**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K**

 

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| **x**      | ** ** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**     |
|------------|------------|----------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                               |
| ** ** | ** ** | **For  the fiscal year ended December 31, 2008**                                                    |
| ** ** | ** ** | ** **                                                                                               |
| ** ** | ** ** | **OR**                                                                                                   |
| ** ** | ** ** | ** **                                                                                               |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                to                **

 

**Commissionfile number 033-28976**

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name ofregistrant as specified in its charter)

 

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

 

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

 

Securitiesregistered pursuant to Section 12(b) of the Act:  **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **None**

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

Yes o  No x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or15(d) of the Act.

Yes o  No x

 

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 mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  [Not Applicable]

 

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

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

 

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

Yes o  No x

 

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

 
| **Class**                               | ** ** | **Outstanding at March 2, 2009** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|
| Common Stock  (par value $30 per share) |       | 100,000 shares                                  |       |

 

All outstanding shares ofthe registrant are directly owned by Ameriprise Financial, Inc.

 

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

 

 

 

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**TABLEOF CONTENTS**

 

**Form 10-K**

**ItemNumber**

** **
|              |                                                                                                                | **Page** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**   |                                                                                                                |     |
| 1.                | Business                                                                                                            | 1        |
| 1A.               | Risk Factors                                                                                                        | 8        |
| 1B.               | Unresolved Staff  Comments                                                                                          | 18       |
| 2.                | Properties                                                                                                          | 18       |
| 3.                | Legal Proceedings                                                                                                   | 19       |
| 4.                | Submission of Matters  to a Vote of Security Holders                                                                | 19       |
| **PART II**  |                                                                                                                |     |
| 5.                | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities | 19       |
| 6.                | Selected Financial Data                                                                                             | 19       |
| 7.                | Management’s Narrative  Analysis                                                                               | 20       |
| 7A.               | Quantitative and  Qualitative Disclosures About Market Risk                                                         | 37       |
| 8.                | Financial Statements  and Supplementary Data                                                                        | 37       |
| 9.                | Changes in and Disagreements  with Accountants on Accounting and Financial Disclosure                               | 78       |
| 9A(T).            | Controls and Procedures                                                                                             | 78       |
| 9B.               | Other Information                                                                                                   | 79       |
| **PART III** |                                                                                                                |     |
| 10.               | Directors and Executive  Officers of the Registrant                                                                 | 79       |
| 11.               | Executive Compensation                                                                                              | 79       |
| 12.               | Security Ownership of  Certain Beneficial Owners and Management and Related Stockholder Matters                     | 79       |
| 13.               | Certain Relationships  and Related Transactions, and Director Independence                                          | 79       |
| 14.               | Principal Accountant  Fees and Services                                                                             | 79       |
| **PART IV**  |                                                                                                                |     |
| 15.               | Exhibits and Financial  Statement Schedules                                                                         | 80       |
|              | Signatures                                                                                                          | 81       |
|              | Exhibit Index                                                                                                  | E-1      |

 

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**PART I**

 
| **ITEM  1.** | **BUSINESS** |
|--------------|--------------|

 

**Introduction**

 

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

 

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

 

·                  RiverSource Lifeof NY is a stock life insurance company domiciled in New York, which holdsCertificates of Authority in New York, North Dakota and Delaware.  RiverSource Life of NY issues insurance andannuity products.

 

On December 31, 2008, Ameriprise Financialcontributed all of the issued and outstanding shares of RiverSource TaxAdvantaged Investments, Inc. (“RiverSource Tax Adv. Inv.”) to RiverSourceLife Insurance Company.  RiverSource TaxAdv. Inv. is a stock company domiciled in Delaware and is a limited partner inaffordable housing partnership investments.

 

RiverSource Life Insurance Company and its twosubsidiaries are referred to collectively in this Form 10-K as “RiverSourceLife”.

 

A majority of RiverSourceLife’s business is sold through the retail distribution channel of AmeripriseFinancial Services, Inc., a subsidiary of Ameriprise Financial.  RiverSource Distributors, Inc., asubsidiary of Ameriprise Financial, serves as the principal underwriter anddistributor of variable annuity and life insurance products issued byRiverSource Life.

 

Ameriprise Financial wasformerly a wholly owned subsidiary of American Express Company (“AmericanExpress”).  On February 1, 2005, theAmerican Express Board of Directors announced its intention to pursue thedisposition of 100% of its shareholdings in Ameriprise Financial (the “Separation”)through a tax-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.

 

**Annuities:Product Features and Risks**

 

RiverSource Life offersboth deferred variable and fixed annuities to a broad range of consumersthrough multiple distribution channels. Deferred variable and fixed annuities are products where assetsaccumulate until the contract is surrendered, the contractholder (or in somecontracts, the annuitant) dies, or the contractholder or annuitant beginsreceiving benefits under an annuity payout option. RiverSource Life also offersimmediate annuities in which payments begin within one year of issue andcontinue for life or for a fixed period of time.

 

RiverSource Life is oneof the largest issuers of annuities in the United States.  For the nine months ended September 30,2008, its variable annuity products ranked eleventh in new sales according toMorningstar Annuity Research Center. RiverSource Life had annuity cash sales in 2008 of $9.2 billion, adecrease of 17% from 2007 as a result of a decrease in variable annuitiessales, partially offset by an increase in fixed annuity sales.  The relative proportion between fixed andvariable annuity sales is generally driven by the relative performance of theequity and fixed income markets.  Intimes of weak performance in equity markets, fixed sales are generallystronger.  In times of superiorperformance in equity markets, variable sales are generally stronger.  The relative proportion between fixed andvariable annuity sales is also influenced by product design and other factors.

 

Revenues for RiverSource Life’s variable annuity productsare primarily earned as fees based on underlying account balances, which areimpacted by both market movements and net asset flows.  RiverSource Life also earns net investmentincome on owned assets supporting reserves for fixed and immediate annuitiesand for certain guaranteed benefits offered with variable annuities. 

 

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**VariableAnnuities**

A variable annuityprovides a contractholder with investment returns linked to underlyinginvestment accounts of the contractholder’s choice.  Most variable annuity products in force offera fixed account investment option with guaranteed minimum interest creditingrates ranging up to 4.0% as of December 31, 2008.

 

Contract purchasers canchoose optional benefit provisions to their contracts to meet their needs,including enhanced guaranteed minimum death benefit (“GMDB”), guaranteedminimum withdrawal benefit (“GMWB”) and guaranteed minimum accumulation benefit(“GMAB”) provisions.  Approximately 68%of variable annuity sales in 2008 included either a GMWB or GMAB provision,while approximately one-third of RiverSource Life’s overall variable annuityassets include a GMWB or GMAB feature. In general, these features can help protect contractholders andbeneficiaries from a shortfall in death or living benefits due to a decline inthe value of their underlying investment accounts.

 

The majority of thevariable annuity contracts RiverSource Life offers contain GMDBprovisions.  RiverSource Life’slargest-selling variable annuities are the RiverSource® Retirement Advisor Plus 4 series of variableannuities, which include the RiverSource Retirement Advisor 4 Advantage® variable annuity and the RiverSourceRetirement Advisor 4 Select® variable annuity (the “Retirement Advisor 4Variable Annuities”).  Under theRetirement Advisor 4 Variable Annuities, the standard GMDB provides that if thecontractholder is age 75 or younger on the date the contract is issued, thebeneficiary will receive the greater of (i) contract value less anypurchase payment credits subject to recapture less a pro-rata portion of anyrider fees, or (ii) purchase payments minus adjusted partialsurrenders.  If the contractholder is age76 or older at contract issue, the beneficiary will receive the contract value,less any purchase payment credits subject to recapture and less a pro-rataportion of any rider fees.

 

Additional optional GMDBsare also available.  For example, *RiverSource Retirement Advisor 4 Advantage* variable annuitycontractholders age 76 or older at contract issue may purchase the optionalReturn of Purchase Payment Death Benefit for an additional charge which addsthe return of purchase payments less adjusted partial surrenders to thestandard death benefit.

 

Contractholders may alsopurchase a maximum anniversary value death benefit or a five-year maximumanniversary value death benefit for an additional charge.  These death benefit riders guarantee to paythe beneficiary the maximum account value on any contract anniversary or anyfifth contract anniversary, plus subsequent purchase payments less adjustedpartial surrenders.

 

RiverSource Life’scontractholders also may purchase an enhanced earnings death benefit or anenhanced earnings plus death benefit for an additional charge.  These death benefit riders are intended toprovide additional benefits to offset expenses after the contractholder’sdeath.

 

Available features forannuity products also include the GMWB and GMWB for life.  The GMWB is designed to protect the contractholder’s principal byallowing the client to withdraw the principal over a period of time, regardlessof the investment performance of the contract. The GMWB for life is an enhanced benefit that also allows periodicwithdrawals for the life of the contractholder, regardless of the investmentperformance of the contract.

 

Variable annuity contractholders can also obtain alump sum principal-back guarantee by purchasing the optional GMAB rider for anadditional charge.  The GMAB provides aguaranteed contract value at the end of a ten-year waiting period regardless ofthe investment performance of the contract. The guarantee is equal to the greater of the total amount of purchasepayments made or 80% of the highest anniversary value, adjusted for anywithdrawals.

 

Certain variable annuity contracts contain a guaranteedminimum income benefit (“GMIB”)feature which, after a stipulated waiting period from contract issuance,guarantees a minimum lifetime annuity based on predetermined annuity purchaserates that may be in excess of what the contract account value can purchase atthen-current annuity purchase rates. RiverSource Life bears the risk that protracted under-performance of thefinancial markets could result in GMIB being higher than what accumulatedcontractholderaccount balances would support.   In May 2007,RiverSource Life ceased offering contracts with GMIB provisions.

 

RiverSource Life earnsfee-based revenue in the form of mortality and expense risk fees, marketingsupport and administrative fees, fees charged for optional features elected bythe contractholderand any surrender or withdrawal charges.

 

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The general accountassets of RiverSource Life support the contractual obligations under theguaranteed benefit provisions (see “General and Separate Account Assets —General Account” below).  As a result,RiverSource Life bears the risk that protracted under-performance of thefinancial markets could result in guaranteed benefit payments being higher thanwhat current account values would support. RiverSource Life’s exposure to risk from guaranteed benefits generallywill increase when equity markets decline, as evidenced by the significantdecline experienced in 2008.  For adiscussion of liabilities related to RiverSource Life’s annuity products, seeNote 2 of the Consolidated Financial Statements included in Part II, Item8 of this Annual Report on Form 10-K.

 

**FixedAnnuities**

RiverSource Life’s fixedannuity products provide a contractholder with cash value that increases by afixed or indexed interest rate. RiverSource Life periodically resets rates at its discretion subject tocertain policy terms establishing minimum guaranteed interest creditingrates.  RiverSource Life’s earnings fromfixed annuities are based upon the spread between rates earned on assetspurchased with fixed annuity deposits and the rates at which interest iscredited to its fixed annuity contracts.

 

RiverSource Lifepreviously offered equity indexed annuities. In 2007, new sales were discontinued.

 

Revenues for RiverSource Life’s fixed annuity products areprimarily earned as net investment income on assets supporting fixed accountbalances with profitability significantly impacted by the spread between netinvestment income earned and interest credited on the fixed account balances.

 

The fixed annuitycontracts in force provide guaranteed minimum interest crediting rates rangingfrom 1.5% to 5.0% as of December 31, 2008. New contracts issued provide guaranteed minimum interest rates incompliance with state laws providing for indexed guaranteed rates.

 

**Insurance:Product Features and Risks**

 

RiverSource Life issuesboth variable and fixed universal life insurance, traditional life insuranceand disability income (“DI”) insurance. Universal life insurance is a form of permanent life insurancecharacterized by flexible premiums, flexible death benefits and unbundledpricing factors (i.e., mortality, interest and expenses).  Traditional life insurance refers to wholeand term life insurance policies that pay a specified sum to a beneficiary upondeath of the insured for a fixed premium. Variable universal life insurance combines the premium and death benefitflexibility of universal life with underlying fund investment flexibility andthe risks associated therewith.

 

RiverSource Life’s salesof individual life insurance in 2008, as measured by scheduled annual premiums,lump sum and excess premiums, consisted of 71% variable universal life, 22%fixed universal life and 7% traditional life. RiverSource Life issues only non-participating life insurance policies,which do not pay dividends to policyholders from the insurers’ earnings. One ofthe major risks inherent in life insurance is the risk that mortality will begreater than anticipated. As discussed below, reinsurance is critical forRiverSource Life to mitigate this risk.

 

**VariableUniversal Life Insurance**

RiverSource Life is aleader in variable universal life insurance. Variable universal life insurance provides life insurance coverage alongwith investment returns linked to underlying investment accounts of the policyholder’schoice.  Options may include RiverSourceVariable Portfolio Funds as well as variable portfolio funds of othercompanies.  Most variable universal lifeinsurance products in force offered a fixed account investment option withguaranteed minimum interest crediting rates ranging from 3.0% to 4.5% as of December 31,2008.  RiverSource Life Insurance Companyranked fifth in sales of variable universal life based on total premiums(according to the Tillinghast Towers-Perrin ValueTM Survey, dated September 30, 2008, themost recent report available). RiverSource Life’s major source of revenue from variable universal lifeinsurance is cost of insurance and other charges.

 

**Fixed Universal Life Insuranceand Traditional Whole Life Insurance**

Fixed universal life andtraditional whole life insurance policies do not subject the policyholder tothe investment risks associated with variable universal life insurance.

 

RiverSource Life’s fixeduniversal life insurance products provide life insurance coverage and cashvalue that increases by a fixed interest rate. The rate is periodically reset at the discretion of RiverSource Lifesubject to certain policy terms relative to minimum interest creditingrates.  Fixed universal life insuranceproducts in force provided guaranteed minimum interest crediting rates rangingfrom 3.0% to 5.0% as of December 31, 2008.

 

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RiverSource Life alsooffers traditional whole life insurance, which combines a death benefit with acash value that generally increases gradually over a period of years.  RiverSource Life has sold very littletraditional whole life insurance in recent years.

 

**Term Life Insurance**

Term life insuranceprovides a death benefit but it does not build up cash value.  The policyholder chooses the term of coveragewith guaranteed premiums at the time of issue. During the chosen term, RiverSource Life cannot raise premium rates evenif claims experience deteriorates.  Atthe end of the chosen term, coverage may continue with higher premiums untilthe maximum age is attained, or the policy expires with no value.

 

**DisabilityIncome Insurance**

DI insurance providesmonthly benefits to individuals who are unable to earn income either at theiroccupation at time of disability (“own occupation”) or at any suitableoccupation (“any occupation”) for premium payments that are guaranteed not tochange.  Depending upon occupational andmedical underwriting criteria, applicants for DI insurance can choose “ownoccupation” and “any occupation” coverage for varying benefit periods.  In some states, applicants may also choosevarious benefit provisions to help them integrate individual DI insurancebenefits with social security or similar benefit plans and to help them protecttheir DI insurance benefits from the risk of inflation.  For the nine months ended September 30,2008, RiverSource Life was ranked as the eighth largest provider of individual(non-cancelable) DI insurance based on premiums (according to LIMRAInternational®).

 

**LongTerm Care Insurance**

As of December 31,2002, RiverSource Life discontinued underwriting long term care (“LTC”)insurance.  Although new product saleswere discontinued in the fourth quarter of 2002, RiverSource Life generallyretained 50% of the risk on existing contracts and ceded the remaining 50% ofthe risk on a coinsurance basis to a subsidiary of Genworth Financial, Inc.(“Genworth”).

 

RiverSource LifeInsurance Company and RiverSource Life of NY began in 2004 to file for approvalto implement rate increases on most of their existing blocks of nursinghome-only indemnity LTC insurance policies. Implementation of these rate increases began in early 2005 andcontinues.  So far, approvals have been receivedfor some or all requested increases in 50 states, with an average approvedcumulative rate increase of 44.7% of premium on all such policies where anincrease was requested.

 

RiverSource LifeInsurance Company and RiverSource Life of NY began in 2007 to file for approvalto implement rate increases on most of their existing blocks of comprehensivereimbursement LTC insurance policies. Implementation of these rate increases began in late 2007 and continues.So far, approvals have been received for some or all requested increases in 46 states,with an average approved cumulative rate increase of 15.8% of premium on allsuch policies where an increase was requested.

 

Additional rate increasesmay be sought with respect to these and other existing blocks of LTC insurancepolicies, in each case subject to regulatory approval.

 

**Generaland Separate Account Assets**

 

Depending on the lifeinsurance and annuity product purchased, the assets of RiverSource Life’spolicyholders and contractholders may be placed in the general account ofRiverSource Life (the “general account”) for fixed products and for the fixedaccount options under certain variable products or, in the case of variablelife insurance and variable annuity products, in separate accounts that investin underlying investment options (the “separate accounts”).

 

**General Account**

Assets in the generalaccount support all obligations of RiverSource Life other than those supportedby the separate accounts. RiverSource Life bears the investment risk of thegeneral account assets.

 

In the general account,RiverSource Life, through its investment manager, RiverSource Investments, LLC,primarily invests in fixed maturity securities over a broad range of maturitiesfor the purpose of providing a targeted rate of return on its investments whilecontrolling risk.  The majority of thesefixed maturity securities are interest-bearing investments such as governmentobligations, mortgage backed obligations and various corporate debtinstruments.  RiverSource Life does notinvest in securities to generate trading profits.

 

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In accordance withregulatory investment guidelines, RiverSource Life Insurance Company andRiverSource Life of NY, through their respective boards of directors or boardof directors’ investment committees or staff functions, review modelsprojecting different interest rate scenarios, risk/return measures and theireffect on profitability in order to guide the management of the general accountassets.  They also review thedistribution of assets in the portfolio by type and credit risk sector.  The objective is to structure the investmentsecurities portfolio in the general account to meet contractual obligationsunder the insurance and annuity products and achieve targeted levels of profitabilitywithin defined risk parameters.

 

RiverSource Life has thediscretion to set the rate of interest credited to contractholders’ accountssubject to each contract’s guaranteed minimum interest crediting rate.  As of December 31, 2008, this ratevaried among fixed accounts and was as low as 1.7% and as high as 8.4%.  To the extent the yield on RiverSource Life’sinvested general account asset portfolio declines below its target spread plusthe minimum guarantee, RiverSource Life’s profitability would be negativelyaffected.

 

The interest ratescredited to contractholders’ fixed accounts generally reset towards newbusiness rates; therefore, margins may be negatively impacted by increases inthe general level of interest rates.  Part ofRiverSource Life’s strategy includes the use of derivatives, such as interestrate swaptions, for risk management purposes. These derivatives help protect margins by increasing investment returnsif there is a sudden and severe rise in interest rates, thereby lessening theimpact of an increase in rates credited to contractholders’ fixedaccounts.  Conversely, in a low interestrate environment, margins may be negatively impacted as the interest ratesavailable on RiverSource Life’s invested assets approach guaranteed minimuminterest rates on the insurance or annuity contracts in force.  This negative impact may be compounded by thefact that many of these interest-bearing investments are callable orpre-payable by the issuer and calls and prepayments are more likely to occur ina low interest rate environment.

 

**Separate****Accounts**

Variable annuity andinsurance products offer separate account investment options. In addition, manyof these products offer fixed account options. Under the separate account option, contractholders and policyholdersbear the investment risk.  The separateaccounts are registered as unit investment trusts under the Investment CompanyAct of 1940.  State insurance lawprescribes that separate accounts constitute a distinct operation from thegeneral account and as such assets in the separate accounts are only availableto fund the liabilities of the separate accounts. Under the subaccounts of eachseparate account, RiverSource Life credits or charges income, capital gains andlosses only to that subaccount.

 

Generally, the separateaccounts consist of a number of subaccounts, each of which invests in shares ofa particular fund.  Contractholders andpolicyholders can allocate their payments among these separate subaccounts.  The underlying funds are managed both byaffiliated and unaffiliated third-party money managers.  These funds invest in portfolios containing avariety of securities including common stocks, bonds, managed assets and/orshort-term securities.  The value of thesubaccounts fluctuates with the investment return of the underlying funds inwhich the subaccounts invest.

 

RiverSource Life receivespayments from its affiliate, RiverSource Investments, LLC, for providingcertain sponsor and related servicing activity for the *RiverSource*Variable Portfolio funds which are available as investment options under thevariable annuity and life insurance products. RiverSource Life also receives revenues from assets allocated tosubaccounts investing in *RiverSource*Variable Portfolio funds.  These revenuesinclude shareholder services payments as well as payments for marketing,administrative services, training and other services provided by RiverSourceLife.

 

In addition to therevenues described above, RiverSource Life receives shareholder servicingpayments from other companies’ funds included as investment options under itsvariable annuity and life insurance products. It also receives marketing and administrative support payments from theaffiliates of other companies’ funds which are included as investment optionsin its variable annuity and life insurance products. These fees are generallybased on the level of separate account assets held in a particular fund andaccordingly will vary based on market conditions.

 

**Competition**

 

RiverSource Life competeswith other insurers and product manufacturers including insurance companies,such as Hartford Life, MetLife, Lincoln National Life and Nationwide Life, aswell as certain banks, securities brokerage firms, independent financialadvisors and other financial intermediaries that market insurance, annuities,mutual funds, retirement accounts and other financial products.

 

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Competitive factorsaffecting the sale of RiverSource Life’s annuity and/or insurance productsinclude:

 

·                  financialstrength ratings from agencies such as A.M. Best;

·                  thebreadth, quality, design and pricing of products and services offered;

·                  guaranteedbenefit features;

·                  thequality of underwriting;

·                  theeffectiveness of advertising and promotion campaigns;

·                  reputationand recognition in the marketplace;

·                  distributioncapabilities and compensation; and

·                  thequality of customer service.

 

**Regulation**

 

The Minnesota Departmentof Commerce regulates RiverSource Life Insurance Company, and the New YorkState Insurance Department (together with the Minnesota Department of Commerce,the “Domiciliary Regulators”) regulates RiverSource Life of NY.

 

In addition to beingregulated by their Domiciliary Regulators, RiverSource Life Insurance Companyand RiverSource Life of NY are regulated by each of the insurance regulators inthe states where each is authorized to transact the business of insurance.  These other states also regulate such mattersas the licensing of sales personnel and, in some cases, the underwriting,marketing and contents of insurance policies and annuity contracts.  The primary purpose of such regulation andsupervision is to protect the interests of contractholders andpolicyholders.  Financial regulation ofRiverSource Life is extensive and its financial and intercompany transactions(such as intercompany dividends, capital contributions and investmentactivities) are often subject to pre-notification and continuing evaluation bythe Domiciliary Regulators.  Virtually allstates require participation in insurance guaranty associations which assessfees to insurance companies in order to fund claims of policyholders andcontractholders of insolvent insurance companies.

 

Because RiverSource Lifeissues variable annuity and life insurance products required to be registeredunder federal and state securities laws, many aspects of its business aresubject to extensive regulation and examination by the Securities and ExchangeCommission (“SEC”), the Financial Industry Regulatory Authority, commonlyreferred to as FINRA, and other federal and state regulatory bodies.

 

Insurance companies haverecently been the subject of increasing regulatory, legislative and judicialscrutiny.  Numerous state and federalregulatory agencies have commenced investigations regarding sales and marketingpractices (including sales to older consumers), compensation arrangements andanticompetitive activities, and market timing and late trading in connectionwith insurance, annuity and mutual fund products.  RiverSource Life has been contacted byregulatory agencies for information relating to some of these investigationsand is cooperating with those inquiries.

 

At the federal level,there is periodic interest in enacting new regulations relating to variousaspects of the insurance industry, including taxation of annuities and lifeinsurance policies, accounting procedures, the use of travel in underwriting,and the treatment of persons differently because of gender with respect toterms, conditions, rates or benefits of an insurance policy.  Adoption of any new federal regulation in anyof these or other areas could materially affect RiverSource Life’s financialcondition and results of operations.

 

The instability anddecline in global financial markets experienced during 2008 and through the presenttime have resulted in an unprecedented amount of government intervention infinancial markets, including direct investment in financial institutions.  Governments and regulators in the U.S. andabroad are considering or have implemented new and more expansive laws andregulations which may directly impact RiverSource Life’s businesses.  Additional discussion of potential risksarising from enactment of new regulations can be found in Item 1A of thisAnnual Report on Form 10-K— “Risk Factors.”

 

**FinancialStrength Ratings**

 

RiverSource LifeInsurance Company receives ratings from independent rating organizations.  Ratings are important to maintaining publicconfidence in RiverSource Life.  Loweringof RiverSource Life’s ratings could have a material adverse affect on itsability to market its products and could lead to increased surrenders of itsproducts.  Rating organizations

 

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evaluate the financialsoundness and claims-paying ability of insurance companies continually, andbase their ratings on a number of different factors, including market positionin core products and market segments, risk-adjusted capitalization and thequality of investment portfolios.

 

More specifically, theratings assigned are developed from an evaluation of a company’s balance sheetstrength, operating performance and business profile.  Balance sheet strength reflects a company’sability to meet its current and ongoing obligations to its contractholders andpolicyholders and includes analysis of a company’s capital adequacy.  The evaluation of operating performancecenters on the stability and sustainability of a company’s source ofearnings.  The business profile componentof the rating considers a company’s mix of business, market position and depthand experience of management.

 

RiverSource LifeInsurance Company’s claims-paying ability is currently rated “A+” (Superior) by A.M.Best Company, Inc. and its claims-paying ability/financial strength wasrated “Aa3” (Excellent) by Moody’s Investors Service (Moody’s), “AA-”(Very Strong) by Fitch, and “AA-” (Very Strong) by Standard & Poor’s (“S&P”).

 

Generally, RiverSourceLife of NY does not receive an individual rating, but receives the same ratingas RiverSource Life Insurance Company.

 

On January 29, 2009,S&P and Moody’s each affirmed their above ratings of RiverSource LifeInsurance Company, citing excellent capitalization and solid financialflexibility.  At the same time bothS&P and Moody’s revised their outlook on RiverSource Life from stable tonegative citing diminished earnings power resulting from the challenging equityand credit markets.

 

**Reinsurance**

 

RiverSource Lifereinsures a portion of the risks associated with its life, DI and LTC insuranceproducts through reinsurance agreements with unaffiliated reinsurancecompanies.  Reinsurance is used in orderto limit losses, reduce exposure to large risks and provide additional capacityfor future growth.  To manage exposure tolosses from reinsurer insolvencies, RiverSource Life evaluates the financialcondition of its reinsurers prior to entering into new reinsurance treaties andon a periodic basis during the terms of the treaties.  RiverSource Life remains primarily liable asthe direct insurer on all risks reinsured.

 

Generally, RiverSourceLife reinsures 90% of the death benefit liability related to individual fixedand variable universal life and term life insurance products.  As a result, RiverSource Life typicallyretains and is at risk for, at most, 10% of each policy’s death benefit fromthe first dollar of coverage for new sales of these policies, subject to thereinsurers fulfilling their obligations. RiverSource Life began reinsuring risks at this level beginning in 2001for term life insurance and 2002 for individual fixed and variable universallife insurance.  Policies issued prior tothese dates are not subject to these same reinsurance levels.  Generally, the maximum amount of lifeinsurance risk retained by RiverSource Life is $1.5 million (increased from $750,000during 2008) on any policy insuring a single life and $1.5 million on anyflexible premium survivorship life policy. As a result of the increase in single life retention during 2008,RiverSource Life is in the process of recapturing some older blocks of businessrepresenting less than 1% of current reinsured life insurance risk.  Risk on fixed and variable universal lifepolicies is reinsured on a yearly renewable term basis.  Risk on most term life policies starting in2001 is reinsured on a coinsurance basis, a type of reinsurance in which thereinsurer participates proportionally in all material risks and premiumsassociated with a policy.

 

For existing LTCpolicies, RiverSource Life (and RiverSource Life of NY for 1996 and laterissues) retained 50% of the risk and ceded on a coinsurance basis the remaining50% of the risk to Genworth. As of December 31, 2008, RiverSource Life’scredit exposure to Genworth under this reinsurance arrangement wasapproximately $1.2 billion under U.S. generally accepted accounting principles(“GAAP”) and $1.6 billion under statutory accounting principles. Genworth alsoserves as claims administrator for RiverSource Life’s LTC policies.

 

Generally, RiverSourceLife retains at most $5,000 per month of risk per life on DI policies sold onpolicy forms introduced in most states in October 2007 and reinsures theremainder of the risk on a coinsurance basis with unaffiliated reinsurancecompanies.  RiverSource Life retains allrisk for new claims on DI contracts sold on other policy forms.  RiverSource Life also retains all risk onaccidental death benefit claims and substantially all risk associated withwaiver of premium provisions.

 

In addition, RiverSource Life assumes lifeinsurance and fixed annuity risk under reinsurance arrangements withunaffiliated insurance companies.  As ofDecember 31, 2008, the amount related to assumed reinsurance arrangements was$689 million under GAAP and $695 million under statutory accountingprinciples.  

 

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See Note 7 to theConsolidated Financial Statements included in Part II, Item 8 of thisAnnual Report on Form 10-K for additional information on reinsurance.

 

**Risk-BasedCapital**

 

The National Associationof Insurance Commissioners (“NAIC”) defines risk-based capital (“RBC”)requirements for life insurance companies. The RBC requirements are used by the NAIC and state insurance regulatorsto identify companies that merit regulatory action designed to protectpolicyholders.  The NAIC RBC report iscompleted as of December 31 and filed annually, along with the statutoryfinancial statements.

 

RiverSource LifeInsurance Company would be subject to various levels of regulatory interventionif its total adjusted statutory capital fell below the RBC requirement.  At the “company action level,” defined astotal adjusted capital level between 100% and 75% of the RBC requirement, aninsurer must submit a plan for corrective action with its primary stateregulator.  The “regulatory action level,”which is between 75% and 50% of the RBC requirement, subjects an insurer toexamination, analysis and specific corrective action prescribed by the primarystate regulator.  If a company’s totaladjusted capital falls between 50% and 35% of its RBC requirement, referred toas “authorized control level,” the insurer’s primary state regulator may placethe insurer under regulatory control. Insurers with total adjusted capital below 35% of the requirement willbe placed under regulatory control.

 

At December 31,2008, RiverSource Life Insurance Company’s company action level RBC was $551million, and the corresponding total adjusted capital was $2.7 billion, whichrepresents 494% of company action level RBC.

 

As described above,RiverSource Life Insurance Company maintains capital well in excess of thecompany action level required by the Minnesota Department of Commerce, itsprimary regulator.

 
| **ITEM  1A.** | **RISK  FACTORS** |
|---------------|-------------------|

 

If any of the followingrisks and uncertainties develop into actual events, these events could have amaterial adverse effect on RiverSource Life’s business, financial condition orresults of operations.  Based on currentinformation, RiverSource Life believes that the following informationidentifies the most significant risk factors affecting RiverSource Life in eachof these categories of risk. However, the risks and uncertainties RiverSourceLife faces are not limited to those described below. Additional risks anduncertainties which are not presently known or which are currently believed tobe immaterial may also adversely affect RiverSource Life’s business.

 

**RisksRelating to RiverSource Life’s Business**

 

***RiverSource Life’s financial condition and results ofoperations may be adversely affected by market fluctuations, interest ratefluctuations and by economic and other factors.***

 

RiverSource Life’sfinancial condition and results of operations may be materially affected bymarket fluctuations, interest rate fluctuations and economic and otherfactors.  Many factors of a global orlocalized nature include: political, economic and market conditions; theavailability and cost of capital; the level and volatility of equity prices,commodity prices and interest rates and other market indices; technologicalchanges and events; the availability and cost of credit; inflation; investorsentiment and confidence in the financial markets; terrorism events and armedconflicts; and natural disasters such as weather catastrophes and widespreadhealth emergencies.  In addition, duringperiods of unfavorable market or economic conditions, the level of consumerinvesting and insuring activity may also decrease, which may negatively impactthe results of RiverSource Life’s businesses. Moreover, fluctuations in economic and market activity could impact theway then-existing customers allocate their available resources, which couldaffect RiverSource Life’s persistency, surrender and product cash value loanexperience and could negatively impact its business. RiverSource Life’sinsurance and annuity products are sensitive to interest rate fluctuations, andits future costs associated with such variations may differ from its historicalcosts.  In addition, interest ratefluctuations could result in fluctuations in the valuation of certain minimumguaranteed benefits contained in some of its variable annuity products.  Although RiverSource Life typically hedgesagainst such fluctuations, a significant change in interest rates could have amaterial adverse impact on RiverSource Life’s results of operations.

 

RiverSource Life’sbusiness has been and may continue to be adversely affected by the current U.S.and global capital market and credit crises, the repricing of credit risk,equity market volatility and decline, and stress or recession in the U.S. andglobal economies generally. Over approximately the past eighteen months,difficulties in the mortgage and broader capital markets in the U.S. andelsewhere, coupled with the repricing of credit risk, have created extremelydifficult market conditions. These conditions, as well as instability in globalequity markets with a significant decline in stock prices, have producedgreater volatility, less liquidity, variability of credit spreads and a lack ofprice transparency.

 

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During periods ofincreasing market interest rates, RiverSource Life must offer higher creditingrates on interest-sensitive products, such as fixed universal life insuranceand fixed annuities to keep these products competitive. Because returns oninvested assets may not increase as quickly as current interest rates andRiverSource Life must increase crediting rates on in-force products,RiverSource Life may have to accept a lower “spread,” or the difference betweenthe returns it earns on the investments that support its obligations underthese products and the amounts that it must pay policyholders andcontractholders, and thus lower profitability or face a decline in sales andgreater loss of existing contracts and related assets.  In addition, increases in market interestrates may cause increased policy surrenders, withdrawals from life insurancepolicies and annuity contracts and requests for policy loans, as policyholdersand contractholders seek to shift assets to products with perceived higher returns.This process may lead to an earlier than expected outflow of cash from thebusiness.  Also, increases in marketinterest rates may result in extension of the maturity of some of RiverSourceLife’s investment assets.  These earlieroutflows and asset maturity extensions may require investment assets to be soldat a time when the prices of those assets are lower because of the increase inmarket interest rates, which may result in realized investment losses.  Increases in crediting rates, as well as surrendersand withdrawals, could have an adverse effect on RiverSource Life’s financialcondition and results of operations.  Anincrease in policy surrenders and withdrawals also may require RiverSource Lifeto accelerate amortization of deferred acquisition costs (“DAC”), which wouldincrease its expenses and reduce its net income.

 

During periods of fallinginterest rates, RiverSource Life’s spread may be reduced or could becomenegative, primarily because some of these products have guaranteed minimum creditingrates.  Due to the long-term nature ofthe liabilities associated with RiverSource Life’s fixed annuities andguaranteed benefits on variable annuities, sustained declines in long-terminterest rates may subject RiverSource Life to reinvestment risks and increasedhedging costs.

 

Interest ratefluctuations also could have an adverse effect on the results of RiverSourceLife’s investment portfolio. During periods of declining market interest rates,the interest RiverSource Life receives on variable interest rate investmentsdecreases. In addition, during those periods, RiverSource Life is forced toreinvest the cash it receives as interest or return of principal on itsinvestments in lower-yielding high-grade instruments or in lower-creditinstruments to maintain comparable returns. Issuers of certain callable fixedincome securities also may decide to prepay their obligations in order toborrow at lower market rates, which increases the risk that RiverSource Lifemay have to invest the cash proceeds of these securities in lower-yielding orlower-credit instruments.

 

Significant downturns andvolatility in equity markets, such as RiverSource Life is currentlyexperiencing, have had and could continue to have an adverse effect onRiverSource Life’s financial condition and results of operations. Marketdownturns and volatility may cause, and have caused, potential new purchasersto refrain from purchasing RiverSource Life’s variable annuities and variableuniversal life insurance products that have returns linked to the performanceof the equity markets. Downturns may also cause contractholders in annuityproducts and policyholders in insurance products to withdraw cash values fromthose products.

 

Additionally, downturnsand volatility in equity markets can have, and have had, an adverse effect onRiverSource Life’s asset-based revenues because the value of equity-basedseparate account assets will be reduced.

 

The GMAB and the non-lifecontingent benefits associated with GMWB provisions offered with certain RiverSourceLife variable annuities create obligations which are carried at fair valueseparately from the underlying host variable annuity contract.  Changes in the fair value of these GMAB andGMWB obligations are recorded through earnings with fair value calculated byestimating the present value of future benefits less applicable fees usingactuarial models, which simulate various economic scenarios.  Changes in interest rates, equity pricesand/or equity market volatility may impact the fair value of the GMAB and GMWBliabilities.  Although RiverSource Lifetypically hedges against such changes, a significant change in either equityprice levels or equity market volatility may result in a net adverse impact tocurrent period financial statements. Further, RiverSource Life’s cost of hedging these guarantees hasincreased significantly in recent periods as a result of low interest rates andcontinuing volatility in the equity markets. In addition, continued heightened volatility creates greater uncertaintyfor the accuracy of RiverSource Life’s future hedging effectiveness.

 

A significant marketdecline in equity price levels could also result in guaranteed minimum benefitsunder GMDB and GMIB provisions being higher than current account values, whichcould have an adverse effect on RiverSource Life’s financial condition andresults of operations.  RiverSource Lifedoes not currently hedge or reinsure GMDB or GMIB provisions.

 

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For additionalinformation regarding the sensitivity of RiverSource Life’s business results toequity market and interest rate fluctuations, see Item 7 of this Annual Reporton Form 10-K — “Management’s Narrative Analysis — Quantitative andQualitative Disclosures about Market Risk.”

 

***Adverse capital and credit market conditions maysignificantly affect RiverSource Life’s ability to meet liquidity needs, accessto capital and cost of capital.***

 

The capital and creditmarkets have been experiencing extreme volatility and disruption. In somecases, the markets have exerted downward pressure on availability of liquidityand credit capacity for certain issuers. RiverSource Life needs liquidity to pay contractholder and policyholderclaims and benefits as well as operating expenses.  Without sufficient liquidity, RiverSourceLife could be required to curtail its operations, and its business wouldsuffer.

 

RiverSource Lifemaintains a level of cash and securities which, combined with expected cashinflows from investments and operations, is believed adequate to meetanticipated short-term and long-term benefit and claims payment obligations. Inthe event current resources are insufficient to satisfy RiverSource Life’sneeds, it may need to rely on financing sources from its parent holding company,its other affiliates or third parties. The availability of additional financingwill depend on a variety of factors such as market conditions, the availabilityof liquidity from RiverSource Life’s parent or other affiliates, the generalavailability of credit, the overall availability of credit to the financialservices industry, RiverSource Life’s credit ratings and credit capacity, aswell as the possibility that customers or potential third party lenders coulddevelop a negative perception of RiverSource Life’s long- or short-termfinancial prospects if it incurs large investment losses or if the level of itsbusiness activity decreases due to a market downturn. Similarly, RiverSourceLife’s access to funds may be impaired if regulatory authorities or ratingorganizations take negative actions against it. Also, transfers of cash or other assets from RiverSource Life’s parentor other affiliates must comply with applicable regulations and may be subjectto the prior approval of state insurance regulators.

 

Disruptions, uncertaintyor volatility in the capital and credit markets may also limit RiverSource Life’sor its parent’s access to capital required to operate its business.  Such market conditions may limit RiverSourceLife’s ability to satisfy statutory capital requirements; generate fee incomeand market-related revenue to meet liquidity needs; and access the capitalnecessary to grow its business. As such, RiverSource Life may be forced to usedifferent types of capital than it would otherwise use, less effectively deploysuch capital, or bear an unattractive cost of capital which could decreaseRiverSource Life’s profitability and significantly reduce its financialflexibility.

 

***The impairment of other financial institutions couldadversely affect******RiverSource Life.***

 

RiverSource Life hasexposure to many different industries and counterparties, and routinelyexecutes transactions with counterparties in the financial services industry,including brokers and dealers, commercial banks, investment banks, hedge funds,insurers, reinsurers and other investment funds and other institutions. Many ofthese transactions expose RiverSource Life to credit risk in the event ofdefault of its counterparty. In addition, with respect to secured transactions,RiverSource Life’s credit risk may be exacerbated when the collateral held byit cannot be realized upon or is liquidated at prices insufficient to recoverthe full amount of the loan or derivative exposure due to it. RiverSource Lifealso has exposure to these financial institutions in the form of unsecured debtinstruments, derivative transactions, (including with respect to derivativeshedging its exposure on variable annuity contracts with guaranteed benefits),reinsurance and underwriting arrangements and equity investments.  There can be no assurance that any suchlosses or impairments to the carrying value of these assets would notmaterially and adversely impact RiverSource Life’s business and results ofoperations. Downgrades in the credit or financial strength ratings assigned tothe counterparties with whom RiverSource Life transacts could create theperception that its financial condition will be adversely impacted as a resultof potential future defaults by such counterparties.  Additionally, RiverSource Life could beadversely affected by a general, negative perception of financial institutionscaused by the downgrade of other financial institutions.

 

***Thefailure of other insurers could require RiverSource Life to pay higherassessments to state insurance guaranty funds***

 

RiverSource LifeInsurance Company and RiverSource Life of NY are required by law to be a memberof the guaranty fund association in every state where it is licensed to dobusiness.  In the event of insolvency ofone or more unaffiliated insurance companies, RiverSource Life could beadversely affected by the requirement to pay assessments to the guaranty fundassociations.

 

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***Third-partydefaults, bankruptcy filings, legal actions and other events may limit thevalue of or restrict RiverSource Life’s access to cash and investments.***

 

The extreme capital andcredit market volatility that RiverSource Life continues to experience hasexacerbated the risk of third-party defaults, bankruptcy filings, legal actionsand other events that may limit the value of or restrict RiverSource Life’saccess to cash and investments. 

 

***Governmentalinitiatives intended to address capital market and general economic conditionsmay not be effective and may give rise to additional requirements forRiverSource Life’s business, including new capital requirements or otherregulations, that could materially impact its financial condition, results ofoperations and liquidity in ways that it cannot predict****.*

 

Legislation has beenpassed in the United States and abroad in an attempt to address the instabilityin global financial markets. The U.S federal government, Federal Reserve andother U.S. governmental and regulatory bodies have taken or are consideringtaking other actions to address the financial crisis, including futureinvestments in financial institutions and creation of a federal systemic riskregulator.  This legislation or similarproposals may fail to stabilize the financial markets or the economy generally.This legislation and other proposals or actions may also have otherconsequences, including substantially higher compliance costs as well asmaterial effects on interest rates, which could materially impact RiverSourceLife’s investments, results of operations and liquidity in ways that it cannotpredict.  In addition, prolongedgovernment support for, and intervention in the management of, privateinstitutions could distort customary and expected commercial behavior on thepart of those institutions, adversely impacting RiverSource Life.

 

In addition, RiverSourceLife is subject to extensive laws and regulations that are administered andenforced by a number of different governmental authorities and non-governmentalself-regulatory organizations, including state securities and insuranceregulators, the SEC, FINRA, the U.S. Department of Justice and state attorneysgeneral.  Current financial conditionshave prompted or may prompt some of these authorities to consider additionalregulatory requirements intended to prevent future crises or otherwise assurethe stability of institutions under their supervision. These authorities mayalso seek to exercise their authority in new or more expansive ways and theU.S. government may create additional regulators or materially change theauthorities of existing regulators. All of these possibilities, if theyoccurred, could impact the way RiverSource Life conducts its business andmanages its capital, and may require RiverSource Life to satisfy increasedcapital requirements, which in turn could materially impact its financialcondition, results of operations and liquidity.

 

***Defaults in RiverSource Life’s fixed maturity securitiesportfolio would adversely affect its earnings.***

 

Issuers of the fixedmaturity securities that RiverSource Life owns may default on principal andinterest payments. As of December 31, 2008, 5% of RiverSource Life’sinvested assets had ratings below investment-grade.  Moreover, economic downturns and corporatemalfeasance can increase the number of companies, including those withinvestment-grade ratings, that default on their debt obligations.  Default-related declines in the value ofRiverSource Life’s fixed maturity securities portfolio could cause its netearnings to decline and could weaken its capital position.

 

***If the counterparties to RiverSource Life’s reinsurancearrangements or to the derivative instruments it uses to hedge its businessrisks default, RiverSource Life may be exposed to risks it had sought tomitigate, which could adversely affect its financial condition and results ofoperations.***

 

RiverSource Life usesreinsurance to mitigate its risks in various circumstances as described in Item1 of this Annual Report on Form 10-K — “Business — Reinsurance.”  Reinsurance does not relieve RiverSource Lifeof its direct liability to its policyholders, even when the reinsurer is liableto RiverSource Life. Accordingly, RiverSource Life bears credit and performancerisk with respect to its reinsurers. A reinsurer’s insolvency or its inabilityor unwillingness to make payments under the terms of its reinsurance agreementcould have a material adverse effect on RiverSource Life’s financial conditionand results of operations.  See Note 2and Note 7 to the Consolidated Financial Statements included in Part II,Item 8 of this Annual Report on Form 10-K.

 

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In addition, RiverSourceLife uses a variety of derivative instruments (including options, forwards andinterest rate swaps) with a number of counterparties to hedge businessrisks.  The amount and breadth ofexposure to derivative counterparties, as well as the cost of derivatives, haveincreased significantly in connection with RiverSource Life’s strategies tohedge guaranteed benefit obligations under its variable annuity products.  If RiverSource Life’s counterparties fail tohonor their obligations under the derivative instruments in a timely manner,RiverSource Life’s hedges of the related risk will be ineffective. That failurecould have a material adverse effect on RiverSource Life’s financial conditionand results of operations.  This risk offailure of RiverSource Life’s hedge transactions may be increased by capitalmarket volatility, such as the volatility that has been experienced over thepast eighteen months.

 

***The determination of the amount of allowances andimpairments taken on certain investments is subject to management***’***s evaluation and judgment and couldmaterially impact RiverSource Life’s financial position or results of operations.***

 

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

 

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

 

***RiverSource Life’s valuation of fixed maturity and equitysecurities may include methodologies, estimations and assumptions which aresubject to differing interpretations and could result in changes to investmentvaluations that may materially adversely impact its financial condition orresults of operations.***

 

Fixed maturity, equity,trading securities and short-term investments which are reported at fair valueon the consolidated balance sheets, represent the majority of RiverSource Life’stotal cash and invested assets. The determination of fair values by managementin the absence of quoted market prices is based on: (i) valuationmethodologies; (ii) securities RiverSource Life deems to be comparable;and (iii) assumptions deemed appropriate given the circumstances. The fairvalue estimates are made at a specific point in time, based on available marketinformation and judgments about financial instruments, including estimates ofthe timing and amounts of expected future cash flows and the credit standing ofthe issuer or counterparty. Factors considered in estimating fair valueinclude: coupon rate, maturity, estimated duration, call provisions, sinkingfund requirements, credit rating, industry sector of the issuer, and quotedmarket prices of comparable securities. The use of different methodologies andassumptions may have a material effect on the estimated fair value amounts.

 

During periods of marketdisruption including periods of significantly rising or high interest rates,rapidly widening credit spreads or illiquidity, it may be difficult to valuecertain of RiverSource Life’s securities. There may be certain asset classesthat were in active markets with significant observable data that becomeilliquid due to the current financial environment. In such cases, moresecurities may require additional subjectivity and management judgment. Assuch, valuations may include inputs and assumptions that are less observable orrequire greater estimation as well as valuation methods which are moresophisticated or require greater estimation thereby resulting in values which maybe less than the value at which the investments may be ultimately sold.Further, rapidly changing and unprecedented credit and equity market conditionscould materially impact the valuation of securities as reported withinRiverSource Life’s consolidated financial statements and the period-to-periodchanges in value could vary significantly. Decreases in value may have amaterial adverse effect on RiverSource Life’s financial condition or results ofoperations.

 

***Some of RiverSource Life’s investments are relativelyilliquid.***

 

RiverSource Life investsa portion of its general account assets in certain privately placed fixedincome securities, mortgage loans, policy loans, limited partnership interests,and collateralized debt obligations, among others, all of which are relativelyilliquid. These asset classes represented 17.9% of the carrying value ofRiverSource Life’s investment portfolio as of December 31, 2008.  If RiverSource Life requires significantamounts of cash on short notice in excess of its normal cash requirements, itmay have difficulty selling these investments in a timely manner, or be forcedto sell them for an amount less than it would otherwise have been able torealize, or both, which could have an adverse effect on RiverSource Life’s financialcondition and results of operations.

 

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***Intense competition and the economics of changes inRiverSource Life’s product revenue mix and distribution channels couldnegatively impact RiverSource Life’s ability to maintain or increase its marketshare and profitability.***

 

RiverSource Life operatesin an intensely competitive industry. RiverSource Life competes based on anumber of factors including name recognition, service, investment performance,product features, price, perceived financial strength, and claims-payingratings. RiverSource Life’s competitors include insurers and other financialinstitutions. RiverSource Life may face competitors that have greater marketshare, offer a broader range of products, have greater financial resources orhave higher claims-paying ratings than RiverSource Life does.  Some of RiverSource Life’s competitors maypossess or acquire intellectual property rights that could provide acompetitive advantage to them in certain markets or for certain products, whichcould make it more difficult for RiverSource Life to introduce new products andservices.  Some of RiverSource Life’scompetitors’ proprietary products or technology could be similar to its own,and this could result in disputes that could impact RiverSource Life’sfinancial condition or results of operations. In addition, over time certain sectors of the financial servicesindustry have become considerably more concentrated, as financial institutionsinvolved in a broad range of financial services have been acquired by or mergedinto other firms.  This convergence could result in RiverSource Life’scompetitors gaining greater resources and RiverSource Life may experiencepressures on its pricing as a result of these factors.

 

Currently, AmeripriseFinancial’s branded advisor network distributes annuity and insurance productsissued almost exclusively (in the case of annuities) or predominantly (in thecase of insurance products) by RiverSource Life. In 2009 or 2010, AmeripriseFinancial expects to expand the offerings available to its branded advisors toinclude variable annuities issued by a limited number of unaffiliated insurancecompanies.  As a result of furtheropening of Ameriprise Financial’s branded advisor network to annuity andinsurance products of other companies, RiverSource Life could experience lowersales of its products, higher surrenders or other developments, which couldadversely affect its financial condition and results of operations.

 

***Poor investment performance in RiverSource Life’s variableproducts could adversely affect its financial condition and results ofoperations.***

 

RiverSource Life believesthat investment performance is an important factor in the growth of itsvariable annuity and variable life insurance business. Poor investmentperformance could impair revenues and earnings, as well as RiverSource Life’sprospects for growth, because:

 

·                    RiverSource Life’s ability toattract funds from existing and new clients might diminish; and

 

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

 

***RiverSource Life’s affiliated distributor may be unable toattract and retain financial advisors.***

 

RiverSource Life isdependent on the branded financial advisors of its affiliated broker-dealerselling firm for a significant portion of the sales of its annuity andinsurance products. A significant number of its branded financial advisorsoperate as independent contractors under a franchise agreement with itsaffiliated selling firm. There can be no assurance that RiverSource Life’s affiliatedselling firm will be successful in its efforts to recruit and retain newadvisors to its network. If RiverSource Life’s affiliated selling firm isunable to attract and retain quality financial advisors, fewer advisors wouldbe available to sell RiverSource Life’s annuity and insurance products andRiverSource Life’s financial condition and results of operations could bematerially adversely affected.

 

***RiverSource Life and its affiliates face intense competitionin attracting and retaining key talent.***

 

RiverSource Life isdependent on Ameriprise Financial’s network of branded advisors for asignificant portion of the sales of its annuity products and substantially allof the sales of its insurance products. In addition, RiverSource Life’s continued success depends to asubstantial degree on its, and its affiliates’, ability to attract and retainqualified personnel. The market for qualified talent is extremely competitive.If RiverSource Life is unable to attract and retain qualified individuals or itsrecruiting and retention costs increase significantly, its financial conditionand results of operations could be materially adversely impacted.

 

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***RiverSource Life’s business is heavily regulated, and changesin regulation may reduce its profitability and limit its growth.***

 

RiverSource Life operatesin a highly regulated industry, and is required to obtain and maintain licensesfor its business in addition to being subject to regulatory oversight. Financialregulators have significantly increased the level of regulation in recent yearsand have several outstanding proposals for additional regulation. Currentmarket conditions and recent events could result in increases or changes incurrent regulations and regulatory structures including higher licensing feesand assessments.  Significant discussionand activity by regulators concerns the sale and suitability of financialproducts and services to persons planning for retirement, as well as to olderinvestors.  In addition, RiverSource Lifeis subject to heightened requirements and associated costs and risks relatingto privacy and the protection of customer data. RiverSource Life’s information systems, moreover, may be subject toincreased efforts of “hackers” by reason of the customer data itpossesses.  These requirements, costs andrisks, as well as possible legislative or regulatory changes, may constrainRiverSource Life’s ability to market its products and services to its targetdemographic and potential customers, and could negatively impact RiverSourceLife’s profitability and make it more difficult for RiverSource Life to pursueits growth strategy.

 

RiverSource Life issubject to state regulation and must comply with statutory reserve and capital requirements.  State regulators are continually reviewingand updating these requirements and other requirements relating to the businessoperations of insurance companies, including their underwriting and sales practices.  Moreover, RiverSource Life is subject tocapital requirements for variable annuity contracts with guaranteed death orliving benefits.  These requirements mayhave an impact on statutory reserves and regulatory capital in the event equitymarket values fall in the future.  TheNAIC has adopted a change to require principles-based reserves for variableannuities at the end of 2009, and continues to discuss moving to aprinciples-based reserving system for other insurance and annuityproducts.  This could change statutoryreserve requirements significantly and it is not possible to estimate thepotential impact at this time.  Further,RiverSource Life cannot predict the effect that proposed federal legislation,such as the option of federally chartered insurers or a mandated federalsystemic risk regulator, may have on RiverSource Life or its competitors.

 

Compliance withapplicable laws and regulations is time consuming and personnel-intensive.  Moreover, the evaluation of RiverSource Life’scompliance with these laws and regulations by state insurance regulators, theSEC, and other regulatory organizations is an ongoing feature of RiverSourceLife’s business, the outcomes of which may not be foreseeable. Changes in theselaws and regulations may materially increase RiverSource Life’s direct andindirect compliance and other expenses of doing business.  The costs of the compliance requirementsRiverSource Life faces, and the constraints they impose on its operations,could have a material adverse effect on RiverSource Life’s financial conditionand results of operations. For a further discussion of the regulatory frameworkin which RiverSource Life operates, see Item 1 in this Annual Report on Form 10-K— “Business — Regulation.” For more information regarding ongoinginvestigations, see Item 3 in this Annual Report on Form 10-K — “LegalProceedings.”

 

RiverSource Life’s profitmargins and earnings are dependent in part on its ability to maintain currentfee levels for the products and services that it offers.  Competition within the financial servicesindustry could lead RiverSource Life to reduce the fees that it charges itsclients for products and services.  Seethe risk factor entitled “Intense competition and the economics of changes inRiverSource Life’s product revenue mix and distribution channels couldnegatively impact RiverSource Life’s ability to maintain or increase its marketshare and profitability.”  In addition,RiverSource Life may be required to reduce its fee levels, or restructure thefees it charges, as a result of regulatory initiatives or proceedings that areeither industry-wide or specifically targeted at RiverSource Life.  See Item 3 in this Annual Report on Form 10-K— “Legal Proceedings” for more information regarding this and other regulatorymatters.  Reductions or other changes inthe fees that RiverSource Life charges for its products and services couldreduce its revenues and earnings.

 

***Misconduct by RiverSource Life’s employees and agents andits affiliates’ employees and agents is difficult to detect and deter and couldharm RiverSource Life’s business, results of operations or financial condition.***

 

Misconduct by RiverSourceLife’s employees and agents and its affiliates’ employees and agents couldresult in violations of law, regulatory sanctions and/or serious reputationalor financial harm. Misconduct can occur in each of RiverSource Life’sbusinesses and could include:

 

·                    attempting to bind RiverSource Lifeto transactions that exceed authorized limits;

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

 

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·                    improperly using, disclosing, orotherwise compromising confidential information;

·                    recommending transactions that arenot suitable;

·                    engaging in fraudulent or otherwiseimproper activity;

·                    engaging in unauthorized orexcessive trading to the detriment of customers; or

·                    otherwise not complying with laws,regulations or RiverSource Life’s control procedures.

 

RiverSource Life cannotalways deter misconduct by employees and agents and its affiliate’s employeesand agents and the precautions RiverSource Life takes to prevent and detectthis activity may not be effective in all cases.  RiverSource Life also cannot assure thatmisconduct by employees and agents and its affiliate’s employees and agentswill not lead to a material adverse effect on its business, financial conditionor results of operations.

 

***Legal and regulatory actions are inherent in RiverSourceLife’s business and could result in financial losses or harm its business.***

 

RiverSource Life is, andin the future may be, subject to legal and regulatory actions in the ordinarycourse of its operations.  Variousregulatory and governmental bodies have the authority to review RiverSourceLife’s products and business practices and those of its employees and agentsand its affiliates’ employees and agents and to bring regulatory or other legalactions against RiverSource Life if, in their view, RiverSource Life’spractices, or those of its employees and agents and its affiliates’ employeesand agents, are improper.  Pending legal and regulatory actions includeproceedings relating to aspects of RiverSource Life’s business and operationsthat are specific to it and proceedings that are typical of the industrieswhich it operates.  In turbulent times such as these, the volume of claimsand amount of damages sought in litigation and regulatory proceedings generallyincrease. Substantial legal liability in legal or regulatory actions could havea material financial effect or cause significant reputational harm, which inturn could seriously harm its business prospects.

 

***A downgrade or a potential downgrade in RiverSource Life’sfinancial strength ratings could result in a loss of business and adverselyaffect its financial condition and results of operations.***

 

Financial strengthratings, which various ratings organizations publish as a measure of aninsurance company’s ability to meet contractholder and policyholderobligations, are important to maintaining public confidence in RiverSource Life’sproducts, the ability to market its products and its competitive position. Adowngrade in RiverSource Life’s financial strength ratings, or the announcedpotential for a downgrade, could have a significant adverse effect on itsfinancial condition and results of operations in many ways, including:

 

·                  reducing new sales of insurance and annuityproducts;

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

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

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

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

 

In view of thedifficulties experienced recently by RiverSource Life’s competitors,RiverSource Life believes it is possible that the ratings organizations willheighten the level of scrutiny that they apply, will increase the frequency andscope of their reviews, will request additional information from the companiesthat they rate, and may adjust upward the capital and other requirementsemployed in the ratings organization’s models for maintenance of ratingslevels.  Rating organizations may alsobecome subject to tighter laws and regulations governing the rating, which mayin turn impact the ratings assigned to insurance companies.

 

RiverSource Life cannotpredict what actions rating organizations may take, or what actions RiverSourceLife may take in response to the actions of rating organizations, which couldadversely affect its business. As with other companies in the insuranceindustry, RiverSource Life’s ratings could be changed at any time and withoutany notice by the ratings organizations.

 

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***If RiverSource Life’s reserves for future policy benefitsand claims are inadequate, it may be required to increase its reserveliabilities, which could adversely affect its financial condition and resultsof operations.***

 

RiverSource Lifeestablishes reserves as estimates of its liabilities to provide for futureobligations under its insurance policies and annuities contracts.  Reserves do not represent an exactcalculation of liability, but rather are estimates of contract benefits and relatedexpenses RiverSource Life expects to incur over time. The assumptions andestimates RiverSource Life makes in establishing reserves require certainjudgments about future experience and, therefore, are inherentlyuncertain.  RiverSource Life cannot determinewith precision the actual amounts that it will pay for contract benefits, thetiming of payments, or whether the assets supporting its stated reserves willincrease to the levels it estimates before payment of benefits or claims.  RiverSource Life monitors its reserve levelscontinually.  If RiverSource Life were toconclude that its reserves are insufficient to cover actual or expectedcontract benefits, it would be required to increase its reserves and incurincome statement charges for the period in which it makes the determination, whichcould adversely affect its financial condition and results of operations. Formore information on how RiverSource Life sets its reserves, see Note 2 to theConsolidated Financial Statements included in Part II, Item 8 of thisAnnual Report on Form 10-K.

 

***Morbidity rates or mortality rates that differ significantlyfrom RiverSource Life’s pricing expectations would negatively affectprofitability.***

 

RiverSource Life setsprices for its life, DI and LTC insurance and some annuity products based uponexpected claim payment patterns, derived from assumptions RiverSource Lifemakes about its policyholders and contractholders, the morbidity rates, orlikelihood of sickness, and the mortality rates, or likelihood of death. Thelong-term profitability of these products depends upon how RiverSource Life’sactual experience compares with its pricing assumptions. For example, ifmorbidity rates are higher, or mortality rates are lower, than its pricingassumptions, RiverSource Life could be required to make greater payments underDI insurance policies and immediate annuity contracts than it hadprojected.  In 2009, upon regulatoryapproval, RiverSource Life intends to offer certain optional riders with itsnew permanent life insurance policies that will enable consumers to access aportion of their death benefit to fund qualified chronic care needs.  These policies, if approved and issued, willalso subject RiverSource Life to morbidity risk. The same holds true for LTCpolicies RiverSource Life previously underwrote to the extent of the risks thatRiverSource Life has retained.  Ifmortality rates are higher than its pricing assumptions, RiverSource Life couldbe required to make greater payments under its life insurance policies andannuity contracts with GMDBs than it has projected.

 

The risk that RiverSourceLife’s claims experience may differ significantly from its pricing assumptionsis particularly significant for its LTC insurance products, notwithstandingRiverSource Life’s ability to implement future price increases subject toregulatory approvals.  As with lifeinsurance, LTC insurance policies provide for long-duration coverage and,therefore, its actual claims experience will emerge over many years. However,as a relatively new product in the market, LTC insurance does not have theextensive claims experience history of life insurance, and, as a result,RiverSource Life’s ability to forecast future claim rates for LTC insurance ismore limited than for life insurance. RiverSource Life has sought to moderate these uncertainties to someextent by partially reinsuring LTC policies that it had previously underwrittenand by limiting its present LTC insurance offerings to policies underwrittenfully by unaffiliated third party insurers, and RiverSource Life has alsoimplemented rate increases on certain in-force policies as described in Item 1of this Annual Report on Form 10-K — “Business — Insurance: ProductFeatures and Risks — Long Term Care Insurance.” RiverSource Life may be required to implement additional rate increasesin the future and may or may not receive regulatory approval for the fullextent and timing of any rate increases that RiverSource Life may seek.

 

***RiverSource Life may face losses if there are significantdeviations from its assumptions regarding the future persistency of itsinsurance policies and annuity contracts.***

 

The prices and expectedfuture profitability of RiverSource Life’s insurance and deferred annuityproducts are based in part upon assumptions related to persistency, which isthe probability that a policy or contract will remain in force from one periodto the next. Given the ongoing economic and market dislocations, futureconsumer persistency behaviors could vary materially from the past.  The effect of persistency on profitabilityvaries for different products. For most of its life insurance and deferredannuity products, actual persistency that is lower than its persistencyassumptions could have an adverse impact on profitability, especially in theearly years of a policy or contract, primarily because RiverSource Life wouldbe required to accelerate the amortization of expenses it deferred inconnection with the acquisition of the policy or contract.

 

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For RiverSource Life’s LTCinsurance, actual persistency that is higher than its persistency assumptionscould have a negative impact on profitability. If these policies remain inforce longer than RiverSource Life assumed, then RiverSource Life could berequired to make greater benefit payments than it had anticipated when itpriced or partially reinsured these products. Some of its LTC insurance policies have experienced higher persistencyand poorer loss experience than RiverSource Life had assumed, which led it toincrease premium rates on certain of these policies.

 

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

 

***RiverSource Life may be required to accelerate theamortization of DAC, which would increase its expenses and reduceprofitability.***

 

DAC represent the costsof acquiring new business, principally direct sales commissions and otherdistribution and underwriting costs that have been deferred on the sale ofannuity, life, DI and LTC insurance. For annuity and universal life products,DAC are amortized based on projections of estimated gross profits overamortization periods equal to the approximate life of the business.  For other insurance products, DAC aregenerally amortized as a percentage of premiums over amortization periods equalto the premium-paying period.

 

RiverSource Life’sprojections underlying the amortization of DAC require the use of certainassumptions, including interest margins, mortality rates, persistency rates,maintenance expense levels and customer asset value growth rates for variableproducts. RiverSource Life periodically reviews and, where appropriate, adjustsits assumptions. When RiverSource Life changes its assumptions, it may berequired to accelerate the amortization of DAC or to record a charge toincrease benefit reserves.

 

For more informationregarding DAC, see Item 7 in this Annual Report on Form 10-K — “Management’sNarrative Analysis — Critical Accounting Policies — Deferred Acquisition Costsand Deferred Sales Inducement Costs” and “— Recent Accounting Pronouncements.”

 

***Breachesof security, or the perception that RiverSource Life’s technologyinfrastructure is not secure, could harm its business.***

 

RiverSource Life’sbusiness requires the appropriate and secure utilization of client and othersensitive information.  RiverSource Life’soperations require the secure transmission of confidential information overpublic networks. Security breaches in connection with the delivery of itsproducts and services, including products and services utilizing the Internet,and the trend toward broad consumer and general public notification of suchincidents, could significantly harm RiverSource Life’s business, financialcondition or results of operations.  Even if RiverSource Life successfully protected its technologyinfrastructure and the confidentiality of sensitive data, RiverSource Lifecould suffer harm to its business and reputation if attempted security breachesare publicized. RiverSource Life cannot be certain that advances in criminalcapabilities, discovery of new vulnerabilities, attempts to exploitvulnerabilities in its systems, data thefts, physical system or networkbreak-ins or inappropriate access, or other developments will not compromise orbreach the technology or other security measures protecting the networks usedin connection with its products and services.

 

***Protectionfrom system interruptions is important to RiverSource Life’s business. IfRiverSource Life experienced a sustained interruption to its telecommunicationsor data processing systems, it could harm its business.***

 

System or networkinterruptions could delay and disrupt RiverSource Life’s ability to develop,deliver or maintain its products and services, causing harm to its business andreputation and resulting in loss of customers or revenue.  Interruptions could be caused by operationalfailures arising from RiverSource Life’s implementation of new technology, aswell as from maintenance of existing technology.  RiverSource Life’s financial, accounting,data processing or other operating systems and facilities may fail to operateproperly or become disabled as a result of events that are wholly or partiallybeyond its control, adversely affecting its ability to process transactions orprovide products and services to customers. These interruptions can include fires, floods, earthquakes, powerlosses, equipment failures, failures of internal

 

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or vendor software orsystems and other events beyond its control. Further, RiverSource Life facesthe risk of operational failure, termination or capacity constraints of any ofthe clearing agents, clearing houses or other financial intermediaries thatRiverSource Life uses to facilitate its securities transactions. Any suchfailure, termination or constraint could adversely impact its ability to effecttransactions, service its clients and manage its exposure to risk.

 

***RiverSource Life’s risk management policies and proceduresmay not be fully effective in mitigating its risk exposure in all marketenvironments or against all types of risk, including employee and financialadvisor misconduct.***

 

RiverSource Life hasdevoted significant resources toward developing its risk management policiesand procedures and will continue to do so. Nonetheless, RiverSource Life’spolicies and procedures to identify, monitor and manage risks may not be fullyeffective in mitigating its risk exposure in all market environments or againstall types of risk. Many of its methods of managing risk and exposures are basedupon its use of observed historical market behavior or statistics based onhistorical models. During periods of market volatility or due to unforeseenevents, the historically derived correlations upon which these methods arebased may not be valid.  As a result,these methods may not accurately predict future exposures, which could besignificantly greater than what its models indicate. This could causeRiverSource Life to incur investment losses or cause its hedging and other riskmanagement strategies to be ineffective. Other risk management methods depend upon the evaluation of informationregarding markets, clients, catastrophe occurrence or other matters that arepublicly available or otherwise accessible to RiverSource Life, which may notalways be accurate, complete, up-to-date or properly evaluated.

 

Moreover, RiverSourceLife is subject to the risks of errors and misconduct by its employees and affiliatedfinancial advisors — such as fraud, non-compliance with policies, recommendingtransactions that are not suitable, and improperly using or disclosingconfidential information.  Theserisks are difficult to detect in advance and deter, and could harm RiverSourceLife’s business, financial condition or results of operations.  RiverSource Life is further subject to therisk of nonperformance or inadequate performance of contractual obligations bythird-party vendors of products and services that are used in itsbusinesses.  Management of operational, legal and regulatory risksrequires, among other things, policies and procedures to record properly andverify a large number of transactions and events, and these policies andprocedures may not be fully effective in mitigating RiverSource Life’s riskexposure in all market environments or against all types of risk.  Insurance and other traditional risk-shiftingtools may be held by or available to RiverSource Life in order to managecertain exposures, but they are subject to terms such as deductibles,coinsurance, limits and policy exclusions, as well as risk of counterpartydenial of coverage, default or insolvency.

 

***Changes in U.S. federal income or estate tax law could makesome of RiverSource Life’s products less attractive to clients.***

 

Many of the productsRiverSource Life issues or on which its business is based (including bothinsurance products and non-insurance products) enjoy favorable treatment undercurrent U.S. federal income or estate tax law. Changes in U.S. federal incomeor estate tax law could make some of its products less attractive to clients.

 

***RiverSource Life is subject to tax contingencies that couldadversely affect the provision for income taxes.***

 

RiverSource Life issubject to the income tax laws of the U.S., its states and municipalities.These tax laws are complex and may be subject to differentinterpretations.  RiverSource Life mustmake judgments and interpretations about the application of these inherentlycomplex tax laws when determining the provision for income taxes and must alsomake estimates about when in the future certain items affect taxable income inthe various tax jurisdictions.  Disputesover interpretations of the tax laws may be settled with the taxing authorityupon examination or audit. In addition, changes to the Internal Revenue Code,administrative rulings or court decisions could increase RiverSource Life’sprovision for income taxes.

 
| **ITEM  1B.** | **UNRESOLVED  STAFF COMMENTS** |
|---------------|--------------------------------|

 

None.

 
| **ITEM  2.** | **PROPERTIES** |
|--------------|----------------|

 

RiverSource LifeInsurance Company occupies office space in Minneapolis, Minnesota, which isleased or owned by Ameriprise Financial. RiverSource Life Insurance Company reimburses Ameriprise Financial forrent based on direct and indirect allocation methods.  RiverSource Life of NY rents office space inAlbany, New York.  RiverSource Lifebelieves that the facilities occupied suit its needs. 

 

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| **ITEM  3.** | **LEGAL  PROCEEDINGS** |
|--------------|------------------------|

 

The SEC, FINRA, andseveral state authorities have brought proceedings challenging several mutualfund and variable product financial practices, generally including suitability,late trading, market timing, compensation and disclosure of revenue sharingarrangements.  RiverSource Life hasreceived requests for information and has been contacted by regulatoryauthorities concerning its practices and is cooperating fully with theseinquiries.

 

RiverSource Life isinvolved in the normal course of business in a number of other legal andarbitration proceedings concerning matters arising in connection with theconduct of its business activities. RiverSource Life believes that it is not a party to, nor are any of itsproperties the subject of, any pending legal, arbitration or regulatoryproceedings that would have a material adverse effect on its consolidatedfinancial condition, results of operations or liquidity.  However, it is possible that the outcome ofany such proceedings could have a material impact on results of operations inany particular reporting period as the proceedings are resolved.

 
| **ITEM  4.** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|--------------|----------------------------------------------------------|

 

Item omitted pursuant toGeneral Instructions I(2) (c) of Form 10-K.

 

**PART II**

 
| **ITEM  5.** | **MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES** |
|--------------|-------------------------------------------------------------------------------------------------------------------------|

 

All of RiverSource LifeInsurance Company’s outstanding common stock is owned by Ameriprise Financial, Inc.  There is no established public trading marketfor RiverSource Life Insurance Company’s common stock.

 

For discussion regardingRiverSource Life Insurance Company’s payment of dividends and restrictions ondividends, see Item 7 of this Annual Report on Form 10-K — “Management’sNarrative Analysis — Liquidity and Capital Resources — Capital Activity” andNote 13 to the Notes to Consolidated Financial Statements included in Part II,Item 8 of this Annual Report on Form 10-K.

 
| **ITEM  6.** | **SELECTED  FINANCIAL DATA** |
|--------------|------------------------------|

 

Item omitted pursuant toGeneral Instructions I(2) (a) of Form 10-K.

 

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| **ITEM  7.** | **MANAGEMENT’S  NARRATIVE ANALYSIS** |
|--------------|-------------------------------------------|

** **

**Overview**

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

 

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

 

·                  RiverSource Lifeof NY is a stock life insurance company domiciled in New York, which holdsCertificates of Authority in New York, North Dakota and Delaware.  RiverSource Life of NY issues insurance andannuity products.

 

On December 31, 2008, Ameriprise Financialcontributed all of the issued and outstanding shares of RiverSource TaxAdvantaged Investments, Inc. (“RiverSource Tax Adv. Inv.”) to RiverSourceLife Insurance Company.  RiverSource TaxAdv. Inv. is a stock company domiciled in Delaware and is a limited partner inaffordable housing partnership investments.

 

RiverSource Life Insurance Company and its twosubsidiaries are referred to collectively in this Form 10-K as “RiverSourceLife”.

 

The accompanyingfinancial information has been presented as if RiverSource Tax Adv. Inv. hadbeen a wholly owned subsidiary prior to January 1, 2006 and is accountedfor as a pooling of interests for entities under common control as RiverSourceLife Insurance Company and RiverSource Tax Adv. Inv. are wholly owned subsidiariesof Ameriprise Financial.

 

The following discussionand management’s narrative analysis of the financial condition and results ofoperations should be read in conjunction with the “Forward-Looking Statements,”“Item 1A - Risk Factors” and the Consolidated Financial Statements andNotes.  Management’s narrative analysisis presented pursuant to General Instructions I(2) (a) of Form 10-Kin lieu of Management’s Discussion and Analysis of Financial Condition andResults of Operations.

 

Ameriprise Financial wasformerly a wholly owned subsidiary of American Express Company (“AmericanExpress”).  On February 1, 2005, theAmerican Express Board of Directors announced its intention to pursue thedisposition of 100% of its shareholdings in Ameriprise Financial (the “Separation”)through a tax-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.

 

***Resultsof Operations for the Year Ended December 31, 2008 compared to the YearEnded December 31, 2007***

 

*Overview*

 

Consolidated net income was $71 million for the yearended December 31, 2008 compared to $434 million for the year ended December 31,2007, a decrease of $363 million. The pretax loss for the year ended December 31,2008 was $118 million compared to pretax income of $487 million for the yearended December 31, 2007.  Thedecrease was driven by pretax net realized investment losses of $442 millionprimarily related to non-agency residential mortgage backed securities,corporate debt securities primarily in the financial services industry andasset backed and other securities. Also contributing to the decrease in netincome was an increase in amortization of deferred acquisition costs (“DAC”)and deferred sales inducement costs (“DSIC”) due to the market dislocation in2008 as well as an increase in guaranteed minimum death benefit (“GMDB”) andguaranteed minimum income benefit (“GMIB”) benefits due to lower equitymarkets.  These negative impacts werepartially offset by a benefit resulting from RiverSource Life’s annual reviewof valuation assumptions and conversion to a new industry standard valuationsystem, both of which occurred during the third

 

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quarter of 2008. The annual review of valuation assumptions resulted in a decrease inexpenses resulting primarily from updating mortality and expense assumptionsfor certain life insurance products and from updating fund mix andcontractholder behavior assumptions for variable annuities with guaranteedbenefits.

 

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

 

The total pretax impacts on RiverSource Life’srevenues and expenses for the years ended December 31, 2008 and 2007attributable to the annual third quarter review of the valuation assumptions,the valuation system conversion and the impact of markets on DAC and DSICamortization, variable annuity living benefit riders, net of hedges and GMDBand GMIB benefits were as follows:

 
| **Pretax   Benefit (Charge)** | ** ** | **Premiums** | ** ** | **Policy and  Contract  Charges** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Amortization  of DAC** | ** ** | **Other  Insurance  and  Operating  Expenses** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|--------------|------------|----------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------|------------|------------------------------------------------|------------|-----------|------------|
| **(in millions)**                  | ** ** |
| 2008 period                             |       | $            | 2          |                                   | $          | 95                                                            |       | $                        | 70         |                                           | $          | (475      | )          | $ | 1 |   | $ | (307 | ) |
| 2007 period                             |       | —       |       | (2                                     | )          | (47                                                           | )          | 7                        |       | —                                         |       | (42       | )          |
|                                         |            |              |            |                                        |            |                                                               |            |                          |            |                                                |            |           |            |  |  |  |  |  |  |

 

*Revenues*

 

Total revenues for the year ended December 31, 2008 were $2.9billion, a decrease of $544 million from $3.4 billion in 2007.

 

Net investment income decreased $172 million or 12.1% to $1.3 billion forthe year ended December 31, 2008 primarily due to declining averagebalances in fixed annuity balances as well as a decline in the overall yield inthe investment portfolio.

 

Policy and contractcharges increased $135 million or 11.1% to $1.4 billion for the year ended December 31,2008.  The increase is primarily theresult of a $95 million benefit fromupdating valuation assumptions and converting to a new valuation system as well as growth in guaranteed benefit riderfees on variable annuities and cost-of-insurance fees for fixed and variableuniversal life insurance.  The impact topolicy and contract charges from updating valuation assumptions for the prioryear period was immaterial.

 

Net realized investmentlosses were $442 million for the year ended December 31, 2008 compared tonet realized investment gains of $61million for the year ended December 31, 2007.  Included in net realized investment lossesfor the year ended December 31, 2008 is $440 million ofother-than-temporary impairments on Available-for-Sale securities primarilyrelated to non-agency residential mortgage backed securities, corporate debtsecurities primarily in the financial services industry and asset backed andother securities, an increase of $1 million to the allowance for loan losses oncommercial mortgage loans and an increase of $8 million to the allowance forloan losses on below investment grade syndicated bank loans.  For the year ended December 31, 2008,$13 million of gross realized investment gains were offset by $6 million of gross realized losses onAvailable-for-Sale securities.  For theyear ended December 31, 2007, $64 million of gross realized investmentgains were partially offset by $20 millionof gross realized losses as well as $4 million of other-than-temporaryimpairment losses on investments, classified as Available-for-Sale.  Included in net realized investment gains forthe year ended December 31, 2007 was a decrease of $21 million to theallowance for loan losses on commercial mortgage loans.

 

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*Benefitsand Expenses*

 

Total benefits andexpenses for both years ended December 31, 2008 and 2007 were $3.0billion.   Total benefits and expensesreflect the impact of the valuation assumptions review and the valuation systemconversion as previously described.

 

Benefits,claims, losses and settlement expenses decreased $87 million or 11.4% to $673million for the year ended December 31,2008.  Benefits, claims, losses andsettlement expenses for 2008 included a $90 million benefit from updatingvaluation assumptions and converting to a new valuation system in the thirdquarter of 2008 and a $92 million benefit related to the market impact onvariable annuity guaranteed living benefits, net of hedges.  Partially offsetting these benefits was a $42million expense related to the market’s impact on DSIC, a $70 million expenserelated to the equity market’s impact on variable annuity minimum death andincome benefits and increases in life and long term care (“LTC”) insurancebenefits.  In the prior year, updatingvaluation assumptions resulted in $12 million additional expenses, $39 millionof expense due to the unfavorable market impact on variable annuity guaranteedliving benefits, net of hedges, and an immaterial market impact on DSIC.

 

Interest credited tofixed accounts decreased by $57 million or 6.7% to $790 million for the yearended December 31, 2008 primarily due to declining fixed annuityaccumulation balances.  The balances hadbeen decreasing steadily throughout 2008 until the fourth quarter when marketevents caused positive flows into fixed annuities.

 

Amortization of DACincreased $391 million to $861 millionfor the year ended December 31, 2008 from $470 million for the year ended December 31, 2007.  Amortization of DAC in 2008 included a $292million expense from the market’s impact on DAC, an $82 million expense fromupdating valuation assumptions and conversion to a new valuation system in thethird quarter of 2008 and a $101 million increase related to higher estimatedgross profits to amortize as a result of the reserve decrease, net of hedges,for variable annuity guaranteed living benefits.  The market impact on DAC included $220million resulting from management’s action in the fourth quarter of 2008 tolower future profit expectations based on continued depreciation in contractvalues and historical equity market return patterns. In the prior year, DACamortization included an expense of $16 million related to updating valuationassumptions and benefits of $6 million from the market’s impact on DAC and $17million related to the DAC effect of variable annuity guaranteed livingbenefits, net of hedges.

 

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

 

Other insurance andoperating expenses decreased $89 millionor 11.4% to $692 million for the year ended December 31, 2008 primarily due to decreased sales and marketing expensesand lower corporate overhead expenses.

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 160.1% and 10.8%for the years ended December 31, 2008 and 2007, respectively.   The increase in the effective tax rate isprimarily due to a pretax loss in relation to a net tax benefit for 2008compared to pretax income for 2007. RiverSource Life’s effective tax rate for 2008 included a $39 milliontax benefit related to changes in the status of current audits.  RiverSource Life’s effective tax rate for2007 included a $7 million tax benefit related to the finalization of the prioryear tax return.

 

On September 25,2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 inwhich it announced that it intends to issue regulations with respect to certaincomputational aspects of the Dividends Received Deduction (“DRD”) related toseparate account assets held in connection with variable contracts of lifeinsurance companies. Revenue Ruling 2007-61 suspended a revenue ruling issuedin August 2007 that purported to change accepted industry and IRSinterpretations of the statutes governing these computational questions. Anyregulations that the IRS ultimately proposes for issuance in this area will besubject to public notice and comment, at which time insurance companies and othermembers of the public will have the opportunity to raise legal and practicalquestions about the content, scope and application 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. Managementbelieves that it is likely that any such regulations would apply prospectivelyonly.

 

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**CriticalAccounting Policies**

 

The accounting andreporting policies that RiverSource Life uses affect its Consolidated FinancialStatements.  Certain of RiverSource Life’saccounting and reporting policies are critical to an understanding of RiverSourceLife’s financial condition and results of operations and, in some cases, theapplication of these policies can be significantly affected by the estimates,judgments and assumptions made by management during the preparation of theConsolidated Financial Statements.  Theaccounting and reporting policies RiverSource Life has identified asfundamental to a full understanding of its financial condition and results ofoperations are described below.  See Note2 to the Consolidated Financial Statements for further information aboutRiverSource Life’s accounting policies.

 

***Valuationof Investments***

 

The most significantcomponent of RiverSource Life’s investments is its Available-for-Salesecurities, which RiverSource Life generally carries at fair value within itsConsolidated Balance Sheets. The fair value of****RiverSourceLife’s Available-for-Sale securities at December 31, 2008 was primarilyobtained from third-party pricing sources. RiverSource Life records unrealized securities gains (losses) in accumulatedother comprehensive income (loss), net of income tax provision (benefit) andnet of adjustments in other asset and liability balances, such as DAC, toreflect the expected impact on their carrying values had the unrealizedsecurities gains (losses) been realized as of the respective balance sheetdates.  At December 31, 2008,RiverSource Life had net unrealized pretax losses on Available-for-Salesecurities of $1.4 billion. RiverSource Life recognizes gains and losses inresults of operations upon disposition of the securities.  RiverSource Life also recognizes losses inresults of operations when management determines that a decline in value isother-than-temporary.  A write-down forimpairment can be recognized for both credit-related events and for change infair value due to changes in interest rates. Once a security is written down tofair value through net income, any subsequent recovery in value cannot berecognized in net income until the principal is returned. The determination ofother-than-temporary impairment requires the exercise of judgment regarding theamount and timing of recovery. Factors RiverSource Life considers indetermining whether declines in the fair value of fixed-maturity securities areother-than-temporary include: 1) the extent to which the market value is belowamortized cost; 2) RiverSource Life’s ability and intent to hold the investmentfor a sufficient period of time for it to recover to an amount at least equalto its carrying value; 3) the duration of time in which there has been asignificant decline in value; 4) fundamental analysis of the liquidity,business prospects and overall financial condition of the issuer; and 5) marketevents that could impact credit ratings, economic and business climate,litigation and government actions, and similar external business factors. Forstructured investments (e.g., mortgage backed securities), RiverSource Lifealso considers factors such as overall deal structure and its position withinthe structure, quality of underlying collateral, delinquencies and defaults,loss severities, recoveries, prepayments, cumulative loss projections anddiscounted cash flows in assessing potential other-than-temporary impairment ofthese investments. Based upon these factors, securities that have indicators ofpotential other-than-temporary impairment are subject to detailed review bymanagement.  In response to the marketdislocation in the fourth quarter of 2008 and expectations of continueddislocation in 2009, management increased the discount rate, expected loss andseverity rates used to value non-agency residential mortgage backed securitiesand increased the expected default rates for high yield corporate credits.  Securities for which declines are consideredtemporary continue to be carefully monitored by management.  As of December 31, 2008, RiverSourceLife had $1.6 billion in gross unrealized losses that related to $10.9 billionof Available-for-Sale securities, of which $4.9 billion has been in acontinuous unrealized loss position for 12 months or more.  These investment securities had an overallratio of 87% of fair value to amortized cost at December 31, 2008.  As part of RiverSource Life’s ongoingmonitoring process, management determined that a majority of the grossunrealized losses on these securities were attributable to changes in interestrates and credit spreads across asset classes. Additionally, because RiverSource Life has the ability as well as theintent to hold these securities for a time sufficient to recover its cost, RiverSourceLife concluded that none of these securities were other-than-temporarilyimpaired at December 31, 2008.

 

***DeferredAcquisition Costs and Deferred Sales Inducement Costs***

 

For RiverSource Life’sannuity and life, disability income (“DI”) and LTC insurance products, the DACand DSIC balances at any reporting date are supported by projections that showthat management expects there to be adequate premiums or estimated grossprofits after that date to amortize the remaining DAC and DSIC balances. Theseprojections are inherently uncertain because they require management to makeassumptions about financial markets, anticipated mortality and morbidity levelsand policyholder behavior over periods extending well into the future.Projection periods used for RiverSource Life’s annuity products are typically10 to 25 years, while projection periods for RiverSource Life’s life, DI andLTC insurance products are often 50 years or longer. Management regularlymonitors financial market conditions and actual policyholder behaviorexperience and compares them to its assumptions.

 

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For annuity and universallife insurance products, the assumptions made in projecting future results andcalculating the DAC balance and DAC amortization expense are management’s bestestimates. Management is required to update these assumptions whenever itappears that, based on actual experience or other evidence, earlier estimatesshould be revised. When assumptions are changed, the percentage of estimatedgross profits used to amortize DAC might also change. A change in the requiredamortization percentage is applied retrospectively; an increase in amortizationpercentage will result in a decrease in the DAC balance and an increase in DACamortization expense, while a decrease in amortization percentage will resultin an increase in the DAC balance and a decrease in DAC amortization expense.The impact on results of operations of changing assumptions can be eitherpositive or negative in any particular period and is reflected in the period inwhich such changes are made.  Forproducts with associated DSIC, the same policy applies in calculating the DSICbalance and periodic DSIC amortization.

 

For other life, DI andLTC insurance products, the assumptions made in calculating the DAC balance andDAC amortization expense are consistent with those used in determining theliabilities and, therefore, are intended to provide for adverse deviations inexperience and are revised only if management concludes experience will be soadverse that DAC are not recoverable. If management concludes that DAC are notrecoverable, DAC are reduced to the amount that is recoverable based on bestestimate assumptions and there is a corresponding expense recorded inconsolidated results of operations.

 

For annuity and life, DIand LTC insurance products, key assumptions underlying these long-termprojections include interest rates (both earning rates on invested assets andrates credited to contractholder and policyholder accounts), equity marketperformance, mortality and morbidity rates and the rates at which policyholdersare expected to surrender their contracts, make withdrawals from theircontracts and make additional deposits to their contracts. Assumptions aboutearned and credited interest rates are the primary factors used to projectinterest margins, while assumptions about equity and bond market performanceare the primary factors used to project client asset value growth rates, andassumptions about surrenders, withdrawals and deposits comprise projectedpersistency rates. Management must also make assumptions to project maintenanceexpenses associated with servicing its annuity and insurance business duringthe DAC amortization period.

 

The client asset valuegrowth rates are the rates at which variable annuity and variable universallife insurance contract values invested in separate accounts are assumed toappreciate in the future. The rates used vary by equity and fixed incomeinvestments. Management reviews and, where appropriate, adjusts its assumptionswith respect to client asset value growth rates on a regular basis. RiverSourceLife typically uses a mean reversion process as a guideline in settingnear-term equity asset growth rates based on a long-term view of financialmarket performance as well as recent actual performance.  The suggested near-term growth rate isreviewed to ensure consistency with management’s assessment of anticipatedequity market performance.  In the fourthquarter of 2008, RiverSource Life decided to constrain near-term equity growthrates below the level suggested by mean reversion. This constraint is based onRiverSource Life’s analysis of historical equity returns following downturns inthe market.  The long-term client assetvalue growth rates are based on assumed gross annual returns of 9% for equitiesand 6.5% for fixed income securities.  IfRiverSource Life increased or decreased its assumptions related to these growthrates by 100 basis points, the impact on the DAC and DSIC balances would be anincrease or decrease of approximately $30 million.

 

Management monitors otherprincipal DAC and DSIC amortization assumptions, such as persistency,mortality, morbidity, interest margin and maintenance expense levels each quarterand, when assessed independently, each could impact RiverSource Life’s DAC andDSIC balances.

 

The analysis of DAC andDSIC balances and the corresponding amortization is a dynamic process thatconsiders all relevant factors and assumptions described previously. Unlessmanagement identifies a significant deviation over the course of the quarterlymonitoring, management reviews and updates these DAC and DSIC amortizationassumptions annually in the third quarter of each year.  An assessment of sensitivity associated withchanges in any single assumption would not necessarily be an indicator offuture results.

 

RiverSource Life adopted American Institute of Certified PublicAccountants (“AICPA”) Statement of Position (“SOP”) 05-1, “Accounting byInsurance Enterprises for Deferred Acquisition Costs in Connection WithModifications or Exchanges of Insurance Contracts,” (“SOP 05-1”) on January 1,2007.  See Note 2 and Note 3 to theConsolidated Financial Statements for additional information about the effectof RiverSource Life’s adoption of SOP 05-1 and the accounting policies for theamortization and capitalization of DAC. In periods prior to 2007, RiverSource Life’s policy had

 

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been to treat certaininternal replacement transactions as continuations and to continue amortizationof DAC associated with the existing contract against revenues from the newcontract.  For details regarding thebalances of and changes in DAC for the years ended December 31, 2008 and2007, see Note 6 to the Consolidated Financial Statements.

 

***Liabilitiesfor Future Policy Benefits and Policy Claims and Other Policyholders’ Funds***

 

*Fixed Annuities and VariableAnnuity Guarantees*

 

Future policy benefitsand policy claims and other policyholders’ funds related to fixed annuities andvariable annuity guarantees include liabilities for fixed account values onfixed and variable deferred annuities, guaranteed benefits associated withvariable annuities, equity indexed annuities and fixed annuities in a payoutstatus.

 

Liabilities for fixedaccount values on fixed and variable deferred annuities are equal toaccumulation values, which are the cumulative gross deposits and creditedinterest less withdrawals and various charges.

 

The majority of thevariable annuity contracts offered by RiverSource Life contain GMDBprovisions.  When market values of thecustomer’s accounts decline, the death benefit payable on a contract with aGMDB may exceed the contract accumulation value.  RiverSource Life also offers variableannuities with death benefit provisions that gross up the amount payable by acertain percentage of contract earnings which are referred to as gain gross-up(“GGU”) benefits.  In addition,RiverSource Life offers contracts with guaranteed minimum withdrawal benefit (“GMWB”)and guaranteed minimum accumulation benefit (“GMAB”) provisions and, until May 2007,RiverSource Life offered contracts containing GMIB provisions.  As a result of the recent market decline, theamount by which guarantees exceed the accumulation value has increasedsignificantly.

 

In determining theliabilities for variable annuity death benefits, GMIB and the life contingentbenefits associated with GMWB, RiverSource Life projects these benefits andcontract assessments using actuarial models to simulate various equity marketscenarios. Significant assumptions made in projecting future benefits andassessments relate to customer asset value growth rates, mortality, persistencyand investment margins and are consistent with those used for DAC assetvaluation for the same contracts. As with DAC, management will review, andwhere appropriate, adjust its assumptions each quarter. Unless managementidentifies a material deviation over the course of quarterly monitoring, managementwill review and update these assumptions annually in the third quarter of eachyear.  In response to the marketdislocation in the fourth quarter of 2008 and expectations of continueddislocation in 2009, management lowered future variable annuity and variableuniversal life profit expectations based on continued depreciation in contractvalues and historical equity market return patterns.

 

The variable annuitydeath benefit liability is determined by estimating the expected value of deathbenefits in excess of the projected contract accumulation value and recognizingthe excess over the estimated meaningful life based on expected assessments(e.g., mortality and expense fees, contractual administrative charges andsimilar fees).

 

If elected by the contractowner and after a stipulated waiting period from contract issuance, a GMIBguarantees a minimum lifetime annuity based on a specified rate of contractaccumulation value growth and predetermined annuity purchase rates.  The GMIB liability is determined each periodby estimating the expected value of annuitization benefits in excess of theprojected contract accumulation value at the date of annuitization andrecognizing the excess over the estimated meaningful life based on expectedassessments.

 

The embedded derivativesrelated to GMAB and the non-life contingent benefits associated with GMWBprovisions are recorded at fair value. See Note 11 to the ConsolidatedFinancial Statements for information regarding the fair value measurement ofembedded derivatives.  The liability forthe life contingent benefits associated with GMWB provisions is determined inthe same way as the liability for variable annuity death benefits.  The changes in both the fair values of theGMWB and GMAB embedded derivatives and the liability for life contingentbenefits are reflected in benefits, claims, losses and settlement expenses.

 

Liabilities for equityindexed annuities are equal to the accumulation of host contract valuescovering guaranteed benefits and the market value of embedded equityoptions.  See Note 11 to the ConsolidatedFinancial Statements for information regarding the fair value measurement ofembedded derivatives.

 

Liabilities for fixedannuities in a benefit or payout status are based on future estimated paymentsusing established industry mortality tables and interest rates, ranging from4.6% to 9.5% at December 31, 2008, depending on year of issue, with anaverage rate of approximately 5.8%.

 

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*Life, Disability Income and LongTerm Care Insurance*

 

Future policy benefitsand policy claims and other policyholders’ funds related to life, DI and LTCinsurance include liabilities for fixed account values on fixed and variableuniversal life policies, liabilities for unpaid amounts on reported claims,estimates of benefits payable on claims incurred but not yet reported andestimates of benefits that will become payable on term life, whole life, DI andLTC policies as claims are incurred in the future.

 

Liabilities for fixedaccount values on fixed and variable universal life insurance are equal toaccumulation values.   Accumulationvalues are the cumulative gross deposits and credited interest less variouscontractual expense and mortality charges and less amounts withdrawn bypolicyholders.

 

Liabilities for unpaidamounts on reported life insurance claims are equal to the death benefitspayable under the policies. Liabilities for unpaid amounts on reported DI andLTC claims include any periodic or other benefit amounts due and accrued, alongwith estimates of the present value of obligations for continuing benefitpayments. These amounts are calculated based on claim continuance tables whichestimate the likelihood an individual will continue to be eligible for benefits.  Present values are calculated at interestrates established when claims are incurred. Anticipated claim continuance ratesare based on established industry tables, adjusted as appropriate forRiverSource Life’s experience.  Interestrates used with DI claims ranged from 3.0% to 8.0% at December 31, 2008,with an average rate of 4.8%.  Interestrates used with LTC claims ranged from 4.0% to 7.0% at December 31, 2008,with an average rate of 4.1%.

 

Liabilities for estimatedbenefits payable on claims that have been incurred but not yet reported arebased on periodic analysis of the actual time lag between when a claim occursand when it is reported.

 

Liabilities forestimates of benefits that will become payable on future claims on term life,whole life, DI and LTC policies are based on the net level premium method,using anticipated premium payments, mortality and morbidity rates, policypersistency and interest rates earned on assets supporting the liability.Anticipated mortality and morbidity rates are based on established industrymortality and morbidity tables, with modifications based on RiverSource Life’sexperience. Anticipated premium payments and persistency rates vary by policyform, issue age, policy duration and certain other pricing factors. Anticipatedinterest rates for term and whole life ranged from 4.0% to 10.0% at December 31,2008, depending on policy form, issue year and policy duration. Anticipatedinterest rates for DI vary by plan and were 7.5% and 6.0% at policy issuegrading to 5.0% over five years and 4.5% over 20 years, respectively.Anticipated discount rates for LTC vary by plan and were 5.8% at December 31,2008 and range from 5.9% to 6.3% over 40 years.

 

Where applicable, benefitamounts expected to be recoverable from reinsurance companies who share in therisk are separately recorded as reinsurance recoverables.

 

***Derivative Instruments and Hedging Activities***

 

RiverSource Life uses derivative instruments to manageits exposure to various market risks. All derivatives are recorded at fair value.  The fair value of RiverSource Life’sderivative instruments is determined using either market quotes or valuationmodels that are based upon the net present value of estimated future cash flowsand incorporate current market observable inputs to the extent available. Theaccounting for changes in the fair value of a derivative instrument depends onits intended use and the resulting hedge designation, if any.  RiverSource Life primarily uses derivativesas economic hedges that are not designated as accounting hedges or do notqualify for hedge accounting treatment. RiverSource Life occasionally designates derivatives as (1) hedgesof changes in the fair value of assets, liabilities, or firm commitments (“fairvalue hedges”) or (2) hedges of a forecasted transaction or of thevariability of cash flows to be received or paid related to a recognized assetor liability (“cash flow hedges”).

 

For derivative instruments that do not qualify forhedge accounting or are not designated as hedges, changes in fair value arerecognized in current period earnings. The mark-to-market adjustment on derivatives hedging variable annuityliving benefits and equity indexed annuities are included within benefits, claims,losses and settlement expenses and interest credited to fixed accounts,respectively. The mark-to-market adjustment on all other derivatives is acomponent of net investment income. These derivatives primarily provideeconomic hedges to equity market and interest rate exposures.  Examples include structured derivatives,options, futures, equity and interest rate swaps and swaptions thateconomically hedge the equity and interest rate exposure of derivativesembedded in certain annuity liabilities.

 

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For derivative instruments that qualify as fair valuehedges, changes in the fair value of the derivatives, as well as of thecorresponding hedged assets, liabilities or firm commitments, are recognized incurrent earnings.  If a fair value hedgedesignation is removed or the hedge is terminated prior to maturity, previousadjustments to the carrying value of the hedged item are recognized intoearnings over the remaining life of the hedged item.

 

For derivative instruments that qualify as cash flowhedges, the effective portions of the gain or loss on the derivativeinstruments are reported in accumulated other comprehensive income (loss) andreclassified into earnings when the hedged item or transaction impactsearnings.   Any ineffective portion ofthe gain or loss is reported currently in earnings.  If a hedge designation is removed or a hedgeis terminated prior to maturity, the amount previously recorded in accumulatedother comprehensive income (loss) may be recognized into earnings over theperiod that the hedged item impacts earnings. For any hedge relationships that are discontinued because the forecastedtransaction is not expected to occur according to the original strategy, anyrelated amounts previously recorded in accumulated other comprehensive income(loss) are recognized in earnings immediately.

 

For further details on the types of derivativesRiverSource Life uses and how it accounts for them, see Note 2 and Note 15 tothe Consolidated Financial Statements.

 

***Income TaxAccounting***

 

Income taxes, as reportedin the Consolidated Financial Statements, represent the net amount of incometaxes that RiverSource Life expects to pay to or receive from various taxingjurisdictions in connection with its operations. RiverSource Life provides forincome taxes based on amounts that it believes it will ultimately owe takinginto account the recognition and measurement for uncertain tax positions.  Inherent in the provision for income taxesare estimates and judgments regarding the tax treatment of certain items.  In the event that the ultimate tax treatmentof items differs from RiverSource Life’s estimates, it may be required tosignificantly change the provision for income taxes recorded in itsConsolidated Financial Statements.

 

In connection with theprovision for income taxes, the Consolidated Financial Statements reflectcertain amounts related to deferred tax assets and liabilities, which resultfrom temporary differences between the assets and liabilities measured forfinancial statement purposes versus the assets and liabilities measured for taxreturn purposes. Among RiverSource Life’s deferred tax assets is a significantdeferred tax asset relating to capital losses that have been recognized forfinancial statement purposes but not yet for tax return purposes.  Under current U.S. federal income tax law,capital losses generally must be used against capital gain income within fiveyears of the year in which the capital losses are recognized for tax purposes.

 

RiverSource Life will notbe able to file a consolidated U.S. federal income tax return with the othermembers of the Ameriprise Financial affiliated group until 2010 which willresult in net operating and capital losses, credits and other tax attributesgenerated by one group not being available to offset income earned or taxesowed by the other group during the period of non-consolidation. This lack ofconsolidation could affect RiverSource Life’s ability to fully realize certaindeferred tax assets, including the capital losses.

 

RiverSource Life isrequired to establish a valuation allowance for any portion of deferred taxassets that management believes will not be realized.  Significant judgment is required indetermining if a valuation allowance should be established, and the amount ofsuch allowance if required.  Factors usedin making this determination include estimates relating to the performance ofthe business including the ability to generate capital gains.  Consideration is given to, among other thingsin making this determination, a) future taxable income exclusive of reversingtemporary differences and carryforwards, b) future reversals of existingtaxable temporary differences, c) taxable income in prior carryback years, andd) tax planning strategies.  It is likelythat management will need to identify and implement appropriate planningstrategies to ensure its ability to realize deferred tax assets and avoid theestablishment of a valuation allowance with respect to such assets.  In the opinion of management, it is currentlymore likely than not that RiverSource Life will realize the benefit of itsdeferred tax assets, including its capital loss deferred tax assets; therefore,no such valuation allowance has been established.

 

**Recent Accounting Pronouncements**

 

For information regardingrecent accounting pronouncements and their expected impact on RiverSource Life’sfuture consolidated financial condition or results of operations, see Note 3 tothe Consolidated Financial Statements.

 

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**Financial Condition**

 

RiverSource Life’s totalassets and liabilities decreased in 2008 primarily due to lower separateaccount assets and liabilities, which decreased as a result of marketconditions in the second half of 2008.

 

Investments primarilyinclude corporate debt securities and mortgage and other asset backedsecurities.  At December 31, 2008,RiverSource Life’s corporate debt securities comprised a diverse portfolio withthe largest concentrations accounting for approximately 70% of the portfolio inthe following industries: banking and finance, utilities, energy and foodprocessing. Investments also included $3.9 billion and $3.7 billion ofcommercial mortgage loans, policy loans and trading securities and otherinvestments at December 31, 2008 and 2007, respectively. Investments areprincipally funded by sales of insurance and annuities and by reinvestedincome.

 

Investments include $1.0billion and $1.5 billion of below investment grade securities at December 31,2008 and 2007, respectively. These investments represent 5% and 7% ofRiverSource Life’s investment portfolio at December 31, 2008 and 2007,respectively.

 

Separate account assetsprimarily represent funds held for the exclusive benefit of variable annuitycontractholders and variable life insurance policyholders. These assets aregenerally carried at market value and separate account liabilities are equal toseparate account assets. RiverSource Life earns administration and other feesfrom the related accounts.  The decreasein separate account assets and liabilities to $41.8 billion as of December 31,2008 compared to $58.1 billion as of December 31, 2007, primarily resultedfrom market impacts of $19.1 billion partially offset by net inflows of $3.0billion.

 

RiverSource Life holdsreserves for current and future obligations that are related to fixedannuities, certain guaranteed payments under variable annuities and life, DIand LTC insurance.  These reserves arereflected in future policy benefits in the Consolidated Balance Sheets.  Reserves for fixed annuities and universallife contracts are equal to the underlying contract accumulation values.  Reserves for other life, DI and LTC insuranceproducts are based on various assumptions, including mortality rates, morbidityrates and policy persistency.

 

***Fair ValueMeasurements***

 

RiverSource Lifereports certain assets and liabilities at fair value; specifically, separateaccount assets, derivatives, embedded derivatives, most investments and cashequivalents.  Statement of FinancialAccounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”)defines fair value, provides a framework for measuring fair value and expandsdisclosures about fair value measurements. Fair value assumes the exchange of assets or liabilities occurs inorderly transactions.  RiverSource Lifeincludes actual market prices, or observable inputs, in its fair valuemeasurements to the extent available. Broker quotes are obtained when quotesfrom pricing services are not available.

 

RiverSource Life validatesprices obtained from third parties through a variety of means such as: pricevariance analysis, subsequent sales testing, stale price review, pricecomparison across pricing vendors and due diligence reviews of vendors. SFAS157 does not require the use of market prices that are the result of a forcedliquidation or distressed sale.

 

Inactive Markets

 

Through RiverSourceLife’s own experience transacting in the marketplace and through discussionswith its pricing vendors, RiverSource Life believes that the market fornon-agency residential mortgage backed securities is inactive. Indicators ofinactive markets include: pricing services’ reliance on brokers or discountedcash flow analyses to provide prices, an increase in the disparity betweenprices provided by different pricing services for the same security,unreasonably large bid-offer spreads and a significant decrease in the volumeof trades relative to historical levels. In certain cases, this marketinactivity has resulted in RiverSource Life applying valuation techniques thatrely more on an income approach (discounted cash flows using market rates) thanon a market approach (prices from pricing services).  RiverSource Life considers market observableyields for other asset classes it considers to be of similar risk whichincludes nonperformance and liquidity for individual securities to set thediscount rate for applying the income approach to certain non-agencyresidential mortgage backed securities. The discount rates used for thesesecurities at December 31, 2008 ranged from 13% to 22%.

 

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At the beginning ofthe fourth quarter of 2008, $219 million of prime non-agency residentialmortgage backed securities were transferred from Level 2 to Level 3 of the fairvalue hierarchy because management believes the market for these prime qualityassets is now inactive.  The lossrecognized on these assets during the fourth quarter of 2008 was $47 million ofwhich $13 million was included in net investment income and $34 million wasincluded in other comprehensive loss.

 

Residential Mortgagebacked Securities Backed by Subprime, Alt-A or Prime Collateral

 

Sub-prime mortgagelending is the origination of residential mortgage loans to customers with weakcredit profiles. Alt-A mortgage lending is the origination of residentialmortgage loans to customers who have credit ratings above sub-prime but may notconform to government-sponsored standards. Prime mortgage lending is theorigination of residential mortgage loans to customers with good creditprofiles.  RiverSource Life has exposureto these types of loans only through mortgage backed and asset backedsecurities. The slow down in the U.S. housing market, combined with relaxedunderwriting standards by some originators, has recently led to higherdelinquency and loss rates for some of these investments. Recent marketconditions have increased the likelihood of other-than-temporary impairmentsfor certain non-agency residential mortgage backed securities.  As a part of RiverSource Life’s riskmanagement process, an internal rating system is used in conjunction withmarket data as the basis of analysis to assess the likelihood that RiverSourceLife will not receive all contractual principal and interest payments for theseinvestments. For the investments 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 non-agencymortgage backed securities that had credit-related impairments recorded in2008, all contractual payments are expected to be received.

 

The following tablepresents, as of December 31, 2008, RiverSource Life’s residential mortgagebacked and asset backed securities backed by sub-prime, Alt-A or prime mortgageloans by credit rating and vintage year (in millions):

 
| ** **             | ** ** | **AAA**             | ** ** | **AA**          | ** ** | **A**               | ** ** | **BBB**         | ** ** | **BB & Below** | ** ** | **Total**       | ** ** |
|------------------------|------------|---------------------|------------|-----------------|------------|---------------------|------------|-----------------|------------|------------------------------|------------|-----------------|------------|
| ** **             | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost**          | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| **Sub-prime**          | ** ** | ** **          | ** ** | ** **      | ** ** | ** **          | ** ** | ** **      | ** ** | ** **                   | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2004 &  prior |       | $                   | 5          |            | $          | 4                   |       | $               | 7          |                         | $          | 3               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 12 |   | $ | 7 |   |
| 2005                   |       | 61                  |       | 51              |       | 13                  |       | 8               |       | —                       |       | —          |       | 5 |   | 2 |   | — |   | — |   | 79 |   | 61 |   |
| 2006                   |       | 23                  |       | 19              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 23 |   | 19 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | 10                  |       | 8               |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 10 |   | 8 |   |
| Total Sub-prime   |       | $                   | 99         |            | $          | 82                  |       | $               | 20         |                         | $          | 11              |       | $ | — |   | $ | — |   | $ | 5 |   | $ | 2 |   | $ | — |   | $ | — |   | $ | 124 |   | $ | 95 |   |
|                   |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior |       | $                   | 54         |            | $          | 46                  |       | $               | 6          |                         | $          | 6               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 60 |   | $ | 52 |   |
| 2005                   |       | 241                 |       | 148             |       | 12                  |       | 12              |       | 7                            |       | 7               |       | 13 |   | 13 |   | 2 |   | 2 |   | 275 |   | 182 |   |
| 2006                   |       | 3                   |       | 3               |       | —              |       | —          |       | —                       |       | —          |       | 17 |   | 16 |   | — |   | — |   | 20 |   | 19 |   |
| 2007                   |       | 32                  |       | 15              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 32 |   | 15 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total Alt-A       |       | $                   | 330        |            | $          | 212                 |       | $               | 18         |                         | $          | 18              |       | $ | 7 |   | $ | 7 |   | $ | 30 |   | $ | 29 |   | $ | 2 |   | $ | 2 |   | $ | 387 |   | $ | 268 |   |
|                   |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Prime**              |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior |       | $                   | 109        |            | $          | 88                  |       | $               | 18         |                         | $          | 11              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 127 |   | $ | 99 |   |
| 2005                   |       | 103                 |       | 75              |       | 52                  |       | 28              |       | 14                           |       | 6               |       | — |   | — |   | — |   | — |   | 169 |   | 109 |   |
| 2006                   |       | —              |       | —          |       | 6                   |       | 2               |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 6 |   | 2 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | 17                           |       | 11              |       | — |   | — |   | — |   | — |   | 17 |   | 11 |   |
| 2008                   |       | 19                  |       | 31              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 19 |   | 31 |   |
| Total Prime       |       | $                   | 231        |            | $          | 194                 |       | $               | 76         |                         | $          | 41              |       | $ | 31 |   | $ | 17 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 338 |   | $ | 252 |   |
|                   |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Grand  Total**       |       | $                   | 660        |            | $          | 488                 |       | $               | 114        |                         | $          | 70              |       | $ | 38 |   | $ | 24 |   | $ | 35 |   | $ | 31 |   | $ | 2 |   | $ | 2 |   | $ | 849 |   | $ | 615 |   |

 

29

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Fair Value ofLiabilities and Nonperformance Risk

 

SFAS 157 also requirescompanies to measure the fair value of liabilities at the price that would bereceived to transfer the liability to a market participant (an exit price).Since there is not a market for RiverSource Life’s obligations of its variableannuity riders, RiverSource Life considers the assumptions participants in ahypothetical market would make to reflect an exit price. As a result,RiverSource Life adjusts the valuation of variable annuity riders by updatingcertain policyholder assumptions, adding explicit margins to provide forprofit, risk and expenses, and adjusting the rates used to discount expectedcash flows to reflect a current market estimate of RiverSource Life’snonperformance risk. The nonperformance risk adjustment is based on brokerquotes for credit default swaps that are adjusted to estimate the risk ofRiverSource Life not fulfilling these liabilities. Consistent with generalmarket conditions, this estimate resulted in a spread over the LIBOR swap curveas of December 31, 2008. As RiverSource Life’s estimate of this spreadwidens or tightens, the liability will decrease or increase. If thisnonperformance credit spread moves to a zero spread over the LIBOR swap curve,the reduction to net income would be approximately $235 million, net of DAC andDSIC amortization and income taxes, based on December 31, 2008 creditspreads.

 

The nonperformancerisk for RiverSource Life’s derivatives is managed and mitigated primarilythrough the use of master netting arrangements and collateral arrangements. Asof December 31, 2008, any deterioration in RiverSource Life’s derivativecounterparties’ credit would not materially impact RiverSource Life’s financialstatements.

 

**Liquidity and 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.

 

At December 31, 2008and 2007, RiverSource Life had no securities sold under repurchase agreementsand no amounts were outstanding on the line of credit with AmeripriseFinancial.

 

In September 2008,RiverSource Life, as the lender, entered into a revolving credit agreement withAmeriprise Financial as the borrower. There were no amounts outstanding as of December 31, 2008.  See Note 10 to the Consolidated FinancialStatements for additional information.

 

***CapitalActivity***

 

Dividends paid andreceived were as follows:

 
| ** **                                                                             | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                                             | ** ** | **(in millions)** | ** ** |
| Cash dividends  paid to Ameriprise Financial                                           |       | $                      | 775        |     | $          | 900      |       | $ | 300 |   |
| Cash dividends  paid to RiverSource Life Insurance Company from RiverSource Life of NY |       | 77                     |       | 83       |       | 25       |       |
| Non-cash  dividend paid to Ameriprise Financial from RiverSource Tax Adv. Inv.         |       | 118                    |       | —   |       | —   |       |
|                                                                                        |            |                        |            |          |            |          |            |  |  |  |

 

Notifications to stateinsurance regulators were made in advance of payments of dividends for amountsin excess of statutorily defined thresholds. See Note 13 to the Consolidated Financial Statements for additional information.

 

During 2008, RiverSourceLife Insurance Company received a non-cash capital contribution of $83 millioncomprised of below investment grade syndicated bank loans from AmeripriseFinancial.

 

In addition, RiverSourceLife Insurance Company received a $239 million contribution from AmeripriseFinancial, consisting of all the issued and outstanding shares of RiverSourceTax Adv. Inv.

 

30

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***RegulatoryCapital***

 

RiverSourceLife Insurance Company and RiverSource Life of NY are subject to regulatorycapital requirements.  Actual capital, determined on a statutorybasis, and regulatory capital requirements for each of the life insuranceentities are as follows:

 
| ** **                                  | ** ** | **December 31,**          | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **Actual Capital(a)**     | ** ** | **Regulatory  Capital  Requirement(b)** | ** ** |
| ** **                                  | ** ** | **2008**                       | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                  | ** ** | **(in ****millions****)** | ** ** |
| RiverSource Life  Insurance Company         |       | $                              | 2,722      |   | $ | 3,017 |   | $ | 551 |   | $ | 442 |   |
| RiverSource Life  Insurance Co. of New York |       | 229                            |       | 288 |   | 58 |   | 34 |   |
|                                             |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

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(a)          Actual capital, as defined by the National Associationof Insurance Commissioners (“NAIC”) for purposes of meeting regulatory capitalrequirements, includes statutory capital and surplus, plus certain statutoryvaluation reserves.

 

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

 

***ContractualCommitments***

 

The contractualobligations identified in the table below include balance sheet transactionsthat represent material expected or contractually committed future obligationsof RiverSource Life.  Payments due by periodas of December 31, 2008 are as follows:

 
| ** **                               | ** ** | ** **             | ** ** | **Payments due in year ending** | ** ** |
|------------------------------------------|------------|------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **Total**              | ** ** | **2009**                                            | ** ** | **2010-  2011** | ** ** | **2012-  2013** | ** ** | **2014 and  thereafter** | ** ** |
| ** **                               | ** ** | **(in millions)** | ** ** |
| Insurance and  annuities(1)              |       | $                      | 47,241     |                                                | $          | 2,994 |   | $ | 4,858 |   | $ | 4,610 |   | $ | 34,779 |   |
| Deferred premium  options obligations(2) |       | 876                    |       | 134                                                 |       | 247 |   | 198 |   | 297 |   |
| Total                                    |       | $                      | 48,117     |                                                | $          | 3,128 |   | $ | 5,105 |   | $ | 4,808 |   | $ | 35,076 |   |

 

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(1)    These scheduled payments are represented byreserves of approximately $28.8 billion at December 31, 2008 and are basedon interest credited, mortality, morbidity, lapse, surrender and premiumpayment assumptions.  Actual paymentobligations may differ if experience varies from these assumptions.  Separate account liabilities have beenexcluded as associated contractual obligations would be met by separate accountassets.

 

(2)     The fair value of these deferred premiumoptions recorded on the Consolidated Balance Sheets was $795 million as ofDecember 31, 2008.  See Note 15 to theConsolidated Financial Statements for more information about deferred premiumoptions.

 

**Risk Management**

 

In accordance withregulatory investment guidelines, RiverSource Life Insurance Company and RiverSource Life of NY, through their respective boards of directorsor board of directors’ investment committees or staff functions, review modelsprojecting different interest rate scenarios, risk/return measures, and theireffect on profitability in order to guide the management of the general accountassets.  They also review thedistribution of assets in the portfolio by type and credit risk sector.  The objective is to structure the investmentsecurities portfolio in the general account to meet contractual obligationsunder the insurance and annuity products and achieve targeted levels ofprofitability within defined risk parameters.

 

RiverSource Life hasdeveloped an asset/liability management approach with separate investmentobjectives to support specific product liabilities, such as insurance andannuities.  As part of this approach,RiverSource Life develops specific investment guidelines that are designed tooptimize trade offs between risk and return and help ensure RiverSource Life isable to support future benefit payments under its insurance and annuityobligations.  These same objectives mustbe consistent with management’s overall investment objectives for the generalaccount investment portfolio.

 

RiverSource Life’s ownedinvestment securities are primarily invested in long-term and intermediate-termfixed maturity securities to provide clients with a competitive rate of returnon their investments while managing risk. Investment in fixed maturitysecurities is designed to provide RiverSource Life with a targeted marginbetween the yield earned on investments and the interest rate credited toclients’ accounts. RiverSource Life does not trade in securities to generateshort-term profits for its own account.

 

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As part of RiverSourceLife’s investment process, management, with the assistance of its investment advisors,conducts a quarterly review of investment performance.  The review process involves the review ofcertain invested assets which the committee evaluates to determine whether ornot any investments are other-than-temporarily impaired and/or which specificinterest earning investments should be put on an interest non-accrual basis.

 

RiverSource Life hasinterest rate risk and equity market risk. Interest rate risk results frominvesting in assets that are somewhat longer and reset less frequently than theliabilities they support.  RiverSourceLife manages interest rate risk through the use of a variety of tools thatinclude modifying the maturities of investments supporting its fixed annuitiesand insurance products.  Additionally,RiverSource Life enters into derivative instruments, such as structuredderivatives, options, futures, interest rate swaps and swaptions, which changethe interest rate characteristics of client liabilities or investmentassets.  Because certain of itsinvestment activities are impacted by the value of its managed equity-basedportfolios, from time to time RiverSource Life enters into risk managementstrategies that may include the use of equity derivative instruments, such asequity options, to mitigate its exposure to volatility in the equity markets.

 

**Quantitative andQualitative Disclosures about Market Risk**

 

Interest rate, equityprice and credit risk are the market risks to which RiverSource Life hasmaterial exposure. Equity market and interest rate fluctuations can have asignificant impact on RiverSource Life’s results of operations, primarily dueto the “spread” (the difference between the returns earned on investments thatsupport obligations and the amounts that must be paid to policyholders andcontractholders) income generated on its annuities and universal life (“UL”)insurance products, the value of DAC and DSIC assets associated with variableannuity and variable UL products, the values of liabilities for guaranteedbenefits associated with its variable annuities and the values of derivativesheld to hedge these benefits.

 

Changes in both theequity and fixed income markets during 2008 have affected RiverSource Life’smarket risk position. These changes resulted in lower asset values againstwhich RiverSource Life takes asset-based fees and expenses as well as increasesin stated liabilities for variable annuity guaranteed benefits. The guaranteedbenefits associated with RiverSource Life’s variable annuities are GMWB, GMAB,GMDB and GMIB options. Each of the guaranteed benefits mentioned aboveguarantees payouts to the annuity holder under certain specific conditionsregardless of the performance of the underlying investment assets.

 

To evaluate interest rateand equity price risk, RiverSource Life performs sensitivity testing whichmeasures the impact on pretax income from the sources listed below for a12 month period following a hypothetical 100 basis point increase ininterest rates and a hypothetical 10% decline in equity markets. Due tothe market conditions in the second half of 2008, RiverSource Life alsoperformed sensitivity testing using a hypothetical 20% decline in equitymarkets.

 

Equity price riskincludes absolute market level and implied market volatility changes.The estimates of net equity price risk exposure presented below assume nochanges in implied market volatility.

 

The numbers below showRiverSource Life’s estimate of the pretax impact of these hypothetical marketmoves, net of hedging as of December 31, 2008.  DAC and DSIC changes are shown based on theimpact of projecting lower profits as a result of the market declines as wellas linked specifically to the changes in RiverSource Life’s variable annuityriders.  Following the table is adiscussion by source of risk and the portfolio management techniques andderivative instruments RiverSource Life uses to mitigate these risks.

 
| ** **                                  | ** ** | **Equity Price Exposure to Pretax Income** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------------------|------------|
| **Equity Price Decline 10%** | ** ** | **Before  Hedge Impact**                                       | ** ** | **Hedge  Impact** | ** ** | **Net  Impact** | ** ** |
| ** **                                  | ** ** | **(in millions)**                                              | ** ** |
| Asset-based fees  and expenses              |       | $                                                                   | (40        | ) | $ | N/A |   | $ | (40 | ) |
| DAC and DSIC  amortization(1)               |       | (160                                                                | )          | N/A |   | (160 | ) |
| Variable annuity  riders:                   |       |                                                                |       |   |   |   |   |
| GMDB and GMIB                               |       | (67                                                                 | )          | N/A |   | (67 | ) |
| GMWB                                        |       | (162                                                                | )          | 179 |   | 17 |   |
| GMAB                                        |       | (38                                                                 | )          | 35 |   | (3 | ) |
| DAC and DSIC  amortization(2)               |       | N/A                                                                 |       | N/A |   | (5 | ) |
| Total variable annuity  riders              |       | (267                                                                | )          | 214 |   | (58 | ) |
| Equity indexed  annuities                   |       | 2                                                                   |       | (2 | ) | — |   |
| Total                                       |       | $                                                                   | (465       | ) | $ | 212 |   | $ | (258 | ) |

 

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| ** **                                  | ** ** | **Equity Price Exposure to Pretax Income** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------------------|------------|
| **Equity Price Decline 20%** | ** ** | **Before  Hedge Impact**                                       | ** ** | **Hedge  Impact** | ** ** | **Net  Impact** | ** ** |
| ** **                                  | ** ** | **(in millions)**                                              | ** ** |
| Asset-based fees  and expenses              |       | $                                                                   | (81        | ) | $ | N/A |   | $ | (81 | ) |
| DAC and DSIC  amortization(1)               |       | (238                                                                | )          | N/A |   | (238 | ) |
| Variable annuity  riders:                   |       |                                                                |       |   |   |   |   |
| GMDB and GMIB                               |       | (116                                                                | )          | N/A |   | (116 | ) |
| GMWB                                        |       | (352                                                                | )          | 371 |   | 19 |   |
| GMAB                                        |       | (81                                                                 | )          | 74 |   | (7 | ) |
| DAC and DSIC  amortization(2)               |       | N/A                                                                 |       | N/A |   | (2 | ) |
| Total variable  annuity riders              |       | (549                                                                | )          | 445 |   | (106 | ) |
| Equity indexed  annuities                   |       | 3                                                                   |       | (3 | ) | — |   |
| Total                                       |       | $                                                                   | (865       | ) | $ | 442 |   | $ | (425 | ) |

 
| ** **                                                                         | ** ** | **Interest Rate Exposure to Pretax Income** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| **Interest Rate Increase 100 Basis Points**               | ** ** | **Before  Hedge Impact**                                        | ** ** | **Hedge  Impact** | ** ** | **Net  Impact** | ** ** |
| ** **                                                                         | ** ** | **(in millions)**                                               | ** ** |
| Asset-based fees  and expenses                                                     |       | $                                                                    | (9         | ) | $ | N/A |   | $ | (9 | ) |
| Variable annuity  riders:                                                          |       |                                                                 |       |   |   |   |   |   |   |   |
| GMWB                                                                               |       | 342                                                                  |       | (439 | ) | (97 | ) |
| GMAB                                                                               |       | 64                                                                   |       | (51 | ) | 13 |   |
| DAC and DSIC  amortization(2)                                                      |       | N/A                                                                  |       | N/A |   | 51 |   |
| Total variable  annuity riders                                                     |       | 406                                                                  |       | (490 | ) | (33 | ) |
| Fixed annuities,  fixed portion of variable annuities and fixed insurance products |       | (3                                                                   | )          | N/A |   | (3 | ) |
| Total                                                                              |       | $                                                                    | 394        |   | $ | (490 | ) | $ | (45 | ) |

 

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N/A    Not Applicable.

 

(1) Marketimpact on DAC and DSIC amortization resulting from lower projected profits.

 

(2) Marketimpact on DAC and DSIC amortization related to variable annuity riders ismodeled net of hedge impact.

 

The above results compareto estimated negative impacts, net of hedging and DAC, of $3 million related toa 100 basis point increase in interest rates and $64 million related to a 10%equity market decline as of December 31, 2007.  The larger impact in 2008 is a result ofmarket dislocation in 2008 and changes to RiverSource Life’s valuation models.The discount rates and credit spreads RiverSource Life uses to value certain ofits investments have been negatively impacted by the current market. This hasled to greater pretax loss projections related to RiverSource Life’s variableannuity riders partially offset by a lower impact to fees and expensesprimarily as a result of lower asset values. In addition, management’s action to constrain the near term growth ratefor equities in the DAC models results in a greater pretax loss under the aboveequity scenarios.

 

Actual results coulddiffer materially from those illustrated above as they are based on a number ofestimates and assumptions. These include assuming the composition of investedassets and liabilities does not change in the 12 month period following thehypothetical market decline, that there are no changes in implied marketvolatility and the increase in interest rates produces a parallel shift in theyield curve. The selection of a 100 basis point interest rate increase as wellas a 10% and 20% equity market decline should not be construed as a predictionof future market events.

 

***Asset-BasedFees and Expenses***

 

RiverSource Life earnsasset-based management fees on its owned separate account assets partiallyoffset by certain expenses.  At December 31,2008, the value of these assets was $41.8 billion. This source of revenue issubject to both interest rate and equity price risk since the value of theseassets and the fees they earn fluctuate inversely with interest rates anddirectly with equity prices. RiverSource Life does not hedge the equity pricerisk or the interest rate risk of this exposure.

 

33

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***DACand DSIC Amortization***

 

For annuity and universallife products, DAC and DSIC are amortized on the basis of estimated grossprofits. Estimated gross profits are a proxy for pretax income prior to therecognition of DAC and DSIC amortization expense. When events occur that reduceor increase current period estimated gross profits, DAC and DSIC amortizationexpense is typically reduced or increased as well, somewhat mitigating theimpact of the event on pretax income.

 

***VariableAnnuity Riders***

 

The guaranteedbenefits associated with the variable annuities are GMWB, GMAB, GMDB and GMIBoptions. Each of the guaranteed benefits mentioned above guarantees payouts tothe annuity holder under certain specific conditions regardless of theperformance of the underlying assets.

 

The total value of allvariable annuity contracts has decreased from $57.2 billion at December 31,2007 to $43.3 billion at December 31, 2008. These contract values includeGMWB and GMAB contracts which have decreased from $13.1 billion and $2.3billion at December 31, 2007 to $12.7 billion and $2.0 billion at December 31,2008, respectively.  At December 31,2008, the reserves for the GMWB and GMAB were $1.5 billion and $367 millioncompared to reserves of $136 million and $33 million at December 31, 2007,respectively. The increase in the reserves for the GMWB and GMAB reflect the changesin economic factors impacting the mark-to-market value of the guarantees.  At December 31, 2008, the reserve forthe other variable annuity guaranteed benefits, GMDB and GMIB, was $67 millioncompared to $27 million at December 31, 2007.

 

As a means ofeconomically hedging its obligations under GMWB and GMAB provisions,RiverSource Life purchases equity put and call options, enters into interestrate swaps, swaptions and trades equity futures contracts.  See Note 15 to the Consolidated Financial Statementsfor further information on derivative instruments.

 

*Equity Price Risk — VariableAnnuity Riders*

 

The variable annuityguaranteed benefits guarantee payouts to the annuity holder under certainspecific conditions, regardless of the performance of the investment assets.For this reason, when equity markets decline, the returns from theseparate account assets coupled with guaranteed benefit fees from annuityholders may not be sufficient to fund expected payouts. In that case, reservesmust be increased with a negative impact to RiverSource Life’s earnings.

 

The core derivativeinstruments with which RiverSource Life hedges the equity price risk of itsGMWB and GMAB are longer dated put and call derivatives; these core instrumentsare supplemented with equity futures and total return swaps.

 

*Interest Rate Risk — VariableAnnuity Riders*

 

The GMAB and thenon-life contingent benefits associated with the GMWB provisions createembedded derivatives which are carried at fair value separately from the underlyinghost variable annuity contract. Changes in fair value of the GMWB and GMAB arerecorded through earnings with fair value calculated based on projected,discounted cash flows over the life of the contract, including projected,discounted benefits and fees. Increases in interest rates reduce the fair valueof the GMWB and GMAB liabilities. The GMWB and GMAB interest rate exposureis hedged with a portfolio of longer dated put and call derivatives, interestrate swaps and swaptions. These derivatives are an alternative to the morecustomized equity puts that were previously used. RiverSource Life entered intointerest rate swaps according to risk exposures along maturities, thus creatingboth fixed rate payor and variable rate payor terms. If interest rates were toincrease, RiverSource Life would have to pay more to the swap counterparty andthe fair value of its equity puts would decrease, resulting in a negativeimpact to RiverSource Life’s pretax income.

 

***FixedAnnuities, Fixed Portion of Variable Annuities and Fixed Insurance Products***

 

Interest rateexposures arise primarily with respect to the fixed account portion ofRiverSource Life’s annuity and insurance products and its investment portfolio.RiverSource Life guarantees an interest rate to the holders of these products.Premiums and deposits collected from clients are primarily invested in fixedrate securities to fund the client credited rate with the spread between therate earned from investments and the rate credited to clients recorded as earnedincome. Client liabilities and investment assets generally differ as it relatesto basis, repricing or maturity characteristics. Rates credited to clients’accounts generally reset at shorter intervals than the yield on the underlyinginvestments.

 

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Therefore, in anincreasing rate environment, higher interest rates are reflected in creditingrates to clients sooner than in rates earned on invested assets resulting in areduced spread between the two rates, reduced earned income and a negativeimpact on pretax income. RiverSource Life had $26.8 billion in reserves infuture policy benefits on its Consolidated Balance Sheets at December 31,2008 to recognize liabilities created by these products. As of December 31,2008, RiverSource Life did not hedge this exposure.  As of December 31, 2007, RiverSourceLife hedged part of this exposure through the use of swaptions.  As of December 31, 2007, the outstandingderivatives were not significant.

 

***EquityIndexed Annuities***

 

RiverSource Life’sequity indexed annuity product is a single premium annuity issued with aninitial term of seven years. The annuity guarantees the contractholder aminimum return of 3% on 90% of the initial premium or end of prior term accumulationvalue upon renewal plus a return that is linked to the performance of theS&P 500 Index.  The equity-linkedreturn is based on a participation rate initially set at between 50% and 90% ofthe S&P 500 Index which is guaranteed for the initial seven-year term whenthe contract is held to full term. Of the $28.8 billion in future policybenefits at December 31, 2008, $244 million relates to the liabilitiescreated by this product.  In 2007,RiverSource Life discontinued new sales of equity indexed annuities.  See Note 15 to the Consolidated FinancialStatements for further information on derivative instruments.

 

*Equity Price Risk — EquityIndexed Annuities*

 

The equity-linked returnto investors creates equity price risk as the amount credited depends on changesin equity markets. To hedge this exposure, a portion of the proceeds from thesale of equity indexed annuities is used to purchase futures, calls and putswhich generate returns to replicate what RiverSource Life must credit to clientaccounts. In conjunction with purchasing puts, RiverSource Life also writesputs. Pairing purchased puts with written puts allows RiverSource Life tobetter match the characteristics of the liability.

 

*Interest Rate Risk — EquityIndexed Annuities*

 

Most of the proceedsfrom the sale of equity indexed annuities are invested in fixed incomesecurities with the return on those investments intended to fund the 3%guarantee. RiverSource Life earns income from the difference between the returnearned on invested assets and the 3% guarantee rate credited to customeraccounts. The spread between return earned and amount credited is affected bychanges in interest rates.

 

***CreditRisk***

 

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

 

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

 

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

 

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Additionally, RiverSource Life reinsuresa portion of the insurance risks associated with its life, DI and LTC insuranceproducts through reinsurance agreements with unaffiliated reinsurancecompanies. Reinsurance is used in order to limit losses, reduce exposure tolarge risks and provide additional capacity for future growth. To manageexposure to losses from reinsurer insolvencies, the financial condition ofreinsurers is evaluated prior to entering into new reinsurance treaties and ona periodic basis during the terms of the treaties. RiverSource Life remainsprimarily liable as the direct insurer on all risks reinsured. As of December 31,2008, RiverSource Life’s largest reinsurance credit risk related to a long termcare coinsurance arrangement between RiverSource Life and a life insurancesubsidiary of Genworth Financial, Inc. See Note 2 and Note 7 to the Consolidated Financial Statementsfor further information on reinsurance.

 

**Forward-Looking Statements**

 

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.  RiverSource Life has madevarious forward-looking statements in this report. Examples of such forward-lookingstatements include:

·      statementsabout future economic performance, the performance of equity markets andinterest rate variations and the economic performance of the United States andof global markets; and

·      statements of assumptions underlying suchstatements.

 

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:

 

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

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

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

·                    effects ofcompetition in the financial services industry and changes in RiverSource Life’sproduct 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; as well asthe opinions of rating organizations and other analysts or RiverSource Life’sregulators, distributors or policyholders and contractholders in response toany change or prospect of change in such opinion;

·                    risks ofdefault by issuers or guarantors of investments RiverSource Life owns or bycounterparties to hedge derivative, insurance or reinsurance arrangements; experience deviations from RiverSource Life’sassumptions regarding such risks and the evaluations or the prospect of changesin evaluations of such third parties published by rating organizations or otheranalysts;

·                    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;

·                    RiverSourceLife’s ability to effectively hedge risks relating to guaranteed benefit ridersand certain other products;

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

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

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

 

36

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

·                    RiverSourceLife’s ability to recover from catastrophes, both natural and man-made;

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

·                     generaleconomic and political factors, including consumer confidence in the economy,the ability and inclination of consumers generally to invest, as well as theirability to and inclination to invest in or purchase insurance and other productsother than cash and equivalents ,the costs of products and services RiverSourceLife consumes in the conduct of its business, and applicable legislation andregulation and changes therein, including tax laws, tax treaties, fiscal andcentral government treasury policy, and regulatory rulings and pronouncements.

 

A further description ofthese and other risks and uncertainties can be found under “Item 1A - Risk Factors”in this Annual Report on Form 10-K.

 
| **ITEM  7A.** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|---------------|-----------------------------------------------------------------|

 

Items required under thissection are included in Item 7 in this Annual Report on Form 10-K — “Management’sNarrative Analysis - Quantitative andQualitative Disclosures about Market Risk.”

 
| **ITEM 8.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA** |
|-------------|-------------------------------------------------|

 
| ** **                                                                                                                     | **Page Number** |
|--------------------------------------------------------------------------------------------------------------------------------|----------------------|
|                                                                                                                           |                 |
| **Consolidated  Financial Statements:**                                                                                        |                 |
|                                                                                                                           |                 |
| Report of Independent  Registered Public Accounting Firm                                                                       | 38                   |
|                                                                                                                           |                 |
| Consolidated Balance  Sheets at December 31, 2008 and 2007                                                                | 39                   |
|                                                                                                                           |                 |
| Consolidated Statements  of Income for each of the three years ended December 31, 2008, 2007 and  2006                    | 40                   |
|                                                                                                                           |                 |
| Consolidated Statements  of Cash Flows for each of the three years ended December 31, 2008, 2007  and 2006                | 41                   |
|                                                                                                                           |                 |
| Consolidated Statements  of Shareholder’s Equity for each of the three years ended December 31,  2008, 2007 and 2006 | 42                   |
|                                                                                                                           |                 |
| Notes to Consolidated  Financial Statements                                                                                    | 43 to 77             |

 

**Schedules:**

All information onschedules to the Consolidated Financial Statements required by Rule 7-05in Article 7 of Regulation S-X is included in the Consolidated FinancialStatements and Notes thereto or is not required. Therefore, all schedules have beenomitted.

 

37

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Report of IndependentRegistered Public Accounting Firm

 

The Board of DirectorsRiverSource Life Insurance Company

 

We have audited theaccompanying consolidated balance sheets of RiverSource Life Insurance Company,(a wholly owned subsidiary of Ameriprise Financial, Inc.) (the Company) asof December 31, 2008 and 2007, and the related consolidated statements ofincome, shareholder’s equity, and cash flows for each of the three years in theperiod ended December 31, 2008. These financial statements are the responsibility of RiverSource LifeInsurance Company’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement.  We were not engaged to perform an audit ofthe Company’s internal control over financial reporting.  Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of RiverSource Life InsuranceCompany at December 31, 2008 and 2007, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31,2008, in conformity with U.S. generally accepted accounting principles.

 

As discussed in Note 3to the consolidated financial statements, in 2008the Company adopted Statement of Financial Accounting Standards (FAS) No. 157,*Fair Value Measurements*.  Also discussed in Note 3, in 2007 theCompany adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,*Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109*, and AmericanInstitute of Certified Public Accountants Statement of Position 05-1, *Accounting by Insurance Enterprises for Deferred Acquisition Costs inConnection With Modifications or Exchanges of Insurance Contracts*.

 
| /s/  Ernst & Young LLP |   |
|---------------------------------|--------|
|                            |   |
| Minneapolis, Minnesota          |   |
| March 2, 2009              |   |

 

38

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATEDBALANCE SHEETS**

 (in millions, except share amounts)

 
| ** **                                                                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2008**              | ** ** | **2007** | ** ** |
| **Assets**                                                                                  |       |                  |       |   |   |
| Investments:                                                                                |       |                  |       |   |   |
| Available-for-Sale:                                                                         |       |                  |       |   |   |
| Fixed  maturities, at fair value (amortized cost: 2008, $19,452; 2007, $21,020)             |       | $                     | 18,070     |   | $ | 20,792 |   |
| Common  and preferred stocks, at fair value (cost: 2008 and 2007, $30)                      |       | 16                    |       | 29 |   |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2008, $17; 2007,  $16) |       | 2,737                 |       | 2,892 |   |
| Policy  loans                                                                               |       | 722                   |       | 697 |   |
| Trading  securities and other investments                                                   |       | 452                   |       | 155 |   |
| Total  investments                                                                          |       | 21,997                |       | 24,565 |   |
|                                                                                        |       |                  |       |   |   |
| Cash  and cash equivalents                                                                  |       | 3,307                 |       | 980 |   |
| Reinsurance  recoverables                                                                   |       | 1,592                 |       | 1,290 |   |
| Amounts  due from brokers                                                                   |       | 3                     |       | 123 |   |
| Deferred  income taxes, net                                                                 |       | 599                   |       | 9 |   |
| Other  accounts receivable                                                                  |       | 99                    |       | 119 |   |
| Accrued  investment income                                                                  |       | 239                   |       | 252 |   |
| Deferred  acquisition costs                                                                 |       | 4,424                 |       | 4,429 |   |
| Deferred  sales inducement costs                                                            |       | 518                   |       | 511 |   |
| Other  assets                                                                               |       | 2,658                 |       | 609 |   |
| Separate  account assets                                                                    |       | 41,787                |       | 58,070 |   |
|                                                                                        |       |                  |       |   |   |
| Total  assets                                                                               |       | $                     | 77,223     |   | $ | 90,957 |   |
|                                                                                        |       |                  |       |   |   |
| **Liabilities and Shareholder’s Equity**                                               |       |                  |       |   |   |
| Liabilities:                                                                                |       |                  |       |   |   |
| Future  policy benefits                                                                     |       | $                     | 28,753     |   | $ | 26,977 |   |
| Policy  claims and other policyholders’ funds                                          |       | 172                   |       | 91 |   |
| Amounts  due to brokers                                                                     |       | 1,862                 |       | 361 |   |
| Other  liabilities                                                                          |       | 910                   |       | 392 |   |
| Separate  account liabilities                                                               |       | 41,787                |       | 58,070 |   |
| Total  liabilities                                                                          |       | 73,484                |       | 85,891 |   |
|                                                                                        |       |                  |       |   |   |
| Shareholder’s  equity:                                                                 |       |                  |       |   |   |
| Common  stock, $30 par value;                                                               |       |                  |       |   |   |
| 100,000  shares authorized, issued and outstanding                                          |       | 3                     |       | 3 |   |
| Additional  paid-in capital                                                                 |       | 2,116                 |       | 2,031 |   |
| Retained  earnings                                                                          |       | 2,336                 |       | 3,188 |   |
| Accumulated  other comprehensive loss, net of tax:                                          |       |                  |       |   |   |
| Net  unrealized securities losses                                                           |       | (678                  | )          | (116 | ) |
| Net  unrealized derivative losses                                                           |       | (38                   | )          | (40 | ) |
| Total  accumulated other comprehensive loss                                                 |       | (716                  | )          | (156 | ) |
| Total  shareholder’s equity                                                            |       | 3,739                 |       | 5,066 |   |
|                                                                                        |       |                  |       |   |   |
| Total  liabilities and shareholder’s equity                                            |       | $                     | 77,223     |   | $ | 90,957 |   |

 

See Notes to Consolidated Financial Statements.

 

39

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF INCOME**

(in millions)

 
| ** **                                        | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues**                                      |       |                                        |       |   |   |   |   |
| Premiums                                          |       | $                                           | 481        |   | $ | 485 |   | $ | 533 |   |
| Net  investment income                            |       | 1,252                                       |       | 1,424 |   | 1,622 |   |
| Policy  and contract charges                      |       | 1,352                                       |       | 1,217 |   | 1,045 |   |
| Other  revenue                                    |       | 255                                         |       | 255 |   | 189 |   |
| Net  realized investment gains (losses)           |       | (442                                        | )          | 61 |   | 51 |   |
|                                              |       |                                        |       |   |   |   |   |
| Total  revenues                                   |       | 2,898                                       |       | 3,442 |   | 3,440 |   |
|                                              |       |                                        |       |   |   |   |   |
| **Benefits and expenses**                         |       |                                        |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 673                                         |       | 760 |   | 724 |   |
| Interest  credited to fixed accounts              |       | 790                                         |       | 847 |   | 955 |   |
| Amortization  of deferred acquisition costs       |       | 861                                         |       | 470 |   | 356 |   |
| Separation  costs                                 |       | —                                      |       | 97 |   | 131 |   |
| Other  insurance and operating expenses           |       | 692                                         |       | 781 |   | 637 |   |
|                                              |       |                                        |       |   |   |   |   |
| Total  benefits and expenses                      |       | 3,016                                       |       | 2,955 |   | 2,803 |   |
|                                              |       |                                        |       |   |   |   |   |
| Pretax  income (loss)                             |       | (118                                        | )          | 487 |   | 637 |   |
| Income  tax provision (benefit)                   |       | (189                                        | )          | 53 |   | 129 |   |
|                                              |       |                                        |       |   |   |   |   |
| Net  income                                       |       | $                                           | 71         |   | $ | 434 |   | $ | 508 |   |

 

See Notes toConsolidated Financial Statements.

 

40

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(in millions)

** **
| ** **                                                                                    | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Cash Flows from Operating Activities**                                                      |       |                                        |       |   |   |   |   |
| Net  income                                                                                   |       | $                                           | 71         |   | $ | 434 |   | $ | 508 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:            |       |                                        |       |   |   |   |   |
| Capitalization  of deferred acquisition costs and deferred sales inducement costs             |       | (679                                        | )          | (828 | ) | (813 | ) |
| Amortization  of deferred acquisition costs and deferred sales inducement costs               |       | 982                                         |       | 523 |   | 404 |   |
| Premium  and discount amortization on Available-for-Sale                                      |       | 57                                          |       | 70 |   | 75 |   |
| Deferred  income taxes, net                                                                   |       | (234                                        | )          | 83 |   | 121 |   |
| Contractholder  and policyholder charges, non-cash                                            |       | (248                                        | )          | (206 | ) | (220 | ) |
| Net  realized investment losses (gains)                                                       |       | 442                                         |       | (61 | ) | (51 | ) |
| Change  in operating assets and liabilities:                                                  |       |                                        |       |   |   |   |   |
| Trading  securities and equity method investments, net                                        |       | (110                                        | )          | 166 |   | 320 |   |
| Future  policy benefits for traditional life, disability income and long term care  insurance |       | 308                                         |       | 275 |   | 274 |   |
| Policy  claims and other policyholders’ funds                                            |       | 81                                          |       | 2 |   | 3 |   |
| Reinsurance  recoverables                                                                     |       | (302                                        | )          | (153 | ) | (154 | ) |
| Other  accounts receivable                                                                    |       | 20                                          |       | (28 | ) | (27 | ) |
| Accrued  investment income                                                                    |       | 14                                          |       | 49 |   | 21 |   |
| Other  assets and liabilities, net                                                            |       | 1,623                                       |       | 22 |   | (76 | ) |
| **Net cash provided by operating activities**                                                 |       | 2,025                                       |       | 348 |   | 385 |   |
| **Cash Flows from Investing Activities**                                                      |       |                                        |       |   |   |   |   |
| Available-for-Sale  securities:                                                               |       |                                        |       |   |   |   |   |
| Proceeds  from sales                                                                          |       | 246                                         |       | 3,020 |   | 1,895 |   |
| Maturities,  sinking fund payments and calls                                                  |       | 2,510                                       |       | 1,908 |   | 2,014 |   |
| Purchases                                                                                     |       | (1,684                                      | )          | (677 | ) | (1,416 | ) |
| Other  investments, excluding policy loans:                                                   |       |                                        |       |   |   |   |   |
| Proceeds  from sales, maturities, sinking fund payments and calls                             |       | 282                                         |       | 473 |   | 513 |   |
| Purchases                                                                                     |       | (250                                        | )          | (504 | ) | (441 | ) |
| Change  in policy loans, net                                                                  |       | (25                                         | )          | (47 | ) | (36 | ) |
| **Net cash provided by investing activities**                                                 |       | 1,079                                       |       | 4,173 |   | 2,529 |   |
| **Cash Flows from Financing Activities**                                                      |       |                                        |       |   |   |   |   |
| Activity  related to investment contracts and universal life-type insurance:                  |       |                                        |       |   |   |   |   |
| Considerations  received                                                                      |       | 2,913                                       |       | 1,093 |   | 1,267 |   |
| Net  transfers from (to) separate accounts                                                    |       | 91                                          |       | (50 | ) | (307 | ) |
| Surrenders  and other benefits                                                                |       | (2,931                                      | )          | (3,838 | ) | (3,688 | ) |
| Other                                                                                         |       | (77                                         | )          | (8 | ) | — |   |
| Tax  adjustment of share-based incentive compensation plan                                    |       | 2                                           |       | 2 |   | 1 |   |
| Cash  dividend to Ameriprise Financial, Inc.                                             |       | (775                                        | )          | (900 | ) | (300 | ) |
| **Net cash used in financing activities**                                                     |       | (777                                        | )          | (3,701 | ) | (3,027 | ) |
| **Net increase (decrease) in cash and cash  equivalents**                                     |       | 2,327                                       |       | 820 |   | (113 | ) |
| Cash  and cash equivalents at beginning of year                                               |       | 980                                         |       | 160 |   | 273 |   |
| **Cash and cash equivalents at end of year**                                                  |       | $                                           | 3,307      |   | $ | 980 |   | $ | 160 |   |
| Supplemental  Disclosures:                                                                    |       |                                        |       |   |   |   |   |
| Income  taxes paid (received), net                                                            |       | $                                           | 168        |   | $ | (4 | ) | $ | 64 |   |
| Interest  paid on borrowings                                                                  |       | —                                      |       | — |   | 1 |   |

 

See Notes to Consolidated Financial Statements.

 

41

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDER’S EQUITY**

**THREEYEARS ENDED DECEMBER 31, 2008**

(in millions)

 
| ** **                                                          | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income/(Loss)** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|-----------|------------|
| **Balances at December 31, 2005**                              |       | $                 | 3          |                             | $          | 2,020                  |       | $                                                    | 3,580      |      | $          | (131 | ) | $ | 5,472 |   |
| ** **                                                          |       |              |       |                             |       |                   |       |                                                 |       |      |       |   |   |   |   |   |
| Comprehensive  income:                                              |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Net  income                                                         |       | —            |       | —                           |       | 508                    |       | —                                               |       | 508       |       |
| Other  comprehensive income (loss), net of tax:                     |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Change  in net unrealized securities losses                         |       | —            |       | —                           |       | —                 |       | (77                                                  | )          | (77       | )          |
| Change  in net unrealized derivative losses                         |       | —            |       | —                           |       | —                 |       | (1                                                   | )          | (1        | )          |
| Total  comprehensive income                                         |       |              |       |                             |       |                   |       |                                                 |       | 430       |       |
| Tax  adjustment of share-based incentive compensation plan          |       | —            |       | 1                                |       | —                 |       | —                                               |       | 1         |       |
| Cash  dividends to Ameriprise Financial, Inc.                  |       | —            |       | —                           |       | (300                   | )          | —                                               |       | (300      | )          |
|                                                                |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| **Balances at December 31, 2006**                              |       | $                 | 3          |                             | $          | 2,021                  |       | $                                                    | 3,788      |      | $          | (209 | ) | $ | 5,603 |   |
| ** **                                                          |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Change  in accounting principles, net of tax                        |       | —            |       | —                           |       | (134                   | )          | —                                               |       | (134      | )          |
| Comprehensive  income:                                              |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Net  income                                                         |       | —            |       | —                           |       | 434                    |       | —                                               |       | 434       |       |
| Other  comprehensive income (loss), net of tax:                     |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Change  in net unrealized securities losses                         |       | —            |       | —                           |       | —                 |       | 52                                                   |       | 52        |       |
| Change  in net unrealized derivative losses                         |       | —            |       | —                           |       | —                 |       | 1                                                    |       | 1         |       |
| Total  comprehensive income                                         |       |              |       |                             |       |                   |       |                                                 |       | 487       |       |
| Tax  adjustment of share-based incentive compensation plan          |       | —            |       | 2                                |       | —                 |       | —                                               |       | 2         |       |
| Cash  dividends to Ameriprise Financial, Inc.                  |       | —            |       | —                           |       | (900                   | )          | —                                               |       | (900      | )          |
| Non-cash  capital contribution from Ameriprise Financial, Inc. |       | —            |       | 8                                |       | —                 |       | —                                               |       | 8         |       |
|                                                                |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| **Balances at December 31, 2007**                              |       | $                 | 3          |                             | $          | 2,031                  |       | $                                                    | 3,188      |      | $          | (156 | ) | $ | 5,066 |   |
|                                                                |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Change in accounting principles, net of tax                         |       | —            |       | —                           |       | (30                    | )          | —                                               |       | (30       | )          |
| Comprehensive  income:                                              |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Net  income                                                         |       | —            |       | —                           |       | 71                     |       | —                                               |       | 71        |       |
| Other  comprehensive income (loss), net  of tax:                    |       |              |       |                             |       |                   |       |                                                 |       |      |       |
| Change  in net unrealized securities losses                         |       | —            |       | —                           |       | —                 |       | (562                                                 | )          | (562      | )          |
| Change  in net unrealized derivative losses                         |       | —            |       | —                           |       | —                 |       | 2                                                    |       | 2         |       |
| Total comprehensive loss                                            |       |              |       |                             |       |                   |       |                                                 |       | (489      | )          |
| Tax adjustment of share-based incentive compensation  plan          |       | —            |       | 2                                |       | —                 |       | —                                               |       | 2         |       |
| Cash dividends to Ameriprise Financial, Inc.                   |       | —            |       | —                           |       | (775                   | )          | —                                               |       | (775      | )          |
| Non-cash capital contribution from Ameriprise  Financial, Inc. |       | —            |       | 83                               |       | —                 |       | —                                               |       | 83        |       |
| Non-cash  dividend to Ameriprise Financial, Inc.               |       | —            |       | —                           |       | (118                   | )          | —                                               |       | (118      | )          |
| **Balances at December 31, 2008**                              |       | $                 | 3          |                             | $          | 2,116                  |       | $                                                    | 2,336      |      | $          | (716 | ) | $ | 3,739 |   |

 

See Notes to Consolidated Financial Statements.

 

42

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****              Nature of Businessand Basis of Presentation**

* *

*Nature ofBusiness*

 

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

 

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

 

·                  RiverSource Lifeof NY is a stock life insurance company domiciled in New York, which holdsCertificates of Authority in New York, North Dakota and Delaware.  RiverSource Life of NY issues insurance andannuity products.

 

On December 31, 2008, Ameriprise Financialcontributed all of the issued and outstanding shares of RiverSource TaxAdvantaged Investments, Inc. (“RiverSource Tax Adv. Inv.”) to RiverSourceLife Insurance Company.  RiverSource TaxAdv. Inv. is domiciled in Delaware and is a limited partner in affordablehousing partnership investments.

 

RiverSource Life Insurance Company and its twosubsidiaries are referred to collectively in this Form 10-K as “RiverSourceLife”.

 

Ameriprise Financial wasformerly a wholly owned subsidiary of American Express Company (“AmericanExpress”).  On February 1, 2005, theAmerican Express Board of Directors announced its intention to pursue thedisposition of 100% of its shareholdings in Ameriprise Financial (the “Separation”)through a tax-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 to effectthe Separation and to define the responsibility for obligations arising beforeand after the date of the Distribution, including, among others, obligationsrelating 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.

 

RiverSource Life’s principal products are variabledeferred annuities and variable universal life insurance which are issuedprimarily to individuals.  It also offersfixed annuities where assets accumulate until the contract is surrendered, thecontractholder (or in some contracts, the annuitant) dies, or thecontractholder or annuitant begins receiving benefits under an annuity payoutoption. It also offers immediate annuities in which payments begin within oneyear of issue and continue for life or for a fixed period of time.  RiverSource Life’s fixed deferred annuitiesguarantee a relatively low annual interest rate during the accumulation period(the time before annuity payments begin). However, RiverSource Life hasthe option of paying a higher rate set at its discretion.  In addition, persons owning one type ofannuity may have their interest calculated based on an increase in abroad-based stock market index. RiverSource Life issues both variable and fixed universal lifeinsurance, traditional life insurance and disability income (“DI”)insurance.  Universal life insurance is aform of permanent life insurance characterized by flexible premiums, flexibledeath benefit amounts and unbundled pricing factors (i.e., mortality, interestand expenses).  Traditional lifeinsurance refers to whole and term life insurance policies that pay a specifiedsum to a beneficiary upon death of the insured for a fixed premium.  Variable universal life insurance combinesthe premium and death benefit flexibility of universal life with underlyingfund investment flexibility and the risks associated therewith.  Waiver of premium and accidental deathbenefit riders are generally available with these life insurance products.  RiverSource Life issues onlynon-participating life insurance policies which do not pay dividends to policyholdersfrom realized policy margins.

 

Under RiverSource Life’svariable life insurance and variable annuity products described above, thepurchaser may choose among investment options that include RiverSource Life’s “generalaccount” as well as from a variety of portfolios including common stocks,bonds, managed assets and/or short-term securities.

 

43

----

 

*Basis ofPresentation*

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned subsidiaries, RiverSource Life of NY andRiverSource Tax Adv. Inv.  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

 

**Restatement for consolidation of RiverSource TaxAdv. Inv.**

 

The consolidated financial statements give effect tothe RiverSource Tax Adv. Inv. transfer as a pooling of interests for entitiesunder common control. Prior periods have been restated to include the accountsof RiverSource Tax Adv. Inv. using the pooling of interests method in order tobe comparable to the current year. Following are the amounts related toRiverSource Tax Adv. Inv. which are included in RiverSource Life’s consolidatedfinancial statements:

 
| ** **                                    | ** ** | **December 31,**  | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **(in millions)** | ** ** |
| Total revenues                                |       | $                      | (31        | ) | $ | (33 | ) | $ | (41 | ) |
| Net income                                    |       | 11                     |       | 13 |   | 22 |   |
| Shareholder’s  equity: Retained earnings |       | 239                    |       | 347 |   | 334 |   |
|                                               |            |                        |            |  |  |  |  |  |  |  |

 

**Reclassifications**

 

The accompanyingConsolidated Financial Statements are prepared in accordance with U.S.generally accepted accounting principles (“GAAP”) which vary in certainrespects from reporting practices prescribed or permitted by state insuranceregulatory authorities as described in Note 13. Certain reclassifications of prior year amounts have been made toconform to the current presentation.  Inthe second quarter of 2008, RiverSource Life reclassified the mark-to-marketadjustment on certain derivatives from net investment income to various expenselines where the mark-to-market adjustment on the related embedded derivativeresides. The mark-to-market adjustment on derivatives hedging variable annuityliving benefits and equity indexed annuities were reclassified to benefits,claims, losses and settlement expenses and interest credited to fixed accounts,respectively.

 

The following table showsthe impact of the reclassification of the mark-to-market adjustment and theeffect of the pooling of interests of RiverSource Tax. Adv. Inv. made toRiverSource Life’s previously reported Consolidated Statements of Income.

 
| ** **                                        | ** ** | **Year Ended December 31, 2007** | ** ** | **Year Ended December 31, 2006** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                        | ** ** | **Previously  Reported**                             | ** ** | **Restated and  Reclassified**                  | ** ** | **Previously  Reported** | ** ** | **Restated and  Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                               | ** ** | **(in millions)**                               | ** ** |
| **Revenues**                                      |       |                                                 |       |                                                 |       |   |   |   |   |
| Premiums                                          |       | $                                                    | 485        |                                                 | $          | 485 |   | $ | 533 |   | $ | 533 |   |
| Net investment  income                            |       | 1,555                                                |       | 1,424                                                |       | 1,657 |   | 1,622 |   |
| Policy and  contract charges                      |       | 1,217                                                |       | 1,217                                                |       | 1,045 |   | 1,045 |   |
| Other revenue                                     |       | 255                                                  |       | 255                                                  |       | 189 |   | 189 |   |
| Net realized  investment gain                     |       | 61                                                   |       | 61                                                   |       | 51 |   | 51 |   |
| Total revenues                                    |       | 3,573                                                |       | 3,442                                                |       | 3,475 |   | 3,440 |   |
| **Benefits  and expenses**                        |       |                                                 |       |                                                 |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 855                                                  |       | 760                                                  |       | 705 |   | 724 |   |
| Interest  credited to fixed accounts              |       | 850                                                  |       | 847                                                  |       | 968 |   | 955 |   |
| Amortization of  deferred acquisition costs       |       | 470                                                  |       | 470                                                  |       | 356 |   | 356 |   |
| Separation costs                                  |       | 97                                                   |       | 97                                                   |       | 131 |   | 131 |   |
| Other insurance  and operating expenses           |       | 781                                                  |       | 781                                                  |       | 637 |   | 637 |   |
| Total benefits  and expenses                      |       | 3,053                                                |       | 2,955                                                |       | 2,797 |   | 2,803 |   |
| Pretax income                                     |       | 520                                                  |       | 487                                                  |       | 678 |   | 637 |   |
| Income tax  provision                             |       | 99                                                   |       | 53                                                   |       | 192 |   | 129 |   |
| **Net  income**                                   |       | $                                                    | 421        |                                                 | $          | 434 |   | $ | 486 |   | $ | 508 |   |

 

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**2.****              Summaryof Significant Accounting Policies**

 

**Principlesof Consolidation**

RiverSource Lifeconsolidates all entities in which it holds a greater than 50% voting interestor when certain conditions are met for variable interest entities (“VIEs”) andlimited partnerships, except for immaterial seed money investments in separateaccounts, which are accounted for as trading securities.  Entities in which RiverSource Life holds agreater than 20% but less than 50% voting interest are accounted for under theequity method.  Additionally, otherinvestments in hedge funds in which RiverSource Life holds an interest that isless than 50% are accounted for under the equity method.  All other investments that are not reportedat fair value as Available-for-Sale or trading securities are accounted forunder the cost method where RiverSource Life owns less than a 20% votinginterest and does not exercise significant influence.

 

RiverSource Life consolidatesall VIEs for which it is considered to be the primary beneficiary.  The determination as to whether an entity isa VIE is based on the amount and nature of RiverSource Life’s equity investmentin the entity.  RiverSource Life alsoconsiders other characteristics such as the ability to influence the decisionmaking about the entity’s activities and how the entity is financed.  The determination as to whether RiverSourceLife is considered to be the primary beneficiary is based on whetherRiverSource Life will absorb a majority of the VIE’s expected losses, receive amajority of the VIE’s expected residual return, or both.  There were no consolidated VIEs as of December 31,2008, 2007 and 2006.  See Note 5 foradditional information about RiverSource Life’s VIEs.

 

**AmountsBased on Estimates and Assumptions**

 

Accounting estimates arean integral part of the Consolidated Financial Statements. In part, they arebased upon assumptions concerning future events. Among the more significant arethose that relate to investment securities valuation and recognition ofother-than-temporary impairments, valuation of deferred acquisition costs (“DAC”)and the corresponding recognition of DAC amortization, derivative instrumentsand hedging activities, claims reserves and income taxes and the recognition ofdeferred tax assets and liabilities. These accounting estimates reflect thebest judgment of management and actual results could differ.

 

**Investments**

 

Investments consist ofthe following:

 

***Available-for-SaleSecurities***

Available-for-Salesecurities are carried at fair value with unrealized gains (losses) recorded inaccumulated other comprehensive income (loss), net of income tax provision(benefit) and net of adjustments in other asset and liability balances, such asDAC, to reflect the expected impact on their carrying values had the unrealizedgains (losses) been realized as of the respective balance sheet date.  Gains and losses are recognized inconsolidated results of operations upon disposition of the securities. Inaddition, losses are also recognized when management determines that a declinein value is other-than-temporary, which requires judgment regarding the amountand timing of recovery. RiverSource Life regularly reviews Available-for-Salesecurities for impairments in value considered to be other-than-temporary. Thecost basis of securities that are determined to be other-than-temporarilyimpaired is written down to current fair value with a corresponding charge tonet income. A write-down for impairment can be recognized for bothcredit-related events and for change in fair value due to changes in interestrates. Once a security is written down to fair value through net income, anysubsequent recovery in value cannot be recognized in net income until the principalis returned.

 

Factors RiverSource Lifeconsiders in determining whether declines in the fair value of fixed-maturitysecurities are other-than-temporary include: 1) the extent to which the marketvalue is below amortized cost; 2) RiverSource Life’s ability and intent to holdthe investment for a sufficient period of time for it to recover to an amountat least equal to its carrying value; 3) the duration of time in which therehas been a significant decline in value; 4) fundamental analysis of the liquidity,business prospects and overall financial condition of the issuer; and 5) marketevents that could impact credit ratings, economic and business climate,litigation and government actions, and similar external business factors. Forstructured investments (e.g., mortgage backed securities), RiverSource Lifealso considers factors such as overall deal structure and its position withinthe

 

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structure, quality ofunderlying collateral, delinquencies and defaults, loss severities, recoveries,prepayments, cumulative loss projections and discounted cash flows in assessingpotential other-than-temporary impairment of these investments. Based uponthese factors, securities that have indicators of potential other-than-temporaryimpairment are subject to detailed review by management. Securities for whichdeclines are considered temporary continue to be carefully monitored bymanagement.  Other-than-temporaryimpairment charges are recorded in net realized investment gains (losses)within the Consolidated Statements of Income.

 

See Note 11 forinformation regarding the fair values of assets and liabilities.

 

***CommercialMortgage Loans, Net***

Commercial mortgageloans, net, reflect principal amounts outstanding less the allowance for loanlosses.  The allowance for loan losses ismeasured as the excess of the loan’s recorded investment over (i) presentvalue of its expected principal and interest payments discounted at the loan’seffective interest rate, or (ii) the fair value of collateral.  Additionally, the level of the allowance forloan losses considers other factors, including historical experience, economicconditions and geographic concentrations. Management regularly evaluates the adequacy of the allowance for loanlosses and believes it is adequate to absorb estimated losses in the portfolio.

 

RiverSource Lifegenerally stops accruing interest on commercial mortgage loans for whichinterest payments are delinquent more than three months.  Based on management’s judgment as to theultimate collectibility of principal, interest payments received are eitherrecognized as income or applied to the recorded investment in the loan.

 

***PolicyLoans***

Policy loans include lifeinsurance policy and annuity loans. These loans are carried at the aggregate of the unpaid loan balances,which do not exceed the cash surrender values of underlying products, plusaccrued interest.

 

***TradingSecurities and Other Investments***

Included in tradingsecurities and other investments are separate account and mutual fund seedmoney, equity method investments in hedge funds, trading bonds, interests inaffordable housing partnerships and below investment grade syndicated bankloans. Separate account and mutual fund seed money is carried at fair valuewith changes in value recognized within net investment income.  Affordable housing partnerships andinvestments in hedge funds are accounted for under the equity method. Belowinvestment grade syndicated bank loans reflect amortized cost less allowancefor losses.

 

**Cash andCash Equivalents**

Cash equivalents includehighly liquid investments with original maturities of 90 days or less.

 

**Reinsurance**

RiverSource Life cedessignificant amounts of insurance risk to other insurers under reinsuranceagreements. Reinsurance premium paid and benefits received are accounted forconsistently with the basis used in accounting for the policies from which riskis reinsured and consistently with the terms of the reinsurance contracts.Traditional life, long term care (“LTC”) and DI reinsurance premium, net ofchange in any prepaid reinsurance asset, is reported as a reduction ofpremiums. Fixed and variable universal life reinsurance premium is reported asa reduction of policy and contract charges. Reinsurance recoveries are reportedas components of benefits, claims, losses and settlement expenses.

 

Insurance liabilities arereported before the effects of reinsurance. Future policy benefits and policyclaims and other policyholders’ funds recoverable under reinsurance contractsare recorded as reinsurance recoverables.

 

RiverSource Life alsoassumes life insurance and fixed annuity business from other insurers inlimited circumstances. Reinsurance premiums received and benefits paid areaccounted for consistently with the basis used in accounting for the policiesfrom which risk is reinsured and consistently with the terms of the reinsurancecontracts.  Liabilities for assumedbusiness are recorded within future policy benefits.

 

See Note 7 for additionalinformation on reinsurance.

 

**DerivativeInstruments and Hedging Activities**

Freestanding derivativeinstruments are recorded at fair value and are reflected in other assets orother liabilities.  See Note 11 forinformation regarding RiverSource Life’s fair value measurement of derivativeinstruments.  The accounting for changesin the fair value of a derivative instrument depends on its intended use

 

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and the resulting hedgedesignation, if any.  RiverSource Lifeprimarily uses derivatives as economic hedges that are not designated asaccounting hedges or do not qualify for hedge accounting treatment.  RiverSource Life occasionally designatesderivatives as (1) hedges of changes in the fair value of assets,liabilities, or firm commitments (“fair value hedges”) or (2) hedges of aforecasted transaction or of the variability of cash flows to be received orpaid related to a recognized asset or liability (“cash flow hedges”).

 

For derivativeinstruments that do not qualify for hedge accounting or are not designated ashedges, changes in fair value are recognized in current period earnings.  Changes in fair value of derivatives hedgingvariable annuity living benefits and equity indexed annuities are includedwithin benefits, claims, losses and settlement expenses and interest creditedto fixed accounts, respectively.  Changesin fair value of all other derivatives is a component of net investment income.

 

For derivativeinstruments that qualify as fair value hedges, changes in the fair value of thederivatives, as well as of the corresponding hedged assets, liabilities or firmcommitments, are recognized in current earnings. If a fair value hedgedesignation is removed or the hedge is terminated prior to maturity, previous adjustmentsto the carrying value of the hedged item are recognized into earnings over theremaining life of the hedged item.

 

For derivativeinstruments that qualify as cash flow hedges, the effective portions of thegain or loss on the derivative instruments are reported in accumulated othercomprehensive income (loss) and reclassified into earnings when the hedged itemor transaction impacts earnings.  Theamount that is reclassified into earnings is presented in the ConsolidatedStatements of Income with the hedged instrument or transaction impact.  Any ineffective portion of the gain or lossis reported currently in earnings as a component of net investment income.  If a hedge designation is removed or a hedgeis terminated prior to maturity, the amount previously recorded in accumulatedother comprehensive income (loss) may be recognized into earnings over theperiod that the hedged item impacts earnings. For any hedge relationships that are discontinued because the forecastedtransaction is not expected to occur according to the original strategy, anyrelated amounts previously recorded in accumulated other comprehensive income(loss) are recognized in earnings immediately.

 

Derivative instrumentsthat are entered into for hedging purposes are designated as such at the timeRiverSource Life enters into the contract. For all derivative instruments that are designated for hedgingactivities, RiverSource Life formally documents all of the hedgingrelationships between the hedge instruments and the hedged items at theinception of the relationships. Management also formally documents its risk management objectives andstrategies for entering into the hedge transactions.  RiverSource Life formally assesses, atinception and on a quarterly basis, whether derivatives designated as hedgesare highly effective in offsetting the fair value or cash flows of hedgeditems.  If it is determined that aderivative is no longer highly effective as a hedge, RiverSource Life will discontinuethe application of hedge accounting.

 

The equity component ofthe equity indexed annuity obligations are considered embeddedderivatives.  Additionally, certainannuities contain guaranteed minimum accumulation benefit (“GMAB”) andguaranteed minimum withdrawal benefit (“GMWB”) provisions.  The GMAB and the non-life contingent benefitsassociated with GMWB provisions are also considered embedded derivatives.  The fair value of embedded derivativesassociated with annuities is included in future policy benefits.  The change in fair value of the equityindexed annuity embedded derivatives is reflected in the interest credited tofixed accounts.  The changes in the fairvalue of the GMWB and GMAB embedded derivatives are reflected in benefits,claims, losses and settlement expenses.

 

**DeferredAcquisition Costs**

DAC represent the costsof acquiring new business, principally direct sales commissions and otherdistribution and underwriting costs that have been deferred on the sale ofannuity and insurance products. These costs are deferred to the extent they arerecoverable from future profits or premiums. The DAC associatedwith insurance or annuity contracts that are significantly modified orinternally replaced with another contract are accounted for as contractterminations.  These transactions areanticipated in establishing amortization periods and other valuationassumptions.

 

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Direct sales commissionsand other costs deferred as DAC are amortized over time.  For annuity and universal life contracts, DACare amortized based on projections of estimated gross profits over amortizationperiods equal to the approximate life of the business.  For other insurance products, DAC aregenerally amortized as a percentage of premiums over amortization periods equalto the premium-paying period.

 

For annuity and universallife insurance products, the assumptions made in projecting future results andcalculating the DAC balance and DAC amortization expense are management’s bestestimates.  Management is required toupdate these assumptions whenever it appears that, based on actual experienceor other evidence, earlier estimates should be revised.  When assumptions are changed, the percentageof estimated gross profits used to amortize DAC might also change.  A change in the required amortizationpercentage is applied retrospectively; an increase in amortization percentagewill result in a decrease in the DAC balance and an increase in DACamortization expense, while a decrease in amortization percentage will resultin an increase in the DAC balance and a decrease in DAC amortizationexpense.  The impact on results ofoperations of changing assumptions can be either positive or negative in anyparticular period and is reflected in the period in which such changes aremade.

 

For other life, DI andLTC insurance products, the assumptions made in calculating the DAC balance andDAC amortization expense are consistent with those used in determining theliabilities and therefore are intended to provide for adverse deviations inexperience and are revised only if management concludes experience will be soadverse that DAC are not recoverable.  Ifmanagement concludes that DAC are not recoverable, DAC are reduced to theamount that is recoverable based on best estimate assumptions and there is acorresponding expense recorded in RiverSource Life’s consolidated results ofoperations.

 

For annuity, life, DI andLTC insurance products, key assumptions underlying those long-term projectionsinclude interest rates (both earning rates on invested assets and ratescredited to contractholder and policyholder accounts), equity marketperformance, mortality and morbidity rates and the rates at which policyholdersare expected to surrender their contracts, make withdrawals from theircontracts and make additional deposits to their contracts.  Assumptions about earned and creditedinterest rates are the primary factors used to project interest margins, whileassumptions about equity and bond market performance are the primary factorsused to project client asset value growth rates, and assumptions aboutsurrenders, withdrawals and deposits comprise projected persistency rates.  Management must also make assumptions toproject maintenance expenses associated with servicing annuity and insurancebusiness during the DAC amortization period.

 

The client asset valuegrowth rates are the rates at which variable annuity and variable universallife insurance contract values invested in separate accounts are assumed toappreciate in the future.  The rates usedvary by equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions withrespect to client asset value growth rates on a regular basis.  RiverSource Life typically uses a meanreversion process as a guideline in setting near-term equity asset growth ratesbased on a long-term view of financial market performance as well as recentactual performance.  The suggestednear-term growth rate is reviewed to ensure consistency with management’sassessment of anticipated equity market performance.  In the fourth quarter of 2008, RiverSourceLife decided to constrain near-term equity growth rates below the levelsuggested by mean reversion. This constraint is based on RiverSource Life’sanalysis of historical equity returns following downturns in the market.  DAC amortization expense recorded in a periodwhen client asset value growth rates exceed near-term estimates will typicallybe less than in a period when growth rates fall short of near-term estimate.

 

The analysis of DACbalances and the corresponding amortization is a dynamic process that considersall relevant factors and assumptions described previously.  Unless management identifies a significantdeviation over the course of its quarterly monitoring, management reviews andupdates these DAC amortization assumptions annually in the third quarter ofeach year.

 

**DeferredSales Inducement Costs**

Deferred sales inducementcosts (“DSIC”) consist of bonus interest credits and premium credits added tocertain annuity contract and insurance policy values.  These benefits are capitalized to the extentthey are incremental to amounts that would be credited on similar contractswithout the applicable feature.  Theamounts capitalized are amortized using the same methodology and assumptionsused to amortize DAC.  The amortizationof DSIC is recorded in benefits, claims, losses and settlement expenses.

 

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**SeparateAccount Assets and Liabilities****Separate account assets and liabilities areprimarily funds held for the exclusive benefit of variable annuitycontractholder and variable life insurance policyholders.  RiverSource Life receives mortality and expenserisk and other fees, guarantee fees and cost of insurance charges from therelated accounts.

 

**FuturePolicy Benefits and Policy Claims and Other Policyholders’ Funds**

 

***FixedAnnuities and Variable Annuity Guarantees*****Future policy benefits and policy claims and other policyholders’funds related to fixed annuities and variable annuity guarantees includeliabilities for fixed account values on fixed and variable deferred annuities,guaranteed benefits associated with variable annuities, equity indexed annuitiesand fixed annuities in a payout status.

 

Liabilities for fixedaccount values on fixed and variable deferred annuities are equal toaccumulation values, which are the cumulative gross deposits and creditedinterest less withdrawals and various charges.

 

The majority of thevariable annuity contracts offered by RiverSource Life contain guaranteedminimum death benefit (“GMDB”) provisions. When market values of the customer’s accounts decline, the death benefitpayable on a contract with a GMDB may exceed the contract accumulationvalue.  RiverSource Life also offersvariable annuities with death benefit provisions that gross up the amountpayable by a certain percentage of contract earnings, which are referred to asgain gross-up (“GGU”) benefits.  In addition,RiverSource Life offers contracts containing GMWB and GMAB provisions and,until May 2007, RiverSource Life offered contracts containing guaranteedminimum income benefit (“GMIB”) provisions. As a result of the recent market decline, the amount by which guaranteesexceed the accumulation value has increased significantly.

 

In determining theliabilities for variable annuity death benefits, GMIB and the life contingentbenefits associated with GMWB, RiverSource Life projects these benefits andcontract assessments using actuarial models to simulate various equity marketscenarios. Significant assumptions made in projecting future benefits andassessments relate to customer asset value growth rates, mortality, persistencyand investment margins and are consistent with those used for DAC assetvaluation for the same contracts. As with DAC, management will review, andwhere appropriate, adjust its assumptions each quarter.   Unless management identifies a materialdeviation over the course of quarterly monitoring, management will review andupdate these assumptions annually in the third quarter of each year.

 

The variable annuitydeath benefit liability is determined by estimating the expected value of deathbenefits in excess of the projected contract accumulation value and recognizingthe excess over the estimated meaningful life based on expected assessments(e.g., mortality and expense fees, contractual administrative charges andsimilar fees).

 

If elected by thecontract owner and after a stipulated waiting period from contract issuance, aGMIB guarantees a minimum lifetime annuity based on a specified rate ofcontract accumulation value growth and predetermined annuity purchase rates.The GMIB liability is determined each period by estimating the expected valueof annuitization benefits in excess of the projected contract accumulationvalue at the date of annuitization and recognizing the excess over theestimated meaningful life based on expected assessments.

 

The embedded derivativesrelated to GMAB and the non-life contingent benefits associated with GMWBprovisions are recorded at fair value. See Note 11 for information regarding the fair value measurement ofembedded derivatives.  The liability forthe life contingent benefits associated with GMWB provisions are determined inthe same way as the liability for variable annuity death benefits.  The changes in both the fair values of theGMWB and GMAB embedded derivatives and the liability for life contingent benefitsare reflected in benefits, claims, losses and settlement expenses.

 

Liabilities for fixedannuities in a benefit or payout status are based on future estimated paymentsusing established industry mortality tables and interest rates, ranging from4.6% to 9.5% at December 31, 2008, depending on year of issue, with anaverage rate of approximately 5.8%.

 

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Liabilities for equityindexed annuities are equal to the accumulation of host contract valuescovering guaranteed benefits and the market value of embedded equity options.

 

***Life,Disability Income and Long Term Care Insurance***Future policy benefits and policy claims and otherpolicyholders’ funds related to life, DI and LTC insurance include liabilitiesfor fixed account values on fixed and variable universal life policies,liabilities for unpaid amounts on reported claims, estimates of benefitspayable on claims incurred but not yet reported and estimates of benefits thatwill become payable on term life, whole life, DI and LTC policies as claims areincurred in the future.

 

Liabilities for fixedaccount values on fixed and variable universal life insurance are equal toaccumulation values.  Accumulation valuesare the cumulative gross deposits and credited interest less various contractualexpense and mortality charges and less amounts withdrawn by policyholders.

 

Liabilities for unpaidamounts on reported life insurance claims are equal to the death benefitspayable under the policies. Liabilities for unpaid amounts on reported DI and LTCclaims include any periodic or other benefit amounts due and accrued, alongwith estimates of the present value of obligations for continuing benefitpayments. These amounts are calculated based on claim continuance tables whichestimate the likelihood an individual will continue to be eligible forbenefits. Present values are calculated at interest rates established whenclaims are incurred. Anticipated claim continuance rates are based onestablished industry tables, adjusted as appropriate for RiverSource Life’sexperience. Interest rates used with DI claims ranged from 3.0% to 8.0% at December 31,2008, with an average rate of 4.8%. Interest rates used with LTC claims rangedfrom 4.0% to 7.0% at December 31, 2008, with an average rate of 4.1%.

 

Liabilities for estimatedbenefits payable on claims that have been incurred but not yet reported arebased on periodic analysis of the actual time lag between when a claim occursand when it is reported.

 

Liabilities for estimatesof benefits that will become payable on future claims on term life, whole life,DI and LTC policies are based on the net level premium method, usinganticipated premium payments, mortality and morbidity rates, policy persistencyand interest rates earned on assets supporting the liability. Anticipatedmortality and morbidity rates are based on established industry mortality andmorbidity tables, with modifications based on RiverSource Life’s experience.Anticipated premium payments and persistency rates vary by policy form, issueage, policy duration and certain other pricing factors. Anticipated interestrates for term and whole life ranged from 4.0% to 10.0% at December 31,2008, depending on policy form, issue year and policy duration. Anticipatedinterest rates for DI vary by plan and were 7.5% and 6.0% at policy issuegrading to 5.0% over five years and 4.5% over 20 years, respectively.Anticipated discount rates for LTC vary by plan and were 5.8% at December 31,2008 and range from 5.9% to 6.3% over 40 years.

 

Where applicable, benefitamounts expected to be recoverable from reinsurance companies who share in therisk are separately recorded as reinsurance recoverable.

 

**Sourcesof Revenue**

 

RiverSource Life’sprincipal sources of revenue include premium revenues, net investment incomeand policy and contract charges.

 

***PremiumRevenues***Premium revenues include premiums on traditional life, DIand LTC insurance products and immediate annuities with a life contingentfeature.  Premiums on traditional life,DI and LTC insurance are net of reinsurance ceded and are recognized as revenuewhen due.

 

***NetInvestment Income***Net investment income primarily includes interest incomeon fixed maturity securities classified as Available-for-Sale, commercialmortgage loans and policy loans, mark-to-market adjustment on tradingsecurities and certain derivatives and pro-rata share of net income or loss ofequity method investments.  Interestincome is accrued as earned using the effective interest method, which makes anadjustment of the yield for security

 

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premiums and discounts onall performing fixed maturity securities classified as Available-for-Sale andcommercial mortgage loans so that the related security or loan recognizes aconstant rate of return on the outstanding balance throughout its term.

 

***Policyand Contract Charges***Policy and contract charges include mortality and expense risk fees andcertain charges assessed on annuities and fixed and variable universal lifeinsurance, such as cost of insurance, net of reinsurance premiums for universallife insurance products, and administrative and surrender charges.  Mortality and expense risk fees include risk,management and administration fees, which are generated directly and indirectlyfrom RiverSource Life’s separate account assets.  Cost of insurance charges on fixed andvariable universal life insurance and contract charges and surrender charges onannuities and universal and variable universal life insurance are recognized asrevenue when collected.

 

***NetRealized Investment Gains (Losses)*****Realized gains and losses are recognized using the specificidentification method, on a trade date basis, and charges are recorded whensecurities are determined to be other-than-temporarily impaired.

 

**Other Insurance and Operating Expenses****Other insurance and operating**expensesprimarily include expenses allocated to RiverSource Life from its parent,Ameriprise Financial, for RiverSource Life’s share of compensation,professional and consultant fees, information technology and communications,facilities and equipment, advertising and promotion and legal and regulatory.

 

**IncomeTaxes****As a result of the Separation of Ameriprise Financial from AmericanExpress, RiverSource Life will not be able to file a consolidated U.S. federalincome tax return with other members of Ameriprise Financial’s affiliated groupuntil 2010. RiverSource Life’s provision for income taxes represents the netamount of income taxes that it expects to pay or to receive from various taxingjurisdictions in connection with its operations.  RiverSource Life provides for income taxesbased on amounts that it believes it will ultimately owe taking into accountthe recognition and measurement for uncertain tax positions.  Inherent in the provision for income taxesare estimates and judgments regarding the tax treatment of certain items.

 

In connection with theprovision for income taxes, the consolidated financial statements reflectcertain amounts related to deferred tax assets and liabilities, which resultfrom temporary differences between the assets and liabilities measured forfinancial statement purposes versus the assets and liabilities measured for taxreturn purposes. Among RiverSource Life’s deferred tax assets is a significantdeferred tax asset relating to capital losses that have been recognized forfinancial statement purposes but not yet for tax return purposes.  Under current U.S. federal income tax law,capital losses generally must be used against capital gain income within fiveyears of the year in which the capital losses are recognized for tax purposes.

 

RiverSource Life is requiredto establish a valuation allowance for any portion of deferred tax assets thatmanagement believes will not be realized. Significant judgment is required in determining if a valuation allowanceshould be established, and the amount of such allowance if required.  Factors used in making this determinationinclude estimates relating to the performance of the business including theability to generate capital gains. Consideration is given to, among other things in making thisdetermination, a) future taxable income exclusive of reversing temporarydifferences and carryforwards, b) future reversals of existing taxabletemporary differences, c) taxable income in prior carryback years, and d) taxplanning strategies.

 

**3.****              Recent Accounting Pronouncements**

 

In January 2009,the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)Emerging Issues Task Force (“EITF”) No. 99-20-1 “Amendments to theImpairment Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). FSPEITF 99-20-1 amends the impairment guidance in EITF 99-20 to be more consistent with other impairmentmodels used for debt securities. FSP EITF 99-20-1 is effective prospectively for reporting periodsending after December 15, 2008. The adoption of FSP EITF99-20-1 did not have a material effect on RiverSource Life’s consolidatedfinancial condition and results of operations.

 

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In December 2008,the FASB issued FSP FAS 140-4 and FASB Interpretation No. (“FIN”) 46(R)-8 “Disclosuresby Public Entities (Enterprises) about Transfers of Financial Assets andInterests in Variable Interest Entities” (“FSP 140-4”), which is effective forthe first reporting period ending after December 15, 2008.  This FSP requires additional disclosurerelated to transfers of financial assets and variable interest entities.RiverSource Life applied the disclosure requirements of this FSP as of December 31,2008.

 

In November 2008,the FASB issued EITF No. 08-6 “Equity Method Investments AccountingConsiderations” (“EITF 08-6”), which is effective for the first annualreporting period beginning on or after December 15, 2008. EITF 08-6clarifies the effects of the issuance of Statement of Financial AccountingStandards (“SFAS”) No. 141 (revised 2007) “Business Combinations” (“SFAS141(R)”) and SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements-an amendment of ARB No. 51” (“SFAS 160”).  See further information on the issuance ofSFAS 141(R) and SFAS 160 below. RiverSource Life will apply EITF 08-6 to any transactions within scopeoccurring after December 31, 2008.

 

In November 2008,the FASB issued EITF No. 08-7 “Accounting for Defensive Intangible Assets”(“EITF 08-7”), which is effective for the first annual reporting periodbeginning on or after December 15, 2008.  EITF 08-7 provides guidance on intangibleassets acquired after the effective date of SFAS 141(R) that an entitydoes not intend to actively use but intends to hold to prevent others fromusing. RiverSource Life will apply EITF 08-7 to any transactions within scopeoccurring after December 31, 2008.

 

In October 2008,the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial AssetWhen the Market for That Asset Is Not Active” (“FSP 157-3”), which waseffective upon issuance, including prior periods for which financial statementshave not been issued. FSP 157-3 clarifies the application of SFAS No. 157 “FairValue Measurements” (“SFAS 157”) in a market that is not active and provides anexample of key considerations to determine the fair value of financial assetswhen the market for those assets is not active. The adoption of FSP 157-3 didnot have a material effect on RiverSource Life’s consolidated financialcondition and results of operations.

 

In March 2008, theFASB issued SFAS No. 161 “Disclosures about Derivative Instruments andHedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”).SFAS 161 intends to improve financial reporting about derivative instrumentsand hedging activities by requiring enhanced disclosures about their impact onan entity’s financial position, financial performance and cash flows. SFAS 161requires disclosures regarding the objectives for using derivative instruments,the fair value of derivative instruments and their related gains and losses,and the accounting for derivatives and related hedged items. SFAS 161 iseffective for fiscal years and interim periods beginning after November 15,2008, with early adoption permitted. RiverSource Life is currently evaluatingthe impact of SFAS 161 on its disclosures. RiverSource Life’s adoption of SFAS161 will not impact its consolidated financial condition and results of operations.

 

In December 2007,the FASB issued SFAS 141(R), which establishes principles and requirements forhow an acquirer recognizes and measures the identifiable assets acquired, theliabilities assumed, any noncontrolling interest in an acquiree, and goodwillacquired.  SFAS 141(R) also requiresan acquirer to disclose information about the financial effects of a businesscombination.  SFAS 141(R) iseffective prospectively for business combinations with an acquisition date onor after the beginning of the first annual reporting period beginning on orafter December 15, 2008, with early adoption prohibited.  RiverSource Life will apply the standard toany business combinations within the scope of SFAS 141(R) occurring after December 31,2008.

 

In December 2007,the FASB issued SFAS No. 160, which 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 yearsbeginning after December 15, 2008, and interim periods within those yearswith early adoption prohibited.  Theprovisions of SFAS 160 are to be applied prospectively, except for thepresentation and disclosure requirements which are to be applied retrospectivelyto all periods presented.  RiverSourceLife is currently evaluating the impact of SFAS 160 on its consolidatedfinancial condition and results of operations.

 

52

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In September 2006,the FASB issued SFAS 157 which defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair valuemeasurements.  SFAS 157 applies underother accounting pronouncements that require or permit fair value measurements.Accordingly, SFAS 157 does not require any new fair value measurements. Theprovisions of SFAS 157 are required to be applied prospectively as of thebeginning of the fiscal year in which SFAS 157 is initially applied, except forcertain financial instruments as defined in SFAS 157 that require retrospectiveapplication. Any retrospective application will be recognized as a cumulativeeffect adjustment to the opening balance of retained earnings for the fiscalyear of adoption.  RiverSource Lifeadopted SFAS 157 effective January 1, 2008 and recorded a cumulativeeffect reduction to the opening balance of retained earnings of $30 million,net of DAC and DSIC amortization and income taxes. This reduction to retainedearnings was related to adjusting the fair value of certain derivativesRiverSource Life uses to hedge its exposure to market risk related to certainvariable annuity riders.  RiverSourceLife initially recorded these derivatives in accordance with EITF Issue No. 02-3“Issues Involved in Accounting for Derivative Contracts Held for TradingPurposes and Contracts Involved in Energy Trading and Risk ManagementActivities” (“EITF 02-3”).  SFAS 157nullifies the guidance in EITF 02-3 and requires these derivatives to be markedto the price RiverSource Life would receive to sell the derivatives to a marketparticipant (an exit price).  Theadoption of SFAS 157 also resulted in adjustments to the fair value ofRiverSource Life’s embedded derivative liabilities associated with certainvariable annuity riders. Since there is no market for these liabilities,RiverSource Life considered the assumptions participants in a hypotheticalmarket would make to determine an exit price. As a result, RiverSource Lifeadjusted the valuation of these liabilities by updating certain policyholderassumptions, adding explicit margins to provide for profit, risk and expensesand adjusting the rate used to discount expected cash flows to reflect acurrent market estimate of RiverSource Life’s risk of nonperformance specificto these liabilities. These adjustments resulted in an adoption impact of a $4million increase in earnings, net of DAC and DSIC amortization and incometaxes, 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.

 

Inaccordance with FSP FAS 157-2, “Effective Date of FASB Statement No. 157”(“FSP 157-2”), RiverSource Life deferred 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. See Note 11 for additional information regarding the fairvalues of RiverSource Life’s assets and liabilities.

 

In June 2006, the FASB issued FIN 48, “Accountingfor Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in accordance with FASB Statement No. 109, “Accounting forIncome Taxes.” FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  RiverSource Life adopted FIN 48 as of January 1,2007.  The effect of adopting FIN 48 onRiverSource Life’s consolidated financial condition and results ofoperations was not material.

 

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

 

53

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**4.****              Investments**

 

**Available-for-SaleSecurities**

 

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

 
| ** **                                  | ** ** | **December 31, 2008** |
|---------------------------------------------|------------|---------------------------------|
| **Description of Securities**     | ** ** | **Amortized  Cost**             | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| ** **                                  | ** ** | **(in millions)**          |
| Fixed  maturities:                          |       |                            |   |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                               | 12,030 |   | $ | 86 |   | $ | (1,123 | ) | $ | 10,993 |   |
| Mortgage and  other asset backed securities |       | 6,961                           |   | 98 |   | (454 | ) | 6,605 |   |
| U.S. government  and agencies obligations   |       | 200                             |   | 11 |   | — |   | 211 |   |
| State and  municipal obligations            |       | 164                             |   | 1 |   | (20 | ) | 145 |   |
| Foreign  government bonds and obligations   |       | 95                              |   | 16 |   | (4 | ) | 107 |   |
| Structured  investments(a)                  |       | 2                               |   | 7 |   | — |   | 9 |   |
| Total fixed  maturities                     |       | 19,452                          |   | 219 |   | (1,601 | ) | 18,070 |   |
| Common and  preferred stocks                |       | 30                              |   | — |   | (14 | ) | 16 |   |
| Total                                       |       | $                               | 19,482 |   | $ | 219 |   | $ | (1,615 | ) | $ | 18,086 |   |

 

----

(a)   Includes unconsolidated collateralized debt obligations.

 
| ** **                                  | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| **Description of Securities**     | ** ** | **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.

 

54

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At December 31, 2008and 2007, fixed maturity securities comprised approximately 82% and 85%,respectively, of RiverSource Life’s total investments.  These securities were rated by Moody’sInvestors Service (“Moody’s”) and Standard & Poor’s (“S&P”),except for approximately $1.1 billion and $1.3 billion of securities at December 31,2008 and 2007, respectively, which were rated by RiverSource Investments, LLC’sinternal analysts using criteria similar to Moody’s and S&P.  Ratings on investment grade securities arepresented using S&P’s convention and, if the two agencies’ ratings differ,the lower rating was used.  A summary offixed maturity securities by rating was as follows:

 
| ** **              | ** ** | **December 31, 2008**                      | ** ** | **December 31, 2007** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| **Ratings**             | ** ** | **Amortized  Cost**                                  | ** ** | **Fair  Value**                 | ** ** | **Percent of  Total Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Percent of  Total Fair  Value** | ** ** |
| ** **              | ** ** | **(in millions, except percentages)** | ** ** |
| AAA                     |       | $                                                    | 7,038      |                            | $          | 6,779 |   | 38 | % | $ | 7,854 |   | $ | 7,815 |   | 38 | % |
| AA                      |       | 1,071                                                |       | 1,017                           |       | 6 |   | 2,046 |   | 2,029 |   | 10 |   |
| A                       |       | 4,132                                                |       | 3,883                           |       | 21 |   | 3,973 |   | 3,938 |   | 19 |   |
| BBB                     |       | 5,901                                                |       | 5,388                           |       | 30 |   | 5,586 |   | 5,514 |   | 26 |   |
| Below investment  grade |       | 1,310                                                |       | 1,003                           |       | 5 |   | 1,561 |   | 1,496 |   | 7 |   |
| Total fixed  maturities |       | $                                                    | 19,452     |                            | $          | 18,070 |   | 100 | % | $ | 21,020 |   | $ | 20,792 |   | 100 | % |

 

At December 31, 2008and 2007, approximately 44% and 45%, respectively, of the securities rated AAAwere GNMA, FNMA and FHLMC mortgage backed securities.  No holdings of any other issuer were greaterthan 10% of shareholder’s equity.

 

The following tablesprovide information about Available-for-Sale securities with gross unrealizedlosses and the length of time that individual securities have been in acontinuous unrealized loss position:

 
| ** **                                  | ** ** | **December 31, 2008**        | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **Less than 12 months** | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Description of Securities**     | ** ** | **Fair  Value**                        | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                                  | ** ** | **(in millions)**                 | ** ** |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                                      | 5,086      |   | $ | (372 | ) | $ | 3,309 |   | $ | (751 | ) | $ | 8,395 |   | $ | (1,123 | ) |
| Mortgage and  other asset backed securities |       | 879                                    |       | (139 | ) | 1,457 |   | (315 | ) | 2,336 |   | (454 | ) |
| U.S. government  and agencies obligations   |       | —                                 |       | — |   | 11 |   | — |   | 11 |   | — |   |
| State and  municipal obligations            |       | 17                                     |       | (1 | ) | 78 |   | (19 | ) | 95 |   | (20 | ) |
| Foreign  government bonds and obligations   |       | 20                                     |       | (4 | ) | — |   | — |   | 20 |   | (4 | ) |
| Common and  preferred stock                 |       | —                                 |       | — |   | 16 |   | (14 | ) | 16 |   | (14 | ) |
| Total                                       |       | $                                      | 6,002      |   | $ | (516 | ) | $ | 4,871 |   | $ | (1,099 | ) | $ | 10,873 |   | $ | (1,615 | ) |

 
| ** **                                  | ** ** | **December 31, 2007**        | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **Less than 12 months** | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Description of Securities**     | ** ** | **Fair  Value**                        | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                                  | ** ** | **(in millions)**                 | ** ** |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                                      | 1,477      |   | $ | (45 | ) | $ | 7,083 |   | $ | (262 | ) | $ | 8,560 |   | $ | (307 | ) |
| Mortgage and  other asset backed securities |       | 888                                    |       | (15 | ) | 4,219 |   | (69 | ) | 5,107 |   | (84 | ) |
| U.S. government  and agencies obligations   |       | —                                 |       | — |   | 154 |   | (1 | ) | 154 |   | (1 | ) |
| State and  municipal obligations            |       | 47                                     |       | (4 | ) | 63 |   | (2 | ) | 110 |   | (6 | ) |
| Foreign  government bonds and obligations   |       | —                                 |       | — |   | 2 |   | — |   | 2 |   | — |   |
| Common and  preferred stock                 |       | 29                                     |       | (1 | ) | — |   | — |   | 29 |   | (1 | ) |
| Total                                       |       | $                                      | 2,441      |   | $ | (65 | ) | $ | 11,521 |   | $ | (334 | ) | $ | 13,962 |   | $ | (399 | ) |

 

55

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In evaluating potentialother-than-temporary impairments, RiverSource Life considers the extent towhich amortized costs exceeds fair value and the duration of thatdifference.  The following tablesummarizes the unrealized losses by ratio of fair value to amortized cost:

 
| ** **                                                          | ** ** | **December 31, 2008**                                         | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Less than 12 months**                                  | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Ratio of Fair Value  to Amortized Cost** | ** ** | **Number  of  Securities**                                              | ** ** | **Fair****Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair****Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** |
| ** **                                                          | ** ** | **(in millions, except number of securities)** | ** ** |
| 95% - 100%                                                          |       | 191                                                                     |       | $ | 3,181 |   | $ | (75 | ) | 69 |   | $ | 1,068 |   | $ | (23 | ) | 260 |   | $ | 4,249 |   | $ | (98 | ) |
| 90% - 95%                                                           |       | 98                                                                      |       | 1,667 |   | (129 | ) | 48 |   | 1,001 |   | (86 | ) | 146 |   | 2,668 |   | (215 | ) |
| 80% - 90%                                                           |       | 62                                                                      |       | 747 |   | (119 | ) | 82 |   | 1,465 |   | (271 | ) | 144 |   | 2,212 |   | (390 | ) |
| Less than 80%                                                       |       | 47                                                                      |       | 407 |   | (193 | ) | 150 |   | 1,337 |   | (719 | ) | 197 |   | 1,744 |   | (912 | ) |
| Total                                                               |       | 398                                                                     |       | $ | 6,002 |   | $ | (516 | ) | 349 |   | $ | 4,871 |   | $ | (1,099 | ) | 747 |   | $ | 10,873 |   | $ | (1,615 | ) |

 
| ** **                                                          | ** ** | **December 31, 2007**                                         | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Less than 12 months**                                  | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Ratio of Fair Value  to Amortized Cost** | ** ** | **Number  of  Securities**                                              | ** ** | **Fair****Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair****Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** |
| ** **                                                          | ** ** | **(in millions, except number of securities)** | ** ** |
| 95% - 100%                                                          |       | 164                                                                     |       | $ | 2,015 |   | $ | (25 | ) | 486 |   | $ | 10,169 |   | $ | (180 | ) | 650 |   | $ | 12,184 |   | $ | (205 | ) |
| 90% - 95%                                                           |       | 31                                                                      |       | 305 |   | (22 | ) | 48 |   | 811 |   | (57 | ) | 79 |   | 1,116 |   | (79 | ) |
| 80% - 90%                                                           |       | 4                                                                       |       | 121 |   | (18 | ) | 32 |   | 461 |   | (66 | ) | 36 |   | 582 |   | (84 | ) |
| Less than 80%                                                       |       | 1                                                                       |       | — |   | — |   | 10 |   | 80 |   | (31 | ) | 11 |   | 80 |   | (31 | ) |
| Total                                                               |       | 200                                                                     |       | $ | 2,441 |   | $ | (65 | ) | 576 |   | $ | 11,521 |   | $ | (334 | ) | 776 |   | $ | 13,962 |   | $ | (399 | ) |

 

As part of RiverSourceLife’s ongoing monitoring process, management determined that a majority of theincrease in gross unrealized losses on its Available-for-Sale securities in2008 was attributable primarily to widening of credit spreads acrosssectors.  A majority of the unrealizedlosses for the year ended December 31, 2008 related to corporate debtsecurities and mortgage backed and asset backed securities. From an overallperspective, the gross unrealized losses were not concentrated in anyindividual industries or with any individual securities.  The securities with a fair value to amortizedcost ratio of 80%-90% primarily related to the banking, communications, energy,and utility industries.  The total grossunrealized loss related to the banking industry was $91 million.  The securities with a fair value to amortizedcost ratio of less than 80% primarily relate to the consumer cyclical,communications, real estate investment trusts, and consumer non-cyclicalindustries.  The largest unrealized lossassociated with an individual issuer, excluding GNMA, FNMA and FHLMC mortgagebacked securities, was $34 million.  Thesecurities related to this issuer have a fair value to amortized cost ratio of65% and have been in an unrealized loss position for more than 12 months.  RiverSource Life believes that it willcollect all principal and interest due on all investments that have amortizedcost in excess of fair value.  Inaddition, RiverSource Life has the ability and intent to hold these securitiesuntil anticipated recovery which may not be until maturity.

 

RiverSource Liferegularly reviews Available-for-Sale securities for impairments in valueconsidered to be other-than-temporary. See Note 2 for additional information regarding RiverSource Life’sevaluation of potential other-than-temporary impairments.

 

RiverSource Life’s totalmortgage and asset backed exposure at December 31, 2008 was $6.6 billionwhich included $3.5 billion of residential mortgage backed securities and$2.4 billion of commercial mortgage backed securities. At December 31,2008, residential mortgage backed securities included $3.0 billion ofagency-backed securities, $0.3 billion of Alt-A securities, and $0.2 billion ofprime, non-agency securities. With respect to the Alt-A securities, the vastmajority are rated AAA. None of the structures are levered, and the majority ofthe AAA-rated holdings are “super senior” bonds, meaning they have morecollateral support or credit enhancement than required to receive a AAArating.  The prime, non-agency securitiesare a seasoned portfolio,

 

56

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almost entirely 2005 andearlier production, with the vast majority AAA-rated.  With regard to asset backed securities,RiverSource Life’s exposure at December 31, 2008 was $0.7 billion,which included $0.1 billion of securities backed by subprime collateral. Thesesecurities are predominantly AAA-rated bonds backed by seasoned, traditional,first lien collateral. Holdings include both floating rate and short-duration,fixed securities. RiverSource Life has no other structured or hedge fundinvestments with exposure to subprime residential mortgages.

 

The change in netunrealized securities gains (losses) in other comprehensive income includesthree components, net of tax: (i) unrealized gains (losses) that arosefrom changes in the market value of securities that were held during the period(holding gains (losses)); (ii) (gains) losses that were previouslyunrealized, but have been recognized in current period net income due to salesand other-than-temporary impairments of Available-for-Sale securities(reclassification of realized gains (losses)) and (iii) other itemsprimarily consisting of adjustments in asset and liability balances, such asDAC, DSIC and annuity liabilities, to reflect the expected impact on theircarrying values had the unrealized gains (losses) been realized as of therespective balance sheet dates.

 

The followingtable presents the components of the net unrealized securities gains (losses),net of tax, included in accumulated other comprehensive loss:

 
| ** **                                                                       | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                                       | ** ** | **(in millions)** | ** ** |
| Net unrealized  securities losses at January 1                              |       | $                      | (116       | )        | $          | (168     | )          | $ | (91 | ) |
| Holding (losses)  gains, net of tax of $405, $38 and $63, respectively           |       | (754                   | )          | 70       |       | (116     | )          |
| Reclassification  of realized gains, net of tax of $3, $16 and $17, respectively |       | (5                     | )          | (28      | )          | (33      | )          |
| DAC, net of tax  of $80, $5 and $15, respectively                                |       | 148                    |       | (7       | )          | 29       |       |
| DSIC, net of tax  of $11, nil and $2, respectively                               |       | 21                     |       | (1       | )          | 3        |       |
| Fixed annuity  liabilities, net of tax of $15, $11 and $22, respectively         |       | 28                     |       | 18       |       | 40       |       |
| Net unrealized  securities losses at December 31                            |       | $                      | (678       | )        | $          | (116     | )          | $ | (168 | ) |

 

Available-for-Salesecurities by maturity at December 31, 2008 were as follows:

 
| ** **                                  | ** ** | **Amortized  Cost**    | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Due within one  year                        |       | $                      | 830        |            | $          | 824 |   |
| Due after one  year through five years      |       | 7,229                  |       | 6,718           |       |
| Due after five  years through 10 years      |       | 3,112                  |       | 2,707           |       |
| Due after 10  years                         |       | 1,318                  |       | 1,207           |       |
|                                        |       | 12,489                 |       | 11,456          |       |
| Mortgage and  other asset backed securities |       | 6,961                  |       | 6,605           |       |
| Structured  investments                     |       | 2                      |       | 9               |       |
| Common and  preferred stocks                |       | 30                     |       | 16              |       |
| Total                                       |       | $                      | 19,482     |            | $          | 18,086 |   |

 

The expected payments onmortgage and other asset backed securities and structured investments may notcoincide with their contractual maturities. As such, these securities, as well as common and preferred stocks, werenot included in the maturities distribution.

 

57

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Thetable below includes sales, maturities, and purchases of investments classifiedas Available-for-Sale:

 
| ** **                                   | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | **(in millions)**                      | ** ** |
| Sales                                        |       | $                                           | 246        |   | $ | 3,020 |   | $ | 1,895 |   |
| Maturities,  sinking fund payments and calls |       | 2,510                                       |       | 1,908 |   | 2,014 |   |
| Purchases                                    |       | (1,684                                      | )          | (677 | ) | (1,416 | ) |
|                                              |            |                                             |            |  |  |  |  |  |  |  |

 

Net realized gains andlosses on Available-for-Sale securities, determined using the specificidentification method, were as follows:

 
| ** **                        | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **(in millions)**                      | ** ** |
| Gross realized  investment gains  |       | $                                           | 13         |   | $ | 64 |   | $ | 61 |   |
| Gross realized  investment losses |       | (6                                          | )          | (20 | ) | (10 | ) |
| Other-than-temporary  impairments |       | (440                                        | )          | (4 | ) | — |   |
|                                   |            |                                             |            |  |  |  |  |  |  |  |

 

The $440 million ofother-than-temporary impairments in 2008 primarily related to credit-relatedlosses on non-agency residential mortgage backed securities, corporate debtsecurities primarily in the financial services industry and asset backed andother securities. The $4 million of other-than-temporary impairments in 2007related to corporate debt securities in the publishing and home buildingindustries which were downgraded in 2007.

 

At December 31, 2008and 2007, bonds carried at $6 million and $7 million, respectively, were ondeposit with various states as required by law.

 

**Commercialmortgage loans, net**

 

The following is asummary of commercial mortgage loans:

 
| ** **                       | ** ** | **December 31,**  | ** ** |
|----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(in millions)** | ** ** |
| Commercial  mortgage loans       |       | $                      | 2,754      |   | $ | 2,908 |   |
| Less: allowance  for loan losses |       | (17                    | )          | (16 | ) |
| Commercial  mortgage loans, net  |       | $                      | 2,737      |   | $ | 2,892 |   |

 

Commercial mortgage loansare first mortgages on real estate. RiverSource Life holds the mortgage documents, which gives it the rightto take possession of the property if the borrower fails to perform accordingto the terms of the agreements. Commercial mortgage loan fundings are restricted by state insuranceregulatory authorities to 80% or less of the market value of the real estate atthe time of origination of the loan.

 

The balances of andchanges in the allowance for loan losses were as follows:

 
| ** **                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(in millions)**                      | ** ** |
| Balance at  January 1               |       | $                                           | 16         |   | $ | 37 |   | $ | 41 |   |
| Provision for  loan losses               |       | 1                                           |       | (21 | ) | — |   |
| Foreclosures,  write-offs and loan sales |       | —                                      |       | — |   | (4 | ) |
| Balance at  December 31             |       | $                                           | 17         |   | $ | 16 |   | $ | 37 |   |

 

58

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Concentrations of credit risk of commercial mortgageloans by region were as follows:

 
| ** **                                                        | ** ** | **December 31,**  | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                        | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                                              | ** ** | **On-Balance  Sheet**  | ** ** | **Funding  Commitments** | ** ** | **On-Balance  Sheet** | ** ** | **Funding  Commitments** | ** ** |
| Commercial mortgage loans by U.S. region | ** ** | **(in millions)** | ** ** |
|                                                              |       |                   |       |   |   |   |   |   |   |
| Atlantic                                                          |       | $                      | 880        |   | $ | 3 |   | $ | 922 |   | $ | 22 |   |
| North Central                                                     |       | 629                    |       | 10 |   | 687 |   | 33 |   |
| Pacific                                                           |       | 463                    |       | 20 |   | 461 |   | 21 |   |
| Mountain                                                          |       | 319                    |       | 10 |   | 343 |   | 9 |   |
| South Central                                                     |       | 287                    |       | — |   | 298 |   | 8 |   |
| New England                                                       |       | 176                    |       | — |   | 197 |   | 8 |   |
|                                                              |       | 2,754                  |       | 43 |   | 2,908 |   | 101 |   |
| Less: allowance  for loan losses                                  |       | (17                    | )          | — |   | (16 | ) | — |   |
| Total                                                             |       | $                      | 2,737      |   | $ | 43 |   | $ | 2,892 |   | $ | 101 |   |

 

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

 
| ** **                                  | ** ** | **December 31,**  | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                                  | ** ** | **On-Balance  Sheet**  | ** ** | **Funding  Commitments** | ** ** | **On-Balance  Sheet** | ** ** | **Funding  Commitments** | ** ** |
| Commercial  mortgage loans by property type | ** ** | **(in millions)** | ** ** |
|                                        |       |                   |       |   |   |   |   |   |   |
| Office buildings                            |       | $                      | 777        |   | $ | 18 |   | $ | 874 |   | $ | 12 |   |
| Shopping centers  and retail                |       | 869                    |       | 23 |   | 860 |   | 66 |   |
| Apartments                                  |       | 383                    |       | — |   | 419 |   | 8 |   |
| Industrial  buildings                       |       | 485                    |       | 2 |   | 510 |   | 9 |   |
| Hotels and  motels                          |       | 76                     |       | — |   | 78 |   | — |   |
| Medical  buildings                          |       | 32                     |       | — |   | 42 |   | — |   |
| Mixed use                                   |       | 50                     |       | — |   | 52 |   | 1 |   |
| Other                                       |       | 82                     |       | — |   | 73 |   | 5 |   |
|                                        |       | 2,754                  |       | 43 |   | 2,908 |   | 101 |   |
| Less: allowance  for loan losses            |       | (17                    | )          | — |   | (16 | ) | — |   |
| Total                                       |       | $                      | 2,737      |   | $ | 43 |   | $ | 2,892 |   | $ | 101 |   |

 

Commitments to fund commercial mortgages were made inthe ordinary course of business.  Thefunding commitments at December 31, 2008 and 2007 approximate fair value.

 

**Below investment grade syndicatedbank loans, net**

 

The following is a summary of below investment gradesyndicated bank loans:

 
| ** **                                        | ** ** | **December 31,**  | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                                        | ** ** | **(in millions)** | ** ** |
| Below investment  grade syndicated bank loans     |       | $                      | 260        |   | $ | 62 |   |
| Less: allowance  for loan losses                  |       | (12                    | )          | (4 | ) |
| Net below investment  grade syndicated bank loans |       | $                      | 248        |   | $ | 58 |   |

 

Below investment grade syndicated bank loans, whichare included as a component of other investments, represent loans in which agroup of lenders provide funds to borrowers. There is usually one originatinglender which retains a small percentage and syndicates the remainder.

 

59

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**Trading Securities**

 

Net recognized gains related to trading securitieswere $10 million at December 31, 2008 and net recognized losses were $24million and $36 million for the years ended December 31, 2007 and 2006,respectively.

 

**Sources of investment income andnet realized investment gains (losses)**

 

Net investment income is summarized as follows:

 
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(in millions)**                      | ** ** |
| Income on fixed  maturities               |       | $                                           | 1,043      |   | $ | 1,187 |   | $ | 1,409 |   |
| Income on  commercial mortgage loans      |       | 173                                         |       | 173 |   | 181 |   |
| Trading  securities and other investments |       | 55                                          |       | 82 |   | 51 |   |
|                                      |       | 1,271                                       |       | 1,442 |   | 1,641 |   |
| Less: Investment  expenses                |       | 19                                          |       | 18 |   | 19 |   |
| Total                                     |       | $                                           | 1,252      |   | $ | 1,424 |   | $ | 1,622 |   |

 

Net realized investment gains (losses) are summarizedas follows:

 
| ** **                                  | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                  | ** ** | **(in millions)**                      | ** ** |
| Fixed maturities                            |       | $                                           | (433       | ) | $ | 40 |   | $ | 50 |   |
| Commercial mortgage  loans                  |       | (1                                          | )          | — |   | 1 |   |
| Trading  securities and other investments   |       | (8                                          | )          | — |   | — |   |
| Reduction in the  allowance for loan losses |       | —                                      |       | 21 |   | — |   |
| Total                                       |       | $                                           | (442       | ) | $ | 61 |   | $ | 51 |   |

 

**5.****              Variable InterestEntities**

 

RiverSource Tax Adv. Inv., a subsidiary of RiverSourceLife Insurance Company, has variable interests in affordable housingpartnerships for which it is not the primary beneficiary and, therefore, doesnot consolidate.

 

RiverSource Tax Adv. Inv.’s maximum exposure to lossas a result of its investment in the affordable housing partnerships is limitedto the carrying values. RiverSource Tax Adv. Inv. has no obligation to providefurther financial or other support to the affordable housing partnerships norhas RiverSource Tax Adv. Inv. provided any additional support to the affordablehousing partnerships. RiverSource Life had no liabilities recorded as ofDecember 31, 2008 and 2007 related to the affordable housing partnerships.

 

RiverSource Tax Adv. Inv. is a limited partner inaffordable housing partnerships which qualify for government sponsored lowincome housing tax credit programs. In most cases, RiverSource Tax Adv. Inv.has less than 50% interest in the partnerships sharing in benefits andrisks with other limited partners in proportion to RiverSource Tax Adv. Inv.’sownership interest. In the limited cases in which RiverSource Tax Adv. Inv. hasa greater than 50% interest in affordable housing partnerships, it wasdetermined that the relationship with the general partner is an agentrelationship and the general partner was most closely related to thepartnership as it is the key decision maker and controls the operations. Thecarrying values are reflected in trading securities and other investments andwere $54 million and $88 million as of December 31, 2008 and 2007,respectively.

 

60

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** **

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

 

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

 

The total pretax impacts on RiverSource Life’s assetsand liabilities attributable to the review of valuation assumptions and thevaluation system conversion during the third quarter of 2008 and the review ofthe valuation assumptions during the third quarter of 2007 and 2006 were asfollows:

 
| **Balance Sheet Impact  Debit (Credit)** | ** ** | **Reinsurance  Recoverables** | ** ** | **DAC** | ** ** | **DSIC** | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|---------|------------|----------|------------|-------------------|------------|------------------------------|------------|------------------------|------------|-----------|------------|
| **(in millions)**                                  | ** ** |
| 2008 period                                             |       | $                             | 92         |    | $          | (82      | )          | $                 | (6         | )                            | $          | 1                      |       | $         | 96         |   | $ | 5 |   | $ | 106 |   |
| 2007 period                                             |       | (2                            | )          | (16     | )          | 3        |       | —            |       | (15                          | )          | —                 |       | (30       | )          |
| 2006 period                                             |       | (1                            | )          | 38      |       | —   |       | —            |       | (12                          | )          | —                 |       | 25        |       |
|                                                         |            |                               |            |         |            |          |            |                   |            |                              |            |                        |            |           |            |  |  |  |  |  |  |  |

 

The total pretax impacts on RiverSource Life’srevenues and expenses attributable to the review of the valuation assumptionsand the valuation system conversion for the year ended December 31, 2008and the review of the valuation assumptions for the years ended December 31,2007 and 2006 were as follows:

 
| **Pretax  Benefit (Charge)** | ** ** | **Premiums** | ** ** | **Policy and  Contract  Charges** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Amortization  of DAC** | ** ** | **Other  Insurance  and  Operating  Expenses** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|--------------|------------|----------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------|------------|------------------------------------------------|------------|-----------|------------|
| **(in millions)**            | ** ** |
| 2008 period                       |       | $            | 2          |                                   | $          | 95                                                            |       | $                             | 90         |                                           | $          | (82       | )          | $ | 1 |   | $ | 106 |   |
| 2007 period                       |       | —       |       | (2                                     | )          | (12                                                           | )          | (16                           | )          | —                                         |       | (30       | )          |
| 2006 period                       |       | —       |       | (1                                     | )          | (12                                                           | )          | 38                            |       | —                                         |       | 25        |       |
|                                   |            |              |            |                                        |            |                                                               |            |                               |            |                                                |            |           |            |  |  |  |  |  |  |

 

The balances of and changes in DAC were as follows:

 
| ** **                                                                                        | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                                                        | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                                                        |       | $                      | 4,429      |     | $          | 4,411    |       | $ | 4,036 |   |
| Cumulative  effect of accounting change                                                           |       | 36                     |       | (204     | )          | —   |       |
| Capitalization  of acquisition costs                                                              |       | 592                    |       | 704      |       | 687      |       |
| Amortization,  excluding impacts of valuation assumptions review and valuation system  conversion |       | (779                   | )          | (454     | )          | (394     | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion             |       | (82                    | )          | (16      | )          | 38       |       |
| Impact of change  in net unrealized securities losses (gains)                                     |       | 228                    |       | (12      | )          | 44       |       |
| Balance at  December 31                                                                      |       | $                      | 4,424      |     | $          | 4,429    |       | $ | 4,411 |   |

 

The balances of and changes in DSIC were as follows:

 
| ** **                                                                                        | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                                                        | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                                                        |       | $                      | 511        |     | $          | 452      |       | $ | 370 |   |
| Cumulative  effect of accounting change                                                           |       | 9                      |       | (11      | )          | —   |       |
| Capitalization  of sales inducements                                                              |       | 87                     |       | 124      |       | 126      |       |
| Amortization,  excluding impacts of valuation assumptions review and valuation system  conversion |       | (115                   | )          | (56      | )          | (48      | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion             |       | (6                     | )          | 3        |       | —   |       |
| Impact of change  in net unrealized securities losses (gains)                                     |       | 32                     |       | (1       | )          | 4        |       |
| Balance at  December 31                                                                      |       | $                      | 518        |     | $          | 511      |       | $ | 452 |   |

 

61

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Effective January 1, 2008, RiverSource Lifeadopted SFAS 157 and recorded as a cumulative change in accounting principle apretax increase of $36 million and $9 million to DAC and DSIC,respectively.  See Note 3 and Note 11 foradditional information regarding SFAS 157.

 

Effective January 1, 2007, RiverSource Lifeadopted SOP 05-1 and recorded as a cumulative change in accounting principle apretax reduction of $204 million and $11 million to DAC and DSIC, respectively.

 

**7.****              Reinsurance**

 

Generally, RiverSource Life reinsures 90% of the deathbenefit liability related to individual fixed and variable universal life andterm life insurance products.  As aresult, RiverSource Life typically retains and is at risk for, at most, 10% ofeach policy’s death benefit from the first dollar of coverage for new sales ofthese policies, subject to the reinsurers fulfilling their obligations.  RiverSource Life began reinsuring risks atthis level beginning in 2001 for term life insurance and 2002 for individualfixed and variable universal life insurance. Policies issued prior to these dates are not subject to these samereinsurance levels.  Generally, themaximum amount of life insurance risk retained by RiverSource Life is $1.5million (increased from $750,000 during 2008) on any policy insuring a singlelife and $1.5 million on any flexible premium survivorship life policy.  Risk on fixed and variable universal lifepolicies is reinsured on a yearly renewable term basis.  Risk on most term life policies starting in2001 is reinsured on a coinsurance basis, a type of reinsurance in which thereinsurer participates proportionally in all material risks and premiumsassociated with a policy.

 

For existing LTC policies, RiverSource Life (andRiverSource Life of NY for 1996 and later issues) retained 50% of the risk andceded the remaining 50% of the risk on a coinsurance basis to a subsidiary ofGenworth Financial, Inc. (“Genworth”).

 

Generally, RiverSource Life retains at most $5,000 permonth of risk per life on DI policies sold on policy forms introduced in October 2007in most states and reinsures the remainder of the risk on a coinsurance basiswith unaffiliated reinsurance companies. RiverSource Life retains all risk for new claims on DI contracts sold onother policy forms.  RiverSource Lifealso retains all risk on accidental death benefit claims and substantially allrisk associated with waiver of premium provisions.

 

In addition, RiverSource Life assumes life insuranceand fixed annuity risk under reinsurance arrangements with unaffiliatedinsurance companies.

 

At December 31, 2008, 2007 and 2006, traditionallife and universal life insurance in force aggregated $192.3 billion, $187.3billion and $174.1 billion, respectively, of which $127.6 billion, $117.4billion and $102.4 billion were reinsured at the respective year ends.  Lifeinsurance in force is reported on a statutory basis.  RiverSource Life also reinsures aportion of the risks assumed under its DI and LTC policies.

 

The effect of reinsurance on premiums was as follows:

 
| ** **           | ** ** | **Years Ended December 31,** | ** ** |
|----------------------|------------|---------------------------------------------|------------|
| ** **           | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **           | ** ** | **(in millions)**                      | ** ** |
| Direct premiums      |       | $                                           | 631        |   | $ | 621 |   | $ | 645 |   |
| Reinsurance  assumed |       | 2                                           |       | 2 |   | 3 |   |
| Reinsurance  ceded   |       | (152                                        | )          | (138 | ) | (115 | ) |
| Net premiums         |       | $                                           | 481        |   | $ | 485 |   | $ | 533 |   |

 

Policy and contract charges are presented on theConsolidated Statements of Income net of $61 million, $57 million and $55million of reinsurance ceded for the years ended December 31, 2008, 2007and 2006, respectively.

 

Reinsurance recovered from reinsurers was $142million, $126 million and $115 million for the years ended December 31,2008, 2007 and 2006, respectively. Reinsurance contracts do not relieve RiverSource Life from its primaryobligation to policyholders.

 

Included in reinsurancerecoverables is approximately $1.2 billion and $1.0 billion related toLTC risk ceded to Genworth as of December 31, 2008 and 2007,respectively.  Included in future policybenefits is $689 million and $730 million related to assumed reinsurancearrangements as of December 31, 2008 and 2007, respectively.

 

62

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

 

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

 
| ** **                                                                           | ** ** | **December 31,**  | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                           | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                                                                           | ** ** | **(in millions)** | ** ** |
| Fixed annuities                                                                      |       | $                      | 14,058     |   | $ | 14,382 |   |
| Equity indexed  annuities accumulated host values                                    |       | 228                    |       | 253 |   |
| Equity indexed  annuities embedded derivatives                                       |       | 16                     |       | 53 |   |
| Variable  annuities fixed sub-accounts                                               |       | 5,623                  |       | 5,419 |   |
| Variable annuity  GMWB                                                               |       | 1,471                  |       | 136 |   |
| Variable annuity  GMAB                                                               |       | 367                    |       | 33 |   |
| Other variable  annuity guarantees                                                   |       | 67                     |       | 27 |   |
| Total annuities                                                                      |       | 21,830                 |       | 20,303 |   |
| Variable  universal life (“VUL”)/universal life (“UL”) insurance |       | 2,526                  |       | 2,568 |   |
| Other life, DI  and LTC insurance                                                    |       | 4,397                  |       | 4,106 |   |
| Total future  policy benefits                                                        |       | 28,753                 |       | 26,977 |   |
| Policy claims  and other policyholders’ funds                                   |       | 172                    |       | 91 |   |
| Total future  policy benefits and policy claims and other policyholders’ funds  |       | $                      | 28,925     |   | $ | 27,068 |   |

 

Separate account liabilities consisted of thefollowing:

 
| ** **                              | ** ** | **December 31,**  | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                              | ** ** | **(in millions)** | ** ** |
| Variable annuity  variable sub-accounts |       | $                      | 37,657     |   | $ | 51,764 |   |
| VUL insurance  variable sub-accounts    |       | 4,091                  |       | 6,244 |   |
| Other insurance  variable sub-accounts  |       | 39                     |       | 62 |   |
| Total separate  account liabilities     |       | $                      | 41,787     |   | $ | 58,070 |   |

 

*Fixed Annuities*

 

Fixed annuities include both deferred and payoutcontracts.  Deferred contracts offer aguaranteed minimum rate of interest and security of the principalinvested.  Payout contracts guarantee afixed income payment for life or the term of the contract.  RiverSource Life generally invests theproceeds from the annuity payments in fixed rate securities.  The interest rate risks under theseobligations were partially hedged with derivative instruments designated as acash flow hedge of the interest credited on forecasted sales. As of January 1,2007 the hedge designation was removed. See Note 15 for additional informationregarding RiverSource Life’s derivative instruments.

 

*Equity Indexed Annuities*

 

The Index 500 Annuity, RiverSource Life’s equityindexed annuity product, is a single premium deferred fixed annuity.  The contract is issued with an initial termof seven years and interest earnings are linked to the S&P 500 Index.  This annuity has a minimum interest rateguarantee of 3% on 90% of the initial premium, adjusted for anysurrenders.  RiverSource Life generallyinvests the proceeds from the annuity deposits in fixed rate securities andhedges the equity risk with derivative instruments. See Note 15 for additionalinformation regarding RiverSource Life’s derivative instruments.

 

*Variable Annuities*

 

Purchasers of variable annuities can select from avariety of investment options and can elect to allocate a portion to a fixedaccount.  A vast majority of the premiumsreceived for variable annuity contracts are held in separate accounts where theassets are held for the exclusive benefit of those contractholders.

 

63

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Most of the variable annuity contracts issued byRiverSource Life contain one or more guaranteed benefits, including GMWB, GMAB,GMDB and GGU provisions.  RiverSourceLife previously offered contracts with GMIB provisions. See Note 2 and Note 9for additional information regarding RiverSource Life’s variable annuityguarantees. RiverSource Life does not currently hedge its risk under the GMDB,GGU and GMIB provisions.  The total valueof variable annuity contracts with GMWB riders decreased from $13.1 billion at December 31,2007 to $12.7 billion at December 31, 2008.  The total value of variable annuity contractswith GMAB riders decreased from $2.3 billion at December 31, 2007 to $2.0billion at December 31, 2008.  SeeNote 15 for additional information regarding derivative instruments used tohedge GMWB and GMAB risk.

 

*InsuranceLiabilities*

 

VUL/UL is the largest group of insurance policieswritten by RiverSource Life.  Purchasersof VUL can select from a variety of investment options and can elect toallocate a portion to a fixed account.  Avast majority of the premiums received for VUL contracts are held in separateaccounts where the assets are held for the exclusive benefit of thosepolicyholders.  RiverSource Life alsooffers term and whole life insurance as well as disability products.  RiverSource Life no longer offers LTCproducts but has in-force policies from prior years.  Insurance liabilities include accumulationvalues, unpaid reported claims, incurred but not reported claims, andobligations for anticipated future claims.

 

**9.****              Variable Annuity andInsurance Guarantees**

 

The majority of the variable annuity contracts offeredby RiverSource Life contain GMDB provisions. RiverSource Life also offers variable annuities with death benefitprovisions that gross up the amount payable by a certain percentage of contractearnings, which are referred to as GGU benefits.  In addition, RiverSource Life offerscontracts with GMWB and GMAB provisions. RiverSource Life previously offered contracts containing GMIBprovisions.  See Note 2 and Note 8 foradditional information regarding the liabilities related to variable annuityguarantees.

 

The GMDB provisions provide aspecified minimum return upon death of the contractholder.  The death benefit payable is the greater of (i) thecontract value less any purchase payment credits subject to recapture less apro-rata portion of any rider fees, or (ii) the GMDB provisions specifiedin the contract.  RiverSource Life hasthree primary GMDB provisions:

 

 ·               **Returnof premium** — provides purchase payments minus adjusted partialsurrenders.

 

 ·               **Reset** — providesthat the value resets to the account value every sixth contract anniversaryminus adjusted partial surrenders.  Thisprovision is often provided in combination with the return of premiumprovision.  This provision is no longeroffered.

 

 ·               **Ratchet** — provides thatthe value ratchets up to the maximum account value at specified anniversaryintervals, plus subsequent purchase payments less adjusted partial surrenders.

 

The variable annuity contracts with GMWB riderstypically have account values that are based on an underlying portfolio ofmutual funds, the values of which fluctuate based on equity marketperformance.  At issue, the guaranteedamount is equal to the amount deposited but the guarantee may be increasedannually to the account value (a “step-up”) in the case of favorable marketperformance.  The GMWB offered initiallyguarantees that the contractholder can withdraw 7% per year until the amountwithdrawn is equal to the guaranteed amount, regardless of the performance ofthe underlying funds.  In 2006,RiverSource Life began offering an enhanced withdrawal benefit that givescontractholders a choice to withdraw 6% per year for the life of thecontractholder (“GMWB for life”) or 7% per year until the amount withdrawn isequal to the guaranteed amount. In 2007, RiverSource Life added a new GMWBbenefit design that is available in a joint version that promises 6%withdrawals while either contractholder remains alive.  In addition, once withdrawals begin, thecontractholder’s funds are moved to one of the three less aggressive assetallocation models (of the five that are available prior to withdrawal).

 

64

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Variable annuity contractholders age 79 or younger atcontract issue can also obtain a principal-back guarantee by purchasing theoptional GMAB rider for an additional charge. The GMAB rider guarantees that, regardless of market performance at theend of the 10-year waiting period, the contract value will be no less than theoriginal investment or 80% of the highest anniversary value, adjusted forwithdrawals.  If the contract value isless than the guarantee at the end of the 10 year period, a lump sum will beadded to the contract value to make the contract value equal to the guaranteevalue.

 

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

 

The followingtable provides summary information related to all variable annuity guaranteesfor which RiverSource Life has established additional liabilities:

 
| ** **                                                                | ** ** | **December 31, 2008** | ** ** | **December 31, 2007**                 | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------------------------|------------|
| **Variable annuity  guarantees by  benefit type (1)** | ** ** | **Total  contract  value**      | ** ** | **Contract  value in  separate  accounts** | ** ** | **Net amount  at risk(2)** | ** ** | **Weighted  average  attained  age** | ** ** | **Total  contract  value** | ** ** | **Contract  value in  separate  accounts** | ** ** | **Net  amount  at risk(2)** | ** ** | **Weighted  average  attained  age** | ** ** |
| **(in millions, except age)**                                             |       |
| **GMDB:**                                                                 |       |                            |       |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Return of  Premium                                                        |       | $                               | 22,249     |                                            | $          | 20,153 |   | $ | 4,873 |   | 61 |   | $ | 25,804 |   | $ | 23,892 |   | $ | 26 |   | 60 |   |
| Six-Year Reset                                                            |       | 12,719                          |       | 10,063                                          |       | 2,802 |   | 61 |   | 20,231 |   | 17,617 |   | 167 |   | 60 |   |
| One-Year Ratchet                                                          |       | 5,770                           |       | 5,061                                           |       | 2,163 |   | 62 |   | 7,908 |   | 7,143 |   | 81 |   | 61 |   |
| Five-Year  Ratchet                                                        |       | 951                             |       | 888                                             |       | 199 |   | 59 |   | 1,211 |   | 1,163 |   | 1 |   | 58 |   |
| Other                                                                     |       | 471                             |       | 429                                             |       | 192 |   | 66 |   | 693 |   | 639 |   | 12 |   | 65 |   |
| Total — GMDB                                                         |       | $                               | 42,160     |                                            | $          | 36,594 |   | $ | 10,229 |   | 61 |   | $ | 55,847 |   | $ | 50,454 |   | $ | 287 |   | 60 |   |
|                                                                      |       |                            |       |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU  death benefit**                                                    |       | $                               | 699        |                                            | $          | 619 |   | $ | 65 |   | 63 |   | $ | 950 |   | $ | 873 |   | $ | 80 |   | 62 |   |
|                                                                      |       |                            |       |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                                                  |       | $                               | 567        |                                            | $          | 511 |   | $ | 245 |   | 63 |   | $ | 927 |   | $ | 859 |   | $ | 18 |   | 62 |   |
|                                                                      |       |                            |       |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                                                 |       |                            |       |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                                      |       | $                               | 3,513      |                                            | $          | 3,409 |   | $ | 1,312 |   | 63 |   | $ | 5,104 |   | $ | 4,980 |   | $ | 22 |   | 62 |   |
| GMWB for life                                                             |       | 9,194                           |       | 8,764                                           |       | 2,704 |   | 63 |   | 7,958 |   | 7,685 |   | 33 |   | 62 |   |
| Total — GMWB                                                         |       | $                               | 12,707     |                                            | $          | 12,173 |   | $ | 4,016 |   | 63 |   | $ | 13,062 |   | $ | 12,665 |   | $ | 55 |   | 62 |   |
|                                                                      |       |                            |       |                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                                                  |       | $                               | 2,006      |                                            | $          | 1,937 |   | $ | 608 |   | 56 |   | $ | 2,260 |   | $ | 2,205 |   | $ | 3 |   | 55 |   |

 

----

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

(2)          Represents thecurrent guaranteed benefit amount in excess of the current contract value.  GMIB, GMWB and GMAB benefits are subject towaiting periods and payment periods specified in the contract.  As a result of the recent market decline, theamount by which guarantees exceed the accumulation value has increasedsignificantly.

 

Changes in additional liabilities (assets) were asfollows:

 
| ** **                                         | ** ** | **GMDB &  GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                         | ** ** | **(in millions)**   | ** ** |
| Liability  (asset) balance at January 1, 2007 |       | $                        | 26         |     | $          | 5        |       | $        | (12        | )      | $          | (5 | ) | $ | 1 |   |
| Incurred claims                                    |       | 1                        |       | —   |       | 148      |       | 38       |       | 4      |       |
| Paid claims                                        |       | (3                       | )          | (2       | )          | —   |       | —   |       | (1     | )          |
| Liability  balance at December 31, 2007       |       | 24                       |       | 3        |       | 136      |       | 33       |       | 4      |       |
| Incurred claims                                    |       | 58                       |       | 10       |       | 1,335    |       | 334      |       | 6      |       |
| Paid claims                                        |       | (27                      | )          | (1       | )          | —   |       | —   |       | (3     | )          |
| Liability  balance at December 31, 2008       |       | $                        | 55         |     | $          | 12       |       | $        | 1,471      |   | $          | 367 |   | $ | 7 |   |

 

The liabilities for guaranteedbenefits are supported by general account assets.

 

65

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The following table summarizes thedistribution of separate account balances by asset type for variable annuitycontracts providing guaranteed benefits:

 
| ** **          | ** ** | **December 31,**  | ** ** |
|---------------------|------------|------------------------|------------|
| ** **          | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **          | ** ** | **(in millions)** | ** ** |
| Mutual funds:       |       |                   |       |   |   |
| Equity              |       | $                      | 21,899     |   | $ | 34,540 |   |
| Bond                |       | 12,135                 |       | 12,549 |   |
| Other               |       | 3,463                  |       | 4,478 |   |
| Total mutual  funds |       | $                      | 37,497     |   | $ | 51,567 |   |

 

No gains or losses were recognized on assetstransferred to separate accounts for the periods presented.

 

**10.****      ****Lines of Credit**

 

In September 2008, RiverSource Life, as thelender, entered into a revolving credit agreement with Ameriprise Financial asthe borrower.  This line of credit is notto exceed 3% of RiverSource Life’s statutory admitted assets as of the prior yearend.  The interest rate for any borrowingis established by reference to LIBOR plus 28 basis points.  In the event of default, an additional 1%interest will accrue during such period of default.  There were no amounts outstanding on thisrevolving credit agreement as of December 31, 2008.

 

RiverSource Life had a collateral loan agreement withAmeriprise Financial aggregating up to $75 million which expired on October 31,2008.

 

RiverSource Life has available a committed line ofcredit with Ameriprise Financial aggregating $200 million.  The interest rate for any borrowings isestablished by reference to LIBOR plus 28 basis points.  There were no amounts outstanding on thisline of credit at December 31, 2008 and 2007.

 

**11.****      ****Fair Valuesof Assets and Liabilities**

 

Effective January 1, 2008, RiverSourceLife adopted SFAS 157, which defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair value measurements.SFAS 157 defines fair value as the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date; that is, an exit price. The exit priceassumes the asset or liability is not exchanged subject to a forced liquidationor distressed sale.

 

**Valuation Hierarchy**

 

Under SFAS 157, RiverSource Life categorizesits fair value measurements according to a three-level hierarchy. The hierarchyprioritizes the inputs used by RiverSource Life’s valuation techniques. A levelis assigned to each fair value measurement based on the lowest level input thatis significant to the fair value measurement in its entirety. The three levelsof the fair value hierarchy are defined as follows:

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

 

**Determination of FairValue**

 

RiverSource Life uses valuation techniquesconsistent with the market and income approaches to measure the fair value ofits assets and liabilities. RiverSource Life’s market approach uses prices andother relevant information generated by market transactions involving identicalor comparable assets or liabilities. RiverSource Life’s income approach usesvaluation techniques to convert future projected cash flows to a singlediscounted present value amount. When applying either approach, RiverSourceLife maximizes the use of observable inputs and minimizes the use ofunobservable inputs.

 

66

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

 

**Assets**

 

*Cash Equivalents*

 

Cash equivalents include highly liquidinvestments with original maturities of 90 days or less. Actively traded moneymarket funds are measured at their net asset value (“NAV”) and classified asLevel 1. RiverSource Life’s remaining cash equivalents are classified as Level2 and measured at amortized cost, which is a reasonable estimate of fair valuebecause of the short time between the purchase of the instrument and itsexpected realization.

 

*Available-for-SaleSecurities*

 

When available, the fair value of securitiesis based on quoted prices in active markets. If quoted prices are notavailable, fair values are obtained from nationally-recognized pricingservices, broker quotes, or other model-based valuation techniques such as thepresent value of cash flows. Level 1 securities include U.S. Treasuries. Level2 securities include corporate and municipal bonds, agency mortgage backedsecurities, commercial mortgage backed securities, asset backed securities and U.S.and foreign government and agency securities. Level 3 securities include corporatebonds, non-agency residential mortgage backed securities and asset backedsecurities.

 

Through RiverSource Life’s own experiencetransacting in the marketplace and through discussions with its pricingvendors, RiverSource Life believes that the market for non-agency residentialmortgage backed securities is inactive. Indicators of inactive markets include:pricing services’ reliance on brokers or discounted cash flow analyses toprovide prices, an increase in the disparity between prices provided bydifferent pricing services for the same security, unreasonably large bid-offerspreads and a significant decrease in the volume of trades relative tohistorical levels. In certain cases, this market inactivity has resulted inRiverSource Life applying valuation techniques that rely more on an incomeapproach (discounted cash flows using market rates) than on a market approach(prices from pricing services). RiverSource Life considers market observable yields for other assetclasses it considers to be of similar risk which includes nonperformance andliquidity for individual securities to set the discount rate for applying theincome approach to certain non-agency residential mortgage backed securities. 

 

At the beginning of the fourth quarter of2008, $219 million of prime non-agency residential mortgage backed securitieswere transferred from Level 2 to Level 3 of the fair value hierarchy becausemanagement believes the market for these prime quality assets is nowinactive.  The loss recognized on theseassets during the fourth quarter of 2008 was $47 million of which $13 millionwas included in net investment income and $34 million was included in othercomprehensive loss.

 

*Separate AccountAssets*

 

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

 

*Derivatives*

 

The fair value of derivatives that are tradedin certain over-the-counter markets are generally measured using pricing modelswith market observable inputs such as interest rates and equity index levels.These measurements are classified as Level 2 within the fair value hierarchyand include interest rate swaps and options. Derivatives that are valued usingpricing models that have significant unobservable inputs are classified asLevel 3 measurements. Structured derivatives that are used by RiverSource Lifeto hedge its exposure to market risk related to certain variable annuity ridersare classified as Level 3.

 

67

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**Liabilities**

 

*Embedded Derivatives*

 

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

 

RiverSource Life values the embeddedderivative liability attributable to the provisions of certain variable annuityriders using internal valuation models. These models calculate fair value bydiscounting expected cash flows from benefits plus margins for profit, risk,and expenses less embedded derivative fees. The projected cash flows used by these models include observable capitalmarket assumptions and incorporate significant unobservable inputs related topolicyholder behavior assumptions and margins for risk, profit and expensesthat RiverSource Life believes an exit market participant would expect. Thefair value of these embedded derivatives also reflects a current estimate ofRiverSource Life’s nonperformance risk specific to these liabilities. Given thesignificant unobservable inputs to this valuation, these measurements areclassified as Level 3. The embedded derivative liability attributable to theseprovisions is recorded in future policy benefits.

 

***Equity Indexed Annuities***

 

RiverSource Life uses various Black-Scholescalculations to determine the fair value of the embedded derivative liabilityassociated with the provisions of its equity indexed annuities. The inputs tothese calculations are primarily market observable. As a result, thesemeasurements are classified as Level 2. The embedded derivative liabilityattributable to the provisions of RiverSource Life’s equity indexed annuitiesis recorded in future policy benefits.

 

The following table presents the balances ofassets and liabilities measured at fair value on a recurring basis:

 
| ** **                       | ** ** | **December 31, 2008** | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **Level 1**                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **(in millions)**          | ** ** |
| Assets                           |       |                            |       |   |   |   |   |   |   |
| Available-for-Sale:              |       |                            |       |   |   |   |   |   |   |
| Fixed maturities                 |       | $                               | 21         |   | $ | 16,336 |   | $ | 1,713 |   | $ | 18,070 |   |
| Common and  preferred stocks     |       | —                          |       | 16 |   | — |   | 16 |   |
| Trading  securities              |       | 70                              |       | 77 |   | — |   | 147 |   |
| Cash equivalents                 |       | 432                             |       | 2,861 |   | — |   | 3,293 |   |
| Other assets                     |       | —                          |       | 2,238 |   | 200 |   | 2,438 |   |
| Separate account  assets         |       | —                          |       | 41,787 |   | — |   | 41,787 |   |
| Total assets at  fair value      |       | $                               | 523        |   | $ | 63,315 |   | $ | 1,913 |   | $ | 65,751 |   |
|                             |       |                            |       |   |   |   |   |   |   |
| Liabilities                      |       |                            |       |   |   |   |   |   |   |
| Future policy  benefits          |       | $                               | —     |   | $ | 16 |   | $ | 1,832 |   | $ | 1,848 |   |
| Other  liabilities               |       | —                          |       | 645 |   | — |   | 645 |   |
| Total  liabilities at fair value |       | $                               | —     |   | $ | 661 |   | $ | 1,832 |   | $ | 2,493 |   |

 

68

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The following table provides a summary ofchanges in Level 3 assets and liabilities measured at fair value on a recurringbasis for the year ended December 31, 2008:

 
| ** **                                                                                                              | ** ** | **Available-  for-Sale  Securities:  Fixed  Maturities** | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|-------------------|------------|------------------------------|------------|------------------------|------------|
| ** **                                                                                                              | ** ** | **(in millions)**                                   | ** ** |
| Balance,  January 1                                                                                                |       | $                                                        | 1,810      |              | $          | 280                          |       | $                      | (158       | ) | $ | — |   |
| Total gains  (losses) included in:                                                                                      |       |                                                     |       |              |       |                         |       |                   |       |
| Net income  (loss)                                                                                                      |       | (169                                                     | )(1)       | 149               | (2)        | (1,611                       | )(2)       | (9                     | )(2)       |
| Other  comprehensive loss                                                                                               |       | (304                                                     | )          | —            |       | —                       |       | —                 |       |
| Purchases,  sales, issuances and settlements, net                                                                       |       | 157                                                      |       | (229              | )          | (63                          | )          | 9                      |       |
| Transfers into  Level 3                                                                                                 |       | 219                                                      | (3)        | —            |       | —                       |       | —                 |       |
| Balance,  December 31                                                                                              |       | $                                                        | 1,713      |              | $          | 200                          |       | $                      | (1,832     | ) | $ | — |   |
|                                                                                                                    |       |                                                     |       |              |       |                         |       |                   |       |
| Change in unrealized gains (losses) included in net  income relating to assets and liabilities held at December 31 |       | $                                                        | (172       | )(4)              | $          | 126                          | (2)        | $                      | (1,608     | )(2) | $ | — |   |

 

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(1)          Representsa $176 million loss included in net realized investment gains (losses) and a $7million gain included in net investment income in the Consolidated Statementsof Income.

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

(3)          Representsprime non-agency residential mortgage backed securities previously classifiedas Level 2 for which management believes the market for these prime qualityassets is now inactive.

(4)          Representsa $175 million loss included in net realized investment gains (losses) and a $3million gain included in net investment income in the Consolidated Statementsof Income.

 

Duringthe reporting period, there were no material assets or liabilities measured atfair value on a nonrecurring basis. 

 

The following tableprovides the carrying value and the estimated fair value of financialinstruments that are not reported at fair value as of December 31, 2008and 2007. All other financial instruments that are reported at fair value havebeen included above in the table with balances of assets and liabilitiesmeasured at fair value on a recurring basis.

 
| ** **                      | ** ** | **December 31,**       | ** ** |
|---------------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                      | ** ** | **Carrying  Value**    | ** ** | **Fair  Value** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
| ** **                      | ** ** | **(in millions)** | ** ** |
| **Financial  Assets**           |       |                   |       |   |   |   |   |   |   |
| Commercial  mortgage loans, net |       | $                      | 2,737      |   | $ | 2,506 |   | $ | 2,892 |   | $ | 2,868 |   |
| Policy loans                    |       | 722                    |       | 779 |   | 697 |   | 697 |   |
| Other  investments              |       | 248                    |       | 202 |   | 58 |   | 59 |   |
| **Financial  Liabilities**      |       |                   |       |   |   |   |   |   |   |
| Future policy  benefits         |       | 13,116                 |       | 12,418 |   | 18,622 |   | 18,077 |   |
| Separate account  liabilities   |       | 386                    |       | 386 |   | 748 |   | 748 |   |
|                                 |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

***Commercial mortgage loans, net***

 

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

 

69

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**Policy loans**

 

The fair value of policy loans has been determinedusing discounted cash flows.

 

***Future policy benefits***

 

The fair value of fixed annuities, in deferral status,is determined by discounting cash flows using a risk neutral discount rate withadjustments for profit margin, expense margin, early policy surrender behavior,a provision for adverse deviation from estimated early policy surrenderbehavior and RiverSource Life’s non-performance risk specific to theseliabilities. The fair value of fixed annuities, in payout status, is determinedby discounting cash flows using a risk neutral discount rate with adjustmentsfor expense margin and RiverSource Life’s non-performance risk specific tothese liabilities. Variable annuity fixed sub-accounts classified as investmentcontracts and equity indexed annuities fair value is determined by discountingcash flows adjusted for policyholder behavior and RiverSource Life’snon-performance risk specific to these liabilities.

 

***Separate account liabilities***

 

Certain separate account liabilities are classified asinvestment contracts and are carried at an amount equal to the related separateaccount assets.  Carrying value is areasonable estimate of the fair value as it represents the exit value asevidenced by withdrawal transactions between contractholders and RiverSourceLife. A non-performance adjustment is not included as the related separateaccount assets act as collateral for these liabilities and minimizenon-performance risk.

 

**12.****       Related Party Transactions**

 

RiverSource Investments, LLC is the investment managerfor the proprietary mutual funds used as investment options by RiverSourceLife’s variable annuity contractholders and variable life insurancepolicyholders.  RiverSource Life providesall fund management services, other than investment management, and iscompensated for the administrative services it provides.  For the years ended December 31, 2008,2007 and 2006, RiverSource Life received $101 million, $97 million and $76million, respectively, from RiverSource Investments, LLC for administrativeservices provided by RiverSource Life.

 

RiverSource Life participates in the AmeripriseFinancial Retirement Plan which covers all permanent employees age 21 and overwho have met certain employment requirements. RiverSource Life contributions to the plan are based on participants’age, years of service and total compensation for the year.  Funding of retirement costs for this plancomplies with the applicable minimum funding requirements specified by theEmployee Retirement Income Security Act of 1974, as amended (“ERISA”).  RiverSource Life’s share of the total netperiodic pension cost was approximately $1 million for each of the years ended December 31,2008, 2007 and 2006.

 

RiverSource Life participates in the AmeripriseFinancial 2005 Incentive Compensation Plan. Employees, directors and independent contractors are eligible to receiveincentive awards including stock options, restricted stock awards, restrictedstock units, performance shares and similar awards designed to comply with theapplicable federal regulations and laws of jurisdiction.  The expense for incentive awards was $3million in 2008, $3 million in 2007 and $2 million in 2006.

 

RiverSource Life also participates in the definedcontribution pension plans of Ameriprise Financial which cover all employeeswho have met certain employment requirements. RiverSource Life contributions to the plans are a percent of either eachemployee’s eligible compensation or basic contributions.  Costs of these plans charged to operationswere nil in 2008 and $3 million in both 2007 and 2006.

 

RiverSource Life participates in the defined benefithealth care plans of Ameriprise Financial that provide health care and lifeinsurance benefits to retired employees and retired financial advisors.  The plans include participant contributionsand service related eligibility requirements. Upon retirement, such employees are considered to have been employees ofAmeriprise Financial.  AmeripriseFinancial expenses these benefits and allocates the expenses to itssubsidiaries.  The cost of these plans chargedto operations in 2008, 2007 and 2006 were $1 million, $2 million and $1million, respectively.

 

70

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Charges by Ameriprise Financial and affiliatedcompanies to RiverSource Life for use of joint facilities, technology support,marketing services and other services aggregated $673 million, $909 million and$755 million for 2008, 2007 and 2006, respectively.  Certain of these costs are included inDAC.  Expenses allocated to RiverSourceLife may not be reflective of expenses that would have been incurred byRiverSource Life on a stand-alone basis.

 

Dividends paid and received were as follows:

 
| ** **                                                                             | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                             | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                             | ** ** | **(in millions)**                      | ** ** |
| Cash dividends  paid to Ameriprise Financial                                           |       | $                                           | 775        |   | $ | 900 |   | $ | 300 |   |
| Cash dividends  paid to RiverSource Life Insurance Company from RiverSource Life of NY |       | 77                                          |       | 83 |   | 25 |   |
| Non-cash  dividend paid to Ameriprise Financial from RiverSource Tax Adv. Inv.         |       | 118                                         |       | — |   | — |   |
|                                                                                        |            |                                             |            |  |  |  |  |  |  |  |

 

Notifications to state insurance regulators were madein advance of payments of dividends for amounts in excess of statutorilydefined thresholds.  See Note 13 foradditional information.

 

During 2008, RiverSource Life received a non-cashcapital contribution of $83 million comprised of below investment gradesyndicated bank loans from Ameriprise Financial.

 

In addition, RiverSource Life Insurance Companyreceived a $239 million contribution from Ameriprise Financial, consisting ofall the issued and outstanding shares of RiverSource Tax Adv. Inv.

 

There were no amounts included in other liabilities atDecember 31, 2008 and 2007 payable to Ameriprise Financial for federalincome taxes.

 

**13.****       Statutory Capital andSurplus**

 

State insurance statutescontain limitations as to the amount of dividends or distributions thatinsurers may make without providing prior notification to stateregulators.  For RiverSource LifeInsurance Company, dividends or distributions in excess of unassigned surplus,as determined in accordance with accounting practices prescribed by the Stateof Minnesota, require advance notice to the Minnesota Department of Commerce,RiverSource Life Insurance Company’s primary regulator, and are subject topotential disapproval.  RiverSource LifeInsurance Company’s statutory unassigned surplus aggregated $173 million and$788 million as of December 31, 2008 and 2007, respectively.

 

In addition, dividends ordistributions, whose fair market value, together with that of other dividendsor distributions made within the preceding 12 months, exceed the greater of theprevious year’s statutory net gain from operations or 10% of the previousyear-end statutory capital and surplus are referred to as “extraordinarydividends.” Extraordinary dividends also require advance notice to theMinnesota Department of Commerce, and are subject to potential disapproval.

 

Statutory net gain fromoperations and net income for the years ended December 31 and capital andsurplus as of December 31 are summarized as follows:

 
| ** **                                     | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                     | ** ** | **(in millions)** | ** ** |
| ** **                                     | ** ** | **(unaudited)**        |       |     |       |     |       |
| Statutory net  gain (loss) from operations (1) |       | $                      | (1,184     | )        | $          | 523      |       | $ | 469 |   |
| Statutory net  income (loss) (1)               |       | (1,407                 | )          | 555      |       | 514      |       |
| Statutory  capital and surplus                 |       | 2,529                  |       | 2,820    |       | 3,258    |       |
|                                                |            |                        |            |          |            |          |            |  |  |  |

 

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(1)          An increase in statutoryreserves for variable annuity guaranteed benefits contributed significantly tothe loss in 2008, but was substantially offset by unrealized gains onderivatives which are not included in the statutory income statement, butrecorded directly to surplus.

 

71

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** **

**14.****       Income Taxes**

 

RiverSource Lifequalifies as a life insurance company for federal income tax purposes.  As such, RiverSource Life is subject to theInternal Revenue Code provisions applicable to life insurance companies.

 

The components of incometax provision (benefit) were as follows:

 
| ** **                      | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                      | ** ** | **(in millions)**                      | ** ** |
| Current income  tax:            |       |                                        |       |   |   |   |   |
| Federal                         |       | $                                           | 42         |   | $ | (30 | ) | $ | 8 |   |
| State                           |       | 3                                           |       | — |   | — |   |
| Total current  income tax       |       | 45                                          |       | (30 | ) | 8 |   |
| Deferred income  tax            |       |                                        |       |   |   |   |   |
| Federal                         |       | (236                                        | )          | 83 |   | 124 |   |
| State                           |       | 2                                           |       | — |   | (3 | ) |
| Total deferred  income tax      |       | (234                                        | )          | 83 |   | 121 |   |
| Income tax provision  (benefit) |       | $                                           | (189       | ) | $ | 53 |   | $ | 129 |   |

 

The principal reasonsthat the aggregate income tax provision is different from that computed byusing the U.S. statutory rate of 35% are as follows:

 
| ** **                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Tax at U.S.  statutory rate              |       | 35.0                                        | %          | 35.0 | % | 35.0 | % |
| Changes in taxes  resulting from:        |       |                                        |       |   |   |   |   |
| Tax-exempt  interest and dividend income |       | 56.6                                        |       | (10.9 | ) | (6.8 | ) |
| State taxes, net  of federal benefit     |       | (3.7                                        | )          | — |   | (0.4 | ) |
| Low income  housing credit               |       | 27.9                                        |       | (7.0 | ) | (6.9 | ) |
| Foreign tax  credit, net of addback      |       | 15.3                                        |       | (2.3 | ) | (0.7 | ) |
| Taxes applicable  to prior years         |       | 29.2                                        |       | (4.0 | ) | — |   |
| Other, net                               |       | (0.2                                        | )          | — |   | 0.1 |   |
| Income tax  provision                    |       | 160.1                                       | %          | 10.8 | % | 20.3 | % |

 

RiverSource Life’seffective tax rate was 160.1% and 10.8% for the years ended December 31,2008 and 2007, respectively.  Theincrease in the effective tax rate is primarily due to a pretax loss inrelation to a net tax benefit for 2008 compared to pretax income for 2007.RiverSource Life’s effective tax rate for 2008 included a $39 million taxbenefit related to changes in the status of current audits.  RiverSource Life’s effective tax rate for2007 included a $7 million tax benefit related to the finalization of the prioryear tax return.

 

72

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Deferred income taxassets and liabilities result from temporary differences between the assets andliabilities measured for U.S. GAAP reporting versus income tax returnpurposes.  The significant components ofRiverSource Life’s deferred income tax assets and liabilities are reflected inthe following table:

 
| ** **                                                              | ** ** | **December 31,**  | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                              | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                                                              | ** ** | **(in millions)** | ** ** |
| Deferred income  tax assets:                                            |       |                   |       |   |   |
| Liabilities for  future policy benefits                                 |       | $                      | 1,744      |   | $ | 1,144 |   |
| Investment  related                                                     |       | —                 |       | 61 |   |
| Net unrealized  losses on Available-for Sale securities and derivatives |       | 399                    |       | 87 |   |
| Net operating  loss and tax credit carryforwards                        |       | 159                    |       | 125 |   |
| Other                                                                   |       | 44                     |       | 38 |   |
| Gross deferred  income tax assets                                       |       | 2,346                  |       | 1,455 |   |
|                                                                    |       |                   |       |   |   |
| Deferred income  tax liabilities:                                       |       |                   |       |   |   |
| DAC                                                                     |       | 1,168                  |       | 1,253 |   |
| Investment  related                                                     |       | 398                    |       | — |   |
| DSIC                                                                    |       | 181                    |       | 179 |   |
| Other                                                                   |       | —                 |       | 14 |   |
| Gross deferred  income tax liabilities                                  |       | 1,747                  |       | 1,446 |   |
| Net deferred  income tax assets                                         |       | $                      | 599        |   | $ | 9 |   |

 

RiverSourceLife is required to establish a valuation allowance for any portion of thedeferred income tax assets that management believes will not be realized.  Included in RiverSource Life’s deferred taxassets is a significant deferred tax asset relating to capital losses that havebeen recognized for financial statement purposes but not yet for tax returnpurposes. Under current U.S. federal income tax law, capital losses generallymust be used against capital gain income within five years of the year in whichthe capital losses are recognized for tax purposes. Significant judgment isrequired in determining if a valuation allowance should be established, and theamount of such allowance if required. Factors used in making this determination include estimates relating tothe performance of the business including the ability to generate capitalgains.  Consideration is given to, amongother things in making this determination, a) future taxable income exclusiveof reversing temporary differences and carryforwards, b) future reversals ofexisting taxable temporary differences, c) taxable income in prior carrybackyears, and d) tax planning strategies.

 

Additionally,RiverSource Life has net operating loss carryforwards of $15 million whichexpire on December 31, 2025 and 2026 as well as tax credit carryforwards of$124 million which expire December 31, 2025, 2026, 2027 and 2028.  RiverSource Life also has $20 million offoreign tax credit carryforwards which expire on December 31, 2016 and2017.  Based on analysis of RiverSourceLife’s tax position, management believes it is more likely than not that theresults of future operations and implementation of tax planning strategies willgenerate sufficient taxable income to enable RiverSource Life to utilize all ofits deferred tax assets.  Accordingly, novaluation allowance for deferred tax assets has been established as of December 31,2008 and 2007.

 

EffectiveJanuary 1, 2007, RiverSource Life adopted the provisions of FIN 48.  The amount RiverSource Life recognized as aresult of the implementation of FIN 48 was not material.

 

Areconciliation of the beginning and ending amount of gross unrecognized taxbenefits is as follows:

 
| ** **                                                    | ** ** | **2008**               | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **(in millions)** | ** ** |
| Balance at December 31,  2007                            |       | $                      | 97         |   |
| Additions based  on tax positions related to the current year |       | (165                   | )          |
| Additions for  tax positions of prior years                   |       | 38                     |       |
| Reductions for  tax positions of prior years                  |       | (59                    | )          |
| Balance at  December 31, 2008                            |       | $                      | (89        | ) |

 

73

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Ifrecognized, approximately $30 million and $49 million, net of federal taxbenefits, of the unrecognized tax benefits as of December 31, 2008 and2007, respectively, would affect the effective tax rate.

 

RiverSourceLife recognizes interest and penalties related to unrecognized tax benefits asa component of the income tax provision. RiverSource Life recognized a net reduction of $14 million in interestand penalties for the year ended December 31, 2008.  RiverSource Life had a $15 million and a $1million receivable for the payment of interest and penalties accrued at December 31,2008 and 2007, respectively.

 

It isreasonably possible that the total amounts of unrecognized tax benefits willchange in the next 12 months.  However,there are a number of open audits and quantification of a range cannot be madeat this time.

 

RiverSourceLife or one or more of its subsidiaries files income tax returns in the U.S.federal jurisdiction and various state jurisdictions. With few exceptions,RiverSource Life is no longer subject to U.S. federal or state and local incometax examinations by tax authorities for years before 1997. The Internal RevenueService (“IRS”), as part of the overall examination of the American ExpressCompany consolidated return completed its field examination of the RiverSourceLife’s income tax returns for 1997 through 2002 during 2008.  However, for federal income tax purposes,these years continue to remain open as a consequence of certain issues underappeal.  The IRS continued itsexamination of 2003 through 2004 which is expected to be completed during 2009.  In the fourth quarter of 2008, the IRScommenced an examination of RiverSource Life’s U.S. income tax returns for 2005through 2007.  RiverSource Life orcertain of its subsidiaries’ state income tax returns are currently underexamination by various jurisdictions for years ranging from 1998 through 2006.

 

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

 

As aresult of the separation of Ameriprise Financial from American Express, RiverSourceLife and subsidiaries will not be able to file a consolidated U.S. federalincome tax return with other members of Ameriprise Financial’s affiliated groupuntil 2010.

 

The itemscomprising other comprehensive loss are presented net of the following incometax provision (benefit) amounts:

 
| ** **                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(in millions)**                      | ** ** |
| Net unrealized  securities gains (losses) |       | $                                           | (302       | ) | $ | 28 |   | $ | (41 | ) |
| Net unrealized  derivative gains (losses) |       | 2                                           |       | — |   | (1 | ) |
| Net income tax  provision (benefit)       |       | $                                           | (300       | ) | $ | 28 |   | $ | (42 | ) |

 

74

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**15.****       Derivatives and HedgingActivities**

 

Derivative instrumentsenable RiverSource Life to manage its exposure to various market risks. Thevalue of such instruments is derived from an underlying variable or multiplevariables, including equity and interest rate indices or prices.  RiverSource Life does not engage in anyderivative instrument trading activities. The following table presents a summary of the notional amount and thecurrent fair value of derivative instruments held at:

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2008**              | ** ** | **2007** | ** ** |
| ** **                    | ** ** | **Notional **    | ** ** | **Fair Value** | ** ** | **Notional ** | ** ** | **Fair Value** | ** ** |
| ** **                    | ** ** | **Amount**            | ** ** | **Asset** | ** ** | **Liability** | ** ** | **Amount** | ** ** | **Asset** | ** ** | **Liability** | ** ** |
| ** **                    | ** ** | **(in  millions)**    |
| Interest rate  swaps          |       | $                     | 11,445     |   | $ | 853 |   | $ | (250 | ) | $ | 202 |   | $ | 6 |   | $ | (3 | ) |
| Swaptions                     |       | 3,200                 |       | 26 |   | — |   | 800 |   | 1 |   | — |   |
| Purchased equity  options     |       | 16,572                |       | 1,512 |   | (79 | ) | 6,485 |   | 416 |   | (36 | ) |
| Written equity  options       |       | 2,766                 |       | 22 |   | (255 | ) | 57 |   | — |   | (1 | ) |
| Total return  swaps           |       | 1,706                 |       | 24 |   | (60 | ) | — |   | — |   | — |   |
| Equity futures  purchased (1) |       | 1                     |       | — |   | — |   | 70 |   | — |   | — |   |
| Equity futures  sold (1)      |       | 599                   |       | — |   | — |   | 202 |   | — |   | — |   |
| Total (2)                     |       | $                     | 36,289     |   | $ | 2,437 |   | $ | (644 | ) | $ | 7,816 |   | $ | 423 |   | $ | (40 | ) |

 

----

(1)          Equity futures have no recorded value as theyare cash settled daily.

(2)          The above table does not include certainembedded derivatives.

 

The followingtable presents a summary of the notional amount and fair value of derivativeinstruments based on the risk they hedge:

 

 
| ** **                | ** ** | **December 31,** | ** ** |
|---------------------------|------------|-----------------------|------------|
| ** **                | ** ** | **2008**              | ** ** | **2007** | ** ** |
| ** **                | ** ** | **Notional **    | ** ** | **Fair Value** | ** ** | **Notional ** | ** ** | **Fair Value** | ** ** |
| ** **                | ** ** | **Amount**            | ** ** | **Asset** | ** ** | **Liability** | ** ** | **Amount** | ** ** | **Asset** | ** ** | **Liability** | ** ** |
| ** **                | ** ** | **(in  millions)**    |
| Equity indexed  annuities |       | $                     | 213        |   | $ | 3 |   | $ | — |   | $ | 295 |   | $ | 43 |   | $ | (1 | ) |
| GMWB and GMAB             |       | 36,076                |       | 2,434 |   | (644 | ) | 6,721 |   | 379 |   | (39 | ) |
| Other                     |       | —                |       | — |   | — |   | 800 |   | 1 |   | — |   |
| Total                     |       | $                     | 36,289     |   | $ | 2,437 |   | $ | (644 | ) | $ | 7,816 |   | $ | 423 |   | $ | (40 | ) |

 

See Note 11 foradditional information regarding RiverSource Life’s fair value measurement ofderivative instruments.

 

*Cash Flow Hedges*

 

RiverSource Life uses interest rate derivativeproducts, primarily swaps and swaptions, to manage funding costs related toRiverSource Life’s fixed annuity business. As of January 1, 2007,RiverSource Life removed the hedge designation from its swaptions used to hedgethe risk of increasing interest rates on forecasted fixed premium productsales.  The designation was removed dueto the hedge relationship no longer being highly effective. Accordingly, allchanges in fair value of the swaptions were recorded directly to earnings.  As of December 31, 2008, all of theseswaptions had expired.  Amountspreviously recorded in accumulated other comprehensive income (loss) arereclassified into earnings as the originally forecasted transactions occur.

 

75

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The following is asummary of net unrealized derivatives gains (losses) related to cash flowhedging activity, net of tax:

 
| ** **                                                                     | ** ** | **2008**               | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                                     | ** ** | **(in millions)** | ** ** |
| Net unrealized  derivatives losses at January 1                           |       | $                      | (40        | )        | $          | (41      | )          | $ | (40 | ) |
| Holding losses,  net of tax of nil, $1 and $2, respectively                    |       | (1                     | )          | —   |       | (4       | )          |
| Reclassification  of realized gains, net of tax of $2, $1 and $1, respectively |       | 3                      |       | 1        |       | 3        |       |
| Net unrealized  derivatives losses at December 31                         |       | $                      | (38        | )        | $          | (40      | )          | $ | (41 | ) |

 

At December 31,2008, RiverSource Life expects to reclassify $6 million of net pretax gains onderivative instruments from accumulated other comprehensive income (loss) toearnings during the next 12 months related to interest rate swaptions that willbe recorded in net investment income.

 

If a hedgedesignation is removed or a hedge is terminated prior to maturity, the amountpreviously recorded in accumulated other comprehensive income (loss) may berecognized into earnings over the period that the hedged item impacts earnings.  As discussed above, RiverSource Life removedthe hedge designation from its swaptions in 2007 and during 2008 and 2006 therewere no other hedges that were terminated or the hedge designationremoved.  For any hedge relationshipsthat are discontinued because the forecasted transaction is not expected tooccur according to the original strategy, any related amounts previouslyrecorded in accumulated other comprehensive income (loss) are recognized inearnings immediately.  No hedgerelationships were discontinued during the years ended December 31, 2008,2007 and 2006 due to forecasted transactions no longer expected to occuraccording to the original hedge strategy.

 

Currently, thelongest period of time over which RiverSource Life is hedging exposure to thevariability in future cash flows is 10 years and relates to interest creditedon forecasted fixed premium product sales. For the years ended December 31, 2008, 2007 and 2006, there werenil, $2 million and $4 million, respectively, in losses on derivative transactionsor portions thereof that were ineffective as hedges, excluded from theassessment of hedge effectiveness or reclassified into earnings as a result ofthe discontinuance of cash flow hedges.

 

*DerivativesNot Designated as Hedges*

 

RiverSource Life holdsderivative instruments that either do not qualify or are not designated forhedge accounting treatment.  Thesederivative instruments are used as economic hedges of interest rate riskrelated to various RiverSource Life products.

 

Certain annuityproducts have returns tied to the performance of equity markets. As a result offluctuations in equity markets, the amount of expenses incurred by RiverSourceLife related to equity indexed annuities products will positively or negativelyimpact earnings. As a means of economically hedging its obligations under theprovisions of these products, RiverSource Life writes and purchases indexoptions and occasionally enters into futures contracts. Additionally, certainannuity products contain GMWB or GMAB provisions, which guarantee the right tomake limited partial withdrawals each contract year regardless of thevolatility inherent in the underlying investments or guarantee a minimumaccumulation value of considerations received at the beginning of the contractperiod, after a specified holding period, respectively.  RiverSource Life economically hedges theexposure related to GMWB and GMAB provisions using various equity futures,equity options, swaptions and interest rate swaps.  The premium associated with certain of theseoptions is paid semi-annually over the life of the option contract.  As of December 31, 2008, the remainingpayments RiverSource Life is scheduled to make for these options, net ofamounts receivable on written deferred premium options, were $805 millionthrough July 31, 2023.

 

76

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*EmbeddedDerivatives*

 

The equitycomponent of the equity indexed annuity product obligations is considered anembedded derivative. Additionally, certain annuities contain GMAB and non-lifecontingent GMWB provisions which are also considered embedded derivatives.  The fair value of embedded derivatives forannuity related products is included in future policy benefits.  The change in fair value of the equityindexed annuity embedded derivatives is reflected in interest credited to fixedaccounts.  The changes in fair values ofthe GMWB and GMAB embedded derivatives are reflected in benefits, claims,losses and settlement expenses.  At December 31,2008 and 2007, the total fair value of these embedded derivatives, excludingthe host contract and a liability for life contingent GMWB benefits of $5million and $2 million, respectively, was a net liability of $1.8 billion and$220 million, respectively.

 

*CreditRisk*

 

Credit riskassociated with RiverSource Life’s derivatives is the risk that a derivativecounterparty will not perform in accordance with the terms of thecontract.  To mitigate such risk,counterparties are all required to be preapproved. Additionally, RiverSource Lifemay, from time to time, enter into master netting arrangements and collateralarrangements wherever practical. At December 31, 2008 and 2007, RiverSourceLife accepted collateral consisting primarily of cash and securities of $1.8billion and $243 million, respectively, from counterparties.  In addition, as of December 31, 2008,RiverSource Life provided collateral consisting primarily of cash andsecurities of $432 million and $14 million, respectively, to counterparties. Asof December 31, 2008, RiverSource Life’s maximum credit exposure to derivativetransactions after considering netting arrangements with counterparties andcollateral arrangements was approximately $83 million.

 

**16.****       Commitmentsand Contingencies**

 

At December 31, 2008and 2007, RiverSource Life had no material commitments to purchase investmentsother than mortgage loan fundings. See Note 4 for additional information.

 

RiverSource Life’sannuity and life products all have minimum interest rate guarantees in theirfixed accounts.  As of December 31,2008, these guarantees range up to 5.0%. To the extent the yield on RiverSource Life’s invested assets portfoliodeclines below its target spread plus the minimum guarantee, RiverSource Life’sprofitability would be negatively affected.

 

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 andarbitration proceedings concerning matters arising in connection with theconduct of its business activities. RiverSource Life believes that it is not a party to, nor are any of itsproperties the subject of, any pending legal, arbitration or regulatoryproceedings that would have a material adverse effect on its consolidatedfinancial condition, results of operations or liquidity.  However, it is possible that the outcome ofany such proceedings could have a material impact on results of operations inany particular reporting period as the proceedings are resolved.

77

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**ITEM 9.****                                                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM9A(T).****                            CONTROLSAND PROCEDURES**

 

**Disclosure Controls andProcedures**

 

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

 

RiverSource Life’smanagement, 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 December 31, 2008.

 

**Management’s Report on InternalControl Over Financial Reporting**

 

The management ofRiverSource Life is responsible for establishing and maintaining adequateinternal control over financial reporting.

 

RiverSource Life’sinternal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles in the United States of America, andincludes those policies and procedures that:

 

·                  Pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of RiverSource Life;

 

·                  Provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of RiverSource Life are being made only inaccordance with authorizations of management and directors of RiverSource Life;and

 

·                  Provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use ordisposition of RiverSource Life’s assets that could have a material effect onthe financial statements.

 

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

RiverSource Life’smanagement assessed the effectiveness of RiverSource Life’s internal controlover financial reporting as of December 31, 2008. In making thisassessment, RiverSource Life’s management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission in *Internal Control — Integrated Framework*.

 

Based on management’sassessment and those criteria, RiverSource Life believes that, as of December 31, 2008,RiverSource Life’s internal control over financial reporting is effective.

 

78

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This annual reportdoes not include an attestation report of RiverSource Life’s independentregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by RiverSource Life’s independent registered publicaccounting firm pursuant to temporary rules of the SEC that permitRiverSource Life to provide only management’s report in this annual report.

 

**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 fourth fiscal quarter of the year to which this reportrelates that have materially affected, or are reasonably likely to materiallyaffect, RiverSource Life’s internal control over financial reporting.

 

**ITEM 9B.****                                            OTHERINFORMATION**

 

None.

 

**PART III**

 

**ITEM 10.****                                              DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

Item omitted pursuant toGeneral Instructions I(2) (c) of Form 10-K.

 

**ITEM 11.****                                              EXECUTIVECOMPENSATION**

 

Item omitted pursuant toGeneral Instructions I(2) (c) of Form 10-K.

 

**ITEM 12.****                                         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

 

Item omitted pursuant toGeneral Instructions I(2) (c) of Form 10-K.

 

**ITEM 13.****                                              CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

Item omitted pursuant toGeneral Instructions I(2) (c) of Form 10-K.

 

**ITEM 14.****                                              PRINCIPALACCOUNTANT FEES AND SERVICES**

 

TheAudit Committee of the Board of Directors of Ameriprise Financial has appointedErnst & Young LLP (“Ernst & Young”) as independent registeredpublic accounting firm to audit the Consolidated Financial Statements ofRiverSource Life for the years ended December 31, 2008 and 2007.

 

***Fees Paid to theRegistrant’s Independent Auditor***

 

Thefollowing table presents fees for professional services rendered by Ernst &Young for the audit of RiverSource Life’s financial statements for the yearsended December 31, 2008 and 2007 and other fees billed for other servicesrendered by Ernst & Young during those periods.

 
| ** **     | ** ** | **2008**                | ** ** | **2007** | ** ** |
|----------------|------------|-------------------------|------------|----------|------------|
| ** **     | ** ** | **(in thousands)** | ** ** |
| Audit Fees (1) |       | $                       | 2,183      |     | $          | 1,819 |   |
| Tax Fees       |       | —                  |       | —   |       |
| All Other Fees |       | —                  |       | —   |       |
| Total          |       | $                       | 2,183      |     | $          | 1,819 |   |

 

----

(1)    Audit fees includedaudit work performed in the review and preparation of the financial statements,as well as services that generally only the independent auditor can be expectedto provide, such as comfort letters, statutory audits, attest services,consents and assistance with and review of documents filed with the Securitiesand Exchange Commission.

 

79

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***Policy on Pre-Approvalof Services Provided by Independent Registered Public Accounting Firm***

 

Pursuantto the requirements of the Sarbanes-Oxley Act of 2002, the terms of theengagement of Ernst & Young are subject to the specific pre-approvalof the Audit Committee of Ameriprise Financial. All audit and permitted non-audit services to be performed by Ernst &Young for RiverSource Life require pre-approval by the Audit Committee ofAmeriprise Financial in accordance with pre-approval procedures established bythe Audit Committee of Ameriprise Financial. The procedures require all proposed engagements of Ernst &Young for services to RiverSource Life of any kind to be directed to theGeneral Auditor of Ameriprise Financial, and then submitted for approval to theAudit Committee of Ameriprise Financial prior to the beginning of any services.

 

In 2008 and 2007, 100% ofthe services provided by Ernst & Young for RiverSource Life werepre-approved by the Audit Committee of Ameriprise Financial.

 

**PART IV**

 

**ITEM 15.****                                              EXHIBITSAND FINANCIAL STATEMENT SCHEDULES**

 
|   | (a)    | (1) and (2)                                              | Financial Statements  and Financial Statement Schedules       |
|--------|--------|---------------------------------------------------------------|---------------------------------------------------------------|
|   |   |                                                          |                                                          |
|   |   |                                                          | The information  required herein has been provided in Item 8. |
|   |   |                                                          |                                                          |
|   |   | (3)                                                           | Exhibits                                                      |
|   |   |                                                          |                                                          |
|   |   | See Exhibit Index  on pages E-1 through E-2 hereof. |

 

80

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

**RIVERSOURCELIFE INSURANCE COMPANY**

Registrant

 

 
| March 2, 2009 |   | By     | /s/ Timothy V. Bechtold         |
|--------------------|--------|--------|---------------------------------|
| Date               |   |   | Timothy V. Bechtold,  President |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has been dulysigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| March 2, 2009 |   | /s/ Timothy V. Bechtold                               |
|--------------------|--------|-------------------------------------------------------|
| Date               |   | Timothy V. Bechtold,  Director and President          |
|               |   | (Principal Executive  Officer)                        |
|               |   |                                                  |
| March 2, 2009 |   | /s/ Brian J. McGrane                                  |
| Date               |   | Brian J. McGrane,  Director, Executive Vice President |
|               |   | and Chief Financial  Officer                          |
|               |   | (Principal Financial  Officer)                        |
|               |   |                                                  |
| March 2, 2009 |   | /s/ Gumer C. Alvero                                   |
| Date               |   | Gumer C. Alvero,  Director and Executive Vice         |
|               |   | President - Annuities                                 |
|               |   |                                                  |
| March 2, 2009 |   | /s/ David K. Stewart                                  |
| Date               |   | David K. Stewart, Vice  President and Controller      |
|               |   | (Principal Accounting  Officer)                       |
|               |   |                                                  |
| March 2, 2009 |   | /s/ Kevin E. Palmer                                   |
| Date               |   | Kevin E. Palmer,  Director, Vice President and        |
|               |   | Chief Actuary                                         |

 

81

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**EXHIBITINDEX**

 

The following exhibitsare filed as part of this Annual Report or, where indicated, were already filedand are hereby incorporated by reference.

 
| 3.1    | Copy of  Certificate of Incorporation of IDS Life Insurance Company filed as  Exhibit 3.1 to Post-Effective Amendment No. 5 to Registration  Statement No. 33-28976 is incorporated by reference.                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 3.1.1  | Copy of  Certificate of Amendment of Certificate of Incorporation of IDS Life  Insurance Company dated June 22, 2006, filed as Exhibit 3.1 to  Form 8-K filed on Jan. 5, 2007 is incorporated by reference.                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 3.2    | Copy of Amended  and Restated By-Laws of RiverSource Life Insurance Company dated  June 22, 2006, filed as Exhibit 27(f)(2) to Post-Effective  Amendment No. 28 to Registration Statement No. 333-69777, is  incorporated by reference.                                                                 |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 4.1    | Instruments defining  the rights of security holders, including indentures, are incorporated by  reference to Registration Statement Nos. 333-92297, 333-139763, 333-73958, 333-139759,  333-74865, 333-139760, 333-82149, 333-139761, 333-85567, 333-139762,  33-47302, 333-79311, 333-114888 and 33-28976.                     |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.1   | Copy of  Principal Underwriter Agreement for Variable Annuities and Variable Life  Insurance between RiverSource Life Insurance Company and RiverSource  Distributors, Inc. effective Jan. 1, 2007, filed as  Exhibit 10.1 to Form 10-K filed on Feb. 28, 2007, is  incorporated by reference.          |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.2   | Copy of Selling  Agreement by and among RiverSource Life Insurance Company, RiverSource  Distributors, Inc. and Ameriprise Financial Services, Inc.  effective Jan. 1, 2007, filed as Exhibit 10.2 to Form 10-K  filed on Feb. 28, 2007, is incorporated by reference.                             |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.3   | Copy of  Marketing Support Services Agreement between Ameriprise Financial  Services, Inc. and RiverSource Life Insurance Company effective  Jan. 1, 2007, filed as Exhibit 10.3 to Form 10-K filed on  Feb. 28, 2007, is incorporated by reference.                                                    |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.4   | Copy of  Investment Management and Services Agreement between RiverSource Investments,  LLC and RiverSource Life Insurance Company effective Jan. 1, 2007, filed  as Exhibit 10.4 to Form 10-K filed on Feb. 28, 2007, is  incorporated by reference.                                                        |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.5   | Form of  Federal Income Tax Sharing Agreement by and among RiverSource Life Insurance  Company, RiverSource Life Insurance Co. of New York and Ameriprise  Financial, Inc. effective Jan. 1, 2007, filed as Exhibit 10.5  to Form 10-K filed on Feb. 28, 2007, is incorporated by reference.       |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.6   | Copy of  Agreement by and among RiverSource Life Insurance Company, Ameriprise India  Private Limited, and Ameriprise Financial, Inc. (a/k/a/ Supplementary  Agreement No. 1) effective Jan. 1, 2007, filed as Exhibit 10.6  to Form 10-K filed on Feb. 28, 2007, is incorporated by reference.    |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.7   | Copy of  Management, Service & Marketing Support Agreement by and between  RiverSource Investments, LLC, RiverSource Service Corporation and RiverSource  Life Insurance Company effective Jan. 1, 2007, filed as  Exhibit 10.7 to Form 10-K filed on Feb. 28, 2007, is incorporated  by reference. |
|   |                                                                                                                                                                                                                                                                                                                             |   |
| 10.8   | Copy of  RiverSource Variable Portfolio Funds Service Agreement by and between  RiverSource Distributors, Inc. and RiverSource Life Insurance Company  effective Jan. 1, 2007, filed as Exhibit 10.8 to Form 10-K  filed on Feb. 28, 2007, is incorporated by reference.                                |

 

E-1

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**EXHIBITINDEX (Continued)**

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

 

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| * Filed electronically  herewith. |
|-----------------------------------|

 

E-2

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