ThZeal - The Zeal

Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM			10-Q



	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended			September 30, 2019
OR
	☐	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	☒	No	☐



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	☒	No	☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐	No	☒



Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
	Class	Outstanding at November 12, 2019
	Common Stock (par value $30 per share)	100,000 shares

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

RIVERSOURCE LIFE INSURANCE COMPANY

FORM 10-Q

INDEX



Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets — September 30, 2019 and December 31, 2018					3
Consolidated Statements of Income — Three months and nine months ended September 30, 2019 and 2018					4
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2019 and 2018					4
Consolidated Statements of Shareholder’s Equity — Three months and nine months ended September 30, 2019 and 2018					5
Consolidated Statements of Cash Flows — Nine months ended September 30, 2019 and 2018					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					12
6. Financing Receivables					15
7. Deferred Acquisition Costs and Deferred Sales Inducement Costs					17
8. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities					18
9. Variable Annuity and Insurance Guarantees					18
10. Short-term Borrowings					20
11. Fair Values of Assets and Liabilities					21
12. Offsetting Assets and Liabilities					29
13. Derivatives and Hedging Activities					30
14. Shareholder’s Equity					33
15. Income Taxes					34
16. Contingencies					35
Item 2. Management’s Narrative Analysis					36
Item 4. Controls and Procedures					44

Part II. Other Information					45
Item 1. Legal Proceedings					45
Item 1A. Risk Factors					45
Item 6. Exhibits					45
Signatures					46

RIVERSOURCE LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	September 30, 2019		December 31, 2018
	(in millions, except share amounts)
Assets
Investments:
Available-for-Sale: Fixed maturities, at fair value (amortized cost: 2019, $18,938; 2018, $21,099)	$	20,778	$	21,528
Mortgage loans, at amortized cost (less allowance for loan losses: 2019 and 2018, $16)	2,584		2,547
Policy loans	864		861
Other investments	772		838
Total investments	24,998		25,774
Cash and cash equivalents	2,718		1,085
Reinsurance recoverables	3,162		3,113
Other receivables	1,729		209
Accrued investment income	185		203
Deferred acquisition costs	2,604		2,742
Other assets	5,144		3,554
Separate account assets	79,438		73,393
Total assets	$	119,978	$	110,073

Liabilities and Shareholder’s Equity
Liabilities:
Policyholder account balances, future policy benefits and claims	$	31,143	$	29,407
Short-term borrowings	201		201
Other liabilities	5,329		3,500
Separate account liabilities	79,438		73,393
Total liabilities	116,111		106,501

Shareholder’s equity:
Common stock, $30 par value; 100,000 shares authorized, issued and outstanding	3		3
Additional paid-in capital	2,466		2,466
Retained earnings	792		1,058
Accumulated other comprehensive income, net of tax	606		45
Total shareholder’s equity	3,867		3,572
Total liabilities and shareholder’s equity	$	119,978	$	110,073

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in millions)
Revenues
Premiums	$	96		$	101		$	301		$	296
Net investment income	222			243			712			757
Policy and contract charges	539			576			1,510			1,579
Other revenues	120			104			343			313
Net realized investment gains (losses)	(11		)	4			(1		)	14
Total revenues	966			1,028			2,865			2,959
Benefits and expenses
Benefits, claims, losses and settlement expenses	332			480			1,091			1,134
Interest credited to fixed accounts	127			178			517			499
Amortization of deferred acquisition costs	96			11			141			133
Other insurance and operating expenses	172			168			513			512
Total benefits and expenses	727			837			2,262			2,278
Pretax income (loss)	239			191			603			681
Income tax provision (benefit)	8			(8		)	17			29
Net income	$	231		$	199		$	586		$	652

Supplemental Disclosures:
Total other-than-temporary impairment losses on securities	$	(15	)	$	—		$	(22	)	$	—
Portion of loss recognized in other comprehensive income (before taxes)	—			—			7			—
Net impairment losses recognized in net realized investment gains (losses)	$	(15	)	$	—		$	(15	)	$	—

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
	(in millions)
Net income	$	231	$	199		$	586	$	652
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities	81		(51		)	561		(392		)
Net unrealized gains (losses) on derivatives	—		—			—		1
Total other comprehensive income (loss), net of tax	81		(51		)	561		(391		)
Total comprehensive income	$	312	$	148		$	1,147	$	261

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)



	Common Shares		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	(in millions)
Balances at July 1, 2018	$	3	$	2,466	$	956		$	116		$	3,541
Comprehensive income:
Net income	—		—		199			—			199
Other comprehensive income (loss), net of tax	—		—		—			(51		)	(51		)
Total comprehensive income											148
Cash dividends to Ameriprise Financial, Inc.	—		—		(150		)	—			(150		)
Balances at September 30, 2018	$	3	$	2,466	$	1,005		$	65		$	3,539

Balances at July 1, 2019	$	3	$	2,466	$	861		$	525		$	3,855
Comprehensive income:
Net income	—		—		231			—			231
Other comprehensive income (loss), net of tax	—		—		—			81			81
Total comprehensive income											312
Cash dividends to Ameriprise Financial, Inc.	—		—		(300		)	—			(300		)
Balances at September 30, 2019	$	3	$	2,466	$	792		$	606		$	3,867

Balances at January 1, 2018	$	3	$	2,466	$	903		$	456		$	3,828
Comprehensive income:
Net income	—		—		652			—			652
Other comprehensive income (loss), net of tax	—		—		—			(391		)	(391		)
Total comprehensive income											261
Cash dividends to Ameriprise Financial, Inc.	—		—		(550		)	—			(550		)
Balances at September 30, 2018	$	3	$	2,466	$	1,005		$	65		$	3,539

Balances at January 1, 2019	$	3	$	2,466	$	1,058		$	45		$	3,572
Cumulative effect of adoption of premium amortization on purchased callable debt securities guidance	—		—		(2		)	—			(2		)
Comprehensive income:
Net income	—		—		586			—			586
Other comprehensive income (loss), net of tax	—		—		—			561			561
Total comprehensive income											1,147
Cash dividends to Ameriprise Financial, Inc.	—		—		(850		)	—			(850		)
Balances at September 30, 2019	$	3	$	2,466	$	792		$	606		$	3,867

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended September 30,
	2019			2018
	(in millions)
Cash Flows from Operating Activities
Net income	$	586		$	652
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net	(13		)	31
Deferred income tax (benefit) expense	(219		)	(25		)
Contractholder and policyholder charges, non-cash	(284		)	(274		)
Loss from equity method investments	58			50
Net realized investment (gains) losses	(14		)	(14		)
Other-than-temporary impairments and provision for loan losses	15			—
Changes in operating assets and liabilities:
Deferred acquisition costs	(37		)	(59		)
Policyholder account balances, future policy benefits and claims, net	1,370			(251		)
Derivatives, net of collateral	23			327
Reinsurance recoverables	(55		)	(168		)
Other receivables	22			8
Accrued investment income	10			5
Other, net	171			31
Net cash provided by (used in) operating activities	1,633			313

Cash Flows from Investing Activities
Available-for-Sale securities:
Proceeds from sales	209			40
Maturities, sinking fund payments and calls	1,738			2,102
Purchases	(1,064		)	(2,327		)
Proceeds from sales, maturities and repayments of mortgage loans	171			222
Funding of mortgage loans	(208		)	(143		)
Proceeds from sales and collections of other investments	100			112
Purchase of other investments	(124		)	(168		)
Purchase of equipment and software	(7		)	(6		)
Change in policy loans, net	(3		)	(9		)
Change in reinsurance deposit, net	(274		)	—
Advance on line of credit to Ameriprise Financial, Inc.	—			(65		)
Repayment from Ameriprise Financial, Inc. on line of credit	—			65
Cash received from written options with deferred premiums	72			99
Cash paid for written options with deferred premiums	(125		)	(82		)
Other, net	33			(2		)
Net cash provided by (used in) investing activities	518			(162		)
See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

	Nine Months Ended September 30,
	2019			2018
	(in millions)
Cash Flows from Financing Activities
Policyholder account balances:
Deposits and other additions	$	1,620		$	1,511
Net transfers from (to) separate accounts	(46		)	(89		)
Surrenders and other benefits	(1,320		)	(1,406		)
Proceeds from line of credit with Ameriprise Financial, Inc.	3			10
Payments on line of credit with Ameriprise Financial, Inc.	(3		)	(10		)
Cash received for purchased options with deferred premiums	220			161
Cash paid for purchased options with deferred premiums	(142		)	(165		)
Cash dividends to Ameriprise Financial, Inc.	(850		)	(550		)
Net cash provided by (used in) financing activities	(518		)	(538		)
Net increase (decrease) in cash and cash equivalents	1,633			(387		)
Cash and cash equivalents at beginning of period	1,085			1,062
Cash and cash equivalents at end of period	$	2,718		$	675

Supplemental Disclosures:
Income taxes paid (received), net	$	77		$	93
Interest paid on borrowings	4			3
Non-cash investing activity:
Partnership commitments not yet remitted	4			1
Investments transferred in connection with reinsurance transaction	1,265			—
See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

RiverSource Life Insurance Company is a stock life insurance company with one wholly owned stock life insurance company subsidiary, RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”). RiverSource Life Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”).


•	RiverSource Life Insurance Company is domiciled in Minnesota and holds Certificates of Authority in American Samoa, the District of Columbia and all states except New York. RiverSource Life Insurance Company issues insurance and annuity products.


•	RiverSource Life of NY is domiciled and holds a Certificate of Authority in New York. RiverSource Life of NY issues insurance and annuity products.

RiverSource Life Insurance Company also wholly owns RiverSource Tax Advantaged Investments, Inc. (“RTA”). RTA is a stock company domiciled in Delaware and is a limited partner in affordable housing partnership investments.

The accompanying Consolidated Financial Statements include the accounts of RiverSource Life Insurance Company and companies in which it directly or indirectly has a controlling financial interest (collectively, the “Company”). All intercompany transactions and balances have been eliminated in consolidation.

The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for fair statement of the consolidated financial position and results of operations for the interim periods have been made. All adjustments made were of a normal recurring nature.

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019 (“2018 10-K”).

The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions were identified.

2. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Leases - Recognition of Lease Assets and Liabilities on Balance Sheet

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

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

In February 2018, the FASB updated the accounting standards related to the presentation of tax effects stranded in accumulated other comprehensive income (“AOCI”). The update allows a reclassification from AOCI to retained earnings for tax effects stranded in AOCI resulting from the legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The election of the update was optional. The update was effective for fiscal years beginning after December 15, 2018. Entities could record the impacts either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company adopted the standard on January 1, 2019 and elected not to reclassify the stranded tax effects in AOCI.

Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

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

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 other comprehensive income (“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 update does not have an impact on the Company’s consolidated financial condition or results of operations.

Future Adoption of New Accounting Standards

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 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 deferred acquisition costs (“DAC”) and deferred sales inducement costs (“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 update is currently effective for interim and annual periods beginning after December 15, 2020. On October 16, 2019, the FASB affirmed their decision to defer the effective date of the standard to interim and

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

annual periods beginning after December 15, 2021. 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.

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. Early adoption is permitted. The update is not expected to have a material 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. Generally, the initial estimate of the expected credit losses 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 current credit loss model for Available-for-Sale debt securities does 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. Early adoption will be permitted for interim and annual periods beginning after December 15, 2018. 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 update is not expected to have a material impact on the Company’s consolidated financial condition or results of operations upon adoption.

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Policy and contract charges
Affiliated	$	43	$	43	$	126	$	129
Unaffiliated	4		4		11		12
Total	47		47		137		141

Other revenues
Administrative fees
Affiliated	11		11		32		33
Unaffiliated	5		5		15		17
	16		16		47		50
Other fees
Affiliated	87		85		256		256
Unaffiliated	1		1		3		3
	88		86		259		259
Total	104		102		306		309
Total revenue from contracts with customers	151		149		443		450
Revenue from other sources ⁽¹⁾	815		879		2,422		2,509
Total revenues	$	966	$	1,028	$	2,865	$	2,959

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

Policy and contract charges

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

Other revenues

Administrative fees

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

Other fees

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

Receivables

Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were $55 million and $49 million as of September 30, 2019 and December 31, 2018, respectively.

4. Variable Interest Entities

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

A majority of the limited partnerships are variable interest entities (“VIEs”). The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $301 million and $352 million as of September 30, 2019 and December 31, 2018, respectively. The Company had a $20 million and a $43 million liability recorded as of September 30, 2019 and December 31, 2018, respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the funding commitments.

The Company invests in structured investments which are considered VIEs for which it is not generally the sponsor. These structured investments typically invest in fixed income instruments and are primarily managed by third parties and include asset backed securities, commercial and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the lack of power to direct the activities that most significantly impact the economic performance, size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its amortized cost. The Company has no obligation to provide financial or other support to the structured investments beyond its investment nor has the Company provided any support to the structured investments. See Note 5 for additional information on these structured investments.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

5. Investments

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



Description of Securities	September 30, 2019
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI ⁽¹⁾
	(in millions)
Fixed maturities:
Corporate debt securities	$	10,371	$	1,310	$	(7	)	$	11,674	$	—
Residential mortgage backed securities	2,719		78		(3		)	2,794		—
Commercial mortgage backed securities	3,460		132		(1		)	3,591		—
State and municipal obligations	1,089		264		(3		)	1,350		—
Asset backed securities	1,042		55		—			1,097		—
Foreign government bonds and obligations	256		18		(3		)	271		—
U.S. government and agency obligations	1		—		—			1		—
Total	$	18,938	$	1,857	$	(17	)	$	20,778	$	—



Description of Securities	December 31, 2018
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI ⁽¹⁾
	(in millions)
Fixed maturities:
Corporate debt securities	$	12,044	$	554	$	(207	)	$	12,391	$	—
Residential mortgage backed securities	2,890		25		(44		)	2,871		—
Commercial mortgage backed securities	3,737		17		(102		)	3,652		—
State and municipal obligations	1,129		162		(8		)	1,283		—
Asset backed securities	1,013		35		(3		)	1,045		—
Foreign government bonds and obligations	285		9		(9		)	285		—
U.S. government and agency obligations	1		—		—			1		—
Total	$	21,099	$	802	$	(373	)	$	21,528	$	—


⁽¹⁾	Represents the amount of other-than-temporary impairment (“OTTI”) losses in AOCI. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.

As of September 30, 2019 and December 31, 2018, investment securities with a fair value of $1.9 billion and $1.4 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $588 million and $405 million, respectively, may be sold, pledged or rehypothecated by the counterparty.

As of September 30, 2019 and December 31, 2018, fixed maturity securities comprised approximately 83% and 84%, respectively, of the Company’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”). The Company uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. As of September 30, 2019 and December 31, 2018, approximately $600 million and $706 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC, an affiliate of the Company, using criteria similar to those used by NRSROs.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



Ratings	September 30, 2019						December 31, 2018
Ratings	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in millions, except percentages)
AAA	$	6,375	$	6,601	32	%	$	6,602	$	6,499	30	%
AA	1,197		1,416		7		1,310		1,455		7
A	2,663		3,139		15		2,550		2,776		13
BBB	7,930		8,824		42		9,745		9,945		46
Below investment grade	773		798		4		892		853		4
Total fixed maturities	$	18,938	$	20,778	100	%	$	21,099	$	21,528	100	%

As of September 30, 2019 and December 31, 2018, approximately 35% and 34%, respectively, of securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. The Company had no holdings which were greater than 10% of total equity as of September 30, 2019. The Company had holdings of $382 million in AT&T, Inc. and holdings of $374 million in Ameriprise Advisor Financing, LLC (“AAF”), an affiliate of the Company, both which were greater than 10% of total equity as of December 31, 2018. There were no other holdings of any other issuer greater than 10% of total equity as of December 31, 2018.

The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:



Description of Securities	September 30, 2019
	Less than 12 months						12 months or more						Total
	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
	(in millions, except number of securities)
Corporate debt securities	9	$	88	$	(1	)	13	$	201	$	(6	)	22	$	289	$	(7	)
Residential mortgage backed securities	9	107		—			24	349		(3		)	33	456		(3		)
Commercial mortgage backed securities	7	74		—			9	98		(1		)	16	172		(1		)
State and municipal obligations	1	4		—			3	76		(3		)	4	80		(3		)
Foreign government bonds and obligations	2	5		—			13	26		(3		)	15	31		(3		)
Total	28	$	278	$	(1	)	62	$	750	$	(16	)	90	$	1,028	$	(17	)



Description of Securities	December 31, 2018
	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	286	$	4,792	$	(141	)	93	$	972	$	(66	)	379	$	5,764	$	(207	)
Residential mortgage backed securities	54	826		(9		)	57	897		(35		)	111	1,723		(44		)
Commercial mortgage backed securities	69	1,146		(25		)	88	1,565		(77		)	157	2,711		(102		)
State and municipal obligations	6	88		(2		)	24	129		(6		)	30	217		(8		)
Asset backed securities	11	149		(1		)	17	124		(2		)	28	273		(3		)
Foreign government bonds and obligations	17	86		(4		)	14	17		(5		)	31	103		(9		)
Total	443	$	7,087	$	(182	)	293	$	3,704	$	(191	)	736	$	10,791	$	(373	)

As part of the Company’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is attributable to lower interest rates as well as tighter credit spreads.

The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Income for OTTI related to credit losses on Available-for-Sale securities for which a portion of the securities’ total OTTI was recognized in OCI:

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(in millions)
Beginning balance	$	—	$	—	$	—	$	—
Credit losses for which an other-than-temporary impairment was not previously recognized	15		—		15		—
Ending balance	$	15	$	—	$	15	$	—

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
	(in millions)
Gross realized investment gains	$	6		$	4	$	28		$	14
Gross realized investment losses	(2		)	—		(14		)	—
Other-than-temporary impairments	(15		)	—		(15		)	—
Total	$	(11	)	$	4	$	(1	)	$	14

Other-than-temporary impairments for the three months and nine months ended September 30, 2019 related to credit losses on corporate debt securities.

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

Available-for-Sale securities by contractual maturity as of September 30, 2019 were as follows:



	Amortized Cost		Fair Value
	(in millions)
Due within one year	$	478	$	482
Due after one year through five years	4,308		4,468
Due after five years through 10 years	2,812		3,035
Due after 10 years	4,119		5,311
	11,717		13,296
Residential mortgage backed securities	2,719		2,794
Commercial mortgage backed securities	3,460		3,591
Asset backed securities	1,042		1,097
Total	$	18,938	$	20,778

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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in millions)
Fixed maturities	$	205		$	227		$	644		$	686
Mortgage loans	29			29			88			88
Other investments	(6		)	(7		)	(2		)	1
	228			249			730			775
Less: investment expenses	6			6			18			18
Total	$	222		$	243		$	712		$	757

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

6. Financing Receivables

The Company’s financing receivables include commercial mortgage loans, syndicated loans, policy loans and the reinsurance deposit receivable. Syndicated loans are reflected in other investments. The reinsurance deposit receivable is reflected in other receivables.

Allowance for Loan Losses

Policy loans do not exceed the cash surrender value of the policy at origination. As there is minimal risk of loss related to policy loans, the Company does not record an allowance for loan losses for policy loans. The Company does not have an allowance for loan losses for the reinsurance deposit receivable as the receivable is supported by a trust and there is minimal risk of loss.

The following table presents a rollforward of the allowance for loan losses for the nine months ended and the ending balance of the allowance for loan losses by impairment method:



	September 30,
	2019		2018
	(in millions)
Beginning balance	$	20	$	22
Charge-offs	—		(2		)
Ending balance	$	20	$	20
Individually evaluated for impairment	$	—	$	—
Collectively evaluated for impairment	20		20

The recorded investment in financing receivables by impairment method was as follows:



	September 30, 2019		December 31, 2018
	(in millions)
Individually evaluated for impairment	$	12	$	19
Collectively evaluated for impairment	2,983		2,943
Total	$	2,995	$	2,962

As of September 30, 2019 and December 31, 2018, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $12 million and $20 million, respectively.

During the three months ended September 30, 2019 and 2018, the Company purchased $39 million and $21 million, respectively, of syndicated loans and sold $11 million and $13 million, respectively, of syndicated loans.

During the nine months ended September 30, 2019 and 2018, the Company purchased $94 million and $109 million, respectively, of syndicated loans and sold $32 million and $43 million, respectively, of syndicated loans.

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $6 million and nil as of September 30, 2019 and December 31, 2018, respectively. All other loans were considered to be performing.

Commercial Mortgage Loans

The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were less than 1% of total commercial mortgage loans as of both September 30, 2019 and December 31, 2018. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:



	Loans				Percentage
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
	(in millions)
South Atlantic	$	697	$	699	27	%	27	%
Pacific	766		766		29		30
Mountain	238		224		9		9
West North Central	201		203		8		8
East North Central	228		208		9		8
Middle Atlantic	166		171		6		7
West South Central	148		139		6		5
New England	48		54		2		2
East South Central	108		99		4		4
	2,600		2,563		100	%	100	%
Less: allowance for loan losses	16		16
Total	$	2,584	$	2,547

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



	Loans				Percentage
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
	(in millions)
Retail	$	870	$	854	33	%	33	%
Office	409		408		16		16
Apartments	610		583		24		23
Industrial	399		423		15		16
Mixed use	60		45		2		2
Hotel	51		43		2		2
Other	201		207		8		8
	2,600		2,563		100	%	100	%
Less: allowance for loan losses	16		16
Total	$	2,584	$	2,547

Syndicated Loans

The recorded investment in syndicated loans as of September 30, 2019 and December 31, 2018 was $395 million and $399 million, respectively. The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans were $6 million and nil as of September 30, 2019 and December 31, 2018, respectively.

Troubled Debt Restructurings

The recorded investment in restructured loans was not material as of both September 30, 2019 and December 31, 2018. Troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for both the three months and nine months ended September 30, 2019 and 2018. There are no commitments to lend additional funds to borrowers whose loans have been restructured.

Reinsurance Deposit Receivable

The reinsurance deposit receivable was $1.5 billion as of September 30, 2019.

In the first quarter of 2019, the Company reinsured approximately $1.7 billion of fixed annuity polices sold through third parties, which is approximately 20% of in force fixed annuity account balances. The arrangement contains investment guidelines and a trust to meet the Company’s risk management objectives. The transaction was effective as of January 1, 2019.

For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

liability related to insurance risk in accordance with applicable accounting standards. If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the agreement using the deposit method of accounting. Deposits made are included in other receivables. As amounts are received, consistent with the underlying fixed annuity contracts, the reinsurance deposit receivable is adjusted. The reinsurance deposit receivable is accreted using the interest method and the adjustment is reported in other revenues.

7. Deferred Acquisition Costs and Deferred Sales Inducement Costs

In the third quarter, management updates market-related assumptions and implements model changes related to the living benefit valuation. In addition, management conducts its annual review of life insurance and annuity valuation assumptions relative to current experience and management expectations including modeling changes. These aforementioned changes are collectively referred to as unlocking. The impact of unlocking to DAC in the third quarter of 2019 primarily reflected updates to interest rate assumptions, partially offset by a favorable impact from lower surrenders on annuity contracts with a withdrawal benefit. The impact of unlocking to DAC in the third quarter of 2018 primarily reflected updated mortality assumptions on universal life (“UL”) and variable universal life (“VUL”) insurance products and lower surrender rate assumptions on variable annuities, partially offset by an unfavorable impact from updates to assumptions on utilization of guaranteed withdrawal benefits.

The balances of and changes in DAC were as follows:



	2019			2018
	(in millions)
Balance at January 1	$	2,742		$	2,639
Capitalization of acquisition costs	178			192
Amortization, excluding the impact of valuation assumptions review	(127		)	(166		)
Amortization, impact of valuation assumptions review	(14		)	33
Impact of change in net unrealized (gains) losses on securities	(175		)	95
Balance at September 30	$	2,604		$	2,793

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



	2019			2018
	(in millions)
Balance at January 1	$	249		$	273
Capitalization of sales inducement costs	1			2
Amortization, excluding the impact of valuation assumptions review	(14		)	(26		)
Amortization, impact of valuation assumptions review	—			—
Impact of change in net unrealized (gains) losses on securities	(21		)	16
Balance at September 30	$	215		$	265

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:



	September 30, 2019			December 31, 2018
	(in millions)
Policyholder account balances
Fixed annuities ⁽¹⁾	$	9,015		$	9,338
Variable annuity fixed sub-accounts	5,122			5,129
UL/VUL insurance	3,093			3,063
Indexed universal life (“IUL”) insurance	1,933			1,728
Other life insurance	656			683
Total policyholder account balances	19,819			19,941

Future policy benefits
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)	2,120			875
Variable annuity guaranteed minimum accumulation benefits (“GMAB”) ⁽²⁾	(19		)	(19		)
Other annuity liabilities	141			26
Fixed annuity life contingent liabilities	1,450			1,459
Life and disability income insurance	1,214			1,221
Long term care insurance	5,268			4,981
UL/VUL and other life insurance additional liabilities	999			749
Total future policy benefits	11,173			9,292
Policy claims and other policyholders’ funds	151			174
Total policyholder account balances, future policy benefits and claims	$	31,143		$	29,407


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


⁽²⁾	Includes the fair value of GMAB embedded derivatives that was a net asset as of both September 30, 2019 and December 31, 2018 reported as a contra liability.

Separate account liabilities consisted of the following:



	September 30, 2019		December 31, 2018
	(in millions)
Variable annuity	$	72,330	$	66,913
VUL insurance	7,078		6,451
Other insurance	30		29
Total	$	79,438	$	73,393

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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



Variable Annuity Guarantees by Benefit Type ⁽¹⁾	September 30, 2019							December 31, 2018
Variable Annuity Guarantees by Benefit Type ⁽¹⁾	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	$	60,653	$	58,705	$	17	67	$	55,810	$	53,872	$	417	67
Five/six-year reset	7,835		5,108		11		67	7,670		4,941		112		67
One-year ratchet	5,806		5,466		24		70	5,560		5,210		417		70
Five-year ratchet	1,365		1,310		1		66	1,307		1,251		23		66
Other	1,144		1,125		81		73	1,033		1,014		148		72
Total — GMDB	$	76,803	$	71,714	$	134	67	$	71,380	$	66,288	$	1,117	67

GGU death benefit	$	1,071	$	1,018	$	121	71	$	992	$	940	$	112	70

GMIB	$	182	$	167	$	8	70	$	180	$	164	$	12	69

GMWB:
GMWB	$	1,989	$	1,983	$	1	73	$	1,990	$	1,984	$	3	72
GMWB for life	44,997		44,888		374		68	40,966		40,876		742		68
Total — GMWB	$	46,986	$	46,871	$	375	68	$	42,956	$	42,860	$	745	68


GMAB	$	2,494	$	2,490	$	1	60	$	2,456	$	2,450	$	24	59


⁽¹⁾	Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table.

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

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



	September 30, 2019			December 31, 2018
	Net Amount at Risk		Weighted Average Attained Age	Net Amount at Risk		Weighted Average Attained Age
	(in millions, except age)
UL secondary guarantees	$	6,531	66	$	6,513	66

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, 2018	$	17		$	6		$	463		$	(80	)	$	489
Incurred claims	5			—			(588		)	(3		)	171
Paid claims	(4		)	—			—			—			(19		)
Balance at September 30, 2018	$	18		$	6		$	(125	)	$	(83	)	$	641

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


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

The liabilities for guaranteed benefits are supported by general account assets.

The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:



	September 30, 2019		December 31, 2018
	(in millions)
Mutual funds:
Equity	$	42,770	$	39,764
Bond	23,235		21,190
Other	5,944		5,568
Total mutual funds	$	71,949	$	66,522

10. Short-term Borrowings

The Company enters into repurchase agreements in exchange for cash which it accounts for as secured borrowings and has pledged Available-for-Sale securities to collateralize its obligations under the repurchase agreements. As of both September 30, 2019 and December 31, 2018, the Company had pledged $52 million of agency residential mortgage backed securities. The amount of the Company’s liability including accrued interest as of both September 30, 2019 and December 31, 2018 was $50 million. The remaining maturity of outstanding repurchase agreements was less than one month as of September 30, 2019 and less than three months as of December 31, 2018. The weighted average annualized interest rate on repurchase agreements held as of September 30, 2019 and December 31, 2018 was 2.5% and 2.6%, respectively.

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 $784 million and $780 million as of September 30, 2019 and December 31, 2018, respectively. The amount of the Company’s liability including accrued interest as of both September 30, 2019 and December 31, 2018 was $151 million. The remaining maturity of outstanding FHLB advances was less than three months as of both September 30, 2019 and December 31, 2018. The weighted average annualized interest rate on the FHLB advances held as of September 30, 2019 and December 31, 2018 was 2.2% and 2.6%, respectively.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:



	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities:
Corporate debt securities	$	—	$	10,894	$	780	$	11,674
Residential mortgage backed securities	—		2,752		42		2,794
Commercial mortgage backed securities	—		3,591		—		3,591
State and municipal obligations	—		1,350		—		1,350
Asset backed securities	—		706		391		1,097
Foreign government bonds and obligations	—		271		—		271
U.S. government and agency obligations	1		—		—		1
Total Available-for-Sale securities:	1		19,564		1,213		20,778
Cash equivalents	—		2,657		—		2,657
Other assets:
Interest rate derivative contracts	—		1,966		—		1,966
Equity derivative contracts	136		2,054		—		2,190
Foreign exchange derivative contracts	—		49		—		49
Credit derivative contracts	—		10		—		10
Total other assets	136		4,079		—		4,215
Separate account assets at net asset value (“NAV”)							79,438		⁽¹⁾
Total assets at fair value	$	137	$	26,300	$	1,213	$	107,088




Liabilities
Policyholder account balances, future policy benefits and claims:
Indexed annuity embedded derivatives	$	—	$	3	$	37	$	40
IUL embedded derivatives	—		—		822		822
GMWB and GMAB embedded derivatives	—		—		1,452		1,452		⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		3		2,311		2,314		⁽³⁾
Other liabilities:
Interest rate derivative contracts	—		521		—		521
Equity derivative contracts	18		2,610		—		2,628
Foreign exchange derivative contracts	—		33		—		33
Total other liabilities	18		3,164		—		3,182
Total liabilities at fair value	$	18	$	3,167	$	2,311	$	5,496

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities:
Corporate debt securities	$	—	$	11,520	$	871	$	12,391
Residential mortgage backed securities	—		2,807		64		2,871
Commercial mortgage backed securities	—		3,652		—		3,652
State and municipal obligations	—		1,283		—		1,283
Asset backed securities	—		671		374		1,045
Foreign government bonds and obligations	—		285		—		285
U.S. government and agency obligations	1		—		—		1
Total Available-for-Sale securities:	1		20,218		1,309		21,528
Cash equivalents	—		1,000		—		1,000
Other assets:
Interest rate derivative contracts	—		789		—		789
Equity derivative contracts	189		1,515		—		1,704
Foreign exchange derivative contracts	—		54		—		54
Total other assets	189		2,358		—		2,547
Separate account assets at NAV							73,393		⁽¹⁾
Total assets at fair value	$	190	$	23,576	$	1,309	$	98,468




Liabilities
Policyholder account balances, future policy benefits and claims:
Indexed annuity embedded derivatives	$	—	$	3	$	14	$	17
IUL embedded derivatives	—		—		628		628
GMWB and GMAB embedded derivatives	—		—		328		328		⁽⁴⁾
Total policyholder account balances, future policy benefits and claims	—		3		970		973		⁽⁵⁾
Other liabilities:
Interest rate derivative contracts	—		422		—		422
Equity derivative contracts	77		1,901		—		1,978
Foreign exchange derivative contracts	2		32		—		34
Credit derivative contracts	—		18		—		18
Total other liabilities	79		2,373		—		2,452
Total liabilities at fair value	$	79	$	2,376	$	970	$	3,425


⁽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 $1.6 billion of individual contracts in a liability position and $107 million of individual contracts in an asset position as of September 30, 2019.


⁽³⁾	The Company’s adjustment for nonperformance risk resulted in a $(704) million cumulative increase (decrease) to the embedded derivatives as of September 30, 2019.


⁽⁴⁾	The fair value of the GMWB and GMAB embedded derivatives included $646 million of individual contracts in a liability position and $318 million of individual contracts in an asset position as of December 31, 2018.


⁽⁵⁾	The Company’s adjustment for nonperformance risk resulted in a $(726) million cumulative increase (decrease) to the embedded derivatives as of December 31, 2018.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:



	Available-for-Sale Securities
	Corporate Debt Securities			Residential Mortgage Backed Securities			Asset Backed Securities			Total
	(in millions)
Balance, July 1, 2019	$	790		$	44		$	384		$	1,218
Total gains (losses) included in:
Other comprehensive income (loss)	4			—			(3		)	1
Purchases	21			—			—			21
Settlements	(35		)	(2		)	—			(37		)
Transfers into Level 3	—			—			10			10
Balance, September 30, 2019	$	780		$	42		$	391		$	1,213
Changes in unrealized gains (losses) relating to assets held at September 30, 2019	$	—		$	—		$	—		$	—



	Policyholder Account Balances, Future Policy Benefits and Claims
	Indexed Annuity Embedded Derivatives		IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, July 1, 2019	$	31	$	819			$	696			$	1,546
Total (gains) losses included in:
Net income	—		(5		)	⁽¹⁾	663			⁽²⁾	658
Issues	6		25				96				127
Settlements	—		(17		)		(3		)		(20		)
Balance, September 30, 2019	$	37	$	822			$	1,452			$	2,311
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2019	$	—	$	(5	)	⁽¹⁾	$	660		⁽²⁾	$	655



	Available-for-Sale Securities															Other Derivatives Contracts
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total			Other Derivatives Contracts
	(in millions)
Balance, July 1, 2018	$	998		$	69		$	12		$	10		$	1,089		$	2
Total gains (losses) included in:
Net income	—			—			—			—			—			(2		)	⁽²⁾
Other comprehensive income (loss)	(2		)	—			—			—			(2		)	—
Settlements	(46		)	(1		)	—			—			(47		)	—
Transfers out of Level 3	—			(3		)	(12		)	(10		)	(25		)	—
Balance, September 30, 2018	$	950		$	65		$	—		$	—		$	1,015		$	—
Changes in unrealized gains (losses) relating to assets held at September 30, 2018	$	—		$	—		$	—		$	—		$	—		$	(2	)	⁽²⁾

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



	Policyholder Account Balances, Future Policy Benefits and Claims
	Indexed Annuity Embedded Derivatives		IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, July 1, 2018	$	8	$	620			$	(425	)		$	203
Total (gains) losses included in:
Net income	—		55			⁽¹⁾	(344		)	⁽²⁾	(289		)
Issues	3		24				90				117
Settlements	—		(15		)		(7		)		(22		)
Balance, September 30, 2018	$	11	$	684			$	(686	)		$	9
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2018	$	—	$	55		⁽¹⁾	$	(347	)	⁽²⁾	$	(292	)



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



	Policyholder Account Balances, Future Policy Benefits and Claims
	Indexed Annuity Embedded Derivatives			IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2019	$	14		$	628			$	328			$	970
Total (gains) losses included in:
Net income	3		⁽¹⁾	153			⁽¹⁾	866			⁽²⁾	1,022
Issues	20			92				266				378
Settlements	—			(51		)		(8		)		(59		)
Balance, September 30, 2019	$	37		$	822			$	1,452			$	2,311
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2019	$	—		$	153		⁽¹⁾	$	859		⁽²⁾	$	1,012

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



	Available-for-Sale Securities: Fixed Maturities																Other Derivatives Contracts
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total				Other Derivatives Contracts
	(in millions)
Balance, January 1, 2018	$	1,072		$	87		$	—		$	—		$	1,159			$	—
Total gains (losses) included in:
Net income	(1		)	—			—			—			(1		)	⁽³⁾	(3		)	⁽²⁾
Other comprehensive income	(28		)	1			—			—			(27		)		—
Purchases	15			—			12			10			37				3
Settlements	(108		)	(5		)	—			—			(113		)		—
Transfers out of Level 3	—			(18		)	(12		)	(10		)	(40		)		—
Balance, September 30, 2018	$	950		$	65		$	—		$	—		$	1,015			$	—
Changes in unrealized gains (losses) relating to assets held at September 30, 2018	$	(1	)	$	—		$	—		$	—		$	(1	)	⁽³⁾	$	(3	)	⁽²⁾



	Policyholder Account Balances, Future Policy Benefits and Claims
	Indexed Annuity Embedded Derivatives		IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2018	$	—	$	601			$	(49	)		$	552
Total (gains) losses included in:
Net income	—		56			⁽¹⁾	(875		)	⁽²⁾	(819		)
Issues	11		65				257				333
Settlements	—		(38		)		(19		)		(57		)
Balance, September 30, 2018	$	11	$	684			$	(686	)		$	9
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2018	$	—	$	56		⁽¹⁾	$	(868	)	⁽²⁾	$	(812	)


⁽¹⁾	Included in interest credited to fixed accounts in the Consolidated Statements of Income.


⁽²⁾	Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.


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

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $85 million and $(58) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the three months ended September 30, 2019 and 2018, respectively.

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $(29) million and $(10) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the nine months ended September 30, 2019 and 2018, respectively.

Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third-party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:



	September 30, 2019
	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	780	Discounted cash flow	Yield/spread to U.S. Treasuries	0.8	%	–	3.1%	1.3	%
Asset backed securities	$	391	Discounted cash flow	Annual default rate	3.2%
				Loss severity	25.0%
				Yield/spread to swap rates	125 bps		–	175 bps	128 bps
IUL embedded derivatives	$	822	Discounted cash flow	Nonperformance risk ⁽¹⁾	78 bps
Indexed annuity embedded derivatives	$	37	Discounted cash flow	Surrender rate	0.0	%	–	50.0%
				Nonperformance risk ⁽¹⁾	78 bps
GMWB and GMAB embedded derivatives	$	1,452	Discounted cash flow	Utilization of guaranteed withdrawals ⁽²⁾	0.0	%	–	36.0%
				Surrender rate	0.1	%	–	73.5%
				Market volatility ⁽³⁾	3.9	%	–	16.1%
				Nonperformance risk ⁽¹⁾	78 bps



	December 31, 2018
	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	871	Discounted cash flow	Yield/spread to U.S. Treasuries	1.0	%	–	3.6%	1.5	%
Asset backed securities	$	374	Discounted cash flow	Annual default rate	2.5%
				Loss severity	25.0%
				Yield/spread to swap rates	85 bps		–	115 bps	87 bps
IUL embedded derivatives	$	628	Discounted cash flow	Nonperformance risk ⁽¹⁾	119 bps
Indexed annuity embedded derivatives	$	14	Discounted cash flow	Surrender rate	0.0	%	–	50.0%
				Nonperformance risk ⁽¹⁾	119 bps
GMWB and GMAB embedded derivatives	$	328	Discounted cash flow	Utilization of guaranteed withdrawals ⁽²⁾	0.0	%	–	36.0%
				Surrender rate	0.1	%	–	73.4%
				Market volatility ⁽³⁾	4.0	%	–	16.1%
				Nonperformance risk ⁽¹⁾	119 bps


⁽¹⁾	The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.


⁽²⁾	The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.


⁽³⁾	Market volatility is implied volatility of fund of funds and managed volatility funds.

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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 measurement of the indexed annuity embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value.

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

Significant increases (decreases) in nonperformance risk and surrender rate used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would have resulted in a significantly lower (higher) liability value. Utilization of guaranteed withdrawals and surrender rates vary with the type of rider, the duration of the policy, the age of the contractholder, the distribution channel and whether the value of the guaranteed benefit exceeds the contract accumulation value.

Determination of Fair Value

The Company uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The Company’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs.

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

Assets

Cash Equivalents

Cash equivalents include highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. The Company’s cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

Available-for-Sale Securities

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third-party pricing services, non-binding broker quotes, or other model-based valuation techniques.

Level 1 securities primarily include U.S. Treasuries.

Level 2 securities primarily include corporate bonds, residential mortgage backed securities, commercial mortgage backed securities, state and municipal obligations, asset backed securities and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third-party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes.

Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities and affiliated and unaffiliated asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities and unaffiliated asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. The fair value of affiliated asset backed securities is determined using a discounted cash flow model. Inputs used to determine the expected cash flows include assumptions about discount rates and default, prepayment and recovery rates of the underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the fair value of the investment in the affiliated asset backed securities is classified as Level 3.

In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as 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 assets. Separate account assets are excluded from classification in the fair value hierarchy.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Other Assets

Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of both September 30, 2019 and December 31, 2018. 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

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 contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its fixed index annuity and IUL products. 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 fair value of fixed index 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 index annuity and IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.

Other Liabilities

Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active OTC markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial as of both September 30, 2019 and December 31, 2018. 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 OTTI. The investments that are determined to be OTTI are written down to their fair value. The Company uses a discounted cash flow model to measure the fair value of these investments. Inputs to the discounted cash flow model are estimates of future net operating losses and tax credits available to the Company and discount rates based on market condition and the financial strength of the syndicator (general partner). The balance of affordable housing partnerships measured at fair value on a nonrecurring basis was $99 million and $112 million as of September 30, 2019 and December 31, 2018, respectively, and is classified as Level 3 in the fair value hierarchy.

Asset and Liabilities Not Reported at Fair Value

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



	September 30, 2019
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,584	$	—	$	—	$	2,675	$	2,675
Policy loans	864		—		—		808		808
Other investments	407		—		372		33		405
Other receivables	1,537		—		—		1,672		1,672

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)




Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	9,230	$	—	$	—	$	10,265	$	10,265
Short-term borrowings	201		—		201		—		201
Other liabilities	29		—		—		28		28
Separate account liabilities — investment contracts	328		—		328		—		328



	December 31, 2018
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,547	$	—	$	—	$	2,514	$	2,514
Policy loans	861		—		—		810		810
Other investments	411		—		355		41		396

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	9,609	$	—	$	—	$	9,672	$	9,672
Short-term borrowings	201		—		201		—		201
Other liabilities	59		—		—		57		57
Separate account liabilities — investment contracts	312		—		312		—		312		⁽¹⁾


⁽¹⁾	The fair value of separate account liabilities - investment contracts as of December 31, 2018 was previously incorrectly omitted from the fair value hierarchy based on use of NAV per share as a practical expedient.

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

Policyholder account balances, future policy benefit and claims include fixed annuities in deferral status, non-life contingent fixed annuities in payout status, indexed annuity host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts. See Note 8 for additional information on these liabilities. Short-term borrowings include repurchase agreement and FHLB borrowings. See Note 10 for further information on short-term borrowings. Other liabilities include future funding commitments to affordable housing partnerships and other real estate partnerships. Separate account liabilities are related to certain annuity products that are classified as investment contracts.

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 and repurchase agreements 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:



	September 30, 2019
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets									Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
	(in millions)
Derivatives:
OTC	$	4,128	$	—	$	4,128	$	(2,695	)	$	(1,317	)	$	(103	)	$	13
OTC cleared	7		—		7		(4		)	—			—			3
Exchange-traded	80		—		80		(5		)	—			—			75
Total derivatives	$	4,215	$	—	$	4,215	$	(2,704	)	$	(1,317	)	$	(103	)	$	91



	December 31, 2018
	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
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
	(in millions)
Derivatives:
OTC	$	2,499	$	—	$	2,499	$	(2,066	)	$	(390	)	$	(26	)	$	17
OTC cleared	34		—		34		(23		)	—			—			11
Exchange-traded	14		—		14		(1		)	—			—			13
Total derivatives	$	2,547	$	—	$	2,547	$	(2,090	)	$	(390	)	$	(26	)	$	41


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

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



	September 30, 2019
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets								Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Securities Collateral			Net Amount
	(in millions)
Derivatives:
OTC	$	3,162	$	—	$	3,162	$	(2,695	)	$	—	$	(462	)	$	5
OTC cleared	4		—		4		(4		)	—		—			—
Exchange-traded	16		—		16		(5		)	—		—			11
Total derivatives	3,182		—		3,182		(2,704		)	—		(462		)	16
Repurchase agreements	50		—		50		—			—		(50		)	—
Total	$	3,232	$	—	$	3,232	$	(2,704	)	$	—	$	(512	)	$	16



	December 31, 2018
	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
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
	(in millions)
Derivatives:
OTC	$	2,419	$	—	$	2,419	$	(2,066	)	$	(24	)	$	(328	)	$	1
OTC cleared	23		—		23		(23		)	—			—			—
Exchange-traded	10		—		10		(1		)	—			—			9
Total derivatives	2,452		—		2,452		(2,090		)	(24		)	(328		)	10
Repurchase agreements	50		—		50		—			—			(50		)	—
Total	$	2,502	$	—	$	2,502	$	(2,090	)	$	(24	)	$	(378	)	$	10


⁽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.

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. Repurchase agreements are reflected in short-term borrowings. See Note 13 for additional disclosures related to the Company’s derivative instruments and Note 10 for additional disclosures related to the Company’s repurchase agreements.

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.

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



	September 30, 2019						December 31, 2018
	Notional		Gross Fair Value				Notional		Gross Fair Value
			Assets⁽¹⁾		Liabilities⁽²⁾				Assets⁽¹⁾		Liabilities⁽²⁾
	(in millions)
Derivatives not designated as hedging instruments
Interest rate contracts	$	59,290	$	1,966	$	521	$	57,185	$	789	$	422
Equity contracts	55,775		2,190		2,628		51,463		1,704		1,978
Credit contracts	1,387		10		—		1,206		—		18
Foreign exchange contracts	4,121		49		33		4,747		54		34
Total non-designated hedges	120,573		4,215		3,182		114,601		2,547		2,452

Embedded derivatives
GMWB and GMAB ⁽³⁾	N/A		—		1,452		N/A		—		328
IUL	N/A		—		822		N/A		—		628
Indexed annuities	N/A		—		40		N/A		—		17
Total embedded derivatives	N/A		—		2,314		N/A		—		973
Total derivatives	$	120,573	$	4,215	$	5,496	$	114,601	$	2,547	$	3,425

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, and indexed annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims on the Consolidated Balance Sheets.

⁽³⁾The fair value of the GMWB and GMAB embedded derivatives as of September 30, 2019 included $1.6 billion of individual contracts in a liability position and $107 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2018 included $646 million of individual contracts in a liability position and $318 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 September 30, 2019 and December 31, 2018, investment securities with a fair value of $105 million and $28 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $105 million and

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

$28 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both September 30, 2019 and December 31, 2018, the Company had sold, pledged, or rehypothecated none of these securities. In addition, as of both September 30, 2019 and December 31, 2018, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.

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



	Interest Credited to Fixed Accounts			Benefits, Claims, Losses and Settlement Expenses
	(in millions)
Three Months Ended September 30, 2019
Interest rate contracts	$	—		$	805
Equity contracts	4			(97		)
Credit contracts	—			(9		)
Foreign exchange contracts	—			10
GMWB and GMAB embedded derivatives	—			(756		)
IUL embedded derivatives	22			—
Total gain (loss)	$	26		$	(47	)

Nine Months Ended September 30, 2019
Interest rate contracts	$	—		$	1,765
Equity contracts	70			(981		)
Credit contracts	—			(78		)
GMWB and GMAB embedded derivatives	—			(1,124		)
IUL embedded derivatives	(102		)	—
Indexed annuity embedded derivatives	(3		)	—
Total gain (loss)	$	(35	)	$	(418	)



	Interest Credited to Fixed Accounts			Benefits, Claims, Losses and Settlement Expenses
	(in millions)
Three Months Ended September 30, 2018
Interest rate contracts	$	—		$	(206	)
Equity contracts	34			(210		)
Credit contracts	—			4
Other contracts	—			(2		)
GMWB and GMAB embedded derivatives	—			261
IUL embedded derivatives	(40		)	—
Total gain (loss)	$	(6	)	$	(153	)

Nine Months Ended September 30, 2018
Interest rate contracts	$	—		$	(740	)
Equity contracts	37			(308		)
Credit contracts	—			22
Foreign exchange contracts	—			(1		)
Other contracts	—			(4		)
GMWB and GMAB embedded derivatives	—			637
IUL embedded derivatives	(18		)	—
Total gain (loss)	$	19		$	(394	)

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 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 exposure related to GMAB and non-life contingent GMWB provisions using options (equity index, interest rate swaptions, etc.), swaps (interest rate, total return, etc.) and futures.

The deferred premium associated with certain of the above options and swaptions is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options and swaptions as of September 30, 2019:



		Premiums Payable		Premiums Receivable
		(in millions)
2019	⁽¹⁾	$	138	$	97
2020		212		133
2021		167		112
2022		202		198
2023		126		43
2024-2028		402		17
Total		$	1,247	$	600

⁽¹⁾2019 amounts represent the amounts payable and receivable for the period from October 1, 2019 to December 31, 2019.

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.

Indexed annuity and IUL products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to indexed annuity and IUL products will positively or negatively impact earnings over the life of these products. The equity component of indexed annuity and IUL product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts.

Cash Flow Hedges

During both the nine months ended September 30, 2019 and 2018, the Company held no derivatives that were designated as cash flow hedges. During both the nine months ended September 30, 2019 and 2018, no hedge relationships were discontinued due to forecasted transactions no longer being expected to occur according to the original hedge strategy. See Note 14 for a summary of net unrealized gains (losses) included in AOCI related to previously designated cash flow hedges.

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

the Company does not maintain a specific financial strength rating or Ameriprise Financial’s debt does not maintain a specific credit rating (generally an investment grade rating). If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. As of September 30, 2019 and December 31, 2018, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $222 million and $91 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2019 and December 31, 2018 was $217 million and $90 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of September 30, 2019 and December 31, 2018 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 $5 million and $1 million as of September 30, 2019 and December 31, 2018, respectively.

14. Shareholder’s Equity

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



	Three Months Ended September 30,
	2019									2018
	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⁾	$	289		$	(63	)	$	226		$	(89	)	$	19		$	(70	)
Reclassification of net (gains) losses on securities included in net income⁽²⁾	11			(2		)	9			(4		)	1			(3		)
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables	(195		)	41			(154		)	28			(6		)	22
Net unrealized gains (losses) on securities	105			(24		)	81			(65		)	14			(51		)
Total other comprehensive income (loss)	$	105		$	(24	)	$	81		$	(65	)	$	14		$	(51	)



	Nine Months Ended September 30,
	2019									2018
	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⁾	$	1,410		$	(302	)	$	1,108		$	(832	)	$	177		$	(655	)
Reclassification of net (gains) losses on securities included in net income ⁽²⁾	1			—			1			(14		)	3			(11		)
Impact of DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables	(694		)	146			(548		)	347			(73		)	274
Net unrealized gains (losses) on securities	717			(156		)	561			(499		)	107			(392		)
Net unrealized gains (losses) on derivatives:
Reclassification of net (gains) losses on derivatives included in net income⁽³⁾	—			—			—			1			—			1
Net unrealized gains (losses) on derivatives	—			—			—			1			—			1
Total other comprehensive income (loss)	$	717		$	(156	)	$	561		$	(498	)	$	107		$	(391	)

⁽¹⁾ Includes OTTI losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.

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

⁽³⁾ Reclassification amounts are recorded in net investment income.

Other comprehensive income (loss) related to net unrealized gains (losses) on securities includes three components: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit OTTI losses to credit losses; and (iii) other adjustments primarily consisting of changes in insurance and annuity asset and liability balances, such as DAC, DSIC, unearned revenue, benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



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

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



	Net Unrealized Gains (Losses) on Securities				Net Unrealized Gains (Losses) on Derivatives			Other			Total
	(in millions)
Balance, July 1, 2018	$	117			$	—		$	(1	)	$	116
OCI before reclassifications	(48		)		—			—			(48		)
Amounts reclassified from AOCI	(3		)		—			—			(3		)
Total OCI	(51		)		—			—			(51		)
Balance, September 30, 2018	$	66		⁽¹⁾	$	—		$	(1	)	$	65

Balance, January 1, 2018	$	458			$	(1	)	$	(1	)	$	456
OCI before reclassifications	(381		)		—			—			(381		)
Amounts reclassified from AOCI	(11		)		1			—			(10		)
Total OCI	(392		)		1			—			(391		)
Balance, September 30, 2018	$	66		⁽¹⁾	$	—		$	(1	)	$	65

⁽¹⁾ Includes nil of noncredit related impairments on securities and net unrealized gains (losses) on previously impaired securities as of both September 30, 2019 and September 30, 2018.

15. Income Taxes

The Company’s effective tax rate was 3.3% and (4.2)% for the three months ended September 30, 2019 and 2018, respectively. The Company’s effective tax rate was 2.8% and 4.3% for the nine months ended September 30, 2019 and 2018, respectively.

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

The effective tax rate for the three months ended September 30, 2018 was lower than the statutory rate as a result of tax preferred items including low income housing tax credits, the dividends received deduction, an $8 million benefit related to the Internal Revenue Service’s (“IRS”) acceptance of a change in tax accounting method and foreign tax credits. The effective tax rate for the nine months ended September 30, 2018 was lower than the statutory rate as a result of tax preferred items including low income housing tax credits, the dividends received deduction and foreign tax credits.

The increase in the effective tax rate for the three months ended September 30, 2019 compared to the prior year period is primarily due to a decrease in the dividends received deduction and an $8 million benefit related to the IRS acceptance of a change in tax accounting method in 2018. The decrease in the effective tax rate for the nine months ended September 30, 2019 compared to the prior year period is primarily due to an increase in foreign tax credits, partially offset by lower income year-to-date relative to income expected for the full year.

Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $11 million, net of federal benefit, which will expire beginning December 31, 2019.

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 and state net operating losses. The valuation allowance for state deferred tax assets and state net operating losses was $13 million and $11 million as of September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019 and December 31, 2018, the Company had $41 million and $19 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $16 million and $8 million, net of federal tax benefits, of unrecognized tax benefits as of September 30, 2019 and December 31, 2018, respectively, would affect the effective tax rate.

It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. The Company estimates that the total amount of gross unrecognized tax benefits may decrease by approximately $34 million in the next 12 months primarily due to IRS settlements.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized nil in interest and penalties for both the three months and nine months ended September 30, 2019 and 2018. As of both September 30, 2019 and December 31, 2018, the Company had a payable of $1 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. In the third quarter of 2019, the federal statutes of limitation closed for the 2014 and 2015 tax years. Ameriprise Financial’s tax returns for 2014 and 2015 are effectively settled except for one issue which Ameriprise Financial had filed amended returns in the second quarter of 2019. The IRS is currently auditing Ameriprise Financial’s U.S. income tax returns for 2016 and 2017. Ameriprise Financial’s or the Company’s state income tax returns are currently under examination by various jurisdictions for years ranging from 2009 through 2017.

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 September 30, 2019 and December 31, 2018, the estimated liability was $12 million. As of September 30, 2019 and December 31, 2018, the related premium tax asset was $10 million and $11 million, respectively. 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, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2019 (“2018 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.

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 2018 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.

Consolidated Results of Operations for the Nine Months Ended September 30, 2019 and 2018

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



	Nine Months Ended September 30,					Change
	2019			2018		Change
	(in millions)
Revenues
Premiums	$	301		$	296	$	5		2	%
Net investment income	712			757		(45		)	(6	)
Policy and contract charges	1,510			1,579		(69		)	(4	)
Other revenues	343			313		30			10
Net realized investment gains (losses)	(1		)	14		(15		)	NM
Total revenues	2,865			2,959		(94		)	(3	)

Benefits and expenses
Benefits, claims, losses and settlement expenses	1,091			1,134		(43		)	(4	)
Interest credited to fixed accounts	517			499		18			4
Amortization of deferred acquisition costs	141			133		8			6
Other insurance and operating expenses	513			512		1			—
Total benefits and expenses	2,262			2,278		(16		)	(1	)
Pretax income (loss)	603			681		(78		)	(11	)
Income tax provision (benefit)	17			29		(12		)	(41	)
Net income	$	586		$	652	$	(66	)	(10	)%
NM Not Meaningful.

RIVERSOURCE LIFE INSURANCE COMPANY

Overall

Net income decreased $66 million or 10% to $586 million for the nine months ended September 30, 2019 compared to $652 million for the prior year period. Pretax income decreased $78 million or 11% to $603 million for the nine months ended September 30, 2019 compared to $681 million for the prior year period.

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


•	The market impact on variable annuity guaranteed benefits (net of hedges and the related deferred sales inducement costs (“DSIC”) and deferred acquisition costs (“DAC”) amortization) was an expense of $164 million for the nine months ended September 30, 2019 compared to an expense of $102 million for the prior year period.


•	The market impact on indexed universal life (“IUL”) benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual) was an expense of $29 million for the nine months ended September 30, 2019 compared to an expense of $8 million for the prior year period.

•

The impact on variable annuity and variable universal life products for the difference between assumed and updated separate account investment performance on DAC, DSIC, unearned revenue amortization, reinsurance accrual and additional insurance benefit reserves (“mean reversion related impact”) was a benefit of $18 million for the nine months ended September 30, 2019 compared to a benefit of $39 million for the prior year period.


•	The unfavorable impact of unlocking and LTC loss recognition was $16 million for the nine months ended September 30, 2019 compared to $53 million for the prior year period.

The Company’s variable annuity account balances decreased 3% to $77.5 billion as of September 30, 2019 compared to the prior year period reflecting net outflows of $3.2 billion. Variable annuity sales declined 13% compared to the prior year period.

The Company’s fixed deferred annuity account balances declined 5% to $8.4 billion as of September 30, 2019 compared to the prior year period as older policies continue to lapse and new sales are limited due to low interest rates. Given the current interest rate environment, the Company’s current fixed deferred annuity book is expected to gradually run off and earnings on its fixed deferred annuity business will trend down. The Company reinsured approximately 20% of its in force fixed annuity account balances during the first quarter of 2019.

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

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



Pretax Increase (Decrease)	2019			2018
	(in millions)
Policy and contract charges	$	5		$	78
Total revenues	5			78

Benefits, claims, losses and settlement expenses:
LTC unlocking and loss recognition	8			52
Unlocking impact, excluding LTC	(1		)	112
Total benefits, claims, losses and settlement expenses	7			164
Amortization of deferred acquisition costs	14			(33		)
Total benefits and expenses	21			131
Pretax income	$	(16	)	$	(53	)

The unfavorable unlocking impact in the third quarter of 2019 primarily reflected the impact from updates to interest rate assumptions and lower surrenders on annuity contracts with a withdrawal benefit partially offset by a benefit from changes in equity market volatility and correlation assumptions on variable annuities. The unfavorable unlocking impact in the prior year period primarily reflected unfavorable mortality experience on universal life (“UL”) and variable universal life (“VUL”) insurance products and lower surrender rate assumptions on variable annuities, partially offset by the impact from updates to assumptions on utilization of guaranteed withdrawal benefits.

The unfavorable LTC unlocking and loss recognition in the third quarter of 2019 was primarily due to the impact from updates to interest rates assumptions and changes in morbidity experience partially offset by higher approved and expected premium rate increases and benefit reductions. The unfavorable LTC unlocking and loss recognition in the prior year period was primarily due to changes in morbidity experience partially offset by approved, pending and future expected premium rate increases.

RIVERSOURCE LIFE INSURANCE COMPANY

The unfavorable impact of updates to interest rate assumptions noted above for unlocking and LTC loss recognition was $118 million. Based on the significant recent interest rate dislocation, management extended the grading period one year to reach the ultimate 10-year treasury rate of 5% by assuming rates remain flat for six months and then grade to the long-term rate over the next three years.

Revenues

Net investment income decreased $45 million or 6% to $712 million for the nine months ended September 30, 2019 compared to $757 million for the prior year period reflecting a decrease in investment income on fixed maturities due to lower average invested assets as a result of the fixed annuities reinsurance transaction in the first quarter of 2019.

Other revenues increased $30 million or 10% to $343 million for the nine months ended September 30, 2019 compared to $313 million for the prior year period primarily due to accretion on the fixed annuities reinsurance deposit receivable.

Net realized investment losses were $1 million for the nine months ended September 30, 2019 compared to net realized investment gains of $14 million for the prior year period. For the nine months ended September 30, 2019, net realized gains of $14 million on Available-for-Sale securities due to sales, calls and tenders were more than offset by other-than-temporary impairments recognized in earnings of $15 million which primarily related to credit losses on corporate debt securities. For the nine months ended September 30, 2018, net realized gains on Available-for-Sale securities due to sales, calls and tenders were $14 million.

Benefits and Expenses

Benefits, claims, losses and settlement expenses decreased $43 million for the nine months ended September 30, 2019 compared to the prior year period primarily reflecting the following items:

•

The impact of unlocking excluding LTC was a benefit of $1 million for the nine months ended September 30, 2019 compared to an expense of $112 million for the prior year period. The unlocking impact for the third quarter of 2019 primarily reflected a benefit from changes in equity market volatility and correlation assumptions on variable annuities, partially offset by updates to interest rate assumptions and lower surrenders on annuity contracts with a withdrawal benefit. The unlocking impact for the prior year period primarily reflected unfavorable mortality experience on UL and VUL insurance products and lower surrender rate assumptions on variable annuities, partially offset by a favorable impact from updates to assumptions on utilization of guaranteed withdrawal benefits.

•

The annual review of LTC active life future policy benefit reserve adequacy in the third quarter of 2019 resulted in unlocking and loss recognition of $8 million compared to $52 million in the prior year period. The unlocking and loss recognition in the third quarter of 2019 was primarily due to the impact from updates to interest rates assumptions and changes in morbidity experience, partially offset by higher approved and expected premium rate increases and benefit reductions. The unlocking and loss recognition in the prior year period was primarily due to changes in morbidity experience, partially offset by approved, pending and future expected premium rate increases.

•

A $69 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The favorable impact of the nonperformance credit spread was $9 million for the nine months ended September 30, 2019 compared to an unfavorable impact of $60 million for the prior year period. As the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. As the embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread is favorable (unfavorable) to expense.

•

A $142 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 $1.9 billion change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $1.7 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, and a favorable $3 million change in the DSIC offset. The main market drivers contributing to these changes are summarized below:


•	Interest rate impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in an expense for the nine months ended September 30, 2019 compared to a benefit for 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 favorable impact compared to the prior year period.


•	The mean reversion related impact was a benefit of $2 million for the nine months ended September 30, 2019 compared to a benefit of $27 million for the prior year period.


•	A $9 million increase in expense related to higher reserve funding driven by the impact of higher variable annuity guaranteed benefit rider charges.

Amortization of DAC increased $8 million or 6% to $141 million for the nine months ended September 30, 2019 compared to $133 million for the prior year period primarily reflecting the following items:

•

The impact of unlocking was an expense of $14 million for the nine months ended September 30, 2019 compared to a benefit of $33 million for the prior year period. The impact of unlocking in the third quarter of 2019 primarily reflected updates to interest rate assumptions, partially offset by a favorable impact from lower surrenders on annuity contracts with a withdrawal benefit. The impact of unlocking in the prior year period primarily reflected updated mortality assumptions on UL and VUL insurance

RIVERSOURCE LIFE INSURANCE COMPANY

products and lower surrender rate assumptions on variable annuities, partially offset by an unfavorable impact from updates to assumptions on utilization of guaranteed withdrawal benefits.


•	The DAC offset to the market impact on variable annuity guaranteed benefits was a benefit of $21 million for the nine months ended September 30, 2019 compared to $9 million for the prior year period.


•	The mean reversion related impact was a benefit of $16 million for the nine months ended September 30, 2019 compared to $12 million for the prior year period.


•	The DAC offset to the market impact on IUL benefits was a benefit of $5 million for the nine months ended September 30, 2019 compared to $2 million for the prior year period.


•	The positive impact on DAC from normal year over year experience differences for variable annuities was $18 million.

Income Taxes

The Company’s effective tax rate was 2.8% for the nine months ended September 30, 2019 compared to 4.3% for the prior year period. 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 September 30, 2021 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, were $1.8 billion and 4.5%, respectively, as of September 30, 2019. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $2.8 billion and had a weighted average yield of 3.4% as of September 30, 2019. While these amounts represent investments that could be subject to reinvestment risk, it is also possible that these investments will be used to fund liabilities or may not be prepaid and will remain invested at their current yields. In addition to the interest rate environment, the mix of benefit payments versus product sales as well as the timing and volumes associated with such mix may impact the Company’s investment yield. Furthermore, reinvestment activities and the associated investment yield may also be impacted by corporate strategies implemented at management’s discretion. The average yield for investment purchases during the nine months ended September 30, 2019 was approximately 4.0%.

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.

RIVERSOURCE LIFE INSURANCE COMPANY

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 (equity index, interest rate swaptions, etc.), swaps (interest rate, total return, etc.) 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 annuity riders, indexed annuities, IUL insurance and the associated hedge assets, the Company assumed no change in implied market volatility despite the 10% drop in equity prices.

The following tables present the Company’s estimate of the impact on pretax income from the above defined hypothetical market movements as of September 30, 2019:



Equity Price Decline 10%	Equity Price Exposure to Pretax Income
Equity Price Decline 10%	Before Hedge Impact			Hedge Impact			Net Impact
	(in millions)
Asset-based fees and expenses	$	(64	)	$	—		$	(64	)
DAC and DSIC amortization ^(1) (2)	(35		)	—			(35		)
Variable annuity riders:
GMDB and GMIB ⁽²⁾	(14		)	—			(14		)
GMWB ⁽²⁾	(448		)	412			(36		)
GMAB	(29		)	29			—
DAC and DSIC amortization ⁽³⁾	N/A			N/A			9
Total variable annuity riders	(491		)	441			(41		)
Macro hedge program ⁽⁴⁾	—			199			199
Indexed annuities	5			(5		)	—
IUL insurance	81			(67		)	14
Total	$	(504	)	$	568		$	73

RIVERSOURCE LIFE INSURANCE COMPANY



Interest Rate Increase 100 Basis Points	Interest Rate Exposure to Pretax Income
Interest Rate Increase 100 Basis Points	Before Hedge Impact			Hedge Impact			Net Impact
	(in millions)
Asset-based fees and expenses	$	(15	)	$	—		$	(15	)
Variable annuity riders:
GMDB and GMIB	—			—			—
GMWB	1,364			(1,545		)	(181		)
GMAB	24			(26		)	(2		)
DAC and DSIC amortization ⁽³⁾	N/A			N/A			27
Total variable annuity riders	1,388			(1,571		)	(156		)
Macro hedge program ⁽⁴⁾	—			(4		)	(4		)
Indexed annuities	(1		)	—			(1		)
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products	73			—			73
IUL insurance	14			3			17
Total	$	1,459		$	(1,572	)	$	(86	)

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 negative net impact to pretax income of $72 million related to a 10% equity price decline and an estimated negative net impact to pretax income of $91 million related to a 100 basis point increase in interest rates as of December 31, 2018. The previous disclosure estimating the impact from a 100 basis point increase in interest rates was a positive net impact to pretax income of $428 million as of December 31, 2018 and did not reflect mitigation enhancements made to the hedge programs and overstated the impact to IUL insurance. The change in equity price exposure as of September 30, 2019 compared to December 31, 2018 was driven by a larger estimated positive impact from the Company’s macro hedge program, which has been expanded since prior year-end.

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, indexed annuities

RIVERSOURCE LIFE INSURANCE COMPANY

and IUL insurance, the Company considers the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, the Company adjusts the valuation of variable annuity riders, indexed annuities and IUL insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of the Company’s nonperformance risk. The nonperformance risk adjustment is based on observable market data adjusted to estimate the risk of the Company not fulfilling these liabilities. Consistent with general market conditions, this estimate resulted in a spread over the LIBOR swap curve as of September 30, 2019. 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 $468 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 21%), based on September 30, 2019 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 $987 million.

The Company enters into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances to reduce reinvestment risk. Short-term borrowings allow the Company to receive cash to reinvest in longer-duration assets, while maintaining the flexibility to pay back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements as of both September 30, 2019 and December 31, 2018 was $50 million, which is collateralized with agency residential mortgage backed securities from the Company’s investment portfolio. RiverSource Life Insurance Company is a member of the FHLB of Des Moines, which provides RiverSource Life Insurance Company access to collateralized borrowings. As of September 30, 2019 and December 31, 2018, the Company had estimated maximum borrowing capacity of $6.0 billion and $5.9 billion, respectively, under the FHLB facility, of which $151 million was outstanding and is collateralized with commercial mortgage backed securities as of both September 30, 2019 and December 31, 2018.

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:



	Nine Months Ended September 30,
	2019		2018
	(in millions)
Paid to Ameriprise Financial	$	850	$	550
Received from RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”)	43		48
Received from RiverSource Tax Advantaged Investments, Inc.	75		45
Received from RiverSource REO 1, LLC ⁽¹⁾	—		2


⁽¹⁾	RiverSource REO 1, LLC is a wholly owned subsidiary of RiverSource Life Insurance Company which holds foreclosed mortgage loans and real estate.

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

Regulatory Capital

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



	Actual Capital ⁽¹⁾				Regulatory Capital Requirements ⁽²⁾
	September 30, 2019		December 31, 2018		December 31, 2018
	(in millions)
RiverSource Life Insurance Company	$	3,445	$	3,382	$	675
RiverSource Life Insurance Co. of NY	325		266		40

⁽¹⁾ Actual capital, as defined by the National Association of Insurance Commissioners for purposes of meeting regulatory capital requirements, includes statutory capital and surplus, plus certain statutory valuation reserves.

⁽²⁾ Regulatory capital requirement is the company action level and is based on the statutory risk-based capital filing.

Contractual Commitments

There have been no material changes to the Company’s contractual obligations disclosed in the Company’s 2018 10-K.

RIVERSOURCE LIFE INSURANCE COMPANY

Forward-Looking Statements

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


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


•	other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and


•	statements of assumptions underlying such statements.

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

Such factors include, but are not limited to:


•	conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;

•

changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or that may be implemented or modified in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, bank holding company laws and regulations or in light of the U.S. Department of Labor’s fiduciary regulations (as well as state and other fiduciary rules, the Securities and Exchange Commission best interest standards, or similar standards as the Certified Financial Planner Board standards) pertaining to the fiduciary status of investment advice providers to 401(k) plans, plan sponsors, plan participants and the holders of individual retirement or health savings accounts and related issues;


•	the Company’s investment management performance and consumer acceptance of the Company’s products;


•	effects of competition in the financial services industry, including pricing pressure, the introduction of new products and services and changes in product distribution mix and distribution channels;


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


•	the Company’s capital structure as a subsidiary of Ameriprise Financial, including the ability of its parent to support its financial strength and ratings, as well as the opinions of rating agencies and other analysts or the Company’s regulators, distributors or policyholders and contractholders in response to any change or prospect of change in any such opinion;

•

risks of default, capacity constraint or repricing by issuers or guarantors of investments the Company owns or by counterparties to hedge derivative, insurance or reinsurance arrangements, experience deviations from the Company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts and the reactions of other market participants or the Company’s regulators, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;

•

experience deviations from the Company’s assumptions regarding morbidity, mortality, persistency and premium rate increases in certain annuity and insurance products (including, but not limited to, variable annuities and long term care policies), or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying the Company’s valuation and hedging of guaranteed benefit annuity riders, or from assumptions regarding interest rates or asset yield assumed in the Company’s loss recognition testing of its long term care business;


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


•	the Company’s ability to effectively hedge risks relating to guaranteed benefit riders and certain other products;


•	the impact of intercompany allocations to the Company from Ameriprise Financial and its affiliates;


•	Ameriprise Financial’s ability to attract, recruit and retain qualified advisors and employees and its ability to distribute the Company’s products through current and future distribution channels;


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


•	the impacts of Ameriprise Financial’s efforts to improve distribution economics and realize benefits from re-engineering and tax planning;

•

interruptions or other failures in the Company’s communications, technology and other operating systems, including errors or failures caused by third-party service providers, interference or failures caused by third-party attacks on the Company’s systems (or other cybersecurity incidents), or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and

RIVERSOURCE LIFE INSURANCE COMPANY

•

general economic and political factors, including consumer confidence in the economy, the ability and inclination of consumers generally to invest, as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and regulatory rulings and pronouncements.

The Company cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that the Company is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion included in Part I, Item 1A of the Company’s 2018 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 September 30, 2019.

Changes in Internal Control over Financial Reporting

There have not been any changes in RiverSource Life Insurance Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, RiverSource Life Insurance Company’s internal control over financial reporting.

RIVERSOURCE LIFE INSURANCE COMPANY

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 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 2018 10-K.

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 John R. Woerner, Chairman and President, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Brian J. McGrane, Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32*	Certification of John R. Woerner, Chairman and President, and Brian J. McGrane, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from RiverSource Life Insurance Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2019 and December 31, 2018; (ii) Consolidated Statements of Income for the three months and nine months ended September 30, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2019 and 2018; (iv) Consolidated Statements of Equity for the three months and nine months ended September 30, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018; and (vi) Notes to the Consolidated Financial Statements.
104	The cover page from RiverSource Life Insurance Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 is formatted in iXBRL and contained in Exhibit 101.
* Filed electronically herewithin.

RIVERSOURCE LIFE INSURANCE COMPANY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			RIVERSOURCE LIFE INSURANCE COMPANY
			(Registrant)



Date:	November 12, 2019	By:	/s/ John R. Woerner
Date:		By:	John R. Woerner Chairman and President



Date:	November 12, 2019	By:	/s/ Brian J. McGrane
Date:		By:	Brian J. McGrane Executive Vice President and Chief Financial Officer