**UNITEDSTATES**

**SECURITIESAND 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 THESECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31,2009**

 

**OR**

 

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

 

**Forthe transition period from                to                **

 

**Commissionfile number 033-28976**

 

**RIVERSOURCELIFE 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 checkmark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.  Yeso No x

 

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

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  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 checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-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. (Check one):

 

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

 

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

 

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

 

| **Class**                              | ** ** | **Outstanding  at February 23, 2010** |
|----------------------------------------|------------|--------------------------------------------|
| 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                                                                                          | 19       |
| 2.                | Properties                                                                                                         | 19       |
| 3.                | Legal Proceedings                                                                                                  | 19       |
| 4.                | Submission of Matters to a Vote of Security  Holders                                                               | 20       |
| **PART II**  |                                                                                                               |     |
| 5.                | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities | 20       |
| 6.                | Selected Financial Data                                                                                            | 20       |
| 7.                | Management’s Narrative Analysis                                                                               | 20       |
| 7A.               | Quantitative  and Qualitative Disclosures About Market Risk                                                        | 38       |
| 8.                | Financial  Statements and Supplementary Data                                                                       | 38       |
| 9.                | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                              | 83       |
| 9A(T).            | Controls and Procedures                                                                                            | 83       |
| 9B.               | Other Information                                                                                                  | 84       |
| **PART III** |                                                                                                               |     |
| 10.               | Directors, Executive Officers and  Corporate Governance                                                            | 84       |
| 11.               | Executive Compensation                                                                                             | 84       |
| 12.               | Security Ownership of Certain  Beneficial Owners and Management and Related Stockholder Matters                    | 84       |
| 13.               | Certain Relationships and Related  Transactions, and Director Independence                                         | 84       |
| 14.               | Principal Accountant Fees and  Services                                                                            | 84       |
| **PART IV**  |                                                                                                               |     |
| 15.               | Exhibits and Financial Statement  Schedules                                                                        | 85       |
|              | Signatures                                                                                                         | 86       |
|              | 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 Life Insurance Company is domiciled inMinnesota and holds Certificates of Authority in American Samoa, the Districtof Columbia and all states except New York. RiverSource Life Insurance Company issues insurance and annuityproducts.

 

·                  RiverSource Life of NY is a stock life insurancecompany domiciled in New York, which holds Certificates of Authority in NewYork, North Dakota and Delaware. RiverSource Life of NY issues insurance and annuity products.

 

On December 31, 2008, Ameriprise Financialcontributed all of the issued and outstanding shares of RiverSource TaxAdvantaged Investments, Inc. (“RTA”) to RiverSource Life InsuranceCompany.  RTA is a stock companydomiciled in Delaware and is a limited partner in affordable housing partnershipinvestments.

 

RiverSource Life Insurance Company and itssubsidiaries 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 its affiliated retail broker-dealer and through third party banks andbroker dealers, such as Wachovia Securities, Inc., SunTrust Securities, Inc.and Wells Fargo Securities, Inc.  Asof December 31, 2009, RiverSource Life had distribution agreements forannuity products in place with more than 120 third party distributors, withannual cash sales of $2.1 billion in 2009. 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.  RiverSource Life ranked ninth in variableannuity sales (according to the LIMRA International® survey dated September 30,2009, the most recent report available). RiverSource Life had annuity cash sales in 2009 of $9.3 billion comparedto $9.2 billion for 2008.  The relativeproportion between fixed and variable annuity sales is generally driven by therelative performance of the equity and fixed income markets.  In times of weak performance in equitymarkets, fixed sales are generally stronger. In times of superior performance in equity markets, variable sales aregenerally stronger.  The relativeproportion between fixed and variable annuity sales is also influenced byproduct design and other factors.

 

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**VariableAnnuities**

A variable annuityprovides a contractholder with investment returns linked to underlyinginvestment accounts of the contractholder’s choice.  Investment options may include RiverSourceVariable Series Trust funds as well as variable product funds of othercompanies.  Most variable annuityproducts in force offer a fixed account investment option with guaranteedminimum interest crediting rates ranging up to 4.0% as of December 31,2009.

 

RiverSource Life’sPortfolio Navigator asset allocation program is available under its variableannuities. The Portfolio Navigator program is designed to help a contractpurchaser select an asset allocation model portfolio from the choices availableunder the program, based on the purchaser’s stated investment time horizon,risk tolerance and investment goals. RiverSource Life believes the benefits ofthe Portfolio Navigator asset allocation program include a well-diversifiedannuity portfolio, disciplined, professionally created asset allocation models,simplicity and ease of use, access to multiple well-known money managers withineach model portfolio and automatic rebalancing of the client’s contract valueon a quarterly basis. RiverSource Investments, LLC, RiverSource Life’sinvestment manager, designs and periodically updates the model portfolios basedon recommendations from Morningstar Associates, an unaffiliated investmentadvisor.

 

The majority of thevariable annuity contracts RiverSource Life issues include guaranteed minimumdeath benefit (“GMDB”) provisions. Contract purchasers can choose to addoptional benefit provisions to their contracts to meet their needs, includingguaranteed minimum withdrawal benefit (“GMWB”) and guaranteed minimumaccumulation benefit (“GMAB”) provisions. Approximately 98% of RiverSource Life’s overall variable annuity assetsinclude a GMDB provision and approximately 40% of RiverSource Life’s overallvariable annuity assets include a GMWB or GMAB provision.  In general, these features can help protectcontractholders and beneficiaries from a shortfall in death or living benefitsdue to a decline in the value of their underlying investment accounts.

 

RiverSource Life’slargest-selling variable annuities are the RiverSource® RetirementAdvisor Plus 4 series of variable annuities, which include the RiverSourceRetirement Advisor 4 Advantage® variable annuity and the RiverSourceRetirement Advisor 4 Select® variable annuity (collectively, the “RetirementAdvisor 4 Variable Annuities”).  Underthe Retirement Advisor 4 Variable Annuities, the standard GMDB provides that ifthe contractholder 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.

 

The following additionaloptional GMDBs are also available for an additional charge:

 

·                  A return of purchase payment death benefit for *RiverSource Retirement Advisor 4 Advantage* variable annuitycontractholders age 76 or older at contract issue.  This rider adds the return of purchasepayments less adjusted partial surrenders to the standard death benefit.

 

·                  A maximum anniversary value death benefit or afive-year maximum anniversary value death benefit.  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.

 

·                  An enhanced earnings death benefit or an enhancedearnings plus death benefit.  Theseriders are intended to provide additional benefits to offset expenses after thecontractholder’s death.

 

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 a lump sum principal-backguarantee by purchasing the optional GMAB rider for an additional charge.  The GMAB provides a guaranteed contract valueat the end of a ten-year waiting period regardless of the investmentperformance of the contract.  The guaranteeis equal to the greater of the total amount of purchase payments made or 80% ofthe highest anniversary value, adjusted for any withdrawals.

 

Certain variable annuity contracts contain a guaranteed minimum 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.  In2007, RiverSource Life ceased offering contracts with GMIB provisions.

 

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RiverSource Life earns fee-based revenue in the form ofmortality and expense risk fees, marketing support and administrative fees, feescharged for optional features elected by the contractholder and anysurrender or withdrawal charges.

 

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 and early 2009. For a discussion of liabilities related to RiverSource Life’s annuity products,see Note 2 of the Consolidated Financial Statements included in Part II,Item 8 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.

 

In 2007, RiverSource Lifediscontinued new sales of equity indexed annuities.

 

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, 2009. 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 also offers a chronic care rider, AdvanceSource, on itsnew permanent insurance products.  Thisrider allows its policyholder to accelerate a portion of the life insurancedeath benefit in the event of a qualified chronic care need.

 

RiverSource Life’s salesof individual life insurance in 2009, as measured by scheduled annual premiums,lump sum and excess premiums, consisted of 39% variable universal life, 53%fixed universal life and 8% 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 thepolicyholder’s choice.  Investmentoptions may include RiverSource Variable Series Trust funds as well asvariable product funds of other companies. Most variable universal life insurance products in force offered a fixedaccount investment option with guaranteed minimum interest crediting ratesranging from 3.0% to 4.5% as of December 31, 2009.  RiverSource Life Insurance Company rankedfifth in sales of variable universal life based on total premiums (according tothe Tillinghast-Towers Perrin’s Value Survey, dated September 30, 2009,the most 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.

 

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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, 2009.

 

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.  RiverSource Life was ranked as the eighthlargest provider of individual (non-cancelable) DI insurance based on premiums(according to the LIMRA International® survey dated September 30, 2009, the mostrecent report available).

 

**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 subsidiaries of Genworth Financial, Inc.(“Genworth”).

 

In 2004, RiverSource LifeInsurance Company and RiverSource Life of NY began to file for approval toimplement rate increases on most of their existing blocks of nursing home-onlyindemnity LTC insurance policies. Implementation of these rate increases began in early 2005 andcontinues.  So far, approvals have beenreceived for some or all requested increases in 50 states, with an averageapproved cumulative rate increase of 62.2% of premium on all such policieswhere an increase was requested.

 

In 2007, RiverSource LifeInsurance Company and RiverSource Life of NY began to file for approval toimplement 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 46states, with an average approved cumulative rate increase of 15.4% of premiumon all such policies where an increase was requested.

 

RiverSource Life may seekadditional rate increases with respect to these and other existing blocks ofLTC insurance policies, 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

 

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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.

 

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 ofprofitability within 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, 2009, this ratevaried among fixed accounts and was as low as 1.5% 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 separatesubaccounts.  The underlying funds aremanaged both by affiliated 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 Series Trustfunds which are available as investment options under the variable annuity andlife insurance products.  RiverSourceLife also receives revenues from assets allocated to subaccounts investing inRiverSource**Variable Series Trust funds.  These revenues include shareholder servicespayments as well as payments for marketing, administrative services, trainingand other services provided by RiverSource Life.

 

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 the affiliatesof other companies’ funds which are included as investment options in itsvariable annuity and life insurance products. These fees are generally based onthe level of separate account assets held in a particular fund and accordinglywill 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 factors affectingthe sale of RiverSource Life’s annuity and/or insurance products include:

 

·                  financial strength ratings from agenciessuch as A.M. Best;

·                  the breadth, quality, design and pricingof products and services offered;

·                  guaranteed benefit features;

·                  the quality of underwriting;

·                  the effectiveness of advertising andpromotion campaigns;

·                  reputation and recognition in themarketplace;

·                  distribution capabilities andcompensation; and

·                  the quality of customer service.

 

**Regulation**

 

The Minnesota Departmentof Commerce regulates RiverSource Life Insurance Company, and the New York StateInsurance Department (together with the Minnesota Department of Commerce, the “DomiciliaryRegulators”) 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 and policyholders.  Financial regulation of RiverSource Life isextensive and its financial and intercompany transactions (such as intercompanydividends, capital contributions and investment activities) are often subjectto pre-notification and continuing evaluation by the DomiciliaryRegulators.  Virtually all states requireparticipation in insurance guaranty associations which assess fees to insurancecompanies in order to fund claims of policyholders and contractholders ofinsolvent 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, commonly referredto 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 2009 andthrough the present time have resulted in an unprecedented amount of governmentintervention in financial markets, including direct investment in financialinstitutions.  Governments and regulatorsin the U.S. and abroad are considering or have implemented new and moreexpansive laws and regulations which may directly impact RiverSource Life’sbusinesses.  Additional discussion ofpotential risks arising from enactment of new regulations can be found in Item1A of this Annual Report on Form 10-K — “Risk Factors.”

 

**FinancialStrength Ratings**

 

RiverSource LifeInsurance Company receives ratings from independent rating agencies.  Ratings are important to maintain 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 agencies evaluate thefinancial

 

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soundness andclaims-paying ability of insurance companies continually, and base theirratings on a number of different factors, including market position in coreproducts and market segments, risk-adjusted capitalization and the quality ofinvestment 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, “AA-” (Very Strong) byFitch Ratings Ltd., and “AA-” (Very Strong) by Standard & Poor’sRatings Services.

 

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

 

**Reinsurance**

 

RiverSource Lifereinsures a portion of the insurance risks associated with its life, DI and LTCinsurance products through reinsurance agreements with unaffiliated reinsurancecompanies.  RiverSource Life uses reinsurancein order to limit losses, reduce exposure to large risks and provide additionalcapacity for future growth.  To manageexposure to losses from reinsurer insolvencies, RiverSource Life evaluates thefinancial condition of its reinsurers prior to entering into new reinsurancetreaties and on 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 during 2001 (2002for RiverSource Life of NY) for term life insurance and 2002 (2003 forRiverSource Life of NY) for individual fixed and variable universal lifeinsurance.  Policies issued prior tothese dates are not subject to these same reinsurance levels.  Generally, the maximum amount of life insurancerisk retained by RiverSource Life is $1.5 million (increased from $750,000during 2008) on a single life and $1.5 million on any flexible premiumsurvivorship life policy.  As a result ofthe increase in single life retention during 2008, RiverSource Life is in theprocess of recapturing some older blocks of business representing less than 1%of current reinsured life insurance risk. Risk on fixed and variable universal life policies is reinsured on ayearly renewable term basis.  Risk onmost term life policies starting in 2001 (2002 for RiverSource Life of NY) isreinsured on a coinsurance basis, a type of reinsurance in which the reinsurerparticipates proportionally in all material risks and premiums associated witha 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, 2009, RiverSource Life’scredit exposure to Genworth under this reinsurance arrangement wasapproximately $1.3 billion under U.S. generally accepted accounting principles(“GAAP”) and $1.8 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, RiverSourceLife assumes life insurance and fixed annuity risk under reinsurancearrangements with unaffiliated insurance companies.  As of December 31, 2009, the amountrelated to assumed reinsurance arrangements was $667 million under GAAP and$678 million under statutory accounting principles.

 

See Note 7 to the ConsolidatedFinancial Statements included in Part II, Item 8 of this Annual Report on Form 10-Kfor additional information on reinsurance.

 

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**Risk-Based Capital**

 

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 31,2009, RiverSource Life Insurance Company’s company action level RBC was $803million, and the corresponding total adjusted capital was $3.5 billion, whichrepresents 430% of company action level RBC.

 

At December 31,2009, RiverSource Life of NY’s company action level RBC was $44 million, andthe corresponding total adjusted capital was $286 million, which represents653% of company action level RBC.

 

As described above,RiverSource Life Insurance Company and RiverSource Life of NY maintain capitalwell in excess of the company action level RBC requirement.

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

 

RiverSource Life’soperations and financial results are subject to various risks anduncertainties, including those described below, that could have a materialadverse effect on RiverSource Life’s business, financial condition or resultsof operations.  Based on the informationcurrently known, RiverSource Life believes that the following informationidentifies the most material factors affecting RiverSource Life. However, therisks and uncertainties RiverSource Life faces are not limited to thosedescribed below. Additional risks and uncertainties not presently known toRiverSource Life or which are currently believed to be immaterial may alsoadversely 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, currency values and other market indices;technological changes and events; the availability and cost of credit; inflation;investor sentiment and confidence in the financial markets; terrorism eventsand armed conflicts; and natural disasters such as weather catastrophes andwidespread health emergencies.  Inaddition, during periods of unfavorable market or economic conditions, thelevel of consumer investing and insuring activity may also decrease, which maynegatively impact the results of RiverSource Life’s businesses.  Moreover, fluctuations in economic and marketactivity could impact the way then-existing customers allocate their availableresources, which could affect RiverSource Life’s persistency, surrender andproduct cash value loan experience and could negatively impact its business.RiverSource Life’s insurance and annuity products are sensitive to interestrate fluctuations, and its future costs associated with such variations maydiffer from its historical costs.  Inaddition, interest rate fluctuations could result in fluctuations in thevaluation of certain minimum guaranteed benefits contained in some of itsvariable annuity products.  AlthoughRiverSource Life typically hedges against such fluctuations, a significantchange in interest rates could have a material adverse impact on RiverSourceLife’s results of operations.

 

Although U.S. and globalcapital markets demonstrated signs of improvement and stabilization in thesecond half of 2009, current market conditions remain precarious and anyfurther declines or volatility in U.S. and global market conditions couldimpact RiverSource Life’s business.  RiverSource Life’s business has been and inthe future may be adversely affected by U.S. and global capital market andcredit crises, the repricing of credit risk, equity market volatility anddecline,

 

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and stress or recessionin the United States and global economies generally. In addition, since thesecond half of 2007, difficulties in the mortgage and broader capital marketsin the U.S. and elsewhere, coupled with the repricing of credit risk, have createdextremely difficult and uncertain market conditions.

 

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 higherreturns. This process may lead to an earlier than expected outflow of cash fromthe business.  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 assurrenders and withdrawals, could have an adverse effect on RiverSource Life’sfinancial condition and results of operations. An increase in policy surrenders and withdrawals also may requireRiverSource Life to accelerate amortization of deferred acquisition costs (“DAC”),which would increase 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 minimumcrediting rates.  Due to the long-termnature of the liabilities associated with RiverSource Life’s fixed annuitiesand guaranteed 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 have had and could continue to have an adverseeffect on RiverSource Life’s financial condition and results of operations.Market downturns and volatility may cause, and have caused, potential newpurchasers to refrain from purchasing RiverSource Life’s variable annuities andvariable universal life insurance products that have returns linked to theperformance of the equity markets. Downturns may also cause contractholders inannuity products and policyholders in insurance products to withdraw cashvalues from those 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 certainRiverSource Life variable annuities create obligations which are carried atfair value separately 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 hedgingthese guarantees has increased significantly in recent periods as a result oflow interest rates and continuing volatility in the equity markets.  In addition, continued heightened volatilitycreates greater uncertainty for the accuracy of RiverSource Life’s futurehedging 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 GMIB or a significant portion of GMDBprovisions.

 

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***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 continue to experience varying degrees of volatility and disruption. Insome cases, the markets have exerted downward pressure on availability ofliquidity and credit capacity for certain issuers.  RiverSource Life needs liquidity to paycontractholder and policyholder claims 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 holdingcompany, its other affiliates or third parties. The availability of additionalfinancing will depend on a variety of factors such as market conditions, theavailability of liquidity from RiverSource Life’s parent or other affiliates,the general availability of credit, the overall availability of credit to thefinancial services industry, RiverSource Life’s credit ratings and creditcapacity, as well as the possibility that customers or potential third partylenders could develop a negative perception of RiverSource Life’s long- orshort-term financial prospects if it incurs large investment losses or if thelevel of its business activity decreases due to a market downturn. Similarly,RiverSource Life’s access to funds may be impaired if regulatory authorities orrating agencies take negative actions against it.  Also, transfers of cash or other assets fromRiverSource Life’s parent or other affiliates must comply with applicableregulations and may be subject to the prior approval of state insuranceregulators.

 

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 could adverselyaffect******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. Theoperations of U.S. and global financial services institutions are highlyinterconnected and a decline in the financial condition of one or morefinancial services institutions may expose RiverSource Life to credit losses ordefaults, limit access to liquidity or otherwise disrupt the operations ofRiverSource Life’s business.

 

Many transactions withand investments in the products and securities of other financial institutionsexpose RiverSource Life to credit risk in the event of default of itscounterparty. In addition, with respect to secured transactions, RiverSourceLife’s credit risk may be exacerbated when the collateral held by it cannot berealized upon or is liquidated at prices insufficient to recover the fullamount of the loan or derivative exposure due to it. RiverSource Life also hasexposure 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 they are licensed to dobusiness.  In the event of insolvency ofone or more unaffiliated insurance companies, RiverSource Life could be adverselyaffected 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.***

 

Capital and credit marketvolatility can exacerbate, and has exacerbated the risk of third-partydefaults, bankruptcy filings, foreclosures, legal actions and other events thatmay limit the value of or restrict RiverSource Life’s access to cash andinvestments.

 

***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 enhanced oversight, new capital requirements,additional fees and taxes or other regulations, that could materially impactits financial condition, results of operations and liquidity in ways that itcannot predict****.*

 

Recent economicconditions have caused the U.S. federal government, Federal Reserve and otherU.S. governmental and regulatory bodies to take or to consider takinglegislative and regulatory actions designed to address the financial crisis andto mitigate against the risk of similar crises going forward.  In 2009, the U.S. Senate and House ofRepresentatives passed various forms of legislation setting forth acomprehensive plan for regulatory reform in the financial industry. While suchlegislation has not been finalized, these plans contemplate significantstructural reforms, including heightened governmental powers to regulate riskacross the financial system and the creation of a new consumer financialprotection agency. The legislation also calls for increased substantiveregulation of the financial industry, including heightened regulation of largefinancial institutions whose combination of size, leverage, andinterconnectedness could, upon the failure of such an institution, pose athreat to financial stability, expanded regulation over credit ratings agenciesand derivatives and securitization markets, effective increases in regulatorycapital requirements, and various corporate governance initiatives. Inaddition, specific taxes targeted at larger financial institutions have beenproposed that could increase RiverSource Life’s costs and reduce its earnings.There can be no assurance as to whether or when any of the parts of theproposed financial reform plans will be enacted into legislation, and ifadopted, what the final provisions of such legislation will be.

 

This legislation orsimilar proposals may fail to stabilize the financial markets or the economygenerally. Any new legislation or regulatory changes could require RiverSourceLife to change certain of its business practices, impose additional costs onRiverSource Life, or otherwise adversely affect RiverSource Life’s businessoperations, regulatory reporting relationships, financial condition or resultsof operations.  Consequences may includesubstantially higher compliance costs as well as material effects on interest rates,which could materially impact RiverSource Life’s investments, results ofoperations and liquidity in ways that it cannot predict.  In addition, prolonged government supportfor, and intervention in the management of, private institutions could distortcustomary and expected commercial behavior on the part 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.  Financial conditions mayprompt, and have prompted, 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 could adversely affect its earnings.***

 

Issuers of the fixedmaturity securities that RiverSource Life owns may default on principal andinterest payments. As of December 31, 2009, 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.

 

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***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.

 

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 derivativeinstruments, have increased significantly in connection with RiverSource Life’sstrategies to hedge guaranteed benefit obligations under its variable annuityproducts.  If RiverSource Life’scounterparties fail to honor their obligations under the derivative instrumentsin a timely manner, RiverSource Life’s hedges of the related risk will beineffective. That failure could have a material adverse effect on RiverSourceLife’s financial condition and results of operations.  This risk of failure of RiverSource Life’shedge transactions may be increased by capital market volatility.

 

***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 ofoperations.***

 

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 such evaluationsare revised.  Historical trends may notbe indicative of future impairments or allowances.

 

The assessment ofwhether impairments have occurred is based on management’s case-by-caseevaluation of the underlying reasons for the decline in fair value thatconsiders a wide range of factors about the security issuer and management usesits best judgment in evaluating the cause of the decline in the estimated fairvalue of the security and in assessing the prospects for recovery. Inherent inmanagement’s evaluation of the security are assumptions and estimates about theoperations of the issuer and its future earnings potential, which assumptionsand estimates are more difficult to make with certainty under current marketconditions.

 

***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, certainsecurities 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 whichmay be less than the value at which the investments may be ultimately sold.Further, rapidly changing and unprecedented credit and equity market conditionscould

 

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materially impact thevaluation of securities as reported within RiverSource Life’s consolidatedfinancial statements and the period-to-period changes in value could varysignificantly. Decreases in value may have a material adverse effect onRiverSource Life’s financial condition or results of operations.

 

***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 15% of the carrying value ofRiverSource Life’s investment portfolio as of December 31, 2009.  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’sfinancial condition and results of operations.

 

***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, asset managers andother financial institutions. RiverSource Life may face competitors that havegreater market share, offer a broader range of products, have greater financialresources or have 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 and market share as a result of these factors.

 

Historically,Ameriprise Financial’s branded advisor network (both franchisee advisors andthose employed by RiverSource Life’s affiliated broker-dealer selling firm)distributed annuity and insurance products issued almost exclusively (in thecase of annuities) or predominantly (in the case of insurance products) byRiverSource Life. The primary exception to this general practice is that thebranded advisors who joined Ameriprise Financial in connection with anacquisition continued to offer annuities from competitors as they did prior tothe acquisition.  Ameriprise Financialexpects they will continue to do so until it harmonizes the competitiveproducts offered by all of its branded advisors, as described below, at whichpoint some of these advisors will offer a more limited number of competitors’products.  In 2010, Ameriprise Financialplans to begin expanding the offerings available to its branded advisors toinclude variable annuities issued by a limited number of unaffiliated insurancecompanies.  As a result of this andfurther openings of Ameriprise Financial’s branded advisor network to annuityand insurance products of other companies, RiverSource Life could experiencelower sales of its products, higher surrenders or other developments, whichcould adversely 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 to attract funds fromexisting and new clients might diminish; and

 

·                    existing clients might withdraw assets fromRiverSource Life’s variable products in favor of better performing products ofother 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

 

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independent contractorsunder a franchise agreement with its affiliated selling firm. There can be noassurance that RiverSource Life’s affiliated selling firm will be successful inits efforts to recruit and retain new advisors to its network. If RiverSourceLife’s affiliated selling firm is unable to attract and retain qualityfinancial advisors, fewer advisors would be available to sell RiverSource Life’sannuity and insurance products and RiverSource Life’s financial condition andresults of operations could be materially 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 orits recruiting and retention costs increase significantly, its financialcondition and results of operations could be materially adversely impacted.

 

***RiverSource Life’s business is heavily regulated, andchanges in legislation or regulation may reduce its profitability and limit itsgrowth.***

 

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.Insurance regulators have significantly increased the level of regulation inrecent years and have several outstanding proposals for additional regulation.Market 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. These requirements, costs and risks, as well as possible legislative orregulatory changes, may constrain RiverSource Life’s ability to market itsproducts and services to its target demographic and potential customers, andcould negatively impact RiverSource Life’s profitability and make it moredifficult for RiverSource Life to pursue its growth strategy.

 

RiverSource Life issubject to state regulation and must comply with statutory reserve and capitalrequirements.  State regulators arecontinually reviewing and updating these requirements and other requirementsrelating to the business operations of insurance companies, including theirunderwriting and sales practices.  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.  The requirement forprinciples-based variable annuity reserves, along with a similar risk-basedcapital requirement adopted previously, may result in statutory reserves andrisk-based capital for variable annuities being more sensitive to changes inequity prices and other market factors. It is not possible at this time toestimate the potential impact of future changes in statutory reserve andcapital requirements.  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.  Ameriprise Financial’s financial advisors maydecide that the direct cost of compliance and the indirect cost of time spenton compliance matters outweigh the benefits of a career as a financial advisor,which could lead to financial advisor attrition. The costs of the compliancerequirements RiverSource Life faces, and the constraints they impose on itsoperations, could have a material adverse effect on RiverSource Life’sfinancial condition and results of operations.

 

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.  Reductions or other changes in the fees thatRiverSource Life charges for its products and services could reduce itsrevenues and earnings.

 

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***A failure to properly manage conflicts of interest couldadversely affect RiverSource Life’s business.***

 

RiverSource Life has toaddress potential conflicts of interest, including those relating to theactivities of its affiliated entities. For example, conflicts may arise betweenRiverSource Life’s position as a manufacturer of insurance and annuity productsand the position of RiverSource Life’s affiliated broker-dealer, thedistributor of these products. RiverSource Life and its affiliated entitieshave procedures and controls in place that are designed to address conflicts ofinterest. Appropriately dealing with conflicts of interest, however, is complexand difficult and RiverSource Life’s reputation could be damaged if it fails,or appears to fail, to deal appropriately with conflicts of interest.In addition, the SEC and other federal and state regulators have increasedtheir scrutiny of potential conflicts of interest. It is possible thatpotential or perceived conflicts could give rise to litigation or enforcementactions. Also, it is possible that the regulatory scrutiny of, and litigationin connection with, conflicts of interest could make RiverSource Life’s clientsless willing to enter into transactions in which such a conflict may occur, andcould adversely affect RiverSource Life’s business.

 

***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 could resultin violations of law, regulatory sanctions and/or serious reputational orfinancial harm. Misconduct can occur in each of RiverSource Life’s businessesand could include:

 

·                    attempting to bind RiverSource Life to transactionsthat exceed authorized limits;

·                    hiding unauthorized or unsuccessful activitiesresulting in unknown and unmanaged risks or losses;

·                    improperly using, disclosing, or otherwisecompromising confidential information;

·                    recommending transactions that are not suitable;

·                    engaging in fraudulent or otherwise improper activity;

·                    engaging in unauthorized or excessive trading to thedetriment of customers; or

·                    otherwise not complying with laws, regulations or RiverSourceLife’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.  Various regulatoryand governmental bodies have the authority to review RiverSource Life’sproducts and business practices and those of its employees and agents and itsaffiliates’ employees and agents and to bring regulatory or other legal actionsagainst RiverSource Life if, in their view, RiverSource Life’s practices, orthose of its employees and agents and its affiliates’ employees and agents, areimproper.  Pending legal and regulatory actions include proceedingsrelating to aspects of RiverSource Life’s business and operations that arespecific to it and proceedings that are typical of the industries which itoperates.  In or as a result of turbulent times such as those RiverSourceLife has experienced, the volume of claims and amount of damages sought in litigationand regulatory proceedings generally increase. Substantial legal liability inlegal or regulatory actions could have a material financial effect or causesignificant reputational harm, which in turn could seriously harm its businessprospects.

 

***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 maintain 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

 

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condition and results ofoperations in many ways, including:

 

·                  reducing new sales of insurance and annuity products;

·                  adversely affecting RiverSource Life’s relationships with distributorsof its products;

·                materially increasing the number or amount of policy surrenders andwithdrawals by contractholders and policyholders;

·                  requiring RiverSource Life to reduce prices for many of its products toremain competitive; and

·                adversely affecting RiverSource Life’s ability to obtain reinsurance orobtain reasonable pricing on reinsurance.

 

In view of the difficultiesexperienced recently by RiverSource Life’s competitors, the ratingsorganizations have heightened the level of scrutiny that they apply and haverequested additional information from companies that they rate, and mayincrease the frequency and scope of their reviews or adjust upward the capitaland other requirements employed in the ratings organizations’ models formaintenance of ratings levels.  Ratingsorganizations may also become subject to tighter laws and regulations governingthe rating, which may in turn impact the ratings assigned to insurancecompanies.

 

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.

 

***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 andrelated expenses RiverSource Life expects to incur over time. The assumptionsand estimates RiverSource Life makes in establishing reserves require certainjudgments about future experience and, therefore, are inherentlyuncertain.  RiverSource Life cannotdetermine with precision the actual amounts that it will pay for contractbenefits, the timing of payments, or whether the assets supporting its statedreserves will increase to the levels it estimates before payment of benefits orclaims.  RiverSource Life monitors itsreserve levels continually.  IfRiverSource Life were to conclude that its reserves are insufficient to coveractual or expected contract benefits, it would be required to increase itsreserves and incur income statement charges for the period in which it makesthe determination, which could adversely affect its financial condition andresults of operations. For more information on how RiverSource Life sets itsreserves, see Note 2 to the Consolidated Financial Statements included in Part II,Item 8 of this Annual 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, chronic care riders and immediate annuity contracts thanit had projected.  The same holds truefor LTC policies RiverSource Life previously underwrote to the extent of therisks that RiverSource Life has retained. If mortality rates are higher than its pricing assumptions, RiverSourceLife could be required to make greater payments under its life insurancepolicies and annuity 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

 

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Report on Form 10-K— “Business — Insurance: Product Features and Risks — Long Term Care Insurance.”  RiverSource Life may be required to implementadditional rate increases in the future and may or may not receive regulatoryapproval for the full extent and timing of any rate increases that RiverSourceLife 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.

 

For RiverSource Life’sLTC insurance and certain universal life insurance policies, actual persistencythat is higher than its persistency assumptions could have a negative impact onprofitability. If these policies remain in force longer than RiverSource Lifeassumed, then RiverSource Life could be required to make greater benefitpayments than it had anticipated when it priced or partially reinsured theseproducts.  Some of its LTC insurancepolicies have experienced higher persistency and poorer loss experience thanRiverSource Life had assumed, which led it to increase premium rates on certainof 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 represents the costof 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 is amortized based on projections of estimated gross profits overamortization periods equal to the approximate life of the business.  For other insurance products, DAC isgenerally amortized as a percentage of premiums over amortization periods equalto the premium-paying period.

 

RiverSource Life’sprojections underlying the amortization of DAC requires 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.”

 

***RiverSource Life may notbe able to protect its intellectual property and may be subject to infringementclaims.***

 

RiverSource Life relies on a combination ofcontractual rights and copyright, trademark, patent and trade secret laws toestablish and protect its intellectual property.  Although RiverSource Life uses a broad rangeof measures to protect its intellectual property rights, third parties mayinfringe or misappropriate its intellectual property. RiverSource Life may haveto litigate to enforce and protect its copyrights, trademarks, patents, tradesecrets and know-how or to determine their scope,

 

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validity or enforceability, which represents adiversion of resources that may be significant in amount and may not provesuccessful. The loss of intellectual property protection or the inability tosecure or enforce the protection of RiverSource Life’s intellectual propertyassets could have a material adverse effect on its business and its ability tocompete.

 

RiverSource Life also may be subject to costlylitigation in the event that another party alleges its operations or activitiesinfringe upon such other party’s intellectual property rights. Third partiesmay have, or may eventually be issued, patents or other protections that couldbe infringed by RiverSource Life’s products, methods, processes or services orcould otherwise limit its ability to offer certain product features. Any partythat holds such a patent could make a claim of infringement against RiverSourceLife. RiverSource Life may also be subject to claims by third parties forbreach of copyright, trademark, trade secret or license usage rights. Any suchclaims and any resulting litigation could result in significant liability fordamages. If RiverSource Life were found to have infringed a third-party patentor other intellectual property rights, it could incur substantial liability,and in some circumstances could be enjoined from providing certain products orservices to its customers or utilizing and benefiting from certain methods,processes, copyrights, trademarks, trade secrets or licenses, or alternativelycould be required to enter into costly licensing arrangements with thirdparties, all of which could have a material adverse effect on RiverSource Life’sbusiness, financial condition and results of operations.

 

***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,as well as intrusions resulting from the efforts of “hackers” seeking thesensitive data RiverSource possesses and the trend toward broad consumer andgeneral public notification of such incidents, could significantly harmRiverSource Life’s business, financial condition or results of operations.   Even if RiverSource Life successfullyprotected its technology infrastructure and the confidentiality of sensitivedata, RiverSource Life could suffer harm to its business and reputation ifattempted security breaches are publicized. RiverSource Life cannot be certainthat advances in criminal capabilities, discovery of new vulnerabilities,attempts to exploit vulnerabilities in its systems, data thefts, physicalsystem or network break-ins or inappropriate access, or other developments willnot compromise or breach the technology or other security measures protectingthe networks used in connection with its products and services.

 

***Protectionfrom system interruptions and operating errors is important to RiverSource Life’sbusiness. If RiverSource Life experienced a sustained interruption to itstelecommunications or data processing systems or other failure in operationalexecution, 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 or vendor software or systemsand other events beyond its control. Further, RiverSource Life faces the riskof operational failure, termination or capacity constraints of any of theclearing agents, exchanges, clearing houses or other financial intermediariesthat RiverSource Life uses to facilitate or are component providers to itssecurities transactions and other product manufacturing and distributionactivities. These risks are heightened by RiverSource Life’s deployment inresponse to both client interest and evolution in the financial markets ofincreasingly sophisticated products, such as those which incorporate automaticasset re-allocation, multiple portfolios or funds and business-driven hedging,compliance and other risk management strategies. Any such failure, terminationor constraint could adversely impact its ability to effect transactions,service its clients and manage its exposure to risk.

 

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

 

RiverSource Life hasdevoted significant resources to develop its risk management policies andprocedures and will continue to do so. Nonetheless, RiverSource Life’s policiesand procedures to identify, monitor and manage risks may not be fully effectivein mitigating its risk exposure in all market environments or against all typesof risk. Many of its methods

 

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of managing risk andexposures are based upon its use of observed historical market behavior orstatistics based on historical models. During periods of market volatility ordue to unforeseen events, the historically derived correlations upon whichthese methods are based may not be valid. As a result, these methods may not accurately predict future exposures,which could be significantly greater than what its models indicate. This couldcause RiverSource Life to incur investment losses or cause its hedging andother risk management strategies to be ineffective.  Other risk management methods depend upon theevaluation of information regarding markets, clients, catastrophe occurrence orother matters that are publicly available or otherwise accessible toRiverSource Life, which may not always be accurate, complete, up-to-date orproperly 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 risk exposurein 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 counterparty denial ofcoverage, 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 iteither owns or leases from Ameriprise Financial.  RiverSource Life Insurance Company reimbursesAmeriprise Financial for rent based on direct and indirect allocation methods.  RiverSource Life of NY rents office space inAlbany, New York.  RiverSource Lifebelieves that the facilities occupied are suitable and adequate.

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

 

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.

 

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

 

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have a material adverseeffect on its consolidated financial condition, results of operations orliquidity.  However, it is possible thatthe outcome of any such proceedings could have a material impact on results ofoperations in any particular reporting period as the proceedings are resolved.

 
| **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.

 

 
| **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 Life Insurance Company is domiciled inMinnesota and holds Certificates of Authority in American Samoa, the Districtof Columbia and all states except New York. RiverSource Life Insurance Company issues insurance and annuityproducts.

 

·      RiverSource Life of NY is a stock life insurancecompany domiciled in New York, which holds Certificates of Authority in NewYork, North Dakota and Delaware. RiverSource Life of NY issues insurance and annuity products.

 

On December 31, 2008, Ameriprise Financialcontributed all of the issued and outstanding shares of RiverSource TaxAdvantaged Investments, Inc. (“RTA”) to RiverSource Life InsuranceCompany.  RTA is domiciled in Delawareand is a limited partner in affordable housing partnership investments.

 

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

 

The accompanyingfinancial information has been presented as if RTA had been a wholly ownedsubsidiary prior to January 1, 2006 and is accounted for as a pooling ofinterests for entities under common control.

 

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.  Certainreclassifications of prior year amounts have been made to conform to thecurrent presentation.

 

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.

 

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Effective as of the closeof business on September 30, 2005, American Express completed theSeparation and the distribution of Ameriprise Financial common shares toAmerican 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.

 

**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 ofRiverSource Life’s financial condition and results of operations and, in somecases, the application of these policies can be significantly affected by theestimates, judgments and assumptions made by management during the preparationof the Consolidated Financial Statements. The accounting 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 carries at fair value within itsConsolidated Balance Sheets. The fair value of RiverSource Life’sAvailable-for-Sale securities at December 31, 2009 was primarily obtainedfrom third-party pricing sources. RiverSource Life records unrealized securities gains (losses) inaccumulated other comprehensive income (loss), net of income tax provision(benefit) and net of adjustments in other asset and liability balances, such asdeferred acquisition costs (“DAC”), to reflect the expected impact on theircarrying values had the unrealized securities gains (losses) been realized asof the respective balance sheet dates. RiverSource Life recognizes gains and losses in results of operationsupon disposition of the securities.

 

Effective January 1,2009, RiverSource Life early adopted an accounting standard that significantlychanged RiverSource Life’s accounting policy regarding the timing and amount ofother-than-temporary impairments for Available-for-Sale securities. When thefair value of an investment is less than its amortized cost, RiverSource Lifeassesses whether or not: (i) it has the intent to sell the security (madea decision to sell) or (ii) it is more likely than not RiverSource Lifewill be required to sell the security before its anticipated recovery. Ifeither of these conditions is met, an other-than-temporary impairment isconsidered to have occurred and RiverSource Life must recognize another-than-temporary impairment for the difference between the investment’samortized cost basis and its fair value through earnings. For securities thatdo not meet the above criteria and RiverSource Life does not expect to recovera security’s amortized cost basis, the security is also consideredother-than-temporarily impaired. For these securities, RiverSource Lifeseparates the total impairment into the credit loss component and the amount ofthe loss related to other factors. The amount of the total other-than-temporaryimpairments related to credit loss is recognized in earnings. The amount of thetotal other-than-temporary impairment related to other factors is recognized inother comprehensive income (loss), net of impacts to DAC, deferred salesinducement costs (“DSIC”), certain benefit reserves and income taxes. ForAvailable-for-Sale securities that have recognized an other-than-temporaryimpairment through earnings, if through subsequent evaluation there is asignificant increase in the cash flow expected, the difference between theamortized cost basis and the cash flows expected to be collected is accreted asinterest income. Subsequent increases and decreases in the fair value ofAvailable-for-Sale securities are included in other comprehensive income(loss).

 

For all securities thatare considered temporarily impaired, RiverSource Life does not intend to sellthese securities (has not made a decision to sell) and it is not more likelythan not that RiverSource Life will be required to sell the security beforerecovery of its amortized cost basis. RiverSource Life believes that it willcollect all principal and interest due on all investments that have amortizedcost in excess of fair value that are considered only temporarily impaired.

 

Factors RiverSource Lifeconsiders in determining whether declines in the fair value of fixed-maturitysecurities are other-than-temporary include: (i) the extent to which themarket value is below amortized cost; (ii) the duration of time in whichthere has been a significant decline in value; (iii) fundamental analysisof the liquidity, business prospects and overall financial condition of theissuer; and (iv) market events that could impact credit ratings, economicand business climate, litigation and government actions, and similar externalbusiness factors.  In order to determinethe amount of the credit loss component for corporate debt securitiesconsidered other-than-temporarily impaired, a best estimate of the presentvalue of cash flows expected to be collected discounted at the security’seffective interest rate is compared to the amortized cost

 

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basis of the security.The significant inputs to cash flow projections consider potential debtrestructuring terms, projected cash flows available to pay creditors andRiverSource Life’s position in the debtor’s overall capital structure.

 

For structuredinvestments (e.g., residential mortgage backed securities, commercial mortgagebacked securities, asset backed securities and other structured investments),RiverSource Life also considers factors such as overall deal structure and itsposition within the structure, quality of underlying collateral, delinquenciesand defaults, loss severities, recoveries, prepayments and cumulative lossprojections in assessing potential other-than-temporary impairments of theseinvestments. Based upon these factors, securities that have indicators ofpotential other-than-temporary impairment are subject to detailed review bymanagement.  Securities for whichdeclines are considered temporary continue to be carefully monitored bymanagement.  Generally, the credit losscomponent for the non-agency residential mortgage backed securities isdetermined as the amount the amortized cost basis exceeds the present value ofthe projected cash flows expected to be collected. Significant inputsconsidered in these projections are consistent with the factors considered inassessing potential other-than-temporary impairment for these investments.Current contractual interest rates considered in these cash flow projectionsare used to calculate the discount rate used to determine the present value ofthe expected cash flows.

 

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

 

For RiverSource Life’sannuity and life, disability income (“DI”) and long term care (“LTC”) insuranceproducts, the DAC and DSIC balances at any reporting date are supported byprojections that show that management expects there to be adequate premiums orestimated gross profits after that date to amortize the remaining DAC and DSICbalances. These projections are inherently uncertain because they requiremanagement to make assumptions about financial markets, anticipated mortalityand morbidity levels and policyholder behavior over periods extending well intothe future. Projection periods used for RiverSource Life’s annuity products aretypically 10 to 25 years, while projection periods for RiverSource Life’s life,DI and LTC insurance products are often 50 years or longer. Managementregularly monitors financial market conditions and actual policyholder behaviorexperience and compares them to its assumptions.

 

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 is not recoverable. If management concludes that DAC is notrecoverable, DAC is reduced to the amount that is recoverable based on bestestimate assumptions and there is a corresponding expense recorded in theConsolidated Statements of Income.

 

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 businesses 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 five-year mean reversion process as a guideline insetting near-

 

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term equity asset growthrates based on a long-term view of financial market performance as well asrecent actual performance.  The suggestednear-term growth rate is reviewed to ensure consistency with management’sassessment of anticipated equity market performance.  In 2009, management continued to follow themean reversion process, decreasing near-term equity asset growth rates toreflect the positive market.  Thelong-term client asset value growth rates are based on assumed gross annualtotal returns of 9% for equities and 6.5% for fixed income securities.

 

A decrease of 100 basispoints in various rate assumptions is likely to result in an increase in DACand DSIC amortization and an increase in benefits and claims expense fromvariable annuity guarantees.  Thefollowing table presents the estimated impact to pretax income:

 
| ** **                                                                      | ** ** | **Estimated Impact  to Pretax Income(1)** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                      | ** ** | **(in millions)**                         | ** ** |
| Decrease  in future near and long-term equity returns by 100 basis points       |       | $                                         | (44        | ) |
| Decrease  in future near and long-term fixed income returns by 100 basis points |       | (18                                       | )          |
| Decrease  in near-term equity asset growth rates by 100 basis points            |       | (28                                       | )          |
|                                                                                 |            |                                           |            |  |

 

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(1)   An increase in the aboveassumptions by 100 basis points would result in an increase to pretax income ofapproximately the same amount.

 

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

 

***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 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 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 guaranteed minimum income benefit(“GMIB”) provisions.

 

In determining theliabilities for GMDB, GMIB and the life contingent benefits associated withGMWB, RiverSource Life projects these benefits and contract assessments using actuarialmodels to simulate various equity market scenarios. Significant assumptionsmade in projecting future benefits and assessments relate to customer assetvalue growth rates, mortality, persistency and investment margins and areconsistent with those used for DAC asset valuation for the same contracts. Aswith DAC, management reviews, and where appropriate, adjusts its assumptionseach quarter. Unless management identifies a material deviation over the courseof quarterly monitoring, management reviews and updates these assumptionsannually in the third quarter of each year. The amounts in the table above in “Deferred Acquisition Costs andDeferred Sales Inducement Costs” include the estimated impact to benefits andclaims expense related to variable annuity guarantees resulting from a decreaseof 100 basis points in various rate assumptions.

 

23

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The GMDB liability isdetermined by estimating the expected value of death benefits in excess of theprojected contract accumulation value and recognizing the excess over theestimated meaningful life based on expected assessments (e.g., mortality andexpense fees, contractual administrative charges and similar 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 purchaserates.  The GMIB liability is determinedeach period by estimating the expected value of annuitization benefits inexcess of the projected contract accumulation value at the date ofannuitization and recognizing the excess over the estimated meaningful lifebased 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 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 GMDB liability.  Thechanges in both the fair values of the GMWB and GMAB embedded derivatives andthe liability for life contingent benefits 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 fair value of embedded equity options.

 

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, 2009, depending on year of issue, with anaverage rate of approximately 5.7%.

 

*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 forbenefits.  Present values are calculatedat interest rates established when claims are incurred. Anticipated claimcontinuance rates are based on established industry tables, adjusted asappropriate for RiverSource Life’s experience. Interest rates used with DI claims ranged from 3.0% to 8.0% at December 31,2009, with an average rate of 4.7%. Interest rates used with LTC claims ranged from 4.0% to 7.0% at December 31,2009, 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 31,2009, 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 interest rates for LTC policy reserves can vary by plan and yearand ranged from 5.8% to 9.4% at December 31, 2009.

 

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

 

24

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***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.

 

The accounting for changes in the fair value of aderivative instrument depends on its intended use 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 (i) hedges of changes in the fair value of assets,liabilities, or firm commitments (“fair value hedges”) or (ii) 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”).

 

RiverSource Life’s policy is to not offset fair valueamounts recognized for derivatives and collateral arrangements executed withthe same counterparty under the same master netting arrangement.

 

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 changes in fair value of derivatives hedging variable annuity livingbenefits and certain variable annuity death benefits are included withinbenefits, claims, losses and settlement expenses.  The changes in fair value of derivativeshedging equity indexed annuities are included in interest credited to fixedaccounts. The changes in fair value of all other derivatives are a component ofnet investment income. These derivatives primarily provide economic hedges toequity market and interest rate exposures. Examples include structured derivatives, options, futures, equity andinterest rate swaps and swaptions that economically hedge the equity andinterest rate exposure of derivatives embedded in certain annuity liabilities.

 

For derivative instruments that qualify as fair valuehedges, changes in the fair value of the derivatives, as well as of the hedgedrisk within the corresponding hedged assets, liabilities or firm commitments,are recognized in current earnings.  If afair value hedge designation is removed or the hedge is terminated prior tomaturity, previous adjustments to the carrying value of the hedged item arerecognized into earnings 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) is recognized into earnings over the periodthat 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 to theConsolidated 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.

 

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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, (i) future taxable income exclusive ofreversing temporary differences and carryforwards, (ii) future reversalsof existing taxable temporary differences, (iii) taxable income in priorcarryback years, and (iv) tax planning strategies.  It is likely that management will need toidentify and implement appropriate planning strategies to ensure its ability torealize deferred tax assets and avoid the establishment of a valuationallowance with respect to such assets. In the opinion of management, it is currently more likely than not thatRiverSource Life will realize the benefit of its deferred tax assets, includingits capital loss deferred tax assets; therefore, no such valuation allowancehas 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.

 

***Resultsof Operations for the Year Ended December 31, 2009 compared to the YearEnded December 31, 2008***

 

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

 
| ** **                                                                  | ** ** | **Year Ended  December 31,**     | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                  | ** ** | **2009**                              | ** ** | **2008**   | ** ** | **Change** | ** ** |
| ** **                                                                  | ** ** | **(in millions, except percentages)** | ** ** |
| **Revenues**                                                                |       |                                  |       |       |       |       |       |   |   |
| Premiums                                                                    |       | $                                     | 450        |       | $          | 438        |       | $ | 12 |   | 3 | % |
| Net  investment income                                                      |       | 1,526                                 |       | 1,252      |       | 274        |       | 22 |   |
| Policy  and contract charges                                                |       | 1,156                                 |       | 1,352      |       | (196       | )          | (14 | ) |
| Other  revenue                                                              |       | 233                                   |       | 255        |       | (22        | )          | (9 | ) |
| Net  realized investment gains (losses)                                     |       | 59                                    |       | (442       | )          | 501        |       | NM |   |
| Total  revenues                                                             |       | 3,424                                 |       | 2,855      |       | 569        |       | 20 |   |
| ** **                                                                  |       |                                  |       |       |       |       |       |   |   |
| **Benefits and expenses**                                                   |       |                                  |       |       |       |       |       |   |   |
| Benefits,  claims, losses and settlement expenses                           |       | 841                                   |       | 673        |       | 168        |       | 25 |   |
| Interest  credited to fixed accounts                                        |       | 903                                   |       | 790        |       | 113        |       | 14 |   |
| Amortization  of deferred acquisition costs                                 |       | 145                                   |       | 861        |       | (716       | )          | (83 | ) |
| Other  insurance and operating expenses                                     |       | 550                                   |       | 649        |       | (99        | )          | (15 | ) |
| Total  benefits and expenses                                                |       | 2,439                                 |       | 2,973      |       | (534       | )          | (18 | ) |
| Pretax  income                                                              |       | 985                                   |       | (118       | )          | 1,103      |       | NM |   |
| Income  tax provision (benefit)                                             |       | 245                                   |       | (189       | )          | 434        |       | NM |   |
| Net  income                                                                 |       | $                                     | 740        |       | $          | 71         |       | $ | 669 |   | NM |   |
|                                                                        |       |                                  |       |       |       |       |       |   |   |
| Supplemental  Disclosures:                                                  |       |                                  |       |       |       |       |       |   |   |
| Net  realized investment gains (losses):                                    |       |                                  |       |       |       |       |       |   |   |
| Net  realized investment gains before impairment losses on securities       |       | $                                     | 121        |       |       |       |       |   |   |   |
| Total  other-than-temporary impairment losses on securities                 |       | (50                                   | )          |       |       |       |       |   |   |
| Portion  of loss recognized in other comprehensive income                   |       | (12                                   | )          |       |       |       |       |   |   |
| Net  impairment losses recognized in net realized investment gains (losses) |       | (62                                   | )          |       |       |       |       |   |   |
| Net  realized investment gains (losses)                                     |       | $                                     | 59         |       |       |       |       |   |   |   |

 

NMNot Meaningful.

 

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*Overview*

 

Consolidated net income was $740 million for the yearended December 31, 2009 compared to $71 million for the year ended December31, 2008, an increase of $669 million. Pretax income increased $1.1 billion to$985 million for the year ended December 31, 2009 from a pretax loss of $118million for the year ended December 31, 2008. The increase was primarilydriven by an increase in net investment income and net realized investmentgains compared to net realized investment losses in the prior year period and adecrease in amortization of DAC.  Theseincreases to net income were partially offset by a decrease in policy andcontract charges and an increase in benefits, claims, losses and settlementexpenses.

 

In the third quarter of 2009, the annual valuationassumptions review resulted in a net pretax benefit of $134 million consistingof a decrease in expenses primarily from updating product mortality assumptionsfor certain life insurance products and from the impact of updating productspreads and expense assumptions partially offset by a decrease in revenuesrelated to the reinsurance impacts from updating product mortalityassumptions.  In the third quarter of2008, the valuation assumptions review and the valuation system conversionresulted in a net pretax benefit of $106 million consisting of a decreasein expenses primarily from updating product mortality and expense assumptionsfor certain life insurance products and from updating fund mix and policyholderbehavior assumptions for variable annuities with guaranteed benefits.  The valuation system conversion also resultedin an increase in revenue primarily from improved modeling of the expectedvalue of existing reinsurance agreements and a decrease in expense frommodeling annuity amortization periods at the individual policy level.

 

The total pretax impacts on RiverSource Life’srevenues and expenses for the year ended December 31, 2009 attributable tothe review of valuation assumptions and the impact of markets on DAC and DSICamortization, GMDB and GMIB riders, and variable annuity living benefit riders,net of hedges and DAC and DSIC amortization 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)** | ** ** |
| Review of valuation assumptions |       | $                 | —     |                              | $          | (65                                                     | )          | $                        | 80         |                                          | $          | 119       |       | $ | — |   | $ | 134 |   |
| Market impacts                  |       | —            |       | —                            |       | (144                                                    | )          | 139                      |       | —                                        |       | (5        | )          |
| Total                           |       | $                 | —     |                              | $          | (65                                                     | )          | $                        | (64        | )                                             | $          | 258       |       | $ | — |   | $ | 129 |   |

 

The total pretaximpacts on RiverSource Life’s revenues and expenses for the year ended December 31,2008 attributable to the review of valuation assumptions, the valuation systemconversion and the impact of markets on DAC and DSIC amortization, GMDB andGMIB riders, and variable annuity living benefit riders, net of hedges and DACamortization 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)** | ** ** |
| Review of valuation assumptions and valuation  system conversion |       | $                 | 2          |                              | $          | 95                                                      |       | $                        | 89         |                                          | $          | (81       | )          | $ | 1 |   | $ | 106 |   |
| Market impacts                                                   |       | —            |       | —                            |       | (9                                                      | )          | (404                     | )          | —                                        |       | (413      | )          |
| Total                                                            |       | $                 | 2          |                              | $          | 95                                                      |       | $                        | 80         |                                          | $          | (485      | )          | $ | 1 |   | $ | (307 | ) |

 

*Revenues*

 

Total revenues for the year ended December 31, 2009 were $3.4billion, an increase of $569 million or 20% from $2.9 billion in 2008.  The increase is primarily due to net realizedinvestment gains in 2009 compared to net realized investment losses in 2008 andan increase in net investment income offset partially by a decrease in policyand contract charges.

 

Net investment income increased $274 million or 22% to $1.5 billion forthe year ended December 31, 2009 compared to $1.3 billion in the prioryear.  The increase is due to higherinvested asset levels due to fixed annuity net inflows as well as higher yieldson longer term investments.

 

27

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Policy and contractcharges decreased $196 million or 14% to $1.2 billion for the year ended December 31,2009 compared to $1.4 billion in theprior year primarily due to a$65 million expense from updating valuation assumptions in the third quarter of2009 compared to a benefit of $95 million from updating valuation assumptions andconverting to a new valuation system in the third quarter of 2008.  The decrease also reflects decreased separateaccount fee revenue as a result of the decrease in average separate accountassets. Average separate account assets decreased $5.9 billion or 11%from the prior year period primarily due to equity market declines partiallyoffset by net inflows.

 

Other revenue decreased$22 million or 9% to $233 million forthe year ended December 31, 2009 compared to $255 million in the prioryear reflecting lower marketing support and administrative fees due tolower average underlying separate account asset values.

 

Net realized investmentgains were $59 million for the year ended December 31, 2009 compared tonet realized investment losses of $442 million for the year ended December 31,2008.  For the year ended December 31, 2009, net realized gains from salesof Available-for-Sale securities were $135 million and other-than-temporaryimpairments recognized in earnings were $62 million related to credit losses onnon-agency residential mortgage backed securities and corporate debt securitiesin the gaming industry and banking and finance industries. For the year ended December 31, 2009, thereserves on commercial mortgage loans increased by $13 million.  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.

 

*Benefitsand Expenses*

 

Total benefits andexpenses for the year ended December 31, 2009 were $2.4 billion, adecrease of $534 million or 18% from $3.0 billion in 2008.   This decrease is primarily due to a decreasein DAC amortization, partially offset by increases in benefits, claims, lossesand settlement expenses and interest credited to fixed accounts.

 

Benefits, claims, losses and settlementexpenses increased $168 million or 25% to $841 million for the year ended December 31, 2009compared to $673 million in the prior year driven by an increase in expensesfrom variable annuity living benefit guarantees.  Benefits, claims, losses and settlementexpenses in 2009 were impacted by $148 million of market impacts on variableannuity benefit expenses, net of hedges and DSIC, compared to a benefit of $32million in 2008.  The non-cash impact ofthe nonperformance spread on the fair value of living benefit liabilitiesincreased benefits, claims, losses and settlement expenses in 2009 compared toa decrease in 2008.  Benefits, claims,losses and settlement expenses in 2009 included a benefit of $80 million fromupdating valuation assumptions compared to a benefit of $89 million in theprior year from updating valuation assumptions and converting to a newvaluation system.  The impact of marketperformance in 2009 decreased DSIC amortization by $4 million compared to anexpense of $41 million in the prior year.

 

Interest credited tofixed accounts increased $113 million or 14% to $903 million for the year endedDecember 31, 2009 compared to $790 million for the year ended December 31,2008, primarily due to higher average fixed annuity account balances and higheraverage fixed annuity crediting rates compared to the prior year.  Average fixed annuities contract accumulationvalues increased $1.9 billion, or 16% compared to the prior year. The averagefixed annuity crediting rate excluding capitalized interest increased to 3.9%in 2009 compared to 3.7% in the prior year.

 

Amortization of DACdecreased $716 million or 83% to $145 million for the year ended December 31,2009 compared to $861 million in the prior year. DAC amortization in 2009included a $119 million benefit from updating valuation assumptions in thethird quarter of 2009 compared to an expense of $81 million from updatingvaluation assumptions and converting to a new valuation system in the prioryear.  DAC amortization in 2009 wasreduced by $139 million due to market impacts, including $113 millionoffsetting higher variable annuity benefits expenses, net of hedges.  DAC amortization in 2008 was increased by$404 million due to market impacts, including a $111 million expense offsettinggains on variable annuity benefits, net of hedges.

 

Other insurance andoperating expenses decreased $99 millionor 15% to $550 million for the year ended December 31, 2009 primarily due to decreased sales and marketing expensesand lower corporate overhead expenses.

 

28

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*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 24.9% and 160.1% for the years ended December 31,2009 and 2008, respectively.   Thedecrease in the effective tax rate is primarily due to pretax income for 2009compared to a pretax loss in relation to a net tax benefit for 2008.  RiverSource Life’s effective tax rate for2008 included a $39 million tax benefit related to changes in the status ofcurrent audits.

 

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.  Additionally, included in theAdministration’s 2011 Revenue Proposals is a provision to modify the DRD forlife insurance companies’ separate accounts which if enacted couldsignificantly reduce the DRD tax benefits RiverSource Life receives,prospectively, beginning in 2011. For the year ended December 31, 2009,RiverSource Life recorded a benefit of approximately $62 million related to thecurrent year’s separate account DRD.

 

***Fair Value Measurements***

* *

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

 

*Inactive Markets*

 

Through RiverSource Life’s ownexperience transacting in the marketplace and through discussions with itspricing vendors, RiverSource Life believes that the market for non-agencyresidential mortgage backed securities is inactive. Indicators of inactive marketsinclude: pricing services’ reliance on brokers or discounted cash flow analysesto provide 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 of similar risk which includes nonperformance and liquidity forindividual securities to set the discount rate for applying the income approachto certain non-agency residential mortgage backed securities. The discountrates used for the fair value of these securities at December 31, 2009ranged from 11% to 22%.

 

*Non-agencyResidential Mortgage Backed Securities Backed by Subprime, Alt-A or PrimeCollateral*

 

Sub-prime mortgage lending is theorigination of residential mortgage loans to customers with weak creditprofiles. Alt-A mortgage lending is the origination of residential mortgageloans to customers who have credit ratings above sub-prime but may not conformto government-sponsored standards. Prime mortgage lending is the origination ofresidential mortgage loans to customers with good credit profiles.  RiverSource Life has exposure to these typesof loans predominantly through mortgage backed and asset backed securities. Theslow down in the U.S. housing market, combined with relaxed underwritingstandards by some originators, has led to higher delinquency and loss rates forsome of these investments. Market conditions have increased the likelihood ofother-than-temporary impairments for certain non-agency residential mortgagebacked securities.  As a part ofRiverSource Life’s risk management process, an internal rating system is usedin conjunction with market data as the basis of analysis to assess thelikelihood that RiverSource Life will not receive all contractual principal andinterest payments for these investments. For the investments that are more atrisk for impairment,

 

29

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RiverSource Life performs its ownassessment of projected cash flows incorporating assumptions about defaultrates, prepayment speeds, loss severity, and geographic concentrations todetermine if an other-than-temporary impairment should be recognized.

 

The following table presents, as of December 31,2009, RiverSource Life’s non-agency residential mortgage backed and assetbacked securities backed by sub-prime, Alt-A or prime mortgage loans by creditrating and vintage year:

 
| ** **             | ** ** | **AAA**             | ** ** | **AA**          | ** ** | **A**               | ** ** | **BBB**         | ** ** | **BB &  Below** | ** ** | **Total**       | ** ** |
|------------------------|------------|---------------------|------------|-----------------|------------|---------------------|------------|-----------------|------------|--------------------------|------------|-----------------|------------|
| ** **             | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost**      | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| ** **             | ** ** | **(in  millions)**  | ** ** |
| **Sub-prime**          |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | —     |            | $          | —              |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| 2004                   |       | 3                   |       | 3               |       | 7                   |       | 2               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 10 |   | 5 |   |
| 2005                   |       | 42                  |       | 40              |       | 11                  |       | 6               |       | 12                       |       | 12              |       | 7 |   | 7 |   | 19 |   | 11 |   | 91 |   | 76 |   |
| 2006                   |       | —              |       | —          |       | 6                   |       | 5               |       | —                   |       | —          |       | 5 |   | 5 |   | — |   | — |   | 11 |   | 10 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | —              |       | —          |       | 7                   |       | 6               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 7 |   | 6 |   |
| Total Sub-prime   |       | $                   | 45         |            | $          | 43                  |       | $               | 31         |                     | $          | 19              |       | $ | 12 |   | $ | 12 |   | $ | 12 |   | $ | 12 |   | $ | 19 |   | $ | 11 |   | $ | 119 |   | $ | 97 |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 15         |            | $          | 16                  |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 15 |   | $ | 16 |   |
| 2004                   |       | 7                   |       | 7               |       | 60                  |       | 53              |       | 5                        |       | 3               |       | — |   | — |   | 17 |   | 8 |   | 89 |   | 71 |   |
| 2005                   |       | 5                   |       | 3               |       | 38                  |       | 21              |       | 32                       |       | 17              |       | 5 |   | 3 |   | 172 |   | 115 |   | 252 |   | 159 |   |
| 2006                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 13 |   | 7 |   | 13 |   | 7 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 29 |   | 16 |   | 29 |   | 16 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total Alt-A       |       | $                   | 27         |            | $          | 26                  |       | $               | 98         |                     | $          | 74              |       | $ | 37 |   | $ | 20 |   | $ | 5 |   | $ | 3 |   | $ | 231 |   | $ | 146 |   | $ | 398 |   | $ | 269 |   |
| **Prime**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2003 &  prior |       | $                   | 206        |            | $          | 198                 |       | $               | —     |                     | $          | —          |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 206 |   | $ | 198 |   |
| 2004                   |       | 22                  |       | 23              |       | —              |       | —          |       | 28                       |       | 26              |       | 13 |   | 13 |   | — |   | — |   | 63 |   | 62 |   |
| 2005                   |       | 13                  |       | 16              |       | 36                  |       | 41              |       | 69                       |       | 68              |       | 31 |   | 26 |   | 93 |   | 43 |   | 242 |   | 194 |   |
| 2006                   |       | 21                  |       | 21              |       | —              |       | —          |       | 6                        |       | 2               |       | 35 |   | 34 |   | — |   | — |   | 62 |   | 57 |   |
| 2007                   |       | 43                  |       | 44              |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 15 |   | 12 |   | 58 |   | 56 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Re-Remic(1)            |       | 1,842               |       | 1,935           |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 1,842 |   | 1,935 |   |
| Total Prime       |       | $                   | 2,147      |            | $          | 2,237               |       | $               | 36         |                     | $          | 41              |       | $ | 103 |   | $ | 96 |   | $ | 79 |   | $ | 73 |   | $ | 108 |   | $ | 55 |   | $ | 2,473 |   | $ | 2,502 |   |
|                   |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Grand Total**        |       | $                   | 2,219      |            | $          | 2,306               |       | $               | 165        |                     | $          | 134             |       | $ | 152 |   | $ | 128 |   | $ | 96 |   | $ | 88 |   | $ | 358 |   | $ | 212 |   | $ | 2,990 |   | $ | 2,868 |   |

 

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(1)    Re-Remics of mortgage backedsecurities are prior vintages with cash flows structured into senior andsubordinated bonds. Credit enhancement on senior bonds is increased through theRe-Remic process. All senior bonds are rated AAA by Moody’s Investors Service,Standard & Poor’s Rating Services or Fitch Ratings Ltd. RiverSourceLife did not have any exposure to subordinate tranches as of December 31,2009.

 

*Fair Value ofLiabilities and Nonperformance Risk*

 

Companies are required to measurethe fair value of liabilities at the price that would be received to transferthe liability to a market participant (an exit price). Since there is not amarket for RiverSource Life’s obligations of its variable annuity riders,RiverSource Life considers the assumptions participants in a hypotheticalmarket would make to reflect an exit price. As a result, RiverSource Lifeadjusts the valuation of variable annuity riders by updating certaincontractholder assumptions, adding explicit margins to provide for profit, riskand expenses, and adjusting the rates used to discount expected cash flows toreflect a current market estimate of RiverSource Life’s nonperformance risk.The nonperformance risk adjustment is based on broker quotes for credit defaultswaps that are adjusted to estimate the risk of RiverSource Life not fulfillingthese liabilities. Consistent with general market conditions, this estimateresulted in a spread over the LIBOR swap curve as of December 31, 2009. AsRiverSource Life’s estimate of this spread widens or tightens, the liabilitywill decrease or increase. If this nonperformance credit spread moves to a zerospread over the LIBOR swap curve, the reduction to net income would beapproximately $28 million, net of DAC and DSIC amortization and income taxes,based on December 31, 2009 credit spreads.

 

30

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**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 available lines of credit with Ameriprise Financial aggregating$1 billion.  Also, in March 2009,RiverSource Life Insurance Company became a member of the Federal Home LoanBank of Des Moines (“FHLB of Des Moines”), which provides RiverSource LifeInsurance Company access to collateralized borrowings.  At December 31, 2009 and 2008,RiverSource Life had no securities sold under repurchase agreements and therewere no borrowings from the FHLB of Des Moines.

 

As of December 31,2009, the outstanding balance under the lines of credit with AmeripriseFinancial was $300 million which was repaid in full with payments in January andFebruary 2010.

 

See Note 10 to theConsolidated Financial Statements for additional information on the lines ofcredit.

 

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

 

***CapitalActivity***

 

Dividends paid andreceived were as follows:

 
| ** **                                                                              | ** ** | **2009**          | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------|------------|----------|------------|----------|------------|
| ** **                                                                              | ** ** | **(in millions)** | ** ** |
| Cash  dividends paid to Ameriprise Financial                                            |       | $                 | —     |     | $          | 775      |       | $ | 900 |   |
| Cash  dividends paid to RiverSource Life Insurance Company from RiverSource Life of  NY |       | —            |       | 77       |       | 83       |       |
| Cash  dividends paid to RiverSource Life Insurance Company from RTA                     |       | 22                |       | —   |       | —   |       |
| Non-cash  dividend paid to Ameriprise Financial from RTA                                |       | —            |       | 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 additionalinformation.

 

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, RiverSource LifeInsurance Company received a $239 million contribution from Ameriprise Financial,consisting of all the issued and outstanding shares of RTA.

 

During 2009, RiverSourceLife Insurance Company received a non-cash capital contribution of $131 millioncomprised of two buildings and the related land from Ameriprise Financial.  As part of the transaction, RiverSource Life InsuranceCompany entered into an agreement to lease the buildings to AmeripriseFinancial. In addition, RiverSource Life Insurance Company received a non-cashcapital contribution of $200 million consisting of a reduction of theoutstanding balance due to Ameriprise Financial under a line of creditagreement.

 

***RegulatoryCapital***

 

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

 
| ** **                                  | ** ** | **December 31,**    | ** ** |
|---------------------------------------------|------------|--------------------------|------------|
| ** **                                  | ** ** | **Actual  Capital(a)**   | ** ** | **Regulatory  Capital  Requirement(b)** | ** ** |
| ** **                                  | ** ** | **2009**                 | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                  | ** ** | **(in****millions****)** | ** ** |
| RiverSource Life Insurance  Company         |       | $                        | 3,450      |   | $ | 2,722 |   | $ | 803 |   | $ | 551 |   |
| RiverSource Life Insurance  Co. of New York |       | 286                      |       | 229 |   | 44 |   | 58 |   |
|                                             |            |                          |            |  |  |  |  |  |  |  |  |  |  |

 

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

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

 

31

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***ContractualCommitments***

 

The contractualobligations identified in the table below include balance sheet transactionsthat represent material expected or contractually committed future obligationsof RiverSource Life.  Payments due byperiod as of December 31, 2009 are as follows:

 
| ** **                                    | ** ** | **Total**         | ** ** | **2010** | ** ** | **2011-  2012** | ** ** | **2013-  2014** | ** ** | **2015 and  thereafter** | ** ** |
|-----------------------------------------------|------------|-------------------|------------|----------|------------|-----------------|------------|-----------------|------------|--------------------------|------------|
| ** **                                    | ** ** | **(in millions)** | ** ** |
| Insurance  and annuities (1)                  |       | $                 | 47,922     |     | $          | 3,025           |       | $               | 5,668      |                     | $          | 6,138 |   | $ | 33,091 |   |
| Deferred  premium options (2)                 |       | 1,201             |       | 189      |       | 341             |       | 261             |       | 410                      |       |
| Line  of credit with Ameriprise Financial (3) |       | 300               |       | 300      |       | —          |       | —          |       | —                   |       |
| Total                                         |       | $                 | 49,423     |     | $          | 3,514           |       | $               | 6,009      |                     | $          | 6,399 |   | $ | 33,501 |   |

 

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(1)    These scheduledpayments are represented by reserves of approximately $30.4 billion at December 31,2009 and are based on interest credited, mortality, morbidity, lapse, surrenderand premium payment assumptions.  Actualpayment obligations may differ if experience varies from theseassumptions.  Separate accountliabilities have been excluded as associated contractual obligations would bemet by separate account assets.

(2)    The fair valueof the deferred premium options recorded on the Consolidated Balance Sheets was$1.1 billion as of December 31, 2009. See Note 15 to the Consolidated Financial Statements for moreinformation about deferred premium options.

(3)    The line ofcredit agreement with Ameriprise Financial does not include a repaymentschedule. The outstanding balance at December 31, 2009 was repaid in fullwith payments in January and February 2010.

 

Dueto the uncertainty with respect to the timing of future cash flows associatedwith RiverSource Life’s unrecognized tax benefits at December 31, 2009,RiverSource Life is unable to make reasonably reliable estimates of the periodof cash settlement with the respective taxing authority. Therefore, $77 millionof unrecognized tax benefits and its associated interest have been excludedfrom the contractual obligations table above. See Note 14 for additionalinformation.

 

**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 margin betweenthe yield earned on investments and the interest rate credited to clients’accounts. RiverSource Life does not trade in securities to generate short-termprofits for its own account.

 

As part of RiverSourceLife’s investment process, management, with the assistance of its investmentadvisors, conducts a quarterly review of investment performance.  The review process involves the review ofcertain invested assets which the committee evaluates to determine whether or notany 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 investment assets.  Because certain of its investment activitiesare impacted by the value of its managed equity-based portfolios, from time totime RiverSource Life enters into risk management strategies that may includethe use of equity derivative instruments, such as equity options, to mitigateits exposure to volatility in the equity markets.

 

32

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** **

**Quantitative and QualitativeDisclosures About Market Risk**

** **

Interest rate, equityprice and credit risk are the market risks to which RiverSource Life hasmaterial exposure. Equity price and interest rate fluctuations can have asignificant impact on RiverSource Life’s results of operations, primarily dueto the asset-based fees and expenses, the “spread” income generated on itsannuities and universal life (“UL”) insurance products, the value of DAC andDSIC, assets associated with variable annuity and variable UL products, thevalues of liabilities for guaranteed benefits associated with its variableannuities and the values of derivatives held to hedge these benefits.

 

The guaranteed benefitsassociated with RiverSource Life’s variable annuities are GMWB, GMAB, GMDB andGMIB options. Each of these guaranteed benefits guarantees payouts to theannuity holder under certain specific conditions regardless of the performanceof the underlying investment assets.

 

RiverSource Lifecontinues to utilize a hedging program which attempts to match the sensitivityof the assets with the sensitivity of the liabilities.  This approach works with the premise thatmatched sensitivities will produce a highly effective hedging result.  This program can generally be described as a “Static3-Greek” hedging program.  This style ofhedging focuses mainly on first order sensitivities of the assets andliabilities; Equity Market Level (Delta), Interest Rate Level (Rho) andVolatility (Vega).  Additionally, varioussecond order sensitivities are managed. RiverSource Life uses various index options across the term structure,interest rate swaps and swaptions, total return swaps and futures to manage therisk exposures.  The exposures aremeasured and monitored daily and adjustments to the hedge portfolio are made asnecessary.

 

To evaluateinterest rate and equity price risk, RiverSource Life performs sensitivitytesting which measures the impact on pretax income from the sources listedbelow for a 12 month period following a hypothetical 100 basis pointincrease in interest rates or a hypothetical 10% decline in equity prices.The interest rate risk test assumes a sudden 100 basis point parallel shift inthe yield curve, with rates then staying at those levels for the next 12months. The equity price test assumes a sudden 10% drop in equity prices, withequity prices then staying at those levels for the next 12 months. In estimatingthe values of variable annuity riders, equity indexed annuities and theassociated hedge assets, RiverSource Life assumed no change in implied marketvolatility despite the 10% drop in equity prices.

 

The tables below presentRiverSource Life’s estimate of the pretax impacts of these hypothetical marketmoves, net of hedging as, of December 31, 2009.

 
| ** **                     | ** ** | **Equity Price Exposure to Pretax Income** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|
| **Equity Price Decline 10%**   | ** ** | **Before  Hedge Impact**                   | ** ** | **Hedge  Impact** | ** ** | **Net  Impact** | ** ** |
| ** **                     | ** ** | **(in millions)**                          | ** ** |
| Asset-based  fees and expenses |       | $                                          | (54        | ) | $ | — |   | $ | (54 | ) |
| DAC  and DSIC amortization(1)  |       | (136                                       | )          | — |   | (136 | ) |
| Variable  annuity riders:      |       |                                       |       |   |   |   |   |
| GMDB  and GMIB                 |       | (34                                        | )          | 3 |   | (31 | ) |
| GMWB                           |       | (62                                        | )          | 76 |   | 14 |   |
| GMAB                           |       | (20                                        | )          | 26 |   | 6 |   |
| DAC  and DSIC amortization(2)  |       | N/A                                        |       | N/A |   | (10 | ) |
| Total  variable annuity riders |       | (116                                       | )          | 105 |   | (21 | ) |
| Equity  indexed annuities      |       | 1                                          |       | (1 | ) | — |   |
| Total                          |       | $                                          | (305       | ) | $ | 104 |   | $ | (211 | ) |

 

33

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| ** **                                                                         | ** ** | **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                                                     |       | $                                           | (14        | ) | $ | — |   | $ | (14 | ) |
| Variable  annuity riders:                                                          |       |                                        |       |   |   |   |   |
| GMWB                                                                               |       | 166                                         |       | (230 | ) | (64 | ) |
| GMAB                                                                               |       | 33                                          |       | (46 | ) | (13 | ) |
| DAC  and DSIC amortization(2)                                                      |       | N/A                                         |       | N/A |   | 30 |   |
| Total  variable annuity riders                                                     |       | 199                                         |       | (276 | ) | (47 | ) |
| Fixed  annuities, fixed portion of variable annuities and fixed insurance products |       | (5                                          | )          | — |   | (5 | ) |
| Total                                                                              |       | $                                           | 180        |   | $ | (276 | ) | $ | (66 | ) |

 

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N/A    Not Applicable.

(1)     Market impact on DAC and DSICamortization resulting from lower projected profits.

(2)   Market impact on DAC and DSIC amortization related tovariable annuity riders is modeled net of hedge impact.

 

The above results compareto estimated negative impacts to pretax income of $258 million related to a 10%equity price decline and $45 million related to a 100 basis point increase ininterest rates as of December 31, 2008. The reduced equity impact in 2009 is a result of market dislocation in2008 and changes to RiverSource Life’s valuation models. The discount rates andcredit spreads RiverSource Life used in 2008 to value certain of itsinvestments were negatively impacted by the market, which led to greater pretaxloss projections related to RiverSource Life’s variable annuity riderspartially offset by a lower impact to fees and expenses primarily as a resultof lower asset values.

 

In evaluating equity price risk, theestimated impact on DAC and DSIC amortization resulting from lower projectedprofits as a result of the equity price decline is shown separately from theestimated impact on DAC and DSIC amortization resulting from changes in thevalues of GMWB and GMAB riders net of hedges. In estimating the impact on DACand DSIC amortization resulting from lower projected profits, RiverSource Lifehas not changed its assumed equity asset growth rates. This is a significantlymore conservative estimate than if RiverSource Life assumed management followsits mean reversion guideline and increased near-term rates to recover the dropin equity values over a five-year period. See Critical Accounting Policies foradditional discussion on RiverSource Life’s DAC and DSIC accounting policies.RiverSource Life makes this same conservative assumption in estimating theimpact from GMDB and GMIB riders.

 

Net impacts shown in the above tablefrom GMWB and GMAB riders result largely from differences between the liabilityvaluation basis and the hedging basis. Liabilities are valued using fair valueaccounting principles, with key policyholder behavior assumptions loaded toprovide risk margins and with discount rates increased to reflect a currentmarket estimate of RiverSource Life’s risk of nonperformance specific to theseliabilities. Management has elected to hedge based on best estimatepolicyholder assumptions and explicitly does not hedge nonperformance spreadrisk. Net impacts shown in the above table from GMDB and GMIB reflect the factthat these guaranteed benefits are primarily retained by RiverSource Life andnot hedged.  In the third quarter of2009, RiverSource Life entered into a limited number of derivative contracts toeconomically hedge equity exposure related to GMDB provisions on variableannuity contracts written previously in 2009.

 

Actual results could differmaterially from those illustrated above as they are based on a number of estimatesand assumptions. These include assuming that implied market volatility does notchange when equity values fall by 10%, that management does not increaseassumed equity asset growth rates to anticipate recovery of the drop in equityvalues when valuing DAC, DSIC and GMDB and GMIB liability values and that the100 basis point increase in interest rates is a parallel shift of the yieldcurve. Furthermore, RiverSource Life has not tried to anticipate changes inclient preferences for different types of assets or other changes in clientbehavior, nor has RiverSource Life tried to anticipate actions management mighttake to increase revenues or reduce expenses in these scenarios.

 

The selection of a 100 basis pointinterest rate increase as well as a 10% equity price decline should not beconstrued as a prediction of future market events. Impacts of larger or smallerchanges in interest rates or equity prices may not be proportional to thoseshown for a 100 basis point increase in interest rates or a 10% decline inequity prices.

 

***Asset-BasedFees and Expenses***

 

RiverSource Life earns asset-basedmanagement fees on its owned separate account assets partially offset bycertain expenses.  At December 31,2009, the value of these assets was $54.3 billion. This source of revenue issubject to both interest rate and

 

34

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equity price risk since the value ofthese assets and the fees they earn fluctuate inversely with interest rates anddirectly with equity prices. RiverSource Life does not currently hedge theinterest rate or the equity price risk of this exposure.

 

***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 total value of all variableannuity contracts has increased from $43.3 billion at December 31, 2008 to$55.1 billion at December 31, 2009. These contract values include GMWB andGMAB contracts which have increased from $12.7 billion and $2.0 billion,respectively, at December 31, 2008 to $19.2 billion and $2.9 billion at December 31,2009, respectively.  At December 31,2009, reserves for GMWB and GMAB were $204 million and $100 million,respectively, compared to reserves of $1.5 billion and $367 million at December 31,2008, respectively. The decrease in reserves for GMWB and GMAB reflect thechanges in economic factors impacting the mark-to-market value of the guarantees.  At December 31, 2009, the reserve forthe other variable annuity guaranteed benefits, GMDB and GMIB, was $12 millioncompared to $67 million at December 31, 2008.

 

*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 prices decline, the returns from the separateaccount assets coupled with guaranteed benefit fees from annuity holders maynot be sufficient to fund expected payouts. In that case, reserves must beincreased 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 provisions are longer dated put and call derivatives; these coreinstruments are supplemented with equity futures and total return swaps. In thethird quarter of 2009, RiverSource Life entered into a limited number ofderivative contracts to economically hedge equity exposure related to GMDBprovisions on variable annuity contracts written previously in 2009.  See Note 15 to the Consolidated FinancialStatements for further information on RiverSource Life’s derivativeinstruments.

 

*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 theunderlying host variable annuity contract. Changes in the fair value of theGMWB and GMAB liabilities are recorded through earnings with fair valuecalculated based on projected, discounted cash flows over the life of thecontract, including projected, discounted benefits and fees. Increases in interestrates reduce the fair value of the GMWB and GMAB liabilities. The GMWB andGMAB interest rate exposure is hedged with a portfolio of longer dated put andcall derivatives, interest rate swaps and swaptions. These derivatives arean alternative to the more customized equity puts that were previously used.RiverSource Life entered into interest rate swaps according to risk exposuresalong maturities, thus creating both fixed rate payor and variable rate payorterms. If interest rates were to increase, RiverSource Life would have to paymore to the swap counterparty and the fair value of its equity puts woulddecrease, resulting in a negative impact to RiverSource Life’s pretax income.

 

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

 

Interest rate exposures ariseprimarily with respect to the fixed account portion of RiverSource Life’sannuity and insurance products and its investment portfolio. RiverSource Lifeguarantees an interest rate to the holders of these products. Premiums anddeposits collected from clients are primarily invested in fixed rate securitiesto fund the client credited rate with the spread between the rate earned frominvestments and the rate credited to clients recorded as earned income. Clientliabilities and investment assets generally differ as it relates to basis,repricing or maturity characteristics. Rates credited to clients’ accountsgenerally reset at shorter intervals than the yield on the underlyinginvestments.

 

Therefore, in an increasing rateenvironment, higher interest rates are reflected in crediting rates to clientssooner than in rates earned on invested assets resulting in a reduced spreadbetween the two rates, reduced earned income and a negative impact on pretaxincome.  Of the $30.4 billion in futurepolicy benefits on RiverSource Life’s Consolidated Balance Sheets 

 

35

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at December 31, 2009, $30.1billion related to liabilities created by these products. RiverSource Life didnot hedge this exposure.

 

***EquityIndexed Annuities***

 

RiverSource Life’s equity indexedannuity product is a single premium annuity issued with an initial term ofseven years. The annuity guarantees the contractholder a minimum return of 3%on 90% of the initial premium or end of prior term accumulation value uponrenewal plus a return that is linked to the performance of the S&P 500Index.  The equity-linked return is basedon a participation rate initially set at between 50% and 90% of the S&P 500Index which is guaranteed for the initial seven-year term when the contract isheld to full term. At December 31, 2009, RiverSource Life had $168 millionin reserves related to equity indexed annuities.  In 2007, RiverSource Life discontinued newsales of equity indexed annuities.

 

*Equity Price Risk — EquityIndexed Annuities*

 

The equity-linked returnto investors creates equity price risk as the amount credited depends onchanges in equity prices. To hedge this exposure, a portion of the proceedsfrom the sale of equity indexed annuities is used to purchase futures, callsand puts which generate returns to replicate what RiverSource Life must creditto client accounts. In conjunction with purchasing puts, RiverSource Life alsowrites puts. Pairing purchased puts with written puts allows RiverSource Lifeto better match the characteristics of the liability.

 

*InterestRate Risk — Equity Indexed Annuities*

 

Most of theproceeds from 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 is exposed tocredit risk within its investment portfolio, including its loan portfolio, andthrough its derivative and reinsurance activities. Credit risk relates to theuncertainty of an obligor’s continued ability to make timely payments inaccordance with the contractual terms of the financial instrument or contract.RiverSource Life considers its total potential credit exposure to eachcounterparty and its affiliates to ensure compliance with pre-establishedcredit guidelines at the time it enters into a transaction which wouldpotentially increase RiverSource Life’s credit risk. These guidelines andoversight of credit risk are managed through a comprehensive enterprise riskmanagement program that includes members of senior management.

 

RiverSource Life manages the risk ofcredit-related losses in the event of nonperformance by counterparties byapplying disciplined fundamental credit analysis and underwriting standards,prudently limiting exposures to lower-quality, higher-yielding investments, anddiversifying exposures by issuer, industry, region and underlying investmenttype. RiverSource Life remains exposed to occasional adverse cyclical economicdownturns during which default rates may be significantly higher than thelong-term historical average used in pricing.

 

RiverSource Life manages its creditrisk related to over-the-counter derivatives by entering into transactions withcreditworthy counterparties, maintaining collateral arrangements and throughthe use of master netting arrangements that provide for a single net payment tobe made by one counterparty to another at each due date and upon termination.Generally, RiverSource Life’s current credit exposure on over-the-counterderivative contracts is limited to a derivative counterparty’s net positivefair value of derivative contracts after taking into consideration theexistence of netting arrangements and any collateral received. This exposure ismonitored and managed to an acceptable threshold level.

 

Because exchange-traded futures areeffected through regulated exchanges and positions are marked to market andgenerally cash settled on a daily basis, RiverSource Life has minimal exposureto credit-related losses in the event of nonperformance by counterparties tosuch derivative instruments.

 

RiverSource Life manages its creditrisk related to reinsurance treaties by evaluating the financial condition ofreinsurance counterparties prior to entering into new reinsurance treaties. Inaddition, RiverSource Life regularly evaluates their financial strength duringthe terms of the treaties. As of December 31, 2009, RiverSource Life’s largest reinsurance credit risk isrelated to a long term care coinsurance treaty with life insurance subsidiariesof Genworth Financial, Inc.  SeeNote 7 to the Consolidated Financial Statements for additional information onreinsurance.

 

36

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**Forward-LookingStatements**

 

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

 

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

·                  statements ofassumptions underlying such statements.

 

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

 

Such factors include, butare not limited to:

 

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

·                  changes in the litigation and regulatoryenvironment, including ongoing legal proceedings and regulatory actions, thefrequency and extent of legal claims threatened or initiated by clients, otherpersons and regulators, and developments in regulation and legislation;

·                  RiverSource Life’s investment management performanceand consumer acceptance of RiverSource Life’s products;

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

·                  changes to RiverSource Life’s reputationthat may arise from employee or affiliated advisor misconduct, legal orregulatory actions, improper management of conflicts of interest or otherwise;

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

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

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

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

·                  RiverSource Life’s ability to effectively hedge risksrelating to guaranteed benefit riders and certain other products;

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

·                  Ameriprise Financial’s ability to attract, recruit andretain qualified advisors and employees and its ability to distributeRiverSource Life’s products through current and future distribution channels;

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

·                  the impact of Ameriprise Financial’sefforts to improve distribution economics and of RiverSource Life’s efforts togrow third party distribution and to realize benefits from reengineering andtax planning;

·                  changes in U.S. federal income or estate tax laws potentiallymaking RiverSource Life’s products less attractive to clients;

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

·                  changes in the capital markets and competitiveenvironments induced or resulting from the partial or total ownership or othersupport by central governments of certain financial services firms forfinancial assets; and

 

37

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·                  general economic and political factors, includingconsumer confidence in the economy, the ability and inclination of consumersgenerally to invest, as well as their ability and inclination to invest infinancial instruments and products other than cash and cash equivalents, thecosts of products and services RiverSource Life consumes in the conduct of itsbusiness, and applicable legislation and regulation and changes therein,including tax laws, tax treaties, fiscal and central government treasurypolicy, and policies regarding the financial services industry and regulatory rulingsand pronouncements.

 

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

 

A further description ofthese and other risks and uncertainties can be found under “Item 1A - RiskFactors” 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** |
|-------------|--------------------------------------------------|

 

**ConsolidatedFinancial Statements:**

 
| Report of Independent  Registered Public Accounting Firm                                                        | 39     |
|-----------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                            |   |
| Consolidated Balance Sheets —  December 31, 2009 and 2008                                             | 40     |
|                                                                                                            |   |
| Consolidated  Statements of Income — Years ended December 31, 2009, 2008 and 2007                     | 41     |
|                                                                                                            |   |
| Consolidated  Statements of Cash Flows — Years ended December 31, 2009, 2008 and 2007                 | 42     |
|                                                                                                            |   |
| Consolidated  Statements of Shareholder’s Equity — Years ended December 31, 2009, 2008  and 2007 | 43     |
|                                                                                                            |   |
| Notes to  Consolidated Financial Statements                                                                     | 44     |

 

**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 been omitted.

 

38

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Report of IndependentRegistered Public Accounting Firm

 

The Board of Directors RiverSource 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, 2009 and 2008, and the related consolidated statements ofincome, shareholder’s equity, and cash flows for each of the three years in theperiod ended December 31, 2009. 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 and significantestimates made by management, and evaluating the overall financial statementpresentation.  We believe that our auditsprovide 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, 2009 and 2008, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31,2009, in conformity with U.S. generally accepted accounting principles.

 

As discussed in Note 3 to theconsolidated financial statements, in 2009the Company adopted new accounting guidance related to the recognition andpresentation of other-than-temporary impairments.  Also, in 2008, the Company adopted newaccounting guidance related to the measurement of fair value and in 2007, theCompany adopted new guidance related to the accounting for uncertainty inincome taxes as well as new guidance related to accounting for deferredacquisition costs in connection with modifications or exchanges of insuranceand annuity contracts.

 

/s/ Ernst & Young LLP

 

Minneapolis, Minnesota

February 23, 2010

 

39

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATED BALANCE SHEETS**

(in millions,except share amounts)

 
| ** **                                                                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2009**              | ** ** | **2008** | ** ** |
| **Assets**                                                                                  |       |                  |       |   |   |
| Investments:                                                                                |       |                  |       |   |   |
| Available-for-Sale:                                                                         |       |                  |       |   |   |
| Fixed  maturities, at fair value (amortized cost: 2009, $25,142; 2008, $19,452)             |       | $                     | 25,999     |   | $ | 18,070 |   |
| Common  and preferred stocks, at fair value (cost: 2009 and 2008, $30)                      |       | 23                    |       | 16 |   |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2009, $30; 2008,  $17) |       | 2,532                 |       | 2,737 |   |
| Policy  loans                                                                               |       | 715                   |       | 722 |   |
| Trading  securities and other investments                                                   |       | 310                   |       | 452 |   |
| Total  investments                                                                          |       | 29,579                |       | 21,997 |   |
|                                                                                        |       |                  |       |   |   |
| Cash  and cash equivalents                                                                  |       | 811                   |       | 3,307 |   |
| Restricted  cash                                                                            |       | 184                   |       | — |   |
| Reinsurance  recoverables                                                                   |       | 1,688                 |       | 1,592 |   |
| Deferred  income taxes, net                                                                 |       | 63                    |       | 599 |   |
| Other  receivables                                                                          |       | 332                   |       | 102 |   |
| Accrued  investment income                                                                  |       | 303                   |       | 239 |   |
| Deferred  acquisition costs                                                                 |       | 4,285                 |       | 4,324 |   |
| Deferred  sales inducement costs                                                            |       | 524                   |       | 518 |   |
| Other  assets                                                                               |       | 936                   |       | 2,658 |   |
| Separate  account assets                                                                    |       | 54,267                |       | 41,787 |   |
|                                                                                        |       |                  |       |   |   |
| Total  assets                                                                               |       | $                     | 92,972     |   | $ | 77,123 |   |
|                                                                                        |       |                  |       |   |   |
| **Liabilities and Shareholder’s Equity**                                               |       |                  |       |   |   |
| **Liabilities:**                                                                            |       |                  |       |   |   |
| Future  policy benefits                                                                     |       | $                     | 30,383     |   | $ | 28,753 |   |
| Policy  claims and other policyholders’ funds                                          |       | 123                   |       | 172 |   |
| Line  of credit with Ameriprise Financial, Inc.                                        |       | 300                   |       | — |   |
| Other  liabilities                                                                          |       | 1,955                 |       | 2,672 |   |
| Separate  account liabilities                                                               |       | 54,267                |       | 41,787 |   |
| Total  liabilities                                                                          |       | 87,028                |       | 73,384 |   |
|                                                                                        |       |                  |       |   |   |
| **Shareholder’s equity:**                                                              |       |                  |       |   |   |
| Common  stock, $30 par value; 100,000 shares authorized, issued and outstanding             |       | 3                     |       | 3 |   |
| Additional  paid-in capital                                                                 |       | 2,445                 |       | 2,116 |   |
| Retained  earnings                                                                          |       | 3,114                 |       | 2,336 |   |
| Accumulated  other comprehensive income (loss), net of tax                                  |       | 382                   |       | (716 | ) |
| Total  shareholder’s equity                                                            |       | 5,944                 |       | 3,739 |   |
|                                                                                        |       |                  |       |   |   |
| Total  liabilities and shareholder’s equity                                            |       | $                     | 92,972     |   | $ | 77,123 |   |

 

*SeeNotes to Consolidated Financial Statements.*

 

40

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF INCOME**

(in millions)

 
| ** **                                                                  | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                  | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Revenues**                                                                |       |                              |       |   |   |   |   |
| Premiums                                                                    |       | $                                 | 450        |   | $ | 438 |   | $ | 439 |   |
| Net  investment income                                                      |       | 1,526                             |       | 1,252 |   | 1,424 |   |
| Policy  and contract charges                                                |       | 1,156                             |       | 1,352 |   | 1,217 |   |
| Other  revenues                                                             |       | 233                               |       | 255 |   | 255 |   |
| Net  realized investment gains (losses)                                     |       | 59                                |       | (442 | ) | 61 |   |
|                                                                        |       |                              |       |   |   |   |   |
| Total  revenues                                                             |       | 3,424                             |       | 2,855 |   | 3,396 |   |
|                                                                        |       |                              |       |   |   |   |   |
| **Benefits and expenses**                                                   |       |                              |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses                           |       | 841                               |       | 673 |   | 760 |   |
| Interest  credited to fixed accounts                                        |       | 903                               |       | 790 |   | 847 |   |
| Amortization  of deferred acquisition costs                                 |       | 145                               |       | 861 |   | 470 |   |
| Separation  costs                                                           |       | —                            |       | — |   | 97 |   |
| Other  insurance and operating expenses                                     |       | 550                               |       | 649 |   | 735 |   |
|                                                                        |       |                              |       |   |   |   |   |
| Total  benefits and expenses                                                |       | 2,439                             |       | 2,973 |   | 2,909 |   |
|                                                                        |       |                              |       |   |   |   |   |
| Pretax  income (loss)                                                       |       | 985                               |       | (118 | ) | 487 |   |
| Income  tax provision (benefit)                                             |       | 245                               |       | (189 | ) | 53 |   |
|                                                                        |       |                              |       |   |   |   |   |
| Net  income                                                                 |       | $                                 | 740        |   | $ | 71 |   | $ | 434 |   |
|                                                                        |       |                              |       |   |   |   |   |   |   |   |
| Supplemental  Disclosures:                                                  |       |                              |       |   |   |   |   |
| Net  realized investment gains (losses):                                    |       |                              |       |   |   |   |   |
| Net  realized investment gains before impairment losses on securities       |       | $                                 | 121        |   |   |   |   |   |
| Total  other-than-temporary impairment losses on securities                 |       | (53                               | )          |   |   |   |   |
| Portion  of loss recognized in other comprehensive income                   |       | (9                                | )          |   |   |   |   |
| Net  impairment losses recognized in net realized investment gains (losses) |       | (62                               | )          |   |   |   |   |
| Net  realized investment gains (losses)                                     |       | $                                 | 59         |   |   |   |   |   |

 

*See Notes to ConsolidatedFinancial Statements.*

 

41

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in millions)

 
| ** **                                                                                                           | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                           | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash Flows from Operating  Activities**                                                                            |       |                              |       |   |   |   |   |
| Net income                                                                                                           |       | $                                 | 740        |   | $ | 71 |   | $ | 434 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities:                         |       |                              |       |   |   |   |   |
| Capitalization of deferred acquisition and deferred  sales inducement costs                                          |       | (640                              | )          | (674 | ) | (823 | ) |
| Amortization of deferred acquisition and deferred  sales inducement costs                                            |       | 155                               |       | 982 |   | 523 |   |
| Depreciation, amortization and accretion, net                                                                        |       | (68                               | )          | 61 |   | 71 |   |
| Deferred income tax (benefit) expense                                                                                |       | (81                               | )          | (234 | ) | 83 |   |
| Contractholder and policyholder charges, non-cash                                                                    |       | (259                              | )          | (248 | ) | (206 | ) |
| Net realized investment gains                                                                                        |       | (135                              | )          | (7 | ) | (44 | ) |
| Other-than-temporary impairments and provision for  loan losses recognized in net realized investment (gains) losses |       | 76                                |       | 449 |   | (17 | ) |
| Change in operating assets and liabilities:                                                                          |       |                              |       |   |   |   |   |
| Trading securities and equity method investments,  net                                                               |       | 136                               |       | (110 | ) | 166 |   |
| Future policy benefits for traditional life,  disability income and long term care insurance                         |       | 282                               |       | 308 |   | 275 |   |
| Policy claims and other policyholders’ funds                                                                    |       | (49                               | )          | 81 |   | 2 |   |
| Reinsurance recoverables                                                                                             |       | (96                               | )          | (302 | ) | (153 | ) |
| Other receivables                                                                                                    |       | (5                                | )          | 20 |   | (28 | ) |
| Accrued investment income                                                                                            |       | (64                               | )          | 14 |   | 49 |   |
| Derivatives collateral, net                                                                                          |       | (1,928                            | )          | 1,591 |   | 242 |   |
| Other assets and liabilities, net                                                                                    |       | 670                               |       | 23 |   | (226 | ) |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Net cash provided by (used in) operating activities                                                                  |       | (1,266                            | )          | 2,025 |   | 348 |   |
|                                                                                                                 |       |                              |       |   |   |   |   |
| **Cash Flows from Investing  Activities**                                                                            |       |                              |       |   |   |   |   |
| Available-for-Sale securities:                                                                                       |       |                              |       |   |   |   |   |
| Proceeds from sales                                                                                                  |       | 5,215                             |       | 246 |   | 3,020 |   |
| Maturities, sinking fund payments and calls                                                                          |       | 3,486                             |       | 2,510 |   | 1,908 |   |
| Purchases                                                                                                            |       | (13,696                           | )          | (1,684 | ) | (677 | ) |
| Proceeds from sales and maturities of commercial  mortgage loans                                                     |       | 279                               |       | 263 |   | 424 |   |
| Funding of commercial mortgage loans                                                                                 |       | (104                              | )          | (110 | ) | (504 | ) |
| Proceeds from sales of other investments                                                                             |       | 43                                |       | 19 |   | 49 |   |
| Purchases of other investments                                                                                       |       | (11                               | )          | (140 | ) | — |   |
| Change in policy loans, net                                                                                          |       | 7                                 |       | (25 | ) | (47 | ) |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Net cash provided by (used in) investing activities                                                                  |       | (4,781                            | )          | 1,079 |   | 4,173 |   |
|                                                                                                                 |       |                              |       |   |   |   |   |
| **Cash Flows from Financing  Activities**                                                                            |       |                              |       |   |   |   |   |
| Policyholder and contractholder account values:                                                                      |       |                              |       |   |   |   |   |
| Considerations received                                                                                              |       | 4,863                             |       | 2,913 |   | 1,093 |   |
| Net transfers from (to) separate accounts                                                                            |       | 195                               |       | 91 |   | (50 | ) |
| Surrenders and other benefits                                                                                        |       | (1,923                            | )          | (2,931 | ) | (3,838 | ) |
| Proceeds from line of credit with Ameriprise  Financial, Inc.                                                   |       | 500                               |       | — |   | — |   |
| Deferred premium options, net                                                                                        |       | (82                               | )          | (77 | ) | (8 | ) |
| Tax adjustment on share-based incentive  compensation plan                                                           |       | (2                                | )          | 2 |   | 2 |   |
| Cash dividend to Ameriprise Financial, Inc.                                                                     |       | —                            |       | (775 | ) | (900 | ) |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Net cash provided by (used in) financing activities                                                                  |       | 3,551                             |       | (777 | ) | (3,701 | ) |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Net increase (decrease) in cash and cash  equivalents                                                                |       | (2,496                            | )          | 2,327 |   | 820 |   |
| Cash and cash equivalents at beginning of year                                                                       |       | 3,307                             |       | 980 |   | 160 |   |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Cash and cash equivalents at end of year                                                                             |       | $                                 | 811        |   | $ | 3,307 |   | $ | 980 |   |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Supplemental Disclosures:                                                                                            |       |                              |       |   |   |   |   |
| Income taxes paid (received), net                                                                                    |       | $                                 | 72         |   | $ | 168 |   | $ | (4 | ) |
| Interest paid on borrowings                                                                                          |       | 1                                 |       | — |   | — |   |
|                                                                                                                 |       |                              |       |   |   |   |   |
| Non-cash transactions:                                                                                               |       |                              |       |   |   |   |   |
| Capital contributions from Ameriprise  Financial, Inc.                                                          |       | $                                 | 331        |   | $ | 322 |   | $ | 8 |   |

 

*SeeNotes to Consolidated Financial Statements.*

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY**

**THREEYEARS ENDED DECEMBER 31, 2009**

(in millions)

 
| ** **                                                                                                                     | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                                     | ** ** | ** **        | ** ** | ** **                       | ** ** | ** **             | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Balances at January 1, 2007**                                                                                           |       | $                 | 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, 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 on 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 on 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 |   |
| ** **                                                                                                                     |       |              |       |                             |       |                   |       |                                                 |       |       |       |
| Change in accounting principles, net of tax                                                                                    |       | —            |       | —                           |       | 38                     |       | (38                                                  | )          | —     |       |
| Comprehensive  income:                                                                                                         |       |              |       |                             |       |                   |       |                                                 |       |       |       |
| Net  income                                                                                                                    |       | —            |       | —                           |       | 740                    |       | —                                               |       | 740        |       |
| Other  comprehensive income, net of tax:                                                                                       |       |              |       |                             |       |                   |       |                                                 |       |       |       |
| Change  in net unrealized securities losses                                                                                    |       | —            |       | —                           |       | —                 |       | 1,109                                                |       | 1,109      |       |
| Change  in noncredit related impairments on securities and net unrealized securities  losses on previously impaired securities |       | —            |       | —                           |       | —                 |       | 23                                                   |       | 23         |       |
| Change  in net unrealized derivative losses                                                                                    |       | —            |       | —                           |       | —                 |       | 4                                                    |       | 4          |       |
| Total comprehensive income                                                                                                     |       |              |       |                             |       |                   |       |                                                 |       | 1,876      |       |
| Tax adjustment on share-based incentive compensation  plan                                                                     |       | —            |       | (2                               | )          | —                 |       | —                                               |       | (2         | )          |
| Non-cash capital contribution from Ameriprise  Financial, Inc.                                                            |       | —            |       | 331                              |       | —                 |       | —                                               |       | 331        |       |
| **Balances at****December 31, 2009**                                                                                      |       | $                 | 3          |                             | $          | 2,445                  |       | $                                                    | 3,114      |       | $          | 382 |   | $ | 5,944 |   |

 

*SeeNotes to Consolidated Financial Statements.*

 

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**RIVERSOURCELIFE INSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****             ****Nature of Business and Basis ofPresentation**

 

*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 Life Insurance Company is domiciled inMinnesota and holds Certificates of Authority in American Samoa, the Districtof Columbia and all states except New York. RiverSource Life Insurance Company issues insurance and annuityproducts.

·                  RiverSource Life of NY is a stock life insurancecompany domiciled in New York, which holds Certificates of Authority in NewYork, North Dakota and Delaware. RiverSource Life of NY issues insurance and annuity products.

 

On December 31, 2008, Ameriprise Financialcontributed all of the issued and outstanding shares of RiverSource TaxAdvantaged Investments, Inc. (“RTA”) to RiverSource Life InsuranceCompany.  RTA is domiciled in Delawareand is a limited partner in affordable housing partnership investments.

 

RiverSource Life Insurance Company and itssubsidiaries 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 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.

 

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 an equity indexedannuity 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 topolicyholders from 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.

 

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*Basis ofPresentation*

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned subsidiaries, RiverSource Life of NY andRTA.

 

RiverSource Life evaluatedevents or transactions that may have occurred after the balance sheet date forpotential recognition or disclosure through February 23, 2010, the datethe financial statements were issued.

 

**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 first quarter of 2009, RiverSource Life reclassified reinsurance allowancesfor coinsurance contracts for traditional life and long term care insurancefrom premiums to other insurance and operating expenses to net with theassociated expenses.

 

The following table showsthe impact of the reclassification of the reinsurance allowances made toRiverSource Life’s previously reported Consolidated Statements of Income.

 
|                                              |       |                                  |       |                                  |       |                     |       |             |       |   |   |   |   |
|---------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|------------------|------------|--------|--------|--------|--------|
| ** **                                        | ** ** | **Year Ended December 31, 2008** | ** ** | **Year Ended December 31, 2007** | ** ** |
| ** **                                        | ** ** | **Previously  Reported**              | ** ** | **Reclassified**                      | ** ** | **Previously  Reported** | ** ** | **Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                     | ** ** | **(in millions)**                     | ** ** |
| **Revenues**                                      |       |                                  |       |                                  |       |                     |       |             |       |
| Premiums                                          |       | $                                     | 481        |                                  | $          | 438                      |       | $                | 485        |   | $      | 439    |   |
| Net  investment income                            |       | 1,252                                 |       | 1,252                                 |       | 1,424                    |       | 1,424            |       |
| Policy  and contract charges                      |       | 1,352                                 |       | 1,352                                 |       | 1,217                    |       | 1,217            |       |
| Other  revenue                                    |       | 255                                   |       | 255                                   |       | 255                      |       | 255              |       |
| Net  realized investment gain                     |       | (442                                  | )          | (442                                  | )          | 61                       |       | 61               |       |
| Total  revenues                                   |       | 2,898                                 |       | 2,855                                 |       | 3,442                    |       | 3,396            |       |
| **Benefits and expenses**                         |       |                                  |       |                                  |       |                     |       |             |       |
| Benefits,  claims, losses and settlement expenses |       | 673                                   |       | 673                                   |       | 760                      |       | 760              |       |
| Interest  credited to fixed accounts              |       | 790                                   |       | 790                                   |       | 847                      |       | 847              |       |
| Amortization  of deferred acquisition costs       |       | 861                                   |       | 861                                   |       | 470                      |       | 470              |       |
| Separation  costs                                 |       | —                                |       | —                                |       | 97                       |       | 97               |       |
| Other  insurance and operating expenses           |       | 692                                   |       | 649                                   |       | 781                      |       | 735              |       |
| Total  benefits and expenses                      |       | 3,016                                 |       | 2,973                                 |       | 2,955                    |       | 2,909            |       |
| Pretax  income                                    |       | (118                                  | )          | (118                                  | )          | 487                      |       | 487              |       |
| Income  tax provision                             |       | (189                                  | )          | (189                                  | )          | 53                       |       | 53               |       |
| **Net income**                                    |       | $                                     | 71         |                                  | $          | 71                       |       | $                | 434        |   | $      | 434    |   |

 

**2.****             ****Summary of Significant AccountingPolicies**

 

**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 which RiverSource Life holds an interest that is less than 50%are accounted for under the equity method. All other investments that are not reported at fair value asAvailable-for-Sale or trading securities are accounted for under the costmethod where RiverSource Life owns less than a 20% voting interest and does notexercise significant influence.

 

Generally, a VIE is acorporation, partnership, trust or any other legal structure that either doesnot have equity investors with substantive voting rights or has equityinvestors that do not provide sufficient financial resources for the entity tosupport its activities.  To determinewhether RiverSource Life must consolidate a VIE, it analyzes the 

 

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design of the VIE toidentify the variable interests it holds. Then RiverSource Life quantitatively determines whether its variableinterests will absorb a majority of the VIE’s variability.  If RiverSource Life determines it will absorba majority of the VIE’s expected variability, RiverSource Life consolidates theVIE and is referred to as the primary beneficiary.  The calculation of variability is based on ananalysis of projected probability-weighted cash flows based on the design ofthe particular VIE.

 

All material intercompanytransactions and balances between and among RiverSource Life and its subsidiarieshave been eliminated in consolidation.

 

**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 in theConsolidated Statements of Income upon disposition of the securities.

 

Effective January 1,2009, RiverSource Life early adopted an accounting standard that significantlychanged RiverSource Life’s accounting policy regarding the timing and amount ofother-than-temporary impairments for Available-for-Sale securities. When thefair value of an investment is less than its amortized cost, RiverSource Lifeassesses whether or not: (i) it has the intent to sell the security (madea decision to sell) or (ii) it is more likely than not RiverSource Lifewill be required to sell the security before its anticipated recovery. Ifeither of these conditions is met, an other-than-temporary impairment isconsidered to have occurred and RiverSource Life must recognize another-than-temporary impairment for the difference between the investment’samortized cost basis and its fair value through earnings. For securities thatdo not meet the above criteria and RiverSource Life does not expect to recovera security’s amortized cost basis, the security is also consideredother-than-temporarily impaired. For these securities, RiverSource Lifeseparates the total impairment into the credit loss component and the amount ofthe loss related to other factors. The amount of the total other-than-temporaryimpairments related to credit loss is recognized in earnings. The amount of thetotal other-than-temporary impairments related to other factors is recognizedin other comprehensive income (loss), net of impacts to DAC, deferred salesinducement costs (“DSIC”), certain benefit reserves and income taxes. ForAvailable-for-Sale securities that have recognized an other-than-temporaryimpairment through earnings, if through subsequent evaluation there is asignificant increase in the cash flow expected, the difference between theamortized cost basis and the cash flows expected to be collected is accreted asinterest income. Subsequent increases and decreases in the fair value ofAvailable-for-Sale securities are included in other comprehensive income(loss).  RiverSource Life’s ConsolidatedStatements of Shareholder’s Equity present all changes in other comprehensiveincome (loss) associated with Available-for-Sale debt securities that have beenother-than-temporarily impaired on a separate line from fair value changes recordedin other comprehensive income (loss) from all other securities.

 

RiverSource Life providesa supplemental disclosure on the face of its Consolidated Statements of Incomethat presents: (i) total other-than-temporary impairment losses recognizedduring the period and (ii) the portion of other-than-temporary impairmentlosses recognized in other comprehensive income (loss). The sum of theseamounts represents the credit-related portion of other-than-temporaryimpairments that were recognized in earnings during the period. The portion ofother-than-temporary losses recognized in other comprehensive income (loss)includes: (i) the portion of other-than-temporary impairment lossesrelated to factors other than credit recognized during the period and (ii) reclassificationsof other-than-temporary impairment losses previously determined to be relatedto factors other than

 

46

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credit that aredetermined to be credit-related in the current period. The amount presented onthe Consolidated Statements of Income as the portion of other-than-temporarylosses recognized in other comprehensive income (loss) excludes subsequentincreases and decreases in the fair value of these securities.

 

For all securities thatare considered temporarily impaired, RiverSource Life does not intend to sellthese securities (has not made a decision to sell) and it is not more likelythan not that RiverSource Life will be required to sell the security beforerecovery of its amortized cost basis. RiverSource Life believes that it willcollect all principal and interest due on all investments that have amortizedcost in excess of fair value that are considered only temporarily impaired.

 

Factors RiverSource Lifeconsiders in determining whether declines in the fair value of fixed-maturitysecurities are other-than-temporary include: (i) the extent to which themarket value is below amortized cost; (ii) the duration of time in whichthere has been a significant decline in value; (iii) fundamental analysisof the liquidity, business prospects and overall financial condition of theissuer; and (iv) market events that could impact credit ratings, economicand business climate, litigation and government actions, and similar externalbusiness factors. In order to determine the amount of the credit loss componentfor corporate debt securities considered other-than-temporarily impaired, abest estimate of the present value of cash flows expected to be collecteddiscounted at the security’s effective interest rate is compared to theamortized cost basis of the security. The significant inputs to cash flow projections consider potential debtrestructuring terms, projected cash flows available to pay creditors and RiverSourceLife’s position in the debtor’s overall capital structure.

 

For structuredinvestments (e.g., residential mortgage backed securities, commercial mortgagebacked securities, asset backed securities and other structured investments),RiverSource Life also considers factors such as overall deal structure and itsposition within the structure, quality of underlying collateral, delinquenciesand defaults, loss severities, recoveries, prepayments and cumulative lossprojections in assessing potential other-than-temporary impairments of these investments.Based upon these factors, securities that have indicators of potentialother-than-temporary impairment are subject to detailed review by management.Securities for which declines are considered temporary continue to be carefullymonitored by management. For the year ended December 31, 2009, certainnon-agency residential mortgage backed securities were deemedother-than-temporarily impaired. Generally, the credit loss component for thenon-agency residential mortgage backed securities is determined as the amountthe amortized cost basis exceeds the present value of the projected cash flowsexpected to be collected. Significant inputs considered in these projectionsare consistent with the factors considered in assessing potential other-than-temporaryimpairment for these investments. Current contractual interest rates considered in these cash flowprojections are used to calculate the discount rate used to determine thepresent value of the expected cash flows.

 

*CommercialMortgage Loans, Net*

Commercialmortgage loans, net, reflect principal amounts outstanding less the allowancefor loan losses.  The allowance for loanlosses is primarily based on RiverSource Life’s past loan loss experience,known and inherent risks in the portfolio, composition of the loan portfolio,current economic conditions, and other relevant factors.  Loans in this portfolio are generally smallerbalance and homogeneous in nature and accordingly RiverSource Life followsaccounting guidance on contingencies when establishing necessary reserves forlosses inherent in the portfolio.  Forlarger balance or restructured loans that are collateral dependent, theallowance is based on the fair value of collateral.  Management regularly evaluates the adequacyof the allowance for loan losses and believes it is adequate to absorbestimated 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 collectability 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.

 

*Trading Securities and Other Investments*

Included in tradingsecurities and other investments are separate account and mutual fund seedmoney, equity method investments, trading bonds, interests in affordablehousing partnerships and below investment grade syndicated bank loans. Separateaccount and mutual fund seed money is carried at fair value with changes invalue

 

47

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recognized within net investment income.  Affordable housing partnerships are accountedfor under the equity method. Below investment grade syndicated bank loansreflect amortized cost less allowance for losses.

 

**Cash andCash Equivalents**

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

 

**RestrictedCash**

Total restricted cash at December 31,2009 and 2008 was $184 million and nil, respectively, consisting of cash thatis pledged to counterparties.

 

**Reinsurance**

RiverSource Life cedessignificant amounts of insurance risk to other insurers under reinsuranceagreements. Reinsurance premiums 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 of thechange 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.

 

**Land,Buildings, Equipment and Software**

Land, buildings,equipment and internally developed or purchased software are carried at costless accumulated depreciation or amortization and are reflected within otherassets. RiverSource Life generally uses the straight-line method ofdepreciation and amortization over periods ranging from three to 30 years. During 2009, RiverSource Life received anon-cash capital contribution of $131 million comprised of two buildings andthe related land from Ameriprise Financial.

 

At December 31, 2009and 2008, land, buildings, equipment and software were $190 millionand $43 million, respectively, net of accumulated depreciation of$52 million and $9 million, respectively. Depreciation andamortization expense for the years ended December 31, 2009, 2008and 2007 was $8 million, $5 million and $1 million,respectively.

 

**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 andthe resulting hedge designation, if any. RiverSource Life primarily uses derivatives as economic hedges that arenot designated as accounting hedges or do not qualify for hedge accountingtreatment.  RiverSource Life occasionallydesignates derivatives as (i) hedges of changes in the fair value ofassets, liabilities, or firm commitments (“fair value hedges”) or (ii) hedgesof a forecasted transaction or of the variability of cash flows to be receivedor paid related to a recognized asset or liability (“cash flow hedges”).

 

RiverSource Life’s policyis to not offset fair value amounts recognized for derivatives and collateralarrangements executed with the same counterparty under the same master nettingarrangement.

 

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 arepresented in the Consolidated Statements of Income based on the nature and useof the instrument.  Changes in derivativesused as economic hedges are presented in the Consolidated Statements of Incomewith the corresponding change in the hedged asset or liability.

 

48

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For derivativeinstruments that qualify as fair value hedges, changes in the fair value of thederivatives, as well as of the hedged risk within the corresponding hedgedassets, liabilities or firm commitments, are recognized in current earnings. Ifa fair value hedge designation is removed or the hedge is terminated prior tomaturity, previous adjustments to the carrying value of the hedged item arerecognized into earnings over the remaining 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 other comprehensiveincome (loss) and reclassified into earnings when the hedged item ortransaction impacts earnings.  The amountthat is reclassified into earnings is presented in the Consolidated Statementsof 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) is recognized into earnings over the periodthat 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.

 

See Note 15 forinformation regarding the impact of derivatives on the Consolidated Statementsof Income.

 

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 willdiscontinue the application of hedge accounting.

 

The equity component ofequity indexed annuity obligations is considered an embedded derivative.  Additionally, certain annuities containguaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimumwithdrawal benefit (“GMWB”) provisions. The GMAB and the non-life contingent benefits associated with GMWBprovisions are also considered embedded derivatives.  The fair value of embedded derivatives associatedwith annuities is included in future policy benefits.  The change in the 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 represents the costof 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 associated with insurance or annuity contracts that aresignificantly modified or internally replaced with another contract areaccounted for as contract terminations. These transactions are anticipated in establishing amortization periodsand other valuation assumptions.

 

Direct sales commissionsand other costs deferred as DAC is amortized over time.  For annuity and universal life (“UL”)contracts, DAC is amortized based on projections of estimated gross profitsover amortization periods equal to the approximate life of the business.  For other insurance products, DAC isgenerally amortized as a percentage of premiums over amortization periods equalto the premium-paying period.

 

For annuity and ULinsurance 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.

 

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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 is not recoverable.  Ifmanagement concludes that DAC is not recoverable, DAC is reduced to the amountthat is recoverable based on best estimate assumptions and there is acorresponding expense recorded in RiverSource Life’s Consolidated Statements ofIncome.

 

For annuity, life, DI andLTC insurance products, key assumptions underlying these 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 its annuity andinsurance businesses during the DAC amortization period.

 

The client asset valuegrowth rates are the rates at which variable annuity and variable universallife (“VUL”) insurance contract values invested in separate accounts areassumed to appreciate in the future.  Therates used vary by equity and fixed income investments.  Management reviews and, where appropriate,adjusts its assumptions with respect to client asset value growth rates on aregular basis.  RiverSource Lifetypically uses a five-year 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 2009,management continued to follow the mean reversion process, decreasing near-termequity asset growth rates to reflect the positive market.  DAC amortization expense recorded in a periodwhen client asset value growth rates exceed management’s near-term estimatewill typically be less than in a period when growth rates fall short ofmanagement’s near-term estimate.

 

RiverSource Life monitorsother principal DAC amortization assumptions, such as persistency, mortality,morbidity, interest margin and maintenance expense levels each quarter and,when assessed independently, each could impact RiverSource Life’s DAC balances.

 

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**

DSIC consist of bonusinterest credits and premium credits added to certain annuity contract andinsurance policy values.  These benefitsare capitalized to the extent they are incremental to amounts that would becredited on similar contracts without the applicable feature.  The amounts capitalized are amortized usingthe same methodology and assumptions used to amortize DAC.  The amortization of DSIC is recorded inbenefits, claims, losses and settlement expenses.

 

**SeparateAccount Assets and Liabilities**

Separate account assetsand liabilities are primarily funds held for the exclusive benefit of variableannuity contractholders and variable life insurance policyholders.  RiverSource Life receives mortality andexpense risk and other fees, guarantee fees and cost of insurance charges fromthe related accounts.

 

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

 

*FixedAnnuities and Variable Annuity 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.

 

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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.  Inaddition, RiverSource Life offers contracts containing GMWB and GMAB provisionsand, until May 2007, RiverSource Life offered contracts containingguaranteed minimum income benefit (“GMIB”) provisions.

 

In determining theliabilities for GMDB, GMIB and the life contingent benefits associated withGMWB, RiverSource Life projects these benefits and contract assessments usingactuarial models to simulate various equity market scenarios. Significantassumptions made in projecting future benefits and assessments relate tocustomer asset value growth rates, mortality, persistency and investmentmargins and are consistent with those used for DAC asset valuation for the samecontracts. As with DAC, management reviews, and where appropriate, adjusts itsassumptions each quarter.   Unlessmanagement identifies a material deviation over the course of quarterlymonitoring, management reviews and updates these assumptions annually in thethird quarter of each year.

 

The GMDB liability isdetermined by estimating the expected value of death benefits in excess of theprojected contract accumulation value and recognizing the excess over theestimated meaningful life based on expected assessments (e.g., mortality andexpense fees, contractual administrative charges and similar 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 is determined inthe same way as the GMDB liability.  Thechanges in both the fair values of the GMWB and GMAB embedded derivatives andthe liability for life contingent benefits 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 fair value of embedded equity options.

 

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, 2009, depending on year of issue, with anaverage rate of approximately 5.7%.

 

*Life,Disability Income and Long Term 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.  Accumulation valuesare 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 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 31,2009, with an average rate of 4.7%. Interest rates used with LTC claims rangedfrom 4.0% to 7.0% at December 31, 2009, with an average rate of 4.1%.

 

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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 31,2009, 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 interest rates for LTC policy reserves can vary by plan and yearand ranged from 5.8% to 9.4% at December 31, 2009.

 

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

 

**Sourcesof Revenue**

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

 

*PremiumRevenues*

Premium revenues includepremiums on traditional life, DI and LTC insurance products and immediateannuities with a life contingent feature. Premiums on traditional life, DI and LTC insurance are net ofreinsurance ceded and are recognized as revenue when due.

 

*NetInvestment Income*

Net investment incomeprimarily includes interest income on fixed maturity securities classified asAvailable-for-Sale, commercial mortgage loans and policy loans, otherinvestments and cash and cash equivalents; the changes in fair value of tradingsecurities and certain derivatives; and the pro-rata share of net income orloss on equity method investments. Interest income is accrued as earned using the effective interestmethod, which makes an adjustment of the yield for security premiums anddiscounts on all performing fixed maturity securities classified asAvailable-for-Sale and commercial mortgage loans so that the related securityor loan recognizes a constant rate of return on the outstanding balancethroughout its term.

 

*Policyand Contract Charges*

Policy and contractcharges include mortality and expense risk fees and certain charges assessed onannuities and fixed and variable universal life insurance, such as cost ofinsurance, net of reinsurance premiums for universal life insurance products, andadministrative and surrender charges. Mortality and expense risk fees include risk, management andadministration fees, which are generated directly and indirectly fromRiverSource Life’s separate account assets. Cost of insurance charges on fixed and variable universal life insuranceand contract charges and surrender charges on annuities and universal andvariable universal life insurance are recognized as revenue when collected.

 

*NetRealized Investment Gains (Losses)*

Realized gains and losseson the sale of securities are recognized using the specific identificationmethod, on a trade date basis, and charges for investments determined to beother-than-temporarily impaired and related to credit losses.

 

**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 and expenses associated with informationtechnology and communications, facilities and equipment, advertising andpromotion and legal and regulatory costs.

 

**IncomeTaxes**

As a result of theSeparation of Ameriprise Financial from American Express, RiverSource Life willnot be able to file a consolidated U.S. federal income tax return with othermembers of Ameriprise Financial’s affiliated group until 2010. RiverSource Life’sprovision for income taxes represents the net amount of income taxes that itexpects

 

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to pay or to receive fromvarious taxing jurisdictions 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 its deferred tax assetsthat management 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: (i) future taxable income exclusive of reversing temporarydifferences and carryforwards; (ii) future reversals of existing taxabletemporary differences; (iii) taxable income in prior carryback years; and (iv) taxplanning strategies.

 

**3.****             ****Recent****AccountingPronouncements**

 

## **Adoption of New Accounting Standards**

##  

### *Accounting and Reporting forDecreases in Ownership of a Subsidiary*

###  

In January 2010, theFinancial Accounting Standards Board (“FASB”) updated the accounting standardsto clarify the accounting and disclosure requirements for changes in theownership percentage of a subsidiary. The additional disclosures primarily relateto instances when a subsidiary is deconsolidated or a group of assets isderecognized. The additional disclosures primarily relate to fair valueconsiderations, the parent’s involvement with the deconsolidated entity andrelated party considerations. The standard is effective for the first interimor annual reporting period ending after December 15, 2009. RiverSourceLife adopted the standard in the fourth quarter of 2009. The adoption did nothave any effect on RiverSource Life’s consolidated financial condition andresults of operations.

 

### *Investments in Certain Entities ThatCalculate Net Asset Value per Share (or Its Equivalent)*

###  

In September 2009,the FASB updated the accounting standards to allow for net asset value (“NAV”)to be used as a practical expedient in estimating the fair value of alternativeinvestments without readily determinable fair values. The standard alsorequires additional disclosure by major category of investment related torestrictions on the investor’s ability to redeem the investment as of themeasurement date, unfunded commitments and the investment strategies of theinvestees. The disclosures are required for all investments within the scope ofthe standard regardless of whether the fair value of the investment is measuredusing the NAV or another method.  Thestandard is effective for interim and annual periods ending after December 15,2009, with early adoption permitted. RiverSource Life adopted the standard inthe fourth quarter of 2009.  The adoptiondid not have a material effect on RiverSource Life’s consolidated financialcondition and results of operations.

 

### *Measuring Liabilities at Fair Value*

###  

In August 2009, theFASB updated the accounting standards to provide additional guidance onestimating the fair value of a liability. The standard is effective for thefirst reporting period, including interim periods, beginning after issuance.RiverSource Life adopted the standard in the fourth quarter of 2009. Theadoption did not have a material effect on RiverSource Life’s consolidatedfinancial condition and results of operations.

 

### *The Hierarchy of GAAP*

###  

In June 2009, theFASB established the FASB Accounting Standards CodificationTM (“Codification”)as the single source of authoritative accounting principles recognized by theFASB in the preparation of financial statements in

 

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conformity with GAAP. TheCodification supersedes existing nongrandfathered, non-SEC accounting andreporting standards. The Codification did not change GAAP but rather organizedit into a hierarchy where all guidance within the Codification carries an equallevel of authority. The Codification became effective on July 1, 2009. TheCodification did not have a material effect on RiverSource Life’s consolidatedfinancial condition and results of operations.

 

### *Subsequent Events*

###  

In May 2009, theFASB updated the accounting standards on the recognition and disclosure ofsubsequent events. The standard also requires the disclosure of the datethrough which subsequent events were evaluated. The standard is effective forinterim and annual reporting periods ending after June 15, 2009, and shallbe applied prospectively. RiverSource Life adopted the standard in the secondquarter of 2009. The adoption did not have a material effect on RiverSourceLife’s consolidated financial condition and results of operations.

 

*FairValue*

 

In April 2009, theFASB updated the accounting standards to provide guidance on estimating thefair value of a financial asset or liability when the trade volume and level ofactivity for the asset or liability have significantly decreased relative tohistorical levels. The standard requires entities to disclose the inputs andvaluation techniques used to measure fair value and any changes in valuationinputs or techniques. In addition, debt and equity securities as defined byGAAP shall be disclosed by major category. This standard is effective forinterim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009, andis to be applied prospectively. RiverSource Life early adopted the standard inthe first quarter of 2009. The adoption did not have a material effect onRiverSource Life’s consolidated financial condition and results of operations.

 

In September 2006,the FASB updated the accounting standards to define fair value, establish aframework for measuring fair value and expand disclosures about fair valuemeasurements. RiverSource Life adopted the standard effective January 1, 2008and recorded a cumulative effect reduction to the opening balance of retainedearnings of $30 million, net of DAC and DSIC amortization and incometaxes. This reduction to retained earnings was related to adjusting the fairvalue of certain derivatives RiverSource Life uses to hedge its exposure tomarket risk related to certain variable annuity riders. Prior to January 1,2008, RiverSource Life recorded these derivatives in accordance with accountingguidance for derivative contracts held for trading purposes and contractsinvolved in energy trading and risk management activities. The new standardnullifies the previous guidance and requires these derivatives to be marked tothe price RiverSource Life would receive to sell the derivatives to a marketparticipant (an exit price). The adoption of the standard also resulted inadjustments to the fair value of RiverSource Life’s embedded derivativeliabilities associated with certain variable annuity riders. Since there is nomarket for these liabilities, RiverSource Life considered the assumptionsparticipants in a hypothetical market would make to determine an exit price. Asa result, RiverSource Life adjusted the valuation of these liabilities byupdating certain policyholder assumptions, adding explicit margins to providefor profit, risk, and expenses, and adjusting the rate used to discountexpected cash flows to reflect a current market estimate of RiverSource Life’srisk of nonperformance specific to these liabilities. These adjustments resultedin an adoption impact of a $4 million increase in earnings, net of DAC andDSIC amortization and income taxes, at January 1, 2008. Thenonperformance risk component of the adjustment is specific to the risk ofRiverSource Life not fulfilling these liabilities. As RiverSource Life’sestimate of this credit spread widens or tightens, the liability willdecrease or increase.

 

### *Recognition and Presentation ofOther-Than-Temporary Impairments*

###  

In April 2009, theFASB updated the accounting standards for the recognition and presentation ofother-than-temporary impairments. The standard amends existing guidance onother-than-temporary impairments for debt securities and requires that thecredit portion of other-than-temporary impairments be recorded in earnings andthe noncredit portion of losses be recorded in other comprehensive income(loss) when the entity does not intend to sell the security and it is morelikely than not that the entity will not be required to sell the security priorto recovery of its cost basis. The standard requires separate presentation ofboth the credit and noncredit portions of other-than-temporary impairments onthe financial statements and additional disclosures. This standard is effectivefor interim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009. At thedate of adoption, the portion of previously recognized other-than-temporaryimpairments that represent the noncredit related loss component shall be recognizedas a cumulative effect of adoption with an adjustment to the opening balance ofretained earnings with a corresponding adjustment to accumulated other

 

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comprehensive income(loss). RiverSource Life adopted the standard in the first quarter of 2009 andrecorded a cumulative effect increase to the opening balance of retainedearnings of $38 million, net of DAC and DSIC amortization, certain benefitreserves and income taxes, and a corresponding increase to accumulated othercomprehensive loss, net of impacts to DAC and DSIC amortization, certainbenefit reserves and income taxes. See Note 4 for RiverSource Life’s requireddisclosures.

 

*Disclosures**about**Derivative Instruments and Hedging Activities*

 

In March 2008, theFASB updated the accounting standards for disclosures about derivativeinstruments and hedging activities. The standard intends to improve financialreporting about derivative instruments and hedging activities by requiringenhanced disclosures about their impact on an entity’s financial position,financial performance, and cash flows. The standard requires disclosures regarding the objectives for usingderivative instruments, the fair value of derivative instruments and theirrelated gains and losses, and the accounting for derivatives and related hedgeditems. The standard is effective for fiscal years and interim periods beginningafter November 15, 2008, with early adoption permitted. RiverSourceLife applied the new disclosure requirements in the first quarter of 2009.See Note 15 for the required disclosures.

 

### *Noncontrolling Interests inConsolidated Financial Statements*

###  

In December 2007,the FASB updated the accounting standards for noncontrolling interests inconsolidated financial statements to establish the accounting and reporting forownership interest in subsidiaries not attributable, directly or indirectly, toa parent.  The standard requiresnoncontrolling (minority) interests to be classified as equity (instead of as aliability) within the Consolidated Balance Sheets, and net income (loss)attributable to both the parent and the noncontrolling interests to bedisclosed on the face of the Consolidated Statements of Income. The standard iseffective for fiscal years beginning after December 15, 2008, and interimperiods within those years with early adoption prohibited. The provisions ofthe standard are to be applied prospectively, except for the presentation anddisclosure requirements which are to be applied retrospectively to all periodspresented. RiverSource Life adopted the new standard as of January 1, 2009and there was no impact on its consolidated financial condition and results ofoperations.

 

*Uncertainty in Income Taxes*

 

In June 2006, the FASB updated the accountingstandards related to uncertainty in income taxes.  The standard prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  The standard also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure and transition. RiverSource Life adopted the standard as of January 1, 2007.  The effect of adopting the standard onRiverSource Life’s consolidatedfinancial condition and results of operations was not material.

 

*DAC Costs in Connection WithModifications or Exchanges of Insurance Contracts*

 

In September 2005, theaccounting standards related to DAC in connection with modifications orexchanges of insurance contracts were updated. The standard provides clarifying guidance on accounting for DACassociated with an insurance or annuity contract that is significantly modifiedor is internally replaced with another contract.  Prior to adoption, RiverSource Life accountedfor many of these transactions as contract continuations and continuedamortizing existing DAC against revenue for the new or modified contract.  Effective January 1, 2007, RiverSourceLife adopted the standard resulting in these transactions being prospectivelyaccounted for as contract terminations. Consistent with this, RiverSource Life now anticipates thesetransactions in establishing amortization periods and other valuationassumptions.  As a result of adopting the standard, RiverSource Life recorded as acumulative change in accounting principle $206 million, reducing DAC by $204million, DSIC by $11 million and liabilities for future policy benefits by $9million.  The after-tax decrease toretained earnings for these changes was $134 million.

 

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### **Future Adoption of New AccountingStandards**

###  

*Fair Value*

 

In January 2010, theFASB updated the accounting standards related to disclosure about fair valuemeasurements. The standard expands the current disclosure requirements toinclude additional detail about significant transfers between Levels 1 and 2within the fair value hierarchy and presenting activity in the rollforward ofLevel 3 activity on a gross basis. The standard also clarifies existingdisclosure requirements related to the level of disaggregation to be used forassets and liabilities as well as disclosures about the inputs and valuationtechniques used to measure fair value. The standard is effective for interimand annual reporting periods beginning after December 15, 2009, except forthe disclosure requirements related to the Level 3 rollforward, which areeffective for interim and annual periods beginning after December 15,2010. RiverSource Life will adopt the standard in the first quarter of 2010except for the additional disclosures related to the Level 3 rollforward, whichRiverSource Life will adopt in the first quarter of 2011. The adoption of thestandard will not impact RiverSource Life’s consolidated financial conditionand results of operations.

 

### *Consolidation of Variable InterestEntities*

###  

In June 2009, theFASB updated the accounting standards related to the consolidation of variableinterest entities. The standard amends current consolidation guidance andrequires additional disclosures about an enterprise’s involvement in VIEs. Thestandard is effective for interim and annual reporting periods beginning after November 15,2009, with early adoption prohibited. RiverSource Life does not expect theadoption to have a material effect on its consolidated financial condition andresults of operations.

 

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

 

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

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

 

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(1)          Represents the amount ofother-than-temporary impairment losses in Accumulated Other ComprehensiveIncome, which starting January 1, 2009, were not included inearnings.  Amount includes unrealizedgains and losses on impaired securities subsequent to the impairment date.  These amounts are included in grossunrealized gains and losses at December 31, 2009.

 

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| ** **                                | ** ** | **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 |   |
| Residential  mortgage backed securities   |       | 3,697                      |       | 59 |   | (220 | ) | 3,536 |   |
| Commercial  mortgage backed securities    |       | 2,582                      |       | 35 |   | (174 | ) | 2,443 |   |
| Asset  backed securities                  |       | 682                        |       | 4 |   | (60 | ) | 626 |   |
| State  and municipal obligations          |       | 164                        |       | 1 |   | (20 | ) | 145 |   |
| U.S.  government and agencies obligations |       | 200                        |       | 11 |   | — |   | 211 |   |
| Foreign  government bonds and obligations |       | 95                         |       | 16 |   | (4 | ) | 107 |   |
| Other  structured investments             |       | 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 |   |

 

At December 31, 2009and 2008, fixed maturity securities comprised approximately 88% and 82%,respectively, of RiverSource Life’s total investments.  These securities were rated by Moody’sInvestors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”)and Fitch Ratings Ltd. (“Fitch”), except for approximately $1.1 billion ofsecurities at both December 31, 2009 and 2008, which were rated byRiverSource Investments, LLC’s internal analysts using criteria similar toMoody’s, S&P and Fitch.  Ratings onfixed maturity securities are presented using the median of ratings from Moody’s,S&P and Fitch. If only two of the ratings are available, the lower ratingis used.  A summary of fixed maturitysecurities by rating was as follows:

 
| ** **              | ** ** | **December 31, 2009**             | ** ** | **December 31, 2008** | ** ** |
|-------------------------|------------|----------------------------------------|------------|----------------------------|------------|
| **Ratings**             | ** ** | **Amortized  Cost**                    | ** ** | **Fair  Value**            | ** ** | **Percent of  Total Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Percent of  Total Fair  Value** | ** ** |
| ** **              | ** ** | **(in  millions, except percentages)** | ** ** |
| AAA                     |       | $                                      | 9,194      |                       | $          | 9,520 |   | 37 | % | $ | 7,038 |   | $ | 6,779 |   | 38 | % |
| AA                      |       | 1,081                                  |       | 1,084                      |       | 4 |   | 1,071 |   | 1,017 |   | 6 |   |
| A                       |       | 4,182                                  |       | 4,326                      |       | 17 |   | 4,132 |   | 3,883 |   | 21 |   |
| BBB                     |       | 9,276                                  |       | 9,826                      |       | 38 |   | 5,901 |   | 5,388 |   | 30 |   |
| Below investment  grade |       | 1,409                                  |       | 1,243                      |       | 4 |   | 1,310 |   | 1,003 |   | 5 |   |
| Total fixed  maturities |       | $                                      | 25,142     |                       | $          | 25,999 |   | 100 | % | $ | 19,452 |   | $ | 18,070 |   | 100 | % |

 

At December 31, 2009and 2008, approximately 19% and 44%, 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.

 

57

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

 
| ** **                                | ** ** | **December 31,  2008**                     | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                | ** ** | **Less  than 12 months**                        | ** ** | **12  months or more** | ** ** | **Total** | ** ** |
| **Description of Securities**             | ** ** | **Number  of  Securities**                      | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                                | ** ** | **(in  millions, except number of securities)** | ** ** |
| Corporate  debt securities                |       | 312                                             |       | $ | 5,086 |   | $ | (372 | ) | 221 |   | $ | 3,309 |   | $ | (751 | ) | 533 |   | $ | 8,395 |   | $ | (1,123 | ) |
| Residential  mortgage backed securities   |       | 34                                              |       | 305 |   | (85 | ) | 52 |   | 466 |   | (135 | ) | 86 |   | 771 |   | (220 | ) |
| Commercial  mortgage backed securities    |       | 26                                              |       | 387 |   | (23 | ) | 54 |   | 867 |   | (151 | ) | 80 |   | 1,254 |   | (174 | ) |
| Asset  backed securities                  |       | 17                                              |       | 187 |   | (31 | ) | 15 |   | 124 |   | (29 | ) | 32 |   | 311 |   | (60 | ) |
| State  and municipal obligations          |       | 2                                               |       | 17 |   | (1 | ) | 2 |   | 78 |   | (19 | ) | 4 |   | 95 |   | (20 | ) |
| U.S.  government and agencies obligations |       | —                                          |       | — |   | — |   | 1 |   | 11 |   | — |   | 1 |   | 11 |   | — |   |
| Foreign  government bonds and obligations |       | 7                                               |       | 20 |   | (4 | ) | — |   | — |   | — |   | 7 |   | 20 |   | (4 | ) |
| Other  structured investments             |       | —                                          |       | — |   | — |   | 2 |   | — |   | — |   | 2 |   | — |   | — |   |
| Common  and preferred stock               |       | —                                          |       | — |   | — |   | 2 |   | 16 |   | (14 | ) | 2 |   | 16 |   | (14 | ) |
| Total                                     |       | 398                                             |       | $ | 6,002 |   | $ | (516 | ) | 349 |   | $ | 4,871 |   | $ | (1,099 | ) | 747 |   | $ | 10,873 |   | $ | (1,615 | ) |

 

As part of RiverSourceLife’s ongoing monitoring process, management determined that a majority of thegross unrealized losses on its Available-for-Sale securities are attributableto changes in credit spreads across sectors. The primary driver of lower unrealizedlosses in 2009 compared to 2008 was the tightening of credit spreads acrosssectors, partially offset by higher interest rates.  In addition, a portion of the decrease inunrealized losses was offset by an increase due to the adoption of a new accountingstandard effective January 1, 2009. RiverSource Life recorded a cumulativeeffect increase to the amortized cost of previously other-than-temporarilyimpaired investments that increased the gross unrealized losses onAvailable-for-Sale securities by $64 million. This impact is due to theimpairment of Available-for-Sale securities recognized in other comprehensiveincome (loss) previously recognized through earnings for factors other thancredit.

 

58

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

 
| ** **                                                                                                                                                                             | ** ** | **(in millions)** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| Beginning  balance of credit losses on securities held for which a portion of  other-than-temporary impairment was recognized in other comprehensive income                            |       | $                 | 102        |   |
| Additional  amount related to credit losses for which an other-than-temporary impairment  was not previously recognized                                                                |       | 7                 |       |
| Reductions  for securities sold during the period (realized)                                                                                                                           |       | (58               | )          |
| Additional  increases to the amount related to credit losses for which an  other-than-temporary impairment was previously recognized                                                   |       | 31                |       |
| Ending  balance of credit losses on securities held as of December 31, 2009 for  which a portion of other-than-temporary impairment was recognized in other  comprehensive income |       | $                 | 82         |   |

 

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

 

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

 
| ** **                                                          | ** ** | **Net********Unrealized********Investment********Gains (Losses)** | ** ** | **Deferred********Income Tax** | ** ** | **Accumulated Other********Comprehensive Income  (Loss) Related to Net  Unrealized Investment  Gains (Losses)** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
|                                                                |       | **(in millions)**                                            |       |
| Balance  at January 1, 2007                                    |       | $                                                                 | (258       | )                              | $          | 90                                                                                                              |       | $ | (168 | ) |
| Net  unrealized investment gains arising during the period          |       | 103                                                               |       | (36                            | )          | 67                                                                                                              |       |
| Reclassification  of gains included in net income                   |       | (39                                                               | )          | 14                             |       | (25                                                                                                             | )          |
| Impact  on DAC, DSIC and benefit reserves                           |       | 15                                                                |       | (5                             | )          | 10                                                                                                              |       |
| Balance  at December 31, 2007                                  |       | $                                                                 | (179       | )                              | $          | 63                                                                                                              |       | $ | (116 | ) |
| Net  unrealized investment losses arising during the period         |       | (1,598                                                            | )          | 559                            |       | (1,039                                                                                                          | )          |
| Reclassification  of losses included in net income                  |       | 431                                                               |       | (151                           | )          | 280                                                                                                             |       |
| Impact  on DAC, DSIC and benefit reserves                           |       | 303                                                               |       | (106                           | )          | 197                                                                                                             |       |
| Balance  at December 31, 2008                                  |       | $                                                                 | (1,043     | )                              | $          | 365                                                                                                             |       | $ | (678 | ) |
| Cumulative  effect of accounting change                             |       | (58)                                                              | (1)        | 20                             |       | (38                                                                                                             | )          |
| Net  unrealized investment gains arising during the period          |       | 2,378                                                             |       | (832                           | )          | 1,546                                                                                                           |       |
| Reclassification  of gains included in net income                   |       | (73                                                               | )          | 26                             |       | (47                                                                                                             | )          |
| Impact  on DAC, DSIC, benefit reserves and reinsurance recoverables |       | (566                                                              | )          | 199                            |       | (367                                                                                                            | )          |
| Balance  at December 31, 2009                                  |       | $                                                                 | 638        |                           | $          | (222                                                                                                            | )          | $ | 416 | (2) |

 

----

(1)   Amount represents thecumulative effect of adopting a new accounting standard on January 1,2009, net of DAC and DSIC amortization and certain benefit reserves.  See Note 3 for additional information on theadoption impact.

(2)   At December 31,2009, Accumulated Other Comprehensive Income Related to Net UnrealizedInvestment Gains included $(16) million of noncredit related impairments onsecurities and net unrealized securities losses on previously impairedsecurities.

 

59

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

 
| ** **                                         | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                               |       | **(in millions)**                 |       |
| Gross realized investment gains from sales         |       | $                                 | 185        |   | $ | 13 |   | $ | 64 |   |
| Gross realized investment losses from sales        |       | (50                               | )          | (6 | ) | (20 | ) |
| Other-than-temporary impairments related to credit |       | (62                               | )          | (440 | ) | (4 | ) |
|                                                    |            |                                   |            |  |  |  |  |  |  |  |

 

The $62 million ofother-than-temporary impairments recognized in net realized investment gains(losses) in 2009 were related to credit losses on non-agency residentialmortgage backed securities and corporate debt securities in the gaming industryand banking and finance industries.  The$440 million of other-than-temporary impairments recognized in net realizedinvestment gains (losses) in 2008 primarily to credit losses on non-agencyresidential mortgage backed securities, corporate debt securities primarily inthe financial services industry and asset backed and other securities. The $4million of other-than-temporary impairments recognized in net realizedinvestment gains (losses) in 2007 related to corporate debt securities in thepublishing and home building industries.

 

Available-for-Salesecurities by contractual maturity at December 31, 2009 were as follows:

 
| ** **                              | ** ** | **Amortized Cost**             | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|----------------|------------|
| ** **                              | ** ** | **(in ****millions****)** | ** ** |
| Due  within one year                    |       | $                              | 738        |           | $          | 751 |   |
| Due  after one year through five years  |       | 6,638                          |       | 6,862          |       |
| Due  after five years through 10 years  |       | 4,786                          |       | 5,062          |       |
| Due  after 10 years                     |       | 2,976                          |       | 3,197          |       |
|                                    |       | 15,138                         |       | 15,872         |       |
| Residential  mortgage backed securities |       | 5,249                          |       | 5,196          |       |
| Commercial  mortgage backed securities  |       | 3,874                          |       | 4,040          |       |
| Asset  backed securities                |       | 877                            |       | 880            |       |
| Other  structured investments           |       | 4                              |       | 11             |       |
| Common  and preferred stocks            |       | 30                             |       | 23             |       |
| Total                                   |       | $                              | 25,172     |           | $          | 26,022 |   |

 

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

 

At December 31, 2009and 2008, bonds carried at $7 million and $6 million, respectively, were ondeposit with various states as required by law.

 

*CommercialMortgage Loans, Net*

 

The following is asummary of commercial mortgage loans:

 
| ** **                       | ** ** | **December 31,**  | ** ** |
|----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2009**               | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(in millions)** | ** ** |
| Commercial  mortgage loans       |       | $                      | 2,562      |   | $ | 2,754 |   |
| Less:  allowance for loan losses |       | (30                    | )          | (17 | ) |
| Commercial  mortgage loans, net  |       | $                      | 2,532      |   | $ | 2,737 |   |

 

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.

 

60

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

 
| ** **                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------------|------------|
| ** **                               | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                               | ** ** | **(in millions)**                 | ** ** |
| Balance  at January 1               |       | $                                 | 17         |   | $ | 16 |   | $ | 37 |   |
| Provision  for loan losses               |       | 14                                |       | 1 |   | (21 | ) |
| Foreclosures,  write-offs and loan sales |       | (1                                | )          | — |   | — |   |
| Balance  at December 31             |       | $                                 | 30         |   | $ | 17 |   | $ | 16 |   |

 

Concentrations of creditrisk of commercial mortgage loans by region were as follows:

 
| ** **                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                 | ** ** | **On-Balance  Sheet** | ** ** | **Funding  Commitments** | ** ** | **On-Balance  Sheet** | ** ** | **Funding  Commitments** | ** ** |
| ** **                                 | ** ** | **(in millions)**     | ** ** |
| Commercial mortgage  loans by U.S. region: |       |                  |       |   |   |   |   |   |   |
| Atlantic                                   |       | $                     | 835        |   | $ | 13 |   | $ | 880 |   | $ | 3 |   |
| North Central                              |       | 538                   |       | 16 |   | 629 |   | 10 |   |
| Pacific                                    |       | 487                   |       | 13 |   | 463 |   | 20 |   |
| Mountain                                   |       | 296                   |       | — |   | 319 |   | 10 |   |
| South Central                              |       | 248                   |       | 8 |   | 287 |   | — |   |
| New England                                |       | 158                   |       | — |   | 176 |   | — |   |
|                                       |       | 2,562                 |       | 50 |   | 2,754 |   | 43 |   |
| Less:  allowance for loan losses           |       | (30                   | )          | — |   | (17 | ) | — |   |
| Total                                      |       | $                     | 2,532      |   | $ | 50 |   | $ | 2,737 |   | $ | 43 |   |

 

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

 
| ** **                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                        | ** ** | **On-Balance  Sheet** | ** ** | **Funding  Commitments** | ** ** | **On-Balance  Sheet** | ** ** | **Funding  Commitments** | ** ** |
| ** **                                        | ** ** | **(in millions)**     | ** ** |
| Commercial  mortgage loans by U.S. property type: |       |                  |       |   |   |   |   |   |   |
| Shopping centers and retail                       |       | $                     | 842        |   | $ | 16 |   | $ | 869 |   | $ | 23 |   |
| Office buildings                                  |       | 702                   |       | 6 |   | 777 |   | 18 |   |
| Industrial buildings                              |       | 468                   |       | 12 |   | 485 |   | 2 |   |
| Apartments                                        |       | 340                   |       | — |   | 383 |   | — |   |
| Hotels and motels                                 |       | 61                    |       | — |   | 76 |   | — |   |
| Mixed use                                         |       | 46                    |       | — |   | 50 |   | — |   |
| Medical buildings                                 |       | 28                    |       | 16 |   | 32 |   | — |   |
| Other                                             |       | 75                    |       | — |   | 82 |   | — |   |
|                                              |       | 2,562                 |       | 50 |   | 2,754 |   | 43 |   |
| Less: allowance  for loan losses                  |       | (30                   | )          | — |   | (17 | ) | — |   |
| Total                                             |       | $                     | 2,532      |   | $ | 50 |   | $ | 2,737 |   | $ | 43 |   |

 

Commitments to fundcommercial mortgages were made in the ordinary course of business.  The funding commitments at December 31,2009 and 2008 approximate fair value.

 

*BelowInvestment Grade Syndicated Bank Loans, Net*

 

The following is asummary of below investment grade syndicated bank loans:

 
| ** **                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                        | ** ** | **(in millions)**     | ** ** |
| Below  investment grade syndicated bank loans     |       | $                     | 228        |   | $ | 260 |   |
| Less:  allowance for loan losses                  |       | (12                   | )          | (12 | ) |
| Net  below investment grade syndicated bank loans |       | $                     | 216        |   | $ | 248 |   |

 

61

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Below investment gradesyndicated bank loans, which are included as a component of other investments,represent loans in which a group of lenders provide funds to borrowers. Thereis usually one originating lender which retains a small percentage andsyndicates the remainder.

 

*TradingSecurities*

 

Net recognized gains(losses) related to trading securities held at December 31, 2009, 2008 and2007 were nil, $9 million and $(2) million, respectively.

 

*Sourcesof Investment Income and Net Realized Investment Gains (Losses)*

 

Net investment income issummarized as follows:

 
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------|------------|
| ** **                                | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                | ** ** | **(in millions)**                 | ** ** |
| Income  on fixed maturities               |       | $                                 | 1,371      |   | $ | 1,043 |   | $ | 1,187 |   |
| Income  on commercial mortgage loans      |       | 160                               |       | 173 |   | 173 |   |
| Trading  securities and other investments |       | 35                                |       | 55 |   | 82 |   |
|                                      |       | 1,566                             |       | 1,271 |   | 1,442 |   |
| Less:  investment expenses                |       | (40                               | )          | (19 | ) | (18 | ) |
| Total                                     |       | $                                 | 1,526      |   | $ | 1,252 |   | $ | 1,424 |   |

 

Net realized investmentgains (losses) are summarized as follows:

 
| ** **                                  | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------------------|------------|
| ** **                                  | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                  | ** ** | **(in millions)**                 | ** ** |
| Fixed  maturities                           |       | $                                 | 73         |   | $ | (433 | ) | $ | 40 |   |
| Commercial  mortgage loans                  |       | (13                               | )          | (1 | ) | — |   |
| Trading  securities and other investments   |       | (1                                | )          | (8 | ) | — |   |
| Reduction  in the allowance for loan losses |       | —                            |       | — |   | 21 |   |
| Total                                       |       | $                                 | 59         |   | $ | (442 | ) | $ | 61 |   |

 

**5.****    ****Variable Interest Entities**

 

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

 

RTA’s maximum exposure toloss as a result of its investment in the affordable housing partnerships islimited to the carrying values. The carrying values are reflected in tradingsecurities and other investments and were $28 million and $54 million as of December 31,2009 and 2008, respectively. RTA has no obligation to provide further financialor other support to the affordable housing partnerships nor has it provided anyadditional support to the affordable housing partnerships. RiverSource Life hadno liabilities recorded as of December 31, 2009 and 2008 related to theaffordable housing partnerships.

 

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

 

During the third quarterof 2009, 2008 and 2007, RiverSource Life completed the annual detailed reviewof valuation assumptions of its products. In addition, during the third quarter of 2008, RiverSource Lifeconverted to a new industry standard valuation system that provides enhancedmodeling capabilities.

 

62

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The total pretax impactson RiverSource Life’s assets and liabilities attributable to the review ofvaluation assumptions during the third quarter of 2009, 2008 and 2007 and thevaluation system conversion during the third quarter of 2008 were as follows:

 
| **Balance  Sheet Impact  Debit (Credit)** | ** ** | **Reinsurance  Recoverables** | ** ** | **DAC** | ** ** | **DSIC** | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-------------------------------|------------|---------|------------|----------|------------|-------------------|------------|------------------------------|------------|------------------------|------------|-----------|------------|
| ** **                                | ** ** | **(in millions)**             | ** ** |
| 2009  period                              |       | $                             | (65        | )       | $          | 119      |       | $                 | 9          |                         | $          | —                 |       | $         | 71         |   | $ | — |   | $ | 134 |   |
| 2008  period                              |       | 92                            |       | (81     | )          | (6       | )          | 1                 |       | 95                           |       | 5                      |       | 106       |       |
| 2007  period                              |       | (2                            | )          | (16     | )          | 3        |       | —            |       | (15                          | )          | —                 |       | (30       | )          |
|                                           |            |                               |            |         |            |          |            |                   |            |                              |            |                        |            |           |            |  |  |  |  |  |  |  |

 

The total pretax impactson RiverSource Life’s revenues and expenses attributable to the review of thevaluation assumptions for the years ended December 31, 2009, 2008 and 2007and the valuation system conversion for the year ended December 31, 2008were 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)** |       |
| 2009 period                  |       | $                      | —     |                              | $          | (65                                                      | )          | $                        | 80         |                                           | $          | 119       |       | $ | — |   | $ | 134 |   |
| 2008 period                  |       | 2                      |       | 95                                |       | 89                                                       |       | (81                      | )          | 1                                              |       | 106       |       |
| 2007 period                  |       | —                 |       | (2                                | )          | (12                                                      | )          | (16                      | )          | —                                         |       | (30       | )          |
|                              |            |                        |            |                                   |            |                                                          |            |                          |            |                                                |            |           |            |  |  |  |  |  |  |

 

The balances of andchanges in DAC were as follows:

 
| ** **                                                                                        | ** ** | **2009**               | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                                                        | ** ** | **(in millions)** | ** ** |
| Balance  at January 1                                                                        |       | $                      | 4,324      |     | $          | 4,334    |       | $ | 4,321 |   |
| Cumulative  effect of accounting change                                                           |       | —                 |       | 36       |       | (204     | )          |
| Capitalization  of acquisition costs                                                              |       | 558                    |       | 587      |       | 699      |       |
| Amortization,  excluding impacts of valuation assumptions review and valuation system  conversion |       | (264                   | )          | (780     | )          | (454     | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion             |       | 119                    |       | (81      | )          | (16      | )          |
| Impact  of change in net unrealized securities losses (gains)                                     |       | (452                   | )          | 228      |       | (12      | )          |
| Balance  at December 31                                                                      |       | $                      | 4,285      |     | $          | 4,324    |       | $ | 4,334 |   |

 

The balances of andchanges in DSIC were as follows:

 
| ** **                                                                                        | ** ** | **2009**          | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------|------------|----------|------------|
| ** **                                                                                        | ** ** | **(in millions)** |
| Balance  at January 1                                                                        |       | $                 | 518        |     | $          | 511      |       | $ | 452 |   |
| Cumulative  effect of accounting change                                                           |       | —            |       | 9        |       | (11      | )          |
| Capitalization  of sales inducements costs                                                        |       | 82                |       | 87       |       | 124      |       |
| Amortization,  excluding impacts of valuation assumptions review and valuation system  conversion |       | (19               | )          | (115     | )          | (56      | )          |
| Amortization,  impact of valuation assumptions review and valuation system conversion             |       | 9                 |       | (6       | )          | 3        |       |
| Impact  of change in net unrealized securities losses (gains)                                     |       | (66               | )          | 32       |       | (1       | )          |
| Balance  at December 31                                                                      |       | $                 | 524        |     | $          | 518      |       | $ | 511 |   |

 

RiverSource Life adopteda new accounting standard on the recognition and presentation ofother-than-temporary impairments in the first quarter of 2009.  The adoption had no net impact to DAC andDSIC.

 

Effective January 1,2008, RiverSource Life adopted a new accounting standard on fair valuemeasurements and recorded as a cumulative change in accounting principle apretax increase of $36 million and $9 million to DAC and

 

63

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DSIC, respectively.  See Note 3 for additional informationregarding RiverSource Life’s adoption of fair value accounting standards.

 

Effective January 1,2007, RiverSource Life adopted a new accounting standard related to DAC inconnection with modifications or exchanges of insurance contracts and recordedas a cumulative change in accounting principle a pretax reduction of $204million and $11 million to DAC and DSIC, respectively.

 

**7.****    ****Reinsurance**

 

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 during 2001 (2002for RiverSource Life of NY) for term life insurance and 2002 (2003 forRiverSource Life of NY) for individual fixed and variable universal lifeinsurance.  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$750,000 during 2008) on a single life and $1.5 million on any flexible premiumsurvivorship life policy.  Risk on fixedand variable universal life policies is reinsured on a yearly renewable termbasis.  Risk on most term life policiesstarting in 2001 (2002 for RiverSource Life of NY) is reinsured on acoinsurance basis, a type of reinsurance in which the reinsurer participatesproportionally in all material risks and premiums associated with a policy.

 

For existing LTCpolicies, RiverSource Life (and RiverSource Life of NY for 1996 and laterissues) retained 50% of the risk and ceded the remaining 50% of the risk on acoinsurance basis to subsidiaries of Genworth Financial, Inc. (“Genworth”).

 

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, RiverSourceLife assumes life insurance and fixed annuity risk under reinsurancearrangements with unaffiliated insurance companies.

 

At December 31, 2009and 2008, traditional life and universal life insurance in force aggregated$192.8 billion and $192.3 billion, respectively, of which $131.2 billion and$127.6 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 reinsuranceon premiums was as follows:

 
| ** **         | ** ** | **Years Ended December 31,** | ** ** |
|--------------------|------------|-----------------------------------|------------|
| ** **         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **         | ** ** | **(in millions)**                 |
| Direct  premiums   |       | $                                 | 721        |   | $ | 641 |   | $ | 628 |   |
| Reinsurance  ceded |       | (271                              | )          | (203 | ) | (189 | ) |
| Net  premiums      |       | $                                 | 450        |   | $ | 438 |   | $ | 439 |   |

 

Policy and contract chargesare presented on the Consolidated Statements of Income net of $62 million, $61million and $57 million of reinsurance ceded for the years ended December 31,2009, 2008 and 2007, respectively.

 

Reinsurance recoveredfrom reinsurers was $167 million, $142 million and $126 million for the yearsended December 31, 2009, 2008 and 2007, respectively.  Reinsurance contracts do not relieveRiverSource Life from its primary obligation to policyholders.

 

Includedin reinsurance recoverables is approximately $1.3 billion and $1.2 billion related toLTC risk ceded to Genworth as of December 31, 2009 and 2008,respectively.  Included in future policybenefits is $667 million and $689 million related to assumed reinsurancearrangements as of December 31, 2009 and 2008, respectively.

 

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**8.****    ****Future Policy Benefits, Policy Claims and Other Policyholders’ Fundsand Separate Account Liabilities**

 

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

 
| ** **                                                                          | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                                                          | ** ** | **(in millions)**     | ** ** |
| Fixed  annuities                                                                    |       | $                     | 16,558     |   | $ | 14,058 |   |
| Equity  indexed annuities accumulated host values                                   |       | 159                   |       | 228 |   |
| Equity  indexed annuities embedded derivatives                                      |       | 9                     |       | 16 |   |
| Variable  annuities fixed sub-accounts                                              |       | 6,127                 |       | 5,623 |   |
| Variable  annuity GMWB                                                              |       | 204                   |       | 1,471 |   |
| Variable  annuity GMAB                                                              |       | 100                   |       | 367 |   |
| Other  variable annuity guarantees                                                  |       | 12                    |       | 67 |   |
| Total  annuities                                                                    |       | 23,169                |       | 21,830 |   |
| VUL/  UL insurance                                                                  |       | 2,595                 |       | 2,526 |   |
| Other  life, DI and LTC insurance                                                   |       | 4,619                 |       | 4,397 |   |
| Total  future policy benefits                                                       |       | 30,383                |       | 28,753 |   |
| Policy  claims and other policyholders’ funds                                  |       | 123                   |       | 172 |   |
| Total  future policy benefits and policy claims and other policyholders’ funds |       | $                     | 30,506     |   | $ | 28,925 |   |

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **(in millions)**     | ** ** |
| Variable  annuity variable sub-accounts |       | $                     | 48,982     |   | $ | 37,657 |   |
| VUL  insurance variable sub-accounts    |       | 5,239                 |       | 4,091 |   |
| Other  insurance variable sub-accounts  |       | 46                    |       | 39 |   |
| Total  separate account liabilities     |       | $                     | 54,267     |   | $ | 41,787 |   |

 

*FixedAnnuities*

 

Fixed annuitiesinclude both deferred and payout contracts. Deferred contracts offer a guaranteed minimum rate of interest andsecurity of the principal invested. Payout contracts guarantee a fixed income payment for life or the termof the contract.  RiverSource Lifegenerally invests the proceeds from the annuity payments in fixed ratesecurities.   RiverSource Life may hedgethe interest rate risks related to fixed annuities with derivative instruments.As of December 31, 2009 and 2008, there were no outstanding derivatives tohedge these risks.

 

*EquityIndexed Annuities*

 

The Index 500 Annuity,RiverSource Life’s equity indexed annuity product, is a single premium deferredfixed annuity.  The contract is issuedwith an initial term of seven years and interest earnings are linked to the S&P500 Index.  This annuity has a minimuminterest rate guarantee 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.  In 2007, RiverSource Life discontinued newsales of equity indexed annuities.

 

*VariableAnnuities*

 

Purchasers of variableannuities 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 variable annuity contracts are heldin separate accounts where the assets are held for the exclusive benefit ofthose contractholders.

 

Most of the variableannuity contracts issued by RiverSource Life contain one or more guaranteedbenefits, including GMWB, GMAB, GMDB and GGU provisions.  RiverSource Life previously offered contractswith GMIB provisions. See Note 2 and Note 9 for additional informationregarding RiverSource Life’s variable annuity guarantees. RiverSource Life doesnot currently hedge its risk under the GGU and GMIB provisions.  During the third quarter of 2009, RiverSourceLife entered into a limited number of derivative contracts to economicallyhedge equity exposure related to GMDB provisions on variable annuity contractswritten previously in 2009.  The total

 

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value of variable annuitycontracts with GMWB riders increased from $12.7 billion at December 31,2008 to $19.2 billion at December 31, 2009.  The total value of variable annuity contractswith GMAB riders increased from $2.0 billion at December 31, 2008 to $2.9billion at December 31, 2009.  Thetotal value of variable annuity contracts with GMDB riders increased from $42.2billion at December 31, 2008 to $53.7 billion at December 31, 2009,of which $5.2 billion have corresponding hedges.  See Note 15 for additional information regardingderivative instruments used to hedge risks related to GMWB, GMAB and GMDBprovisions.

 

*InsuranceLiabilities*

 

VUL/UL is the largestgroup of insurance policies written by RiverSource Life.  Purchasers of VUL can select from a varietyof investment options and can elect to allocate a portion to a fixedaccount.  A vast majority of the premiumsreceived for VUL contracts are held in separate accounts where the assets areheld for the exclusive benefit of those policyholders.  RiverSource Life also offers term and wholelife insurance as well as disability products. RiverSource Life no longer offers LTC products but has in force policiesfrom prior years.  Insurance liabilitiesinclude accumulation values, unpaid reported claims, incurred but not reportedclaims, and obligations for anticipated future claims.

 

**9.****    ****Variable Annuity and InsuranceGuarantees**

 

The majority of thevariable annuity contracts offered by RiverSource Life contain GMDBprovisions.  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 asGGU benefits.  In addition, RiverSourceLife offers contracts with GMWB and GMAB provisions.  RiverSource Life previously offered contractscontaining GMIB provisions.  See Note 2and Note 8 for additional information regarding the liabilities related tovariable annuity guarantees.

 

The GMDBprovisions provide a specified minimum return upon death of thecontractholder.  The death benefitpayable is the greater of (i) the contract value less any purchase paymentcredits subject to recapture less a pro-rata portion of any rider fees, or (ii) theGMDB provisions specified in the contract. RiverSource Life has three primary GMDB provisions:

 

·      Return ofpremium — 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 — providesthat the value ratchets up to the maximum account value at specifiedanniversary intervals, plus subsequent purchase payments less adjusted partialsurrenders.

 

The variable annuitycontracts with GMWB riders typically have account values that are based on anunderlying portfolio of mutual funds, the values of which fluctuate based onequity market performance.  At issue, theguaranteed amount is equal to the amount deposited but the guarantee may beincreased annually to the account value (a “step-up”) in the case of favorablemarket performance.

 

RiverSource Life has GMWBriders in force with the following provisions:

 

·      withdrawals at a specified rate peryear until the amount withdrawn is equal to the guaranteed amount.

·      withdrawals at a specified rate peryear for the life of the contractholder (“GMWB for life”).

·      withdrawals at a specified rate peryear for joint contractholders while either is alive.  Once withdrawals begin, the contractholder’sfunds are moved to one of three less aggressive asset allocation models (of thefive that are available prior to withdrawal).

·      withdrawals based on performance ofthe contract or issue age.  On somecontracts, credits are applied annually for the first ten years to increase theguaranteed amount as long as withdrawals have not been taken.

 

Variable annuitycontractholders age 79 or younger at contract issue can also obtain aprincipal-back guarantee by purchasing the optional GMAB rider for anadditional charge.  The GMAB riderguarantees that, regardless of market performance at the end of the 10-yearwaiting period, the contract value will be no less than the original investmentor

 

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80% of the highestanniversary value, adjusted for withdrawals. If the contract value is less than the guarantee at the end of the 10year period, a lump sum will be added to the contract value to make thecontract value equal to the guarantee value.

 

CertainUL 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.

 

Thefollowing table provides information related to variable annuity guarantees forwhich RiverSource Life has established additional liabilities:

 
| ** **                                                   | ** ** | **December 31, 2009**    | ** ** | **December 31, 2008**                 | ** ** |
|--------------------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|
| **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                                            |       | $                             | 30,938     |                                       | $          | 28,415 |   | $ | 974 |   | 61 |   | $ | 22,249 |   | $ | 20,153 |   | $ | 4,873 |   | 61 |   |
| Six-Year Reset                                               |       | 13,886                        |       | 11,197                                     |       | 926 |   | 61 |   | 12,719 |   | 10,063 |   | 2,802 |   | 61 |   |
| One-Year Ratchet                                             |       | 7,081                         |       | 6,400                                      |       | 873 |   | 63 |   | 5,770 |   | 5,061 |   | 2,163 |   | 62 |   |
| Five-Year Ratchet                                            |       | 1,256                         |       | 1,171                                      |       | 38 |   | 59 |   | 951 |   | 888 |   | 199 |   | 59 |   |
| Other                                                        |       | 582                           |       | 542                                        |       | 98 |   | 67 |   | 471 |   | 429 |   | 192 |   | 66 |   |
| Total — GMDB                                            |       | $                             | 53,743     |                                       | $          | 47,725 |   | $ | 2,909 |   | 61 |   | $ | 42,160 |   | $ | 36,594 |   | $ | 10,229 |   | 61 |   |
|                                                         |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU death benefit**                                        |       | $                             | 853        |                                       | $          | 775 |   | $ | 70 |   | 63 |   | $ | 699 |   | $ | 619 |   | $ | 65 |   | 63 |   |
|                                                         |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                                     |       | $                             | 628        |                                       | $          | 582 |   | $ | 126 |   | 63 |   | $ | 567 |   | $ | 511 |   | $ | 245 |   | 63 |   |
|                                                         |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                                    |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                         |       | $                             | 4,196      |                                       | $          | 4,067 |   | $ | 454 |   | 64 |   | $ | 3,513 |   | $ | 3,409 |   | $ | 1,312 |   | 63 |   |
| GMWB for life                                                |       | 14,988                        |       | 14,333                                     |       | 795 |   | 63 |   | 9,194 |   | 8,764 |   | 2,704 |   | 63 |   |
| Total — GMWB                                            |       | $                             | 19,184     |                                       | $          | 18,400 |   | $ | 1,249 |   | 63 |   | $ | 12,707 |   | $ | 12,173 |   | $ | 4,016 |   | 63 |   |
| ** **                                                   |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                                     |       | $                             | 2,926      |                                       | $          | 2,853 |   | $ | 153 |   | 56 |   | $ | 2,006 |   | $ | 1,937 |   | $ | 608 |   | 56 |   |

 

----

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

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

 

Changes in additionalliabilities were as follows:

 
| ** **                                   | ** ** | **GMDB &  GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                   | ** ** | **(in millions)**   | ** ** |
| Liability  balance at January 1, 2008   |       | $                        | 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      |       |
| Incurred  claims                             |       | 12                       |       | (5       | )          | (1,267   | )          | (267     | )          | 8      |       |
| Paid  claims                                 |       | (61                      | )          | (1       | )          | —   |       | —   |       | — |       |
| Liability  balance at December 31, 2009 |       | $                        | 6          |     | $          | 6        |       | $        | 204        |   | $          | 100 |   | $ | 15 |   |

 

Theliabilities for guaranteed benefits are supported by general account assets.

 

67

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Thefollowing table summarizes the distribution of separate account balances byasset type for variable annuity contracts providing guaranteed benefits:

 
| ** **          | ** ** | **December 31,** | ** ** |
|---------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **          | ** ** | **(in millions)**     | ** ** |
| Mutual  funds:      |       |                  |       |   |   |
| Equity              |       | $                     | 29,379     |   | $ | 21,899 |   |
| Bond                |       | 16,537                |       | 12,135 |   |
| Other               |       | 2,889                 |       | 3,463 |   |
| Total  mutual funds |       | $                     | 48,805     |   | $ | 37,497 |   |

 

No gains or losses wererecognized on assets transferred to separate accounts for the periodspresented.

 

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

 

In July 2009, RiverSource LifeInsurance Company, as the borrower, entered into a revolving credit agreementwith Ameriprise Financial as the lender. The aggregate amount outstanding under the line of credit may not exceed$800 million at any time.   The interestrate for any borrowing under the new agreement is established by reference toLIBOR plus 28 basis points.  Amountsborrowed may be repaid at any time with no prepayment penalty.  As of December 31, 2009, the outstandingbalance under this credit line was $300 million which was repaid in full withpayments in January and February 2010.

 

RiverSource Life hasavailable a committed line of credit with Ameriprise Financial aggregating $200million.  The interest rate for anyborrowings is established by reference to LIBOR.  There were no amounts outstanding on thisline of credit at December 31, 2009 and 2008.

 

In September 2008,RiverSource Life, as the lender, entered into a revolving credit agreement withAmeriprise Financial as the borrower.  Thisline of credit is not to exceed 3% of RiverSource Life’s statutory admittedassets as of the prior year end.  Theinterest rate for any borrowing is established by reference to LIBOR plus 28basis 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, 2009 and 2008.

 

RiverSource Life had acollateral loan agreement with Ameriprise Financial aggregating up to $75 millionwhich expired on October 31, 2008.

 

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

 

GAAP defines fair value as the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date; thatis, an exit price. The exit price assumes the asset or liability is notexchanged subject to a forced liquidation or distressed sale.

 

**Valuation Hierarchy**

** **

RiverSourceLife categorizes its fair value measurements according to a three-levelhierarchy. The hierarchy prioritizes the inputs used by RiverSource Life’svaluation techniques. A level is assigned to each fair value measurement basedon the lowest level input that is significant to the fair value measurement inits entirety. The three levels of the fair value hierarchy are defined asfollows:

 

Level 1       Unadjustedquoted prices for identical assets or liabilities in active markets that areaccessible at the measurement date.

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

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

 

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** **

**Determination of FairValue**

 

RiverSource Life uses valuationtechniques consistent with the market and income approaches to measure the fairvalue of its assets and liabilities. RiverSource Life’s market approach usesprices and other relevant information generated by market transactionsinvolving identical or comparable assets or liabilities. RiverSource Life’sincome approach uses valuation techniques to convert future projected cashflows to a single discounted present value amount. When applying either approach,RiverSource Life maximizes the use of observable inputs and minimizes the useof unobservable inputs.

 

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

 

**Assets**

** **

*CashEquivalents*

 

Cash equivalents include highlyliquid investments with original maturities of 90 days or less. Actively tradedmoney market funds are measured at their NAV and classified as Level 1.RiverSource Life’s remaining cash equivalents are classified as Level 2 andmeasured 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 ofsecurities is based on quoted prices in active markets. If quoted prices arenot available, 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 andU.S. and foreign government and agency securities. Level 3 securities includecorporate bonds, non-agency residential mortgage backed securities, commercialmortgage backed securities and asset backed securities.

 

Through RiverSource Life’s ownexperience transacting in the marketplace and through discussions with itspricing vendors, RiverSource Life believes that the market for non-agencyresidential mortgage backed securities is inactive. Indicators of inactivemarkets include: pricing services’ reliance on brokers or discounted cash flowanalyses to provide prices, an increase in the disparity between pricesprovided by different pricing services for the same security, unreasonablylarge bid-offer spreads and a significant decrease in the volume of tradesrelative to historical levels. In certain cases, this market inactivity hasresulted in RiverSource Life applying valuation techniques that rely more on anincome approach (discounted cash flows using market rates) than on a marketapproach (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.

 

*SeparateAccount Assets*

 

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

 

*Derivatives*

 

The fair value of derivatives thatare traded in certain over-the-counter markets are generally measured usingpricing models with market observable inputs such as interest rates and equityindex levels. These measurements are classified as Level 2 within the fairvalue hierarchy and include interest rate swaps and options. Derivatives thatare valued using pricing models that have significant unobservable inputs areclassified as Level 3 measurements. Structured derivatives that are used byRiverSource Life to hedge its exposure to market risk related to certain variableannuity riders are classified as Level 3. RiverSource Life settled thesederivatives in the second quarter of 2009 and has not entered into anyadditional structured derivatives since then.

 

69

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** **

**Liabilities**

** **

*EmbeddedDerivatives*

* *

*Variable Annuity Riders — GMAB and GMWB*

 

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 tocontractholder 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*

 

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

 

Thefollowing tables present the balances of assets and liabilities measured atfair value on a recurring basis:

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

 

70

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|                                                   |   | **December 31, 2008** |       |
|--------------------------------------------------------|--------|----------------------------|------------|
|                                                   |   | **Level 1**                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** |   |
|                                                   |   | **(in millions)**          |       |
| Assets                                                 |   |                       |       |   |   |   |   |   |   |
| Available-for-Sale  securities:                        |   |                       |       |   |   |   |   |   |   |
| Fixed  maturities:                                     |   |                       |       |   |   |   |   |   |   |
| Corporate debt  securities                             |   | $                          | —     |   | $ | 9,907 |   | $ | 1,086 |   | $ | 10,993 |   |
| Residential  mortgage backed securities                |   | —                     |       | 3,016 |   | 520 |   | 3,536 |   |
| Commercial  mortgage backed securities                 |   | —                     |       | 2,440 |   | 3 |   | 2,443 |   |
| Asset backed  securities                               |   | —                     |       | 531 |   | 95 |   | 626 |   |
| State and  municipal obligations                       |   | —                     |       | 145 |   | — |   | 145 |   |
| U.S. government  and agencies obligations              |   | 21                         |       | 190 |   | — |   | 211 |   |
| Foreign government  bonds and obligations              |   | —                     |       | 107 |   | — |   | 107 |   |
| Other structured  investments                          |   | —                     |       | — |   | 9 |   | 9 |   |
| Total  Available-for-Sale securities: 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 |   |

 

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

 
|                                    |   | ** **          | ** ** | ** **                | ** ** | ** **        | ** ** | **Purchases,**   | ** ** | ** **   | ** ** | ** **            |   |
|-----------------------------------------|--------|---------------------|------------|---------------------------|------------|-------------------|------------|------------------|------------|--------------|------------|-----------------------|--------|
|                                    |   | ** **          | ** ** | **Total  Gains**          | ** ** | **Sales,**        | ** ** | ** **       | ** ** | ** **   |       |
|                                    |   | ** **          | ** ** | **(Losses)  Included in** | ** ** | **Issuances**     | ** ** | **Transfers**    | ** ** | ** **   |       |
|                                    |   | **Balance,**        | ** ** | ** **                | ** ** | **Other**         | ** ** | **and**          | ** ** | **In/(Out)** | ** ** | **Balance,**          |   |
|                                    |   | **January 1,** | ** ** | **Net**                   | ** ** | **Comprehensive** | ** ** | **Settlements,** | ** ** | **of**       | ** ** | **December 31,** |   |
|                                    |   | **2009**            | ** ** | **Income**                | ** ** | **Income**        | ** ** | **Net**          | ** ** | **Level  3** | ** ** | **2009**              |   |
|                                    |   | **(in  millions)**  |       |
| Available-for-Sale  securities:         |   |                |       |                      |       |              |       |             |       |         |       |                  |   |
| Fixed  maturities                       |   |                |       |                      |       |              |       |             |       |         |       |                  |   |
| Corporate  debt securities              |   | $                   | 1,086      |                      | $          | —            |       | $                | 194        |         | $          | 20                    |   | $ | (61 | ) | $ | 1,239 |   |
| Residential  mortgage backed securities |   | 520                 |       | 65                        |       | 156               |       | 2,031            |       | —       |       | 2,772                 |   |
| Commercial  mortgage backed securities  |   | 3                   |       | —                    |       | 8                 |       | 61               |       | —       |       | 72                    |   |
| Asset  backed securities                |   | 95                  |       | 7                         |       | 10                |       | 112              |       | (9           | )          | 215                   |   |
| Other  structured investments           |   | 9                   |       | 2                         |       | —            |       | —           |       | —       |       | 11                    |   |
| Total  Available-for-Sale securities:   |   |                |       |                      |       |              |       |             |       |         |       |                  |   |
| Fixed  maturities                       |   | 1,713               |       | 74                        | (1)        | 368               |       | 2,224            |       | (70          | )(3)       | 4,309                 |   |
|                                    |   |                |       |                      |       |              |       |             |       |         |       |                  |   |
| Other  assets                           |   | 200                 |       | (37                       | )(2)       | —            |       | (163             | )          | —       |       | —                |   |
| Future  policy benefits                 |   | (1,832              | )          | 1,611                     | (2)        | —            |       | (78              | )          | —       |       | (299                  | )      |
|                                         |        |                     |            |                           |            |                   |            |                  |            |              |            |                       |        |  |  |  |  |  |  |

 

----

(1)   Represents a $7 million loss included in net realizedinvestment gains (losses) and a $81 million gain included in net investmentincome in the Consolidated Statements of Income.

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

(3)   Representssecurities with a fair value of $79 million that were transferred to Level 2 asthe fair value of the securities is now obtained from a nationally-recognizedpricing service net of a security with a fair value of $9 million that wastransferred to Level 3 as the fair value of the security is now based on brokerquotes.

 

71

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|                                    |   | ** **          | ** ** | ** **                | ** ** | ** **        | ** ** | **Purchases,**   | ** ** | ** **   | ** ** | ** **            | ** ** |
|-----------------------------------------|--------|---------------------|------------|---------------------------|------------|-------------------|------------|------------------|------------|--------------|------------|-----------------------|------------|
|                                    |   | ** **          | ** ** | **Total  Gains**          | ** ** | **Sales,**        | ** ** | ** **       | ** ** | ** **   | ** ** |
|                                    |   | ** **          | ** ** | **(Losses)  Included in** | ** ** | **Issuances**     | ** ** | **Transfers**    | ** ** | ** **   | ** ** |
|                                    |   | **Balance,**        | ** ** | ** **                | ** ** | **Other**         | ** ** | **and**          | ** ** | **In/(Out)** | ** ** | **Balance,**          | ** ** |
|                                    |   | **January 1,** | ** ** | **Net**                   | ** ** | **Comprehensive** | ** ** | **Settlements,** | ** ** | **of**       | ** ** | **December 31,** | ** ** |
|                                    |   | **2008**            | ** ** | **Income**                | ** ** | **Loss**          | ** ** | ** Net**    | ** ** | **Level  3** | ** ** | **2008**              | ** ** |
|                                    |   | **(in  millions)**  |       |
| Available-for-Sale  securities:         |   |                |       |                      |       |              |       |             |       |         |       |                  |       |
| Fixed  maturities                       |   |                |       |                      |       |              |       |             |       |         |       |                  |       |
| Corporate  debt securities              |   | $                   | 1,271      |                      | $          | (30               | )          | $                | (152       | )            | $          | (3                    | )          | $ | — |   | $ | 1,086 |   |
| Residential  mortgage backed securities |   | 417                 |       | (144                      | )          | (134              | )          | 162              |       | 219          |       | 520                   |       |
| Commercial  mortgage backed securities  |   | 5                   |       | —                    |       | —            |       | (2               | )          | —       |       | 3                     |       |
| Asset  backed securities                |   | 115                 |       | 1                         |       | (24               | )          | 3                |       | —       |       | 95                    |       |
| Other  structured investments           |   | 2                   |       | 4                         |       | 6                 |       | (3               | )          | —       |       | 9                     |       |
| Total  Available-for-Sale securities:   |   |                |       |                      |       |              |       |             |       |         |       |                  |       |
| Fixed  maturities                       |   | 1,810               |       | (169                      | )(1)       | (304              | )          | 157              |       | 219          | (3)        | 1,713                 |       |
|                                    |   |                |       |                      |       |              |       |             |       |         |       |                  |       |
| Other assets                            |   | 280                 |       | 149                       | (2)        | —            |       | (229             | )          | —       |       | 200                   |       |
| Future  policy benefits                 |   | (158                | )          | (1,611                    | )(2)       | —            |       | (63              | )          | —       |       | (1,832                | )          |
| Other  liabilities                      |   | —              |       | (9)                       | (2)        | —            |       | 9                |       | —       |       | —                |       |
|                                         |        |                     |            |                           |            |                   |            |                  |            |              |            |                       |            |  |  |  |  |  |  |

 

----

(1)   Represents a$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.

 

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

 
|                                    |   | **2009**                    | ** ** | **2008**                                       |       |
|-----------------------------------------|--------|-----------------------------|------------|------------------------------------------------|------------|
|                                    |   | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Net  Investment  Income** | ** ** | **Net  Realized  Investment  Gains  (Losses)** | ** ** | **Benefits, Claims,  Losses and  Settlement  Expenses** |   |
|                                    |   | **(in millions)**           |       |
| Available-for-Sale  securities:         |   |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Fixed  maturities                       |   |                        |       |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate  debt securities              |   | $                           | —     |                                           | $          | — |   | $ | — |   | $ | — |   | $ | (29 | ) | $ | — |   |
| Residential  mortgage backed securities |   | 80                          |       | (31                                            | )          | — |   | 2 |   | (146 | ) | — |   |
| Asset  backed securities                |   | 1                           |       | —                                         |       | — |   | 1 |   | — |   | — |   |
| Total  Available-for-Sale securities:   |   |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Fixed  maturities                       |   | 81                          |       | (31                                            | )          | — |   | 3 |   | (175 | ) | — |   |
|                                    |   |                        |       |                                           |       |   |   |   |   |   |   |   |   |
| Other  assets                           |   | —                      |       | —                                         |       | — |   | — |   | — |   | 126 |   |
| Future  policy benefits                 |   | —                      |       | —                                         |       | 1,582 |   | — |   | — |   | (1,608 | ) |
|                                         |        |                             |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

72

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The followingtable provides the carrying value and the estimated fair value of financialinstruments that are not reported at fair value. All other financialinstruments that are reported at fair value have been included above in thetable with balances of assets and liabilities measured at fair value on arecurring basis.

 
| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                | ** ** | **Carrying  Value**   | ** ** | **Fair  Value** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
| ** **                                | ** ** | **(in millions)**     | ** ** |
| ** **                                |       |                  |       |   |   |   |   |   |   |
| **Financial Assets**                      |       |                  |       |   |   |   |   |   |   |
| Commercial  mortgage loans, net           |       | $                     | 2,532      |   | $ | 2,519 |   | $ | 2,737 |   | $ | 2,506 |   |
| Policy  loans                             |       | 715                   |       | 790 |   | 722 |   | 779 |   |
| Other  investments                        |       | 226                   |       | 245 |   | 248 |   | 202 |   |
| Restricted  cash                          |       | 184                   |       | 184 |   | — |   | — |   |
| **Financial Liabilities**                 |       |                  |       |   |   |   |   |   |   |
| Future  policy benefits                   |       | $                     | 15,540     |   | $ | 15,657 |   | $ | 13,116 |   | $ | 12,418 |   |
| Separate  account liabilities             |       | 406                   |       | 406 |   | 386 |   | 386 |   |
| Line  of credit with Ameriprise Financial |       | 300                   |       | 300 |   | — |   | — |   |

 

*Commercial mortgage loans, net*

 

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

 

*Policy loans*

 

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

 

*Other investments*

 

Other investmentsprimarily consist of syndicated loans. The fair value of syndicated loans isobtained from a nationally-recognized pricing service.

 

*Restricted Cash*

 

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

 

*Future policy benefits*

 

The fair value of fixedannuities, in deferral status, is determined by discounting cash flows using arisk neutral discount rate with adjustments for profit margin, expense margin,early policy surrender behavior, a provision for adverse deviation fromestimated early policy surrender behavior and RiverSource Life’s nonperformancerisk specific to these liabilities. The fair value of other liabilitiesincluding non-life contingent fixed annuities in payout status, equity indexedannuity host contracts and the fixed portion of a small number of variableannuity contracts classified as investment contracts is determined in a similarmanner.

 

*Separate account liabilities*

 

Certain separate accountliabilities are classified as investment contracts and are carried at an amountequal to the related separate account assets. Carrying value is a reasonable estimate of the fair value as itrepresents the exit value as evidenced by withdrawal transactions betweencontractholders and RiverSource Life. A nonperformance adjustment is notincluded as the related separate account assets act as collateral for theseliabilities and minimize nonperformance risk.

 

73

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*Line ofcredit with Ameriprise Financial*

 

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

 

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

 

RiverSource Investments,LLC is the investment manager for the proprietary mutual funds used asinvestment options by RiverSource Life’s variable annuity contractholders andvariable life insurance policyholders. RiverSource Life provides all fund management services, other thaninvestment management, and is compensated for the administrative services itprovides.  For the years ended December 31,2009, 2008 and 2007, RiverSource Life received $87 million, $101 million and$97 million, respectively, from RiverSource Investments, LLC for theseservices.

 

RiverSource Lifeparticipates in the Ameriprise Financial Retirement Plan which covers allpermanent employees age 21 and over who have met certain employmentrequirements.  RiverSource Lifecontributions to the plan are based on participants’ age, years of service andtotal compensation for the year.  Fundingof retirement costs for this plan complies with the applicable minimum fundingrequirements specified by the Employee Retirement Income Security Act of 1974,as amended (“ERISA”).  RiverSource Life’sshare of the total net periodic pension cost was $2 million in 2009, and $1million in both 2008 and 2007.

 

RiverSource Lifeparticipates in the Ameriprise Financial 2005 Incentive Compensation Plan.  Employees, directors and independentcontractors are eligible to receive incentive awards including stock options,restricted stock awards, restricted stock units, performance shares and similarawards designed to comply with the applicable federal regulations and laws ofjurisdiction.  The expense for incentiveawards was $3 million in 2009, 2008 and 2007.

 

RiverSource Life alsoparticipates in the defined contribution pension plans of Ameriprise Financial whichcover all employees who have met certain employment requirements.  RiverSource Life contributions to the plansare a percent of either each employee’s eligible compensation or basiccontributions.  Costs of these planscharged to operations were $2 million, nil and $3 million in 2009, 2008 and2007, respectively.

 

RiverSource Lifeparticipates in the defined benefit health care plans of Ameriprise Financialthat provide health care and life insurance benefits to retired employees andretired financial advisors.  The plansinclude participant contributions and service related eligibilityrequirements.  Upon retirement, suchemployees are considered to have been employees of Ameriprise Financial.  Ameriprise Financial expenses these benefitsand allocates the expenses to its subsidiaries. The cost of these plans charged to operations in 2009, 2008 and 2007 wasnil, $1 million and $2 million, respectively.

 

Charges by AmeripriseFinancial and affiliated companies to RiverSource Life for use of joint facilities,technology support, marketing services and other services aggregated $580million, $673 million and $909 million for 2009, 2008 and 2007,respectively.  Certain of these costs areincluded in DAC.  Expenses allocated toRiverSource Life may not be reflective of expenses that would have beenincurred by RiverSource Life on a stand-alone basis.

 

Dividends paid andreceived were as follows:

 
| ** **                                                                              | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                              | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                              | ** ** | **(in millions)**                 | ** ** |
| Cash  dividends paid to Ameriprise Financial                                            |       | $                                 | —     |   | $ | 775 |   | $ | 900 |   |
| Cash  dividends paid to RiverSource Life Insurance Company from RiverSource Life of  NY |       | —                            |       | 77 |   | 83 |   |
| Cash  dividend paid to RiverSource Life Insurance Company from RTA                      |       | 22                                |       | — |   | — |   |
| Non-cash  dividend paid to Ameriprise Financial from RTA                                |       | —                            |       | 118 |   | — |   |
|                                                                                         |            |                                   |            |  |  |  |  |  |  |  |

 

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

 

74

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During 2008, RiverSourceLife received a non-cash capital contribution of $83 million comprised of belowinvestment grade syndicated bank loans from Ameriprise Financial. In addition,RiverSource Life Insurance Company received a $239 million contribution fromAmeriprise Financial, consisting of all the issued and outstanding shares ofRTA.

 

During 2009, RiverSourceLife Insurance Company received a non-cash capital contribution of $131 millioncomprised of two buildings and the related land from Ameriprise Financial.  As part of the transaction, RiverSource LifeInsurance Company entered into an agreement to lease the buildings toAmeriprise Financial.  In addition,RiverSource Life Insurance Company received a non-cash capital contribution of$200 million consisting of a reduction of the outstanding balance due toAmeriprise Financial under a line of credit. See Note 10 for more information on RiverSource Life’s lines of credit.

 

There were no amountsincluded in other liabilities at December 31, 2009 and 2008 payable toAmeriprise Financial for federal income taxes.

 

During 2009, RiverSourceLife sold corporate bonds of $27 million to Ameriprise Financial and recognizeda gain of $9 million.

 

**13.****  Statutory Capital and Surplus**

 

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 $433 million and$173 million as of December 31, 2009 and 2008, 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:

 
| ** **                                    | ** ** | **2009**          | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------------------|------------|-------------------|------------|------------|------------|------------|------------|
| ** **                                    | ** ** | **(in millions)** | ** ** |
| ** **                                    | ** ** | **(unaudited)**   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Statutory  net gain (loss) from operations(1) |       | $                 | 1,793      |       | $          | (1,184     | )          | $ | 523 |   |
| Statutory  net income (loss)(1)               |       | 1,887             |       | (1,407     | )          | 555        |       |
| Statutory  capital and surplus                |       | 3,371             |       | 2,529      |       | 2,820      |       |
|                                               |            |                   |            |            |            |            |            |  |  |  |

 

----

(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. These impacts were substantially reversed in2009.

 

75

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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,** | ** ** |
|---------------------------------------|------------|-----------------------------------|------------|
| ** **                            | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                            | ** ** | **(in millions)**                 | ** ** |
| Current  income tax:                  |       |                              |       |   |   |   |   |
| Federal                               |       | $                                 | 325        |   | $ | 42 |   | $ | (30 | ) |
| State                                 |       | 1                                 |       | 3 |   | — |   |
| Total  current income tax             |       | 326                               |       | 45 |   | (30 | ) |
| Deferred  income tax                  |       |                              |       |   |   |   |   |
| Federal                               |       | (80                               | )          | (236 | ) | 83 |   |
| State                                 |       | (1                                | )          | 2 |   | — |   |
| Total  deferred income tax            |       | (81                               | )          | (234 | ) | 83 |   |
| Total  income tax provision (benefit) |       | $                                 | 245        |   | $ | (189 | ) | $ | 53 |   |

 

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,** | ** ** |
|------------------------------------------|------------|-----------------------------------|------------|
| ** **                               | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Tax  at U.S. statutory rate              |       | 35.0                              | %          | 35.0 | % | 35.0 | % |
| Changes  in taxes resulting from:        |       |                              |       |   |   |   |   |
| Tax-exempt  interest and dividend income |       | (7.2                              | )          | 56.6 |   | (10.9 | ) |
| State  taxes, net of federal benefit     |       | —                            |       | (3.7 | ) | — |   |
| Low  income housing credit               |       | (2.0                              | )          | 27.9 |   | (7.0 | ) |
| Foreign  tax credit, net of addback      |       | (1.0                              | )          | 15.3 |   | (2.3 | ) |
| Taxes  applicable to prior years         |       | 0.1                               |       | 29.2 |   | (4.0 | ) |
| Other,  net                              |       | —                            |       | (0.2 | ) | — |   |
| Income  tax provision                    |       | 24.9                              | %          | 160.1 | % | 10.8 | % |

 

RiverSource Life’seffective tax rate was 24.9% and 160.1% for the years ended December 31,2009 and 2008, respectively.   The decrease in the effective tax rate isprimarily due to pretax income for 2009 compared to a pretax loss in relationto a net tax benefit for 2008. RiverSource Life’s effective tax rate for 2008included a $39 million tax benefit related to changes in the status of currentaudits.

 

76

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Deferred income taxassets and liabilities result from temporary differences between the assets andliabilities measured for GAAP reporting versus income tax return purposes.  The significant components of RiverSourceLife’s deferred income tax assets and liabilities are reflected in thefollowing table:

 
| ** **                                                              | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                              | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                                              | ** ** | **(in millions)**     | ** ** |
| Deferred  income tax assets:                                            |       |                  |       |   |   |
| Liabilities  for future policy benefits                                 |       | $                     | 1,390      |   | $ | 1,744 |   |
| Investment  related                                                     |       | 163                   |       | — |   |
| Net  unrealized losses on Available-for-Sale securities and derivatives |       | —                |       | 399 |   |
| Net  operating loss and tax credit carryforwards                        |       | 185                   |       | 159 |   |
| Other                                                                   |       | —                |       | 44 |   |
| Gross  deferred income tax assets                                       |       | 1,738                 |       | 2,346 |   |
|                                                                    |       |                  |       |   |   |
| Deferred  income tax liabilities:                                       |       |                  |       |   |   |
| DAC                                                                     |       | 1,264                 |       | 1,168 |   |
| Investment  related                                                     |       | —                |       | 398 |   |
| Net  unrealized gains on Available-for-Sale securities                  |       | 203                   |       | — |   |
| DSIC                                                                    |       | 193                   |       | 181 |   |
| Other                                                                   |       | 15                    |       | — |   |
| Gross  deferred income tax liabilities                                  |       | 1,675                 |       | 1,747 |   |
| Net  deferred income tax assets                                         |       | $                     | 63         |   | $ | 599 |   |

 

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, (i) future taxable incomeexclusive of reversing temporary differences and carryforwards, (ii) futurereversals of existing taxable temporary differences, (iii) taxable incomein prior carryback years, and (iv) tax planning strategies.

 

Basedon analysis of RiverSource Life’s tax position, management believes it is morelikely than not that the results of future operations and implementation of taxplanning strategies will generate sufficient taxable income to enableRiverSource Life to utilize all of its deferred tax assets.  Accordingly, no valuation allowance fordeferred tax assets has been established as of December 31, 2009 and 2008.

 

Additionally,RiverSource Life has tax benefits related to net operating loss carryforwardsof $16 million which expire beginning December 31, 2025 as well as taxcredit carryforwards of $149 million which expire beginning December 31,2025.

 

A reconciliationof the beginning and ending amount of gross unrecognized tax benefits is asfollows:

 
| ** **                                                                 | ** ** | **2009**          | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------|------------|----------|------------|----------|------------|
| ** **                                                                 | ** ** | **(in millions)** | ** ** |
| Balance  at January 1                                                 |       | $                 | (89        | )        | $          | 97       |       | $ | 73 |   |
| Additions  (reductions) based on tax positions related to the current year |       | 1                 |       | (165     | )          | 34       |       |
| Additions  for tax positions of prior years                                |       | 18                |       | 38       |       | 16       |       |
| Reductions  for tax positions of prior years                               |       | (7                | )          | (59      | )          | (26      | )          |
| Balance  at December 31                                               |       | $                 | (77        | )        | $          | (89      | )          | $ | 97 |   |

 

77

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Ifrecognized, approximately $49 million, $30 million and $49 million, net offederal tax benefits, of the unrecognized tax benefits as of December 31,2009, 2008 and 2007, 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 $1 million, $14 millionand $11 million in interest and penalties for the year ended December 31,2009, 2008 and 2007, respectively.  At December 31,2009 and 2008, RiverSource Life had a receivable of $16 million and $15million, respectively, related to accrued interest and penalties.

 

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 and completed itsfield examination of 2003 through 2004 in the third quarter of 2009.  However, for federal income tax purposes,these years continue to remain open as a consequence of certain issues underappeal.  In the fourth quarter of 2008,the IRS commenced an examination of RiverSource Life’s U.S. income tax returnsfor 2005 through 2007, which is expected to be completed in 2010.  RiverSource Life or certain of itssubsidiaries’ state income tax returns are currently under examination byvarious jurisdictions for years ranging from 1998 through 2006.

 

On September 25,2007, the IRS issued Revenue Ruling 2007-61 in which it announced that itintends to issue regulations with respect to certain computational aspects ofthe Dividends Received Deduction (“DRD”) related to separate account assetsheld in connection with variable contracts of life insurance companies. 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.   Additionally, included in the Administration’s2011 Revenue Proposals is a provision to modify the DRD for life insurancecompanies’ separate accounts, which if enacted could significantly reduce theDRD tax benefits RiverSource Life receives, prospectively, beginning in2011.  For the year ended December 31,2009, RiverSource Life recorded a benefit of approximately $62 million relatedto the current year’s separate account DRD.

 

As aresult of the separation of Ameriprise Financial from American Express,RiverSource Life and subsidiaries will not be able to file a consolidated U.S.federal income tax return with other members of Ameriprise Financial’saffiliated group until 2010.

 

The itemscomprising other comprehensive income (loss) are presented net of the followingincome tax provision (benefit) amounts:

 
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------|------------|
| ** **                                | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                | ** ** | ** **                        | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| Net  unrealized securities gains (losses) |       | $                                 | 166        |   | $ | (302 | ) | $ | 28 |   |
| Net  unrealized derivative gains          |       | 2                                 |       | 2 |   | — |   |
| Net  income tax provision (benefit)       |       | $                                 | 168        |   | $ | (300 | ) | $ | 28 |   |

 

78

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**15.**** ****Derivatives and Hedging Activities**

 

Derivativeinstruments enable RiverSource Life to manage its exposure to various marketrisks. The value of such instruments is derived from an underlyingvariable or multiple variables, including equity and interest rate indices orprices. RiverSource Life primarily enters into derivative agreements for riskmanagement purposes related to RiverSource Life’s products and operations.

 

RiverSourceLife uses derivatives as economic hedges and occasionally holds derivativesdesignated for hedge accounting. The following table presents the balance sheetlocation and the gross fair value of derivative instruments, including embeddedderivatives, by type of derivative and product at December 31, 2009:

 
| **Derivatives not designated as hedging instruments** | ** ** | **Balance Sheet  Location** | ** ** | **Asset**         | ** ** | **Balance Sheet  Location** | ** **        | **Liability**     | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|-------------------|------------|-----------------------------|-------------------|-------------------|------------|
| ** **                                            | ** ** | ** **                  | ** ** | **(in millions)** | ** ** | ** **                  | ** **        | **(in millions)** | ** ** |
| **Interest rate contracts**                           | ** ** | ** **                  | ** ** | ** **        | ** ** | ** **                  | ** **        | ** **        | ** ** |
| GMWB  and GMAB                                        |       | Other assets                |       | $                 | 176        |                        | Other liabilities |              | $          | 280 |   |
|                                                  |       |                        |       |              |       |                        |              |              |       |
| **Equity contracts**                                  |       |                        | ** ** | ** **        |       |                        |              |              |       |
| GMWB  and GMAB                                        |       | Other assets                |       | 437               |       | Other liabilities           |              | 474               |       |
| GMDB                                                  |       |                        |       | —            |       | Other liabilities           |              | 2                 |       |
| Equity  indexed annuities                             |       | Other assets                |       | 2                 |       |                        |              | —            |       |
| Equity  indexed annuities embedded derivatives        |       |                        | ** ** | **—**        |       | Future policy benefits      |              | 9                 |       |
|                                                  |       |                        | ** ** | ** **        |       |                        |              |              |       |
| **Other**                                             |       |                        |       |              |       |                        |              |              |       |
| GMWB  and GMAB embedded derivatives(1)                |       |                        |       | —            |       | Future policy benefits      |              | 299               |       |
| Total                                                 |       |                        |       | $                 | 615        |                        |              |              | $          | 1,064 |   |

 

----

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

 

See Note 11 for additional information regardingRiverSource Life’s fair value measurement of derivative instruments.

 

**DerivativesNot Designated as Hedges**

 

Thefollowing table presents a summary of the impact of derivatives not designatedas hedging instruments on the Consolidated Statements of Income for the yearended December 31, 2009:

 
| **Derivatives not designated as  hedging instruments** | ** ** | **Location of Gain (Loss)  on Derivatives Recognized in Income** | ** ** | **Amount of Gain (Loss)  on Derivatives  Recognized in Income** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                                       | ** ** | **(in millions)**                                               | ** ** |
| **Interest rate contracts**                            | ** ** | ** **                                                       | ** ** | ** **                                                      | ** ** |
| GMWB  and GMAB                                         |       | Benefits, claims,  losses and settlement expenses                |       | $                                                               | (435       | ) |
|                                                   |       |                                                             |       |                                                            |       |
| **Equity contracts**                                   |       |                                                             |       |                                                            |       |
| GMWB  and GMAB                                         |       | Benefits, claims,  losses and settlement expenses                |       | (1,310                                                          | )          |
| GMDB                                                   |       | Benefits, claims,  losses and settlement expenses                |       | (10                                                             | )          |
| Equity  indexed annuities                              |       | Interest credited to  fixed accounts                             |       | 4                                                               |       |
| Equity  indexed annuities embedded derivatives         |       | Interest credited to  fixed accounts                             |       | 7                                                               |       |
|                                                   |       |                                                             |       |                                                            |       |
| **Other**                                              |       |                                                             |       |                                                            |       |
| GMWB  and GMAB embedded derivatives                    |       | Benefits, claims,  losses and settlement expenses                |       | 1,533                                                           |       |
| Total                                                  |       |                                                             |       | $                                                               | (211       | ) |

 

79

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RiverSourceLife holds derivative instruments that either do not qualify or are notdesignated for hedge accounting treatment. These derivative instruments areused as economic hedges of equity and interest rate risk related to variousRiverSource Life products and transactions.

 

Themajority of RiverSource Life’s annuity contracts contain GMDB provisions, whichmay result in a death benefit payable that exceeds the contract accumulationvalue when market values of customers’ accounts decline. Certain annuitycontracts contain GMWB or GMAB provisions, which guarantee the right to makelimited partial withdrawals each contract year regardless of the volatilityinherent in the underlying investments or guarantee a minimum accumulationvalue of considerations received at the beginning of the contract period, aftera specified holding period, respectively. RiverSource Life economically hedgesthe exposure related to non-life contingent GMWB and GMAB provisions usingvarious equity futures, equity options, total return swaps, interest rateswaptions and interest rate swaps. In the third quarter of 2009, RiverSourceLife entered into a limited number of derivative contracts to economicallyhedge equity exposure related to GMDB provisions on variable annuity contractswritten previously in 2009.  At December 31,2009, the gross notional amount of these contracts was $38.7 billion and $77million for RiverSource Life’s GMWB and GMAB provisions and GMDB provisions,respectively. The premium associated with certain of the above options ispaid or received semi-annually over the life of the option contract.

 

Thefollowing is a summary of the payments RiverSource Life is scheduled to makeand receive for these options:

 
| ** ** | ** ** | **Premiums  Payable** | ** ** | **Premiums  Receivable** | ** ** |
|------------|------------|-----------------------|------------|--------------------------|------------|
| ** ** | ** ** | **(in millions)**     | ** ** |
| 2010       |       | $                     | 189        |                     | $          | 5 |   |
| 2011       |       | 181                   |       | 4                        |       |
| 2012       |       | 160                   |       | 3                        |       |
| 2013       |       | 143                   |       | 2                        |       |
| 2014       |       | 118                   |       | 1                        |       |
| 2015-2024  |       | 410                   |       | 4                        |       |
|            |            |                       |            |                          |            |  |  |

 

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

 

Equityindexed annuities have returns tied to the performance of equity markets. As aresult of fluctuations in equity markets, the obligation incurred byRiverSource Life related to equity indexed annuities products will positivelyor negatively impact earnings over the life of these products. As a means ofeconomically hedging its obligations under the provisions of these products,RiverSource Life enters into index options and occasionally enters into futurescontracts. The gross notional amount of these derivative contracts was $129million at December 31, 2009.

 

**Embedded Derivatives**

 

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

 

**Cash Flow Hedges**

 

RiverSourceLife has amounts classified in accumulated other comprehensive income (loss)related to gains and losses associated with the effective portion of previouslydesignated cash flow hedges. RiverSource Life reclassifies these amounts intoincome as the forecasted transactions impact earnings. During the year ended December 31,2009, RiverSource Life held no derivatives that were designated as cash flowhedges.

 

80

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Thefollowing is a summary of unrealized derivatives gains (losses) included inaccumulated other comprehensive income (loss) related to cash flow hedges:

 
| ** **                                              | ** ** | **2009**   | ** ** | **2008**          | ** ** | **2007**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| Net  unrealized derivatives losses at January 1    |       | $          | (38        | )                 | $          | (40        | )          | $ | (41 | ) |
| Unrealized  derivative losses arising during the period |       | —     |       | (1                | )          | (1         | )          |
| Reclassification  of realized gains(1)                  |       | 6          |       | 5                 |       | 2          |       |
| Income  tax provision (benefit)                         |       | (2         | )          | (2                | )          | —     |       |
| Net  unrealized derivatives losses at December 31  |       | $          | (34        | )                 | $          | (38        | )          | $ | (40 | ) |

 

----

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

 

At December 31,2009, RiverSource Life expects to reclassify $6 million of deferred losson derivative instruments from accumulated other comprehensive income (loss) toearnings during the next 12 months that will be recorded in net investmentincome. These were originally losses on derivative instruments related tointerest rate swaptions. For any hedge relationships that are discontinuedbecause the forecasted transaction is not expected to occur according to theoriginal strategy, any related amounts previously recorded in accumulated othercomprehensive income (loss) are recognized in earnings immediately. No hedgerelationships were discontinued during the years ended December 31, 2009,2008 and 2007 due to forecasted transactions no longer being expected to occuraccording to the original hedge strategy. For the years ended December 31, 2009 and 2008, there were noamounts recognized in earnings on derivative transactions that wereineffective. For the year ended December 31, 2007, RiverSource Liferecognized $2 million in net investment income related to ineffectiveness onits swaptions.

 

Currently, the longest period oftime over which RiverSource Life is hedging exposure to the variability infuture cash flows is 9 years and relates to interest credited onforecasted fixed premium product sales.

 

**Credit Risk**

 

Credit risk associated withRiverSource Life’s derivatives is the risk that a derivative counterparty willnot perform in accordance with the terms of the applicable derivative contract.To mitigate such risk, RiverSource Life has established guidelines andoversight of credit risk through a comprehensive enterprise risk managementprogram that includes members of senior management. Key components of thisprogram are to require preapproval of counterparties and the use of masternetting arrangements and collateral arrangements wherever practical. As of December 31,2009, RiverSource Life held $88 million in cash and cash equivalents andrecorded a corresponding liability in other liabilities for collateralRiverSource Life is obligated to return to counterparties.  As of December 31, 2009,RiverSource Life had accepted additional collateral consisting of varioussecurities with a fair market value of $22 million, which are not reflected onthe Consolidated Balance Sheets.  As of December 31, 2009,RiverSource Life’s maximum credit exposure related to derivative assets afterconsidering netting arrangements with counterparties and collateral arrangementswas approximately $53 million.

 

Certain of RiverSource Life’sderivative instruments contain provisions that adjust the level of collateralRiverSource Life is required to post based on RiverSource Life’s financialstrength rating (or based on the debt rating of RiverSource Life’s parent,Ameriprise Financial). Additionally, certain of RiverSource Life’s derivativecontracts contain provisions that allow the counterparty to terminate thecontract if RiverSource Life does not maintain a specific financial strengthrating or Ameriprise Financial’s debt does not maintain a specific creditrating (generally an investment grade rating). If these termination provisions were to be triggered, RiverSource Life’scounterparty could require immediate settlement of any net liability position.At December 31, 2009, the aggregate fair value of all derivativeinstruments containing such credit risk features was $296 million. Theaggregate fair value of assets posted as collateral for such instruments as of December 31, 2009was $269 million. If the credit risk features of derivative contracts that werein a net liability position at December 31, 2009 were triggered, theadditional fair value of assets needed to settle these derivative liabilitieswould have been $27 million.

 

81

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**16.**** ****Commitments and Contingencies**

 

At December 31, 2009and 2008, 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 31,2009, 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 and arbitrationproceedings concerning matters arising in connection with the conduct of itsbusiness activities.  RiverSource Lifebelieves that it is not a party to, nor are any of its properties the subjectof, any pending legal, arbitration or regulatory proceedings that would have amaterial adverse effect on its consolidated financial condition, results ofoperations or liquidity.  However, it ispossible that the outcome of any such proceedings could have a material impacton results of operations in any particular reporting period as the proceedingsare resolved.

 

82

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| **ITEM  9.** | ** ** | **CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |
|--------------|------------|-------------------------------------------------------------------------------------------|

 

None.

 
| **ITEM  9A(T).** | ** ** | **CONTROLS  AND PROCEDURES** |
|------------------|------------|------------------------------|

 

**Disclosure Controls andProcedures**

 

RiverSource Lifemaintains disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”)) designed to provide reasonable assurance that the informationrequired to be reported in the Exchange Act filings is recorded, processed,summarized and reported within the time periods specified and pursuant toSecurities and Exchange Commission (“SEC”) regulations, including controls andprocedures designed to ensure that this information is accumulated andcommunicated to RiverSource Life’s management, including its principalexecutive officer and chief financial officer, as appropriate, to allow timelydecisions regarding the required disclosure. It should be noted that, because of inherent limitations, RiverSourceLife’s disclosure controls and procedures, however well designed and operated,can provide only reasonable, and not absolute, assurance that the objectives ofthe disclosure controls and procedures are met.

 

RiverSource Life’smanagement, under the supervision and with the participation of RiverSourceLife’s principal executive officer and chief financial officer, evaluated theeffectiveness of the disclosure controls and procedures as of the end of theperiod covered by this report.  Basedupon that evaluation, RiverSource Life’s principal executive officer and chieffinancial officer have concluded that RiverSource Life’s disclosure controlsand procedures were effective at a reasonable level of assurance as of December 31,2009.

 

**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 forRiverSource Life.

 

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

 

The management of RiverSource Lifeis responsible for establishing and maintaining adequate internal control overfinancial reporting.

 

RiverSource Life’s internal controlover financial reporting is a process designed by or under the supervision of,RiverSource Life’s principal executive and principal financial officers andeffected by RiverSource Life’s Board of Directors, management and otherpersonnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles in theUnited States of America, and includes those policies and procedures that:

 

·                  Pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of RiverSource Life;

 

·                  Providereasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of RiverSource Life are beingmade only in accordance with authorizations of management and directors ofRiverSource Life; and

 

·                  Providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of RiverSource Life’s assets that could have amaterial effect on the financial statements.

 

Because of its inherent limitations,internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

83

----

 

RiverSource Life’s management, withthe participation of its principal executive officer and chief financialofficer, assessed the effectiveness of RiverSource Life’s internal control overfinancial reporting as of December 31, 2009. 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’s assessment andthose criteria, RiverSource Life believes that, as of December 31, 2009,RiverSource Life’s internal control over financial reporting is effective.

 

This annual report does not includean attestation report of RiverSource Life’s independent registered publicaccounting firm regarding internal control over financial reporting.  Management’s report was not subject toattestation by RiverSource Life’s independent registered public accounting firmpursuant to temporary rules of the SEC that permit RiverSource Life toprovide only management’s report in this annual report.

 
| **ITEM  9B.** | ** ** | **OTHER  INFORMATION** |
|---------------|------------|------------------------|

 

None.

 

**PART III**

 
| **ITEM  10.** | ** ** | **DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE** |
|---------------|------------|-------------------------------------------------------------|

 

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

 
| **ITEM  11.** | ** ** | **EXECUTIVE  COMPENSATION** |
|---------------|------------|-----------------------------|

 

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

 
| **ITEM  12.** | ** ** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS** |
|---------------|------------|------------------------------------------------------------------------------------------------------|

 

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

 
| **ITEM  13.** | ** ** | **CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE** |
|---------------|------------|--------------------------------------------------------------------------------|

 

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

 
| **ITEM  14.** | ** ** | **PRINCIPAL  ACCOUNTANT 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, 2009 and 2008.

 

***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, 2009 and 2008 and other fees billed for other servicesrendered by Ernst & Young during those periods.

 
| ** **          | ** ** | **2009**           | ** ** | **2008** | ** ** |
|---------------------|------------|--------------------|------------|----------|------------|
| ** **          | ** ** | **(in thousands)** | ** ** |
| Audit  Fees (1)     |       | $                  | 2,361      |     | $          | 2,183 |   |
| Audit-related  Fees |       | 26                 |       | 25       |       |
| Tax  Fees           |       | —             |       | —   |       |
| All  Other Fees     |       | —             |       | —   |       |
| Total               |       | $                  | 2,387      |     | $          | 2,208 |   |

 

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(1)    Auditfees included audit work performed in the review 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.

 

84

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***Policy onPre-Approval of Services Provided by Independent Registered Public AccountingFirm***

 

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 2009 and 2008, 100% ofthe services provided by Ernst & Young for RiverSource Life werepre-approved by the Audit Committee of Ameriprise Financial.

 

**PART IV**

 

**ITEM15.               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. |

 

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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

 

 
| February 23, 2010 |   | 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.

 
| February 23, 2010 |   |   | /s/ Timothy V. Bechtold                               |
|------------------------|--------|--------|-------------------------------------------------------|
| Date                   |   |   | Timothy V. Bechtold,  Director and President          |
|                   |   |   | (Principal Executive  Officer)                        |
|                   |   |   |                                                  |
| February 23, 2010 |   |   | /s/ Brian J. McGrane                                  |
| Date                   |   |   | Brian J. McGrane,  Director, Executive Vice President |
|                   |   |   | and Chief Financial  Officer                          |
|                   |   |   | (Principal Financial  Officer)                        |
|                   |   |   |                                                  |
| February 23, 2010 |   |   | /s/ Gumer C. Alvero                                   |
| Date                   |   |   | Gumer C. Alvero,  Director                            |
|                   |   |   |                                                  |
| February 23, 2010 |   |   | /s/ David K. Stewart                                  |
| Date                   |   |   | David K. Stewart, Vice  President and Controller      |
|                   |   |   | (Principal Accounting  Officer)                       |
|                   |   |   |                                                  |
| February 23, 2010 |   |   | /s/ Kevin E. Palmer                                   |
| Date                   |   |   | Kevin E. Palmer,  Director                            |

 

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**EXHIBIT INDEX**

 

The following exhibits arefiled as part of this Annual Report or, where indicated, were already filed andare hereby incorporated by reference.

 

3.1                                 Copy of Certificate of Incorporation ofIDS Life Insurance Company filed as Exhibit 3.1 to Post-EffectiveAmendment No. 5 to Registration Statement No. 33-28976 isincorporated by reference.

 

3.1.1                        Copy of Certificate of Amendment ofCertificate 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 isincorporated by reference.

 

3.2                                 Copy of Amended and Restated By-Laws ofRiverSource Life Insurance Company dated June 22, 2006, filed as Exhibit 27(f)(2) toPost-Effective Amendment No. 28 to Registration Statement No. 333-69777,is incorporated by reference.

 

4.1                                 Instruments defining the rights ofsecurity holders, including indentures, are incorporated by reference toRegistration 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 Agreementfor Variable Annuities and Variable Life Insurance between RiverSource LifeInsurance 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 amongRiverSource Life Insurance Company, RiverSource Distributors, Inc. andAmeriprise Financial Services, Inc. effective Jan. 1, 2007, filed as Exhibit 10.2to Form 10-K filed on Feb. 28, 2007, is incorporated by reference.

 

10.3                           Copy of Marketing Support ServicesAgreement between Ameriprise Financial Services, Inc. and RiverSource LifeInsurance Company effective Jan. 1, 2007, filed as Exhibit 10.3 to Form 10-Kfiled on Feb. 28, 2007, is incorporated by reference.

 

10.4                           Copy of Investment Management andServices Agreement between RiverSource Investments, LLC and RiverSource LifeInsurance Company effective Jan. 1, 2007, filed as Exhibit 10.4 to Form 10-Kfiled on Feb. 28, 2007, is incorporated by reference.

 

10.5                           Form of Federal Income Tax SharingAgreement by and among RiverSource Life Insurance Company, RiverSource LifeInsurance 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 amongRiverSource Life Insurance Company, Ameriprise India Private Limited, andAmeriprise Financial, Inc. (a/k/a/ Supplementary Agreement No. 1)effective Jan. 1, 2007, filed as Exhibit 10.6 to Form 10-K filedon 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 Companyeffective Jan. 1, 2007, filed as Exhibit 10.7 to Form 10-K filedon Feb. 28, 2007, is incorporated by reference.

 

10.8                           Copy of RiverSource Variable PortfolioFunds Service Agreement by and between RiverSource Distributors, Inc. andRiverSource Life Insurance Company effective Jan. 1, 2007, filed as Exhibit 10.8to Form 10-K filed on Feb. 28, 2007, is incorporated by reference.

 

E-1

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**EXHIBITINDEX (Continued)**

 

*31.1              Certificationof Timothy V. Bechtold, President, pursuant to Rule 13a-14(a) promulgatedunder the Securities Exchange Act of 1934, as amended.

 

*31.2              Certificationof Brian J. McGrane, Chief Financial Officer, pursuant to Rule 13a-14(a) promulgatedunder the Securities Exchange Act of 1934, as amended.

 

*32.1              Certificationof Timothy V. Bechtold, President, and Brian J. McGrane, Chief FinancialOfficer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

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* Filed electronicallyherewith.

 

E-2

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