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EX-32 - EX-32 - RIVERSOURCE LIFE INSURANCE COa11-8309_1ex32.htm
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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended March 31, 2011

 

OR

 

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

 

For the Transition Period from                 to

 

Commission File No.  033-28976

 

RIVERSOURCE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

 

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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer o

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer

 

Smaller reporting company o

(Do not check if a smaller reporting company) x

 

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 2, 2011

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.

 

 

 



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

 

FORM 10-Q

 

INDEX

 

Part I.

Financial Information:

 

 

Item 1.

Financial Statements

 

 

 

Consolidated Balance Sheets — March 31, 2011 and December 31, 2010

1

 

 

Consolidated Statements of Income — Three months ended March 31, 2011 and 2010

2

 

 

Consolidated Statements of Cash Flows — Three months ended March 31, 2011 and 2010

3

 

 

Consolidated Statements of Shareholder’s Equity — Three months ended March 31, 2011 and 2010

4

 

 

Notes to Consolidated Financial Statements

5

 

Item 2.

Management’s Narrative Analysis

24

 

Item 4.

Controls and Procedures

30

Part II.

Other Information:

 

 

Item 1.

Legal Proceedings

30

 

Item 1A.

Risk Factors

30

 

Item 6.

Exhibits

30

 

Signatures

 

31

 

Exhibit Index

E-1

 



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

 

 

March 31,
2011

 

December 31,
2010

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Investments:

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

Fixed maturities, at fair value (amortized cost: 2011, $25,270; 2010, $24,818)

 

$

26,796

 

$

26,442

 

Common stocks, at fair value (cost: 2011 and 2010, $1)

 

2

 

2

 

Commercial mortgage loans, at cost (less allowance for loan losses: 2011, $34; 2010, $36)

 

2,445

 

2,470

 

Policy loans

 

728

 

729

 

Trading securities and other investments

 

518

 

496

 

Total investments

 

30,489

 

30,139

 

Cash and cash equivalents

 

141

 

76

 

Restricted cash

 

27

 

66

 

Reinsurance recoverables

 

1,855

 

1,829

 

Other receivables

 

186

 

166

 

Accrued investment income

 

301

 

309

 

Deferred acquisition costs

 

4,598

 

4,578

 

Deferred sales inducement costs

 

536

 

545

 

Other assets

 

999

 

1,123

 

Separate account assets

 

66,168

 

63,795

 

Total assets

 

$

105,300

 

$

102,626

 

Liabilities and Shareholder’s Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Future policy benefits

 

$

29,288

 

$

29,680

 

Policy claims and other policyholders’ funds

 

134

 

134

 

Deferred income taxes, net

 

488

 

514

 

Borrowings under repurchase agreements

 

497

 

397

 

Line of credit with Ameriprise Financial, Inc.

 

300

 

3

 

Other liabilities

 

1,880

 

1,555

 

Separate account liabilities

 

66,168

 

63,795

 

Total liabilities

 

98,755

 

96,078

 

Shareholder’s equity:

 

 

 

 

 

Common stock, $30 par value; 100,000 shares authorized, issued and outstanding

 

3

 

3

 

Additional paid-in capital

 

2,461

 

2,460

 

Retained earnings

 

3,442

 

3,410

 

Accumulated other comprehensive income, net of tax

 

639

 

675

 

Total shareholder’s equity

 

6,545

 

6,548

 

 

 

 

 

 

 

Total liabilities and shareholder’s equity

 

$

105,300

 

$

102,626

 

 

See Notes to Consolidated Financial Statements.

 

1



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in millions)

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

Revenues

 

 

 

 

 

Premiums

 

$

116

 

$

115

 

Net investment income

 

403

 

406

 

Policy and contract charges

 

381

 

325

 

Other revenues

 

73

 

68

 

Net realized investment gains (losses)

 

(5

)

5

 

Total revenues

 

968

 

919

 

Benefits and expenses

 

 

 

 

 

Benefits, claims, losses and settlement expenses

 

241

 

225

 

Interest credited to fixed accounts

 

207

 

228

 

Amortization of deferred acquisition costs

 

97

 

99

 

Other insurance and operating expenses

 

165

 

133

 

Total benefits and expenses

 

710

 

685

 

Pretax income

 

258

 

234

 

Income tax provision

 

26

 

60

 

Net income

 

$

232

 

$

174

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Net realized investment gains:

 

 

 

 

 

Net realized investment gains (losses) before impairment losses on securities

 

$

(4

)

$

28

 

Total other-than-temporary impairment losses on securities

 

 

(22

)

Portion of loss recognized in other comprehensive income

 

(1

)

(1

)

Net impairment losses recognized in net realized investment gains (losses)

 

(1

)

(23

)

Net realized investment gains (losses)

 

$

(5

)

$

5

 

 

See Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

 RIVERSOURCE LIFE INSURANCE COMPANY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

232

 

$

174

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Capitalization of deferred acquisition and sales inducement costs

 

(108

)

(102

)

Amortization of deferred acquisition and sales inducement costs

 

110

 

111

 

Depreciation, amortization and accretion, net

 

(17

)

(20

)

Deferred income tax expense (benefit)

 

(7

)

321

 

Contractholder and policyholder charges, non-cash

 

(66

)

(65

)

Net realized investment losses (gains)

 

4

 

(31

)

Other-than-temporary impairments and provision for loan losses recognized in net realized investment losses

 

1

 

26

 

Change in operating assets and liabilities:

 

 

 

 

 

Trading securities and equity method investments, net

 

8

 

3

 

Future policy benefits for traditional life, disability income and long term care insurance

 

60

 

62

 

Policy claims and other policyholders’ funds

 

 

20

 

Reinsurance recoverables

 

(26

)

(38

)

Other receivables

 

3

 

(1

)

Accrued investment income

 

8

 

9

 

Derivatives collateral, net

 

14

 

(80

)

Other assets and liabilities, net

 

176

 

(318

)

Net cash provided by operating activities

 

392

 

71

 

Cash Flows from Investing Activities

 

 

 

 

 

Available-for-Sale securities:

 

 

 

 

 

Proceeds from sales

 

397

 

786

 

Maturities, sinking fund payments and calls

 

948

 

894

 

Purchases

 

(1,668

)

(1,239

)

Proceeds from sales, maturities and repayments of commercial mortgage loans

 

47

 

53

 

Funding of commercial mortgage loans

 

(24

)

(49

)

Proceeds from sales of other investments

 

39

 

23

 

Purchase of other investments

 

(80

)

(1

)

Purchase of land, buildings, equipment and software

 

(1

)

(2

)

Change in policy loans, net

 

1

 

 

Net cash provided by (used in) investing activities

 

(341

)

465

 

Cash Flows from Financing Activities

 

 

 

 

 

Policyholder and contractholder account values:

 

 

 

 

 

Considerations received

 

291

 

430

 

Net transfers to separate accounts

 

(46

)

(39

)

Surrenders and other benefits

 

(371

)

(358

)

Change in borrowings under repurchase agreements, net

 

100

 

 

Proceeds from line of credit with Ameriprise Financial, Inc.

 

315

 

 

Payments on line of credit with Ameriprise Financial, Inc.

 

(18

)

(300

)

Deferred premium options, net

 

(58

)

(36

)

Tax adjustment on share-based incentive compensation plan

 

1

 

 

Cash dividend to Ameriprise Financial, Inc.

 

(200

)

(425

)

Net cash provided by (used in) financing activities

 

14

 

(728

)

Net increase (decrease) in cash and cash equivalents

 

65

 

(192

)

Cash and cash equivalents at beginning of period

 

76

 

811

 

Cash and cash equivalents at end of period

 

$

141

 

$

619

 

Supplemental Disclosures:

 

 

 

 

 

Income taxes paid, net

 

$

6

 

$

145

 

Interest paid on borrowings

 

1

 

 

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

 

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)

(in millions)

 

 

 

Common
Shares

 

Additional
Paid-In
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balances at January 1, 2010

 

$

3

 

$

2,445

 

$

3,114

 

$

382

 

$

5,944

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

174

 

 

174

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities gains

 

 

 

 

142

 

142

 

Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities

 

 

 

 

1

 

1

 

Change in net unrealized derivative losses

 

 

 

 

1

 

1

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

318

 

Cash dividend to Ameriprise Financial, Inc.

 

 

 

(425

)

 

(425

)

Balances at March 31, 2010

 

$

3

 

$

2,445

 

$

2,863

 

$

526

 

$

5,837

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2011

 

$

3

 

$

2,460

 

$

3,410

 

$

675

 

$

6,548

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

232

 

 

232

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized securities gains

 

 

 

 

(43

)

(43

)

Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities

 

 

 

 

6

 

6

 

Change in net unrealized derivatives losses

 

 

 

 

1

 

1

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

196

 

Tax adjustment on share-based incentive compensation plan

 

 

1

 

 

 

1

 

Cash dividend to Ameriprise Financial, Inc.

 

 

 

(200

)

 

(200

)

Balances at March 31, 2011

 

$

3

 

$

2,461

 

$

3,442

 

$

639

 

$

6,545

 

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

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 two wholly owned subsidiaries, RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”) and RiverSource Tax Advantaged Investments, Inc. (“RTA”).  RiverSource Life Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”).

 

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

 

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

 

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).  Certain reclassifications of prior period amounts have been made to conform to the current presentation.  Results of operations reported for interim periods are not necessarily indicative of results for the entire year.  These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) on February 23, 2011.

 

The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued.

 

2.              Recent Accounting Pronouncements

 

Adoption of New Accounting Standards

 

How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments

 

In April 2010, the Financial Accounting Standards Board (“FASB”) updated the accounting standards regarding investment funds determined to be variable interest entities (“VIEs”). Under this standard an insurance enterprise would not be required to consolidate a voting-interest investment fund when it holds the majority of the voting interests of the fund through its separate accounts. In addition, the enterprise would not consider the interests held through separate accounts in evaluating its economic interests in a VIE, unless the separate account contract holder is a related party. The standard is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2010. The adoption of the standard did not impact the Company’s consolidated financial condition and results of operations.

 

Fair Value

 

In January 2010, the FASB updated the accounting standards related to disclosures on fair value measurements.  The standard expands the current disclosure requirements to include additional detail about significant transfers between Levels 1 and 2 within the fair value hierarchy and presents activity in the rollforward of Level 3 activity on a gross basis.  The standard also clarifies existing disclosure requirements related to the level of disaggregation to be used for assets and liabilities as well as disclosures on the inputs and valuation techniques used to measure fair value.  The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the Level 3 rollforward, which are effective for interim and annual periods beginning after December 15, 2010.  The Company adopted the standard in the first quarter of 2010, except for the additional disclosures related to the Level 3 rollforward, which the Company adopted in the first quarter of 2011.  The adoption did not impact the Company’s consolidated financial condition and results of operations.  See Note 11 for the required disclosures.

 

Future Adoption of New Accounting Standards

 

Receivables

 

In April 2011, the FASB updated the accounting standards for troubled debt restructurings. The new standard includes indicators that a lender should consider in determining whether a borrower is experiencing financial difficulties and provides clarification for determining whether the lender has granted a concession to the borrower. The standard sets the effective dates for troubled debt restructuring disclosures required by recent guidance on credit quality disclosures. The standard is effective for interim and annual periods beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. For purposes of measuring impairments of receivables that are considered impaired as a result of applying the new guidance, the standard should be applied prospectively for the interim or annual period beginning on or after June 15, 2011. The adoption of the standard is not expected to have a material impact on the Company’s consolidated financial condition and results of operations.

 

5



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

 

In October 2010, the FASB updated the accounting standards for deferred acquisition costs (“DAC”). Under this new standard, only the following costs incurred in the acquisition of new and renewal insurance contracts would be capitalizable as DAC: (i) incremental direct costs of a successful contract acquisition, (ii) portions of employees’ salaries and benefits directly related to time spent performing specified acquisition activities (that is, underwriting, policy issuance and processing, medical and inspection, and sales force contract selling) for a contract that has actually been acquired, (iii) other costs related to the specified acquisition activities that would not have been incurred had the acquisition contract not occurred, and (iv) advertising costs that meet the capitalization criteria in other GAAP guidance for certain direct-response marketing. All other costs are to be expensed as incurred. The standard is effective for interim and annual periods beginning after December 15, 2011, with earlier adoption permitted if it is at the beginning of an entity’s annual reporting period. The standard is to be applied prospectively; however, retrospective application to all prior periods presented is permitted but not required. The Company will adopt the standard on January 1, 2012.  The Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.

 

3.              Variable Interest Entities

 

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

 

RTA’s maximum exposure to loss as a result of its investment in the affordable housing partnerships is limited to the carrying values.  The carrying values are reflected in trading securities and other investments and were $236 million and $244 million as of March 31, 2011 and December 31, 2010, respectively.  RTA has no obligation to provide financial or other support to the affordable housing partnerships in addition to liabilities already recorded for future funding commitments nor has it provided any additional support to the affordable housing partnerships.  The Company had liabilities of $179 million and $188 million recorded in other liabilities as of March 31, 2011 and December 31, 2010, respectively, related to the future funding commitments for affordable housing partnerships.

 

4.              Investments

 

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

 

 

 

March 31, 2011

 

Description of Securities

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Noncredit
OTTI(1)

 

 

 

(in millions)

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

15,069

 

$

1,148

 

$

(53

)

$

16,164

 

$

 

Residential mortgage backed securities

 

4,548

 

276

 

(125

)

4,699

 

(18

)

Commercial mortgage backed securities

 

3,667

 

264

 

(4

)

3,927

 

 

State and municipal obligations

 

983

 

18

 

(56

)

945

 

 

Asset backed securities

 

851

 

42

 

(13

)

880

 

 

Foreign government bonds and obligations

 

93

 

15

 

 

108

 

 

U.S. government and agencies obligations

 

52

 

7

 

 

59

 

 

Other structured investments

 

7

 

7

 

 

14

 

7

 

Total fixed maturities

 

25,270

 

1,777

 

(251

)

26,796

 

(11

)

Common stocks

 

1

 

1

 

 

2

 

 

Total

 

$

25,271

 

$

1,778

 

$

(251

)

$

26,798

 

$

(11

)

 

6



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

 

 

December 31, 2010

 

Description of Securities

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Noncredit
OTTI(1)

 

 

 

(in millions)

 

Fixed maturities:

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

14,792

 

$

1,218

 

$

(56

)

$

15,954

 

$

1

 

Residential mortgage backed securities

 

4,364

 

308

 

(139

)

4,533

 

(30

)

Commercial mortgage backed securities

 

3,817

 

282

 

(4

)

4,095

 

 

Asset backed securities

 

883

 

43

 

(18

)

908

 

 

State and municipal obligations

 

809

 

18

 

(57

)

770

 

 

Foreign government bonds and obligations

 

91

 

16

 

 

107

 

 

U.S. government and agencies obligations

 

55

 

7

 

 

62

 

 

Other structured investments

 

7

 

6

 

 

13

 

6

 

Total fixed maturities

 

24,818

 

1,898

 

(274

)

26,442

 

(23

)

Common stocks

 

1

 

1

 

 

2

 

 

Total

 

$

24,819

 

$

1,899

 

$

(274

)

$

26,444

 

$

(23

)

 


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

 

At both March 31, 2011 and December 31, 2010, fixed maturity securities comprised approximately 88% of the Company’s total investments.  Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”).  The Company uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, the Company may utilize ratings from other NRSROs or rate the securities internally. At both March 31, 2011 and December 31, 2010, approximately $1.2 billion of securities were internally rated by Columbia Management Investment Advisers, LLC using criteria similar to those used by NRSROs.

 

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

 

 

 

March 31, 2011

 

December 31, 2010

 

Ratings

 

Amortized
Cost

 

Fair
Value

 

Percent of
Total Fair
Value

 

Amortized
Cost

 

Fair
Value

 

Percent of
Total Fair
Value

 

 

 

(in millions, except percentages)

 

AAA

 

$

8,179

 

$

8,703

 

32

%

$

8,067

 

$

8,647

 

33

%

AA

 

1,293

 

1,346

 

5

 

1,360

 

1,426

 

5

 

A

 

4,037

 

4,257

 

16

 

4,025

 

4,259

 

16

 

BBB

 

10,411

 

11,249

 

42

 

9,831

 

10,721

 

41

 

Below investment grade

 

1,350

 

1,241

 

5

 

1,535

 

1,389

 

5

 

Total fixed maturities

 

$

25,270

 

$

26,796

 

100

%

$

24,818

 

$

26,442

 

100

%

 

At March 31, 2011 and December 31, 2010, approximately 32% and 29%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.  No holdings of any other issuer were greater than 10% of total equity.

 

7



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

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

 

 

 

March 31, 2011

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

Description of Securities 

 

Number of
Securities

 

Fair
Value

 

Unrealized
Losses

 

Number of
Securities

 

Fair
Value

 

Unrealized
Losses

 

Number of
Securities

 

Fair
Value

 

Unrealized
Losses

 

 

 

(in millions, except number of securities)

 

Corporate debt securities

 

141

 

$

2,315

 

$

(46

)

9

 

$

136

 

$

(7

)

150

 

$

2,451

 

$

(53

)

Residential mortgage backed securities

 

80

 

802

 

(10

)

45

 

318

 

(115

)

125

 

1,120

 

(125

)

Commercial mortgage backed securities

 

9

 

183

 

(4

)

 

 

 

9

 

183

 

(4

)

State and municipal obligations

 

24

 

324

 

(10

)

2

 

89

 

(46

)

26

 

413

 

(56

)

Asset backed securities

 

9

 

140

 

(3

)

16

 

75

 

(10

)

25

 

215

 

(13

)

U.S. government and agencies obligations

 

1

 

13

 

 

 

 

 

1

 

13

 

 

Common stocks

 

1

 

1

 

 

1

 

 

 

2

 

1

 

 

Total

 

265

 

$

3,778

 

$

(73

)

73

 

$

618

 

$

(178

)

338

 

$

4,396

 

$

(251

)

 

 

 

December 31, 2010

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

Description of Securities 

 

Number of
Securities

 

Fair
Value

 

Unrealized
Losses

 

Number of
Securities

 

Fair
Value

 

Unrealized
Losses

 

Number of
Securities

 

Fair
Value

 

Unrealized
Losses

 

 

 

(in millions, except number of securities)

 

Corporate debt securities

 

107

 

$

1,785

 

$

(44

)

13

 

$

153

 

$

(12

)

120

 

$

1,938

 

$

(56

)

Residential mortgage backed securities

 

71

 

310

 

(7

)

45

 

282

 

(132

)

116

 

592

 

(139

)

Commercial mortgage backed securities

 

10

 

238

 

(4

)

 

 

 

10

 

238

 

(4

)

Asset backed securities

 

10

 

186

 

(6

)

15

 

69

 

(12

)

25

 

255

 

(18

)

State and municipal obligations

 

20

 

256

 

(9

)

2

 

87

 

(48

)

22

 

343

 

(57

)

U.S. government and agencies obligations

 

1

 

15

 

 

 

 

 

1

 

15

 

 

Common stocks

 

2

 

1

 

 

1

 

 

 

3

 

1

 

 

Total

 

221

 

$

2,791

 

$

(70

)

76

 

$

591

 

$

(204

)

297

 

$

3,382

 

$

(274

)

 

As part of the Company’s ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to movement in credit spreads.

 

The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Income for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income:

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Beginning balance of credit losses on securities held as of January 1 for which a portion of other-than-temporary impairment was recognized in other comprehensive income

 

$

108

 

$

82

 

Additional amount related to credit losses for which an other-than-temporary impairment was not previously recognized

 

 

14

 

Reductions for securities sold during the period (realized)

 

(16

)

 

Additional increases to the amount related to credit losses for which an other-than-temporary impairment was previously recognized

 

1

 

7

 

Ending balance of credit losses on securities held as of March 31 for which a portion of other-than-temporary impairment was recognized in other comprehensive income

 

$

93

 

$

103

 

 

The change in net unrealized securities gains (losses) in other comprehensive income includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period; (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit

 

8



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

losses and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC, deferred sales inducement costs (“DSIC”), benefit reserves and reinsurance recoverables, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates.

 

The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income:

 

 

 

Net
Unrealized
Securities
Gains (Losses)

 

Deferred
Income
Tax

 

Accumulated
Other

Comprehensive
Income Related to
Net Unrealized
Securities

Gains (Losses)

 

 

 

(in millions)

 

Balance at January 1, 2010

 

$

638

 

$

(222

)

$

416

 

Net unrealized securities gains arising during the period(2)

 

356

 

(126

)

230

 

Reclassification of gains included in net income

 

(8

)

3

 

(5

)

Impact on DAC, DSIC, benefit reserves and reinsurance recoverables

 

(127

)

44

 

(83

)

Balance at March 31, 2010

 

$

859

 

$

(301

)

$

558

(1)

 

 

 

 

 

 

 

 

Balance at January 1, 2011

 

$

1,084

 

$

(379

)

$

705

 

Net unrealized securities losses arising during the period(2)

 

(103

)

36

 

(67

)

Reclassification of losses included in net income

 

5

 

(2

)

3

 

Impact on DAC, DSIC, benefit reserves and reinsurance recoverables

 

42

 

(15

)

27

 

Balance at March 31, 2011

 

$

1,028

 

$

(360

)

$

668

(1)

 


(1)          At March 31, 2011 and 2010, Accumulated Other Comprehensive Income Related to Net Unrealized Securities Gains included $(5) million and $(15) million, respectively, of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities.

 

(2)          Net unrealized securities gains (losses) arising during the period include other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income during the period.

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Gross realized investment gains from sales

 

$

13

 

$

32

 

Gross realized investment losses from sales

 

(17

)

(1

)

Other-than-temporary impairments

 

(1

)

(23

)

 

The other-than-temporary impairments for the three months ended March 31, 2011 and 2010 primarily related to credit losses on non-agency residential mortgage backed securities.

 

9



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

Available-for-Sale securities by contractual maturity at March 31, 2011 were as follows:

 

 

 

Amortized Cost

 

Fair Value

 

 

 

(in millions)

 

Due within one year

 

$

907

 

$

924

 

Due after one year through five years

 

5,237

 

5,540

 

Due after five years through 10 years

 

6,301

 

6,777

 

Due after 10 years

 

3,752

 

4,035

 

 

 

16,197

 

17,276

 

Residential mortgage backed securities

 

4,548

 

4,699

 

Commercial mortgage backed securities

 

3,667

 

3,927

 

Asset backed securities

 

851

 

880

 

Other structured investments

 

7

 

14

 

Common stocks

 

1

 

2

 

Total

 

$

25,271

 

$

26,798

 

 

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, asset backed securities and other structured investments are not due at a single maturity date.  As such, these securities, as well as common stocks, were not included in the maturities distribution.

 

5.              Financing Receivables

 

The Company’s financing receivables include commercial mortgage loans, syndicated loans and policy loans.  The Company does not hold any loans acquired with deteriorated credit quality.

 

Allowance for Loan Losses

 

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

 

 

 

March 31, 2011

 

March 31, 2010

 

 

 

Commercial
Mortgage
Loans

 

Syndicated
Loans

 

Total

 

Commercial
Mortgage
Loans

 

Syndicated
Loans

 

Total

 

 

 

(in millions)

 

Beginning balance

 

$

36

 

$

5

 

$

41

 

$

30

 

$

12

 

$

42

 

Charge-offs

 

(2

)

 

(2

)

 

 

 

Provisions

 

 

 

 

6

 

(3

)

3

 

Ending balance

 

$

34

 

$

5

 

$

39

 

$

36

 

$

9

 

$

45

 

Ending balance: Individually evaluated for impairment

 

$

8

 

$

 

$

8

 

$

4

 

$

 

$

4

 

Ending balance: Collectively evaluated for impairment

 

26

 

5

 

31

 

32

 

9

 

41

 

 

The recorded investment in financing receivables by impairment method and type of loan was as follows:

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

Commercial
Mortgage
Loans

 

Syndicated
Loans

 

Total

 

Commercial
Mortgage
Loans

 

Syndicated
Loans

 

Total

 

 

 

(in millions)

 

Ending balance: Individually evaluated for impairment

 

$

67

 

$

 

$

67

 

$

75

 

$

 

$

75

 

Ending balance: Collectively evaluated for impairment

 

2,412

 

236

 

2,648

 

2,431

 

205

 

2,636

 

Ending balance

 

$

2,479

 

$

236

 

$

2,715

 

$

2,506

 

$

205

 

$

2,711

 

 

As of March 31, 2011 and December 31, 2010, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $9 million and $19 million, respectively.

 

10



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

During the three months ended March 31, 2011 and 2010, the Company purchased $63 million and nil and sold $1 million and $1 million, respectively, of syndicated loans.

 

Credit Quality Information

 

Nonperforming loans, which are generally loans 90 days or more past due, were $3 million and $8 million as of March 31, 2011 and December 31, 2010, 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 3% of commercial mortgage loans at both March 31, 2011 and December 31, 2010. 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 in the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.

 

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

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

Loans

 

Percent of
Loans

 

Funding
Commitments

 

Loans

 

Percent of
Loans

 

Funding
Commitments

 

 

 

(in millions, except percentages)

 

South Atlantic

 

$

586

 

24

%

$

8

 

$

590

 

24

%

$

4

 

Pacific

 

536

 

22

 

14

 

530

 

21

 

15

 

Mountain

 

280

 

11

 

 

286

 

11

 

 

West North Central

 

245

 

10

 

1

 

251

 

10

 

 

East North Central

 

235

 

9

 

 

240

 

10

 

 

Middle Atlantic

 

216

 

9

 

1

 

212

 

8

 

 

West South Central

 

178

 

7

 

 

183

 

7

 

 

New England

 

138

 

5

 

 

148

 

6

 

2

 

East South Central

 

65

 

3

 

 

66

 

3

 

 

 

 

2,479

 

100

%

$

24

 

2,506

 

100

%

$

21

 

Less: allowance for loan losses

 

(34

)

 

 

 

 

(36

)

 

 

 

 

Total

 

$

2,445

 

 

 

 

 

$

2,470

 

 

 

 

 

 

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

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

Loans

 

Percent of
Loans

 

Funding
Commitments

 

Loans

 

Percent of
Loans

 

Funding
Commitments

 

 

 

(in millions, except percentages)

 

Retail

 

$

816

 

33

%

$

9

 

$

820

 

33

%

$

10

 

Office

 

691

 

28

 

 

717

 

29

 

 

Industrial

 

452

 

18

 

7

 

456

 

18

 

6

 

Apartments

 

323

 

13

 

8

 

326

 

13

 

 

Hotel

 

56

 

2

 

 

57

 

2

 

 

Mixed Use

 

42

 

2

 

 

43

 

2

 

 

Other

 

99

 

4

 

 

87

 

3

 

5

 

 

 

2,479

 

100

%

$

24

 

2,506

 

100

%

$

21

 

Less: allowance for loan losses

 

(34

)

 

 

 

 

(36

)

 

 

 

 

Total

 

$

2,445

 

 

 

 

 

$

2,470

 

 

 

 

 

 

11



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

Syndicated Loans

 

The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at both March 31, 2011 and December 31, 2010 were $1 million.

 

6.              Deferred Acquisition Costs and Deferred Sales Inducement Costs

 

The balances of and changes in DAC were as follows:

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Balance at January 1

 

$

4,578

 

$

4,285

 

Capitalization of acquisition costs

 

105

 

87

 

Amortization

 

(97

)

(99

)

Impact of change in net unrealized securities losses (gains)

 

12

 

(77

)

Balance at March 31

 

$

4,598

 

$

4,196

 

 

The balances of and changes in DSIC were as follows:

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Balance at January 1

 

$

545

 

$

524

 

Capitalization of sales inducement costs

 

3

 

15

 

Amortization

 

(13

)

(12

)

Impact of change in net unrealized securities losses (gains)

 

1

 

(13

)

Balance at March 31

 

$

536

 

$

514

 

 

7.              Future Policy Benefits, Policy Claims and Other Policyholders’ Funds and Separate Account Liabilities

 

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

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Fixed annuities

 

$

16,395

 

$

16,520

 

Equity indexed annuities (“EIA”) accumulated host values

 

86

 

100

 

EIA embedded derivatives

 

3

 

3

 

Variable annuity fixed sub-accounts

 

4,795

 

4,868

 

Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)

 

164

 

337

 

Variable annuity guaranteed minimum accumulation benefits (“GMAB”)

 

49

 

104

 

Other variable annuity guarantees

 

12

 

13

 

Total annuities

 

21,504

 

21,945

 

Variable universal life (“VUL”)/universal life (“UL”) insurance

 

2,590

 

2,588

 

VUL/UL insurance additional liabilities

 

152

 

143

 

Other life, disability income and long term care insurance

 

5,042

 

5,004

 

Total future policy benefits

 

29,288

 

29,680

 

Policy claims and other policyholders’ funds

 

134

 

134

 

Total future policy benefits and policy claims and other policyholders’ funds

 

$

29,422

 

$

29,814

 

 

Separate account liabilities consisted of the following:

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

(in millions)

 

Variable annuity variable sub-accounts

 

$

60,018

 

$

57,862

 

VUL insurance variable sub-accounts

 

6,104

 

5,887

 

Other insurance variable sub-accounts

 

46

 

46

 

Total

 

$

66,168

 

$

63,795

 

 

8.              Variable Annuity and Insurance Guarantees

 

The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions.  The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits.  In addition,

 

12



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

the Company offers contracts with GMWB and GMAB provisions.  The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.

 

Certain UL contracts offered by the Company provide secondary guarantee benefits.  The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

 

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

 

 

 

March 31, 2011

 

December 31, 2010

 

Variable Annuity
Guarantees by Benefit
Type (1)

 

Total
Contract
Value

 

Contract
Value in
Separate
Accounts

 

Net
Amount
at Risk(2)

 

Weighted
Average
Attained
Age

 

Total
Contract
Value

 

Contract
Value in
Separate
Accounts

 

Net
Amount
at Risk(2)

 

Weighted
Average
Attained
Age

 

 

 

(in millions, except age)

 

GMDB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return of premium

 

$

39,612

 

$

37,951

 

$

109

 

62

 

$

37,714

 

$

36,028

 

$

173

 

62

 

Five/six-year reset

 

13,638

 

11,127

 

226

 

62

 

13,689

 

11,153

 

312

 

62

 

One-year ratchet

 

7,885

 

7,404

 

184

 

64

 

7,741

 

7,242

 

287

 

63

 

Five-year ratchet

 

1,525

 

1,474

 

5

 

60

 

1,466

 

1,414

 

8

 

60

 

Other

 

721

 

694

 

51

 

67

 

680

 

649

 

61

 

67

 

Total — GMDB

 

$

63,381

 

$

58,650

 

$

575

 

62

 

$

61,290

 

$

56,486

 

$

841

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GGU death benefit

 

$

997

 

$

940

 

$

83

 

64

 

$

970

 

$

912

 

$

79

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMIB

 

$

585

 

$

551

 

$

62

 

64

 

$

597

 

$

561

 

$

76

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMWB

 

$

4,367

 

$

4,345

 

$

58

 

65

 

$

4,341

 

$

4,317

 

$

106

 

64

 

GMWB for life

 

21,899

 

21,804

 

62

 

64

 

20,374

 

20,259

 

129

 

63

 

Total — GMWB

 

$

26,266

 

$

26,149

 

$

120

 

64

 

$

24,715

 

$

24,576

 

$

235

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GMAB

 

$

3,677

 

$

3,665

 

$

9

 

56

 

$

3,540

 

$

3,523

 

$

22

 

56

 

 


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

 

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

 

Changes in additional liabilities for variable annuity and insurance guarantees were as follows:

 

 

 

GMDB &
GGU

 

GMIB

 

GMWB

 

GMAB

 

UL

 

 

 

(in millions)

 

Liability balance at January 1, 2010

 

$

6

 

$

6

 

$

204

 

$

100

 

$

15

 

Incurred claims

 

3

 

 

(83

)

(22

)

4

 

Paid claims

 

(5

)

 

 

 

(2

)

Liability balance at March 31, 2010

 

$

4

 

$

6

 

$

121

 

$

78

 

$

17

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability balance at January 1, 2011

 

$

5

 

$

8

 

$

337

 

$

104

 

$

68

 

Incurred claims

 

2

 

 

(173

)

(55

)

12

 

Paid claims

 

(2

)

(1

)

 

 

(2

)

Liability balance at March 31, 2011

 

$

5

 

$

7

 

$

164

 

$

49

 

$

78

 

 

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

 

13



Table of Contents

 

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

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

 

 

 

March 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(in millions)

 

Mutual funds:

 

 

 

 

 

Equity

 

$

33,777

 

$

32,310

 

Bond

 

23,020

 

22,319

 

Other

 

2,185

 

2,208

 

Total mutual funds

 

$

58,982

 

$

56,837

 

 

9.              Line of Credit

 

RiverSource Life Insurance Company, as the borrower, had an outstanding balance at March 31, 2011 and December 31, 2010 of $300 million and $3 million, respectively, under a revolving credit agreement with Ameriprise Financial as the lender.  The aggregate amount outstanding under the line of credit may not exceed $800 million at any time.  Prior to January 2011, the interest rate for any borrowing under the agreement was established by reference to LIBOR plus 28 basis points.  In January 2011, an amendment to this agreement increased the interest rate to LIBOR plus 115 basis points.  Amounts borrowed may be repaid at any time with no prepayment penalty.  The outstanding balance at December 31, 2010 was paid in full with a payment in January 2011.

 

10.       Borrowings under Repurchase Agreements

 

The Company enters into repurchase agreements in exchange for cash which it accounts for as secured borrowings.  The Company has pledged Available-for-Sale securities consisting of agency residential mortgage backed securities and commercial mortgage backed securities to collateralize its obligation under the repurchase agreements. The fair value of the securities pledged is recorded in investments and was $521 million and $412 million at March 31, 2011 and December 31, 2010, respectively. The amount of the Company’s liability including accrued interest as of March 31, 2011 and December 31, 2010 was $497 million and $397 million, respectively.  The weighted average annualized interest rate on the repurchase agreements held as of both March 31, 2011 and December 31, 2010 was 0.3%.

 

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