Riversource Life Insurance 10Q 2021 Q1 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

March 31, 2021

☐

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

☒

☐

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 May 10, 2021

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 — March 31, 2021 and December 31, 2020		3
	Consolidated Statements of Income — Three months ended March 31, 2021 and 2020		4
	Consolidated Statements of Comprehensive Income — Three months ended March 31, 2021 and 2020		4
	Consolidated Statements of Shareholder’s Equity — Three months ended March 31, 2021 and 2020		5
	Consolidated Statements of Cash Flows — Three months ended March 31, 2021 and 2020		6
	Notes to Consolidated Financial Statements		8
	1.	Basis of Presentation	8
	2.	Recent Accounting Pronouncements	8
	3.	Revenue from Contracts with Customers	10
	4.	Variable Interest Entities	11
	5.	Investments	14
	6.	Financing Receivables	17
	7.	Deferred Acquisition Costs and Deferred Sales Inducement Costs	20
	8.	Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities	21
	9.	Variable Annuity and Insurance Guarantees	22
	10.	Debt	23
	11.	Fair Values of Assets and Liabilities	23
	12.	Offsetting Assets and Liabilities	31
	13.	Derivatives and Hedging Activities	33
	14.	Shareholders’ Equity	36
	15.	Income Taxes	36
	16.	Contingencies	37
Item 2. Management’s Narrative Analysis			38
Item 4. Controls and Procedures			46

Part II. Other Information			46
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 6. Exhibits			47
Signatures			48

RIVERSOURCE LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31, 2021		December 31, 2020
	(in millions, except share amounts)
Assets
Investments:
Available-for-Sale: Fixed maturities, at fair value (amortized cost: 2021, $20,153; 2020, $20,260) (allowance for credit losses: 2021, NaN; 2020, $10)	$	22,031	$	22,855

Mortgage loans, at amortized cost (allowance for credit losses: 2021 and 2020, $28)	2,541		2,574
Policy loans	838		846
Other investments (allowance for credit losses: 2021, $5; 2020, $7)	662		701
Total investments	26,072		26,976
Investments of consolidated investment entities, at fair value	2,642		1,918
Cash and cash equivalents	2,285		3,191
Cash of consolidated investment entities	325		94

Reinsurance recoverables (allowance for credit losses: 2021, $9; 2020, $8)	3,368		3,409
Other receivables	1,620		1,613
Receivables of consolidated investment entities, at fair value	17		16
Accrued investment income	180		172
Deferred acquisition costs	2,661		2,508
Other assets	6,335		6,969
Other assets of consolidated investment entities, at fair value	2		2
Separate account assets	88,433		87,556
Total assets	$	133,940	$	134,424

Liabilities and Shareholder’s Equity
Liabilities:
Policyholder account balances, future policy benefits and claims	$	32,696	$	33,986
Short-term borrowings	200		200
Debt of consolidated investment entities, at fair value	2,671		1,913

Long-term debt	500		500
Other liabilities	6,441		6,887
Other liabilities of consolidated investment entities, at fair value	256		69
Separate account liabilities	88,433		87,556
Total liabilities	131,197		131,111

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
Accumulated deficit	(308)		(76)
Accumulated other comprehensive income, net of tax	582		920
Total shareholder’s equity	2,743		3,313
Total liabilities and shareholder’s equity	$	133,940	$	134,424

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in millions)
Revenues
Premiums	$	78	$	93
Net investment income	247		223
Policy and contract charges	547		551
Other revenues	128		119
Net realized investment gains (losses)	48		(17)
Total revenues	1,048		969
Benefits and expenses
Benefits, claims, losses and settlement expenses	652		(1,748)
Interest credited to fixed accounts	159		91
Amortization of deferred acquisition costs	2		503
Interest and debt expense	21		0
Other insurance and operating expenses	194		163
Total benefits and expenses	1,028		(991)
Pretax income	20		1,960
Income tax provision	2		166
Net income	$	18	$	1,794

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in millions)
Net income	$	18	$	1,794
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities	(338)		(395)

Total other comprehensive income (loss), net of tax	(338)		(395)
Total comprehensive income	$	(320)	$	1,399

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 (Deficit)		Accumulated Other Comprehensive Income (Loss)		Total
	(in millions)
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)	—		—		1,794		—		1,794
Other comprehensive income (loss), net of tax	—		—		—		(395)		(395)
Total comprehensive income (loss)									1,399

Cash dividends to Ameriprise Financial, Inc.	—		—		(250)		—		(250)
Balances at March 31, 2020	$	3	$	2,466	$	1,830	$	179	$	4,478

Balances at January 1, 2021	$	3	$	2,466	$	(76)	$	920	$	3,313

Comprehensive income (loss):
Net income (loss)	—		—		18		—		18
Other comprehensive income (loss), net of tax	—		—		—		(338)		(338)
Total comprehensive income (loss)									(320)

Cash dividends to Ameriprise Financial, Inc.	—		—		(250)		—		(250)
Balances at March 31, 2021	$	3	$	2,466	$	(308)	$	582	$	2,743

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in millions)
Cash Flows from Operating Activities
Net income	$	18	$	1,794
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net	(2)		(9)
Deferred income tax (benefit) expense	(124)		1,209
Contractholder and policyholder charges, non-cash	(97)		(96)
Loss from equity method investments	16		16
Net realized investment (gains) losses	(48)		(4)
Impairments and provision for loan losses	(4)		21
Net losses (gains) of consolidated investment entities	(19)		—
Changes in operating assets and liabilities:
Deferred acquisition costs	(59)		446

Policyholder account balances, future policy benefits and claims, net	(953)		2,730
Derivatives, net of collateral	141		(745)
Reinsurance recoverables	34		(19)
Other receivables	6		14
Accrued investment income	(13)		(6)
Current income tax expense (benefit)	125		(1,086)
Payable for investment securities purchase	75		—
Other, net	28		40
Net cash provided by (used in) operating activities	(876)		4,305

Cash Flows from Investing Activities
Available-for-Sale securities:
Proceeds from sales	92		79
Maturities, sinking fund payments and calls	819		474
Purchases	(806)		(413)
Proceeds from sales, maturities and repayments of mortgage loans	53		52
Funding of mortgage loans	(21)		(58)
Proceeds from sales and collections of other investments	36		33
Purchase of other investments	(11)		(73)
Purchase of investments by consolidated investment entities	(737)		—
Proceeds from sales, maturities and repayments of investments by consolidated investment entities	240		—
Purchase of equipment and software	(3)		(2)
Change in policy loans, net	8		(2)

Cash paid for deposit receivable	(2)		(1)
Cash received for deposit receivable	21		30
Advance on line of credit to Ameriprise Financial, Inc.	0		702
Repayment from Ameriprise Financial, Inc. on line of credit	0		(702)
Cash received from written options with deferred premiums	21		95
Cash paid for written options with deferred premiums	(211)		(258)
Other, net	(2)		1
Net cash provided by (used in) investing activities	(503)		(43)

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

	Three Months Ended March 31,
	2021		2020
	(in millions)
Cash Flows from Financing Activities
Policyholder account balances:
Deposits and other additions	$	384	$	255
Net transfers from (to) separate accounts	(60)		30
Surrenders and other benefits	(368)		(430)

Proceeds from line of credit with Ameriprise Financial, Inc.	0		5
Payments on line of credit with Ameriprise Financial, Inc.	0		(55)

Cash received for purchased options with deferred premiums	306		0
Cash paid for purchased options with deferred premiums	(42)		(36)
Borrowings by consolidated investment entities	797		—
Repayments of debt by consolidated investment entities	(63)		—
Cash dividends to Ameriprise Financial, Inc.	(250)		(250)
Net cash provided by (used in) financing activities	704		(481)
Net increase (decrease) in cash and cash equivalents	(675)		3,781
Cash and cash equivalents at beginning of period	3,285		1,275
Cash and cash equivalents at end of period	$	2,610	$	5,056

Supplemental Disclosures:
Income taxes paid (received), net	$	1	$	2
Interest paid on borrowings	—		1
Non-cash investing activity:
Partnership commitments not yet remitted	—		2
Exchange of an investment that resulted in a realized gain and an increase to amortized cost	17		—


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 and variable interest entities (“VIEs”) in which it is the primary beneficiary (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, 2020, filed with the Securities and Exchange Commission on February 24, 2021 (“2020 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 requiring recognition or disclosure were identified.

2. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Income Taxes – Simplifying the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) updated the accounting standards to simplify the accounting for income taxes. The update eliminates certain exceptions to: (1) accounting principles related to intra-period tax allocation to be applied on a prospective basis, (2) deferred tax liabilities related to outside basis differences to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption, and (3) year-to-date losses in interim periods to be applied on a prospective basis. The update also amends existing guidance related to situations when an entity receives: (1) a step-up in the tax basis of goodwill to be applied on a prospective basis, (2) an allocation of income tax expense when members of a consolidated tax filing group issue separate financial statements to be applied on a retrospective basis for all periods presented, (3) interim recognition of enactment of tax laws or rate changes to be applied on a prospective basis, and (4) franchise taxes and other taxes partially based on income to be applied on a 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 Company adopted the standard on January 1, 2021. The adoption of this standard had no impact on the Company’s consolidated financial condition or results of operations.

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

In August 2018, the 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 did not have an impact on the Company’s consolidated financial condition or results of operations.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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.

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. The amendments in this update were effective upon issuance and must be elected prior to December 31, 2022. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions. In January 2021, FASB updated the standard to allow an entity to elect to apply the treatment under the original guidance to derivative instruments that use an interest rate that for margining, discounting or contract price alignment that will be modified due to reference rate reform but did not qualify under the original guidance. The Company has not yet applied any of the optional expedients. The adoption of the standard is not expected to have an impact on the Company’s consolidated results of operations and financial condition.

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.

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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. The standard is effective for 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.

3. 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 March 31,
	2021		2020
	(in millions)
Policy and contract charges
Affiliated	$	46	$	41
Unaffiliated	4		3
Total	50		44

Other revenues
Administrative fees
Affiliated	12		11
Unaffiliated	4		4
	16		15
Other fees
Affiliated	95		86
Unaffiliated	1		1
	96		87
Total	112		102
Total revenue from contracts with customers	162		146
Revenue from other sources (1)	886		823
Total revenues	$	1,048	$	969

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

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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, LLC, 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 $59 million and $57 million as of March 31, 2021 and December 31, 2020, respectively.

4. Variable Interest Entities

The Company provides asset management services to collateralized loan obligations (“CLOs”) which are considered to be VIEs that are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates the CLOs if the Company is deemed to be the primary beneficiary. The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its initial investment and existing future funding commitments, and the Company has not provided any support to these entities. The Company has unfunded commitments related to consolidated CLOs of $20 million and $13 million as of March 31, 2021 and December 31, 2020, respectively.

CLOs

CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO’s debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO’s collateral pool. The Company earns management fees from the CLOs based on the value of the CLO’s collateral pool and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes and highly rated senior notes of certain CLOs. The Company consolidates certain CLOs where it is the primary beneficiary and has the power to direct the activities that most significantly impact the economic performance of the CLO.

Affordable Housing Partnerships and Other Real Estate Partnerships

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 $187 million and $200 million as of March 31, 2021 and December 31, 2020, respectively. The Company had a $9 million liability recorded as of both March 31, 2021 and December 31, 2020 related to original purchase commitments not yet remitted to the VIEs. The Company

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the funding commitments.

Structured Investments

The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are 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 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. See Note 5 for additional information on these structured investments.

Fair Value of Assets and Liabilities

The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 11 for the definition of the three levels of the fair value hierarchy.

The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:


	March 31, 2021
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Investments:

Common stocks	$	—	$	2	$	—	$	2
Syndicated loans	—		2,485		155		2,640
Total investments	—		2,487		155		2,642
Receivables	—		17		—		17
Other assets	—		2		—		2
Total assets at fair value	$	—	$	2,506	$	155	$	2,661

Liabilities
Debt (1)	$	—	$	2,671	$	—	$	2,671
Other liabilities	—		256		—		256
Total liabilities at fair value	$	—	$	2,927	$	—	$	2,927


	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Investments:
Corporate debt securities	$	—	$	8	$	—	$	8
Common stocks	—		1		—		1
Syndicated loans	—		1,817		92		1,909
Total investments	—		1,826		92		1,918
Receivables	—		16		—		16
Other assets	—		—		2		2
Total assets at fair value	$	—	$	1,842	$	94	$	1,936

Liabilities
Debt (1)	$	—	$	1,913	$	—	$	1,913
Other liabilities	—		69		—		69
Total liabilities at fair value	$	—	$	1,982	$	—	$	1,982

(1) The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.7 billion and $2.0 billion as of March 31, 2021 and December 31, 2020, respectively.

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 held by consolidated investment entities measured at fair value on a recurring basis:


	Syndicated Loans		Other Assets
	(in millions)
Balance, January 1, 2021	$	92	$	2
Total gains (losses) included in:
Net income	2		—
Purchases	59		—
Sales	(10)		—
Settlements	(20)		—
Transfers into Level 3	57		—
Transfers out of Level 3	(25)		(2)
Balance, March 31, 2021	$	155	$	0

Changes in unrealized gains (losses) included in income relating to assets held at March 31, 2021	$	1	$	—

Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote.

All Level 3 measurements as of March 31, 2021 and December 31, 2020 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.

Determination of Fair Value

Assets

Investments

The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company. See Note 11 for a description of the Company’s determination of the fair value of corporate debt securities, common stocks and other investments.

Receivables

For receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.

Liabilities

Debt

The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches for which market activity is limited and less transparent. As a result, the fair value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets and is classified as Level 2.

Other Liabilities

Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2. Other liabilities also include accrued interest on the CLO debt.

Fair Value Option

The Company has elected the fair value option for the financial assets and liabilities of the consolidated CLOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CLOs.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:


	March 31, 2021		December 31, 2020
	(in millions)
Syndicated loans
Unpaid principal balance	$	2,690	$	1,990
Excess unpaid principal over fair value	(50)		(81)
Fair value	$	2,640	$	1,909

Fair value of loans more than 90 days past due	$	1	$	5
Fair value of loans in nonaccrual status	15		19
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both	20		24

Debt
Unpaid principal balance	$	2,808	$	2,069
Excess unpaid principal over fair value	(137)		(156)
Carrying value (1)	$	2,671	$	1,913

During the first quarter of 2021, the Company launched two new CLOs and issued debt of $817 million.

Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments are recorded in net investment income and gains and losses on sales of investments are recorded in net realized investment gains (losses). Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.

Total net gains (losses) recognized in net investment income related to the changes in fair value of investments the Company owns in the consolidated CLOs where it has elected the fair value option and collateralized financing entity accounting were immaterial for the three months ended March 31, 2021.

Debt of the consolidated investment entities and the stated interest rates were as follows:


	Carrying Value				Weighted Average Interest Rate
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
	(in millions)
Debt of consolidated CLOs due 2025-2034	$	2,671	$	1,913	2.0	%	2.1	%

The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0.0% to 8.9%. The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.

5. Investments

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


Description of Securities	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities:
Corporate debt securities	$	11,289	$	1,426	$	(87)	$	—	$	12,628
Residential mortgage backed securities	2,650		96		(7)		—		2,739
Commercial mortgage backed securities	3,896		167		(11)		—		4,052
State and municipal obligations	1,025		242		(3)		—		1,264
Asset backed securities	1,064		39		—		—		1,103
Foreign government bonds and obligations	229		17		(1)		—		245
Total	$	20,153	$	1,987	$	(109)	$	—	$	22,031

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


Description of Securities	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in millions)
Fixed maturities:
Corporate debt securities	$	10,982	$	1,903	$	(2)	$	(10)	$	12,873
Residential mortgage backed securities	2,888		115		(1)		—		3,002
Commercial mortgage backed securities	3,935		235		(4)		—		4,166
State and municipal obligations	1,050		295		(1)		—		1,344
Asset backed securities	1,168		45		(1)		—		1,212
Foreign government bonds and obligations	236		22		(1)		—		257
U.S. government and agency obligations	1		—		—		—		1
Total	$	20,260	$	2,615	$	(10)	$	(10)	$	22,855

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

As of March 31, 2021 and December 31, 2020, accrued interest of $135 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 March 31, 2021 and December 31, 2020, investment securities with a fair value of $2.7 billion and $2.9 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $417 million and $454 million, respectively, may be sold, pledged or rehypothecated by the counterparty.

As of both March 31, 2021 and December 31, 2020, fixed maturity securities comprised approximately 85% 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 March 31, 2021 and December 31, 2020, approximately $516 million and $553 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.

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


Ratings	March 31, 2021						December 31, 2020
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in millions, except percentages)
AAA	$	6,984	$	7,252	33	%	$	7,323	$	7,698	34	%
AA	1,026		1,212		6		1,036		1,266		6
A	2,481		2,900		13		2,663		3,235		14
BBB	8,359		9,238		42		7,770		9,026		39
Below investment grade	1,303		1,429		6		1,468		1,630		7
Total fixed maturities	$	20,153	$	22,031	100	%	$	20,260	$	22,855	100	%

As of March 31, 2021 and December 31, 2020, approximately 36% and 37%, respectively, of securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. The Company had holdings of $356 million in Ameriprise Advisor Financing, LLC (“AAF”), an affiliate of the Company, which was greater than 10% of total equity as of March 31, 2021. The Company had holdings of $372 million in AAF, which was greater than 10% of total equity as of December 31, 2020. There were 0 other holdings of any other issuer greater than 10% of total equity as of both March 31, 2021 and December 31, 2020.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following tables summarize the fair value and gross unrealized losses on Available-for-Sale securities, aggregated by major investment type and the length of time that individual securities have been in a continuous unrealized loss position for which no allowance for credit losses has been recorded:


Description of Securities	March 31, 2021
	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	84	$	1,948	$	(87)	2	$	16	$	—	86	$	1,964	$	(87)
Residential mortgage backed securities	16	329		(7)		13	22		—		29	351		(7)
Commercial mortgage backed securities	32	518		(10)		8	100		(1)		40	618		(11)
State and municipal obligations	28	75		(2)		2	7		(1)		30	82		(3)
Foreign government bonds and obligations	4	5		—		7	7		(1)		11	12		(1)
Total	164	$	2,875	$	(106)	32	$	152	$	(3)	196	$	3,027	$	(109)


Description of Securities	December 31, 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	26	$	228	$	(1)	1	$	12	$	(1)	27	$	240	$	(2)
Residential mortgage backed securities	11	47		(1)		7	14		—		18	61		(1)
Commercial mortgage backed securities	12	179		(3)		7	60		(1)		19	239		(4)
State and municipal obligations	2	4		—		1	4		(1)		3	8		(1)
Asset backed securities	4	65		—		2	36		(1)		6	101		(1)
Foreign government bonds and obligations	1	3		—		7	8		(1)		8	11		(1)
Total	56	$	526	$	(5)	25	$	134	$	(5)	81	$	660	$	(10)

As part of the Company’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities for which an allowance for credit losses has not been recognized during the three months ended March 31, 2021 is primarily attributable to higher interest rates, partially offset by tighter credit spreads. 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 March 31, 2021 and December 31, 2020, 81% and 83% respectively, 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, January 1, 2021	$	10

Charge-offs	(10)
Balance, March 31, 2021	$	0

Balance at January 1, 2020	$	0
Additions for which credit losses were not previously recognized	13

Balance at March 31, 2020	$	13

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 March 31,
	2021		2020
	(in millions)
Gross realized investment gains	$	49	$	6
Gross realized investment losses	—		(1)
Credit losses	—		(13)
Total	$	49	$	(8)

There were no credit losses for the three months ended March 31, 2021. Credit losses for the three months ended March 31, 2020 primarily related to recording an allowance for credit losses on certain corporate debt securities, primarily in the oil and gas industry.

See Note 14 for a rollforward of net unrealized investment gains (losses) included in AOCI.

Available-for-Sale securities by contractual maturity as of March 31, 2021 were as follows:


	Amortized Cost		Fair Value
	(in millions)
Due within one year	$	453	$	460
Due after one year through five years	4,445		4,734
Due after five years through 10 years	3,417		3,558
Due after 10 years	4,228		5,385
	12,543		14,137
Residential mortgage backed securities	2,650		2,739
Commercial mortgage backed securities	3,896		4,052
Asset backed securities	1,064		1,103
Total	$	20,153	$	22,031

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.


The following is a summary of net investment income:	Three Months Ended March 31,
	2021		2020
	(in millions)
Fixed maturities	$	189	$	201
Mortgage loans	28		29
Other investments	35		(1)
	252		229
Less: investment expenses	5		6
Total	$	247	$	223

6. Financing Receivables

Financing receivables are comprised of commercial loans, consumer loans, and the deposit receivable.

Allowance for Credit Losses

The following tables present a rollforward of the allowance for credit losses for the three months ended March 31:


	Commercial Loans
	(in millions)


Balance, January 1, 2021	$	35
Provisions	(2)


Balance, March 31, 2021	$	33

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	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	9


Balance, March 31, 2020	$	32

(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.

As of March 31, 2021 and December 31, 2020, accrued interest on commercial loans was $15 million and $14 million, respectively, 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 March 31, 2021 and 2020, the Company purchased $9 million and $41 million, respectively, of syndicated loans, and sold $3 million and $7 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 $2 million and $7 million as of March 31, 2021 and December 31, 2020, 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. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates when credit risk changes. Commercial mortgage loans which management has assigned its highest risk rating were less than 1% of total commercial mortgage loans as of both March 31, 2021 and December 31, 2020. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. Total commercial mortgage loan modifications through March 31, 2021 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 March 31, 2021, there was 1 loan remaining that was modified due to COVID-19 with interest only payments with an unpaid balance of $10 million. All other loans returned to their normal payment schedules. Total commercial mortgage loans past due were NaN as of both March 31, 2021 and December 31, 2020.

The tables below present the amortized cost basis of commercial mortgage loans by year of origination and loan-to-value ratio:


	March 31, 2021
Loan-to-Value Ratio	2021		2020		2019		2018		2017		Prior		Total
	(in millions)
> 100%	$	0	$	0	$	0	$	2	$	0	$	15	$	17
80% - 100%	0		15		19		8		3		22		67
60% - 80%	13		77		148		27		33		174		472
40% - 60%	7		27		44		83		132		661		954
< 40%	0		7		28		58		95		871		1,059
Total	$	20	$	126	$	239	$	178	$	263	$	1,743	$	2,569

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	December 31, 2020
Loan-to-Value Ratio	2020		2019		2018		2017		2016		Prior		Total
	(in millions)
> 100%	$	—	$	—	$	2	$	—	$	—	$	10	$	12
80% - 100%	15		16		9		3		7		15		65
60% - 80%	85		152		27		29		46		141		480
40% - 60%	20		50		74		147		111		543		945
< 40%	7		22		69		88		58		856		1,100
Total	$	127	$	240	$	181	$	267	$	222	$	1,565	$	2,602

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
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
	(in millions)
South Atlantic	$	658	$	663	26	%	25	%
Pacific	774		784		30		30
Mountain	228		234		9		10
West North Central	189		192		7		7
East North Central	247		250		10		10
Middle Atlantic	163		165		6		6
West South Central	154		156		6		6
New England	46		47		2		2
East South Central	110		111		4		4
	2,569		2,602		100	%	100	%
Less: allowance for loan losses	28		28
Total	$	2,541	$	2,574

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


	Loans				Percentage
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
	(in millions)
Retail	$	834	$	843	33	%	32	%
Office	346		358		13		14
Apartments	678		680		26		26
Industrial	395		401		15		16
Mixed use	75		76		3		3
Hotel	49		49		2		2
Other	192		195		8		7
	2,569		2,602		100	%	100	%
Less: allowance for loan losses	28		28
Total	$	2,541	$	2,574

Syndicated Loans

The recorded investment in syndicated loans as of March 31, 2021 and December 31, 2020 was $420 million and $446 million, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. Total syndicated loans past due were NaN and $2 million as of March 31, 2021 and December 31, 2020, 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The tables below present the amortized cost basis of syndicated loans by origination year and internal risk rating:


	March 31, 2021
Internal Risk Rating	2021		2020		2019		2018		2017		Prior		Total
	(in millions)
Risk 5	$	—	$	—	$	—	$	—	$	—	$	2	$	2
Risk 4	—		—		—		1		5		5		11
Risk 3	—		2		6		10		13		27		58
Risk 2	4		21		38		41		51		34		189
Risk 1	3		14		22		35		41		45		160
Total	$	7	$	37	$	66	$	87	$	110	$	113	$	420


	December 31, 2020
Internal Risk Rating	2020		2019		2018		2017		2016		Prior		Total
	(in millions)
Risk 5	$	—	$	—	$	—	$	—	$	—	$	2	$	2
Risk 4	—		—		3		7		—		7		17
Risk 3	—		7		6		19		10		18		60
Risk 2	23		42		45		51		10		32		203
Risk 1	14		25		35		43		17		30		164
Total	$	37	$	74	$	89	$	120	$	37	$	89	$	446

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 0 allowance for credit losses.

Deposit Receivable

The deposit receivable was $1.4 billion as of both March 31, 2021 and December 31, 2020. 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, there was 0 allowance for credit losses for the deposit receivable as of both March 31, 2021 and December 31, 2020.

Troubled Debt Restructurings

There were 0 loans accounted for as a troubled debt restructuring by the Company during each of the three months ended March 31, 2021 and 2020. There are 0 commitments to lend additional funds to borrowers whose loans have been restructured.

7. Deferred Acquisition Costs and Deferred Sales Inducement Costs

The balances of and changes in DAC were as follows:


	2021		2020
	(in millions)
Balance at January 1	$	2,508	$	2,673
Capitalization of acquisition costs	62		57
Amortization	(2)		(503)

Impact of change in net unrealized (gains) losses on securities	93		118
Balance at March 31	$	2,661	$	2,345

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


	2021		2020
	(in millions)
Balance at January 1	$	187	$	216

Amortization	(3)		(36)

Impact of change in net unrealized (gains) losses on securities	4		15
Balance at March 31	$	188	$	195

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

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


	March 31, 2021		December 31, 2020
	(in millions)
Policyholder account balances
Fixed annuities (1)	$	8,401	$	8,531
Variable annuity fixed sub-accounts	5,075		5,104
Universal life (“UL”)/variable universal life (“VUL”) insurance	3,110		3,122
Indexed universal life (“IUL”) insurance	2,336		2,269
Structured variable annuities	2,027		1,371
Other life insurance	597		605
Total policyholder account balances	21,546		21,002

Future policy benefits
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)	1,479		3,049
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) (2)	(22)		1
Other annuity liabilities	173		211
Fixed annuity life contingent liabilities	1,346		1,370
Life and disability income insurance	1,179		1,187
Long term care insurance	5,558		5,722
UL/VUL and other life insurance additional liabilities	1,244		1,259
Total future policy benefits	10,957		12,799
Policy claims and other policyholders’ funds	193		185
Total policyholder account balances, future policy benefits and claims	$	32,696	$	33,986

(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 March 31, 2021 reported as a contra liability.

Separate account liabilities consisted of the following:


	March 31, 2021		December 31, 2020
	(in millions)
Variable annuity	$	79,862	$	79,299
VUL insurance	8,539		8,226
Other insurance	32		31
Total	$	88,433	$	87,556

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9. 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)	March 31, 2021							December 31, 2020
	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	$	67,317	$	65,396	$	7	68	$	66,874	$	64,932	$	5	68
Five/six-year reset	8,211		5,486		7		68	8,116		5,386		6		68
One-year ratchet	6,093		5,765		13		71	6,094		5,763		8		71
Five-year ratchet	1,437		1,383		1		67	1,436		1,381		0		67
Other	1,267		1,249		45		74	1,261		1,243		45		73
Total — GMDB	$	84,325	$	79,279	$	73	68	$	83,781	$	78,705	$	64	68

GGU death benefit	$	1,196	$	1,139	$	168	72	$	1,183	$	1,126	$	162	71

GMIB	$	187	$	174	$	5	71	$	187	$	173	$	6	71

GMWB:
GMWB	$	1,949	$	1,944	$	1	74	$	1,972	$	1,967	$	1	74
GMWB for life	50,389		50,316		209		69	50,142		50,057		185		69
Total — GMWB	$	52,338	$	52,260	$	210	69	$	52,114	$	52,024	$	186	69

GMAB	$	2,187	$	2,186	$	0	61	$	2,291	$	2,291	$	0	61

(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:


	March 31, 2021			December 31, 2020
	Net Amount at Risk		Weighted Average Attained Age	Net Amount at Risk		Weighted Average Attained Age
	(in millions, except age)
UL secondary guarantees	$	6,573	67	$	6,587	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, 2020	$	16	$	7	$	1,462	$	(39)	$	758
Incurred claims	5		2		2,437		127		32
Paid claims	(2)		—		—		—		(12)
Balance at March 31, 2020	$	19	$	9	$	3,899	$	88	$	778

Balance at January 1, 2021	$	24	$	6	$	3,049	$	1	$	916
Incurred claims	3		0		(1,570)		(23)		32
Paid claims	(1)		—		—		—		(8)
Balance at March 31, 2021	$	26	$	6	$	1,479	$	(22)	$	940

(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:


	March 31, 2021		December 31, 2020
	(in millions)
Mutual funds:
Equity	$	46,823	$	45,947
Bond	25,614		26,073
Other	7,060		6,911
Total mutual funds	$	79,497	$	78,931

10. Debt

Long-Term Debt

The Company has a $500 million unsecured 3.5% surplus note due December 31, 2050 to Ameriprise Financial. The outstanding balance was $500 million as of both March 31, 2021 and December 31, 2020 and is recorded in Long-term debt on the Consolidated Balance Sheets.

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 as of both March 31, 2021 and December 31, 2020. The amount of the Company’s liability including accrued interest was $200 million as of both March 31, 2021 and December 31, 2020. The remaining maturity of outstanding FHLB advances was less than two months as of March 31, 2021 and less than three months as of December 31, 2020. The weighted average annualized interest rate on the FHLB advances held as of March 31, 2021 and December 31, 2020 was 0.3% and 0.4%, respectively.

11. Fair Values of Assets and Liabilities

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.

Valuation Hierarchy

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 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:


	March 31, 2021
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities:
Corporate debt securities	$	—	$	11,821	$	807	$	12,628
Residential mortgage backed securities	—		2,730		9		2,739
Commercial mortgage backed securities	—		4,052		—		4,052
State and municipal obligations	—		1,264		—		1,264
Asset backed securities	—		724		379		1,103
Foreign government bonds and obligations	—		245		—		245

Total Available-for-Sale securities	—		20,836		1,195		22,031
Cash equivalents	1,504		692		—		2,196
Other assets:
Interest rate derivative contracts	—		1,003		—		1,003
Equity derivative contracts	333		3,543		—		3,876
Foreign exchange derivative contracts	1		17		—		18
Credit derivative contracts	—		26		—		26
Total other assets	334		4,589		—		4,923
Separate account assets at net asset value (“NAV”)							88,433		(1)
Total assets at fair value	$	1,838	$	26,117	$	1,195	$	117,583


Liabilities
Policyholder account balances, future policy benefits and claims:
Fixed deferred indexed annuity embedded derivatives	$	—	$	4	$	52	$	56
IUL embedded derivatives	—		—		949		949
GMWB and GMAB embedded derivatives	—		—		715		715		(2)
Structured variable annuity embedded derivatives	—		—		124		124
Total policyholder account balances, future policy benefits and claims	—		4		1,840		1,844		(3)
Other liabilities:
Interest rate derivative contracts	1		485		—		486
Equity derivative contracts	149		3,132		—		3,281
Foreign exchange derivative contracts	1		—		—		1

Total other liabilities	151		3,617		—		3,768
Total liabilities at fair value	$	151	$	3,621	$	1,840	$	5,612

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities:
Corporate debt securities	$	—	$	12,107	$	766	$	12,873
Residential mortgage backed securities	—		2,993		9		3,002
Commercial mortgage backed securities	—		4,166		—		4,166
State and municipal obligations	—		1,344		—		1,344
Asset backed securities	—		817		395		1,212
Foreign government bonds and obligations	—		257		—		257
U.S. government and agency obligations	1		—		—		1
Total Available-for-Sale securities	1		21,684		1,170		22,855
Cash equivalents	2,419		713		—		3,132
Other assets:
Interest rate derivative contracts	1		1,754		—		1,755
Equity derivative contracts	406		3,578		—		3,984
Foreign exchange derivative contracts	1		17		—		18
Credit derivative contracts	—		1		—		1
Total other assets	408		5,350		—		5,758
Separate account assets at NAV							87,556		(1)
Total assets at fair value	$	2,828	$	27,747	$	1,170	$	119,301


Liabilities
Policyholder account balances, future policy benefits and claims:
Fixed deferred indexed annuity embedded derivatives	$	—	$	3	$	49	$	52
IUL embedded derivatives	—		—		935		935
GMWB and GMAB embedded derivatives	—		—		2,316		2,316		(4)
Structured variable annuity embedded derivatives	—		—		70		70
Total policyholder account balances, future policy benefits and claims	—		3		3,370		3,373		(5)
Other liabilities:
Interest rate derivative contracts	—		734		—		734
Equity derivative contracts	182		3,329		—		3,511
Foreign exchange derivative contracts	2		—		—		2
Credit derivative contracts	—		1		—		1
Total other liabilities	184		4,064		—		4,248
Total liabilities at fair value	$	184	$	4,067	$	3,370	$	7,621

(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 $980 million of individual contracts in a liability position and $265 million of individual contracts in an asset position (recorded as a contra liability) as of March 31, 2021.

(3) The Company’s adjustment for nonperformance risk resulted in a $500 million cumulative decrease to the embedded derivatives as of March 31, 2021.

(4) The fair value of the GMWB and GMAB embedded derivatives included $2.4 billion of individual contracts in a liability position and $67 million of individual contracts in an asset position (recorded as a contra liability) as of December 31, 2020.

(5) The Company’s adjustment for nonperformance risk resulted in a $727 million cumulative decrease to the embedded derivatives as of December 31, 2020.

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, January 1, 2021	$	766	$	9	$	395	$	1,170
Total gains (losses) included in:

Other comprehensive income (loss)	(5)		0		3		(2)
Purchases	46		—		—		46
Settlements	—		—		(19)		(19)


Balance, March 31, 2021	$	807	$	9	$	379	$	1,195


Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at March 31, 2021	$	(5)	$	—	$	3	$	(2)


	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, 2021	$	49		$	935		$	2,316		$	70		$	3,370
Total (gains) losses included in:
Net income	4		(1)	29		(1)	(1,729)		(2)	75		(2)	(1,621)
Issues	—			5			90			(15)			80
Settlements	(1)			(20)			38			(6)			11
Balance, March 31, 2021	$	52		$	949		$	715		$	124		$	1,840

Changes in unrealized (gains) losses in net income relating to liabilities held at March 31, 2021	$	—		$	29	(1)	$	(1,705)	(2)	$	—		$	(1,676)


	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:

Other comprehensive income (loss)	(6)		0		(89)		(95)
Purchases	6		—		—		6
Settlements	(14)		—		—		(14)


Balance, March 31, 2020	$	721	$	17	$	300	$	1,038

Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at March 31, 2020	$	(6)	$	—	$	(89)	$	(95)

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			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	(12)		(1)	(145)		(1)	2,420		(2)	(3)		(2)	2,260
Issues	2			8			88			(6)			92
Settlements	—			(19)			5			—			(14)
Balance, March 31, 2020	$	33		$	725		$	3,276		$	(9)		$	4,025

Changes in unrealized (gains) losses in net income relating to liabilities held at March 31, 2020	$	—		$	(145)	(1)	$	2,423	(2)	$	—		$	2,278

(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.

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(167) million and $1.8 billion, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the three months ended March 31, 2021 and 2020, respectively.

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

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:


	March 31, 2021
	Fair Value		Valuation Technique	Unobservable Input	Range			Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	806	Discounted cash flow	Yield/spread to U.S. Treasuries (1)	0.9%	–	2.9%	1.3%
Asset backed securities	$	379	Discounted cash flow	Annual default rate	5.6%			5.6%
				Loss severity	25.0%			25.0%
				Yield/spread to swap rates (2)	175 bps	–	300 bps	183 bps
IUL embedded derivatives	$	949	Discounted cash flow	Nonperformance risk (3)	65 bps			65 bps
Fixed deferred indexed annuity embedded derivatives	$	52	Discounted cash flow	Surrender rate (4)	0.0%	–	50.0%	1.6%
				Nonperformance risk (3)	65 bps			65 bps
GMWB and GMAB embedded derivatives	$	715	Discounted cash flow	Utilization of guaranteed withdrawals (5) (6)	0.0%	–	48.0%	10.6%
				Surrender rate (4)	0.1%	–	73.5%	3.9%
				Market volatility (7) (8)	4.2%	–	17.0%	10.8%
				Nonperformance risk (3)	65 bps			65 bps
Structured variable annuity embedded derivatives	$	124	Discounted cash flow	Surrender rate (4)	0.8%	–	40.0%	0.9%
				Nonperformance risk (3)	65 bps			65 bps

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


	December 31, 2020
	Fair Value		Valuation Technique	Unobservable Input	Range			Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	766	Discounted cash flow	Yield/spread to U.S. Treasuries (1)	1.0%	–	3.3%	1.5%
Asset backed securities	$	395	Discounted cash flow	Annual default rate	5.3%			5.3%
				Loss severity	25.0%			25.0%
				Yield/spread to swap rates (2)	250 bps	–	400 bps	259 bps
IUL embedded derivatives	$	935	Discounted cash flow	Nonperformance risk (3)	65 bps			65 bps
Fixed deferred indexed annuity embedded derivatives	$	49	Discounted cash flow	Surrender rate (4)	0.0%	–	50.0%	1.2%
				Nonperformance risk (3)	65 bps			65 bps
GMWB and GMAB embedded derivatives	$	2,316	Discounted cash flow	Utilization of guaranteed withdrawals (5) (6)	0.0%	–	48.0%	10.6%
				Surrender rate (4)	0.1%	–	73.5%	3.8%
				Market volatility (7) (8)	4.3%	–	17.1%	11.0%
				Nonperformance risk (3)	65 bps			65 bps
Structured variable annuity embedded derivatives	$	70	Discounted cash flow	Surrender rate (4)	0.8%	–	40.0%	0.9%
				Nonperformance risk (3)	65 bps			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.

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. 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 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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

immaterial as of both March 31, 2021 and December 31, 2020. See Note 12 and Note 13 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 expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, 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 March 31, 2021 and December 31, 2020. See Note 12 and Note 13 for further information on the credit risk of derivative instruments and related collateral.

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 $97 million and $101 million as of March 31, 2021 and December 31, 2020, respectively, and is classified as Level 3 in the fair value hierarchy.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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:


	March 31, 2021
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,541	$	—	$	—	$	2,627	$	2,627
Policy loans	838		—		838		—		838
Other investments	434		—		397		36		433
Other receivables	1,411		—		—		1,648		1,648
Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	10,499	$	—	$	—	$	11,630	$	11,630
Short-term borrowings	200		—		200		—		200
Long-term debt	500		—		449		—		449
Other liabilities	11		—		—		11		11
Separate account liabilities — investment contracts	369		—		369		—		369


	December 31, 2020
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,574	$	—	$	—	$	2,724	$	2,724
Policy loans	846		—		846		—		846
Other investments	457		—		417		40		457
Other receivables	1,430		—		—		1,732		1,732
Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	9,990	$	—	$	—	$	11,686	$	11,686
Short-term borrowings	200		—		200		—		200
Long-term debt	500		—		509		—		509
Other liabilities	12		—		—		11		11
Separate account liabilities — investment contracts	351		—		351		—		351

Other investments include syndicated loans and the Company’s membership in the FHLB. Other receivables include the deposit receivable. See Note 6 for additional information on mortgage loans, policy loans, syndicated loans and the deposit receivable.

Policyholder account balances, future policy benefits and claims includes fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed and structured variable annuity host contracts, and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 8 for additional information on these liabilities. Short-term borrowings include FHLB borrowings. Long-term debt includes the surplus note with Ameriprise Financial. See Note 10 for further information on short-term borrowings and long-term debt. 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.

12. 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:


	March 31, 2021
	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	$	4,638	$	—	$	4,638	$	(3,305)	$	(1,073)	$	(252)	$	8
OTC cleared	39		—		39		(39)		—		—		0
Exchange-traded	246		—		246		(107)		(133)		—		6
Total derivatives	$	4,923	$	—	$	4,923	$	(3,451)	$	(1,206)	$	(252)	$	14


	December 31, 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	$	5,391	$	—	$	5,391	$	(3,801)	$	(1,243)	$	(315)	$	32
OTC cleared	58		—		58		(25)		—		—		33
Exchange-traded	309		—		309		(90)		(165)		—		54
Total derivatives	$	5,758	$	—	$	5,758	$	(3,916)	$	(1,408)	$	(315)	$	119

(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:


	March 31, 2021
	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	$	3,580	$	—	$	3,580	$	(3,305)	$	(3)	$	(258)	$	14
OTC cleared	76		—		76		(39)		—		—		37
Exchange-traded	112		—		112		(108)		—		—		4
Total derivatives	$	3,768	$	—	$	3,768	$	(3,452)	$	(3)	$	(258)	$	55


	December 31, 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	$	4,129	$	—	$	4,129	$	(3,801)	$	(1)	$	(327)	$	0
OTC cleared	25		—		25		(25)		—		—		0
Exchange-traded	94		—		94		(90)		—		—		4
Total derivatives	$	4,248	$	—	$	4,248	$	(3,916)	$	(1)	$	(327)	$	4

(1) Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.

In the tables above, the 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 13 for additional disclosures related to the Company’s derivative instruments.

13. Derivatives and Hedging Activities

Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations.

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 12 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral.

Generally, 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:


	March 31, 2021						December 31, 2020
	Notional		Gross Fair Value				Notional		Gross Fair Value
			Assets (1)		Liabilities (2)(3)				Assets (1)		Liabilities (2)(3)
	(in millions)
Derivatives not designated as hedging instruments
Interest rate contracts	$	79,798	$	1,003	$	486	$	77,925	$	1,755	$	734
Equity contracts	50,327		3,876		3,281		55,993		3,984		3,511
Credit contracts	2,064		26		—		2,269		1		1
Foreign exchange contracts	2,580		18		1		3,124		18		2
Total non-designated hedges	134,769		4,923		3,768		139,311		5,758		4,248

Embedded derivatives
GMWB and GMAB (4)	N/A		—		715		N/A		—		2,316
IUL	N/A		—		949		N/A		—		935
Fixed deferred indexed annuities	N/A		—		56		N/A		—		52
Structured variable annuities	N/A		—		124		N/A		—		70
Total embedded derivatives	N/A		—		1,844		N/A		—		3,373
Total derivatives	$	134,769	$	4,923	$	5,612	$	139,311	$	5,758	$	7,621

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 Company’s derivative liabilities after considering the effects of master netting arrangements, cash collateral held by the same counterparty and the fair value of net embedded derivatives was $2.2 billion and $3.7 billion as of March 31, 2021 and December 31, 2020, respectively. See Note 12 for additional information related to master netting arrangements and cash collateral.

(4) The fair value of the GMWB and GMAB embedded derivatives as of March 31, 2021 included $980 million of individual contracts in a liability position and $265 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2020 included $2.4 billion of individual contracts in a liability position and $67 million of individual contracts in an asset position.

See Note 11 for additional information regarding the Company’s fair value measurement of derivative instruments.

As of March 31, 2021 and December 31, 2020, investment securities with a fair value of $292 million and $325 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $292 million and $325 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both March 31, 2021 and December 31, 2020, the

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Company had sold, pledged, or rehypothecated NaN of these securities. In addition, as of both March 31, 2021 and December 31, 2020, 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:


	Net Investment Income		Interest Credited to Fixed Accounts		Benefits, Claims, Losses and Settlement Expenses
			(in millions)
Three Months Ended March 31, 2021
Interest rate contracts	$	—	$	—	$	(1,825)
Equity contracts	1		25		(310)
Credit contracts	—		—		69
Foreign exchange contracts	—		—		11

GMWB and GMAB embedded derivatives	—		—		1,600
IUL embedded derivatives	—		(9)		—
Fixed deferred indexed annuity embedded derivatives	—		(5)		—
Structured variable annuity embedded derivatives	—		—		(75)
Total gain (loss)	$	1	$	11	$	(530)


	Interest Credited to Fixed Accounts		Benefits, Claims, Losses and Settlement Expenses
	(in millions)
Three Months Ended March 31, 2020
Interest rate contracts	$	—	$	2,515
Equity contracts	(112)		1,993
Credit contracts	—		(36)
Foreign exchange contracts	—		44

GMWB and GMAB embedded derivatives	—		(2,513)
IUL embedded derivatives	164		—
Fixed deferred indexed annuity embedded derivatives	12		—
Structured variable annuity embedded derivatives	—		3
Total gain (loss)	$	64	$	2,006

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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 March 31, 2021:


	Premiums Payable		Premiums Receivable
	(in millions)
2021 (1)	$	112	$	85
2022	205		205
2023	51		42
2024	138		25
2025	125		22
2026 - 2028	262		88
Total	$	893	$	467

(1) 2021 amounts represent the amounts payable and receivable for the period from April 1, 2021 to December 31, 2021.

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, structured variable 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, structured variable annuity and IUL products will positively or negatively impact earnings over the life of these products. The equity component of fixed deferred indexed annuity, structured variable 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 three months ended March 31, 2021 and 2020, the Company held 0 derivatives that were designated as cash flow hedges. During both the three months ended March 31, 2021 and 2020, 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 12 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 March 31, 2021 and December 31, 2020, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $261 million and $324 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of March 31, 2021 and December 31, 2020 was $258 million and $324 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of March 31, 2021 and December 31, 2020 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 $3 million and NaN on March 31, 2021 and December 31, 2020, respectively.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

14. Shareholder’s Equity

The following table provides the amounts related to each component of OCI:


	Three Months Ended March 31,
	2021						2020
	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)	$	(678)	$	142	$	(536)	$	(1,002)	$	212	$	(790)
Reclassification of net (gains) losses on securities included in net income (2)	(49)		11		(38)		(8)		2		(6)
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables	299		(63)		236		508		(107)		401
Net unrealized gains (losses) on securities	(428)		90		(338)		(502)		107		(395)
Total other comprehensive income (loss)	$	(428)	$	90	$	(338)	$	(502)	$	107	$	(395)

(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 fair 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.

The following table presents the changes in the balances of each component of AOCI, net of tax:


	Net Unrealized Gains (Losses) on Securities		Other		Total
	(in millions)
Balance, January 1, 2021	$	921	$	(1)	$	920
OCI before reclassifications	(300)		0		(300)
Amounts reclassified from AOCI	(38)		0		(38)
Total OCI	(338)		0		(338)
Balance, March 31, 2021	$	583	$	(1)	$	582

Balance, January 1, 2020	$	575	$	(1)	$	574
OCI before reclassifications	(389)		0		(389)
Amounts reclassified from AOCI	(6)		0		(6)
Total OCI	(395)		0		(395)
Balance, March 31, 2020	$	180	$	(1)	$	179

15. Income Taxes

The Company’s effective tax rate was 9.1% and 8.5% for the three months ended March 31, 2021 and 2020, respectively.

The effective tax rate for the three months ended March 31, 2021 is lower than the statutory rate as a result of tax preferred items including low income housing tax credits, foreign tax credits and the dividends received deduction.

The effective tax rate for the three months ended March 31, 2020 was lower than the statutory rate primarily due to previous tax law changes that resulted in a $160 million tax benefit related to the forecasted utilization of a 2020 net operating loss (“NOL”) that was to be applied to previous tax filings, low income housing tax credits, and other tax preferred items. The Company determined the NOL benefit was attributable to current year losses; accordingly, the benefit was recorded in the annual effective tax rate.

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $9 million, net of federal benefit, which will expire beginning December 31, 2021.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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. 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 March 31, 2021 and December 31, 2020.

As of both March 31, 2021 and December 31, 2020, the Company had $38 million of gross unrecognized tax benefits. If recognized, approximately $20 million, net of federal tax benefits, of unrecognized tax benefits as of both March 31, 2021 and December 31, 2020 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 may decrease by approximately $33 million in the next 12 months primarily due to Internal Revenue Service (“IRS”) settlements.

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 ended March 31, 2021 and 2020. As of both March 31, 2021 and December 31, 2020, 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 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 2019.

16. 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 March 31, 2021 and December 31, 2020, the estimated liability was $12 million. As of both March 31, 2021 and December 31, 2020, 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, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021 (“2020 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 has presented ongoing significant economic and societal disruption and market unpredictability, which has affected the Company’s business and operating environment driven by a low interest rate environment and volatility and changes in the equity markets and the potential associated implications to client behavior. In early 2020, 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 are thoughtfully undergoing a phased reopening of its office locations while complying with applicable health agencies’ guidelines and governmental orders. Though there are indications that the effects of the virus are lessening in some areas, COVID-19 continues to deeply impact other areas and has been occurring in multiple waves, so there are still no reliable estimates of how long the implications from the pandemic will last, how many people are likely to be affected by it, or its impact on the overall economy. Given the impact of the pandemic, financial results may not be comparable to previous years and the results presented in this report may not necessarily be indicative of future operating results. For further information regarding the impact of the COVID-19 pandemic, and any potentially material effects, see Part 1 - Item 1A “Risk Factors” in the Company’s 2020 10-K.

The Company consolidates certain variable interest entities for which it provides investment management services. These entities are defined as consolidated investment entities (“CIEs”). While the consolidation of the CIEs impacts the Company’s balance sheet and income statement, the exposure to these entities is unchanged and there is no impact to the underlying business results. For further information on CIEs, see Note 4 to the Consolidated Financial Statements. Changes in the fair value of assets and liabilities related to the CIEs, primarily syndicated loans and debt, are reflected in net investment income.

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 2020 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 2 to the Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

Consolidated Results of Operations for the Three Months Ended March 31, 2021 and 2020

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


	Three Months Ended March 31,				Change
	2021		2020
	(in millions)
Revenues
Premiums	$	78	$	93	$	(15)	(16)	%
Net investment income	247		223		24		11
Policy and contract charges	547		551		(4)		(1)
Other revenues	128		119		9		8
Net realized investment gains (losses)	48		(17)		65		NM
Total revenues	1,048		969		79		8

Benefits and expenses
Benefits, claims, losses and settlement expenses	652		(1,748)		2,400		NM
Interest credited to fixed accounts	159		91		68		75
Amortization of deferred acquisition costs	2		503		(501)		NM
Interest and debt expense	21		—		21		—
Other insurance and operating expenses	194		163		31		19
Total benefits and expenses	1,028		(991)		2,019		NM
Pretax income	20		1,960		(1,940)		(99)
Income tax provision	2		166		(164)		(99)
Net income	$	18	$	1,794	$	(1,776)	(99)
NM Not Meaningful.

Overall

Net income decreased $1.8 billion, or 99%, to $18 million for the three months ended March 31, 2021 compared to $1.8 billion for the prior year period. Pretax income decreased $1.9 billion, or 99%, to $20 million for the three months ended March 31, 2021 compared to $2.0 billion for the prior year period, primarily from market dislocation related to the COVID-19 pandemic.

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

•The market impact on non-traditional long-duration products (including variable and fixed deferred annuity contracts and universal life (“UL”) insurance contracts), net of hedges and the related deferred sales inducement costs (“DSIC”) and deferred acquisition costs (“DAC”) amortization, unearned revenue amortization and the reinsurance accrual was an expense of $396 million for the three months ended March 31, 2021 compared to a benefit of $1.8 billion 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”) was a benefit of $56 million for the three months ended March 31, 2021 compared to an expense of $61 million for the prior year period.

•Net realized investment gains of $48 million for the three months ended March 31, 2021 compared to net realized investment losses of $17 million for the prior year period.

The Company’s variable annuity account balances increased 24% to $87.0 billion as of March 31, 2021 compared to the prior year period due to market appreciation, partially offset by net outflows of $1.9 billion. Variable annuity sales increased 33% compared to the prior year period reflecting an increase in sales of structured variable annuities launched in 2020, partially offset by lower sales of variable annuities with living benefit guarantees. Sales of variable annuities without living benefit guarantees comprised 64% of total variable annuity sales for the three months ended March 31, 2021 compared to 31% for the prior year period. 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 $7.9 billion as of March 31, 2021 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.

RIVERSOURCE LIFE INSURANCE COMPANY

Revenues

Total revenues increased $79 million, or 8%, to $1.0 billion for the three months ended March 31, 2021 compared to $1.0 billion for the prior year period.

Premiums decreased $15 million, or 16%, to $78 million for the three months ended March 31, 2021 compared to $93 million for the prior year period reflecting lower sales of immediate annuities with a life contingent feature.

Net investment income increased $24 million, or 11%, to $247 million for the three months ended March 31, 2021 compared to $223 million for the prior year period reflecting the consolidation of CIEs and higher average invested assets, partially offset by a decrease in investment income on fixed maturities due to lower yields as a result of lower interest rates.

Net realized investment gains were $48 million for the three months ended March 31, 2021 compared to net realized investment losses of $17 million for the prior year period. The three months ended March 31, 2021 included net realized gains of $49 million on Available-for-Sale securities due to sales, calls and tenders. For the three months ended March 31, 2020, net realized gains of $4 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 credit losses on corporate debt securities and an increase of $9 million in the provision for commercial mortgage loans and syndicated loans.

Benefits and Expenses

Total benefits and expenses increased $2.0 billion to $1.0 billion for the three months ended March 31, 2021 compared to a benefit of $1.0 billion for the prior year period.

Benefits, claims, losses and settlement expenses increased $2.4 billion to an expense of $652 million for the three months ended March 31, 2021 compared to a benefit of $1.7 billion for the prior year period primarily reflecting the following items:

•A $1.8 billion increase in expense primarily reflecting the impact of year-over-year changes in the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The unfavorable impact of $225 million for the three months ended March 31, 2021 was driven by changes in the undiscounted embedded derivative liability compared to a favorable impact of $1.6 billion for the prior year period primarily as a result of the nonperformance credit spread widening by 145 basis points due to the market dislocation related to the COVID-19 pandemic. As the undiscounted 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. Additionally, as the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease.

•A $727 million increase 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 increase was the result of an unfavorable $6.6 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, partially offset by a favorable $5.8 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 an expense for the three months ended March 31, 2021 compared to a benefit for 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 three months ended March 31, 2021 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 lower expense for the three months ended March 31, 2021 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 benefit for the three months ended March 31, 2021 compared to a net expense for the prior year period.

•The mean reversion related impact was a benefit of $34 million for the three months ended March 31, 2021 compared to an expense of $24 million for the prior year period.

•A $13 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 $68 million, or 75%, to $159 million for the three months ended March 31, 2021 compared to $91 million for the prior year period primarily reflecting the following items:

•A $235 million increase in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The unfavorable impact of the nonperformance credit spread was $1 million for the three months ended March 31, 2021 compared to a favorable impact of $234 million for the prior year period.

RIVERSOURCE LIFE INSURANCE COMPANY

•A $168 million decrease in expense from other market impacts on IUL benefits, net of hedges, which was a benefit of $2 million for the three months ended March 31, 2021 compared to an expense of $166 million for the prior year period. The decrease in expense was primarily due to an increase in the IUL embedded derivative in the prior year period, which reflected higher option costs due to lower discount rates.

Amortization of DAC decreased $501 million to $2 million for the three months ended March 31, 2021 compared to $503 million for the prior year period primarily reflecting the following items:

•The DAC offset to the market impact on non-traditional long-duration products was a benefit of $46 million for the three months ended March 31, 2021 compared to an expense of $416 million for the prior year period.

•The mean reversion related impact was a benefit of $22 million for the three months ended March 31, 2021 compared to an expense of $36 million for the prior year period.

Interest and debt expense increased $21 million to $21 million for the three months ended March 31, 2021 compared to nil for the prior year period reflecting the consolidation of CIEs and the issuance of a surplus note. On December 23, 2020, the Company issued a $500 million unsecured 3.5% surplus note to Ameriprise Financial.

Other insurance and operating expenses increased $31 million, or 19%, to $194 million for the three months ended March 31, 2021 compared to $163 million for the prior year period primarily reflecting higher expenses from the consolidation of CIEs and higher distribution expenses.

Income Taxes

The Company’s effective tax rate was 9.1% for the three months ended March 31, 2021 compared to 8.5% for the prior year period. The increase in the effective tax rate for the quarter ended March 31, 2021 compared to the prior year period is primarily the result of a $160 million tax benefit in the prior year period associated with the forecasted utilization of a 2020 net operating loss (“NOL”) that was not ultimately realized. See Note 15 to the Consolidated Financial Statements for additional discussion on income taxes.

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 March 31, 2023 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $2.4 billion and 3.6%, respectively, as of March 31, 2021. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $2.7 billion and had a weighted average yield of 2.3% as of March 31, 2021. 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 three months ended March 31, 2021 was approximately 2.2%.

RIVERSOURCE LIFE INSURANCE COMPANY

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.

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 March 31, 2021:


Equity Price Decline 10%	Equity Price Exposure to Pretax Income
	Before Hedge Impact		Hedge Impact		Net Impact
	(in millions)
Asset-based fees and expenses	$	(75)	$	—	$	(75)
DAC and DSIC amortization (1) (2)	(40)		—		(40)
Variable annuities:
GMDB and GMIB (2)	(10)		—		(10)
GMWB (2)	(291)		256		(35)
GMAB	(17)		17		—
Structured variable annuities	160		(133)		27
DAC and DSIC amortization (3)	N/A		N/A		5
Total variable annuities	(158)		140		(13)
Macro hedge program (4)	—		219		219
Fixed deferred indexed annuities	6		(4)		2
IUL insurance	45		(42)		3
Total	$	(222)	$	313	$	96

RIVERSOURCE LIFE INSURANCE COMPANY


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	1,192		(1,477)		(285)
GMAB	19		(25)		(6)
Structured variable annuities	(12)		49		37
DAC and DSIC amortization (3)	N/A		N/A		42
Total variable annuities	1,199		(1,453)		(212)
Macro hedge program (4)	—		(4)		(4)
Fixed deferred indexed annuities	(1)		—		(1)
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products	51		—		51
IUL insurance	17		1		18
Total	$	1,250	$	(1,456)	$	(164)

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 $157 million related to a 10% equity price decline and an estimated negative net impact to pretax income of $253 million related to a 100 basis point increase in interest rates as of December 31, 2020. The change in interest rate exposure as of March 31, 2021 compared to December 31, 2020 was driven by variable annuity riders, specifically GMWB, primarily due to changes in market rates.

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 11 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, fixed deferred indexed annuities, structured variable 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,

RIVERSOURCE LIFE INSURANCE COMPANY

fixed deferred indexed annuities, structured variable 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 March 31, 2021. 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 $334 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 21%), based on March 31, 2021 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 $1.6 billion.

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 March 31, 2021 and December 31, 2020, the Company had estimated maximum borrowing capacity of $5.2 billion and $5.7 billion, respectively, under the FHLB facility, of which $200 million was outstanding as of both March 31, 2021 and December 31, 2020 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.

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:


	Three Months Ended March 31,
	2021		2020
	(in millions)
Paid to Ameriprise Financial	$	250	$	250

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.

RIVERSOURCE LIFE INSURANCE COMPANY

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)
	March 31, 2021		December 31, 2020		December 31, 2020
	(in millions)
RiverSource Life Insurance Company	$	4,522	$	5,021	$	993
RiverSource Life Insurance Co. of NY	240		323		42

(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. The regulatory capital requirement is only required to be calculated annually.

Contractual Commitments

There have been no material changes to the Company’s contractual obligations disclosed in the Company’s 2020 10-K.

Forward-Looking Statements

This report contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include:

•statements of the Company’s plans, intentions, expectations, objectives, or goals, including those related to the introduction, cessation, terms or pricing of new or existing products and services and the consolidated tax rate;

•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 COVID-19 pandemic and the related economic, client, governmental and healthcare system responses;

•market fluctuations and general economic and political factors, including volatility in the U.S. and global market conditions, client behavior and volatility in the markets for the Company’s products;

•changes in interest rates and periods of low interest rates;

•adverse capital and credit market conditions or any downgrade in the Company’s credit ratings;

•effects of competition and the economics of changes in the Company’s product revenue mix and distribution channels;

•declines in the Company’s investment management performance;

•the Company’s and its affiliates’ ability to compete in attracting and retaining talent, including AFS attracting and retaining financial advisors;

•impairment, negative performance or default by financial institutions or other counterparties;

•poor performance of the Company’s variable products;

•changes in valuation of securities and investments included in the Company’s assets;

•effects of the elimination of LIBOR on, and value of, securities and other assets and liabilities tied to LIBOR;

•the determination of the amount of allowances taken on loans and investments;

•the illiquidity of the Company’s investments;

•failures by other insurers that lead to higher assessments the Company owes to state insurance guaranty funds;

•failures or defaults by counterparties to the Company’s reinsurance arrangements;

RIVERSOURCE LIFE INSURANCE COMPANY

•inadequate reserves for future policy benefits and claims or for future redemptions and maturities;

•deviations from our assumptions regarding morbidity, mortality and persistency affecting the Company’s profitability;

•changes to the Company’s or its affiliates’ reputation arising from employee or agent misconduct or otherwise;

•interruptions or other failures in the Company’s operating systems and networks, including errors or failures caused by third-party service providers, interference or third-party attacks;

•interruptions or other errors in the Company’s telecommunications or data processing systems;

• identification and mitigation of risk exposure in market environments, new products, vendors and other types of risk;

• occurrence of natural or man-made disasters and catastrophes;

• legal and regulatory actions brought against the Company;

• changes to laws and regulations that govern operation of the Company’s business;

• changes in corporate tax laws and regulations and interpretations and determinations of tax laws impacting the Company’s products;

• protection of the Company’s intellectual property and claims the Company infringes the intellectual property of others; and

•changes in and the adoption of new accounting standards.

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 2020 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to Securities and Exchange Commission regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its principal executive officer and chief financial officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, the Company’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

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 March 31, 2021.

Changes in Internal Control over Financial Reporting

The Company implemented a new financial system during the first quarter of fiscal 2021. The new system allows it to maximize financial system functionality, enable a scalable platform and simplify processes for reporting and analytics. As part of the financial system implementation, the Company enhanced and modified certain existing internal controls within the general ledger, accounts payable, fixed assets, and financial reporting functions. The Company will continue to monitor and ensure effectiveness of any changes in internal controls. There have been no other changes to RiverSource Life Insurance Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, RiverSource Life Insurance Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 16 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors provided in Part I, Item 1A of RiverSource Life Insurance Company’s 2020 10-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 March 31, 2021 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2021 and December 31, 2020; (ii) Consolidated Statements of Income for the three months ended March 31, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020; (iv) Consolidated Statements of Equity for the three months ended March 31, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020; 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 March 31, 2021 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:	May 10, 2021	By:	/s/ Brian J. McGrane
			Brian J. McGrane Executive Vice President and Chief Financial Officer

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Riversource Life Insurance 10-Q2021 Q1 Quarterly report

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