                       |       | 25 |   | — |   | 25 |   |
| Cash equivalents                 |       | 9                            |       | 1,076 |   | — |   | 1,085 |   |
| Other assets                     |       | —                       |       | 58 |   | 332 |   | 390 |   |
| Separate account  assets         |       | —                       |       | 54,865 |   | — |   | 54,865 |   |
| Total assets at  fair value      |       | $                            | 29         |   | $ | 74,408 |   | $ | 2,141 |   | $ | 76,578 |   |
|                             |       |                         |       |   |   |   |   |   |   |
| Liabilities                      |       |                         |       |   |   |   |   |   |   |   |   |   |   |
| Future policy  benefits          |       | $                            | —     |   | $ | 37 |   | $ | 295 |   | $ | 332 |   |
| Other  liabilities               |       | —                       |       | 2 |   | — |   | 2 |   |
| Total  liabilities at fair value |       | $                            | —     |   | $ | 39 |   | $ | 295 |   | $ | 334 |   |

 

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

 
| ** **                                                                                                            | ** ** | **Three Months Ended March 31, 2008**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                                                                            | ** ** | **Available-for-  Sale Securities:  Fixed Maturities** | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** |
| ** **                                                                                                            | ** ** | **(in millions)**                                           | ** ** |
| ** **                                                                                                            | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance,  January 1                                                                                              | ** ** | $                                                                | 1,810      |   | $ | 280 |   | $ | (158 | ) |
| Total gains  (losses) included in:                                                                                    |       |                                                             |       |   |   |   |   |
| Net income                                                                                                            |       | (27                                                              | )(1)       | 52 | (3) | (124 | )(4) |
| Other  comprehensive income                                                                                           |       | (38                                                              | )          | — |   | — |   |
| Purchases,  sales, issuances and settlements, net                                                                     |       | 64                                                               |       | — |   | (13 | ) |
| Transfers in  (out)                                                                                                   |       | —                                                           |       | — |   | — |   |
| Balance,  March 31                                                                                               |       | $                                                                | 1,809      |   | $ | 332 |   | $ | (295 | ) |
| Change in  unrealized gains (losses) included in net income relating to assets and  liabilities held at March 31 |       | $                                                                | (30        | )(2) | $ | 52 | (3) | $ | (124 | )(4) |
|                                                                                                                       |            |                                                                  |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)   Represents a$28 million loss included in net realized investment gains (losses) and a $1million gain included in net investment income in the Consolidated Statementsof Income.

(2)   Included in net realized investment gains(losses) in the Consolidated Statements of Income and primarily representsother-than-temporary impairments recorded on securities still held for whichfuture cash flows could still be realized.

(3)   Included in net investment income in theConsolidated Statements of Income.

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

 

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

 

11

----

 

 

 

**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

** **

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

 

The balances of andchanges in DAC were as follows:

 
| ** **                                                       | ** ** | **2008**               | ** ** | **2007** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                       | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                       |       | $                      | 4,429      |     | $          | 4,411 |   |
| Cumulative  effect of accounting change                          |       | 36                     |       | (204     | )          |
| Capitalization  of acquisition costs                             |       | 151                    |       | 180      |       |
| Amortization                                                     |       | (135                   | )          | (112     | )          |
| Impact of  changes in net unrealized securities gains and losses |       | (1                     | )          | (20      | )          |
| Balance at  March 31                                        |       | $                      | 4,480      |     | $          | 4,255 |   |

 

The balances of andchanges in DSIC were as follows:

 
| ** **                                                      | ** ** | **2008**               | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                      | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                      |       | $                      | 511        |     | $          | 452 |   |
| Cumulative  effect of accounting change                         |       | 9                      |       | (11      | )          |
| Capitalization  of sales inducements                            |       | 24                     |       | 32       |       |
| Amortization                                                    |       | (17                    | )          | (16      | )          |
| Impact of change  in net unrealized securities gains and losses |       | —                 |       | (4       | )          |
| Balance at  March 31                                       |       | $                      | 527        |     | $          | 453 |   |

 

Effective January 1,2008, RiverSource Life adopted SFAS 157 andrecorded as a cumulative change in accounting principle a pretax increase of$36 million and $9 million to DAC and DSIC, respectively.  See Note 2 and Note 5 for additionalinformation regarding SFAS 157.

 

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

 

**7.****              Future PolicyBenefits, Policy Claims and Other Policyholders’ Funds and Separate AccountLiabilities**

 

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

 
| ** **                                                                          | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                          | ** ** | **(in millions)**   | ** ** |
| Fixed annuities                                                                     |       | $                        | 13,929     |                        | $          | 14,382 |   |
| Equity indexed  annuities accumulated host values                                   |       | 249                      |       | 253                         |       |
| Equity indexed  annuities embedded derivatives                                      |       | 37                       |       | 53                          |       |
| Variable  annuities fixed sub-accounts                                              |       | 5,389                    |       | 5,419                       |       |
| Guaranteed  minimum withdrawal benefits variable annuity guarantees                 |       | 215                      |       | 136                         |       |
| Guaranteed  minimum accumulation benefits variable annuity guarantees               |       | 83                       |       | 33                          |       |
| Other variable  annuity guarantees                                                  |       | 26                       |       | 27                          |       |
| Total annuities                                                                     |       | 19,928                   |       | 20,303                      |       |
| Variable  universal life (“VUL”)/universal life insurance                 |       | 2,575                    |       | 2,568                       |       |
| Other life,  disability income and long term care insurance                         |       | 4,173                    |       | 4,106                       |       |
| Total future  policy benefits                                                       |       | 26,676                   |       | 26,977                      |       |
| Policy claims  and other policyholders’ funds                                  |       | 98                       |       | 91                          |       |
| Total future  policy benefits and policy claims and other policyholders’ funds |       | $                        | 26,774     |                        | $          | 27,068 |   |

 

12

----

 

**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

 

**7.****              Future PolicyBenefits, Policy Claims and Other Policyholders’ Funds and Separate AccountLiabilities (Continued)**

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **(in millions)**   | ** ** |
| Variable annuity  variable sub-accounts |       | $                        | 49,056     |                        | $          | 51,764 |   |
| VUL insurance  variable sub-accounts    |       | 5,752                    |       | 6,244                       |       |
| Other insurance  variable sub-accounts  |       | 57                       |       | 62                          |       |
| Total separate  account liabilities     |       | $                        | 54,865     |                        | $          | 58,070 |   |

 

**8.****              Income Taxes**

 

RiverSourceLife’s effective tax rate was (5%) for the three months ended March 31,2008, compared to 22% for the three months ended March 31, 2007. Thedecrease in the effective tax rates primarily reflects a $29 million taxbenefit related to changes in the status of current audits as well as the levelof pretax income relative to tax advantaged items, including the dividendsreceived deduction for the three months ended March 31, 2008.

 

RiverSource Life is required to establish a valuationallowance for any portion of the deferred tax assets that management believeswill not be realized.  Included inRiverSource Life’s deferred tax assets is a significant deferred tax assetrelating to capital losses that have been recognized for financial statementpurposes but not yet for tax return purposes. Under current U.S. federal incometax law, capital losses generally must be used against capital gain incomewithin five years of the year in which the capital losses are recognized fortax purposes.  Based on analysis ofRiverSource Life’s tax position, management believes it is more likely than notthat the results of future operations and implementation of tax planningstrategies will generate sufficient taxable income to enable RiverSource Lifeto utilize all of its deferred tax assets. Accordingly, no valuation allowancefor deferred tax assets was established as of March 31, 2008 and December 31,2007.

 

As of March 31, 2008 and December 31, 2007,RiverSource Life had $89 million and $97 million, respectively, of grossunrecognized tax benefits.  Ifrecognized, approximately $20 million and $49 million, net of federal taxbenefits as of March 31, 2008 and December 31, 2007, respectively,would affect the effective tax rate.

 

RiverSource Life recognizes interest and penaltiesrelated to unrecognized tax benefits as a component of the income taxprovision.  RiverSource Life recognized anet reduction of interest and penalties of $4 million for the three monthsended March 31, 2008.  RiverSourceLife had a $5 million and a $1 million receivable related to interest andpenalties accrued at March 31, 2008 and December 31, 2007,respectively.

 

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 $15 to $20 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 toU.S. federal or state and local income tax examinations by tax authorities foryears before 1997. The Internal Revenue Service (“IRS”), as part of the overallexamination of the American Express Company consolidated return, commenced anexamination of RiverSource Life’s U.S. income tax returns for 1997 through 2002in the third quarter of 2005. In the first quarter of 2007, the IRS expandedthe period of the exam to include 2003 through 2004. RiverSource Life orcertain of its subsidiaries’ state income tax returns are currently underexamination by various jurisdictions for years ranging from 1998 through 2005.

 

On September 25,2007, the IRS issued Revenue Ruling 2007-61 in which it announced that itintends to issue regulations with respect to certain computational aspects ofthe Dividends Received Deduction (“DRD”) related to separate account assetsheld in connection with variable contracts of life insurance companies and hasadded the project to the 2007-2008 Priority Guidance Plan. Revenue Ruling2007-61 suspended a revenue ruling issued in August 2007 that purported tochange accepted industry and IRS interpretations of the statutes governingthese computational questions. Any regulations that the IRS ultimately proposesfor issuance in this area will be subject to public notice and comment, atwhich time insurance companies and other members of the public will have theopportunity to raise legal and practical questions about the content, scope andapplication of such regulations.   As aresult, the ultimate timing and substance of any such regulations are unknownat this time, but they may result in the elimination of some or all of theseparate account DRD tax benefit that RiverSource Life receives.  Management believes that it is likely thatany such regulations would apply prospectively only.

 

13

----

 

**RIVERSOURCELIFE INSURANCE COMPANY**

** **

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

 

**9.****              Contingencies**

 

The Securities andExchange Commission, the Financial Industry Regulatory Authority, commonlyreferred to as FINRA, and several state authorities have brought proceedingschallenging several mutual fund and variable product financial practices,generally including suitability, late trading, market timing, compensation anddisclosure of revenue sharing arrangements. RiverSource Life has received requests for information and has beencontacted by regulatory authorities concerning its practices and is cooperatingfully with these inquiries.

 

RiverSource Life isinvolved in the normal course of business in a number of other legal and arbitrationproceedings concerning matters arising in connection with the conduct of itsbusiness activities.  RiverSource Lifebelieves that it is not a party to, nor are any of its properties the subjectof, any pending legal, arbitration or regulatory proceedings that would have amaterial adverse effect on its consolidated financial condition, results ofoperations or liquidity.  However, it ispossible that the outcome of any such proceedings could have a material impacton results of operations in any particular reporting period as the proceedingsare resolved.

 

14

----

** **

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

** **

The following information should be read inconjunction with RiverSource Life Insurance Company’s Consolidated FinancialStatements and Notes presented in Part I, Item 1.  RiverSource Life Insurance Company and itssubsidiary 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 31,2007, filed with the Securities and Exchange Commission (“SEC”) on February 29,2008 (“2007 10-K”), as well as its current reports on Form 8-K and otherpublicly available information.

 

RiverSource Life follows U.S. generally acceptedaccounting principles (“GAAP”), and the following discussion is presented on aconsolidated basis consistent with GAAP.

 

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

 

**Overview**

 

RiverSource Life Insurance Company is a stock lifeinsurance company with one wholly owned operating subsidiary, RiverSource LifeInsurance Co. of New York (“RiverSource Life of NY”).  RiverSource Life Insurance Company is awholly owned subsidiary of Ameriprise Financial, Inc. (“AmeripriseFinancial”).

 

·      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, North Dakota and Delaware.  RiverSource Life of NY issues insurance andannuity products.

 

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

 

**Recent Accounting Pronouncements**

 

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

 

***Resultsof Operations for the ThreeMonths Ended March 31, 2008 compared to the Three Months Ended March 31,2007***

 

*Overview*

 

Consolidated net income was $100 million for the threemonths ended March 31, 2008 comparedto $116 million for the three months endedMarch 31, 2007, a decrease of $16 million.  Pretax income decreased $54 million to $95million for the three months ended March 31, 2008 from $149 million forthe three months ended March 31, 2007. Financial markets drove the decrease through an increase in the cost ofproviding for variable annuity living benefit guarantees, after hedging, higherdeferred acquisition cost (“DAC”) and deferred sales inducement cost (“DSIC”)amortization and net realized investment losses due to the impairment of threeAlt-A mortgage-backed securities offset partially by income from policy and contract charges.  Included in consolidated net income for thethree months ended March 31, 2007 was $38 million in pretax non-recurringseparation costs.

 

RiverSource Life also recognized $29 million of taxbenefits in the three months ended March 31, 2008.

 

15

----

* *

*Revenues*

 

Netinvestment income increased $28 million or 7.3% to $413 million for the threemonths ended March 31, 2008reflecting increased income attributable to derivatives hedging guaranteedminimum withdrawal benefit (“GMWB”) and guaranteed minimum accumulation benefit(“GMAB”) provisions partially offset by declining average fixed annuitybalances.

 

Policy and contractcharges increased $30 million or 10.5% to $316 million for the three months endedMarch 31, 2008.   The increase isdriven by an increase in guaranteed benefit rider fees on variableannuities and growth in cost-of-insurance fees for variable universallife/universal life insurance as a result of volume increases.

 

Other revenue increased$9 million or 15.8% to $66 million for the three months endedMarch 31, 2008 reflecting higher marketing support andadministrative fees due to higher average underlying separate account assetvalues.

 

Net realized investmentlosses were $23 million for the threemonths ended March 31, 2008compared to net realized investment gains of $7 million for the three months ended March 31, 2007.  Included in net realized investment lossesfor the three months ended March 31, 2008 was the impairment of threeAlt-A mortgage-backed securities of $30 million.   Forthe three months ended March 31,2008, $9 million of gross realized investment gains were partiallyoffset by $2 million of grossrealized losses, classified as Available-for-Sale.  For the three months ended March 31,2007, $13 million of gross realized investment gains were partiallyoffset by $6 million of gross realized investment losses classified asAvailable-for-Sale.

 

*Benefitsand Expenses*

 

Total benefits andexpenses for the three months ended March 31, 2008 were $793 million, anincrease of $90 million from the three months ended March 31, 2007 totalof $703 million.

 

Benefits,claims, losses and settlement expenses increased $143 million or 94.7% to $294 million for the three months ended March 31, 2008driven by an increase in the cost of providing for guaranteed benefitsassociated with the variable annuity living benefit riders which increased $151million, primarily due to changes in financial market factors.

 

Interest credited tofixed accounts decreased by $41million or 18.9% to $176 million for the three months ended March 31, 2008primarily due to a continued decline in fixed annuity account balances as wellas a decrease from the impact of lower crediting rates on equity indexedannuities.

 

The amortization of DACincreased $23 million or 20.5%to $135 million. This increasewas attributable to the estimated impact of the current quarter’s marketdecline on estimated gross profit in future periods, and growth in the volumeof variable annuity business, offset in part by a decrease in amortizationdriven by the increased cost of providing for variable annuity guarantees, netof hedging.  Amortization of DAC in thefirst quarter of 2007 was reduced by favorable adjustments from recognizingincreases in certain policyholder charges on select policies, as well as othermodel enhancements.

 

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

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was (5%) forthe three months ended March 31,2008 compared to 22% for the three months ended March 31, 2007.  The decrease in the effective tax ratesprimarily reflects a $29 million tax benefit related to changes in the statusof current audits as well as the level of pretax income relative to taxadvantaged items, including the dividends received deduction, for the threemonths ended March 31, 2008. RiverSource Life expects its effective tax rate for the full year 2008to be in the 15% to 17% range.

 

On September 25,2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 inwhich it announced that it intends to issue regulations with respect to certaincomputational aspects of the Dividends Received Deduction (“DRD”) related toseparate account assets held in connection with variable contracts of lifeinsurance companies and has added the project to the 2007-2008 PriorityGuidance Plan. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007that purported to change accepted industry and IRS interpretations of thestatutes governing these computational questions. Any regulations that the IRSultimately proposes for issuance in this area will be subject to public noticeand comment, at which time insurance companies and other members of the publicwill have the opportunity to raise legal and practical questions about thecontent, scope and application of such regulations. As a result, the ultimatetiming and substance of any such regulations are unknown at this time, but theymay result in the elimination of some or all of the separate account DRD taxbenefit that RiverSource Life receives. Management believes that it is likelythat any such regulations would apply prospectively only.

 

16

----

 

***Market Risk***

 

Equitymarket and interest rate fluctuations can have a significant impact onRiverSource Life’s results of operations, primarily due to the “spread” incomegenerated on its annuities and universal life (“UL”) insurance products, thevalue of DAC and DSIC, assets associated with variable annuity and variable ULproducts, the values of liabilities for guaranteed benefits associated withRiverSource Life’s variable annuities and the values of derivatives held to hedgethese benefits.

 

There have been nomaterial changes in RiverSource Life’s net risk exposure to pretax income basedon its sources of market risk during the three months ended March 31,2008, except for its interest rate risk exposure related to its variableannuity riders. The guaranteed benefits associated with RiverSource Life’svariable annuities are GMWB, GMAB, guaranteed minimum death benefit (“GMDB”)and guaranteed minimum income benefit (“GMIB”) options. Each of the guaranteedbenefits mentioned above guarantees payouts to the annuity holder under certainspecific conditions regardless of the performance of the underlying investmentassets.

 

Interest Rate Risk –Variable Annuity Riders

 

The GMAB and thenon-life contingent benefits associated with the GMWB provisions createembedded derivatives which are carried at fair value separately from theunderlying host variable annuity contract. Increases in interest rates reducethe fair value of the GMWB and GMAB liabilities. At March 31, 2008, ifinterest rates had hypothetically increased by 100 basis points, and remain atthat level for 12 months, RiverSource Life estimates that the fair value of itsGMWB and GMAB liabilities would decrease by $157 million and $32 million,respectively, with a favorable impact to pretax income. The GMWB and GMABinterest rate exposure is hedged with a portfolio of longer dated put and callderivatives and interest rate swaps. During the three months ended March 31,2008, RiverSource Life continued to adjust the interest rate swap portfolio toreflect the sensitivity of the liabilities, as well as close down some openexposures from year end. At March 31, 2008, RiverSource Life estimatesthat for a hypothetical 100 basis point increase in interest ratessustained for a 12 month period, the negative impact of the derivatives onpretax income would be $208 million. Of the $208 million, $189 million isattributable to its GMWB and $19 million is attributable to its GMAB. At March 31,2008, RiverSource Life estimates that the netimpact on pretax income would be an unfavorable $10 million, whichconsists of an unfavorable impact of $32 million for GMWB and a $13 millionfavorable impact attributable to GMAB, and a $9 million positive impactrelated to DAC amortization. At December 31, 2007, RiverSource Lifeestimated that the net combined impact of these same items on pretax incomewould be a favorable $14 million.

 

NonperformanceRisk – Variable Annuity Riders

 

Statement of FinancialAccounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”)requires companies to measure the fair value of liabilities at the price thatwould be received to transfer the liability to a market participant (an exitprice). Since there is not a market for these liabilities, RiverSource Life consideredthe assumptions participants in a hypothetical market would make to reflect anexit price. As a result, it adjusted the valuation of variable annuity ridersby updating certain policyholder assumptions, adding explicit margins toprovide for profit, risk and expenses, and adjusted the rates used to discountexpected cash flows to reflect a current market estimate of RiverSource Life’snonperformance risk. These adjustments resulted in an adoption impact of a $4million increase in the current quarter’s earnings, net of DAC and DSICamortization and income taxes at January 1,2008. The nonperformance risk adjustment is specific to the risk ofRiverSource Life not fulfilling these liabilities. Consistent with generalmarket conditions, this estimate resulted in a significant spread over theLIBOR swap curve as of March 31, 2008. As RiverSource Life’s estimate ofthis spread widens or tightens, the liability will decrease or increase. Ifthis nonperformance credit spread moves to a zero spread over the LIBOR swapcurve, the reduction to net income would be approximately $26 million, net ofDAC and DSIC amortization and income taxes, based on March 31, 2008 creditspreads.

 

***Credit Risk***

 

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

 

17

----

 

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

 

Creditexposures on derivative contracts may take into account enforceable nettingarrangements and collateral arrangements. Before executing a new type ofstructure of derivative contract, RiverSource Life determines the variabilityof the contract’s potential market and credit exposures and whether suchvariability might reasonably be expected to create exposure to a counterpartyin excess of established limits.

 

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

 

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

 

***Fair ValueMeasurements***

 

SFAS157 defines fair value, provides a framework for measuring fair value andexpands disclosures about fair value measurements. Fair value assumes theexchange of assets or liabilities in orderly transactions. RiverSource Lifeincludes actual market prices, or observable inputs in its fair valuemeasurements to the extent available. SFAS 157 does not require the use ofmarket prices that are the result of a forced liquidation or distressed sale.Recent market conditions have increased the likelihood of other-than-temporaryimpairments for certain non-agency residential mortgage-backed and asset-backedsecurities.

 

Sub-prime mortgagelending is the origination of residential mortgage loans to customers with weakcredit profiles. Alt-A mortgage lending is the origination of residentialmortgage loans to customers who have credit ratings above sub-prime but may notconform to government-sponsored standards. RiverSource Life has exposure tothese types of loans only through mortgage-backed and asset-backed securities.The slow down in the U.S. housing market, combined with relaxed underwritingstandards by some originators, has recently led to higher delinquency and lossrates for some of these investments. As a part of RiverSource Life’s riskmanagement process, an internal rating system is used to assess the likelihoodthat we will not receive all contractual principal and interest payments forthese investments. For the investments that are more at risk for impairment,RiverSource Life performs its own assessment of projected cash flowsincorporating assumptions about default rates, prepayment speeds, lossseverity, and geographic concentrations to determine if an other-than-temporaryimpairment should be recognized. Based on this analysis, other than the threeAlt-A mortgage-backed securities that had credit related impairments recordedin the current period, all contractual payments are expected to be received.

 

18

----

 

The following table presents RiverSource Life’sresidential mortgage-backed and asset-backed securities backed by sub-prime andAlt-A mortgage loans by credit rating and vintage year (amounts in millions):

 
| ** **               | ** ** | **AAA**             | ** ** | **AA**          | ** ** | **A**               | ** ** | **BBB**         | ** ** | **BB & Below** | ** ** | **Total**       | ** ** |
|--------------------------|------------|---------------------|------------|-----------------|------------|---------------------|------------|-----------------|------------|------------------------------|------------|-----------------|------------|
| ** **               | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost**          | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| **Sub-prime**            |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior   |       | $                   | 7          |            | $          | 6                   |       | $               | 8          |                         | $          | 7               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 15 |   | $ | 13 |   |
| 2005                     |       | 90                  |       | 85              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 90 |   | 85 |   |
| 2006                     |       | 19                  |       | 19              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 19 |   | 19 |   |
| 2007                     |       | —              |       | —          |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                     |       | 14                  |       | 14              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 14 |   | 14 |   |
| **Total Sub-prime** |       | $                   | 130        |            | $          | 124                 |       | $               | 8          |                         | $          | 7               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 138 |   | $ | 131 |   |
| ** **               |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**                |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior   |       | $                   | 48         |            | $          | 44                  |       | $               | 16         |                         | $          | 14              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 64 |   | $ | 58 |   |
| 2005                     |       | 254                 |       | 215             |       | 90                  |       | 74              |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 344 |   | 289 |   |
| 2006                     |       | 38                  |       | 32              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 38 |   | 32 |   |
| 2007                     |       | 33                  |       | 30              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 33 |   | 30 |   |
| 2008                     |       | —              |       | —          |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| **Total Alt-A**     |       | $                   | 373        |            | $          | 321                 |       | $               | 106        |                         | $          | 88              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 479 |   | $ | 409 |   |
| **Grand  Total**         |       | $                   | 503        |            | $          | 445                 |       | $               | 114        |                         | $          | 95              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 617 |   | $ | 540 |   |

 

**Liquidityand Capital Resources**

 

***LiquidityStrategy***

 

The liquidityrequirements of RiverSource Life are generally met by funds provided byinvestment income, maturities and periodic repayments of investments, deposits,premiums and proceeds from sales of investments as well as capitalcontributions from Ameriprise Financial. Other liquidity sources RiverSource Life has established are repurchaseagreements and an available line of credit with Ameriprise Financialaggregating $200 million.  The primaryuses of funds are policy benefits, commissions, other product-relatedacquisition and sales inducement costs, operating expenses, policy loans,dividends to Ameriprise Financial and investment purchases.  RiverSource Life routinely reviews itssources and uses of funds in order to meet its ongoing obligations.

 

On March 26,2008, RiverSource Life paid cash dividends of $125 million to AmeripriseFinancial.  During 2007, RiverSource Lifepaid cash dividends of $800 million to Ameriprise Financial.  Also during 2007, RiverSource Life of NY paidcash dividends of $83 million to RiverSource Life Insurance Company.

 

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

 
| ** **                                  | ** ** | **Actual Capital as of (a)** | ** ** | **Regulatory  Capital  Requirement (b)** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                  | ** ** | **March 31****,  2008**                     | ** ** | **December 31,  2007**                   | ** ** | **December 31,  2007** | ** ** |
| ** **                                  | ** ** | **(in millions)**                           | ** ** |
| RiverSource Life  Insurance Company         |       | $                                                | 2,857      |                                          | $          | 3,017 |   | $ | 442 |   |
| RiverSource Life  Insurance Co. of New York |       | 303                                              |       | 288                                           |       | 34 |   |
|                                             |            |                                                  |            |                                               |            |  |  |  |  |  |

 

----

| (a) | Actual  capital, as defined by the National Association of Insurance Commissioners  for purposes of meeting regulatory capital requirements, includes statutory  capital and surplus, plus certain statutory valuation reserves. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Regulatory  capital requirement is based on the most recent statutory risk-based capital  filing as of December 31, 2007.                                                                                                   |

 

19

----

 

**Forward-LookingStatements**

 

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

 

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

 

·                  changesin the valuations, liquidity and volatility in the interest rate, equitymarket, and foreign exchange environments;

·                  changesin the litigation and regulatory environment, including ongoing legalproceedings and regulatory actions, the frequency and extent of legal claimsthreatened or initiated by clients, other persons and regulators, anddevelopments in regulation and legislation;

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

·                  effectsof competition in the financial services industry and changes in RiverSourceLife’s product distribution mix and distribution channels;

·                  RiverSourceLife’s capital structure as a subsidiary of Ameriprise Financial, including theability of its parent to support its financial strength and ratings;

·                  risksof default by issuers or guarantors of investments RiverSource Life owns or bycounterparties to hedge derivative, insurance or reinsurance arrangements;

·                  experiencedeviations from RiverSource Life’s assumptions regarding morbidity, mortalityand persistency in certain annuity and insurance products, or from assumptionsregarding market volatility underlying RiverSource Life’s hedges on guaranteedbenefit annuity riders;

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

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

·                  theimpact of intercompany allocations to RiverSource Life from AmeripriseFinancial and its affiliates;

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

·                  theimpact of Ameriprise Financial’s efforts to improve distribution economics andof RiverSource Life’s efforts to grow third party distribution and to realizebenefits from tax planning;

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

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

·                  generaleconomic and political factors, including consumer confidence in the economy aswell as the ability and inclination of consumers generally to invest, the costsof products and services RiverSource Life consumes in the conduct of itsbusiness, and applicable legislation and regulation, including tax law, taxtreaties, fiscal and central government treasury policy, and regulatory rulingsand pronouncements.

 

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

 

20

----

** **

**ITEM 4T. CONTROLS AND PROCEDURES**

** **

**Disclosure Controls andProcedures**

 

RiverSource Lifemaintains disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) designed to provide reasonable assurance that the information requiredto be reported in the Exchange Act filings is recorded, processed, summarizedand reported within the time periods specified and pursuant to SEC regulations,including controls and procedures designed to ensure that this information isaccumulated and communicated to RiverSource Life’s management, including itsprincipal executive officer and chief financial officer, as appropriate, toallow timely decisions regarding the required disclosure.  It should be noted that, because of inherentlimitations, RiverSource Life’s disclosure controls and procedures, howeverwell designed and operated, can provide only reasonable, and not absolute,assurance that the objectives of the disclosure controls and procedures aremet.

 

RiverSource Life’smanagement, with the participation of RiverSource Life’s principal executiveofficer and chief financial officer, evaluated the effectiveness of thedisclosure controls and procedures as of the end of the period covered by thisreport.  Based upon that evaluation,RiverSource Life’s principal executive officer and chief financial officer haveconcluded that RiverSource Life’s disclosure controls and procedures wereeffective at a reasonable level of assurance as of March 31, 2008.

 

**Changes in Internal Control overFinancial Reporting**

 

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

 

**PART II.**                  OTHER INFORMATION

** **

**ITEM 1.**                       LEGAL PROCEEDINGS

** **

The information set forthin Note 9 to the Consolidated Financial Statements in Part I, Item 1 isincorporated herein by reference.

 

**ITEM 1A.**              RISKFACTORS

** **

There have been nomaterial changes in the risk factors provided in Part I, Item 1A ofRiverSource Life’s 2007 10-K.

 

**ITEM 6.**                       EXHIBITS

** **

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

 

21

----

 

**SIGNATURES**

 

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

 

 
|                   | RIVERSOURCE LIFE INSURANCE COMPANY                                                               |
|------------------------|--------------------------------------------------------------------------------------------------|
|                   |               (Registrant) |
|                   |                                                                                             |
|                   |                                                                                             |
| Date: May 7, 2008 | By                                                                                               | /s/ Timothy V. Bechtold |
|                   |                                                                                             | Timothy V. Bechtold |
|                   |                                                                                             | President |
|                   |                                                                                             |   |
|                   |                                                                                             |   |
| Date: May 7, 2008 | By                                                                                               | /s/ Brian J. McGrane |
|                   |                                                                                             | Brian J. McGrane |
|                   |                                                                                             | Executive Vice President and |
|                   |                                                                                             | Chief Financial Officer |

 

22

 

**EXHIBITINDEX**

 

The following exhibits are filed as part of thisQuarterly Report:

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                        |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                                                                             |
| *31.1       |       | Certification of Timothy V. Bechtold, President, pursuant to  Rule 13a-14(a) promulgated under the Securities Exchange Act of  1934, as amended.                                                             |
|        |       |                                                                                                                                                                                                                   |
| *31.2       |       | Certification of Brian J. McGrane, Chief Financial  Officer,  pursuant to Rule 13a-14(a) promulgated under the Securities  Exchange Act of 1934, as amended.                                                 |
|        |       |                                                                                                                                                                                                                   |
| *32.1       |       | Certification of Timothy V. Bechtold, President, and Brian J. McGrane,  Chief Financial Officer,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

----

*                     Filed electronically herewith.

 

E-1

----