Riversource Life Insurance 10Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

September 30, 2020

☐

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)

Minnesota

41-0823832

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1099 Ameriprise Financial Center

Minneapolis

Minnesota

55474

(Address of principal executive offices)

(Zip Code)

Registrant’s 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

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes

☒

☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☐
		Emerging growth company	☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

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

Yes

☐

☒

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 9, 2020

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


Part I. Financial Information
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheets — September 30, 2020 and December 31, 2019		3
	Consolidated Statements of Income — Three months and nine months ended September 30, 2020 and 2019		4
	Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2020 and 2019		4
	Consolidated Statements of Shareholder’s Equity — Three months and nine months ended September 30, 2020 and 2019		5
	Consolidated Statements of Cash Flows — Nine months ended September 30, 2020 and 2019		6
	Notes to Consolidated Financial Statements		8
	1.	Basis of Presentation	8
	2.	Summary of Significant Accounting Policies	8
	3.	Recent Accounting Pronouncements	11
	4.	Revenue from Contracts with Customers	13
	5.	Variable Interest Entities	14
	6.	Investments	15
	7.	Financing Receivables	18
	8.	Deferred Acquisition Costs and Deferred Sales Inducement Costs	20
	9.	Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities	21
	10.	Variable Annuity and Insurance Guarantees	22
	11.	Short-term Borrowings	23
	12.	Fair Values of Assets and Liabilities	23
	13.	Offsetting Assets and Liabilities	33
	14.	Derivatives and Hedging Activities	34
	15.	Shareholders’ Equity	38
	16.	Income Taxes	39
	17.	Contingencies	40
Item 2. Management’s Narrative Analysis			41
Item 4. Controls and Procedures			50

Part II. Other Information			51
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			51
Item 6. Exhibits			52
Signatures			53

RIVERSOURCE LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30, 2020		December 31, 2019
	(in millions, except share amounts)
Assets
Investments:
Available-for-Sale: Fixed maturities, at fair value (amortized cost: 2020, $20,338; 2019, $19,111) (net of allowance for credit losses: 2020, $13 (1) )	$	22,619	$	20,902
Mortgage loans, at amortized cost (net of allowance for credit losses: 2020, $28; 2019, $17)	2,628		2,655
Policy loans	849		867
Other investments (net of allowance for credit losses: 2020, $7; 2019, $4)	744		734
Total investments	26,840		25,158
Cash and cash equivalents	3,560		1,275
Reinsurance recoverables (net of allowance for credit losses: 2020, $7 (1) )	3,385		3,198
Other receivables	1,690		1,713
Accrued investment income	178		169
Deferred acquisition costs	2,429		2,673
Other assets	6,338		5,332
Separate account assets	81,348		82,425
Total assets	$	125,768	$	121,943

Liabilities and Shareholder’s Equity
Liabilities:
Policyholder account balances, future policy benefits and claims	$	34,012	$	30,504
Short-term borrowings	200		201
Line of credit with Ameriprise Financial, Inc.	0		50
Other liabilities	6,743		5,427
Separate account liabilities	81,348		82,425
Total liabilities	122,303		118,607

Shareholder’s equity:
Common stock, $30 par value; 100,000 shares authorized, issued and outstanding	3		3
Additional paid-in capital	2,466		2,466
Retained earnings	203		293
Accumulated other comprehensive income, net of tax	793		574
Total shareholder’s equity	3,465		3,336
Total liabilities and shareholder’s equity	$	125,768	$	121,943

(1) Prior to January 1, 2020, the allowance for credit losses is not applicable to Available-for-Sale securities and Reinsurance recoverables. See Notes 2, 3, 6 and 7 for more information.

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Revenues
Premiums	$	82	$	96	$	256	$	301
Net investment income	212		222		647		712
Policy and contract charges	535		539		1,529		1,510
Other revenues	122		120		357		343
Net realized investment gains (losses)	1		(11)		(16)		(1)
Total revenues	952		966		2,773		2,865
Benefits and expenses
Benefits, claims, losses and settlement expenses	1,101		332		820		1,091
Interest credited to fixed accounts	170		127		523		517
Amortization of deferred acquisition costs	83		96		338		141
Other insurance and operating expenses	163		172		490		513
Total benefits and expenses	1,517		727		2,171		2,262
Pretax income (loss)	(565)		239		602		603
Income tax provision (benefit)	(131)		8		35		17
Net income (loss)	$	(434)	$	231	$	567	$	586

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Net income (loss)	$	(434)	$	231	$	567	$	586
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities	88		81		219		561

Total other comprehensive income (loss), net of tax	88		81		219		561
Total comprehensive income (loss)	$	(346)	$	312	$	786	$	1,147

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)


	Common Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	(in millions)
Balances at July 1, 2019	$	3	$	2,466	$	861	$	525	$	3,855

Comprehensive income (loss):
Net income (loss)	—		—		231		—		231
Other comprehensive income (loss), net of tax	—		—		—		81		81
Total comprehensive income (loss)									312

Cash dividends to Ameriprise Financial, Inc.	—		—		(300)		—		(300)
Balances at September 30, 2019	$	3	$	2,466	$	792	$	606	$	3,867

Balances at July 1, 2020	$	3	$	2,466	$	787	$	705	$	3,961

Comprehensive income (loss):
Net income (loss)	—		—		(434)		—		(434)
Other comprehensive income (loss), net of tax	—		—		—		88		88
Total comprehensive income (loss)									(346)

Cash dividends to Ameriprise Financial, Inc.	—		—		(150)		—		(150)
Balances at September 30, 2020	$	3	$	2,466	$	203	$	793	$	3,465

Balances at January 1, 2019	$	3	$	2,466	$	1,058	$	45	$	3,572
Cumulative effect of adoption of premium amortization on purchased callable debt securities guidance	—		—		(2)		—		(2)
Comprehensive income (loss):
Net income (loss)	—		—		586		—		586
Other comprehensive income (loss), net of tax	—		—		—		561		561
Total comprehensive income (loss)									1,147

Cash dividends to Ameriprise Financial, Inc.	—		—		(850)		—		(850)
Balances at September 30, 2019	$	3	$	2,466	$	792	$	606	$	3,867

Balances at January 1, 2020	$	3	$	2,466	$	293	$	574	$	3,336
Cumulative effect of adoption of current expected credit losses guidance	—		—		(7)		—		(7)
Comprehensive income (loss):
Net income (loss)	—		—		567		—		567
Other comprehensive income (loss), net of tax	—		—		—		219		219
Total comprehensive income (loss)									786

Cash dividends to Ameriprise Financial, Inc.	—		—		(650)		—		(650)
Balances at September 30, 2020	$	3	$	2,466	$	203	$	793	$	3,465

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
	2020		2019
	(in millions)
Cash Flows from Operating Activities
Net income	$	567	$	586
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net	(19)		(13)
Deferred income tax (benefit) expense	186		(219)
Contractholder and policyholder charges, non-cash	(288)		(284)
Loss from equity method investments	58		58
Net realized investment (gains) losses	(9)		(14)
Impairments and provision for loan losses	25		15
Changes in operating assets and liabilities:
Deferred acquisition costs	183		(37)
Policyholder account balances, future policy benefits and claims, net	3,540		1,370
Derivatives, net of collateral	268		23
Reinsurance recoverables	(156)		(55)
Other receivables	53		22
Accrued investment income	(9)		10
Current income tax expense (benefit)	(82)		63
Other, net	93		108
Net cash provided by (used in) operating activities	4,410		1,633

Cash Flows from Investing Activities
Available-for-Sale securities:
Proceeds from sales	84		209
Maturities, sinking fund payments and calls	1,788		1,738
Purchases	(3,079)		(1,064)
Proceeds from sales, maturities and repayments of mortgage loans	138		171
Funding of mortgage loans	(120)		(208)
Proceeds from sales and collections of other investments	92		100
Purchase of other investments	(147)		(124)
Purchase of equipment and software	(7)		(7)
Change in policy loans, net	18		(3)

Cash paid for deposit receivable	(3)		(348)
Cash received for deposit receivable	74		74
Advance on line of credit to Ameriprise Financial, Inc.	(702)		0
Repayment from Ameriprise Financial, Inc. on line of credit	702		0
Cash received from written options with deferred premiums	129		72
Cash paid for written options with deferred premiums	(292)		(125)
Other, net	(67)		33
Net cash provided by (used in) investing activities	(1,392)		518
See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

	Nine Months Ended September 30,
	2020		2019
	(in millions)
Cash Flows from Financing Activities
Policyholder account balances:
Deposits and other additions	$	1,202	$	1,620
Net transfers from (to) separate accounts	(63)		(46)
Surrenders and other benefits	(1,035)		(1,320)
Proceeds from line of credit with Ameriprise Financial, Inc.	6		3
Payments on line of credit with Ameriprise Financial, Inc.	(56)		(3)
Cash received for purchased options with deferred premiums	40		220
Cash paid for purchased options with deferred premiums	(177)		(142)
Cash dividends to Ameriprise Financial, Inc.	(650)		(850)
Net cash provided by (used in) financing activities	(733)		(518)
Net increase (decrease) in cash and cash equivalents	2,285		1,633
Cash and cash equivalents at beginning of period	1,275		1,085
Cash and cash equivalents at end of period	$	3,560	$	2,718

Supplemental Disclosures:
Income taxes paid (received), net	$	(122)	$	77
Interest paid on borrowings	2		4
Non-cash investing activity:
Partnership commitments not yet remitted	4		4
Investments transferred in connection with reinsurance transaction	0		1,265
See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

RiverSource Life Insurance Company is a stock life insurance company with 1 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.

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 fair statement 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”). 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, 2019, filed with the Securities and Exchange Commission on February 26, 2020 (“2019 10-K”).

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. No subsequent events or transactions were identified.

2. Summary of Significant Accounting Policies

The Company adopted accounting standard, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments, on January 1, 2020. The significant accounting policies for Available-for-Sale Securities, Financing Receivables, and Reinsurance were updated as a result of adopting the new accounting standard. Refer to Note 3 for further details of the adoption.

Available-for-Sale Securities

Available-for-Sale securities are carried at fair value with unrealized gains (losses) recorded in accumulated other comprehensive income (“AOCI”), net of impacts to deferred acquisition costs (“DAC”), deferred sales inducement costs (“DSIC”), unearned revenue, benefit reserves, reinsurance recoverables and income taxes. Gains and losses are recognized on a trade date basis in the Consolidated Statements of Income upon disposition of the securities.

Available-for-Sale securities are impaired when the fair value of an investment is less than its amortized cost. When an Available-for-Sale security is impaired, the Company first assesses whether or not: (i) it has the intent to sell the security (made a decision to sell) or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If either of these conditions exist, the Company recognizes an impairment by reducing the book value of the security for the difference between the investment’s amortized cost and its fair value with a corresponding charge to earnings. Subsequent increases in the fair value of Available-for-Sale securities that occur in periods after a write-down has occurred are recorded as unrealized gains in other comprehensive income (“OCI”), while subsequent decreases in fair value would continue to be recorded as reductions of book value with a charge to earnings.

For securities that do not meet the above criteria, the Company determines whether the decrease in fair value is due to a credit loss or due to other factors. The amount of impairment due to credit-related factors, if any, is recognized as an allowance for credit losses with a related charge to net realized investment gains (losses). The allowance for credit losses is limited to the amount by which the security’s amortized cost basis exceeds its fair value. The amount of the impairment related to other factors is recognized in OCI. Factors the Company considers in determining whether declines in the fair value of fixed maturity securities are due to credit-related factors include: (i) the extent to which the market value is below amortized cost; (ii) fundamental analysis of the liquidity, business prospects and overall financial condition of the issuer; and (iii) market events that could impact credit ratings, economic and business climate, litigation and government actions, and similar external business factors.

If through subsequent evaluation there is a sustained increase in cash flows expected, both the allowance and related charge to earnings may be reversed to reflect the increase in expected principal and interest payments. However, for Available-for-Sale

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

securities that recognized an impairment prior to January 1, 2020 by reducing the book value of the security, the difference between the new amortized cost basis and the improved cash flows expected to be collected is accreted as interest income.

In order to determine the amount of the credit loss component for corporate debt securities, a best estimate of the present value of cash flows expected to be collected discounted at the security’s effective interest rate is compared to the amortized cost basis of the security. The significant inputs to cash flow projections consider potential debt restructuring terms, projected cash flows available to pay creditors and the Company’s position in the debtor’s overall capital structure. When assessing potential credit-related impairments for structured investments (e.g., residential mortgage backed securities, commercial mortgage backed securities and asset backed securities), the Company also considers credit-related factors such as overall deal structure and its position within the structure, quality of underlying collateral, delinquencies and defaults, loss severities, recoveries, prepayments and cumulative loss projections.

Management has elected to exclude accrued interest in its measurement of the allowance for credit losses for Available-for-Sale securities. Accrued interest on Available-for-sale securities is recorded as earned in accrued investment income on the Consolidated Balance Sheets. Available-for-Sale securities are placed on nonaccrual status when the accrued balance becomes 90 days past due or earlier based on management’s evaluation of the facts and circumstances of each security under review. At this time all previously accrued interest is reversed through net investment income.

Financing Receivables

Financing receivables are comprised of commercial loans, policy loans, and deposit receivables.

Commercial Loans

Commercial loans include commercial mortgage loans and syndicated loans and are recorded at amortized cost less the allowance for loan losses. Commercial mortgage loans are recorded within mortgage loans and syndicated loans are recorded within other investments on the Consolidated Balance Sheets. Commercial mortgage loans are loans on commercial properties that are originated by the Company. Syndicated loans represent the Company’s investment in loan syndications originated by unrelated third parties.

Interest income is accrued as earned on the unpaid principal balances of the loans. Interest income recognized on commercial mortgage loans and syndicated loans is recorded in net investment income on the Consolidated Statements of Income.

Policy Loans

Policy loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy loans, there is no allowance for credit losses.

Interest income is accrued as earned on the unpaid principal balances of the loans. Interest income recognized on policy loans is recorded in accrued investment income on the Consolidated Statements of Income.

Deposit Receivable

For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability related to insurance risk in accordance with applicable accounting standards. If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Reinsurance deposits made are included in receivables. As amounts are received, consistent with the underlying contracts, the deposit receivable is adjusted. The deposit receivable is accreted using the interest method and the accretion is reported in other revenues.

See Note 7 for additional information on financing receivables.

Allowance for Credit Losses

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected over the asset’s expected life, considering past events, current conditions and reasonable and supportable forecasts of future economic conditions. Prior to January 1, 2020, the allowance for credit losses was based on an incurred loss model that did not require estimating expected credit losses over the expected life of the asset. Estimates of expected credit losses consider both historical charge-off and recovery experience as well as management’s expectation of future charge-off and recovery levels. Expected losses related to risks other than credit risk are excluded from the allowance for credit losses. The allowance for credit losses is measured and recorded upon initial recognition of the loan, regardless of whether it is originated or purchased. The methods and information used to develop the allowance for credit losses for each class of financing receivable are discussed below.

Commercial Loans

The allowance for credit losses for commercial mortgage loans and syndicated loans utilizes a probability of default and loss severity approach to estimate lifetime expected credit losses. Actual historical default and loss severity data for each type of commercial loan is adjusted for current conditions and reasonable and supportable forecasts of future economic conditions to develop the probability of default and loss severity assumptions that are applied to the amortized cost basis of the loans over the expected life of each portfolio. The allowance for credit losses on commercial mortgage loans and syndicated loans is recorded through provisions charged to net realized investment gains (losses) and is reduced/increased by net charge-offs/recoveries.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Management determines the adequacy of the allowance for credit losses based on the overall loan portfolio composition, recent and historical loss experience, and other pertinent factors, including when applicable, internal risk ratings, loan-to-value (“LTV”) ratios and occupancy rates, along with reasonable and supportable forecasts of economic and market conditions. This evaluation is inherently subjective as it requires estimates, which may be susceptible to significant change. While the Company may attribute portions of the allowance to specific loan pools as part of the allowance estimation process, the entire allowance is available to absorb losses expected over the life of the loan portfolio.

Deposit receivable

The allowance for credit losses is calculated on an individual reinsurer basis. The deposit receivable is collateralized by an underlying trust arrangement. Management evaluates the terms of the reinsurance and trust agreements, the nature of the underlying assets, and the potential for changes in the collateral value when considering the need for an allowance for credit losses.

Nonaccrual Loans

Commercial mortgage loans and syndicated loans are placed on nonaccrual status when either the collection of interest or principal has become 90 days past due or is otherwise considered doubtful of collection. When a loan is placed on nonaccrual status, unpaid accrued interest is reversed. Interest payments received on loans on nonaccrual status are generally applied to principal unless the remaining principal balance has been determined to be fully collectible. Management has elected to exclude accrued interest in its measurement of the allowance for credit losses for commercial mortgage loans and syndicated loans.

Restructured Loans

A loan is classified as a restructured loan when the Company makes certain concessionary modifications to contractual terms for borrowers experiencing financial difficulties. When the interest rate, minimum payments, and/or due dates have been modified in an attempt to make the loan more affordable to a borrower experiencing financial difficulties, the modification is considered a troubled debt restructuring. Modifications to loan terms do not automatically result in troubled debt restructurings (“TDRs”). Per the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, modifications made on a good faith basis in response to the coronavirus disease 2019 (“COVID-19”) pandemic to borrowers who were not more than 30 days past due as of December 31, 2019, such as payment deferrals, extensions of repayment terms, fee waivers, or delays in payment that are not significant to the unpaid principal value of the loan, are not considered TDRs. Generally, performance prior to the restructuring or significant events that coincide with the restructuring are considered in assessing whether the borrower can meet the new terms which may result in the loan being returned to accrual status at the time of the restructuring or after a performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status.

Charge-off and Foreclosure

Charge-offs are recorded when the Company concludes that all or a portion of the commercial mortgage loan or syndicated loan is uncollectible. Factors used by the Company to determine whether all amounts due on commercial mortgage loans will be collected, include but are not limited to, the financial condition of the borrower, performance of the underlying properties, collateral and/or guarantees on the loan, and the borrower’s estimated future ability to pay based on property type and geographic location. Factors used by the Company to determine whether all amounts due on syndicated loans will be collected, include but are not limited to the borrower’s financial condition, industry outlook, and internal risk ratings based on rating agency data and internal analyst expectations.

If it is determined that foreclosure on a commercial mortgage loan is probable and the fair value is less than the current loan balance, expected credit losses are measured as the difference between the amortized cost basis of the asset and fair value less estimated selling costs. Upon foreclosure, the commercial mortgage loan and related allowance are reversed, and the foreclosed property is recorded as real estate owned in other assets.

Reinsurance

Policyholder account balances, future policy benefits and claims recoverable under reinsurance contracts are recorded within receivables, net of the allowance for credit losses. The Company evaluates the financial condition of its reinsurers prior to entering into new reinsurance contracts and on a periodic basis during the contract term. The allowance for credit losses related to reinsurance recoverable is based on applying observable industry data including insurer ratings, default and loss severity data to the Company’s reinsurance recoverable balances. Management evaluates the results of the calculation and considers differences between the industry data and the Company’s data. Such differences include the fact that the Company has no actual history of losses and the fact that industry data may contain non-life insurers. This evaluation is inherently subjective as it requires estimates, which may be susceptible to significant change given the long-term nature of these receivables. In addition, the Company has a reinsurance protection agreement that provides credit protections for its reinsured long term care business. The allowance for credit losses on reinsurance recoverable is recorded through provisions charged` to benefits, claims, losses and settlement expenses on the Consolidated Statements of Income.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to disclosures for fair value measurements. The update eliminates the following disclosures: 1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) the policy of timing of transfers between levels of the fair value hierarchy, and 3) the valuation processes for Level 3 fair value measurements. The new disclosures include changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated. The new disclosures are required on a prospective basis; all other provisions should be applied retrospectively. The update is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for the entire standard or only the provisions to eliminate or modify disclosure requirements. The Company early adopted the provisions of the standard to eliminate or modify disclosure requirements in the fourth quarter of 2018. The Company adopted the provisions of the standard to include new disclosures on January 1, 2020. The update does not have an impact on the Company’s consolidated financial condition or results of operations. See Note 12 for additional disclosures on fair value measurements.

Intangibles – Goodwill and Other – Internal-Use Software – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB updated the accounting standards related to customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. The update requires implementation costs for a CCA to be evaluated for capitalization using the same approach as implementation costs associated with internal-use software. The update also addresses presentation, measurement and impairment of capitalized implementation costs in a CCA that is a service contract. The update requires new disclosures on the nature of hosting arrangements that are service contracts, significant judgements made when applying the guidance and quantitative disclosures, including amounts capitalized, amortized and impaired. The update is effective for interim and annual periods beginning after December 15, 2019, and can be applied either prospectively or retrospectively. The Company adopted the standard using a prospective approach on January 1, 2020. The adoption did not have an impact on the Company’s consolidated financial condition or results of operations.

Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. At adoption, the initial estimate of the expected credit losses will be recorded through retained earnings and subsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the balance sheet. The credit loss model for Available-for-Sale debt securities did not change; however, the credit loss calculation and subsequent recoveries are required to be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2019. A modified retrospective cumulative adjustment to retained earnings should be recorded as of the first reporting period in which the guidance is effective for loans, receivables, and other financial instruments subject to the new expected credit loss model. Prospective adoption is required for establishing an allowance related to Available-for-Sale debt securities, certain beneficial interests, and financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. The Company adopted the standard on January 1, 2020. The adoption of this update did not have a material impact on the Company’s consolidated financial condition or results of operations.

Leases – Recognition of Lease Assets and Liabilities on Balance Sheet

In February 2016, the FASB updated the accounting standards for leases. The update was issued to increase transparency and comparability for the accounting of lease transactions. The standard requires most lease transactions for lessees to be recorded on the balance sheet as lease assets and lease liabilities and both quantitative and qualitative disclosures about leasing arrangements. The standard was effective for interim and annual periods beginning after December 15, 2018. Entities had the option to adopt the standard using a modified retrospective approach at either the beginning of the earliest period presented or as of the date of adoption. The Company adopted the standard using a modified retrospective approach as of January 1, 2019. The Company also elected the package of practical expedients permitted under the transition guidance within the accounting standard that allows entities to carryforward their historical lease classification and to not reassess contracts for embedded leases among other things. The adoption did not have a material impact on the Company’s consolidated financial condition or results of operations.

Income Statement – Reporting Comprehensive Income – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB updated the accounting standards related to the presentation of tax effects stranded in AOCI. The update allows a reclassification from AOCI to retained earnings for tax effects stranded in AOCI resulting from the legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The election of the update was optional. The update was effective for fiscal

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

years beginning after December 15, 2018. Entities could record the impacts either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company adopted the standard on January 1, 2019 and elected not to reclassify the stranded tax effects in AOCI.

Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB updated the accounting standards to amend the hedge accounting recognition and presentation requirements. The objectives of the update are to better align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities and simplify the application of the hedge accounting guidance. The update also adds new disclosures and amends existing disclosure requirements. The standard was effective for interim and annual periods beginning after December 15, 2018, and was required to be applied on a modified retrospective basis. The Company adopted the standard on January 1, 2019. The adoption did not have an impact on the Company’s consolidated financial condition or results of operations.

Receivables – Nonrefundable Fees and Other Costs – Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB updated the accounting standards to shorten the amortization period for certain purchased callable debt securities held at a premium. Under previous guidance, premiums were generally amortized over the contractual life of the security. The amendments require the premium to be amortized to the earliest call date. The update applies to securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. The standard was effective for interim and annual periods beginning after December 15, 2018, and was required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted the standard on January 1, 2019. The adoption did not have a material impact on the Company’s consolidated financial condition or results of operations.

Future Adoption of New Accounting Standards

Reference Rate Reform – Expedients for Contract Modifications

In March 2020, the FASB updated the accounting standards to provide optional expedients and exceptions for applying GAAP to contracts, hedging or other transactions that are affected by reference rate reform (i.e., the elimination of LIBOR). The following expedients are provided for modified contracts whose reference rate is changed: 1) receivables and debt contracts are accounted for prospectively by adjusting the effective interest rate, 2) leases are accounted for as a continuation of the existing contracts with no reassessments of the lease classification and discount rate or remeasurements of lease payments that otherwise would be required, and 3) an entity is not required to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions. The Company is currently evaluating the impact of electing to adopt the standard on its consolidated financial condition and results of operations.

Income Taxes – Simplifying the Accounting for Income Taxes

In December 2019, the FASB updated the accounting standards to simplify the accounting for income taxes. The update eliminates certain exceptions to accounting principles related to intraperiod tax allocation (prospective basis), deferred tax liabilities related to outside basis differences (modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption) and year-to-date losses in interim periods (prospective basis). The update also amends existing guidance related to situations when an entity receives a step-up in the tax basis of goodwill (prospective basis), allocation of income tax expense when members of a consolidated tax filing group issue separate financial statements (retrospective basis for all periods presented), interim recognition of enactment of tax laws or rate changes (prospective basis) and franchise taxes and other taxes partially based on income (retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption). The standard is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The method of adoption is noted parenthetically after each amendment above. The adoption of the standard is not expected to have an impact on the Company’s consolidated financial condition or results of operations.

Financial Services – Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB updated the accounting standard related to long-duration insurance contracts. The guidance revises key elements of the measurement models and disclosure requirements for long-duration insurance contracts issued by insurers and reinsurers.

The guidance establishes a significant new category of benefit features called market risk benefits that protect the contractholder from other-than-nominal capital market risk and expose the insurer to that risk. Insurers will have to measure market risk benefits at fair value. Market risk benefits include variable annuity guaranteed benefits (i.e. guaranteed minimum death, withdrawal, withdrawal for life, accumulation and income benefits). The portion of the change in fair value attributable to a change in the instrument-specific credit risk of market risk benefits in a liability position will be recorded in OCI.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Significant changes also relate to the measurement of the liability for future policy benefits for nonparticipating traditional long-duration insurance contracts and immediate annuities with a life contingent feature include the following:

•Insurers will be required to review and update the cash flow assumptions used to measure the liability for future policy benefits rather than using assumptions locked in at contract inception. The review of assumptions to measure the liability for all future policy benefits will be required annually at the same time each year, or more frequently if suggested by experience. The effect of updating assumptions will be measured on a retrospective catch-up basis and presented separate from the ongoing policyholder benefit expense in the statement of operations in the period the update is made. This new unlocking process will be required for the Company’s term and whole life insurance, disability income, long term care insurance and immediate annuities with a life contingent feature.

•The discount rate used to measure the liability for future policy benefits will be standardized. The current requirement to use a discount rate reflecting expected investment yields will change to an upper-medium grade (low credit risk) fixed income corporate instrument yield (generally interpreted as an “A” rating) reflecting the duration characteristics of the liability. Entities will be required to update the discount rate at each reporting date with the effect of discount rate changes reflected in OCI.

•The current premium deficiency test is being replaced with a net premium ratio cap of 100%. If the net premium ratio (i.e. the ratio of the present value of total expected benefits and related expenses to the present value of total expected premiums) exceeds 100%, insurers are required to recognize a loss in the statement of operations in the period. Contracts from different issue years will no longer be permitted to be grouped to determine contracts in a loss position.

In addition, the update requires DAC and DSIC relating to all long-duration contracts and most investment contracts to be amortized on a straight-line basis over the expected life of the contract independent of profit emergence. Under the new guidance, interest will not accrue to the deferred balance and DAC and DSIC will not be subject to an impairment test.

The update requires significant additional disclosures, including disaggregated rollforwards of the liability for future policy benefits, policyholder account balances, market risk benefits, DAC and DSIC, as well as qualitative and quantitative information about expected cash flows, estimates and assumptions. On November 5, 2020, the FASB released an updated ASU to defer the effective date of the standard to interim and annual periods beginning after December 15, 2022, and interim periods within those years. The standard should be applied to the liability for future policy benefits and DAC and DSIC on a modified retrospective basis and applied to market risk benefits on a retrospective basis with the option to apply full retrospective transition if certain criteria are met. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial condition, results of operations and disclosures.

4. Revenue from Contracts with Customers

The following table presents disaggregated revenue from contracts with customers and a reconciliation to total revenues reported on the Consolidated Statements of Income.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Policy and contract charges
Affiliated	$	44	$	43	$	127	$	126
Unaffiliated	3		4		10		11
Total	47		47		137		137

Other revenues
Administrative fees
Affiliated	12		11		33		32
Unaffiliated	3		5		13		15
	15		16		46		47
Other fees
Affiliated	89		87		259		256
Unaffiliated	1		1		3		3
	90		88		262		259
Total	105		104		308		306
Total revenue from contracts with customers	152		151		445		443
Revenue from other sources (1)	800		815		2,328		2,422
Total revenues	$	952	$	966	$	2,773	$	2,865

(1) Amounts primarily consist of revenue associated with insurance and annuity products or financial instruments.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following discussion describes the nature, timing, and uncertainty of revenues and cash flows arising from the Company’s contracts with customers.

Policy and contract charges

The Company earns revenue for providing distribution-related services to affiliated and unaffiliated mutual funds that are available as underlying investments in its variable annuity and variable life insurance products. The performance obligation is satisfied at the time the mutual fund is distributed. Revenue is recognized over the time the mutual fund is held in the variable product and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund. The revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control, including market volatility and how long the fund(s) remain in the insurance policy or annuity contract. The revenue will not be recognized until it is probable that a significant reversal will not occur. These fees are accrued and collected on a monthly basis.

Other revenues

Administrative fees

The Company earns revenue for providing customer support, contract servicing and administrative services for affiliated and unaffiliated mutual funds that are available as underlying instruments in its variable annuity and variable life insurance products. The transfer agent and administration revenue is earned daily based on a fixed rate applied, as a percentage, to assets under management. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are accrued and collected on a monthly basis.

Other fees

The Company earns revenue for providing affiliated and unaffiliated partners an opportunity to educate the financial advisors of its affiliate, Ameriprise Financial Services, Inc., that sell the Company's products as well as product and marketing personnel to support the offer, sale and servicing of funds within the Company's variable annuity and variable life insurance products. These payments allow the parties to train and support the advisors, explain the features of their products, and distribute marketing and educational materials. The affiliated revenue is earned based on a rate, updated at least annually, which is applied, as a percentage, to the market value of assets invested. The unaffiliated revenue is earned based on a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are accrued and collected on a monthly basis.

Receivables

Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were $55 million as of both September 30, 2020 and December 31, 2019.

5. Variable Interest Entities

The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships.

A majority of the limited partnerships are variable interest entities (“VIEs”). The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $202 million and $270 million as of September 30, 2020 and December 31, 2019, respectively. The Company had a $9 million and a $15 million liability recorded as of September 30, 2020 and December 31, 2019, respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the funding commitments.

The Company invests in structured finance entities that are considered VIEs for which it is not generally the sponsor. These structured investments typically invest in fixed income instruments and are primarily managed by third parties and include asset backed securities, commercial and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the lack of power to direct the activities that most significantly impact the economic performance, size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its amortized cost. The Company has 0 obligation to provide financial or other support to the structured investments beyond its investment nor has the Company provided any support to the structured investments. See Note 6 for additional information on these structured investments.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6. Investments

Available-for-Sale securities distributed by type were as follows:


Description of Securities	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities:
Corporate debt securities	$	10,338	$	1,642	$	(33)	$	(13)	$	11,934
Residential mortgage backed securities	3,195		122		(2)		0		3,315
Commercial mortgage backed securities	4,026		228		(7)		0		4,247
State and municipal obligations	1,047		288		(1)		0		1,334
Asset backed securities	1,286		42		(2)		0		1,326
Foreign government bonds and obligations	245		19		(2)		0		262
U.S. government and agency obligations	201		—		—		—		201
Total	$	20,338	$	2,341	$	(47)	$	(13)	$	22,619


Description of Securities	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Fixed maturities:
Corporate debt securities	$	10,188	$	1,336	$	(2)	$	11,522
Residential mortgage backed securities	3,039		73		(4)		3,108
Commercial mortgage backed securities	3,526		95		(3)		3,618
State and municipal obligations	1,071		237		(2)		1,306
Asset backed securities	1,036		45		(1)		1,080
Foreign government bonds and obligations	250		19		(2)		267
U.S. government and agency obligations	1		—		—		1
Total	$	19,111	$	1,805	$	(14)	$	20,902

In March 2020, the Company purchased $368 million of investments at fair value, primarily agency residential mortgage back securities, from Ameriprise Financial.

As of September 30, 2020 and December 31, 2019, accrued interest of $167 million and $158 million, respectively, is excluded from the amortized cost basis of Available-for-Sale securities in the tables above and is recorded in accrued investment income on the Consolidated Balance Sheets.

As of September 30, 2020 and December 31, 2019, investment securities with a fair value of $3.0 billion and $1.9 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $483 million and $576 million, respectively, may be sold, pledged or rehypothecated by the counterparty.

As of September 30, 2020 and December 31, 2019, fixed maturity securities comprised approximately 84% and 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. As of September 30, 2020 and December 31, 2019, approximately $574 million and $615 million, 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

A summary of fixed maturity securities by rating was as follows:


Ratings	September 30, 2020						December 31, 2019
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in millions, except percentages)
AAA	$	8,030	$	8,400	37	%	$	6,771	$	6,950	33	%
AA	1,077		1,315		6		1,176		1,374		7
A	2,574		3,118		14		2,695		3,157		15
BBB	7,088		8,152		36		7,709		8,626		41
Below investment grade	1,569		1,634		7		760		795		4
Total fixed maturities	$	20,338	$	22,619	100	%	$	19,111	$	20,902	100	%

As of September 30, 2020 and December 31, 2019, approximately 37% and 39%, respectively, of securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. The Company had holdings of $375 million in Ameriprise Advisor Financing, LLC (“AAF”), an affiliate of the Company, which was greater than 10% of total equity as of September 30, 2020. The Company had holdings of $380 million in AAF, which was greater than 10% of total equity as of December 31, 2019. There were 0 other holdings of any other issuer greater than 10% of total equity as of December 31, 2019.

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:


Description of Securities	September 30, 2020
	Less than 12 months					12 months or more					Total
	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
	(in millions, except number of securities)
Corporate debt securities	69	$	789	$	(29)	2	$	12	$	(4)	71	$	801	$	(33)
Residential mortgage backed securities	21	304		(2)		6	10		0		27	314		(2)
Commercial mortgage backed securities	23	428		(5)		6	43		(2)		29	471		(7)
State and municipal obligations	4	14		(1)		1	4		0		5	18		(1)
Asset backed securities	9	139		(1)		2	36		(1)		11	175		(2)
Foreign government bonds and obligations	6	26		(1)		9	10		(1)		15	36		(2)
Total	132	$	1,700	$	(39)	26	$	115	$	(8)	158	$	1,815	$	(47)


Description of Securities	December 31, 2019
	Less than 12 months					12 months or more					Total
	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
	(in millions, except number of securities)
Corporate debt securities	15	$	64	$	0	7	$	90	$	(2)	22	$	154	$	(2)
Residential mortgage backed securities	29	571		(1)		20	298		(3)		49	869		(4)
Commercial mortgage backed securities	18	310		(1)		7	82		(2)		25	392		(3)
State and municipal obligations	5	23		0		3	54		(2)		8	77		(2)
Asset backed securities	10	111		(1)		6	54		0		16	165		(1)
Foreign government bonds and obligations	1	0		0		10	15		(2)		11	15		(2)
Total	78	$	1,079	$	(3)	53	$	593	$	(11)	131	$	1,672	$	(14)

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

As part of the Company’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities during the nine months ended September 30, 2020 is attributable to wider credit spreads, partially offset by lower interest rates. Consistent with the accounting policy described in Note 2, the Company did not recognize these unrealized losses in earnings because it was determined that such losses were due to non-credit factors. The Company does not intend to sell these securities and does not believe that it is more likely than not that the Company will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. As of September 30, 2020, 56% of the total of Available-for-Sale securities with gross unrealized losses were considered investment grade.

The following tables present a rollforward of the allowance for credit losses on Available-for-Sale securities:


	Corporate Debt Securities
	(in millions)
Balance, July 1, 2020	$	13
Additions for which credit losses were not previously recognized	0
Balance, September 30, 2020	$	13


	Corporate Debt Securities
	(in millions)
Balance, January 1, 2020 (1)	$	0
Additions for which credit losses were not previously recognized	13
Balance, September 30, 2020	$	13

(1) Prior to January 1, 2020, credit losses on Available-for-Sale securities were not recorded in an allowance but were recorded as a reduction of the book value of the security if the security was other-than-temporarily impaired. There is no adoption impact due to the prospective transition for Available-for-Sale securities.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Gross realized investment gains	$	2	$	6	$	12	$	28
Gross realized investment losses	—		(2)		(2)		(14)
Credit losses	—		(15)		(13)		(15)
Total	$	2	$	(11)	$	(3)	$	(1)

Credit losses for the three months and nine months ended September 30, 2020 primarily related to recording an allowance for credit losses on certain corporate debt securities, primarily in the oil and gas industry.

See Note 15 for a rollforward of net unrealized investment gains (losses) included in AOCI.

Available-for-Sale securities by contractual maturity as of September 30, 2020 were as follows:


	Amortized Cost		Fair Value
	(in millions)
Due within one year	$	879	$	888
Due after one year through five years	4,348		4,633
Due after five years through 10 years	2,521		2,801
Due after 10 years	4,083		5,409
	11,831		13,731
Residential mortgage backed securities	3,195		3,315
Commercial mortgage backed securities	4,026		4,247
Asset backed securities	1,286		1,326
Total	$	20,338	$	22,619

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 were not included in the maturities distribution.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following is a summary of net investment income:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions)
Fixed maturities	$	191	$	205	$	585	$	644
Mortgage loans	29		29		86		88
Other investments	(3)		(6)		(9)		(2)
	217		228		662		730
Less: investment expenses	5		6		15		18
Total	$	212	$	222	$	647	$	712

7. Financing Receivables

Financing receivables are comprised of commercial loans, policy loans, and the deposit receivable. See Note 2 for information regarding the Company’s accounting policies related to financing receivables and the allowance for credit losses.

Allowance for Credit Losses

The following tables present a rollforward of the allowance for credit losses for the nine months ended September 30:


	Commercial Loans
	(in millions)
Balance, December 31, 2019 (1)	$	20
Cumulative effect of adoption of current expected credit losses guidance	3
Balance, January 1, 2020	23
Provisions	$	13


Balance, September 30, 2020	$	36

(1) Prior to January 1, 2020, the allowance for credit losses was based on an incurred loss model that did not require estimating expected credit losses over the expected life of the asset.


	Commercial Loans
	(in millions)
Balance, January 1, 2019	$	20

Write-offs	0

Balance, September 30, 2019	$	20

As of both September 30, 2020 and December 31, 2019, accrued interest on commercial loans was $11 million and is recorded in accrued investment income on the Consolidated Balance Sheets and excluded from the amortized cost basis of commercial loans.

Purchases and Sales

During the three months ended September 30, 2020 and 2019, the Company purchased $84 million and $39 million, respectively, of syndicated loans, and sold $2 million and $11 million, respectively, of syndicated loans. During the nine months ended September 30, 2020 and 2019, the Company purchased $134 million and $94 million, respectively, of syndicated loans and sold $9 million and $32 million, respectively, of syndicated loans.

The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.

Credit Quality Information

Nonperforming loans were $8 million and $9 million as of September 30, 2020 and December 31, 2019, respectively. All other loans were considered to be performing.

Commercial Loans

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. Loan-to-value ratio is the primary credit quality indicator included in this review. Total commercial mortgage loans past due were $6 million and NaN as of September 30, 2020 and December 31, 2019, respectively.

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 less than 1% of total commercial mortgage loans as of both September 30, 2020 and December 31, 2019. Loans with the highest risk rating represent distressed loans which the

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next nine months. Total commercial mortgage loan modifications in 2020 due to the COVID-19 pandemic consisted of 88 loans with a total unpaid balance of $360 million. Modifications primarily consisted of short-term forbearance and interest only payments. As of September 30, 2020, there were 23 loans remaining with a total unpaid balance of $122 million. All other loans returned to their normal payment schedules.

The table below presents the amortized cost basis of commercial mortgage loans as of September 30, 2020 by year of origination and loan-to-value ratio:


Loan-to-Value Ratio	2020		2019		2018		2017		2016		Prior		Total
	(in millions)
> 100%	$	0	$	0	$	3	$	0	$	0	$	10	$	13
80% - 100%	15		16		9		3		5		21		69
60% - 80%	78		161		27		29		55		153		503
40% - 60%	13		44		74		152		107		563		953
< 40%	7		22		69		86		59		875		1,118
Total	$	113	$	243	$	182	$	270	$	226	$	1,622	$	2,656

Loan-to-value ratio is based on income and expense data provided by borrowers at least annually and long-term capitalization rate assumptions based on property type.

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, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in millions)
South Atlantic	$	689	$	705	26	%	26	%
Pacific	787		792		30		30
Mountain	232		237		9		9
West North Central	195		207		7		8
East North Central	254		232		10		9
Middle Atlantic	172		167		6		6
West South Central	164		169		6		6
New England	48		47		2		2
East South Central	115		116		4		4
	2,656		2,672		100	%	100	%
Less: allowance for credit losses	28		17
Total	$	2,628	$	2,655

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


	Loans				Percentage
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in millions)
Retail	$	860	$	891	32	%	33	%
Office	378		404		14		15
Apartments	686		660		26		25
Industrial	407		404		15		15
Mixed use	77		66		3		3
Hotel	50		51		2		2
Other	198		196		8		7
	2,656		2,672		100	%	100	%
Less: allowance for credit losses	28		17
Total	$	2,628	$	2,655

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Syndicated Loans

The recorded investment in syndicated loans as of September 30, 2020 and December 31, 2019 was $471 million and $395 million, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. Total syndicated loans past due were $4 million and $1 million as of September 30, 2020 and December 31, 2019, respectively. The Company assigns an internal risk rating to each syndicated loan in its portfolio ranging from 1 through 5, with 5 reflecting the lowest quality.

The table below presents the amortized cost basis of syndicated loans as of September 30, 2020 by origination year and internal risk rating:


Internal Risk Rating	2020		2019		2018		2017		2016		Prior		Total
	(in millions)
Risk 5	$	0	$	0	$	1	$	0	$	0	$	0	$	1
Risk 4	0		4		3		7		1		7		22
Risk 3	0		3		7		22		10		19		61
Risk 2	15		40		48		53		16		36		208
Risk 1	16		30		44		44		17		30		181
Total	$	31	$	77	$	103	$	126	$	44	$	92	$	473

Policy Loans

Policy loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy loans, there is no allowance for credit losses.

Deposit Receivable

The deposit receivable was $1.4 billion and $1.5 billion as of September 30, 2020 and December 31, 2019, respectively. The deposit receivable is fully collateralized by the fair value of the assets held in a trust. Based on management’s evaluation of the nature of the underlying assets and the potential for changes in the collateral value, the Company did not have an allowance for credit losses for the deposit receivable as of both September 30, 2020 and December 31, 2019.

Troubled Debt Restructurings

There were 0 loans accounted for as a troubled debt restructuring by the Company during each of the three months and nine months ended September 30, 2020 and 2019. There are 0 commitments to lend additional funds to borrowers whose loans have been restructured.

8. Deferred Acquisition Costs and Deferred Sales Inducement Costs

During the third quarter of the year, management updated market-related inputs and implemented model changes related to the living benefit valuation. In addition, management conducted its annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking. The impact of unlocking to DAC in both the third quarter of 2020 and 2019 primarily reflected an unfavorable impact from updates to interest rate assumptions, partially offset by a favorable impact from lower surrenders on variable annuities with living benefit guarantees.

The balances of and changes in DAC were as follows:


	2020		2019
	(in millions)
Balance at January 1	$	2,673	$	2,742
Capitalization of acquisition costs	155		178
Amortization	(238)		(127)
Amortization, impact of valuation assumptions review	(100)		(14)
Impact of change in net unrealized (gains) losses on securities	(61)		(175)
Balance at September 30	$	2,429	$	2,604

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The balances of and changes in DSIC, which is included in other assets, were as follows:


	2020		2019
	(in millions)
Balance at January 1	$	216	$	249
Capitalization of sales inducement costs	1		1
Amortization	(19)		(14)
Amortization, impact of valuation assumptions review	(16)		0
Impact of change in net unrealized (gains) losses on securities	(1)		(21)
Balance at September 30	$	181	$	215

9. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities

Policyholder account balances, future policy benefits and claims consisted of the following:


	September 30, 2020		December 31, 2019
	(in millions)
Policyholder account balances
Fixed annuities (1)	$	8,623	$	8,909
Variable annuity fixed sub-accounts	5,105		5,103
Universal life (“UL”)/variable universal life (“VUL”) insurance	3,117		3,110
Indexed universal life (“IUL”) insurance	2,189		2,025
Structured variable annuities	820		0
Other life insurance	616		646
Total policyholder account balances	20,470		19,793

Future policy benefits
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)	3,681		1,462
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) (2)	24		(39)
Other annuity liabilities	183		139
Fixed annuity life contingent liabilities	1,389		1,444
Life and disability income insurance	1,191		1,212
Long term care insurance	5,668		5,302
UL/VUL and other life insurance additional liabilities	1,228		1,033
Total future policy benefits	13,364		10,553
Policy claims and other policyholders’ funds	178		158
Total policyholder account balances, future policy benefits and claims	$	34,012	$	30,504

(1) Includes fixed deferred annuities, non-life contingent fixed payout annuities and fixed deferred indexed annuity host contracts.

(2) Includes the fair value of GMAB embedded derivatives that was a net asset as of December 31, 2019 reported as a contra liability.

Separate account liabilities consisted of the following:


	September 30, 2020		December 31, 2019
	(in millions)
Variable annuity	$	73,919	$	74,965
VUL insurance	7,400		7,429
Other insurance	29		31
Total	$	81,348	$	82,425

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10. 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.

The following table provides information related to variable annuity guarantees for which the Company has established additional liabilities:


Variable Annuity Guarantees by Benefit Type (1)	September 30, 2020							December 31, 2019
	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)
GMDB:
Return of premium	$	62,475	$	60,537	$	16	68	$	62,909	$	60,967	$	5	67
Five/six-year reset	7,700		4,966		13		68	7,983		5,263		7		67
One-year ratchet	5,722		5,389		27		71	5,935		5,600		7		70
Five-year ratchet	1,350		1,295		2		67	1,396		1,340		0		66
Other	1,183		1,164		76		73	1,192		1,174		65		73
Total — GMDB	$	78,430	$	73,351	$	134	68	$	79,415	$	74,344	$	84	67

GGU death benefit	$	1,100	$	1,044	$	132	71	$	1,115	$	1,063	$	133	71

GMIB	$	172	$	158	$	10	71	$	186	$	172	$	6	70

GMWB:
GMWB	$	1,871	$	1,866	$	1	74	$	1,999	$	1,993	$	1	73
GMWB for life	46,837		46,762		391		68	46,799		46,691		272		68
Total — GMWB	$	48,708	$	48,628	$	392	68	$	48,798	$	48,684	$	273	68

GMAB	$	2,274	$	2,273	$	1	61	$	2,528	$	2,524	$	0	60

(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.

The net amount at risk for GMDB, GGU and GMAB is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB is defined as the greater of the present value of the minimum guaranteed annuity payments less the current contract value or zero. The net amount at risk for GMWB is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero.

The following table provides information related to insurance guarantees for which the Company has established additional liabilities:


	September 30, 2020			December 31, 2019
	Net Amount at Risk		Weighted Average Attained Age	Net Amount at Risk		Weighted Average Attained Age
	(in millions, except age)
UL secondary guarantees	$	6,600	67	$	6,550	67

The net amount at risk for UL secondary guarantees is defined as the current guaranteed death benefit amount in excess of the current policyholder account balance.

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, 2019	$	19	$	8	$	875	$	(19)	$	659
Incurred claims	0		(1)		1,245		0		110
Paid claims	(4)		—		—		—		(34)
Balance at September 30, 2019	$	15	$	7	$	2,120	$	(19)	$	735

Balance at January 1, 2020	$	16	$	7	$	1,462	$	(39)	$	758
Incurred claims	10		1		2,219		63		172
Paid claims	(6)		(1)		—		—		(34)
Balance at September 30, 2020	$	20	$	7	$	3,681	$	24	$	896

(1) The incurred claims for GMWB and GMAB include the change in the fair value of the liabilities (contra liabilities) less paid claims.

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, 2020		December 31, 2019
	(in millions)
Mutual funds:
Equity	$	42,327	$	44,739
Bond	24,723		23,374
Other	6,521		6,471
Total mutual funds	$	73,571	$	74,584

11. Short-term Borrowings

RiverSource Life Insurance Company is a member of the Federal Home Loan Bank (“FHLB”) of Des Moines which provides access to collateralized 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 $1.2 billion and $840 million as of September 30, 2020 and December 31, 2019, respectively. The amount of the Company’s liability including accrued interest as of September 30, 2020 and December 31, 2019 was $200 million and $201 million, respectively. The remaining maturity of outstanding FHLB advances was less than two months as of both September 30, 2020 and December 31, 2019. The weighted average annualized interest rate on the FHLB advances held as of September 30, 2020 and December 31, 2019 was 0.4% and 1.8%, respectively.

12. 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 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

Level 2 Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

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, 2020
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities:
Corporate debt securities	$	—	$	11,198	$	736	$	11,934
Residential mortgage backed securities	—		3,297		18		3,315
Commercial mortgage backed securities	—		4,247		—		4,247
State and municipal obligations	—		1,334		—		1,334
Asset backed securities	—		928		398		1,326
Foreign government bonds and obligations	—		262		—		262
U.S. government and agency obligations	201		—		—		201
Total Available-for-Sale securities	201		21,266		1,152		22,619
Cash equivalents	2,404		1,134		—		3,538
Other assets:
Interest rate derivative contracts	—		2,015		—		2,015
Equity derivative contracts	441		2,940		—		3,381
Foreign exchange derivative contracts	—		34		—		34
Credit derivative contracts	—		5		—		5
Total other assets	441		4,994		—		5,435
Separate account assets at net asset value (“NAV”)							81,348		(1)
Total assets at fair value	$	3,046	$	27,394	$	1,152	$	112,940


Liabilities
Policyholder account balances, future policy benefits and claims:
Fixed deferred indexed annuity embedded derivatives	$	—	$	3	$	44	$	47
IUL embedded derivatives	—		—		926		926
GMWB and GMAB embedded derivatives	—		—		2,943		2,943		(2)
Structured variable annuity embedded derivatives	—		—		9		9
Total policyholder account balances, future policy benefits and claims	—		3		3,922		3,925		(3)
Other liabilities:
Interest rate derivative contracts	—		934		—		934
Equity derivative contracts	167		2,798		—		2,965
Foreign exchange derivative contracts	2		5		—		7

Total other liabilities	169		3,737		—		3,906
Total liabilities at fair value	$	169	$	3,740	$	3,922	$	7,831

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities:
Corporate debt securities	$	—	$	10,787	$	735	$	11,522
Residential mortgage backed securities	—		3,091		17		3,108
Commercial mortgage backed securities	—		3,618		—		3,618
State and municipal obligations	—		1,306		—		1,306
Asset backed securities	—		691		389		1,080
Foreign government bonds and obligations	—		267		—		267
U.S. government and agency obligations	1		—		—		1
Total Available-for-Sale securities	1		19,760		1,141		20,902
Cash equivalents	—		1,256		—		1,256
Other assets:
Interest rate derivative contracts	—		1,451		—		1,451
Equity derivative contracts	162		2,650		—		2,812
Foreign exchange derivative contracts	1		15		—		16
Credit derivative contracts	—		4		—		4
Total other assets	163		4,120		—		4,283
Separate account assets at NAV							82,425		(1)
Total assets at fair value	$	164	$	25,136	$	1,141	$	108,866


Liabilities
Policyholder account balances, future policy benefits and claims:
Fixed deferred indexed annuity embedded derivatives	$	—	$	3	$	43	$	46
IUL embedded derivatives	—		—		881		881
GMWB and GMAB embedded derivatives	—		—		763		763		(4)
Total policyholder account balances, future policy benefits and claims	—		3		1,687		1,690		(5)
Other liabilities:
Interest rate derivative contracts	—		418		—		418
Equity derivative contracts	36		3,018		—		3,054
Foreign exchange derivative contracts	1		5		—		6

Total other liabilities	37		3,441		—		3,478
Total liabilities at fair value	$	37	$	3,444	$	1,687	$	5,168

(1) Amounts are comprised of certain financial instruments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy.

(2) The fair value of the GMWB and GMAB embedded derivatives included $3.0 billion of individual contracts in a liability position and $36 million of individual contracts in an asset position as of September 30, 2020.

(3) The Company’s adjustment for nonperformance risk resulted in a $(1.0) billion cumulative increase (decrease) to the embedded derivatives as of September 30, 2020.

(4) The fair value of the GMWB and GMAB embedded derivatives included $981 million of individual contracts in a liability position and $218 million of individual contracts in an asset position as of December 31, 2019.

(5) The Company’s adjustment for nonperformance risk resulted in a $(502) million cumulative increase (decrease) to the embedded derivatives as of December 31, 2019.

RIVERSOURCE LIFE 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
	Corporate Debt Securities		Residential Mortgage Backed Securities		Asset Backed Securities		Total
	(in millions)
Balance, July 1, 2020	$	731	$	56	$	352	$	1,139
Total gains (losses) included in:

Other comprehensive income (loss)	5		—		32		37
Purchases	7		1		—		8
Settlements	(7)		—		—		(7)
Transfers into Level 3	—		—		14		14
Transfers out of Level 3	—		(39)		—		(39)
Balance, September 30, 2020	$	736	$	18	$	398	$	1,152

Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2020	$	—	$	—	$	—	$	—
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at September 30, 2020	$	5	$	—	$	32	$	37


	Policyholder Account Balances, Future Policy Benefits and Claims
	Fixed Deferred Indexed Annuity Embedded Derivatives			IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives			Structured Variable Annuity Embedded Derivatives			Total
	(in millions)
Balance, July 1, 2020	$	41		$	882		$	3,129		$	9		$	4,061
Total (gains) losses included in:
Net income	3		(1)	50		(1)	(296)		(2)	3		(2)	(240)
Issues	—			15			93			(3)			105
Settlements	—			(21)			17			—			(4)
Balance, September 30, 2020	$	44		$	926		$	2,943		$	9		$	3,922

Changes in unrealized (gains) losses in net income relating to liabilities held at September 30, 2020	$	—		$	50	(1)	$	(283)	(2)	$	—		$	(233)


	Available-for-Sale Securities
	Corporate Debt Securities		Residential Mortgage Backed Securities		Asset Backed Securities		Total
	(in millions)
Balance, July 1, 2019	$	790	$	44	$	384	$	1,218
Total (gains) losses included in:

Other comprehensive income (loss)	4		—		(3)		1
Purchases	21		—		—		21
Settlements	(35)		(2)		—		(37)
Transfers into Level 3	—		—		10		10

Balance, September 30, 2019	$	780	$	42	$	391	$	1,213

Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2019	$	—	$	—	$	—	$	—

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	Policyholder Account Balances, Future Policy Benefits and Claims
	Fixed Deferred Indexed Annuity Embedded Derivatives		IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives			Total
	(in millions)
Balance, July 1, 2019	$	31	$	819		$	696		$	1,546
Total (gains) losses included in:
Net income	—		(5)		(1)	663		(2)	658
Issues	6		25			96			127
Settlements	—		(17)			(3)			(20)
Balance, September 30, 2019	$	37	$	822		$	1,452		$	2,311

Changes in unrealized (gains) losses in net income relating to liabilities held at September 30, 2019	$	—	$	(5)	(1)	$	660	(2)	$	655


	Available-for-Sale Securities
	Corporate Debt Securities		Residential Mortgage Backed Securities		Asset Backed Securities		Total
	(in millions)
Balance, January 1, 2020	$	735	$	17	$	389	$	1,141
Total gains (losses) included in:
Net income	(1)		—		—		(1)		(3)
Other comprehensive income (loss)	13		1		(5)		9
Purchases	13		39		—		52
Settlements	(24)		—		—		(24)
Transfers into Level 3	—		—		14		14
Transfers out of Level 3	—		(39)		—		(39)
Balance, September 30, 2020	$	736	$	18	$	398	$	1,152

Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2020	$	(1)	$	—	$	—	$	(1)	(3)
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at September 30, 2020	$	13	$	1	$	(5)	$	9


	Policyholder Account Balances, Future Policy Benefits and Claims
	Fixed Deferred Indexed Annuity Embedded Derivatives			IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives			Structured Variable Annuity Embedded Derivatives			Total
	(in millions)
Balance, January 1, 2020	$	43		$	881		$	763		$	0		$	1,687
Total (gains) losses included in:
Net income	(2)		(1)	53		(1)	1,900		(2)	16		(2)	1,967
Issues	3			53			267			(7)			316
Settlements	—			(61)			13			—			(48)
Balance, September 30, 2020	$	44		$	926		$	2,943		$	9		$	3,922

Changes in unrealized (gains) losses in net income relating to liabilities held at September 30, 2020	$	—		$	53	(1)	$	1,936	(2)	$	—		$	1,989

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	Available-for-Sale Securities
	Corporate Debt Securities		Residential Mortgage Backed Securities		Asset Backed Securities				Total
	(in millions)
Balance, January 1, 2019	$	871	$	64	$	374	$	1,309
Total (gains) losses included in:
Net income	(1)		—		—		(1)		(3)
Other comprehensive income (loss)	32		—		7		39
Purchases	35		27		—		62
Settlements	(157)		(3)		—		(160)
Transfers into Level 3	—		—		10		10
Transfers out of Level 3	—		(46)		—		(46)
Balance, September 30, 2019	$	780	$	42	$	391	$	1,213

Changes in unrealized gains (losses) in net income relating to assets held at September 30, 2019	$	(1)	$	—	$	—	$	(1)	(3)


	Policyholder Account Balances, Future Policy Benefits and Claims
	Fixed Deferred Indexed Annuity Embedded Derivatives			IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives			Total
	(in millions)
Balance, January 1, 2019	$	14		$	628		$	328		$	970
Total (gains) losses included in:
Net income	3		(1)	153		(1)	866		(2)	1,022
Issues	20			92			266			378
Settlements	—			(51)			(8)			(59)
Balance, September 30, 2019	$	37		$	822		$	1,452		$	2,311

Changes in unrealized (gains) losses in net income relating to liabilities held at September 30, 2019	$	—		$	153	(1)	$	859	(2)	$	1012

(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.

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

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(123) million and $85 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the three months ended September 30, 2020 and 2019, respectively.

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $446 million and $(29) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the nine months ended September 30, 2020 and 2019, respectively.

Securities transferred from Level 3 primarily represent securities with fair values that are obtained from a third-party pricing service with observable inputs.

RIVERSOURCE LIFE 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, 2020
	Fair Value		Valuation Technique	Unobservable Input	Range			Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	728	Discounted cash flow	Yield/spread to U.S. Treasuries (1)	1.2%	–	4.5%	1.9%
Asset backed securities	$	398	Discounted cash flow	Annual default rate	4.8%			4.8%
				Loss severity	25.0%			25.0%
				Yield/spread to swap rates (2)	300 bps	–	450 bps	308 bps
IUL embedded derivatives	$	926	Discounted cash flow	Nonperformance risk (3)	85 bps			85 bps
Fixed deferred indexed annuity embedded derivatives	$	44	Discounted cash flow	Surrender rate (4)	0.0%	–	50.0%	1.2%
				Nonperformance risk (3)	85 bps			85 bps
GMWB and GMAB embedded derivatives	$	2,943	Discounted cash flow	Utilization of guaranteed withdrawals (5) (6)	0.0%	–	48.0%	10.5%
				Surrender rate (4)	0.1%	–	73.5%	3.6%
				Market volatility (7) (8)	4.6%	–	17.9%	11.8%
				Nonperformance risk (3)	85 bps			85 bps
Structured variable annuity embedded derivatives	$	9	Discounted cash flow	Surrender rate (4)	0.8%	–	40.0%	0.9%
				Nonperformance risk (3)	85 bps			85 bps

December 31, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(in millions)

Corporate debt securities (private placements)

735

Discounted cash flow

Yield/spread to U.S. Treasuries

0.8%

–

2.8%

1.3%

Asset backed securities

389

Discounted cash flow

Annual default rate

3.5%

Loss severity

25.0%

Yield/spread to swap rates

120 bps

–

170 bps

123 bps

IUL embedded derivatives

881

Discounted cash flow

Nonperformance risk (3)

65 bps

Fixed deferred indexed annuity embedded derivatives

Discounted cash flow

Surrender rate

0.0%

–

50.0%

Nonperformance risk (3)

65 bps

GMWB and GMAB embedded derivatives

763

Discounted cash flow

Utilization of guaranteed withdrawals (5)

0.0%

–

36.0%

Surrender rate

0.1%

–

73.5%

Market volatility (7)

3.7%

–

15.9%

Nonperformance risk (3)

65 bps

(1) The weighted average for the spread to U.S. Treasuries for corporate debt securities (private placements) is weighted based on the security’s market value as a percentage of the aggregate market value of the securities.

(2) The weighted average for the spread to swap rates for asset backed securities is calculated as the sum of each tranche’s balance multiplied by its spread to swap divided by the aggregate balances of the tranches.

(3) The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.

(4) The weighted average surrender rate is weighted based on the benefit base of each contract and represents the average assumption in the current year including the effect of a dynamic surrender formula.

(5) The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.

(6) The weighted average utilization rate represents the average assumption for the current year, weighting each policy evenly. The calculation excludes policies that have already started taking withdrawals.

(7) Market volatility is implied volatility of fund of funds and managed volatility funds.

(8) The weighted average market volatility represents the average volatility across all contracts, weighted by the size of the guaranteed benefit.

Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Uncertainty of Fair Value Measurements

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 have resulted in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in the annual default rate used in the fair value measurement of Level 3 asset backed securities in isolation, generally, would have resulted in a significantly lower (higher) fair value measurement and significant increases (decreases) in loss severity in isolation would have resulted in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in the yield/spread to swap rates in isolation would have resulted in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would have resulted in a significantly lower (higher) fair value measurement.

Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurements of the fixed deferred indexed annuity embedded derivatives and structured variable annuity embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value.

Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly higher (lower) liability value.

Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly lower (higher) liability 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 channel and whether the value of the guaranteed benefit exceeds the contract accumulation value.

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 time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. U.S. Treasuries are also 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 primarily include U.S. Treasuries.

Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, state and municipal obligations, asset backed securities 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 and affiliated and unaffiliated asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities and unaffiliated 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. The fair value of affiliated asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in the affiliated asset backed securities is classified as Level 3.

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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.

Separate Account Assets

The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy.

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 variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is 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. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of both September 30, 2020 and December 31, 2019. See Note 13 and Note 14 for further information on the credit risk of derivative instruments and related collateral.

Liabilities

Policyholder Account Balances, Future Policy Benefits and Claims

There is no active market for the transfer of the Company’s embedded derivatives attributable to the provisions of certain variable annuity riders, fixed deferred indexed annuity, structured variable annuity and IUL products.

The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value as the present value of future expected benefit payments less the present value of future expected rider fees attributable to the embedded derivative feature. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to implied volatility as well as contractholder behavior assumptions that include margins for risk, all of which the Company believes a market participant would incorporate into an exit price. 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, future policy benefits and claims.

The Company uses a discounted cash flow model to determine the fair value of the embedded derivatives associated with the provisions of its equity index annuity product. The projected cash flows generated by this model are based on significant observable inputs related to interest rates, volatilities and equity index levels and, therefore, are classified as Level 2.

The Company uses discounted cash flow models including Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its fixed deferred indexed annuity, structured variable annuity and IUL products. The structured variable annuity product is a limited flexible purchase payment annuity that offers 45 different indexed account options providing equity market exposure and a fixed account. Each indexed account includes a protection option (a buffer or a floor). If the index has a negative return, contractholder losses will be reduced by buffer or limited to a floor. The portion allocated to an indexed account is accounted for as an embedded derivative. The fair value of fixed deferred indexed annuity, structured variable annuity and 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 fixed deferred indexed annuity, structured variable annuity and IUL embedded derivatives are classified as Level 3.

The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.

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 variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is 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. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of both September 30, 2020 and December 31, 2019. See Note 13 and Note 14 for further information on the credit risk of derivative instruments and related collateral.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Fair Value on a Nonrecurring Basis

The Company assesses its investment in affordable housing partnerships for impairment. The investments that are determined to be impaired are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was $99 million and $158 million as of September 30, 2020 and December 31, 2019, respectively, and is classified as Level 3 in the fair value hierarchy.

Asset and Liabilities Not Reported at Fair Value

The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:


	September 30, 2020
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,628	$	—	$	—	$	2,749	$	2,749
Policy loans	849		—		849		—		849		(1)
Other investments	482		—		402		69		471
Other receivables	1,449		—		—		1,734		1,734
Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	9,600	$	—	$	—	$	11,300	$	11,300
Short-term borrowings	200		—		200		—		200
Other liabilities	15		—		—		15		15
Separate account liabilities — investment contracts	323		—		323		—		323


	December 31, 2019
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,655	$	—	$	—	$	2,707	$	2,707
Policy loans	867		—		867		—		867		(1)
Other investments	410		—		376		34		410
Other receivables	1,514		—		—		1,648		1,648
Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	9,110	$	—	$	—	$	10,061	$	10,061
Short-term borrowings	201		—		201		—		201
Line of credit with Ameriprise Financial	50		—		—		50		50
Other liabilities	22		—		—		21		21
Separate account liabilities — investment contracts	340		—		340		—		340

(1) During the third quarter of 2020, management changed the fair value methodology for policy loans from estimating future expected cash flows and discounting the cash flows at a rate based on the U.S. Treasury curve to using the carrying value as an approximation of fair value as the policy loans are fully collateralized by the cash surrender value of the underlying policies. As a result, policy loans were reclassified from Level 3 to Level 2 in the valuation hierarchy. For comparability and consistency purposes, prior period amounts were revised to reflect the current methodology and classification.

Other investments include syndicated loans and the Company’s membership in the FHLB. Other receivables include the deposit receivable. See Note 7 for additional information on mortgage loans, policy loans, syndicated loans and the deposit receivable.

Policyholder account balances, future policy benefits and claims include fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 9 for additional information on these liabilities. Short-term borrowings include FHLB borrowings. See Note 11 for further information on short-term borrowings. Other liabilities include future funding commitments to affordable housing partnerships and other real estate partnerships. Separate account liabilities are related to certain annuity products that are classified as investment contracts.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. Offsetting Assets and Liabilities

Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets. The Company’s derivative instruments are subject to master netting and collateral arrangements and 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 in 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, 2020
	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						Net Amount
							Financial Instruments (1)		Cash Collateral		Securities Collateral
	(in millions)
Derivatives:
OTC	$	5,085	$	—	$	5,085	$	(3,460)	$	(1,594)	$	(22)	$	9
OTC cleared	44		—		44		(44)		—		—		0
Exchange-traded	306		—		306		(85)		(159)		—		62
Total derivatives	$	5,435	$	—	$	5,435	$	(3,589)	$	(1,753)	$	(22)	$	71


	December 31, 2019
	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						Net Amount
							Financial Instruments (1)		Cash Collateral		Securities Collateral
	(in millions)
Derivatives:
OTC	$	4,181	$	—	$	4,181	$	(2,886)	$	(1,214)	$	(73)	$	8
OTC cleared	21		—		21		(21)		—		—		0
Exchange-traded	81		—		81		(5)		—		—		76
Total derivatives	$	4,283	$	—	$	4,283	$	(2,912)	$	(1,214)	$	(73)	$	84

(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, 2020
	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						Net Amount
							Financial Instruments (1)		Cash Collateral		Securities Collateral
	(in millions)
Derivatives:
OTC	$	3,716	$	—	$	3,716	$	(3,460)	$	0	$	(256)	$	0
OTC cleared	103		—		103		(44)		—		—		59
Exchange-traded	87		—		87		(85)		—		—		2
Total derivatives	$	3,906	$	—	$	3,906	$	(3,589)	$	0	$	(256)	$	61


	December 31, 2019
	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						Net Amount
							Financial Instruments (1)		Cash Collateral		Securities Collateral
	(in millions)
Derivatives:
OTC	$	3,426	$	—	$	3,426	$	(2,886)	$	0	$	(540)	$	0
OTC cleared	41		—		41		(21)		—		—		20
Exchange-traded	11		—		11		(5)		—		—		6
Total derivatives	$	3,478	$	—	$	3,478	$	(2,912)	$	0	$	(540)	$	26

(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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

In the tables above, the amount of assets or liabilities presented 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 collateral may be greater than amounts presented in the tables.

When the fair value of collateral accepted by the Company is less than the amount due to the Company, there is a risk of loss if the counterparty fails to perform or provide additional collateral. To mitigate this risk, the Company monitors collateral values regularly and requires additional collateral when necessary. When the value of collateral pledged by the Company declines, it may be required to post additional collateral.

Freestanding derivative instruments are reflected in other assets and other liabilities. Cash collateral pledged by the Company is reflected in other assets and cash collateral accepted by the Company is reflected in other liabilities. See Note 14 for additional disclosures related to the Company’s derivative instruments.

14. 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.

Certain of the Company’s freestanding derivative instruments are 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 13 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.

The Company uses derivatives as economic hedges and accounting hedges. The following table presents the notional value and gross fair value of derivative instruments, including embedded derivatives:


	September 30, 2020						December 31, 2019
	Notional		Gross Fair Value				Notional		Gross Fair Value
			Assets (1)		Liabilities (2)				Assets (1)		Liabilities (2)
	(in millions)
Derivatives not designated as hedging instruments
Interest rate contracts	$	70,691	$	2,015	$	934	$	57,950	$	1,451	$	418
Equity contracts	62,029		3,381		2,965		60,596		2,812		3,054
Credit contracts	2,565		5		0		1,386		4		0
Foreign exchange contracts	3,677		34		7		3,251		16		6
Total non-designated hedges	138,962		5,435		3,906		123,183		4,283		3,478

Embedded derivatives
GMWB and GMAB (3)	N/A		—		2,943		N/A		—		763
IUL	N/A		—		926		N/A		—		881
Fixed deferred indexed annuities	N/A		—		47		N/A		—		46
Structured variable annuities	N/A		—		9		N/A		—		—
Total embedded derivatives	N/A		—		3,925		N/A		—		1,690
Total derivatives	$	138,962	$	5,435	$	7,831	$	123,183	$	4,283	$	5,168

N/A Not applicable.

(1) The fair value of freestanding derivative assets is included in Other assets on the Consolidated Balance Sheets.

(2) The fair value of freestanding derivative liabilities is included in Other liabilities on the Consolidated Balance Sheets. The fair value of GMWB and GMAB, IUL, fixed deferred indexed annuity and structured variable annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims on the Consolidated Balance Sheets.

(3) The fair value of the GMWB and GMAB embedded derivatives as of September 30, 2020 included $3.0 billion of individual contracts in a liability position and $36 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2019 included $981 million of individual contracts in a liability position and $218 million of individual contracts in an asset position.

See Note 12 for additional information regarding the Company’s fair value measurement of derivative instruments.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

As of September 30, 2020 and December 31, 2019, investment securities with a fair value of $24 million and $84 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $24 million and $84 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both September 30, 2020 and December 31, 2019, the Company had sold, pledged, or rehypothecated NaN of these securities. In addition, as of both September 30, 2020 and December 31, 2019, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.

The following tables present a summary of the impact of derivatives not designated as hedging instruments, including embedded derivatives, on the Consolidated Statements of Income:


	Interest Credited to Fixed Accounts		Benefits, Claims, Losses and Settlement Expenses
	(in millions)
Three Months Ended September 30, 2020
Interest rate contracts	$	—	$	(371)
Equity contracts	42		(468)
Credit contracts	—		(12)
Foreign exchange contracts	—		(23)

GMWB and GMAB embedded derivatives	—		186
IUL embedded derivatives	(29)		—
Fixed deferred indexed annuity embedded derivatives	(3)		—
Structured variable annuity embedded derivatives	—		(3)
Total gain (loss)	$	10	$	(691)

Nine Months Ended September 30, 2020
Interest rate contracts	$	—	$	2,204
Equity contracts	(7)		58
Credit contracts	—		(91)
Foreign exchange contracts	—		26

GMWB and GMAB embedded derivatives	—		(2,180)
IUL embedded derivatives	8		—
Fixed deferred indexed annuity embedded derivatives	2		—
Structured variable annuity embedded derivatives	—		(16)
Total gain (loss)	$	3	$	1

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	Interest Credited to Fixed Accounts		Benefits, Claims, Losses and Settlement Expenses
	(in millions)
Three Months Ended September 30, 2019
Interest rate contracts	$	—	$	805
Equity contracts	4		(97)
Credit contracts	—		(9)
Foreign exchange contracts	—		10

GMWB and GMAB embedded derivatives	—		(756)
IUL embedded derivatives	22		—
Fixed deferred indexed annuity embedded derivatives	0		—
Total gain (loss)	$	26	$	(47)

Nine Months Ended September 30, 2019
Interest rate contracts	$	—	$	1,765
Equity contracts	70		(981)
Credit contracts	—		(78)


GMWB and GMAB embedded derivatives	—		(1,124)
IUL embedded derivatives	(102)		—
Fixed deferred indexed annuity embedded derivatives	(3)		—
Total gain (loss)	$	(35)	$	(418)

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 foreign 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 indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions are considered embedded derivatives, which 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. The Company economically hedges the aggregate exposure related to the indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions using options, swaptions, swaps and futures.

The deferred premium associated with certain of the above options and swaptions is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options and swaptions as of September 30, 2020:


	Premiums Payable		Premiums Receivable
	(in millions)
2020 (1)	$	35	$	4
2021	152		106
2022	205		205
2023	51		43
2024	140		25
2025 - 2028	379		7
Total	$	962	$	390

(1) 2020 amounts represent the amounts payable and receivable for the period from October 1, 2020 to December 31, 2020.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Actual timing and payment amounts may differ due to future settlements, modifications or exercises of the contracts prior to the full premium being paid or received.

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. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives may contain settlement provisions linked to both equity returns and interest rates. The Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates, if any, are shown in other contracts in the tables above.

Fixed deferred indexed annuity 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 fixed deferred indexed annuity and IUL products will positively or negatively impact earnings over the life of these products. The equity component of fixed deferred indexed annuity and IUL product obligations are considered embedded derivatives, which 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 a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts.

Cash Flow Hedges

During both the nine months ended September 30, 2020 and 2019, the Company held 0 derivatives that were designated as cash flow hedges. During both the nine months ended September 30, 2020 and 2019, 0 hedge relationships were discontinued due to forecasted transactions no longer being expected to occur according to the original hedge strategy.

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 and collateral arrangements whenever practical. See Note 13 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. As of September 30, 2020 and December 31, 2019, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $176 million and $189 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2020 and December 31, 2019 was $176 million and $189 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of September 30, 2020 and December 31, 2019 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 NaN as of both September 30, 2020 and December 31, 2019.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

15. Shareholder’s Equity

The following tables provide the amounts related to each component of OCI:


	Three Months Ended September 30,
	2020						2019
	Pretax		Income Tax Benefit (Expense)		Net of Tax		Pretax		Income Tax Benefit (Expense)		Net of Tax
	(in millions)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period (1)	$	208	$	(44)	$	164	$	289	$	(63)	$	226
Reclassification of net (gains) losses on securities included in net income (2)	(2)		0		(2)		11		(2)		9
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables	(94)		20		(74)		(195)		41		(154)
Net unrealized gains (losses) on securities	112		(24)		88		105		(24)		81
Total other comprehensive income (loss)	$	112	$	(24)	$	88	$	105	$	(24)	$	81


	Nine Months Ended September 30,
	2020						2019
	Pretax		Income Tax Benefit (Expense)		Net of Tax		Pretax		Income Tax Benefit (Expense)		Net of Tax
	(in millions)
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period (1)	$	500	$	(107)	$	393	$	1,410	$	(302)	$	1,108
Reclassification of net (gains) losses on securities included in net income (2)	3		(1)		2		1		0		1
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables	(223)		47		(176)		(694)		146		(548)
Net unrealized gains (losses) on securities	280		(61)		219		717		(156)		561
Total other comprehensive income (loss)	$	280	$	(61)	$	219	$	717	$	(156)	$	561

(1) Includes impairments on Available-for-Sale securities related to factors other than credit that were recognized in OCI during the period.

(2) Reclassification amounts are recorded in net realized investment gains (losses).

Other comprehensive income (loss) related to net unrealized gains (losses) on securities includes three components: (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 impairments to credit losses; and (iii) other adjustments primarily consisting of changes in insurance and annuity asset and liability balances, such as DAC, DSIC, unearned revenue, 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following tables present the changes in the balances of each component of AOCI, net of tax:


	Net Unrealized Gains (Losses) on Securities		Other		Total
	(in millions)
Balance, July 1, 2020	$	706	$	(1)	$	705
OCI before reclassifications	90		0		90
Amounts reclassified from AOCI	(2)		0		(2)
Total OCI	88		0		88
Balance, September 30, 2020	$	794	$	(1)	$	793

Balance, January 1, 2020	$	575	$	(1)	$	574
OCI before reclassifications	217		0		217
Amounts reclassified from AOCI	2		0		2
Total OCI	219		0		219
Balance, September 30, 2020	$	794	$	(1)	$	793


	Net Unrealized Gains (Losses) on Securities		Other		Total
	(in millions)
Balance, July 1, 2019	$	526	$	(1)	$	525
OCI before reclassifications	72		0		72
Amounts reclassified from AOCI	9		0		9
Total OCI	81		0		81
Balance, September 30, 2019	$	607	$	(1)	$	606

Balance, January 1, 2019	$	46	$	(1)	$	45
OCI before reclassifications	560		0		560
Amounts reclassified from AOCI	1		0		1
Total OCI	561		0		561
Balance, September 30, 2019	$	607	$	(1)	$	606

(1) Includes NaN of noncredit related impairments on securities and net unrealized gains (losses) on previously impaired securities as of both September 30, 2020 and September 30, 2019.

16. Income Taxes

The Company’s effective tax rate was 23.2% and 3.3% for the three months ended September 30, 2020 and 2019, respectively. The Company’s effective tax rate was 5.7% and 2.8% for the nine months ended September 30, 2020 and 2019, respectively.

The Company recorded a pretax loss for the three months ended September 30, 2020. Tax benefits applied to a pretax loss raise the effective tax rate. The effective tax rate for the three months ended September 30, 2020 is higher than the statutory rate as a result of tax benefits including low income housing tax credits and the dividends received deduction. The effective tax rate for the nine months ended September 30, 2020 is lower than the statutory rate as a result of tax preferred items including low income housing tax credits and the dividends received deduction.

The effective tax rate for the three months and nine months ended September 30, 2019 is lower than the statutory rate as a result of tax preferred items including low income housing tax credits, the dividends received deduction, foreign tax credits, partially offset by lower income in the quarter relative to income expected for the full year.

The increase in the effective tax rate for the three months ended September 30, 2020 compared to the prior year period is primarily the result of a pretax loss in the current quarter. The increase in the effective tax rate for the nine months ended September 30, 2020 compared to the prior year period is the result of a decrease in foreign tax credits.

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $11 million, net of federal benefit, which will expire beginning December 31, 2020.

The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 allow the Company to realize certain state deferred tax assets of $2 million and state net operating losses of $9 million; therefore, a valuation allowance of $11 million has been established as of both September 30, 2020 and December 31, 2019.

As of September 30, 2020 and December 31, 2019, the Company had $38 million and $39 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $20 million and $17 million, net of federal tax benefits, of unrecognized tax benefits as of September 30, 2020 and December 31, 2019, respectively, would affect the effective tax rate.

It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits will not decrease in the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized NaN in interest and penalties for both the three months and nine months ended September 30, 2020 and 2019. As of both September 30, 2020 and December 31, 2019, the Company had a payable of $2 million related to accrued interest and penalties.

The Company 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 federal statute of limitations are closed on years through 2015, except for one issue for 2014 and 2015 which was claimed on amended returns. The Internal Revenue Service (“IRS”) is currently auditing Ameriprise Financial’s U.S. income tax returns for 2016, 2017 and 2018. Ameriprise Financial’s or the Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 2010 through 2018.

17. 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. The Company has cooperated and will continue to cooperate with the applicable regulators.

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. 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.

RiverSource Life Insurance Company and RiverSource Life of NY are required by law to be a member of the guaranty fund association in every state where they are 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.

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.

The Company has a liability for estimated guaranty fund assessments and a related premium tax asset. As of both September 30, 2020 and December 31, 2019, the estimated liability was $12 million. As of both September 30, 2020 and December 31, 2019, the related premium tax asset was $10 million. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.

RIVERSOURCE LIFE INSURANCE COMPANY

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS

Overview

RiverSource Life Insurance Company and its subsidiaries are referred to collectively in this Form 10-Q as the “Company”. The following discussion and management’s narrative analysis of the financial condition and results of operations should be read in conjunction with the “Forward-Looking Statements” that follow, the Consolidated Financial Statements and Notes presented in Item 1 and its Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020 (“2019 10-K”), as well as any current reports on Form 8-K and other publicly available information.

The Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Management’s narrative analysis is presented pursuant to General Instructions H(2)(a) of Form 10-Q in lieu of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

See Note 1 to the Consolidated Financial Statements for additional information.

The coronavirus disease 2019 (“COVID-19”) pandemic presents ongoing significant economic and societal disruption and market volatility, which has had and will continue to have ongoing impacts to the Company’s business and operating environment driven by a low interest rate environment and significant volatility in the equity markets and the potential associated implications to client behavior. There are no reliable estimates of how long the pandemic will last, how many people are likely to be affected by it, or its impact on the overall economy.

The Company and its affiliates continue to implement comprehensive strategies to navigate the operating environment spurred by the pandemic. During the first quarter, the Company and its affiliates implemented a work-from-home protocol for virtually all of the Company’s employee population, restricted business travel, and provided resources for complying with the guidance from the World Health Organization, the U.S. Centers for Disease Control and governments. The Company and its affiliates have begun a thoughtful phased reopening of its office locations while complying with applicable health agencies’ guidelines and governmental orders. The Company and its affiliates continue to operate successfully and satisfy elevated customer service volumes in this unique time - client service and the health and safety of the Company and its affiliates’ clients, advisors and employees remain the priorities while its employees and advisors have various work arrangements. The pandemic strategy the Company has employed is flexible and scalable, recognizing this pandemic is widespread and may occur in multiple waves, affecting different communities at different times with varying levels of severity.

There was significant economic volatility during 2020 and the Company’s results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic. There is still uncertainty surrounding the magnitude, duration, speed and reach of the ongoing global pandemic, as well as the impact of actions that have been or could be taken by governmental authorities, clients or other third parties. While we have successfully adapted to a virtual work environment and deployed numerous adaptive business strategies so far this year, the Company believes the pandemic and its accompanying impact on the global financial markets and on the Company’s operations and financial results may cause results not to be comparable to the same period in previous years. The results presented in this report are not necessarily indicative of future operating results. For further information regarding the impact of the COVID-19 pandemic, and any potentially material effects, please see Item 1A, “Risk Factors” in this report.

Earnings will be negatively impacted by the ongoing low interest rate environment should it continue. In addition to continuing spread compression in the Company’s interest sensitive product lines, a sustained low interest rate environment may result in increases to its reserves and changes in various rate assumptions it uses to amortize DAC and DSIC, which may negatively impact earnings. For example, should management’s best estimate of ultimate long-term interest rate assumptions decrease by 125-150 basis points and the grading period be extended by 2-3 years, the Company’s earnings could decline by $200 million to $300 million, primarily reflecting immediate increases in long term care reserves and accelerated amortization of DAC associated with its in-force variable annuity and universal life products. A change in management’s best estimate of the ultimate long-term interest rate assumptions would not impact the Company’s excess capital. For additional discussion on the Company’s interest rate risk, see Item 2. “Market Risk.”

Critical Accounting Estimates

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. 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 Estimates” in the Company’s 2019 10-K.

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 3 to the Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

Consolidated Results of Operations for the Nine Months Ended September 30, 2020 and 2019

The following table presents the Company’s consolidated results of operations:


	Nine Months Ended September 30,				Change
	2020		2019
	(in millions)
Revenues
Premiums	$	256	$	301	$	(45)	(15)	%
Net investment income	647		712		(65)		(9)
Policy and contract charges	1,529		1,510		19		1
Other revenues	357		343		14		4
Net realized investment gains (losses)	(16)		(1)		(15)		NM
Total revenues	2,773		2,865		(92)		(3)

Benefits and expenses
Benefits, claims, losses and settlement expenses	820		1,091		(271)		(25)
Interest credited to fixed accounts	523		517		6		1
Amortization of deferred acquisition costs	338		141		197		NM
Other insurance and operating expenses	490		513		(23)		(4)
Total benefits and expenses	2,171		2,262		(91)		(4)
Pretax income (loss)	602		603		(1)		—
Income tax provision (benefit)	35		17		18		NM
Net income	$	567	$	586	$	(19)	(3)
NM Not Meaningful.

Overall

Net income decreased $19 million to $567 million for the nine months ended September 30, 2020 compared to $586 million for the prior year period. Pretax income decreased $1 million to $602 million for the nine months ended September 30, 2020 compared to $603 million for the prior year period.

The following impacts were significant drivers of the period-over-period change in pretax income:

•The unfavorable impact of unlocking and LTC loss recognition was $454 million for the nine months ended September 30, 2020 compared to $16 million for the prior year period.

•The impact on variable annuity and variable universal life products for the difference between assumed and updated separate account investment performance on DAC, DSIC, unearned revenue amortization, reinsurance accrual and additional insurance benefit reserves (“mean reversion related impact”) impact was an expense of $30 million for the nine months ended September 30, 2020 compared to a benefit of $18 million for the prior year period.

•The market impact on variable annuity guaranteed benefits (net of hedges and the related deferred sales inducement costs (“DSIC”) and deferred acquisition costs (“DAC”) amortization) was a benefit of $274 million for the nine months ended September 30, 2020 compared to an expense of $200 million for the prior year period.

The Company’s variable annuity account balances increased 3% to $79.8 billion as of September 30, 2020 compared to the prior year period due to market appreciation, partially offset by net outflows of $2.4 billion. Variable annuity sales increased 2% compared to the prior year period reflecting a decrease in sales of variable annuities with living benefit guarantees that was more than offset by sales of structured variable annuities launched earlier in 2020. This trend is expected to continue and meaningfully shift the mix of business away from products with living benefit guarantees over time.

The Company’s fixed deferred annuity account balances declined 4% to $8.0 billion as of September 30, 2020 compared to the prior year period as policies continue to lapse and the discontinuance of new sales of fixed deferred annuities and fixed index annuities due to the low interest rate environment as well as the Company’s strategic decisions regarding its fixed annuity business..

In the third quarter, management updates its market-related assumptions and implements model changes related to the living benefit valuation. In addition, management conducts its annual review of insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking. Management also reviews its active life future policy benefit reserve adequacy for its long term care (“LTC”) business in the third quarter.

RIVERSOURCE LIFE INSURANCE COMPANY

The following table presents the total pretax impacts on the Company’s revenues and expenses attributable to unlocking and LTC loss recognition for the nine months ended September 30:


Pretax Increase (Decrease)	2020		2019
	(in millions)
Other revenues	$	(1)	$	5
Total revenues	(1)		5

Benefits, claims, losses and settlement expenses:
LTC unlocking and loss recognition	141		8
Unlocking impact, excluding LTC	212		(1)
Total benefits, claims, losses and settlement expenses	353		7
Amortization of DAC	100		14
Total expenses	453		21
Pretax income(1)	$	(454)	$	(16)

The primary drivers of the unfavorable unlocking impact excluding LTC in the third quarter of 2020 were consistent with the prior year period and include the following items:

•Updates to interest rate assumptions resulted in a higher expense in the third quarter of 2020 compared to the prior year period.

•Lower surrenders assumptions on variable annuities with living benefit guarantees resulted in a higher expense in the third quarter of 2020 compared to the prior year period.

•Changes in equity market volatility and correlation assumptions on variable annuities resulted in a lower benefit in the third quarter of 2020 compared to the prior year period.

The primary drivers of the unfavorable LTC unlocking and loss recognition in the third quarter of 2020 were consistent to the prior year period and include the following items:

•Updates to interest rates assumptions resulted in a higher expense in the third quarter of 2020 compared to the prior year period.

•Assumptions regarding morbidity, mortality and persistency were more in line with experience and resulted in a lower expense in the third quarter of 2020 compared to the prior year period.

•Approved and expected premium rate increases and benefit reductions resulted in a lower benefit in the third quarter of 2020 compared to the prior year period.

The total unfavorable impact of updates to our interest rate assumptions noted above for unlocking and LTC loss recognition was $405 million. The non-cash unfavorable impact was primarily driven by the reduction of our 10-year Treasury rate assumption from 5% to 3.5% due to recent interest rate trends and extending the grading period from three years to 6.5 years with no grading in 2020.

Revenues

Premiums decreased $45 million or 15% to $256 million for the nine months ended September 30, 2020 compared to $301 million for the prior year period reflecting lower sales of immediate annuities with a life contingent feature.

Net investment income decreased $65 million or 9% to $647 million for the nine months ended September 30, 2020 compared to $712 million for the prior year period reflecting a decrease in investment income on fixed maturities due to lower yields as a result of lower interest rates and a decrease in average invested assets due to fixed annuity net outflows and unfavorable impact from the fixed annuities reinsurance transaction.

Other revenues increased $14 million or 4% to $357 million for the nine months ended September 30, 2020 compared to $343 million for the prior year period primarily due to accretion on the fixed annuities reinsurance transaction.

Net realized investment losses were $16 million for the nine months ended September 30, 2020 compared to net realized investment losses of $1 million for the prior year period. For the nine months ended September 30, 2020, net realized gains of $10 million on Available-for-Sale securities due to sales, calls and tenders were more than offset by an increase in the allowance for credit losses of $13 million primarily related to corporate debt securities and an increase of $13 million in the provision for commercial mortgage loans and syndicated loans. For the nine months ended September 30, 2019, net realized gains of $14 million on Available-for-Sale securities due to sales, calls and tenders were more than offset by other-than-temporary impairments recognized in earnings of $15 million which primarily related to credit losses on corporate debt securities.

Benefits and Expenses

Benefits, claims, losses and settlement expenses decreased $271 million to a benefit of $820 million for the nine months ended September 30, 2020 compared to a benefit of $1.1 billion for the prior year period primarily reflecting the following items:

•A $521 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The favorable impact of the nonperformance credit spread was $530 million for the nine months ended

RIVERSOURCE LIFE INSURANCE COMPANY

September 30, 2020 compared to a favorable impact of $9 million for the prior year period. As the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense.

•A $39 million decrease in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This decrease was the result of a favorable $1.5 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, partially offset by an unfavorable $1.5 billion change in the market impact on variable annuity guaranteed living benefits reserves. The main market drivers contributing to these changes are summarized below:

•Equity market impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a lower benefit for the nine months ended September 30, 2020 compared to the prior year period.

•Interest rate impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in an expense for the nine months ended September 30, 2020 compared to a benefit in the prior year period.

•Volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a higher benefit for the nine months ended September 30, 2020 compared to the prior year period.

•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 unfavorable impact compared to the prior year period.

•The mean reversion related impact was an expense of $21 million for the nine months ended September 30, 2020 compared to a benefit of $2 million for the prior year period.

•The impact of unlocking excluding LTC was an expense of $212 million for the nine months ended September 30, 2020 compared to a benefit of $1 million for the prior year period. The unlocking impact for the third quarter of 2020 primarily reflected a higher unfavorable impact from updates to interest rate assumptions and lower surrenders on variable annuities with living benefit guarantees partially offset by a lower benefit from changes in equity market volatility and correlation assumptions on variable annuities compared to the prior year period.

•The annual review of LTC active life future policy benefit reserve adequacy in the third quarter of 2020 resulted in unlocking and loss recognition of $141 million compared to $8 million in the prior year period. The unlocking and loss recognition in the third quarter of 2020 was primarily due to a higher unfavorable impact from updates to interest rates assumptions, a lower unfavorable impact from changes to assumptions regarding morbidity, mortality and persistency and a lower benefit from approved and expected premium rate increases and benefit reductions compared to the prior year period.

•A $27 million decrease in reserves for immediate annuities with a life contingent feature primarily due to lower sales. This impact is offset by a decrease in premiums.

Interest credited to fixed accounts increased $6 million, or 1%, to $523 million for the nine months ended September 30, 2020 compared to $517 million for the prior year period primarily reflecting the following items:

•A $70 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The favorable impact of the nonperformance credit spread was $23 million for the nine months ended September 30, 2020 compared to an unfavorable impact of $47 million for the prior year period.

•A $74 million increase in expense from other market impacts on IUL benefits, net of hedges, which was an expense of $53 million for the nine months ended September 30, 2020 compared to a benefit of $21 million for the prior year period. The increase in expense was primarily due to an increase in the IUL embedded derivative, which is reflecting higher option costs.

Amortization of DAC increased $197 million to $338 million for the nine months ended September 30, 2020 compared to $141 million for the prior year period primarily reflecting the following items:

•The impact of unlocking in the third quarter of 2020 was an expense of $100 million compared to an expense of $14 million in the prior year period. The unlocking impact for the third quarter of 2020 primarily reflected a higher unfavorable impact from updates to interest rate assumptions and lower surrenders on variable annuities with living benefit guarantees compared to the prior year period.

•The DAC offset to the market impact on variable annuity guaranteed benefits was an expense of $94 million for the nine months ended September 30, 2020 compared to a benefit of $21 million for the prior year period.

•The mean reversion related impact was an expense of $9 million for the nine months ended September 30, 2020 compared to a benefit of $16 million for the prior year period.

Income Taxes

The Company’s effective tax rate was 5.7% for the nine months ended September 30, 2020 compared to 2.8% for the prior year period. See Note 16 to the Consolidated Financial Statements for additional discussion on income taxes.

RIVERSOURCE LIFE INSURANCE COMPANY

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 deferred annuities, fixed insurance and the 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’s earnings from fixed deferred 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 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’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 total non-structured fixed maturity securities and commercial mortgage loans in the Company’s investment portfolio that may generate proceeds to reinvest through September 30, 2021 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $2.1 billion and 3.5%, respectively, as of September 30, 2020. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $3.3 billion and had a weighted average yield of 2.4% as of September 30, 2020. 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, 2020 was approximately 1.9%.

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 GMIRs, will have a negative impact to future operating results. To mitigate the unfavorable impact that the low interest rate environment has on the Company’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 addition to the fixed rate exposures noted above, the Company also has the following variable annuity guarantee benefits: guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Each of these benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying invested 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 options, swaptions, swaps and futures to manage 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 this 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 may use a combination of futures, options, swaps and swaptions. 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.

RIVERSOURCE LIFE INSURANCE COMPANY

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 annuities, fixed deferred indexed annuities, IUL insurance and the associated hedge assets, the Company assumed no change in implied market volatility despite the 10% drop in equity prices.

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, 2020:


Equity Price Decline 10%	Equity Price Exposure to Pretax Income
	Before Hedge Impact		Hedge Impact		Net Impact
	(in millions)
Asset-based fees and expenses	$	(66)	$	—	$	(66)
DAC and DSIC amortization (1) (2)	(45)		—		(45)
Variable annuities:
GMDB and GMIB (2)	(12)		—		(12)
GMWB (2)	(393)		296		(97)
GMAB	(24)		23		(1)
Structured variable annuities	72		(60)		12
DAC and DSIC amortization (3)	N/A		N/A		10
Total variable annuities	(357)		259		(88)
Macro hedge program (4)	—		295		295
Fixed deferred indexed annuities	4		(4)		—
IUL insurance	72		(55)		17
Total	$	(392)	$	495	$	113


Interest Rate Increase 100 Basis Points	Interest Rate Exposure to Pretax Income
	Before Hedge Impact		Hedge Impact		Net Impact
	(in millions)
Asset-based fees and expenses	$	(16)	$	—	$	(16)
Variable annuities:

GMWB	1,654		(2,084)		(430)
GMAB	25		(32)		(7)
Structured variable annuities	(6)		25		19
DAC and DSIC amortization (3)	N/A		N/A		61
Total variable annuities	1,673		(2,091)		(357)
Macro hedge program (4)	—		(6)		(6)
Fixed deferred indexed annuities	(1)		—		(1)
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products	79		—		79
IUL insurance	15		2		17
Total	$	1,750	$	(2,095)	$	(284)

N/A Not Applicable.

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

(2) In estimating the impact to pretax income on DAC and DSIC amortization and additional insurance benefit reserves, the assumed equity asset growth rates reflect what management would follow in its mean reversion guidelines.

(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 positive net impact to pretax income of $103 million related to a 10% equity price decline and an estimated negative net impact to pretax income of $91 million related to a 100 basis point increase in interest rates as of December 31, 2019. The change in interest rate exposure as of September 30, 2020 compared to December 31, 2019 was driven by variable annuity riders, specifically GMWB, primarily due to changes in market rates.

RIVERSOURCE LIFE INSURANCE COMPANY

Net impacts shown in the above table from GMWB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with risk margins incorporated in contractholder behavior assumptions and with discount rates increased to reflect a current market estimate of the Company’s risk of nonperformance specific to these liabilities. The Company’s hedging is based on its determination of economic risk, which excludes certain items in the liability valuation including the nonperformance spread risk.

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% and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. 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 all strategic 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 12 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, indexed annuities and IUL 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, indexed annuities and IUL 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 observable market data 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, 2020. 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 future net income would be approximately $731 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 21%), based on September 30, 2020 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, premiums and proceeds from sales of investments, fixed annuity and fixed insurance deposits as well as capital contributions from its parent, Ameriprise Financial Inc. (“Ameriprise Financial”). Other liquidity sources the Company has established are short-term borrowings and available lines of credit with Ameriprise Financial aggregating $992 million.

The Company enters into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances to reduce reinvestment risk. Short-term borrowings allow the Company to receive cash to reinvest in longer-duration assets, while maintaining the flexibility to pay back the short-term debt with cash flows generated by the fixed income portfolio. RiverSource Life Insurance Company is a member of the FHLB of Des Moines, which provides RiverSource Life Insurance Company access to collateralized borrowings. As of September 30, 2020 and December 31, 2019, the Company had estimated maximum borrowing capacity of $6.0 billion and $6.2 billion, respectively, under the FHLB facility, of which $200 million and $201 million was outstanding as of September 30, 2020 and December 31, 2019, respectively, and is collateralized with commercial mortgage backed securities.

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.

RIVERSOURCE LIFE INSURANCE COMPANY

On November 3, 2020, S&P Global lowered RiverSource Life Insurance Company’s issuer and financial strength rating from AA- with a negative outlook to A+ with a stable outlook. S&P Global noted the new rating continues to reflect its strong business risk profile and very strong financial risk profile and capital adequacy levels. RiverSource Life Insurance Company does not believe this rating change will have material impacts on our access to or cost of capital or otherwise materially impact our liquidity.

In 2009, the Company established an agreement to protect its exposure to Genworth Life Insurance Company (“GLIC”) for its reinsured long term care (“LTC”). In 2016, substantial enhancements to this reinsurance protection agreement were finalized. The terms of these confidential provisions within the agreement have been shared, in the normal course of regular reviews, with the Company’s domiciliary regulator and rating agencies. GLIC is domiciled in Delaware so in the event GLIC were subjected to rehabilitation or insolvency proceedings, such proceedings would be located in (and governed by) Delaware laws. Delaware courts have a long tradition of respecting commercial and reinsurance affairs as well as contracts among sophisticated parties. Similar credit protections to what the Company has with GLIC have been tested and respected in Delaware and elsewhere in the United States, and as a result the Company believes its credit protections would be respected even in the unlikely event that GLIC becomes subject to rehabilitation or insolvency proceedings in Delaware. Accordingly, while no credit protections are perfect, the Company believes the correct way to think about the risks represented by its counterparty credit exposure to GLIC is not the full amount of the gross liability that GLIC reinsures, but a much smaller net exposure to GLIC (if any that might exist after taking into account the Company’s credit protections). Thus, management believes that this agreement and offsetting non LTC legacy arrangements with Genworth will enable the Company to recover on all net exposure in all material respects in the event of a rehabilitation or insolvency of GLIC.

Capital Activity

Cash dividends or distributions paid and received by RiverSource Life Insurance Company were as follows:


	Nine Months Ended September 30,
	2020		2019
	(in millions)
Paid to Ameriprise Financial	$	650	$	850
Received from RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”)	—		43
Received from RiverSource Tax Advantaged Investments, Inc.	—		75

For dividends or distributions from the life insurance companies, notifications to state insurance regulators were made in advance of payments in excess of statutorily defined thresholds.

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 were as follows:


	Actual Capital (1)				Regulatory Capital Requirements (2)
	September 30, 2020		December 31, 2019		December 31, 2019
	(in millions)
RiverSource Life Insurance Company	$	3,973	$	2,924	$	601
RiverSource Life Insurance Co. of NY	399		235		38

(1) 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.

(2) Regulatory capital requirement is the company action level and 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 2019 10-K.

RIVERSOURCE LIFE INSURANCE COMPANY

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;

•statements of the Company’s position, future performance and ability to pursue business strategy relative to the spread and impact of the COVID-19 pandemic and the related market, economic, client, governmental and healthcare system response;

•statements about the expected trend in the shift of the variable annuity sales business away from products with living benefit guarantees over time;

•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 track,” “project,” “continue,” “able to remain,” “resume,” “deliver,” “develop,” “evolve,” “drive,” “enable,” “flexibility,” “scenario,” “case” 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:

•the impacts on the Company’s business of the spread and impact of the COVID-19 pandemic and the related economic, client, governmental and healthcare system responses;

•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 that may be implemented or modified in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, bank holding company laws and regulations or in light of the U.S. Department of Labor’s fiduciary regulations (as well as state and other fiduciary rules, the Securities and Exchange Commission best interest standards, or similar standards as the Certified Financial Planner Board standards) pertaining to the fiduciary status of investment advice providers to 401(k) plans, plan sponsors, plan participants and the holders of individual retirement or health savings accounts and related issues;

•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;

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

•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 (such as S&P Global recently lowering RiverSource Life Insurance Company’s issuer and financial strength rating) 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 constraint 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, persistency and premium rate increases in certain annuity and insurance products (including, but not limited to, variable annuities and long term care policies), 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 benefit annuity riders, or from assumptions regarding interest rates or asset yield assumed in the Company’s loss recognition testing of its long term care business;

•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;

RIVERSOURCE LIFE INSURANCE COMPANY

•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 re-engineering 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 other cybersecurity incidents), 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 (such as the recent U.S. election), 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 included in Part I, Item 1A of the Company’s 2019 10-K and “Item 1A. Risk Factors” in this Form 10-Q.

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.

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, 2020.

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.

RIVERSOURCE LIFE INSURANCE COMPANY

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 17 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

ITEM 1A. RISK FACTORS

The Company is including the following risk factor which should be read in conjunction with the risk factors provided in Part I, Item 1A of RiverSource Life Insurance Company’s 2019 10-K.

The COVID-19 pandemic creates significant risks and uncertainties for RiverSource Life’s business.

The ongoing coronavirus disease 2019 (‘‘COVID-19’’) pandemic creates significant and pervasive societal, economic and market disruption globally. The extent to which the COVID-19 pandemic impacts RiverSource Life’s business, results of operations, and financial condition will depend on current and future developments. These developments are highly uncertain, including the scope, duration and severity of the pandemic, the effectiveness of RiverSource Life’s remote working and RiverSource Life’s ongoing phased office reopenings, the measures that may be taken by various governmental authorities in response to the outbreak (such as legislative action, stimulus, quarantines and travel restrictions, effectiveness of health care and new or interim regulation, including mandated premium grace periods or other additional compliance requirements for insurance businesses), the actions of other third parties in response to the pandemic, and the possible further impacts on the global economy. While additional net death claims for RiverSource Life could increase within its individual life insurance business as a result of the COVID-19 pandemic, any additional death claims could be offset to the extent of any reductions in benefit liabilities under its long term care insurance, payout annuity and variable annuity living benefit blocks. Given the uncertainty of future developments, RiverSource Life seeks to manage its risks effectively, but its ability to do so is subject to the inherent limitations of obtaining timely, reliable analysis and information in a situation that continues to develop. No assurance can be given that the steps we have taken will continue to be effective or appropriate.

Starting in the end of the first quarter of 2020, the COVID-19 pandemic impacted (and will likely continue to impact) RiverSource Life. Consumer demand, client investing decisions in light of ongoing economic uncertainty, investment income, owned asset values, and RiverSource Life’s credit reserve and other financial or actuarial assumptions and reserve calculations have been (and may further be) negatively impacted from a decline and volatility of asset prices, sustained reduction in interest rates, nonperformance credit spreads, credit deterioration, decreased liquidity in trading markets and other economic and market effects of the global pandemic. RiverSource Life is actively monitoring the potential direct and indirect impacts that the COVID-19 pandemic may have on its business. The most significant impacts of the COVID-19 pandemic on the operational and financial results included the significant reduction in interest rates and the impact of volatile equity market levels on spread and fee income and the associated deferred acquisition cost amortization as well as changes in consumer demand and the operating environment that altered RiverSource Life’s mix of sales and product offerings.

If these conditions continue or worsen, RiverSource Life could experience volatility and uncertainty in volumes, uncertainty in availability and price levels of financial assets and hedges, reduced customer activity and fees, increased mortality and morbidity in its policyholder base, increased constraints and costs of capital, possible impacts to RiverSource Life’s ratings and other negative impacts on RiverSource Life’s financial position. Moreover, the COVID-19 pandemic may impact the ability of service providers to continue ordinary business operations and technology functions over near- or longer-term periods.

The COVID-19 pandemic may also affect the ability of RiverSource Life’s suppliers, distributors, vendors, reinsurers and other counterparties to provide products and services and otherwise fulfill their commitments to RiverSource Life. With the majority of its life insurance death benefit risk reinsured to major U.S. reinsurers, RiverSource Life manages and monitors the counterparty risk associated with these reinsurers through rigorous counterparty relationship standards (reinsurers currently receiving any new life or disability income reinsurance business are currently rated at least A+ by A.M. Best and AA- by Standard and Poor’s).

In addition, the market and economic uncertainty and the effects of the COVID-19 pandemic will heighten the other risks described in the section entitled “Risk Factors” in RiverSource Life’s most recent Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K.

RIVERSOURCE LIFE INSURANCE COMPANY

ITEM 6. EXHIBITS

The following exhibits are filed as part of this Quarterly Report:


Exhibit			Description

3.1			Copy of Certificate of Incorporation of IDS Life Insurance Company, filed as Exhibit 3.1 to Post-Effective Amendment No. 5 to Registration Statement No. 33-28976, is incorporated by reference.
3.1.1			Copy of Certificate of Amendment of Certificate of Incorporation of IDS Life Insurance Company dated June 22, 2006, filed as Exhibit 3.1 to Form 8-K filed on January 5, 2007, is incorporated by reference.
3.2			Copy of Amended and Restated By-Laws of RiverSource Life Insurance Company dated June 22, 2006, filed as Exhibit 27(f)(2) to Post-Effective Amendment No. 28 to Registration Statement No. 333-69777, is incorporated by reference.
31.1*			Certification of Gumer C. Alvero, Executive Vice President - Annuities (Acting Principal Executive Officer), 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 Gumer C. Alvero, Executive Vice President - Annuities (Acting Principal Executive Officer) 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 on Form 10-Q for the period ended September 30, 2020 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2020 and December 31, 2019; (ii) Consolidated Statements of Income for the three months and nine months ended September 30, 2020 and 2019; (iii) Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2020 and 2019; (iv) Consolidated Statements of Equity for the three months and nine months ended September 30, 2020 and 2019; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019; and (vi) Notes to the Consolidated Financial Statements.
104			The cover page from RiverSource Life Insurance Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020 is formatted in iXBRL and contained in Exhibit 101.
* Filed electronically herewithin.

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 9, 2020	By:	/s/ Brian J. McGrane
			Brian J. McGrane Executive Vice President and Chief Financial Officer

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Riversource Life Insurance 10-Q2020 Q3 Quarterly report

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