UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20132014
OR
o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 033-28976
RIVERSOURCE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Minnesota41-0823832
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1099 Ameriprise Financial Center, Minneapolis, Minnesota55474
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:  (612) 671-3131
 Former name, former address and former fiscal year, if changed since last report:   Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     
Yes x No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer o
Accelerated Filer o
 
Non-Accelerated Filer x
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Outstanding at November 4, 20133, 2014
Common Stock (par value $30 per share) 100,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
     




RIVERSOURCE LIFE INSURANCE COMPANY



 
FORM 10-Q
 
INDEX
 





RIVERSOURCELIFE INSURANCE COMPANY



PART I. FINANCIAL INFORMATION
 

ITEM 1.
FINANCIAL STATEMENTS 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share amounts)
September 30, 2014 December 31, 2013
September 30, 2013 December 31, 2012(unaudited)  
Assets 
  
 
  
Investments: 
  
 
  
Available-for-Sale: 
  
 
  
Fixed maturities, at fair value (amortized cost: 2013, $22,790; 2012, $23,058)$24,425
 $25,932
Common stocks, at fair value (cost: 2013 and 2012, $2)5
 4
Mortgage loans, at amortized cost (less allowance for loan losses: 2013, $24; and 2012, $26)3,332
 3,389
Fixed maturities, at fair value (amortized cost: 2014, $21,660; 2013, $22,902)$23,569
 $24,387
Common stocks, at fair value (cost: 2014 and 2013, $2)8
 6
Mortgage loans, at amortized cost (less allowance for loan losses: 2014, $22; 2013, $24)3,300
 3,326
Policy loans768
 752
804
 773
Other investments771
 743
968
 915
Total investments29,301
 30,820
28,649
 29,407
Cash and cash equivalents241
 336
286
 344
Restricted cash
 86
Reinsurance recoverables2,141
 2,047
2,233
 2,177
Other receivables190
 203
254
 195
Accrued investment income273
 291
256
 275
Deferred acquisition costs2,583
 2,373
2,573
 2,633
Deferred sales inducement costs412
 404
Other assets3,628
 3,793
4,378
 4,357
Separate account assets74,512
 69,395
78,313
 77,616
Total assets$113,281
 $109,748
$116,942
 $117,004
Liabilities and Shareholder’s Equity 
  
 
  
Liabilities: 
  
 
  
Policyholder account balances and future policy benefits$29,342
 $30,670
Policy claims and other policyholder funds162
 132
Policyholder account balances, future policy benefits and claims$29,312
 $29,149
Short-term borrowings500
 501
200
 500
Line of credit with Ameriprise Financial, Inc.150
 150

 150
Other liabilities4,425
 4,201
4,582
 5,431
Separate account liabilities74,512
 69,395
78,313
 77,616
Total liabilities109,091
 105,049
112,407
 112,846
Shareholder’s equity: 
  
 
  
Common stock, $30 par value; 100,000 shares authorized, issued and outstanding3
 3
3
 3
Additional paid-in capital2,463
 2,462
2,464
 2,463
Retained earnings1,016
 1,000
1,307
 1,042
Accumulated other comprehensive income, net of tax708
 1,234
761
 650
Total shareholder’s equity4,190
 4,699
4,535
 4,158
Total liabilities and shareholder’s equity$113,281
 $109,748
$116,942
 $117,004
See Notes to Consolidated Financial Statements.

1



RIVERSOURCE LIFE INSURANCE COMPANY


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in millions)
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2013 2012 2013 20122014 2013 2014 2013
Revenues 
  
  
  
 
  
  
  
Premiums$106
 $111
 $320
 $333
$105
 $106
 $319
 $320
Net investment income350
 364
 1,067
 1,118
319
 350
 975
 1,067
Policy and contract charges424
 373
 1,274
 1,172
445
 424
 1,357
 1,274
Other revenues90
 84
 266
 242
98
 90
 292
 266
Net realized investment gains5
 1
 3
 1
7
 5
 12
 3
Total revenues975
 933
 2,930
 2,866
974
 975
 2,955
 2,930
Benefits and expenses 
  
  
  
 
  
  
  
Benefits, claims, losses and settlement expenses297
 376
 839
 970
262
 297
 750
 839
Interest credited to fixed accounts204
 206
 600
 621
168
 204
 529
 600
Amortization of deferred acquisition costs(32) 52
 102
 152
94
 (32) 226
 102
Other insurance and operating expenses182
 185
 555
 576
188
 182
 560
 555
Total benefits and expenses651
 819
 2,096
 2,319
712
 651
 2,065
 2,096
Pretax income324
 114
 834
 547
262
 324
 890
 834
Income tax provision59
 13
 143
 112
38
 59
 125
 143
Net income$265
 $101
 $691
 $435
$224
 $265
 $765
 $691
       
Supplemental Disclosures: 
  
  
  
 
  
  
  
Total other-than-temporary impairment losses on securities$(7) $
 $(10) $(9)$(5) $(7) $(6) $(10)
Portion of loss recognized in other comprehensive income (loss) (before taxes)5
 (5) 6
 (3)1
 5
 1
 6
Net impairment losses recognized in net realized investment gains$(2) $(5) $(4) $(12)$(4) $(2) $(5) $(4)


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions)
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
2013 2012 2013 20122014 2013 2014 2013
Net income$265
 $101
 $691
 $435
$224
 $265
 $765
 $691
Other comprehensive income (loss), net of tax: 
  
  
  
 
  
  
  
Net unrealized gains (losses) on securities: 
  
  
  
 
  
  
  
Net unrealized securities gains (losses) arising during the period(67) 309
 (811) 486
(137) (67) 285
 (811)
Reclassification of net securities gains included in net income(3) 
 (2) 
(6) (3) (9) (2)
Impact of deferred acquisition costs, deferred sales inducement costs, benefit reserves and reinsurance recoverables18
 (112) 283
 (174)(1) 18
 (168) 283
Total net unrealized gains (losses) on securities(52) 197
 (530) 312
(144) (52) 108
 (530)
Net unrealized losses on derivatives: 
  
  
  
 
  
  
  
Reclassification of net derivative losses included in net income1
 2
 4
 4
1
 1
 3
 4
Total net unrealized losses on derivatives1
 2
 4
 4
1
 1
 3
 4
Total other comprehensive income (loss), net of tax(51) 199
 (526) 316
(143) (51) 111
 (526)
Total comprehensive income$214
 $300
 $165
 $751
$81
 $214
 $876
 $165
See Notes to Consolidated Financial Statements.


2



RIVERSOURCE LIFE INSURANCE COMPANY


CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)
(in millions)

Common
Shares
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 Total
Balances at January 1, 2012$3
 $2,461
 $1,215
 $931
 $4,610
Comprehensive income: 
  
  
  
  
Net income
 
 435
 
 435
Other comprehensive income, net of tax
 
 
 316
 316
Total comprehensive income 
  
  
  
 751
Tax adjustment on share-based incentive compensation plan
 1
 
 
 1
Cash dividend to Ameriprise Financial, Inc.
 
 (740) 
 (740)
Balances at September 30, 2012$3
 $2,462
 $910
 $1,247
 $4,622
         
Common
Shares
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 Total
Balances at January 1, 2013$3
 $2,462
 $1,000
 $1,234
 $4,699
$3
 $2,462
 $1,000
 $1,234
 $4,699
Comprehensive income: 
  
  
  
  
 
  
  
  
  
Net income
 
 691
 
 $691

 
 691
 
 691
Other comprehensive loss, net of tax
 
 
 (526) (526)
 
 
 (526) (526)
Total comprehensive income 
  
  
  
 165
 
  
  
  
 165
Tax adjustment on share-based incentive compensation plan
 1
 
 
 1

 1
 
 
 1
Cash dividend to Ameriprise Financial, Inc.
 
 (675) 
 (675)
Cash dividends to Ameriprise Financial, Inc.
 
 (675) 
 (675)
Balances at September 30, 2013$3
 $2,463
 $1,016
 $708
 $4,190
$3
 $2,463
 $1,016
 $708
 $4,190
         
Balances at January 1, 2014$3
 $2,463
 $1,042
 $650
 $4,158
Comprehensive income: 
  
  
  
  
Net income
 
 765
 
 765
Other comprehensive income, net of tax
 
 
 111
 111
Total comprehensive income 
  
  
  
 876
Tax adjustment on share-based incentive compensation plan
 1
 
 
 1
Cash dividends to Ameriprise Financial, Inc.
 
 (500) 
 (500)
Balances at September 30, 2014$3
 $2,464
 $1,307
 $761
 $4,535
See Notes to Consolidated Financial Statements.


3



RIVERSOURCE LIFE INSURANCE COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Nine Months Ended 
 September 30,
Nine Months Ended 
 September 30,
2013 20122014 2013
Cash Flows from Operating Activities 
  
 
  
Net income$691
 $435
$765
 $691
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Depreciation, amortization and accretion, net(17) (8)6
 (17)
Deferred income tax benefit(60) (63)(96) (60)
Contractholder and policyholder charges, non-cash(211) (203)(246) (211)
Loss from equity method investments11
 18
20
 11
Net realized investment gains(7) (13)(20) (7)
Other-than-temporary impairments and provision for loan losses recognized in net realized investment gains4
 12
8
 4
Change in operating assets and liabilities: 
  
Changes in operating assets and liabilities: 
  
Deferred acquisition costs(98) (33)30
 (98)
Deferred sales inducement costs10
 37
Other investments, net
 25
Policyholder account balances and future policy benefits(867) (216)
Policy claims and other policyholder funds30
 9
Policyholder account balances, future policy benefits and claims, net735
 (837)
Derivatives, net of collateral1,129
 325
(483) 1,129
Reinsurance recoverables(86) (67)(70) (86)
Other receivables10
 (31)(23) 10
Accrued investment income18
 24
19
 18
Other, net18
 206
(61) 28
Net cash provided by operating activities575
 457
584
 575
   
Cash Flows from Investing Activities 
  
 
  
Available-for-Sale securities: 
  
 
  
Proceeds from sales171
 148
280
 171
Maturities, sinking fund payments and calls2,773
 2,346
1,843
 2,773
Purchases(2,668) (1,551)(827) (2,668)
Proceeds from sales, maturities and repayments of mortgage loans534
 180
Proceeds from maturities and repayments of mortgage loans407
 534
Funding of mortgage loans(467) (144)(373) (467)
Proceeds from sales of other investments89
 78
Proceeds from sales and collections of other investments103
 89
Purchase of other investments(178) (215)(267) (178)
Purchase of land, buildings, equipment and software(6) (7)(6) (6)
Change in policy loans, net(16) (11)(31) (16)
Advance on line of credit to Ameriprise Financial, Inc.(15) 
Repayment from Ameriprise Financial, Inc. on line of credit15
 
Other, net30
 
10
 30
Net cash provided by investing activities262
 824
1,139
 262
See Notes to Consolidated Financial Statements.


4



RIVERSOURCE LIFE INSURANCE COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
(in millions)
 
Nine Months Ended 
 September 30,
Nine Months Ended 
 September 30,
2013 20122014 2013
Cash Flows from Financing Activities 
  
 
  
Policyholder account balances: 
  
 
  
Considerations received$1,020
 $1,082
Deposits and other additions$1,526
 $1,589
Net transfers to separate accounts(54) (30)(167) (54)
Surrenders and other benefits(910) (909)(1,896) (1,479)
Change in short-term borrowings, net(2) (5)(301) (2)
Proceeds from line of credit with Ameriprise Financial, Inc.
 268
42
 
Payments on line of credit with Ameriprise Financial, Inc.
 (418)(192) 
Tax adjustment on share-based incentive compensation plan1
 1
1
 1
Cash received for purchased options with deferred premiums8
 
Cash paid for purchased options with deferred premiums(312) (256)(302) (312)
Cash dividend to Ameriprise Financial, Inc.(675) (740)
Cash dividends to Ameriprise Financial, Inc.(500) (675)
Net cash used in financing activities(932) (1,007)(1,781) (932)
Net increase (decrease) in cash and cash equivalents(95) 274
Net decrease in cash and cash equivalents(58) (95)
Cash and cash equivalents at beginning of period336
 828
344
 336
Cash and cash equivalents at end of period$241
 $1,102
$286
 $241
   
Supplemental Disclosures: 
  
 
  
Income taxes paid, net$110
 $14
$393
 $110
Interest paid on borrowings3
 4
1
 3
Non-cash investing activity: 
  
 
  
Affordable housing partnership commitments not yet remitted26
 16

 26
 
See Notes to Consolidated Financial Statements.

5



RIVERSOURCELIFE INSURANCE COMPANY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 

1.Basis of Presentation
RiverSource Life Insurance Company is a stock life insurance company with two wholly owned subsidiaries, RiverSource Life Insurance Co. of New York and RiverSource Tax Advantaged Investments, Inc. (“RTA”). RiverSource Life Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”).
The accompanying Consolidated Financial Statements include the accounts of RiverSource Life Insurance Company and companies in which it directly or indirectly has a controlling financial interest (collectively, the “Company”). All intercompany transactions and balances have been eliminated in consolidation.
The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been made. All adjustments made were of a normal recurring nature.
The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain reclassifications of prior period amounts have been made to conform to the current presentation. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012,2013, filed with the Securities and Exchange Commission on February 26, 2013.27, 2014.
The Company has reclassified certain prior year amounts inIn the Consolidated Statements of Cash Flows, within operatingfinancing activities, to provide more detail related to derivatives. The Company previously classified the change in freestanding derivatives in the “Other, net” line and the change in derivatives collateral in the “Derivatives collateral, net” line within operating cash flows. The Company reclassified the changesincrease in freestanding derivatives,policyholder account balances for interest credited from “Policyholder account balances: Surrenders and other benefits” to “Policyholder account balances: Deposits and other additions” to improve the transparency of its cash flows. Total cash flows used in financing activities did not change as well as the change in derivatives collateral, to a new line titled “Derivatives, net of collateral” within operating cash flows.
The interim financial information in this report has not been audited.  In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been made.  Except for the adjustment described below, all adjustments made were of a normal recurring nature.
In the second quarter of 2012, the Company made a correction for a tax item related to prior periods, which resulted in a $32 million decrease to net income. The Company discovered it had received incomplete data from a third party service provider for securities lending activities that resulted in the miscalculation of the Company’s dividend received deduction and foreign tax credit, which resulted in an understatement of taxes payable and an overstatement of reported earnings in prior periods. Management determined that the effectresult of this correction was not material to the Consolidated Financial Statements for all prior periods. The Company resolved the data issue and stopped the securities lending that negatively impacted its tax position.reclassification.
The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. 
2.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
Comprehensive Income Taxes
In FebruaryJuly 2013, the Financial Accounting Standards Board (“FASB”) updated the accounting standard related to comprehensive income. The update requires entities to provide information about significant amounts reclassified out of accumulated other comprehensive income (“AOCI”). The standard is effective for interim and annual periods beginning after December 15, 2012 and is required to be applied prospectively. The Company adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on the Company’s consolidated financial condition and results of operations. See Note 13 for the required disclosures.
Balance Sheet
In December 2011, the FASB updated the accounting standards to require new disclosures about offsetting assets and liabilities. The standard requires an entity to disclose both gross and net information about certain financial instruments and transactions subject to master netting arrangements (or similar agreements) or eligible for offset in the statement of financial position. The standard is effective for interim and annual periods beginning on or after January 1, 2013 on a retrospective basis. The Company adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on the Company’s consolidated financial condition and results of operations. See Note 11 for the required disclosures.

6

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
In October 2010, the FASB updated the accounting standard for deferred acquisition costs (“DAC”). Under this new standard, only the following costs incurred in the acquisition of new and renewal insurance contracts are capitalizable as DAC: (i) incremental direct costs of a successful contract acquisition, (ii) portions of employees’ compensation and benefits directly related to time spent performing acquisition activities (that is, underwriting, policy issuance and processing, medical and inspection, and contract selling) for a contract that has been acquired, (iii) other costs related to  acquisition activities that would not have been incurred had the acquisition of the contract not occurred, and (iv) advertising costs that meet the capitalization criteria in other GAAP guidance for certain direct-response marketing. All other acquisition related costs are expensed as incurred. The Company retrospectively adopted the new standard on January 1, 2012. The cumulative effect of the adoption reduced retained earnings by $1.4 billion after-tax and increased AOCI by $112 million after-tax, totaling to a $1.3 billion after-tax reduction in total equity at January 1, 2012.
Future Adoption of New Accounting Standards
Income Taxes
In July 2013, the FASB updated the accounting standard for income taxes. The update provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard is effective for interim and annual periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company adopted the standard in the first quarter of 2014. The adoption of the standard did not have any effect on the Company’s consolidated financial condition and results of operations.
Future Adoption of New Accounting Standards
Presentation of Financial Statements - Going Concern
In August 2014, the FASB updated the accounting standard related to an entity’s assessment of its ability to continue as a going concern. The standard requires that management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In situations where there is substantial doubt about an entity’s ability to continue as a going concern, disclosure should be made so that a reader can understand the conditions that raise substantial doubt, management’s assessment of those conditions and any plan management has to mitigate those conditions. The standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The adoption of the standard is not expected to have a material impact on the Company'sCompany’s consolidated financial condition and results of operations.
Transfers and Servicing
In June 2014, the FASB updated the accounting standards related to transfers and servicing. The update requires repurchase-to-maturity transactions and linked repurchase financings to be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. The standard requires disclosures related to transfers of financial assets accounted for as sales in transactions that are similar to repurchase agreements. The standard also requires disclosures on the remaining contractual maturity of the agreements, disaggregation of the gross obligation by class of collateral pledged and potential risks associated with the agreements and the related collateral pledged in repurchase agreements, securities lending transactions, and

6

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


repurchase-to-maturity transactions accounted for as secured borrowings. The standard is effective for interim and annual periods beginning after December 15, 2014, except for the disclosure requirements for repurchase-to-maturity transactions accounted for as secured borrowings which are effective for interim periods beginning after March 15, 2015. Early adoption of the standard is prohibited. The standard requires entities to present changes in accounting for transactions outstanding at the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. As the Company does not have repurchase-to-maturity transactions, the adoption of the standard is not expected to have a material impact on the Company’s consolidated financial condition and results of operations.
Revenue from Contracts with Customers
In May 2014, the FASB updated the accounting standards for revenue from contracts with customers. The update provides a five step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract. In addition, the standard requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2016 and early adoption is prohibited. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.
Receivables - Troubled Debt Restructuring by Creditors
In January 2014, the FASB updated the accounting standard related to recognizing residential real estate obtained through a repossession or foreclosure from a troubled debtor. The update clarifies the criteria for derecognition of the loan receivable and recognition of the real estate property. The standard is effective for interim and annual periods beginning after December 15, 2014 and can be applied under a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The adoption of the standard is not expected to have a material impact on the Company’s consolidated financial condition and results of operations.
Investments - Equity Method and Joint Ventures
In January 2014, the FASB updated the accounting standard related to investments in qualified affordable housing projects. The update allows for an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the investment in a qualified affordable housing project is amortized in proportion to the tax credits and other tax benefits received. The net investment performance is recognized as a component of income tax expense (benefit). The standard is effective for interim and annual periods beginning after December 15, 2014 and should be applied retrospectively to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.
3. 
Variable Interest Entities
RTA, a subsidiary of RiverSource Life Insurance Company, has variable interests in affordable housing partnerships for which it is not the primary beneficiary and, therefore, does not consolidate.
RTA’s maximum exposure to loss as a result of its investments in the affordable housing partnerships is limited to the carrying values of these investments. The carrying values are reflected in other investments and were $424$471 million and $409$495 million as of September 30, 20132014 and December 31, 2012,2013, respectively. RTA has no obligation to provide financial or other support to the affordable housing partnerships in addition to liabilities already recorded for future funding commitments nor has it provided any additional support to the affordable housing partnerships. The Company had liabilities of $83$96 million and $144137 million recorded in other liabilities as of September 30, 20132014 and December 31, 20122013, respectively, related to the future funding commitments for affordable housing partnerships.

7

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


4. 
Investments
Available-for-Sale securities distributed by type were as follows:
 September 30, 2013 September 30, 2014
Description of Securities Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
 
Noncredit
OTTI
(1)
 Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
 
Noncredit
OTTI
(1)
 (in millions) (in millions)
Fixed maturities:  
  
  
  
  
  
  
  
  
  
Corporate debt securities $14,600
 $1,372
 $(87) $15,885
 $2
 $13,962
 $1,539
 $(31) $15,470
 $3
Residential mortgage backed securities 3,768
 156
 (77) 3,847
 (23) 3,466
 135
 (44) 3,557
 (9)
Commercial mortgage backed securities 2,357
 161
 (8) 2,510
 
 2,121
 115
 (4) 2,232
 
State and municipal obligations 943
 92
 (36) 999
 
 942
 159
 (28) 1,073
 
Asset backed securities 842
 49
 (4) 887
 
 896
 49
 (1) 944
 
Foreign government bonds and obligations 240
 19
 (7) 252
 
 237
 21
 (5) 253
 
U.S. government and agencies obligations 40
 5
 
 45
 
 36
 4
 
 40
 
Total fixed maturities 22,790
 1,854
 (219) 24,425
 (21) 21,660
 2,022
 (113) 23,569
 (6)
Common stocks 2
 3
 
 5
 2
 2
 6
 
 8
 3
Total $22,792
 $1,857
 $(219) $24,430
 $(19) $21,662
 $2,028
 $(113) $23,577
 $(3)

7

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


 December 31, 2012 December 31, 2013
Description of Securities Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
 
Noncredit
OTTI
(1)
 Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
 
Noncredit
OTTI
(1)
 (in millions) (in millions)
Fixed maturities:  
  
  
  
  
  
  
  
  
  
Corporate debt securities $14,881
 $2,167
 $(7) $17,041
 $
 $14,658
 $1,311
 $(96) $15,873
 $3
Residential mortgage backed securities 3,446
 233
 (58) 3,621
 (24) 3,773
 133
 (95) 3,811
 (18)
Commercial mortgage backed securities 2,717
 287
 
 3,004
 
 2,309
 136
 (11) 2,434
 
State and municipal obligations 976
 180
 (34) 1,122
 
 950
 87
 (39) 998
 
Asset backed securities 808
 66
 (3) 871
 
 938
 48
 (5) 981
 
Foreign government bonds and obligations 188
 36
 
 224
 
 234
 19
 (8) 245
 
U.S. government and agencies obligations 42
 7
 
 49
 
 40
 5
 
 45
 
Total fixed maturities 23,058
 2,976
 (102) 25,932
 (24) 22,902
 1,739
 (254) 24,387
 (15)
Common stocks 2
 2
 
 4
 1
 2
 4
 
 6
 2
Total $23,060
 $2,978
 $(102) $25,936
 $(23) $22,904
 $1,743
 $(254) $24,393
 $(13)
 (1)
Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.
AtAs of September 30, 20132014 and December 31, 20122013, investment securities with a fair value of $1.6 billion and $2.3 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings.
At September 30, 2014 and December 31, 2013, fixed maturity securities comprised approximately 83%82% and 84%83%, respectively, of the Company’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. At September 30, 20132014 and December 31, 20122013, approximately $1.3$1.1 billion and $1.51.3 billion, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC, an affiliate of the Company, using criteria similar to those used by NRSROs.

8

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


A summary of fixed maturity securities by rating was as follows:
 September 30, 2013 December 31, 2012 September 30, 2014 December 31, 2013
Ratings Amortized
Cost
 Fair
Value
 Percent of
Total Fair
Value
 Amortized
 Cost
 Fair
Value
 Percent of
Total Fair
Value
 Amortized
Cost
 Fair
Value
 Percent of
Total Fair
Value
 Amortized
 Cost
 Fair
Value
 Percent of
Total Fair
Value
 (in millions, except percentages) (in millions, except percentages)
AAA $5,552
 $5,809
 24% $5,680
 $6,198
 24% $5,183
 $5,410
 23% $5,557
 $5,738
 23%
AA 1,092
 1,215
 5
 1,102
 1,273
 5
 988
 1,155
 5
 1,055
 1,171
 5
A 4,258
 4,628
 19
 4,262
 4,849
 19
 4,395
 4,963
 21
 4,687
 5,062
 21
BBB 10,285
 11,211
 46
 10,409
 12,019
 46
 9,527
 10,475
 44
 10,062
 10,897
 45
Below investment grade 1,603
 1,562
 6
 1,605
 1,593
 6
 1,567
 1,566
 7
 1,541
 1,519
 6
Total fixed maturities $22,790
 $24,425
 100% $23,058
 $25,932
 100% $21,660
 $23,569
 100% $22,902
 $24,387
 100%
At September 30, 20132014 and December 31, 20122013, approximately 40%44% and 32%41%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any other issuer were greater than 10% of total equity.

8

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
 September 30, 2013 September 30, 2014
 Less than 12 months 12 months or more Total 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
 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) (in millions, except number of securities)
Corporate debt securities 152
 $2,200
 $(78) 4
 $56
 $(9) 156
 $2,256
 $(87) 83
 $760
 $(10) 43
 $736
 $(21) 126
 $1,496
 $(31)
Residential mortgage backed securities 39
 969
 (37) 48
 229
 (40) 87
 1,198
 (77) 14
 140
 (2) 59
 822
 (42) 73
 962
 (44)
Commercial mortgage backed securities 19
 192
 (8) 
 
 
 19
 192
 (8) 5
 41
 
 9
 96
 (4) 14
 137
 (4)
State and municipal obligations 3
 42
 (1) 2
 94
 (35) 5
 136
 (36) 1
 5
 
 2
 100
 (28) 3
 105
 (28)
Asset backed securities 11
 133
 (3) 3
 21
 (1) 14
 154
 (4) 5
 42
 
 4
 38
 (1) 9
 80
 (1)
Foreign government bonds and obligations 22
 71
 (7) 
 
 
 22
 71
 (7) 4
 18
 
 14
 27
 (5) 18
 45
 (5)
Total 246
 $3,607
 $(134) 57
 $400
 $(85) 303
 $4,007
 $(219) 112
 $1,006
 $(12) 131
 $1,819
 $(101) 243
 $2,825
 $(113)
 December 31, 2012 December 31, 2013
 Less than 12 months 12 months or more Total 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
 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) (in millions, except number of securities)
Corporate debt securities 50
 $477
 $(4) 6
 $70
 $(3) 56
 $547
 $(7) 156
 $2,567
 $(82) 10
 $160
 $(14) 166
 $2,727
 $(96)
Residential mortgage backed securities 6
 107
 
 56
 293
 (58) 62
 400
 (58) 52
 1,411
 (54) 45
 295
 (41) 97
 1,706
 (95)
Commercial mortgage backed securities 27
 323
 (9) 3
 22
 (2) 30
 345
 (11)
State and municipal obligations 
 
 
 2
 100
 (34) 2
 100
 (34) 4
 38
 (2) 2
 92
 (37) 6
 130
 (39)
Asset backed securities 1
 10
 
 5
 86
 (3) 6
 96
 (3) 17
 219
 (4) 3
 26
 (1) 20
 245
 (5)
Foreign government bonds and obligations 23
 77
 (8) 
 
 
 23
 77
 (8)
Total 57
 $594
 $(4) 69
 $549
 $(98) 126
 $1,143
 $(102) 279
 $4,635
 $(159) 63
 $595
 $(95) 342
 $5,230
 $(254)
As part of the Company’s ongoing monitoring process, management determined that a majority of the change in gross unrealized losses on its Available-for-Sale securities is attributable to movement in interest rates.

9

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Income for other-than-temporary impairments related to credit losses on Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss):
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 2013 2012 2013 2012 2014 2013 2014 2013
 (in millions) (in millions)
Beginning balance $66
 $90
 $87
 $106
 $54
 $66
 $54
 $87
Credit losses for which an other-than-temporary impairment was not previously recognized 1
 
 1
 1
 
 1
 
 1
Credit losses for which an other-than-temporary impairment was previously recognized 
 6
 2
 12
 1
 
 1
 2
Reductions for securities sold during the period (realized) 
 
 (23) (23) (22) 
 (22) (23)
Ending balance $67
 $96
 $67
 $96
 $33
 $67
 $33
 $67
The change in net unrealized securities gains (losses) in other comprehensive income (loss) includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit losses; and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC,deferred acquisition costs (“DAC”), deferred sales inducement costs (“DSIC”), benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.

9

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income (loss)(“AOCI”):
 Net
Unrealized
Securities
Gains
 Deferred
Income
Tax
 Accumulated Other
Comprehensive
Income (Loss) Related to
Net Unrealized
Securities Gains
  Net Unrealized Securities Gains Deferred
Income
Tax
 AOCI Related to Net Unrealized Securities Gains 
 (in millions) 
Balance at January 1, 2012 $1,472
 $(515) $957
 
Net unrealized securities gains arising during the period(1)
 749
 (263) 486
 
Impact of DAC, DSIC, benefit reserves and reinsurance recoverables (268) 94
 (174) 
Balance at September 30, 2012 $1,953
 $(684) $1,269
(2) 
        (in millions) 
Balance at January 1, 2013 $1,930
 $(675) $1,255
  $1,930
 $(675) $1,255
 
Net unrealized securities losses arising during the period(1)
 (1,234) 423
 (811)  (1,234) 423
 (811) 
Reclassification of net securities gains included in net income (3) 1
 (2)  (3) 1
 (2) 
Impact of DAC, DSIC, benefit reserves and reinsurance recoverables 436
 (153) 283
  436
 (153) 283
 
Balance at September 30, 2013 $1,129
 $(404) $725
(2) 
 $1,129
 $(404) $725
(2) 
       
Balance at January 1, 2014 $1,033
 $(366) $667
 
Net unrealized securities gains arising during the period(1)
 441
 (156) 285
 
Reclassification of net securities gains included in net income (15) 6
 (9) 
Impact of DAC, DSIC, benefit reserves and reinsurance recoverables (258) 90
 (168) 
Balance at September 30, 2014 $1,201
 $(426) $775
(2) 
(1)Includes other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.
(2) 
Includes $(10)$2 million and $(15)10 million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at September 30, 20132014 and 20122013, respectively.
Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in net realized investment gains were as follows:
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 2013 2012 2013 2012 2014 2013 2014 2013
 (in millions) (in millions)
Gross realized investment gains $6
 $5
 $8
 $13
 $15
 $6
 $24
 $8
Gross realized investment losses 
 
 (1) (1) (1) 
 (4) (1)
Other-than-temporary impairments (2) (5) (4) (12) (4) (2) (5) (4)
Total $4
 $
 $3
 $
 $10
 $4
 $15
 $3

10

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Other-than-temporary impairments for the three months and nine months ended September 30, 2014 primarily related to credit losses on non-agency residential mortgage backed securities and corporate debt securities. Other-than-temporary impairments for the three months and nine months ended September 30, 2013 and 2012 primarily related to credit losses on non-agency residential mortgage backed securities.
Available-for-Sale securities by contractual maturity at September 30, 20132014 were as follows:
 Amortized Cost Fair Value Amortized Cost Fair Value
 (in millions) (in millions)
Due within one year $1,184
 $1,206
 $965
 $984
Due after one year through five years 4,837
 5,226
 5,938
 6,521
Due after five years through 10 years 6,271
 6,695
 4,701
 4,941
Due after 10 years 3,531
 4,054
 3,573
 4,390
 15,823
 17,181
 15,177
 16,836
Residential mortgage backed securities 3,768
 3,847
 3,466
 3,557
Commercial mortgage backed securities 2,357
 2,510
 2,121
 2,232
Asset backed securities 842
 887
 896
 944
Common stocks 2
 5
 2
 8
Total $22,792
 $24,430
 $21,662
 $23,577
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities, as well as common stocks, were not included in the maturities distribution.

10

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Net investment income is summarized as follows:
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 2013 2012 2013 2012 2014 2013 2014 2013
 (in millions) (in millions)
Income on fixed maturities $301
 $328
 $913
 $1,008
Income on mortgage loans 50
 36
 153
 109
Fixed maturities $277
 $301
 $841
 $913
Mortgage loans 46
 50
 137
 153
Other investments 8
 8
 25
 21
 3
 8
 20
 25
 359
 372
 1,091
 1,138
 326
 359
 998
 1,091
Less: investment expenses 9
 8
 24
 20
 7
 9
 23
 24
Total $350
 $364
 $1,067
 $1,118
 $319
 $350
 $975
 $1,067
5.Financing Receivables
The Company’s financing receivables include commercial and residential mortgage loans, syndicated loans and policy loans. Syndicated loans are reflected in other investments.
Allowance for Loan Losses
Policy loans do not exceed the cash surrender value of the policy at origination. As there is minimal risk of loss related to policy loans, the Company does not record an allowance for loan losses for policy loans.
Allowance The Company does not currently have an allowance for Loan Lossesloan losses for residential mortgage loans.

11

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables presenttable presents a rollforward of the allowance for loan losses for the nine months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:
 September 30, 2013 September 30, 2012 September 30, 2014 September 30, 2013
 Commercial
Mortgage
Loans
 Syndicated
Loans
 Total Commercial
Mortgage
Loans
 Syndicated
Loans
 Total Commercial
Mortgage
Loans
 Syndicated
Loans
 Total Commercial
Mortgage
Loans
 Syndicated
Loans
 Total
 (in millions) (in millions)
Beginning balance $26
 $4
 $30
 $32
 $5
 $37
 $24
 $4
 $28
 $26
 $4
 $30
Charge-offs (2) 
 (2) (6) (1) (7) (2) (1) (3) (2) 
 (2)
Provisions 
 2
 2
 
 
 
Ending balance $24
 $4
 $28
 $26
 $4
 $30
 $22

$5

$27

$24

$4

$28
            
Individually evaluated for impairment $7
 $
 $7
 $5
 $
 $5
 $8
 $
 $8
 $7
 $
 $7
Collectively evaluated for impairment 17
 4
 21
 21
 4
 25
 14
 5
 19
 17
 4
 21
The recorded investment in financing receivables by impairment method and type of loan was as follows:
 September 30, 2013 September 30, 2014
 Commercial
Mortgage
Loans
 Residential
Mortgage
Loans
 Syndicated
Loans
 Total Commercial
Mortgage
Loans
 Residential
Mortgage
Loans
 Syndicated
Loans
 Total
 (in millions) (in millions)
Individually evaluated for impairment $45
 $
 $3
 $48
 $34
 $
 $3
 $37
Collectively evaluated for impairment 2,490
 821
 287
 3,598
 2,572
 716
 451
 3,739
Total $2,535
 $821
 $290
 $3,646
 $2,606
 $716
 $454
 $3,776
 December 31, 2012 December 31, 2013
 Commercial
Mortgage
Loans
 Residential
Mortgage
Loans
 Syndicated
Loans
 Total Commercial
Mortgage
Loans
 Residential
Mortgage
Loans
 Syndicated
Loans
 Total
 (in millions) (in millions)
Individually evaluated for impairment $39
 $
 $
 $39
 $40
 $
 $5
 $45
Collectively evaluated for impairment 2,442
 934
 303
 3,679
 2,524
 786
 356
 3,666
Total $2,481
 $934
 $303
 $3,718
 $2,564
 $786
 $361
 $3,711

11

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


As of September 30, 20132014 and December 31, 20122013, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $16$9 million and $1012 million, respectively.
Residential mortgage loans are presented net of unamortized discount of $58$39 million and $8053 million as of September 30, 20132014 and December 31, 20122013, respectively.
PurchasesDuring the three months ended September 30, 2014 and sales2013, the Company purchased $71 million and $8 million, respectively, and sold $2 million and nil, respectively of syndicated loans were as follows:
  Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
  2013 2012 2013 2012
  (in millions)
Purchases $8
 $21
 $67
 $74
Sales 
 4
 1
 4
loans. During the nine months ended September 30, 2014 and 2013, the Company purchased $161 million and $67 million, respectively, and sold $12 million and $1 million, respectively, of syndicated loans.
Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were $12$10 million and $420 million as of September 30, 20132014 and December 31, 20122013, respectively. All other loans were considered to be performing.
Commercial Mortgage Loans
The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 1% and 2% of total commercial mortgage loans at both September 30, 20132014 and December 31, 20122013., respectively. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.
Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
  Loans Percentage
  September 30,
2013
 December 31,
2012
 September 30,
2013
 December 31,
2012
  (in millions)    
South Atlantic $675
 $625
 27% 25%
Pacific 612
 565
 24
 23
East North Central 253
 255
 10
 10
Mountain 249
 262
 10
 11
Middle Atlantic 196
 198
 8
 8
West North Central 189
 216
 7
 9
West South Central 157
 159
 6
 6
New England 133
 135
 5
 5
East South Central 71
 66
 3
 3
  2,535
 2,481
 100% 100%
Less: allowance for loan losses 24
 26
  
  
Total $2,511
 $2,455
  
  

12

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
  Loans Percentage
  September 30, 2014 December 31, 2013 September 30, 2014 December 31, 2013
  (in millions)    
South Atlantic $703
 $679
 27% 26%
Pacific 653
 631
 25
 25
Mountain 252
 248
 10
 10
East North Central 232
 248
 9
 10
Middle Atlantic 213
 202
 8
 8
West North Central 204
 194
 8
 7
West South Central 153
 153
 6
 6
New England 131
 138
 5
 5
East South Central 65
 71
 2
 3
  2,606
 2,564
 100% 100%
Less: allowance for loan losses 22
 24
  
  
Total $2,584
 $2,540
  
  
Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 Loans Percentage Loans Percentage
 September 30,
2013
 December 31,
2012
 September 30,
2013
 December 31,
2012
 September 30, 2014 December 31, 2013 September 30, 2014 December 31, 2013
 (in millions)     (in millions)    
Retail $889
 $822
 35% 33% $944
 $917
 36% 36%
Office 554
 597
 22
 24
 545
 548
 21
 21
Industrial 460
 431
 18
 17
Apartments 449
 415
 18
 17
 445
 454
 17
 18
Industrial 439
 449
 17
 18
Mixed use 45
 36
 2
 1
Hotel 32
 36
 1
 1
 33
 32
 1
 1
Mixed use 27
 42
 1
 2
Other 145
 120
 6
 5
 134
 146
 5
 6
 2,535
 2,481
 100% 100% 2,606
 2,564
 100% 100%
Less: allowance for loan losses 24
 26
  
  
 22
 24
  
  
Total $2,511
 $2,455
  
  
 $2,584
 $2,540
  
  
Residential Mortgage Loans
In October 2012, the Company purchased $954 million of residential mortgage loans at fair value from an affiliate, Ameriprise Bank, FSB.  The purchase price takes into account the credit quality of the loan portfolio resulting in no allowance for loan losses recorded at purchase. The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration to determine when an amount for an allowance for loan losses for residential mortgage loans is appropriate. At a minimum, management updates FICO scores and LTV ratios semiannually. As of September 30, 20132014 and December 31, 20122013, no allowance for loan losses was recorded.
As of both September 30, 20132014 and December 31, 2012,2013, approximately 4% and 3%, respectively, of residential mortgage loans had FICO scores below 640.  At 640. As of both September 30, 20132014 and December 31, 2012,2013, approximately 4% and 7%, respectively,1% of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for residential mortgage loans is in California representing 37% and 38% of the portfolio as of both September 30, 20132014 and December 31, 20122013., respectively. No other state represents more than 10% of the total residential mortgage loan portfolio.
Syndicated Loans
The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at both September 30, 20132014 and December 31, 20122013 were $3 million.

13

RIVERSOURCE$3 million and $2 million, respectively.LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Troubled Debt Restructurings
The following table presents the number of loans restructured by the Company during the period and their recorded investment at the end of the period:
 Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 Three Months Ended September 30, Nine Months Ended September 30,
 2013 2012 2013 2012 2014 2013 2014 2013
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
 (in millions, except number of loans) (in millions, except number of loans)
Commercial mortgage loans 3
 $12
 3
 $12
 6
 $21
 4
 $13
 1
 $6
 3
 $12
 3
 $14
 6
 $21
Residential mortgage loans 
 
 
 
 2
 
 
 
 
 
 
 
 2
 
 2
 
Syndicated loans 
 
 
 
 
 
 1
 1
 
 
 
 
 1
 
 
 
Total 3
 $12
 3
 $12
 8
 $21
 5
 $14
 1
 $6
 3
 $12
 6
 $14
 8
 $21
The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for the three months and nine months ended September 30, 20132014 and 20122013. There are no material commitments to lend additional funds to borrowers whose loans have been restructured. 


13

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


6.
Deferred Acquisition Costs and Deferred Sales Inducement Costs
In the third quarter of the year, management conducts its annual review of insurance and annuity valuation assumptions relative to current experience and management expectations. To the extent that expectations change as a result of this review, management updates valuation assumptions. The impact in the third quarter of 2014 primarily reflected the difference between the Company’s previously assumed interest rates versus the continued low interest rate environment, partially offset by favorable persistency and mortality experience and a benefit from updating the Company's variable annuity living benefit withdrawal utilization assumption. The impact in the third quarter of 2013 primarily reflected the impact of expected higherassumed interest rates and changes in assumed policyholder behavior. The impact in the third quarter of 2012 primarily reflected the low interest rate environment and the assumption of continued low interest rates over the near-term.
The balances of and changes in DAC were as follows:
 2013 2012 2014 2013
 (in millions) (in millions)
Balance at January 1 $2,373
 $2,413
 $2,633
 $2,373
Capitalization of acquisition costs 200
 185
 196
 200
Amortization, excluding the impact of valuation assumptions review (180) (141) (219) (180)
Amortization, impact of valuation assumptions review 78
 (11) (7) 78
Impact of change in net unrealized securities losses (gains) 112
 (75) (30) 112
Balance at September 30 $2,583
 $2,371
 $2,573
 $2,583
The balances of and changes in DSIC, which is included in other assets, were as follows:
  2013 2012
  (in millions)
Balance at January 1 $404
 $464
Capitalization of sales inducement costs 4
 6
Amortization, excluding the impact of valuation assumptions review (39) (30)
Amortization, impact of valuation assumptions review 25
 (13)
Impact of change in net unrealized securities losses (gains) 18
 (11)
Balance at September 30 $412
 $416

  2014 2013
  (in millions)
Balance at January 1 $409
 $404
Capitalization of sales inducement costs 4
 4
Amortization, excluding the impact of valuation assumptions review (40) (39)
Amortization, impact of valuation assumptions review (2) 25
Impact of change in net unrealized securities losses (gains) (3) 18
Balance at September 30 $368
 $412

14

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


7.Policyholder Account Balances, and Future Policy Benefits Policyand Claims and Other Policyholder Funds and Separate Account Liabilities
Policyholder account balances, and future policy benefits and policy claims and other policyholder funds consisted of the following:
 September 30,
2013
 December 31,
2012
 September 30, 2014 December 31, 2013
 (in millions) (in millions)
Policyholder account balances        
Fixed annuities $13,998
 $14,420
 $12,922
 $13,826
Variable annuity fixed sub-accounts 4,912
 4,833
 4,869
 4,926
Variable universal life (“VUL”)/universal life (“UL”) insurance 2,770
 2,725
 2,841
 2,790
Indexed universal life (“IUL”) insurance 263
 137
 475
 315
Other life insurance 911
 943
 846
 878
Total policyholder account balances 22,854
 23,058
 21,953
 22,735
Future policy benefits        
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)(1) (109) 799
 145
 (383)
Variable annuity guaranteed minimum accumulation benefits (“GMAB”)(1) (24) 103
 (55) (62)
Other annuity liabilities 96
 158
 118
 76
Fixed annuities life contingent liabilities 1,524
 1,520
 1,518
 1,523
Equity indexed annuities (“EIA”) 28
 33
 29
 29
Life, disability income and long term care insurance 4,686
 4,703
 5,041
 4,739
VUL/UL insurance additional liabilities 287
 296
VUL/UL and other life insurance additional liabilities 403
 336
Total future policy benefits 6,488
 7,612
 7,199
 6,258
Total policyholder account balances and future policy benefits 29,342
 30,670
Policy claims and other policyholder funds 162
 132
Total policyholder account balances and future policy benefits and policy claims and other policyholder funds $29,504
 $30,802
Policy claims and other policyholders’ funds 160
 156
Total policyholder account balances, future policy benefits and claims $29,312
 $29,149
(1)Includes the value of GMWB and GMAB embedded derivatives that was a net asset at both September 30, 2014 and December 31, 2013 reported as a contra liability.
Separate account liabilities consisted of the following:
  September 30,
2013
 December 31,
2012
  (in millions)
Variable annuity variable sub-accounts $67,907
 $63,302
VUL insurance variable sub-accounts 6,562
 6,051
Other insurance variable sub-accounts 43
 42
Total $74,512
 $69,395

  September 30, 2014 December 31, 2013
  (in millions)
Variable annuity $71,345
 $70,687
VUL insurance 6,925
 6,885
Other insurance 43
 44
Total $78,313
 $77,616
8.Variable Annuity and Insurance Guarantees
The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.
Certain UL policies offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

15

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:
 September 30, 2013 December 31, 2012 September 30, 2014 December 31, 2013
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
 Total
Contract
Value
 Contract
Value in
Separate
Accounts
 Net
Amount
at Risk
 Weighted Average Attained Age Total
Contract
Value
 Contract
Value in
Separate
Accounts
 Net
Amount
at Risk
 Weighted Average Attained Age
 (in millions, except age) (in millions, except age)
GMDB:  
  
  
    
  
  
    
  
  
    
  
  
  
Return of premium $50,219
 $48,406
 $37
 63 $45,697
 $43,942
 $61
 63 $54,378
 $52,566
 $39
 64 $52,616
 $50,790
 $28
 64
Five/six-year reset 11,096
 8,549
 55
 64 11,233
 8,722
 115
 63 10,465
 7,925
 36
 64 11,220
 8,663
 42
 64
One-year ratchet 7,508
 7,088
 54
 65 7,367
 6,933
 106
 65 7,424
 7,030
 64
 66 7,676
 7,261
 38
 65
Five-year ratchet 1,712
 1,657
 2
 62 1,616
 1,563
 3
 61 1,770
 1,715
 3
 62 1,781
 1,725
 1
 62
Other 997
 977
 45
 69 912
 885
 62
 68 965
 947
 40
 70 1,015
 996
 36
 69
Total — GMDB $71,532
 $66,677
 $193
 63 $66,825
 $62,045
 $347
 63 $75,002
 $70,183
 $182
 64 $74,308
 $69,435
 $145
 64
                          
GGU death benefit $1,015
 $962
 $110
 64 $958
 $907
 $93
 63 $1,058
 $1,006
 $121
 67 $1,052
 $998
 $121
 64
                          
GMIB $410
 $386
 $45
 66 $425
 $399
 $72
 66 $359
 $336
 $9
 67 $413
 $389
 $8
 66
                          
GMWB:  
  
  
    
  
  
    
  
  
    
  
  
  
GMWB $3,873
 $3,857
 $14
 67 $3,898
 $3,880
 $34
 66 $3,702
 $3,689
 $1
 68 $3,936
 $3,921
 $1
 67
GMWB for life 32,290
 32,143
 211
 65 28,588
 28,462
 263
 64 35,967
 35,853
 92
 65 34,069
 33,930
 77
 64
Total — GMWB $36,163
 $36,000
 $225
 65 $32,486
 $32,342
 $297
 64 $39,669
 $39,542
 $93
 65 $38,005
 $37,851
 $78
 64
                          
GMAB $4,026
 $4,012
 $2
 57 $3,773
 $3,762
 $5
 57 $4,188
 $4,177
 $3
 58 $4,194
 $4,181
 $2
 58
(1)Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table.
(2)Represents the current guaranteed benefit amount in excess of the current contract value.  GMIB, GMWB and GMAB benefits are subject
The net amount at risk for GMDB, GGU and GMAB guarantees is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB and GMWB guarantees is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero. The present value is calculated using a discount rate that is consistent with assumptions embedded in the Company’s annuity pricing models.
The following table provides information related to waiting periods and payment periods specified in the contract.
Changes in variable annuity and insurance guarantees were as follows:for which the Company has established additional liabilities:
  GMDB &
GGU
 GMIB GMWB GMAB UL
  (in millions)
Balance at January 1, 2012 $5
 $9
 $1,377
 $237
 $111
Incurred claims 5
 1
 (304) (103) 39
Paid claims (6) (1) 
 
 (8)
Balance at September 30, 2012 $4
 $9
 $1,073
 $134
 $142
           
Balance at January 1, 2013 $4
 $9
 $799
 $103
 $155
Incurred claims 2
 (2) (908) (127) 45
Paid claims (3) 
 
 
 (11)
Balance at September 30, 2013 $3
 $7
 $(109) $(24) $189
  September 30, 2014 December 31, 2013
  Net Amount at Risk Weighted Average Attained Age Net Amount at Risk Weighted Average Attained Age
  (in millions, except age)
UL secondary guarantees $5,943
 62 $5,674
 62
The liabilitiesnet amount at risk for UL secondary guarantees is defined as the current guaranteed benefits are supported by general account assets.death benefit amount in excess of the current policyholder value.

16

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Changes in additional liabilities (contra liabilities) for variable annuity and insurance guarantees were as follows:
  GMDB & GGU GMIB 
GMWB(1)
 
GMAB(1)
 UL
  (in millions)
Balance at January 1, 2013 $4
 $9
 $799
 $103
 $155
Incurred claims 2
 (2) (908) (127) 45
Paid claims (3) 
 
 
 (11)
Balance at September 30, 2013 $3
 $7
 $(109) $(24) $189
           
Balance at January 1, 2014 $4
 $6
 $(383) $(62) $206
Incurred claims 8
 1
 528
 7
 46
Paid claims (3) 
 
 
 (5)
Balance at September 30, 2014 $9
 $7
 $145
 $(55) $247
(1)The incurred claims for GMWB and GMAB represent the total change in the liabilities (contra liabilities).
The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:
 September 30,
2013
 December 31,
2012
 September 30, 2014 December 31, 2013
 (in millions) (in millions)
Mutual funds:  
  
  
  
Equity $34,204
 $32,054
 $40,751
 $39,195
Bond 25,366
 26,165
 25,218
 26,519
Other 7,184
 3,991
 4,149
 3,764
Total mutual funds $66,754
 $62,210
 $70,118
 $69,478
9.Lines of Credit
RiverSource Life Insurance Company, as the borrower, had an outstanding balance at September 30, 2014 and December 31, 2013 of nil and $150 million, respectively, under a revolving credit agreement with Ameriprise Financial as the lender. The aggregate amount outstanding under the line of credit may not exceed $800 million at any time. The interest rate for any borrowing under the agreement is established by reference to LIBOR plus 90 basis points, subject to adjustment based on debt ratings of the senior unsecured debt of Ameriprise Financial. Amounts borrowed may be repaid at any time with no prepayment penalty.
RiverSource Life Insurance Company, as the lender, has a revolving credit agreement with Ameriprise Financial as the borrower. This line of credit is not to exceed 3% of RiverSource Life Insurance Company’s statutory admitted assets as of the prior year end. The interest rate for any borrowing is established by reference to LIBOR plus 90 basis points, subject to adjustment based on debt ratings of the senior unsecured debt of Ameriprise Financial. In the event of default, an additional 1% interest will accrue during such period of default. There were no amounts outstanding on this revolving credit agreement as of September 30, 2014 and December 31, 2013.
10.Short-term Borrowings
The Company enters into repurchase agreements in exchange for cash which it accounts for as secured borrowings. The Company has pledged Available-for-Sale securities consisting of agency residential mortgage backed securities and commercial mortgage backed securities to collateralize its obligation under the repurchase agreements. The fair value of the securities pledged is recorded in investments and was $156$52 million and $518 million at both September 30, 20132014 and December 31, 20122013, respectively.. The amount of the Company’s liability including accrued interest as of both September 30, 20132014 and December 31, 20122013 was $150 million and $501 million, respectively.$50 million. The weighted average annualized interest rate on the repurchase agreements held as of both September 30, 20132014 and December 31, 20122013 was 0.3% and 0.4%, respectively..
RiverSource Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Des Moines which provides access to collateralized borrowings. In 2013, the Company began to borrow short-term funds under these FHLB borrowings. The Company has pledged Available-for-Sale securities consisting of commercial mortgage backed securities to collateralize its obligation under these borrowings. The fair value of the securities pledged is recorded in investments and was $436$456 million and $574 million at September 30, 2014 and December 31, 2013., respectively. The amount of the Company’s liability including accrued interest as of September 30, 2014 and December 31, 2013 was $150 million and $450 million, respectively. The

17

$350 millionRIVERSOURCE.  The LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


weighted average annualized interest rate on the FHLB advances held as of both September 30, 2014 and December 31, 2013 was 0.3%.
10.11.Fair Values of Assets and Liabilities
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.
Valuation Hierarchy
The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

1718

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:
September 30, 2013 September 30, 2014 
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 
(in millions) (in millions) 
Assets 
  
  
  
  
  
  
  
 
Available-for-Sale securities: Fixed maturities: 
  
  
  
  
  
  
  
 
Corporate debt securities$
 $14,362
 $1,523
 $15,885
 $
 $14,092
 $1,378
 $15,470
 
Residential mortgage backed securities
 3,757
 90
 3,847
 
 3,547
 10
 3,557
 
Commercial mortgage backed securities
 2,495
 15
 2,510
 
 2,139
 93
 2,232
 
State and municipal obligations
 999
 
 999
 
 1,073
 
 1,073
 
Asset backed securities
 706
 181
 887
 
 796
 148
 944
 
Foreign government bonds and obligations
 252
 
 252
 
 253
 
 253
 
U.S. government and agencies obligations9
 36
 
 45
 4
 36
 
 40
 
Total Available-for-Sale securities: Fixed maturities9
 22,607
 1,809
 24,425
 4
 21,936
 1,629
 23,569
 
Common stocks2
 3
 
 5
 3
 5
 
 8
 
Cash equivalents
 212
 
 212
 2
 261
 
 263
 
Other assets: 
  
  
  
  
  
  
  
 
Interest rate derivative contracts
 1,525
 
 1,525
 
 1,512
 
 1,512
 
Equity derivative contracts385
 1,075
 
 1,460
 314
 1,512
 
 1,826
 
Foreign currency derivative contracts
 2
 
 2
 
Credit derivative contracts
 4
 
 4
 
Foreign exchange derivative contracts
 4
 
 4
 
Other derivative contracts
 
 1
 1
 
Total other assets385
 2,602
 
 2,987
 314
 3,032
 1
 3,347
 
Separate account assets
 74,512
 
 74,512
 
 78,313
 
 78,313
 
Total assets at fair value$396
 $99,936
 $1,809
 $102,141
 $323
 $103,547
 $1,630
 $105,500
 
                
Liabilities 
  
  
  
  
  
  
  
 
Future policy benefits: 
  
  
  
 
Policyholder account balances, future policy benefits and claims: 
  
  
  
 
EIA embedded derivatives$
 $4
 $
 $4
 $
 $6
 $
 $6
 
IUL embedded derivatives
 
 96
 96
 
 
 202
 202
 
GMWB and GMAB embedded derivatives
 
 (256) (256)
(2) 

 
 (77) (77)
(2) 
Total future policy benefits
 4
 (160) (156)
(1) 
Total policyholder account balances, future policy benefits and claims
 6
 125
 131
(1) 
Other liabilities: 
  
  
  
  
  
  
  
 
Interest rate derivative contracts
 1,554
 
 1,554
 
 1,208
 
 1,208
 
Equity derivative contracts333
 1,988
 
 2,321
 472
 2,171
 
 2,643
 
Credit derivative contracts
 6
 
 6
 
Other derivative contracts
 13
 
 13
 
Total other liabilities333
 3,548
 
 3,881
 472
 3,392
 
 3,864
 
Total liabilities at fair value$333
 $3,552
 $(160) $3,725
 $472
 $3,398
 $125
 $3,995
 
(1)
The Company’s adjustment for nonperformance risk resulted in a $238$238 million cumulative increasedecrease to the embedded derivatives.
(2)
The fair value of the GMWB and GMAB embedded derivatives was a net asset at September 30, 20132014 and the amount is reported as a contra liability.


18

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


 December 31, 2012 
 Level 1 Level 2 Level 3 Total 
 (in millions) 
Assets 
  
  
  
 
Available-for-Sale securities: Fixed maturities: 
  
  
  
 
Corporate debt securities$
 $15,387
 $1,654
 $17,041
 
Residential mortgage backed securities
 3,598
 23
 3,621
 
Commercial mortgage backed securities
 2,834
 170
 3,004
 
State and municipal obligations
 1,122
 
 1,122
 
Asset backed securities
 715
 156
 871
 
Foreign government bonds and obligations
 224
 
 224
 
U.S. government and agencies obligations10
 39
 
 49
 
Total Available-for-Sale securities: Fixed maturities10
 23,919
 2,003
 25,932
 
Common stocks2
 2
 
 4
 
Cash equivalents
 264
 
 264
 
Other assets: 
  
  
  
 
Interest rate derivative contracts
 2,191
 
 2,191
 
Equity derivative contracts285
 936
 
 1,221
 
Foreign currency derivative contracts
 6
 
 6
 
Total other assets285
 3,133
 
 3,418
 
Separate account assets
 69,395
 
 69,395
 
Total assets at fair value$297
 $96,713
 $2,003
 $99,013
 
         
Liabilities 
  
  
  
 
Future policy benefits: 
  
  
  
 
EIA embedded derivatives$
 $2
 $
 $2
 
IUL embedded derivatives
 
 45
 45
 
GMWB and GMAB embedded derivatives
 
 833
 833
 
Total future policy benefits
 2
 878
 880
(1) 
Other liabilities: 
  
  
  
 
Interest rate derivative contracts
 1,486
 
 1,486
 
Equity derivative contracts258
 1,535
 
 1,793
 
Total other liabilities258
 3,021
 
 3,279
 
Total liabilities at fair value$258
 $3,023
 $878
 $4,159
 
(1)
The Company’s adjustment for nonperformance risk resulted in a $398 million cumulative decrease to the embedded derivatives.

19

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


 December 31, 2013 
 Level 1 Level 2 Level 3 Total 
 (in millions) 
Assets 
  
  
  
 
Available-for-Sale securities: Fixed maturities: 
  
  
  
 
Corporate debt securities$
 $14,357
 $1,516
 $15,873
 
Residential mortgage backed securities
 3,753
 58
 3,811
 
Commercial mortgage backed securities
 2,404
 30
 2,434
 
State and municipal obligations
 998
 
 998
 
Asset backed securities
 763
 218
 981
 
Foreign government bonds and obligations
 245
 
 245
 
U.S. government and agencies obligations9
 36
 
 45
 
Total Available-for-Sale securities: Fixed maturities9
 22,556
 1,822
 24,387
 
Common stocks3
 3
 
 6
 
Cash equivalents1
 320
 
 321
 
Other assets: 
  
  
  
 
Interest rate derivative contracts
 1,484
 
 1,484
 
Equity derivative contracts265
 1,503
 
 1,768
 
Credit derivative contracts
 3
 
 3
 
Foreign exchange derivative contracts
 2
 
 2
 
Other derivative contracts
 4
 
 4
 
Total other assets265
 2,996
 
 3,261
 
Separate account assets
 77,616
 
 77,616
 
Total assets at fair value$278
 $103,491
 $1,822
 $105,591
 
         
Liabilities 
  
  
  
 
Policyholder account balances, future policy benefits and claims: 
  
  
  
 
EIA embedded derivatives$
 $5
 $
 $5
 
IUL embedded derivatives
 
 125
 125
 
GMWB and GMAB embedded derivatives
 
 (575) (575)
(2) 
Total policyholder account balances, future policy benefits and claims
 5
 (450) (445)
(1) 
Other liabilities: 
  
  
  
 
Interest rate derivative contracts
 1,672
 
 1,672
 
Equity derivative contracts549
 2,382
 
 2,931
 
Other derivative contracts
 29
 
 29
 
Total other liabilities549
 4,083
 
 4,632
 
Total liabilities at fair value$549
 $4,088
 $(450) $4,187
 
(1)
The Company’s adjustment for nonperformance risk resulted in a $150 million cumulative increase to the embedded derivatives.
(2)The fair value of the GMWB and GMAB embedded derivatives was a net asset at December 31, 2013 and the amount is reported as a contra liability.

20

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:
               
 Available-for-Sale Securities: Fixed Maturities     
 Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Total Common Stocks Other Assets: Other Derivatives Contracts 
 (in millions)
Balance, July 1, 2014$1,376
 $10
 $15
 $149
 $1,550
 $1
 $1
 
Total gains (losses) included in: 
  
  
  
  
     
Net income
 
 
 1
 1
(1) 

 (1)
(2) 
Other comprehensive income(11) 
 
 (1) (12) 
 
 
Purchases37
 
 
 
 37
 
 1
 
Settlements(24) 
 
 (1) (25) 
 
 
Transfers into Level 3
 
 78
 
 78
 
 
 
Transfers out of Level 3
 
 
 
 
 (1) 
 
Balance, September 30, 2014$1,378
 $10
 $93
 $148
 $1,629
 $
 $1
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2014 included in:  
Net investment income$
 $
 $
 $1
 $1
 $
 $
 
Benefits, claims, losses and settlement expenses
 
 
 
 
 
 (1) 
(1)Included in net investment income in the Consolidated Statements of Income.
(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.
      
 Policyholder Account Balances,
Future Policy Benefits and Claims
 IUL
Embedded
Derivatives
 GMWB and
GMAB
Embedded
Derivatives
 Total
 (in millions)
Balance, July 1, 2014$184
 $(347) $(163)
Total losses included in: 
  
 

Net income
 207
(1) 
207
Issues21
 65
 86
Settlements(3) (2) (5)
Balance, September 30, 2014$202
 $(77) $125
Changes in unrealized losses relating to liabilities held at September 30, 2014 included in:  
Benefits, claims, losses and settlement expenses$
 $208
 $208
(1)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.

21

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


 Available-for-Sale Securities: Fixed Maturities 
 Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Total 
 (in millions)
Balance, July 1, 2013$1,558
 $50
 $164
 $154
 $1,926
 
Total gains (losses) included in: 
  
  
  
  
 
Other comprehensive loss2
 
 
 (2) 
 
Purchases
 45
 
 29
 74
 
Settlements(37) (5) 
 
 (42) 
Transfers out of Level 3
 
 (149) 
 (149) 
Balance, September 30, 2013$1,523
 $90
 $15
 $181
 $1,809
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2013 included in:
Net investment income$
 $
 $
 $
 $
 

Available-for-Sale Securities: Fixed Maturities Future Policy BenefitsPolicyholder Account Balances,
Future Policy Benefits and Claims
Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Total IUL
Embedded
Derivatives
 GMWB and
GMAB
Embedded
Derivatives
 TotalIUL Embedded
Derivatives
 GMWB and GMAB
Embedded Derivatives
 Total
      (in millions)         (in millions)
Balance, July 1, 2013$1,558
 $50
 $164
 $154
 $1,926
 $(76) $(11) $(87)$76
 $11
 $87
Total gains (losses) included in: 
  
  
  
  
  
  
  
Total (gains) losses included in: 
  
 

Net income
 
 
 
 
 (2)
(1) 
322
(2) 
320
2
(1) 
(322)
(2) 
(320)
Other comprehensive income2
 
 
 (2) 
 
 
 
Purchases
 45
 
 29
 74
 
 
 
Sales
 
 
 
 
 
 
 
Issues
 
 
 
 
 (17) (60) (77)17
 60
 77
Settlements(37) (5) 
 
 (42) (1) 5
 4
1
 (5) (4)
Transfers into Level 3
 
 
 
 
 
 
 
Transfers out of Level 3
 
 (149) 
 (149) 
 
 
Balance, September 30, 2013$1,523
 $90
 $15
 $181
 $1,809
 $(96) $256
 $160
$96

$(256)
$(160)
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2013 included in: 
  
  
  
  
  
  
  
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2013 included in:Changes in unrealized (gains) losses relating to liabilities held at September 30, 2013 included in:
Benefits, claims, losses and settlement expenses$
 $
 $
 $
 $
 $
 $321
 $321
$
 $(321) $(321)
Interest credited to fixed accounts
 
 
 
 
 (2) 
 (2)2
 
 2
(1)Included in interest credited to fixed accounts in the Consolidated Statements of Income.
(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.


22

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Available-for-Sale Securities: Fixed Maturities   Future Policy Benefits              
Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Other
Structured
Investment
 Total IUL Embedded
Derivatives
 GMWB and GMAB
Embedded Derivatives
 TotalAvailable-for-Sale Securities: Fixed Maturities     
(in millions)  Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Total Common Stocks Other Assets: Other Derivatives Contracts 
Balance, July 1, 2012$1,456
 $59
 $24
 $140
 $
 $1,679
 $
 $(1,406) $(1,406)
(in millions) 
Balance, January 1, 2014$1,516
 $58
 $30
 $218
 $1,822
 $
 $
 
Total gains (losses) included in: 
  
  
  
  
  
  
  
   
  
  
  
  
     
Net income(1) 
 1
 1
 
 1
(1) 
1
(2) 
321
(3) 
322
1
 
 
 1
 2
(1) 

 (1)
(2) 
Other comprehensive income13
 
 5
 1
 
 19
 
 
 
3
 
 
 
 3
 
 
 
Purchases124
 
 
 
 
 124
 
 
 
94
 11
 39
 
 144
 1
 2
 
Sales
 
 
 
 
 
 
 
 
(11) 
 
 
 (11) 
 
 
Issues
 
 
 
 
 
 (16) (49) (65)
Settlements(39) 
 (1) 
 
 (40) 
 (8) (8)(225) (2) 
 (2) (229) 
 
 
Transfers into Level 3
 
 146
 15
 
 161
 (22) 
 (22)
 
 78
 
 78
 
 
 
Transfers out of Level 3
 (59) (8) 
 
 (67) 
 
 

 (57) (54) (69) (180) (1) 
 
Balance, September 30, 2012$1,553
 $
 $167
 $157
 $
 $1,877
 $(37) $(1,142) $(1,179)
Changes in unrealized losses relating to assets and liabilities held at September 30, 2012 included in: 
  
  
  
  
  
  
  
  
Net realized investment losses$(1) $
 $1
 $1
 $
 $1
 $
 $
 $
Balance, September 30, 2014$1,378
 $10
 $93
 $148
 $1,629
 $
 $1
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2014 included in:Changes in unrealized gains (losses) relating to assets held at September 30, 2014 included in: 
Net investment income$(1) $
 $
 $1
 $
 $
 $
 
Benefits, claims, losses and settlement expenses
 
 
 
 
 
 
 310
 310

 
 
 
 
 
 (1) 
Interest credited to fixed accounts
 
 
 
 
 
 1
 
 1
(1)Included in net investment income in the Consolidated Statements of Income.
(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.
      
 Policyholder Account Balances,
Future Policy Benefits and Claims
 IUL
Embedded
Derivatives
 GMWB and GMAB Embedded Derivatives Total
 (in millions)
Balance, January 1, 2014$125
 $(575) $(450)
Total losses included in: 
  
  
Net income14
(1) 
327
(2) 
341
Issues69
 184
 253
Settlements(6) (13) (19)
Balance, September 30, 2014$202
 $(77) $125
Changes in unrealized losses relating to liabilities held at September 30, 2014 included in:
Benefits, claims, losses and settlement expenses$
 $327
 $327
Interest credited to fixed accounts14
 
 14
(1)Included in interest credited to fixed accounts in the Consolidated Statements of Income.
(3)(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.

2023

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


 Available-for-Sale Securities: Fixed Maturities 
 Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Total 
 (in millions)
Balance, January 1, 2013$1,654
 $23
 $170
 $156
 $2,003
 
Total gains (losses) included in: 
  
  
  
  
 
Net income(1) 
 
 1
 
(1) 
Other comprehensive loss(34) 
 (6) 5
 (35) 
Purchases74
 87
 
 29
 190
 
Settlements(170) (5) 
 (1) (176) 
Transfers out of Level 3
 (15) (149) (9) (173) 
Balance, September 30, 2013$1,523
 $90
 $15
 $181
 $1,809
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2013 included in:
Net investment income$(1) $
 $
 $1
 $
 
 Available-for-Sale Securities: Fixed Maturities Future Policy Benefits
 Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Total IUL
Embedded
Derivatives
 GMWB and
GMAB
Embedded
Derivatives
 Total
 (in millions)
Balance, January 1, 2013$1,654
 $23
 $170
 $156
 $2,003
 $(45) $(833) $(878)
Total gains (losses) included in: 
  
  
  
  
  
  
  
Net income(1) 
 
 1
 
(1) 
(8)
(2) 
1,246
(3) 
1,238
Other comprehensive loss(34) 
 (6) 5
 (35) 
 
 
Purchases74
 87
 
 29
 190
 
 
 
Sales
 
 
 
 
 
 
 
Issues
 
 
 
 
 (42) (163) (205)
Settlements(170) (5) 
 (1) (176) (1) 6
 5
Transfers into Level 3
 
 
 
 
 
 
 
Transfers out of Level 3
 (15) (149) (9) (173) 
 
 
Balance, September 30, 2013$1,523
 $90
 $15
 $181
 $1,809
 $(96) $256
 $160
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2013 included in: 
  
  
  
  
  
  
  
Net investment income$(1) $
 $
 $1
 $
 $
 $
 $
Benefits, claims, losses and settlement expenses
 
 
 
 
 
 1,229
 1,229
Interest credited to fixed accounts
 
 
 
 
 (8) 
 (8)
(1)Included in net investment income in the Consolidated Statements of Income.
 Policyholder Account Balances,
Future Policy Benefits and Claims
 IUL Embedded
Derivatives
 GMWB and
GMAB
Embedded
Derivatives
 Total
  (in millions)
Balance, January 1, 2013$45
 $833
 $878
Total (gains) losses included in: 
  
 

Net income8
(1) 
(1,246)
(2) 
(1,238)
Issues42
 163
 205
Settlements1
 (6) (5)
Balance, September 30, 2013$96

$(256)
$(160)
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2013 included in:
Benefits, claims, losses and settlement expenses$
 $(1,229) $(1,229)
Interest credited to fixed accounts8
 
 8
(2)(1)Included in interest credited to fixed accounts in the Consolidated Statements of Income.
(3)(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.
 Available-for-Sale Securities: Fixed Maturities   Future Policy Benefits
 Corporate
Debt
Securities
 Residential
Mortgage
Backed
Securities
 Commercial
Mortgage
Backed
Securities
 Asset
Backed
Securities
 Other
Structured
Investment
 Total Common
Stock
 IUL Embedded
Derivatives
 GMWB and
GMAB
Embedded
Derivatives
 Total
 (in millions)  
Balance, January 1, 2012$1,342
 $58
 $16
 $133
 $14
 $1,563
 $
 $
 $(1,585) $(1,585)
Total gains (losses) included in: 
  
  
  
  
  
  
  
  
  
Net income(1) (7) 1
 1
 
 (6)
(1) 

 1
(2) 
577
(3) 
578
Other comprehensive income18
 9
 5
 2
 1
 35
 
 
 
 
Purchases317
 23
 8
 
 
 348
 1
 
 
 
Sales
 
 
 
 
 
 
 
 
 
Issues
 
 
 
 
 
 
 (16) (131) (147)
Settlements(133) (6) (1) (1) 
 (141) 
 
 (3) (3)
Transfers into Level 310
 5
 146
 22
 
 183
 
 (22) 
 (22)
Transfers out of Level 3
 (82) (8) 
 (15) (105) (1) 
 
 
Balance, September 30, 2012$1,553
 $
 $167
 $157
 $
 $1,877
 $
 $(37) $(1,142) $(1,179)
Changes in unrealized gains (losses) relating to assets and liabilities held at September 30, 2012 included in: 
  
  
  
  
  
  
  
  
  
Net investment income$(1) $
 $1
 $1
 $
 $1
 $
 $
 $
 $
Benefits, claims, losses and settlement expenses
 
 
 
 
 
 
 
 544
 544
Interest credited to fixed accounts
 
 
 
 
 
 
 1
 
 1
(1)
Represents a $7 million loss included in net realized investment gains and a $1 million gain included in net investment income in the Consolidated Statements of Income.
(2)Included in interest credited to fixed accounts in the Consolidated Statements of Income.
(3)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.

21

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The impact to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(14)$59 million and $(51)$(14) million,, net of DAC, DSIC, and unearned revenue amortization and the reinsurance accrual, for the three months ended September 30, 20132014 and 2012,2013, respectively. The impact to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(104)$68 million and $(45)(104) million, net of DAC, DSIC, and unearned revenue amortization and the reinsurance accrual, for the nine months ended September 30, 20132014 and 20122013, respectively.
Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote.  The transfer of the IUL embedded derivatives is due to the impact of the unobservable inputs to the valuation becoming more significant. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.

24

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:
September 30, 2013September 30, 2014
Fair Value Valuation Technique Unobservable Input Range Weighted AverageFair Value Valuation Technique Unobservable Input Range Weighted Average
(in millions)        (in millions)        
Corporate debt securities (private placements)$1,495
 Discounted cash flow Yield/spread to U.S. Treasuries 1.0%-5.5% 1.8%$1,341
 Discounted cash flow Yield/spread to U.S. Treasuries 0.9 %-3.5% 1.3 %
Other derivative contracts$1
 Option pricing model 
Correlation(1)
 (3.0)%-(84.0)% (60.0)%
IUL embedded derivatives$96
 Discounted cash flow 
Nonperformance risk(3)
 95
 bps  $202
 Discounted cash flow 
Nonperformance risk(2)
 69
 bps  
GMWB and GMAB embedded derivatives$(256) Discounted cash flow 
Utilization of guaranteed withdrawals(1)
 0.0%-51.1%  $(77) Discounted cash flow 
Utilization of guaranteed withdrawals(3)
 0.0 %-51.1%  
 
   Surrender rate 0.1%-57.9%      Surrender rate 0.0 %-59.1%  
 
   
Market volatility(2)
 5.1%-19.1%      
Market volatility(4)
 4.9 %-19.4%  
 
   
Nonperformance risk(3)
 95
 bps      
Nonperformance risk(2)
 69
 bps  
  
Elective contractholder strategy allocations(4)
 0.0%-50.0%    
Elective contractholder strategy allocations(5)
 0.0 %-31.0%  
December 31, 2012December 31, 2013
Fair Value Valuation Technique Unobservable Input Range Weighted AverageFair Value Valuation Technique Unobservable Input Range Weighted Average
(in millions)       (in millions)       
Corporate debt securities (private placements)$1,624
 Discounted cash flow Yield/spread to U.S. Treasuries 1.1%-8.5% 2.2%$1,487
 Discounted cash flow Yield/spread to U.S. Treasuries 0.9%-5.3% 1.6%
IUL embedded derivatives$45
 Discounted cash flow 
Nonperformance risk(3)
 97
 bps $125
 Discounted cash flow 
Nonperformance risk(2)
 74
 bps 
GMWB and GMAB embedded derivatives$833
 Discounted cash flow 
Utilization of guaranteed withdrawals(1)
 0.0%-56.4% $(575) Discounted cash flow 
Utilization of guaranteed withdrawals(3)
 0.0%-51.1% 
 
   Surrender rate 0.0%-56.3%     Surrender rate 0.1%-57.9% 
 
   
Market volatility(2)
 5.6%-21.2%     
Market volatility(4)
 4.9%-18.8% 
 
   
Nonperformance risk(3)
 97
 bps     
Nonperformance risk(2)
 74
 bps 
  
Elective contractholder strategy allocations(5)
 0.0%-50.0% 

(1)The utilizationRepresents the correlation between equity returns and interest rates used in the valuation of guaranteed withdrawals represents the percentage of policyholders that will begin withdrawing in any given year.derivative contract.
(2)Market volatility is implied volatility of fund of funds and portfolio stabilizer funds.
(3)The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.
(3)The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.
(4)Market volatility is implied volatility of fund of funds and managed volatility funds.
(5)The elective allocation represents the percentage of contractholders that are assumed to electively switch their investment allocation to a different allocation model.
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to the Company.

22

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.
Significant (decreases) increases in the correlation used in the fair value measurement of Level 3 derivatives in isolation would result in a significantly higher (lower) fair value measurement.
Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in utilization, surrender rate and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly higher (lower) fairlower (higher) asset value, measurement.possibly creating a liability. Significant increases (decreases) in surrender rate, nonperformance risk and elective investment allocation model used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result in a significantly lower (higher) fair value measurement.higher (lower) asset value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution system and whether the value of the guaranteed benefit exceeds the contract accumulation value.

25

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Determination of Fair Value
The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
Assets
Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of 90 days or less. CashActively traded money market funds are measured at their net asset value (“NAV”) and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Available-for-Sale Securities
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities include U.S. Treasuries. Level 2 securities include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, state and municipal bonds,obligations, asset backed securities and U.S. agency and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. In addition to the general pricing controls, the Company reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.

23

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Separate Account Assets
The fair value of assets held by separate accounts is determined by the net asset value (“NAV”)NAV of the funds in which those separate accounts are invested. The NAV represents the exit price for the separate account. Separate account assets are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets areis generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of the Company's options. The fair value of certain derivatives measured using pricing models which include significant unobservable inputs are classified as Level 3 within the fair value hierarchy. Other derivative contracts consist of the Company's macro hedge program. See Note 13 for further information on the macro hedge program. The counterparties’ nonperformance risk associated with

26

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


uncollateralized derivative assets was immaterial at September 30, 20132014 and December 31, 2012.2013. See Note 1112 and Note 1213 for further information on the credit risk of derivative instruments and related collateral.
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, and future policy benefits.benefits and claims.
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its EIA and IUL products. Significant inputs to the EIA calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of the IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, and future policy benefits.benefits and claims.
The Company’s Corporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management. The Level 3 inputs into the valuation are consistent with the pricing assumptions and updated as experience develops. Significant unobservable inputs that reflect policyholder behavior are reviewed quarterly along with other valuation assumptions.
Other Liabilities
Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The fair value of derivatives that are traded in less active OTC markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. Other derivative contracts consist of the Company's macro hedge program. See Note 13 for further information on the macro hedge program. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial at September 30, 20132014 and December 31, 20122013. See Note 1112 and Note 1213 for further information on the credit risk of derivative instruments and related collateral.
During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

2427

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities measured at fair value on a recurring basis.
 September 30, 2013 September 30, 2014
 Carrying Fair Value Carrying Fair Value
 Value Level 1 Level 2 Level 3 Total Value Level 1 Level 2 Level 3 Total
 (in millions) (in millions)
Financial Assets  
  
  
  
  
  
  
  
  
  
Mortgage loans, net $3,332
 $
 $
 $3,423
 $3,423
 $3,300
 $
 $
 $3,386
 $3,386
Policy loans 768
 
 
 756
 756
 804
 
 
 788
 788
Other investments 310
 
 271
 43
 314
 465
 
 419
 45
 464
          
Financial Liabilities  
  
  
  
  
  
  
  
  
  
Policyholder account balances and future policy benefits $14,283
 $
 $
 $14,853
 $14,853
Policyholder account balances, future policy benefits and claims $13,203
 $
 $
 $13,819
 $13,819
Short-term borrowings 500
 
 500
 
 500
 200
 
 200
 
 200
Line of credit with Ameriprise Financial 150
 
 
 150
 150
Other liabilities 83
 
 
 82
 82
 96
 
 
 95
 95
Separate account liabilities 377
 
 377
 
 377
 394
 
 394
 
 394
 December 31, 2012 December 31, 2013
 Carrying Fair Value Carrying Fair Value
 Value Level 1 Level 2 Level 3 Total Value Level 1 Level 2 Level 3 Total
 (in millions) (in millions)
Financial Assets  
  
  
  
  
  
  
  
  
  
Mortgage loans, net $3,389
 $
 $
 $3,568
 $3,568
 $3,326
 $
 $
 $3,372
 $3,372
Policy loans 752
 
 
 725
 725
 773
 
 
 765
 765
Other investments 309
 
 292
 24
 316
 385
 
 346
 42
 388
Restricted cash 86
 86
 
 
 86
          
Financial Liabilities  
  
  
  
  
  
  
  
  
  
Policyholder account balances and future policy benefits $14,701
 $
 $
 $15,982
 $15,982
Policyholder account balances, future policy benefits and claims $14,106
 $
 $
 $14,724
 $14,724
Short-term borrowings 501
 
 500
 
 500
 500
 
 500
 
 500
Line of credit with Ameriprise Financial 150
 
 
 150
 150
 150
 
 
 150
 150
Other liabilities 144
 
 
 142
 142
 137
 
 
 134
 134
Separate account liabilities 360
 
 360
 
 360
 400
 
 400
 
 400
Mortgage Loans, Net
The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including LTV ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan.
The fair value of residential mortgage loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, loss severity and credit loss estimates, with discount rates based on the Company’s estimate of current market conditions.
Given the significant unobservable inputs to the valuation of mortgage loans, these measurements are classified as Level 3.
Policy Loans
Policy loans represent loans made against the cash surrender value of the underlying life insurance or annuity product. These loans and the related interest are usually realized at death of the policyholder or contractholder or at surrender of the contract and are not transferable without the underlying insurance or annuity contract. The fair value of policy loans is determined by estimating expected cash flows discounted at rates based on the U.S. Treasury curve. Policy loans are classified as Level 3 as the discount rate used may be adjusted for the underlying performance of individual policies.

2528

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Other Investments
Other investments primarily consist of syndicated loans and an investment in FHLB. The fair value of syndicated loans is obtained from a third party pricing service or non-binding broker quotes. Syndicated loans that are priced by multiple non-binding broker quotesusing a market approach with observable inputs are classified as Level 2 and syndicated loans priced using a single non-binding broker quote are classified as Level 3. The fair value of the investment in FHLB is approximated by the carrying value and classified as Level 3 due to restrictions on transfer orand lack of liquidity.
Restricted Cash
Restricted cash is generally set asideliquidity in the primary market for specific business transactions and restrictions are specific to the Company and do not transfer to third party market participants; therefore, the carrying amount is a reasonable estimate of fair value. The fair value of restricted cash is classified as Level 1.this asset.
Policyholder Account Balances, and Future Policy Benefits and Claims
The fair value of fixed annuities, in deferral status, is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a provisionmargin for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities. The fair value of other liabilities including non-life contingent fixed annuities in payout status, EIA host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner. Given the use of significant unobservable inputs to these valuations, the measurements are classified as Level 3.
Short-term Borrowings
The fair value of short-term borrowings is obtained from a third party pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk. The fair value of short-term borrowings is classified as Level 2.
Line of Credit with Ameriprise Financial
The fair value of the line of credit is determined by discounting cash flows with an adjustment for the Company’s nonperformance risk specific to this liability. The fair value of the line of credit is classified as Level 3.
Other Liabilities
Other liabilities consist of future funding commitments to affordable housing partnerships. The fair value of these future funding commitments is determined by discounting cash flowsflows. The fair value of these commitments includes an adjustment for the Company’s nonperformance risk and is classified as Level 3 asdue to the discount rate is adjusted.use of the significant unobservable input.
Separate Account Liabilities
Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. The NAV of the related separate account assets represents the exit price for the separate account liabilities. Separate account liabilities are classified as Level 2 as they are traded in principal-to-principal markets with little publicly released pricing information. A nonperformance adjustment is not included as the related separate account assets act as collateral for these liabilities and minimize nonperformance risk.

11.12.Offsetting Assets and Liabilities
Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets under GAAP.Sheets. The Company’s derivative instruments and repurchase agreements are subject to master netting arrangements and collateral arrangements and meet the GAAP guidance to qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis onin the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
  September 30, 2014
  Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Assets Presented in the Consolidated Balance Sheets Gross Amounts Not Offset
in the Consolidated Balance Sheets
  
     
Financial Instruments(1)
 Cash Collateral Securities Collateral Net Amount
        
  (in millions)
Derivatives:  
  
  
  
  
  
  
OTC $3,131
 $
 $3,131
 $(2,834) $(107) $(176) $14
OTC cleared 145
 
 145
 (92) (53) 
 
Exchange-traded 71
 
 71
 
 
 
 71
Total derivatives $3,347
 $
 $3,347
 $(2,926) $(160) $(176) $85

2629

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
  September 30, 2013
  Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Assets Presented in the Consolidated Balance Sheets Gross Amounts Not Offset
in the Consolidated Balance Sheets
  
     
Financial Instruments(1)
 Cash Collateral Securities Collateral Net Amount
        
  (in millions)
Derivatives:  
  
  
  
  
  
  
OTC $2,854
 $
 $2,854
 $(2,795) $(18) $(35) $6
OTC cleared 17
 
 17
 (13) (4) 
 
Exchange-traded 116
 
 116
 
 
 
 116
Total derivatives $2,987
 $
 $2,987
 $(2,808) $(22) $(35) $122
 December 31, 2012 December 31, 2013
 Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Assets Presented in the Consolidated Balance Sheets Gross Amounts Not Offset
in the Consolidated Balance Sheets
   Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Assets Presented in the Consolidated Balance Sheets Gross Amounts Not Offset
in the Consolidated Balance Sheets
  
 
Financial Instruments(1)
 Cash Collateral Securities Collateral Net Amount 
Financial Instruments(1)
 Cash Collateral Securities Collateral Net Amount
  
 (in millions) (in millions)
Derivatives:  
  
  
  
  
  
  
  
  
  
  
  
  
  
OTC $3,322
 $
 $3,322
 $(2,676) $(262) $(355) $29
 $3,180
 $
 $3,180
 $(3,134) $(17) $(16) $13
OTC cleared 21
 
 21
 (20) (1) 
 
Exchange-traded 96
 
 96
 
 
 
 96
 60
 
 60
 
 
 
 60
Total derivatives $3,418
 $
 $3,418
 $(2,676) $(262) $(355) $125
 $3,261
 $
 $3,261
 $(3,154) $(18) $(16) $73
(1)Represents the amount of assets that could be offset by liabilities with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
 September 30, 2013 September 30, 2014
 Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Liabilities Presented in the Consolidated Balance Sheets 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
   Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Liabilities Presented in the Consolidated Balance Sheets 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
  
 
Financial
Instruments(1)
 
Cash
Collateral
 
Securities
Collateral
 
Net
Amount
 
Financial
Instruments(1)
 
Cash
Collateral
 
Securities
Collateral
 
Net
Amount
 (in millions) (in millions)
OTC derivatives $3,866
 $
 $3,866
 $(2,795) $
 $(1,070) $1
OTC cleared derivatives 15



15

(13)
(2)



Derivatives:              
OTC $3,772
 $
 $3,772
 $(2,834) $
 $(938) $
OTC cleared 92
 
 92
 (92) 
 
 
Total derivatives 3,881
 
 3,881
 (2,808) (2) (1,070) 1
 3,864
 
 3,864
 (2,926) 
 (938) 
Repurchase agreements 150
 
 150
 
 
 (150) 
 50
 
 50
 
 
 (50) 
Total $4,031
 $
 $4,031
 $(2,808) $(2) $(1,220) $1
 $3,914
 $
 $3,914
 $(2,926) $
 $(988) $
 December 31, 2012 December 31, 2013
 Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Liabilities Presented in the Consolidated Balance Sheets 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
   Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Amounts of Liabilities Presented in the Consolidated Balance Sheets 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
  
 
Financial
Instruments(1)
 
Cash
Collateral
 
Securities
Collateral
 
Net
Amount
 
Financial
Instruments(1)
 
Cash
Collateral
 
Securities
Collateral
 
Net
Amount
 (in millions) (in millions)
OTC derivatives $3,279
 $
 $3,279
 $(2,676) $(67) $(532) $4
Derivatives:              
OTC $4,610
 $
 $4,610
 $(3,134) $
 $(1,465) $11
OTC cleared 22
 
 22
 (20) (2) 
 
Total derivatives 4,632



4,632

(3,154)
(2)
(1,465)
11
Repurchase agreements 501
 
 501
 
 
 (501) 
 50
 
 50
 
 
 (50) 
Total $3,780
 $
 $3,780
 $(2,676) $(67) $(1,033) $4
 $4,682
 $
 $4,682
 $(3,154) $(2) $(1,515) $11
(1)Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
In the tables above, the amounts of assets or liabilities presented in the Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral. The actual amounts of collateral may be greater than amounts presented in the tables.

27

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The Company’s freestanding derivative instruments are reflected in other assets and other liabilities. Repurchase agreements are reflected in short-term borrowings. See Note 1213 for additional disclosures related to the Company’s derivative instruments and Note 910 for additional disclosures related to the Company’s repurchase agreements.
12.13.Derivatives and Hedging Activities
Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.

30

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The Company’s freestanding derivatives are recorded at fair value and are reflected in other assets or other liabilities. The Company’s freestanding derivative instruments are all subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 1112 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.
In April 2012, the Financial Stability Oversight Council approved the final rule and interpretive guidance that provides the framework it will follow to determine if a nonbank financial company is a Systemically Important Financial Institution. The framework includes a three-stage process to help narrow down the pool of nonbank financial companies for review and possible designation. Stage 1 criteria include having at least $50 billion in assets and meeting one of five additional quantitative measures. One of the five thresholds is $3.5 billion of derivative liabilities after considering the effects of master netting arrangements and cash collateral held with the same counterparty. The Company believes that after the application of master netting arrangements and cash collateral, its net derivative liability is less than the threshold based on the Company's interpretation of the rule. See Note 11 for additional information related to the impacts of master netting arrangements and cash collateral on the Company's freestanding derivative liabilities.
The Company currently uses derivatives as economic hedges and accounting hedges. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives:
   Asset   Liability   Assets   Liabilities
Derivatives not designated
as hedging instruments
 Balance Sheet
Location
 September 30,
2013
 December 31,
2012
 Balance Sheet
Location
 September 30,
2013
 December 31,
2012
 Balance Sheet
Location
 September 30,
2014
 December 31,
2013
 Balance Sheet Location September 30,
2014
 December 31,
2013
   (in millions)   (in millions)   (in millions)   (in millions)
GMWB and GMAB    
  
    
  
    
  
    
  
Interest rate contracts Other assets $1,525
 $2,191
 Other liabilities $1,554
 $1,486
 Other assets $1,512
 $1,484
 Other liabilities $1,208
 $1,672
Equity contracts Other assets 1,441
 1,215
 Other liabilities 2,314
 1,792
 Other assets 1,798
 1,741
 Other liabilities 2,636
 2,918
Credit contracts Other assets 
 
 Other liabilities 6
 
 Other assets 4
 3
 Other liabilities 
 
Foreign currency contracts Other assets 2
 6
 Other liabilities 
 
Foreign exchange contracts Other assets 4
 2
 Other liabilities 
 
Embedded derivatives(1)
 N/A 
 
 Policyholder account balances and future policy benefits (256)
(2) 
833
 N/A 
 
 
Policyholder account balances, future policy benefits and claims(2)
 (77) (575)
Total GMWB and GMAB   2,968
 3,412
   3,618
 4,111
   3,318
 3,230
   3,767
 4,015
Other derivatives:    
  
    
  
    
  
    
  
Equity    
  
    
  
    
  
    
  
EIA embedded derivatives N/A 
 
 Policyholder account balances and future policy benefits 4
 2
 N/A 
 
 Policyholder account balances, future policy benefits and claims 6
 5
IUL Other assets 19
 6
 Other liabilities 7
 1
 Other assets 28
 27
 Other liabilities 7
 13
IUL embedded derivatives N/A 
 
 Policyholder account balances and future policy benefits 96
 45
 N/A 
 
 Policyholder account balances, future policy benefits and claims 202
 125
Total other   19
 6
   107
 48
Other        
Macro hedge program Other assets 1
 4
 Other liabilities 13
 29
Total other derivatives   29
 31
   228
 172
Total derivatives   $2,987
 $3,418
   $3,725
 $4,159
   $3,347
 $3,261
   $3,995
 $4,187
N/ANot applicable.
(1)The fair values of GMWB and GMAB embedded derivatives fluctuate based on changes in equity, interest rate and credit markets.
(2)
The fair value of the GMWB and GMAB embedded derivatives was a net asset at September 30, 20132014 and December 31, 2013 and the amount is reported as a contra liability.
See Note 1011 for additional information regarding the Company’s fair value measurement of derivative instruments.

2831

RIVERSOURCE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Income:
   
Amount of Gain (Loss) on Derivatives
Recognized in Income
   
Amount of Gain (Loss) on Derivatives
Recognized in Income
Derivatives not designated as hedging instruments Location of Gain (Loss) on Derivatives Recognized in Income Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 Location of Gain (Loss) on Derivatives Recognized in Income Three Months Ended September 30, Nine Months Ended 
 September 30,
 2013 2012 2013 2012  2014 2013 2014 2013
   (in millions)   (in millions)
GMWB and GMAB    
  
  
  
    
  
  
  
Interest rate contracts Benefits, claims, losses and settlement expenses $(63) $(12) $(575) $91
 Benefits, claims, losses and settlement expenses $100
 $(63) $609
 $(575)
Equity contracts Benefits, claims, losses and settlement expenses (323) (402) (803) (909) Benefits, claims, losses and settlement expenses 143
 (323) (244) (803)
Credit contracts Benefits, claims, losses and settlement expenses (3) 
 5
 (2) Benefits, claims, losses and settlement expenses (1) (3) (23) 5
Foreign currency contracts Benefits, claims, losses and settlement expenses 8
 (6) 15
 (5)
Foreign exchange contracts Benefits, claims, losses and settlement expenses (13) 8
 (14) 15
Embedded derivatives(1)
 Benefits, claims, losses and settlement expenses 267
 264
 1,089
 443
 Benefits, claims, losses and settlement expenses (270) 267
 (498) 1,089
Total GMWB and GMAB   (114) (156) (269) (382)   (41) (114) (170) (269)
Other derivatives:    
  
  
  
    
  
  
  
Interest rate        
Tax hedge Net investment income 
 
 3
 
Equity    
  
  
  
    
  
  
  
EIA Interest credited to fixed accounts 1
 
 2
 1
 Interest credited to fixed accounts 
 1
 1
 2
EIA embedded derivatives Interest credited to fixed accounts 
 
 (1) 
 Interest credited to fixed accounts 
 
 (1) (1)
IUL Interest credited to fixed accounts 2
 1
 8
 1
 Interest credited to fixed accounts 2
 2
 13
 8
IUL embedded derivatives Interest credited to fixed accounts 3
 1
 8
 1
 Interest credited to fixed accounts (2) 3
 9
 8
Total other   6
 2
 17
 3
Other        
Macro hedge program Benefits, claims, losses and settlement expenses (1) 
 2
 
Total other derivatives   (1) 6

27

17
Total derivatives   $(108) $(154) $(252) $(379)   $(42) $(108) $(143) $(252)
(1)The fair values of GMWB and GMAB embedded derivatives fluctuate based on changes in equity, interest rate and credit markets.
The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate, credit and creditforeign currency exchange rate risk related to various products and transactions of the Company.
Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The Company economically hedges the exposure related to non-life contingent GMWB and GMAB provisions primarily using various futures, options, interest rate swaptions, interest rate swaps, total return swaps variance swaps and credit defaultvariance swaps. At September 30, 20132014 and December 31, 20122013, the gross notional amount of derivative contracts for the Company’s GMWB and GMAB provisions was $145.9$135.8 billion and $142.1142.4 billion, respectively.
The deferred premium associated with certain of the above options is paid or received semi-annually over the life of the option contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options:
 Premiums
Payable
 Premiums
Receivable
 Premiums Payable Premiums Receivable
 (in millions) (in millions)
2013(1)
 $101
 $19
2014 337
 56
2014(1)
 $109
 $49
2015 310
 64
 349
 69
2016 279
 48
 316
 53
2017 229
 42
 240
 69
2018-2027 714
 99
2018 190
 68
2019-2026 526
 132
Total $1,730
 $440
(1)
20132014 amounts represent the amounts payable and receivable for the period from October 1, 20132014 to December 31, 20132014.

32

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options prior to the full premium being paid or received.
In the third quarter ofDuring 2013, the Company transferred net derivative liabilities with a fair value of $4894 million, consisting of long-dated options, along with cash payment of the same amount to Ameriprise Financial. The transaction improves the risk management profile of statutory tail scenario risk for the Company'sCompany’s variable annuities. 

29

the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company uses a combination of options and/or swaps. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The gross notional amount of these derivative contracts was $1.2 billion and $710 million at RIVERSOURCESeptember 30, 2014LIFE INSURANCE COMPANY and December 31, 2013, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


EIA and IUL products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to EIA and IUL products will positively or negatively impact earnings over the life of these products. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts. The gross notional amount of EIAthese derivative contracts was $13$804 million and $10512 million at September 30, 20132014 and December 31, 2012, respectively. The gross notional amount of IUL derivative contracts was $411 million and $200 million at September 30, 2013 and December 31, 2012, respectively.
Embedded Derivatives
Certain annuities contain GMAB and non-life contingent GMWB provisions, which are considered embedded derivatives. In addition, the equity component of the EIA and IUL product obligations are also considered embedded derivatives. These embedded derivatives are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As discussed above, the Company uses derivatives to mitigate the financial statement impact of these embedded derivatives.
Cash Flow Hedges
The Company has amounts classified in AOCI related to gains and losses associated with the effective portion of previously designated cash flow hedges. The Company reclassifies these amounts into income as the forecasted transactions impact earnings. During the nine months ended September 30, 20132014, the Company held no derivatives that were designated as cash flow hedges.
At September 30, 20132014, the Company expects to reclassify $6$6 million of deferred loss on derivative instruments from AOCI to earnings during the next 12 months that will be recorded in net investment income. These were originally losses on derivative instruments related to interest rate swaptions. During the nine months ended September 30, 20132014 and 20122013, no hedge relationships were discontinued due to forecasted transactions no longer being expected to occur according to the original hedge strategy. For the nine months ended September 30, 20132014 and 20122013, amounts recognized in earnings on derivative transactions that were ineffective were not material.
The following table presents a rollforward of unrealized derivative losses related to cash flow hedges included in accumulated other comprehensive income (loss):
 2013 2012 2014 2013
 (in millions) (in millions)
Net unrealized derivative losses at January 1 $(21) $(26) $(17) $(21)
Reclassification of realized losses(1)
 6
 5
 5
 6
Income tax benefit (2) (1) (2) (2)
Net unrealized derivative losses at September 30 $(17) $(22) $(14) $(17)
(1)Loss reclassified from AOCI to net investment income on the Consolidated Statements of Income.
Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is fivefour years and relates to interest credited on forecasted fixed premium product sales.
Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting

33

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


arrangements and collateral arrangements whenever practical. See Note 1112 for additional information on the Company’s credit exposure related to derivative assets.
Certain of the Company’s derivative contracts contain provisions that adjust the level of collateral the Company is required to post based on the Company’s financial strength rating (or based on the debt rating of the Company’s parent, Ameriprise Financial). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company does not maintain a specific financial strength rating or Ameriprise Financial’s debt does not maintain a specific credit rating (generally an investment grade rating). If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. At September 30, 20132014 and December 31, 2012,2013, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $675$494 million and $364$950 million,, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 20132014 and December 31, 20122013 was $674$494 million and $360$940 million,, respectively. If the credit

30

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


contingent provisions of derivative contracts in a net liability position at September 30, 20132014 and December 31, 20122013 were triggered, the aggregate fair value of additional assets that would be required to be posted as collateral or needed to settle the instruments immediately would have been $1nil and $10 million, and $4 million, respectively.
13.14.Shareholder’s Equity
The following table provides information related to amounts reclassified from AOCI:
   Amount Reclassified
from AOCI
 Three Months Ended September 30, Nine Months Ended 
 September 30,
AOCI Reclassification Location of Loss (Gain)
Recognized in Income
 Three Months Ended 
 September 30, 2013
 Nine Months Ended 
 September 30, 2013
 Location of (Gain) Loss Recognized in Income 2014 2013 2014 2013
   (in millions)   (in millions)
Net unrealized gains on Available-for-Sale securities Net investment income $(4) $(3) Net realized investment gains $(10) $(4) $(15) $(3)
Tax expense Income tax provision 1
 1
 Income tax provision 4
 1
 6
 1
Net of tax   $(3) $(2)   $(6) $(3) $(9) $(2)
Losses on cash flow hedges:    
  
    
  
    
Swaptions Net investment income $2
 $6
 Net investment income $2
 $2
 $5
 $6
Tax benefit Income tax provision (1) (2) Income tax provision (1) (1) (2) (2)
Net of tax   $1
 $4
   $1
 $1
 $3
 $4
The Company made adjustments to AOCI for the impact to DAC, DSIC, benefit reserves and reinsurance recoverable on net unrealized securities losses of $18 million and $283 million, net of tax, for the three months and nine months ended September 30, 2013, respectively. See Note 4 for additional information related to the impact of DAC, DSIC, benefit reserves and reinsurance recoverable on net unrealized securities gains/losses included in AOCI. See Note 1213 for additional information regarding the Company’s cash flow hedges. 
14.15.Income Taxes
The Company’s effective tax rates were 18%rate was 14.5% and 11%18.2% for the three months ended September 30, 20132014 and 2012,2013, respectively. The Company’s effective tax rates were 17%rate was 14.0% and 20%17.1% for the nine months ended September 30, 20132014 and 2012,2013, respectively. The effective tax rates are lower than the statutory rate as a result of tax preferred items including the dividends received deduction foreign tax credits and low income housing tax credits. The increasedecrease in the effective tax rate for the three months ended September 30, 20132014 compared to the prior year period iswas primarily a result of higherdue to lower pretax income. The decrease in the effective tax rate for the nine months ended September 30, 20132014 compared to the prior year period is awas the result of aan $3218 million correctionbenefit in the first quarter of tax2014 related to securities lending activities in 2012 offset by higher pretax income in the current period.completion of an Internal Revenue Service (“IRS”) audit.
Included in the Company'sCompany’s deferred income tax assets are tax benefits related to state net operating losses of $5$6 million which will expire beginning December 31, 2014.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes as well as future deductible capital losses realized for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies. Based on analysis of the Company’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will not

34

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


allow the Company to realize all of certain state deferred tax assets and state net operating losses and therefore a valuation allowance of $5$6 million was established as of both September 30, 20132014 and December 31, 20122013.
As of September 30, 20132014 and December 31, 20122013, the Company had $124$155 million and $65144 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $21$6 million and $823 million, net of federal tax benefits, of unrecognized tax benefits would affect the effective tax rate as of September 30, 20132014 and December 31, 20122013, respectively.respectively, would affect the effective tax rate.
It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of the Company, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $121$140 million to $150 million in the next 12 months.

31

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net increase of $2$1 million and $5$3 million in interest and penalties for the three months and nine months ended September 30, 2013,2014, respectively. The Company recognized a net increase of $1$2 million and a net decrease of $4$5 million in interest and penalties for the three months and nine months ended September 30, 2012,2013, respectively. As of September 30, 20132014 and December 31, 2012,2013, the Company had a payable of $35$39 million and $30$36 million,, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns as part of its inclusion in the consolidated federal income tax returns of Ameriprise Financial in the U.S. federal jurisdiction and various state jurisdictions. The Internal Revenue Service (“IRS”)IRS had previously completed its field examination of the 1997 through 2007 tax returns in recent years. However, for federal income tax purposes, these years except for 2007, continue to remain open as a consequence of certain unagreed-upon issues. The IRS completed the audits of the Company’s 2008 and 2009 tax returns in the first quarter of 2014. The IRS is in the process of completing the auditaudits of the Company’s income tax returns for 20082010 through 2011 and 2009 and began auditing the Company's income tax returns for 2010 and 2011expects these audits to be completed in the fourth quarter of 2012.2014. The Company or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 20082011 and remain open for the years after 2008. The Company filed its 2012 tax return in the third quarter of 2013, but the IRS has not yet begun its examination of 2012.2011.
15.16.ContingenciesGuarantees and GuaranteesContingencies
Insurance companies have been the subject of increasing regulatory, legislative and judicial scrutiny.  Numerous state and federal regulatory agencies have commenced examinations and other inquiries of insurance companies regarding sales and marketing practices (including sales to older consumers and disclosure practices), claims handling, and unclaimed property and escheatment practices and procedures. With regard to an industry-wide investigation of unclaimed property and escheatment practices and procedures, the Company is responding to regulatory audits, market conduct examinations and other inquires (including inquiries from the States of Minnesota and New York and a multistate insurance department examination).  The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.
The Company is involved in the normal course of business in a number of other legal and arbitration proceedings concerning matters arising in connection with the conduct of its business activities.  The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration or regulatory investigation or proceeding that is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity.  Notwithstanding the foregoing, it is possible that the outcome of any current or future legal, arbitration or regulatory proceeding could have a material impact on results of operations in any particular reporting period as the proceedings are resolved.Guarantees
The Company is required by law to be a member of the guaranty fund association in every state where it is licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations. Uncertainty and volatility in the U.S. economy and financial markets in recent years have weakened the financial condition of numerous insurers, including insurers currently in receiverships, increasing the risk of triggering guaranty fund assessments.
The Company projects its cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations (“NOLHGA”) and the amount of its premiums written relative to the industry-wide premium in each state. The Company accrues the estimated cost of future guaranty fund assessments when it is considered probable that an assessment will be imposed, the event obligating the Company to pay the assessment has occurred and the amount of the assessment can be reasonably estimated.
Executive Life InsuranceThe Company of New York (“ELNY”) was placed into rehabilitation by a New York state court in 1991. On April 16, 2012, the court issued an order converting the rehabilitation into a liquidation proceeding under a plan submitted by the New York insurance regulator with support from NOLHGA and the industry. Closing under the liquidation plan took place in August 2013.
During the second quarter of 2012, the Company establishedhas a liability for estimated guaranty fund assessments and a related premium tax asset, primarily associated with ELNY.asset. At September 30, 20132014 and December 31, 2012,2013, the estimated liability was $18$13 million and $26$14 million,, respectively, respectively. At both September 30, 2014 and December 31, 2013, the related premium tax asset was $15 million and $19 million, respectively.$11 million. The Company has recently received assessments related to ELNY from some of the state guaranty fund associations, however, the expected period over which all of theguaranty fund assessments will be made and the related tax credits recovered is not known.
Contingencies
Insurance companies have been the subject of increasing regulatory, legislative and judicial scrutiny. Numerous state and federal regulatory agencies have commenced examinations and other inquiries of insurance companies regarding sales and marketing practices (including sales to older consumers and disclosure practices), claims handling, and unclaimed property and escheatment practices and procedures. With regard to an industry-wide investigation of unclaimed property and escheatment practices and procedures, the Company is responding to regulatory audits, market conduct examinations and other inquiries (including inquiries from the State of Minnesota and a multistate insurance department examination). The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries.
The Company is involved in the normal course of business in a number of other legal and arbitration proceedings concerning matters arising in connection with the conduct of its business activities. The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration or regulatory investigation, examination or proceeding that is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity.

35

RIVERSOURCELIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Notwithstanding the foregoing, it is possible that the outcome of any current or future legal, arbitration or regulatory proceeding could have a material impact on results of operations in any particular reporting period as the proceedings are resolved.
Uncertain economic conditions, heightened and sustained volatility in the financial markets and significant financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the insurance industry generally.

32In September 2010, the California Department of Insurance (“CA DOI”) issued an Order to Show Cause administrative action against RiverSource Life Insurance Company alleging that certain claims handling practices reviewed in connection with a 2007-2008 market conduct exam did not comply with applicable law. In August 2014, RiverSource Life Insurance Company and the CA DOI reached agreement in principle to settle all pending allegations for $800,000, with the exception of a single allegation related to certain coverage determinations made under long term care insurance policies issued between 1989-1992. An administrative hearing on this remaining allegation is scheduled to conclude in November 2014. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter given the procedural status of the matter, the lack of specific penalty allegations, and the difficulty of predicting outcomes in these administrative proceedings which involve multiple phases and appellate procedures.



ITEM 2.MANAGEMENT’S NARRATIVE ANALYSIS
The following informationnarrative analysis of RiverSource Life Insurance Company’s consolidated financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow and RiverSource Life Insurance Company’s Consolidated Financial Statements and Notes presented in Part I, Item 1. RiverSource Life Insurance Company and its subsidiaries are referred to collectively in this FormFrom 10-Q as the “Company”. ThisThe Company’s  narrative analysis may contain forward-looking statements that reflect the Company’s plans, estimates and beliefs.  Actual results could differ materially from those discussed in these forward-looking statements.  Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.”  The Company believes it is useful toshould be read this narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 20122013 filed with the Securities and Exchange Commission on February 26, 27, 2014 (“2013 (“2012 10-K”), as well as itsany current reports on Form 8-K and other publicly available information.
The Company follows U.S. generally accepted accounting principles (“GAAP”), and the following discussion is presented on a consolidated basis consistent with GAAP.  In addition, certain reclassifications of prior year amounts have been made to conform to the current presentation.
Management’s narrative analysis of the results of operations is presented in lieu of management’s discussion and analysis of financial condition and results of operations, pursuant to General Instructions H(2)(a) of Form 10-Q.
Overview
RiverSource Life Insurance Company is a stock life insurance company with one wholly owned stock life insurance company subsidiary, RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”). RiverSource Life Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). 
RiverSource Life Insurance Company is domiciled in Minnesota and holds Certificates of Authority in American Samoa, the District of Columbia and all states except New York. RiverSource Life Insurance Company issues insurance and annuity products.
RiverSource Life of NY is domiciled and holds a Certificate of Authority in New York. RiverSource Life of NY issues insurance and annuity products.
RiverSource Life Insurance Company also wholly owns RiverSource Tax Advantaged Investments, Inc. (“RTA”). RTA is a stock company domiciled in Delaware and is a limited partner in affordable housing partnership investments.
Critical Accounting Policies
The accounting and reporting policies that the Company uses affect its Consolidated Financial Statements. Certain of the Company’s accounting and reporting policies are critical to an understanding of the Company’s financial condition and results of operations and, inoperations. In some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of the Consolidated Financial Statements. These accounting policies are discussed in detail in “Management’s Narrative Analysis — Critical Accounting Policies” in the Company’s 20122013 10-K.
Deferred Acquisition Costs and Deferred Sales Inducement Costs
A decrease of 100 basis points in various rate assumptions is likely to result in an increase in deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”) amortization and an increase in benefits and claims expense from variable annuity guarantees. The following table presents the estimated impact to current period pretax income:
  
Estimated Impact to Pretax Income(1)
  (in millions)
Decrease in future near and long-term fixed income returns by 100 basis points $(47)

 
Decrease in future near-term equity fund growth returns by 100 basis points $(36)
Decrease in future long-term equity fund growth returns by 100 basis points (27)
Decrease in future near- and long-term equity fund growth returns by 100 basis points $(63)
(1)An increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same amount.

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

3336

RIVERSOURCE LIFE INSURANCE COMPANY


Consolidated Results of Operations for the Nine Months Ended September 30, 20132014 and 20122013
The following table presents the Company’s consolidated results of operations (unaudited):operations:
 Nine Months Ended 
 September 30,
     Nine Months Ended September 30,    
 2013 2012 Change 2014 2013 Change
   (in millions)      (in millions, except percentages)
Revenues  
  
  
  
  
  
  
  
Premiums $320
 $333
 $(13) (4)% $319
 $320
 $(1)  %
Net investment income 1,067
 1,118
 (51) (5) 975
 1,067
 (92) (9)
Policy and contract charges 1,274
 1,172
 102
 9
 1,357
 1,274
 83
 7
Other revenues 266
 242
 24
 10
 292
 266
 26
 10
Net realized investment gains 3
 1
 2
 NM
 12
 3
 9
 NM
Total revenues 2,930
 2,866
 64
 2
 2,955
 2,930
 25
 1
Benefits and expenses  
  
  
  
  
  
  
  
Benefits, claims, losses and settlement expenses 839
 970
 (131) (14) 750
 839
 (89) (11)
Interest credited to fixed accounts 600
 621
 (21) (3) 529
 600
 (71) (12)
Amortization of deferred acquisition costs 102
 152
 (50) (33) 226
 102
 124
 NM
Other insurance and operating expenses 555
 576
 (21) (4) 560
 555
 5
 1
Total benefits and expenses 2,096
 2,319
 (223) (10) 2,065
 2,096
 (31) (1)
Pretax income 834
 547
 287
 52
 890
 834
 56
 7
Income tax provision 143
 112
 31
 28
 125
 143
 (18) (13)
Net income $691
 $435
 $256
 59 % $765
 $691
 $74
 11 %
NM  Not Meaningful.
Overview
In the third quarter of the year, management conducts its annual review of insurance and annuity valuation assumptions, relative to current experience and management expectations. To the extent that expectations change as a result of this review, management updates valuation assumptions and the impact is reflected as part of its annual review of life insurance and annuity valuation assumptions and modeling changes (“unlocking”). The unlocking impact in the third quarter of 20132014 primarily reflected the difference between the Company’s previously assumed interest rates versus the continued low interest rate environment, partially offset by a benefit from updating the Company's variable annuity living benefit withdrawal utilization assumption. The unlocking impact in the prior year period primarily reflected the impact of expected higherassumed interest rates and changes in assumed policyholder behavior.
Net income increased $256$74 million or 59%11% to $691$765 million for the nine months ended September 30, 20132014 compared to $435$691 million for the prior year period. Pretax income increased $287$56 million or 52%7% to $834$890 million for the nine months ended September 30, 20132014 compared to $547$834 million for the prior year period primarily reflecting a favorable impact from unlocking and model changes, the impact of market appreciation, a $40 million benefit from policyholder movement of investments in Portfolio Navigator (traditional asset allocation) funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer (managed volatility) funds, and the market impact on variable annuity guaranteed living benefits (net of hedges and the related DACdeferred acquisition costs (“DAC”) and DSICdeferred sales inducement costs (“DSIC”) amortization) and net realized losses on securities recognized in the prior year period, partially offset by a $109 million decrease from unlocking and the negative impact from spread compression in the Company's fixed annuities,Company’s fixed insurance and the fixed portion of variable annuities and variable insurance contracts. The market impact on variable annuity guaranteed living benefits (net of hedges and the related DAC and DSIC amortization) was an expense of $68$51 million for the nine months ended September 30, 20132014, which included a $2 million expense associated with policyholder movement of investments in Portfolio Navigator funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds, compared to an expense of $68 million for the prior year period which included a $17 million benefit associated with unlocking. This compares
The Company’s variable annuity account balances increased 5% to an expense of $220 million for$76.1 billion at September 30, 2014 compared to the prior year period which included a $12 million expense associated with unlocking and model changes. Results fordue to market appreciation, partially offset by net outflows of $1.6 billion. The Company’s fixed annuity account balances declined 8% to $12.4 billion at September 30, 2014 compared to the prior year period included a $32 million unfavorable impact from a tax-related itemreflecting expected elevated surrenders on products sold through third parties where crediting rates have reset. This decline was offset by the change in crediting rates, which decreased the level of spread compression for an out-of-period correction in the second quarternine months ended September 30, 2014. Approximately 98% of 2012.the five-year guarantee block totaling $4.1 billion has been re-priced as of September 30, 2014.


3437

RIVERSOURCE LIFE INSURANCE COMPANY


The following table presents the total pretax impacts on the Company’s revenues and expenses attributable to unlocking and model changes for the nine months ended September 30:
Pretax Increase (Decrease) 2013 2012 2014 2013
 (in millions) (in millions)
Policy and contract charges $(18) $(41) $(29) $(18)
        
Benefits, claims, losses and settlement expenses (5) 22
 6
 (5)
Interest credited to fixed accounts 
 2
Amortization of DAC (79) 14
 8
 (79)
Total benefits and expenses (84) 38
 14
 (84)
Total(1)
 $66
 $(79) $(43) $66
(1)Includes a $17 million net benefit and a $12 million expense related to the market impact on variable annuity guaranteed living benefits for the nine months ended September 30, 2013 and 2012, respectively.2013.
Revenues
Total revenues increased $64$25 million or 2%1% for the nine months ended September 30, 2014 compared to the prior year period.
Net investment income decreased $51$92 million or 5%9% to $975 million for the nine months ended September 30, 2014 compared to $1.1 billion for the prior year period reflecting a decrease in investment income on fixed maturities primarily due to lower invested assets and continued low interest rates.
Policy and contract charges increased $102$83 million or 9%7% to $1.3$1.4 billion for the nine months ended September 30, 20132014 compared to $1.2$1.3 billion for the prior year period. The increase is primarily due to higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date as well as higher average fee rates. Also, the increase reflects higher separate account fees driven by higher average separate account balances due to positive market performance. Policy and higher fee rates.contract charges for the nine months ended September 30, 2014 included a $29 million negative impact from unlocking compared to an $18 million negative impact in the prior year period. The primary driver of the unlocking impact in both periods was lower projected gains on reinsurance contracts resulting from favorable mortality experience.
Other revenues increased $24$26 million or 10%10% to $266$292 million for the nine months ended September 30, 20132014 compared to $242$266 million for the prior year period reflecting higher marketing support due to higher average separate account balances.balances driven by positive market performance.
Net realized investment gains were $3$12 million for the nine months ended September 30, 20132014 compared to $1net realized investment gains of $3 million for the prior year period. In the nine months ended September 30, 2014, net realized gains of $20 million on Available-for-Sale securities due to sales, calls and tenders were partially offset by other-than-temporary impairments recognized in earnings of $5 million which primarily related to credit losses on non-agency residential mortgage backed securities and corporate debt securities. In the nine months ended September 30, 2014, there was a $2 million increase in the provision for loan losses on syndicated loans. In the nine months ended September 30, 2013, net realized gains on Available-for-Sale securities due to sales, calls and tenders were $7 million partially offset by other-than-temporary impairments recognized in earnings of $4 million which primarily related to credit losses on non-agency residential mortgage backed securities. In the nine months ended September 30, 2012, net realized gains on Available-for-Sale securities due to sales, calls and tenders were $12 million offset by other-than-temporary impairments recognized in earnings of $12 million which were primarily related to credit losses on non-agency residential mortgage backed securities.
Benefits and Expenses
Total benefits and expenses decreased $223$31 million or 10% to $2.1 billion1% for the nine months ended September 30, 20132014 compared to $2.3 billion for the prior year period primarily due to a decrease in benefits, claims, losses and settlement expenses and interest credited to fixed accounts partially offset by an increase in amortization of DAC.
Benefits, claims, losses and settlement expenses decreased $131$89 million or 14%11% to $839$750 million for the nine months ended September 30, 20132014 compared to $970$839 million for the prior year period primarily reflecting the following items:
The nine months ended September 30, 20132014 included a $6 million expense from unlocking, which included nil related to the market impact on variable annuity guaranteed benefits. The prior year period included a $5 million benefit from unlocking, which included a $22 million benefit related to the market impact on variable annuity guaranteed living benefits, and the prior year period included a $22 million expense, which included a $15 million expense related to the market impact on variable annuity guaranteed living benefits. The market impact on variable annuity guaranteed living benefits is discussed below. The unlocking impact for the nine months ended September 30, 20132014 reflected the difference between the Company’s previously assumed interest rates versus the continued low interest rate environment, partially offset by a benefit from updating the Company's variable annuity living benefit withdrawal utilization assumption. The unlocking impact for the prior year period reflected the impact of expected higherassumed interest rates and changes in assumed policyholder behavior, partially offset by the impact of variable annuity model changes. The unlocking

38

RIVERSOURCE LIFE INSURANCE COMPANY


A $48 million decrease in expenses from policyholder movement of investments in Portfolio Navigator funds under certain in force variable annuities with living benefit guarantees to the Portfolio Stabilizer funds, which included a $2 million expense related to the market impact on variable annuity guaranteed benefits. During the fourth quarter of 2013, the Company added Portfolio Stabilizer fund options for its in force variable annuities with living benefit guarantees.
A decrease in expense compared to the prior year period primarily reflected lower bond fund returns relateddue to the life contingent benefits associated with variable annuity guaranteed minimum withdrawal benefits ("GMWB").
An increase in expenses of approximately $30 million related to higher reserve funding driven by the impact of higher fees from prior year sales with variable annuity guarantees.
Anan $8 million increase in disability income reserves in the second quarter of 2013 related to prior periods and a $9periods.
A $21 million benefitincrease in expense related to higher reserve funding driven by the impact of higher fees from a life insurance reserve releasevariable annuity guarantee sales in the prior year period.where the fees start on the first anniversary date.
A $93$248 million increasedecrease in expense compared to the prior year period from the unhedged non-performancenonperformance credit spread risk adjustment on variable annuity guaranteed living benefits.

35



A $290$221 million decreaseincrease in expense from other market impacts on variable annuity guaranteed living benefits, net of hedges in place to offset those risks and the related DSIC amortization. The $290$221 million decreaseincrease was the result of a favorable $835 millionan unfavorable $1.9 billion change in the market impact on variable annuity guaranteed living benefits reserves, partially offset by an unfavorable $533 milliona favorable $1.7 billion change in the market impact on derivatives hedging the variable annuity guaranteed living benefits and an unfavorable $12 millionno difference in the DSIC offset. The main market drivers contributing to these changes are summarized below:
Interest rates were down in 2014 and up for thein 2013 period and down for the 2012 period resulting in a favorablean unfavorable change in the variable annuity guaranteed living benefits liability, partially offset by an unfavorablea favorable change in the related hedge assets.
Equity market and volatility impacts on the hedge assets for the 2013 period wereresulted in a lowersmaller increase in expense than the impacts in the 2012 period,2014 compared to 2013. This benefit was partially offset by an unfavorable change in 2014 compared to 2013 from equity market and volatility impacts on the year over year corresponding liability result.related variable annuity guaranteed living benefits liability.
Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net favorable impact compared to the prior year period.
Amortization of DACInterest credited to fixed accounts decreased $50$71 million or 33%12% to $102$529 million for the nine months ended September 30, 20132014 compared to $152$600 million for the prior year period driven by lower average fixed annuity account balances and a lower average crediting rate on interest sensitive fixed annuities. Average fixed annuity account balances decreased $827 million or 6% to $12.8 billion for the nine months ended September 30, 2014 compared to the prior year period due to net outflows reflecting expected elevated surrenders on products sold through third parties where rates have been reset. The average fixed annuity crediting rate excluding capitalized interest decreased to 3.1% for the nine months ended September 30, 2014 compared to 3.6% for the prior year period reflecting the re-pricing of the five-year guarantee block.
Amortization of DAC increased $124 million to $226 million for the nine months ended September 30, 2014 compared to $102 million for the prior year period primarily due toreflecting the impact of unlocking and model changes, partially offset by the DAC offset to the market impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC amortization). following items:

Amortization of DAC for the nine months ended September 30, 20132014 included an $8 million expense from unlocking primarily driven by the difference between the Company’s previously assumed interest rates versus the continued low interest rate environment, partially offset by favorable persistency and mortality experience and a benefit from updating the Company's variable annuity living benefit withdrawal utilization assumption. Amortization of DAC for the prior year period included a $79 million benefit from unlocking, which included a $5 million expense related to the DAC offset to the market impact on variable annuity guaranteed living benefits, primarily driven by the impact of expected higherassumed interest rates and changes in assumed policyholder behavior. Amortization of DAC for the prior year period included a $14
An $8 million expense from unlocking and model changes, which included a $3 million benefit related to the DAC offset to the market impact onbenefit from policyholder movement of investments in Portfolio Navigator funds under certain in force variable annuity guaranteedannuities with living benefits, primarily reflecting a decrease in income earned on assets duebenefit guarantees to the low interest rate environment compared to the interest credited to the contractholders, which in many instances are at their minimum guarantees, and lower bond fund growth rates, partially offset by a benefit from improved persistency and lowered mortality assumption. Portfolio Stabilizer funds.
The DAC offset to the market impact on variable annuity guaranteed living benefits (net of hedges and the related DSIC amortization) was a benefit of $2 million for the nine months ended September 30, 2014, compared to a benefit of $12 million in the prior year period.
Income Taxes
The Company’s effective tax rate was 14.0% for the nine months ended September 30, 2014, compared to 17.1% for the nine months ended September 30, 2013, compared to a benefit of $57 million in the prior year period. The market impact on DAC was a benefit of $13 million for the nine months ended September 30, 2013 compared to a benefit of $23 million in the prior year period as a result of favorable equity market returns largely offset by unfavorable bond fund returns in the nine months ended September 30, 2013 compared to favorable equity and bond fund returns in the prior year period.
Income Taxes
The Company’s effective tax rate was 17% for the nine months ended September 30, 2013, compared to 20% for the nine months ended September 30, 2012. The effective tax rate for both periods isrates are lower than the statutory rate as a result of tax preferred items including the dividends received deduction foreign tax credits and low income housing tax credits. The decrease in the effective tax rate for the nine months ended September 30, 20132014 compared to the prior year period is awas the result of an $18 million benefit in the first quarter of 2014 related to the completion of an Internal Revenue Service (“IRS”) audit.

39

RIVERSOURCE LIFE INSURANCE COMPANY


In July 2014, the IRS issued a $32 million correctionLarge Business & International Directive (“Directive”) with respect to the hedging of variable annuity guaranteed minimum benefits. The Directive provides an elective safe harbor method of tax accounting for hedge gains and losses related to securities lending activitiesvariable annuity guaranteed benefits. On October 8, 2014, the Company filed with the IRS an application for a change in 2012 offsetaccounting method, to conform, in part, to the Directive. If accepted by higher pretax incomethe IRS, the change in the current period.
It is possible there will be corporate tax reform in the next few years.  While impossible to predict, corporate tax reform is likely to include a reduction in the corporate tax rate coupled with reductions in tax preferred items.  Any changesaccounting method could have a material impact on the Company’s current and deferred income tax expense and the deferred tax balances of the company.balances.
Market Risk
The Company’s primary market risk exposures are interest rate, equity price and credit risk. Equity price and interest rate fluctuations can have a significant impact on the Company’s results of operations, primarily due to the effects on asset-based fees and expenses, the “spread” income generated on its fixed annuities, fixed life insurance and fixed portion of its variable annuities and variable insurance contracts, the value of DAC and DSIC assets, the value of liabilities for guaranteed benefits associated with its variable annuities and the value of derivatives held to hedge these benefits.
The Company'sCompany’s earnings from fixed annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts are based upon the spread between rates earned on assets held and the rates at which interest is credited to accounts. The Company guarantees an interest rate to the holders of these products. The Company primarily invests in fixed rate securities to fund the rate credited to clients. The Company guarantees an interest rate to the holders of these products. Investment assets and client liabilities generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients’ accounts generally reset at shorter intervals than the yield on the underlying investments. Therefore, in an increasing interest rate environment, higher interest rates may be reflected in crediting rates to clients sooner than in rates earned on invested assets, which could result in a reduced spread between the two rates, reduced earned income and a negative impact on pretax income. However, the current low interest rate environment is resulting in interest rates below the level of some of the Company’s liability guaranteed minimum interest rates (“GMIRs”). Hence, a modest rise in interest rates would not necessarily result in changes to all the liability credited rates while projected asset purchases would capture the full increase in interest rates. This dynamic would result in widening spreads under a modestly rising rate scenario given the current relationship between the current level of interest rates and the underlying GMIRs on the business.
As a result of the low interest rate environment, the Company'sCompany’s current reinvestment yields are generally lower than the current portfolio yield. The Company expects its portfolio income yields to continue to decline in future periods if interest rates remain low. The carrying value and weighted average yield of non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through 2015 due to

36



prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, was $3.0were $1.5 billion and 4.9%4.7%, respectively, as of September 30, 2013.2014. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $3.8$3.6 billion and had a weighted average yield of 4.4%4.1% as of September 30, 2013.2014. While these amounts represent investments that could be subject to reinvestment risk, it is also possible that these investments will be used to fund liabilities or may not be prepaid and will remain invested at their current yields. In addition to the interest rate environment, the mix of benefit payments versus product sales as well as the timing and volumes associated with such mix may impact the Company’s investment yield. Furthermore, reinvestment activities and the associated investment yield may also be impacted by corporate strategies implemented at management’s discretion. The average yield for investment purchases during the nine months ended September 30, 2014 was approximately 3.9%.
The reinvestment of proceeds from maturities, calls and prepayments at rates below the current portfolio yield, which may be below the level of some liability guaranteed minimum interest rates, will have a negative impact to future operating results. To mitigate the unfavorable impact that the low interest rate environment has on the Company'sCompany’s spread income, it assesses reinvestment risk in its investment portfolio and monitors this risk in accordance with its asset/liability management framework. In addition, the Company may reduce the crediting rates on its fixed products when warranted, subject to guaranteed minimums. In the first nine months of 2014, the Company continued the process of setting lower renewal interest rates for a portion of its fixed annuities that are above the guaranteed minimum interest rates, which helps relieve some of the spread compression caused by low rates. Approximately 98% of the five-year guarantee block totaling $4.1 billion has been re-priced as of September 30, 2014.

40

RIVERSOURCE LIFE INSURANCE COMPANY


The following table presents the account values of fixed annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts by range of guaranteed minimum crediting rates and the range of the difference between rates credited to contractholders as of September 30, 20132014 and the respective guaranteed minimums:minimums, as well as the percentage of account values subject to rate reset in the time period indicated. Rates are reset at the Company’s discretion, subject to guaranteed minimums.
Account Values with Crediting RatesAccount Values with Crediting Rates
At Guaranteed Minimum 1-49 bps Above Guaranteed Minimum 50-99 bps Above Guaranteed Minimum 100-150 bps Above Guaranteed Minimum Greater than 150 bps Above Guaranteed Minimum TotalAt Guaranteed Minimum 1-49 bps above Guaranteed Minimum 50-99 bps above Guaranteed Minimum 100-150 bps above Guaranteed Minimum Greater Than 150 bps above Guaranteed Minimum Total
Range of Guaranteed Minimum Crediting Rates(in billions)(in billions, except percentages)
                     
1% - 1.99%$0.4
 $0.4
 $0.4
 $0.4
 $3.0
 $4.6
$0.3
 $3.1
 $0.4
 $0.3
 $0.1
 $4.2
2% - 2.99%0.5
 0.1
 
 
 
 0.6
0.5
 0.1
 
 
 
 0.6
3% - 3.99%9.1
 0.1
 
 0.1
 0.6
 9.9
9.4
 0.1
 
 
 
 9.5
4% - 5.00%5.8
 
 
 
 
 5.8
5.6
 
 
 
 
 5.6
Total$15.8
 $0.6
 $0.4
 $0.5
 $3.6
 $20.9
$15.8
 $3.3
 $0.4
 $0.3
 $0.1
 $19.9
Percentage of total76% 3% 2% 2% 17% 100%
           
Percentage of Account Values That Reset In:           
Next 12 months(1)
99% 95% 32% 54% 94% 97%
> 12 months to 24 months(2)

 1
 25
 18
 6
 1
> 24 months(2)
1
 4
 43
 28
 
 2
Total100% 100% 100% 100% 100% 100%
(1)Includes contracts with annual discretionary crediting rate resets and contracts with twelve or less months until the crediting rate becomes discretionary on an annual basis.
(2)Includes contracts with more than twelve months remaining until the crediting rate becomes an annual discretionary rate.
In addition to the fixed rate exposures noted above, the Company also has the following variable annuity guarantee benefits: GMWB,guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Each of these guaranteed benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying investmentinvested assets.
The variable annuity guarantees continue to be managed by utilizing a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result. The Company’s comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities; Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. The Company uses various index options across the term structure, interest rate swaps and swaptions, total return swaps and futures to manage the risk exposures. The exposures are measured and monitored daily and adjustments to the hedge portfolio are made as necessary.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. The Company assesses the residual risk under a range of scenarios in creating and executing the macro hedge program. As a means of economically hedging these risks, the Company uses a combination of options and/or swaps. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The macro hedge program could result in additional earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory capital volatility, may not be closely aligned to changes in the variable annuity guarantee embedded derivatives.
To evaluate interest rate and equity price risk, the Company performs sensitivity testing which measures the impact on pretax income from the sources listed below for a 12-month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, equity indexed annuities, indexed universal life insurance and the associated hedge assets, the Company assumed no change in implied market volatility despite the 10% drop in equity prices.

3741

RIVERSOURCE LIFE INSURANCE COMPANY


The following tables present the Company’s estimate of the impact on pretax income from the above defined hypothetical market movements as of September 30, 20132014:
 Equity Price Exposure to Pretax Income Equity Price Exposure to Pretax Income
Equity Price Decline 10% Before
Hedge Impact
 Hedge
Impact
 Net Impact Before
Hedge Impact
 Hedge
Impact
 Net Impact
 (in millions) (in millions)
Asset-based fees and expenses $(79) $
 $(79) $(82) $
 $(82)
DAC and DSIC amortization(1) (2)
 (96) 
 (96) (99) 
 (99)
Variable annuity riders:  
  
    
  
  
GMDB and GMIB(2)
 (79) 
 (79) (100) 
 (100)
GMWB (161) 163
 2
 (229) 216
 (13)
GMAB (40) 39
 (1) (35) 32
 (3)
DAC and DSIC amortization(3)
 N/A
 N/A
 1
 N/A
 N/A
 3
Total variable annuity riders (280) 202
 (77) (364)
248

(113)
Macro hedge program(4)
 
 4
 4
Equity indexed annuities 1
 (1) 
 1
 (1) 
Indexed universal life insurance 5
 (7) (2) 14
 (18) (4)
Total $(449) $194
 $(254) $(530)
$233

$(294)
 Interest Rate Exposure to Pretax Income Interest Rate Exposure to Pretax Income
Interest Rate Increase 100 Basis Points Before
Hedge Impact
 Hedge
Impact
 Net Impact Before
Hedge Impact
 Hedge
Impact
 Net Impact
 (in millions) (in millions)
Asset-based fees and expenses $(22) $
 $(22) $(24) $
 $(24)
Variable annuity riders:  
  
  
  
  
  
GMDB and GMIB 
 
 
 
 
 
GMWB 470
 (548) (78) 653
 (722) (69)
GMAB 27
 (30) (3) 24
 (27) (3)
DAC and DSIC amortization(3)
 N/A
 N/A
 15
 N/A
 N/A
 7
Total variable annuity riders 497
 (578) (66) 677

(749)
(65)
Macro hedge program(4)
 
 
 
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products 57
 
 57
 45
 
 45
Indexed universal life insurance 5
 
 5
 23
 1
 24
Total $537
 $(578) $(26) $721

$(748)
$(20)

N/A    Not Applicable.
N/ANot Applicable.
(1)Market impact on DAC and DSIC amortization resulting from lower projected profits.
(2)In estimating the impact on DAC and DSIC amortization resulting from lower projected profits, the Company has not changed its assumed equity asset growth rates. This is a significantly more conservative estimate than if the Company assumed management follows its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. The Company makes this same conservative assumption in estimating the impact from GMDB and GMIB riders.
(3)Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.
(4)The market impact of the macro hedge program is modeled net of any related impact to DAC and DSIC amortization.
The above results compare to an estimated negative net impact to pretax income of $203$252 million related to a 10% equity price decline and an estimated positivenegative net impact to pretax income of $78$55 million related to a 100 basis point increase in interest rates as of December 31, 20122013. The change in the interest rate exposure related to GMWB liabilities is from a refinement in the Company's hedging strategy.
Net impacts shown in the above table from GMWB and GMAB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with key policyholderrisk margins incorporated in contractholder behavior assumptions loaded to provide risk margins and with discount rates increased to reflect a current market estimate of the Company’s risk of nonperformance specific to these liabilities. For variable annuity riders introduced prior to mid-2009, management elected to hedge based on best estimate policyholder behavior assumptions. For riders issued since mid-2009, management has been hedging on a basis that includes risk margins related to policyholder behavior.  The nonperformance spread risk is not hedged.

38



Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10%, that management does not increase assumed equity asset growth rates to anticipate recovery of the drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values and that the 100 basis point increase in interest rates is a parallel shift of the yield curve.

42

RIVERSOURCE LIFE INSURANCE COMPANY


Furthermore, the Company has not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor has the Company tried to anticipate actions management might take to increase revenues or reduce expenses in these scenarios.
The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.

Fair Value Measurements
The Company reports certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives, most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions and is not the result of a forced liquidation or distressed sale. The Company includes actual market prices, or observable inputs, in its fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. The Company validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 1011 to the Consolidated Financial Statements for additional information on the Company’s fair value measurements.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price). Since there is not a market for the Company’s obligations of its variable annuity riders and indexed universal life insurance, the Company considers the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, the Company adjusts the valuation of variable annuity riders and indexed universal life insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of the Company’s nonperformance risk. The nonperformance risk adjustment is based on broker quotes for credit default swaps that are adjusted to estimate the risk of the Company not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of September 30, 20132014. As the Company’s estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be approximately $124$120 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%), based on September 30, 20132014 credit spreads.
Liquidity and Capital Resources
Liquidity Strategy
The liquidity requirements of the Company are generally met by funds provided by investment income, maturities and periodic repayments of investments, fixed annuity and fixed insurance deposits, premiums and proceeds from sales of investments as well as capital contributions from Ameriprise Financial. Other liquidity sources the Company has established are short-term borrowings and available lines of credit with Ameriprise Financial aggregating $1 billion.
The Company enters into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances to reduce reinvestment risk from higher levels of expected annuity net cash flows. Short-term borrowings allow the Company to receive cash to reinvest in longer-duration assets, while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at both September 30, 20132014 and December 31, 20122013 was $150$50 million and $501 million, respectively, which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from the Company’s investment portfolio. RiverSource Life Insurance Company is a member of the FHLB of Des Moines, which provides RiverSource Life Insurance Company access to collateralized borrowings. At September 30, 20132014 and December 31, 20122013, the Company had borrowings of $350$150 million and nil,$450 million, respectively, from the FHLB which is collateralized with commercial mortgage backed securities.
The outstanding balance under the lines of credit with Ameriprise Financial was $150nil and $150 million at both September 30, 20132014 and December 31, 20122013., respectively. See Note 9 to the Consolidated Financial Statements for additional information on the lines of credit.
The primary uses of funds are policy benefits, commissions, other product-related acquisition and sales inducement costs, operating expenses, policy loans, dividends to Ameriprise Financial and investment purchases. The Company routinely reviews its sources and uses of funds in order to meet its ongoing obligations.

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RIVERSOURCE LIFE INSURANCE COMPANY


Capital Activity
Dividends paid and received by RiverSource Life Insurance Company were as follows:
 Nine Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
 2013 2012 2014 2013
 (in millions) (in millions)
Cash dividends paid to Ameriprise Financial $675
 $740
 $500
 $675
Cash dividends received from RiverSource Life of NY 25
 30
 24
 25
During the nine months ended September 30, 20132014 and 20122013, RiverSource Life Insurance Company made a cash contribution to RTA of $30$15 million and $53$30 million, respectively, for ongoing funding commitments related to affordable housing partnership investments.
Regulatory Capital
RiverSource Life Insurance Company and RiverSource Life of NY are subject to regulatory capital requirements. Actual capital, determined on a statutory basis, and regulatory capital requirements for each of the life insurance entities are as follows:
 
Actual Capital(a)
 
Regulatory Capital
Requirement(b)
 
Actual Capital(a)
 
Regulatory Capital
Requirement(b)
 September 30, 2013 December 31, 2012 December 31, 2012 September 30, 2014 December 31, 2013 December 31, 2013
   (in millions)     (in millions)  
RiverSource Life Insurance Company $2,872
 $3,257
 $620
 $3,412
 $2,747
 $591
RiverSource Life Insurance Co. of New York 249
 256
 44
 297
 251
 49
(a)Actual capital, as defined by the National Association of Insurance Commissioners for purposes of meeting regulatory capital requirements, includes statutory capital and surplus, plus certain statutory valuation reserves.
(b)Regulatory capital requirement is based on the statutory risk-based capital filing.
Contractual Commitments
There have been no material changes to the Company’s contractual obligations disclosed in the Company’s 20122013 10-K.
Forward-Looking Statements
This report contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include: 
 statements of the Company’s plans, intentions, expectations, objectives, or goals, including those related to the introduction, cessation, terms or pricing of new or existing products and services and the consolidated tax rate;
other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and
statements of assumptions underlying such statements.
The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements.
Such factors include, but are not limited to: 
conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;
changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act;
the Company’s investment management performance and consumer acceptance of the Company’s products;
effects of competition in the financial services industry, including pricing pressure, the introduction of new products and services and changes in product distribution mix and distribution channels;

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RIVERSOURCE LIFE INSURANCE COMPANY


changes to the Company’s reputation that may arise from employee or Ameriprise Financial Services, Inc. advisor misconduct, legal or regulatory actions, improper management of conflicts of interest or otherwise;

40



the Company’s capital structure as a subsidiary of Ameriprise Financial, including the ability of its parent to support its financial strength and ratings, as well as the opinions of rating agencies and other analysts or the Company’s regulators distributors or policyholders and contractholders in response to any change or prospect of change in any such opinion;
risks of default, capacity constraints or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge derivative, insurance or reinsurance arrangements, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts and the reactions of other market participants or the Company’s regulators, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;
 experience deviations from the Company’s assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products, or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying the Company’s valuation and hedging of guaranteed living benefit annuity riders;
successfully cross-selling insurance and annuity products and services to Ameriprise Financial’s customer base;
the Company’s ability to effectively hedge risks relating to guaranteed benefit riders and certain other products;
the impact of intercompany allocations to the Company from Ameriprise Financial and its affiliates;
Ameriprise Financial’s ability to attract, recruit and retain qualified advisors and employees and its ability to distribute the Company’s products through current and future distribution channels;
changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
the impacts of Ameriprise Financial’s efforts to improve distribution economics and realize benefits from reengineering and tax planning;
interruptions or other failures in the Company’s communications, technology and other operating systems, including errors or failures caused by third party service providers, interference or failures caused by third party attacks on the Company’s systems, or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and
general economic and political factors, including consumer confidence in the economy, the ability and inclination of consumers generally to invest, as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and regulatory rulings and pronouncements.
The Company cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that the Company is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements.
The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion asincluded in Part I, Item 1A inof the Company’s 20122013 10-K.
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to Securities and Exchange Commission regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its principal executive officer and chief financial officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, the Company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

41



The Company’s management, under the supervision and with the participation of the Company’s principal executive officer and chief financial officer, evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 20132014.

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RIVERSOURCE LIFE INSURANCE COMPANY


Changes in Internal Control over Financial Reporting
There have not been any changes in RiverSource Life Insurance Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, RiverSource Life Insurance Company’s internal control over financial reporting.
PART II.OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 1516 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference. 
ITEM 1A.RISK FACTORS
There have been no material changes in the risk factors provided in Part I, Item 1A of RiverSource Life Insurance Company’s 20122013 10-K. 
ITEM 6.EXHIBITS
The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.

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RIVERSOURCE LIFE INSURANCE COMPANY


 
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  RIVERSOURCE LIFE INSURANCE COMPANY
  (Registrant)
    
Date:November 4, 20133, 2014By/s/ John R. Woerner
   John R. Woerner
   Chairman and President
    
    
Date:November 4, 20133, 2014By/s/ Brian J. McGrane
   Brian J. McGrane
   Executive Vice President and
   Chief Financial Officer


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RIVERSOURCE LIFE INSURANCE COMPANY


EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
3.1Copy of Certificate of Incorporation of IDS Life Insurance Company, filed as Exhibit 3.1 to Post-Effective Amendment No. 5 to Registration Statement No. 33-28976, is incorporated by reference.
3.1.1Copy of Certificate of Amendment of Certificate of Incorporation of IDS Life Insurance Company dated June 22, 2006, filed as Exhibit 3.1 to Form 8-K filed on January 5, 2007, is incorporated by reference.
3.2Copy of Amended and Restated By-Laws of RiverSource Life Insurance Company dated June 22, 2006, filed as Exhibit 27(f)(2) to Post-Effective Amendment No. 28 to Registration Statement No. 333-69777, is incorporated by reference.
10.1*Copy of Amendment No. 1 to the Amended and Restated Management, Service & Marketing Support Agreement by and between Columbia Management Investments Advisers, LLC, Columbia Management Investment Services Corp. and RiverSource Life Insurance Company effective October 1, 2014.
31.1*
Certification of John R. Woerner, Chairman and President, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*Certification of Brian J. McGrane, Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32*Certification of John R. Woerner, Chairman and President, and Brian J. McGrane, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following materials from RiverSource Life Insurance Company'sCompany’s Quarterly Report on Form 10-Q for the period ended September 30, 2013,2014, formatted in XBRL: (i) Consolidated Balance Sheets at September 30, 20132014 and December 31, 20122013; (ii) Consolidated Statements of Income for the three months and nine months ended September 30, 20132014 and 20122013; (iii) Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 20132014 and 20122013; (iv) Consolidated Statements of Shareholder'sShareholder’s Equity for the nine months ended September 30, 20132014 and 20122013; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 20132014 and 20122013; and (vi) Notes to the Consolidated Financial Statements.


*   
Filed electronically herewith.


E-1