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EX-32 - EXHIBIT 32 - RIVERSOURCE LIFE INSURANCE COrvs09302016-exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - RIVERSOURCE LIFE INSURANCE COrvs09302016-exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - RIVERSOURCE LIFE INSURANCE COrvs09302016-exhibit311.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016
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 x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer o
Accelerated Filer o
 
Non-Accelerated Filer x
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 2, 2016
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, 2016 and December 31, 2015
3

Consolidated Statements of Income — Three months and nine months ended September 30, 2016 and 2015
4

Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2016 and 2015
4

Consolidated Statements of Shareholder’s Equity — Nine months ended September 30, 2016 and 2015
5

Consolidated Statements of Cash Flows — Nine months ended September 30, 2016 and 2015
6

Notes to Consolidated Financial Statements
8

1. Basis of Presentation
8

2. Recent Accounting Pronouncements
8

3. Variable Interest Entities
9

4. Investments
10

5. Financing Receivables
13

6. Deferred Acquisition Costs and Deferred Sales Inducement Costs
15

7. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
16

8. Variable Annuity and Insurance Guarantees
17

9. Short-term Borrowings
18

10. Fair Values of Assets and Liabilities
19

11. Offsetting Assets and Liabilities
30

12. Derivatives and Hedging Activities
32

13. Shareholder’s Equity
35

14. Income Taxes
37

15. Guarantees and Contingencies
38

Item 2.  Management’s Narrative Analysis
39

Item 4.  Controls and Procedures
48

 
 
Part II.  Other Information
49

Item 1.  Legal Proceedings
49

Item 1A.  Risk Factors
49

Item 6.  Exhibits
49

Signatures
50

Exhibit Index
E-1



2



RIVERSOURCE LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
September 30,
2016
 
December 31,
2015
 
(in millions, except share amounts)
Assets
 

 
 

Investments:
 

 
 

Available-for-Sale:
 

 
 

Fixed maturities, at fair value (amortized cost: 2016, $21,191; 2015, $20,886)
$
23,137

 
$
21,772

Common stocks, at fair value (cost: 2016, $3; 2015, $2)
8

 
7

Mortgage loans, at amortized cost (less allowance for loan losses: 2016 and 2015, $19)
2,870

 
3,211

Policy loans
835

 
823

Other investments
995

 
998

Total investments
27,845

 
26,811

Cash and cash equivalents
955

 
370

Reinsurance recoverables
2,602

 
2,415

Other receivables
294

 
255

Accrued investment income
233

 
244

Deferred acquisition costs
2,496

 
2,688

Other assets
5,833

 
4,569

Separate account assets
77,458

 
76,004

Total assets
$
117,716

 
$
113,356

 
 
 
 
Liabilities and Shareholder’s Equity
 

 
 

Liabilities:
 

 
 

Policyholder account balances, future policy benefits and claims
$
30,755

 
$
29,029

Short-term borrowings
200

 
200

Other liabilities
5,159

 
4,058

Separate account liabilities
77,458

 
76,004

Total liabilities
113,572

 
109,291

Shareholder’s equity:
 

 
 

Common stock, $30 par value; 100,000 shares authorized, issued and outstanding
3

 
3

Additional paid-in capital
2,467

 
2,465

Retained earnings
936

 
1,202

Accumulated other comprehensive income, net of tax
738

 
395

Total shareholder’s equity
4,144

 
4,065

Total liabilities and shareholder’s equity
$
117,716

 
$
113,356

See Notes to Consolidated Financial Statements.

3



RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Revenues
 

 
 

 
 
 
 
Premiums
$
104

 
$
95

 
$
315

 
$
300

Net investment income
276

 
296

 
850

 
904

Policy and contract charges
557

 
470

 
1,501

 
1,405

Other revenues
104

 
103

 
303

 
320

Net realized investment gains (losses)
1

 
(11
)
 
15

 
5

Total revenues
1,042

 
953

 
2,984

 
2,934

Benefits and expenses
 

 
 

 
 
 
 
Benefits, claims, losses and settlement expenses
590

 
236

 
1,148

 
817

Interest credited to fixed accounts
161

 
171

 
465

 
503

Amortization of deferred acquisition costs
144

 
112

 
299

 
241

Other insurance and operating expenses
149

 
170

 
505

 
539

Total benefits and expenses
1,044

 
689

 
2,417

 
2,100

Pretax income (loss)
(2
)
 
264

 
567

 
834

Income tax provision (benefit)
(38
)
 
40

 
33

 
144

Net income
$
36

 
$
224

 
$
534

 
$
690

 
 
 
 
 
 
 
 
Supplemental Disclosures:
 

 
 
 
 
 
 
Total other-than-temporary impairment losses on securities
$

 
$
(7
)
 
$

 
$
(8
)
Portion of loss recognized in other comprehensive income (before taxes)

 

 

 
1

Net impairment losses recognized in net realized investment gains
$

 
$
(7
)
 
$

 
$
(7
)
See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Net income
$
36

 
$
224

 
$
534

 
$
690

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
   Net unrealized gains (losses) on securities
(26
)
 
(26
)
 
340

 
(176
)
   Net unrealized gains on derivatives
1

 
1

 
3

 
3

Total other comprehensive income (loss), net of tax
(25
)
 
(25
)
 
343

 
(173
)
Total comprehensive income
$
11

 
$
199

 
$
877

 
$
517

See Notes to Consolidated Financial Statements.

4



RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)
 
Common Shares
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other
Comprehensive Income
 
Total
 
(in millions)
Balances at January 1, 2015
$
3

 
$
2,464

 
$
1,107

 
$
729

 
$
4,303

Comprehensive income:
 

 
 

 
 

 
 

 
 

Net income

 

 
690

 

 
690

Other comprehensive loss, net of tax

 

 

 
(173
)
 
(173
)
Total comprehensive income
 

 
 

 
 

 
 

 
517

Tax adjustment on share-based incentive compensation plan

 
2

 

 

 
2

Cash dividends to Ameriprise Financial, Inc.

 

 
(675
)
 

 
(675
)
Balances at September 30, 2015
$
3

 
$
2,466

 
$
1,122

 
$
556

 
$
4,147

 
 
 
 
 
 
 
 
 
 
Balances at January 1, 2016
$
3

 
$
2,465

 
$
1,202

 
$
395

 
$
4,065

Comprehensive income:
 

 
 

 
 

 
 

 
 

Net income

 

 
534

 

 
534

Other comprehensive income, net of tax

 

 

 
343

 
343

Total comprehensive income
 

 
 

 
 

 
 

 
877

Tax adjustment on share-based incentive compensation plan

 
2

 

 

 
2

Cash dividends to Ameriprise Financial, Inc.

 

 
(800
)
 

 
(800
)
Balances at September 30, 2016
$
3

 
$
2,467

 
$
936

 
$
738

 
$
4,144

See Notes to Consolidated Financial Statements.


5



RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions)
Cash Flows from Operating Activities
 

 
 

Net income
$
534

 
$
690

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

 
 

Depreciation, amortization and accretion, net
30

 
10

Deferred income tax benefit
(5
)
 
(5
)
Contractholder and policyholder charges, non-cash
(260
)
 
(249
)
Loss from equity method investments
43

 
25

Net realized investment gains
(17
)
 
(14
)
Other-than-temporary impairments and provision for loan losses recognized in net realized investment gains
2

 
9

Changes in operating assets and liabilities:
 

 
 

Deferred acquisition costs
87

 
40

Policyholder account balances, future policy benefits and claims, net
1,389

 
879

Derivatives, net of collateral
(658
)
 
(162
)
Reinsurance recoverables
(200
)
 
(95
)
Other receivables
(20
)
 
16

Accrued investment income
11

 
8

Other, net
169

 
406

Net cash provided by operating activities
1,105

 
1,558

 
 
 
 
Cash Flows from Investing Activities
 

 
 

Available-for-Sale securities:
 

 
 

Proceeds from sales
254

 
120

Maturities, sinking fund payments and calls
1,815

 
2,090

Purchases
(2,343
)
 
(1,768
)
Proceeds from sales, maturities and repayments of mortgage loans
679

 
469

Funding of mortgage loans
(327
)
 
(397
)
Proceeds from sales and collections of other investments
101

 
94

Purchase of other investments
(105
)
 
(124
)
Purchase of land, buildings, equipment and software
(7
)
 
(8
)
Change in policy loans, net
(12
)
 
(18
)
Other, net
22

 
30

Net cash provided by investing activities
77

 
488

See Notes to Consolidated Financial Statements.

6



RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions)
Cash Flows from Financing Activities
 

 
 

Policyholder account balances:
 

 
 

Deposits and other additions
$
1,532

 
$
1,514

Net transfers from (to) separate accounts
113

 
(141
)
Surrenders and other benefits
(1,448
)
 
(2,169
)
Proceeds from line of credit with Ameriprise Financial, Inc.
10

 
6

Payments on line of credit with Ameriprise Financial, Inc.
(10
)
 
(6
)
Tax adjustment on share-based incentive compensation plan
2

 
2

Cash received for purchased options with deferred premiums
242

 
8

Cash paid for purchased options with deferred premiums
(238
)
 
(286
)
Cash dividends to Ameriprise Financial, Inc.
(800
)
 
(675
)
Net cash used in financing activities
(597
)
 
(1,747
)
Net increase in cash and cash equivalents
585

 
299

Cash and cash equivalents at beginning of period
370

 
307

Cash and cash equivalents at end of period
$
955

 
$
606

 
 
 
 
Supplemental Disclosures:
 

 
 

Income taxes received, net
$
(31
)
 
$
(145
)
Interest paid on borrowings
1

 
1

Non-cash investing activity:
 

 
 

Partnership commitments not yet remitted
75

 
9

See Notes to Consolidated Financial Statements.




7



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 a fair presentation of the consolidated financial position and results of operations for the interim periods have been made. Except for the adjustment described below, all adjustments made were of a normal recurring nature.
In the third quarter of 2016, the Company recorded a $29 million increase to long term care (“LTC”) reserves for an out-of-period correction related to its claim utilization assumption. The impact to prior period financial statements was not material.
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, 2015, filed with the Securities and Exchange Commission on February 25, 2016.
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
Fair Value Measurement - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
In May 2015, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to fair value measurement. The update applies to investments that are measured at net asset value (“NAV”). The standard eliminates the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share as a practical expedient. In addition, the update limits disclosures about the nature and risks of the investments to investments for which the entity elected to measure the fair value using the practical expedient rather than all investments that are eligible for the NAV practical expedient. The standard is effective for interim and annual periods beginning after December 15, 2015. The Company adopted the standard on January 1, 2016 on a retrospective basis to all periods presented. There was no impact of the standard to the Company’s consolidated financial condition or results of operations.
Consolidation
In February 2015, the FASB updated the accounting standard for consolidation. The update changes the accounting for the consolidation model for limited partnerships and variable interest entities (“VIEs”) and excludes certain money market funds from the consolidation analysis. Specific to the consolidation analysis of a VIE, the update clarifies consideration of fees paid to a decision maker and amends the related party guidance. The standard is effective for periods beginning after December 15, 2015. The Company adopted the standard on January 1, 2016 using the modified retrospective approach. There was no impact of the standard to the Company’s consolidated financial condition or results of operations.
Future Adoption of New Accounting Standards
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB updated the accounting standards related to classification of certain cash receipts and cash payments on the statement of cash flows. The update includes amendments to address diversity in practice for the classification of eight specific cash flow activities. The specific amendments the Company is evaluating include the classification of proceeds from insurance settlements and corporate owned life insurance settlements, distributions from equity method investees and the application of the predominance principle to separately identifiable cash flows. The standard is effective for interim and annual periods beginning after December 15,

8



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

2017. Early adoption is permitted and all amendments must be adopted during the same period. The Company is currently evaluating the impact of the standard, but does not expect adoption of the standard to have a material impact on its consolidated cash flows.
Financial Instruments - Measurement of Credit Losses
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 Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.
Leases - Recognition of Lease Assets and Liabilities on Balance Sheet
In February 2016, the FASB updated the accounting standards for leases. The update was issued to increase transparency and comparability for the accounting of lease transactions. The standard will require 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 is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The update should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.
Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for certain provisions. Generally, the update should be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption. The Company is currently evaluating the impact of the standard on its consolidated financial condition and results of operations.
Revenue from Contracts with Customers
In May 2014, the FASB updated the accounting standards for revenue from contracts with customers. The update provides a five step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract and requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Subsequent related updates provide clarification on certain revenue recognition guidance in the new standard. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for interim and annual periods beginning after December 15, 2016. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company is currently evaluating the impact of the standard on its consolidated financial condition, results of operations and disclosures.
3. Variable Interest Entities
The Company has variable interests in affordable housing partnerships for which it is not the primary beneficiary and therefore does not consolidate. The Company’s maximum exposure to loss as a result of its investments in affordable housing partnerships is limited to the carrying value of these investments. The carrying value is reflected in other investments and was $544 million and $517 million as of September 30, 2016 and December 31, 2015, respectively. The Company 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 has variable interests in a partnership that invests in properties that may requalify for low income tax credits. The Company is not the primary beneficiary and therefore does not consolidate partnership. The Company’s maximum exposure to loss as a result of its investment in the partnership is limited to the carrying value, which is reflected in other investments and was $10 million

9



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

at September 30, 2016. The Company has no obligation to provide financial or other support to the partnership in addition to liabilities already recorded for future funding commitments nor has it provided any additional support to the partnership.
The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its carrying value. The carrying value is included in Available-for-Sale fixed maturities on the Consolidated Balance Sheets. 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 4 for additional information about these structured investments.
4. Investments
Available-for-Sale securities distributed by type were as follows:
 
 
September 30, 2016
Description of Securities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
 
(in millions)
Fixed maturities:
 
 

 
 

 
 

 
 

 
 

Corporate debt securities
 
$
13,134

 
$
1,477

 
$
(38
)
 
$
14,573

 
$
3

Residential mortgage backed securities
 
3,401

 
127

 
(18
)
 
3,510

 
(5
)
Commercial mortgage backed securities
 
2,524

 
127

 
(1
)
 
2,650

 

State and municipal obligations
 
1,072

 
231

 
(13
)
 
1,290

 

Asset backed securities
 
805

 
34

 
(5
)
 
834

 

Foreign government bonds and obligations
 
251

 
28

 
(4
)
 
275

 

U.S. government and agencies obligations
 
4

 
1

 

 
5

 

Total fixed maturities
 
21,191

 
2,025

 
(79
)
 
23,137

 
(2
)
Common stocks
 
3

 
5

 

 
8

 
3

Total
 
$
21,194

 
$
2,030

 
$
(79
)
 
$
23,145

 
$
1

 
 
December 31, 2015
Description of Securities
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
 
(in millions)
Fixed maturities:
 
 

 
 

 
 

 
 

 
 

Corporate debt securities
 
$
13,764

 
$
891

 
$
(281
)
 
$
14,374

 
$
2

Residential mortgage backed securities
 
3,015

 
96

 
(36
)
 
3,075

 
(8
)
Commercial mortgage backed securities
 
2,081

 
68

 
(13
)
 
2,136

 

State and municipal obligations
 
1,023

 
153

 
(27
)
 
1,149

 

Asset backed securities
 
748

 
33

 
(5
)
 
776

 

Foreign government bonds and obligations
 
217

 
17

 
(11
)
 
223

 

U.S. government and agencies obligations
 
38

 
1

 

 
39

 

Total fixed maturities
 
20,886

 
1,259

 
(373
)
 
21,772

 
(6
)
Common stocks
 
2

 
5

 

 
7

 
3

Total
 
$
20,888

 
$
1,264

 
$
(373
)
 
$
21,779

 
$
(3
)
 (1) 
Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income (“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.

10



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

As of September 30, 2016 and December 31, 2015, investment securities with a fair value of $1.2 billion and $862 million, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $206 million and $408 million, respectively, may be sold, pledged or rehypothecated by the counterparty.
As of September 30, 2016 and December 31, 2015, fixed maturity securities comprised approximately 83% and 81%, 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, 2016 and December 31, 2015, approximately $977 million and $1.1 billion, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC, an affiliate of the Company, using criteria similar to those used by NRSROs.
A summary of fixed maturity securities by rating was as follows:
 
 
September 30, 2016
 
December 31, 2015
Ratings
 
Amortized Cost
 
Fair Value
 
Percent of Total Fair Value
 
Amortized Cost
 
Fair Value
 
Percent of Total Fair Value
 
 
(in millions, except percentages)
 
 
AAA
 
$
5,376

 
$
5,625

 
24
%
 
$
4,661

 
$
4,806

 
22
%
AA
 
1,010

 
1,248

 
6

 
1,010

 
1,185

 
5

A
 
3,777

 
4,333

 
19

 
3,749

 
4,101

 
19

BBB
 
9,559

 
10,461

 
45

 
9,964

 
10,278

 
47

Below investment grade
 
1,469

 
1,470

 
6

 
1,502

 
1,402

 
7

Total fixed maturities
 
$
21,191

 
$
23,137

 
100
%
 
$
20,886

 
$
21,772

 
100
%
At September 30, 2016 and December 31, 2015, approximately 42% and 47%, 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.
The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
 
September 30, 2016
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
20

 
$
146

 
$
(2
)
 
37

 
$
361

 
$
(36
)
 
57

 
$
507

 
$
(38
)
Residential mortgage backed securities
28

 
434

 
(3
)
 
56

 
370

 
(15
)
 
84

 
804

 
(18
)
Commercial mortgage backed securities
13

 
190

 
(1
)
 
1

 
11

 

 
14

 
201

 
(1
)
State and municipal obligations
3

 
7

 

 
2

 
113

 
(13
)
 
5

 
120

 
(13
)
Asset backed securities
22

 
215

 
(3
)
 
6

 
50

 
(2
)
 
28

 
265

 
(5
)
Foreign government bonds and obligations
1

 
1

 

 
14

 
24

 
(4
)
 
15

 
25

 
(4
)
Total
87

 
$
993

 
$
(9
)
 
116

 
$
929

 
$
(70
)
 
203

 
$
1,922

 
$
(79
)

11



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

 
December 31, 2015
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
253

 
$
3,703

 
$
(208
)
 
35

 
$
300

 
$
(73
)
 
288

 
$
4,003

 
$
(281
)
Residential mortgage backed securities
36

 
535

 
(7
)
 
59

 
526

 
(29
)
 
95

 
1,061

 
(36
)
Commercial mortgage backed securities
45

 
568

 
(12
)
 
3

 
33

 
(1
)
 
48

 
601

 
(13
)
State and municipal obligations
9

 
40

 
(1
)
 
2

 
101

 
(26
)
 
11

 
141

 
(27
)
Asset backed securities
21

 
241

 
(5
)
 

 

 

 
21

 
241

 
(5
)
Foreign government bonds and obligations
9

 
39

 
(2
)
 
15

 
27

 
(9
)
 
24

 
66

 
(11
)
Total
373

 
$
5,126

 
$
(235
)
 
114

 
$
987

 
$
(138
)
 
487

 
$
6,113

 
$
(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 a decrease in interest rates and a tightening of 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 Available-for-Sale securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss) (“OCI”):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Beginning balance
$
33

 
$
33

 
$
33

 
$
33

Credit losses for which an other-than-temporary impairment was previously recognized

 

 

 

Ending balance
$
33

 
$
33

 
$
33

 
$
33

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,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Gross realized investment gains
$
5

 
$
1

 
$
18

 
$
23

Gross realized investment losses
(3
)
 
(4
)
 
(11
)
 
(9
)
Other-than-temporary impairments

 
(7
)
 

 
(7
)
Total
$
2

 
$
(10
)
 
$
7

 
$
7

Other-than-temporary impairments for the three months and nine months ended September 30, 2015 primarily related to credit losses on corporate debt securities.
See Note 13 for a rollforward of net unrealized investment gains (losses) included in AOCI.

12



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

Available-for-Sale securities by contractual maturity at September 30, 2016 were as follows:
 
Amortized Cost
 
Fair Value
 
(in millions)
Due within one year
$
503

 
$
516

Due after one year through five years
5,964

 
6,414

Due after five years through 10 years
4,270

 
4,538

Due after 10 years
3,724

 
4,675

 
14,461

 
16,143

Residential mortgage backed securities
3,401

 
3,510

Commercial mortgage backed securities
2,524

 
2,650

Asset backed securities
805

 
834

Common stocks
3

 
8

Total
$
21,194

 
$
23,145

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities, as well as common stocks, were not included in the maturities distribution.
The following is a summary of net investment income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Fixed maturities
$
249

 
$
257

 
$
751

 
$
783

Mortgage loans
38

 
43

 
115

 
134

Other investments
(4
)
 
6

 
4

 
14

 
283

 
306

 
870

 
931

Less: investment expenses
7

 
10

 
20

 
27

Total
$
276

 
$
296

 
$
850

 
$
904

5. Financing Receivables
The Company’s financing receivables include commercial and residential mortgage loans, syndicated loans and policy loans. Syndicated loans are reflected in other investments.
Allowance for Loan Losses
Policy loans do not exceed the cash surrender value of the policy at origination. As there is minimal risk of loss related to policy loans, the Company does not record an allowance for loan losses for policy loans. The Company does not currently have an allowance for loan losses for residential mortgage loans.
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,
 
2016
 
2015
 
(in millions)
Beginning balance
$
25

 
$
28

Charge-offs
(1
)
 
(3
)
Provisions
1

 
1

Ending balance
$
25


$
26

 
 
 
 
Individually evaluated for impairment
$
2

 
$
5

Collectively evaluated for impairment
23

 
21


13



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

The recorded investment in financing receivables by impairment method was as follows:
 
September 30,
2016
 
December 31, 2015
 
(in millions)
Individually evaluated for impairment
$
14

 
$
25

Collectively evaluated for impairment
3,284

 
3,657

Total
$
3,298

 
$
3,682

As of September 30, 2016 and December 31, 2015, 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 $12 million, respectively.
During the three months ended September 30, 2016 and 2015, the Company purchased $17 million and $46 million, respectively, and sold nil and $8 million, respectively, of loans. During the nine months ended September 30, 2016 and 2015, the Company purchased $54 million and $82 million, respectively, and sold $250 million and $15 million, respectively, of loans. The loans sold during the nine months ended September 30, 2016 consisted of residential mortgage loans, which were sold in the first quarter of 2016. See below for additional discussion on the sale of these loans.
Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were $5 million and $8 million as of September 30, 2016 and December 31, 2015, 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 nil and 1% of total commercial mortgage loans at September 30, 2016 and December 31, 2015, respectively. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.
Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
 
Loans
 
Percentage
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
 
(in millions)
 
 
 
 
South Atlantic
$
740

 
$
746

 
29
%
 
28
%
Pacific
702

 
709

 
27

 
27

Mountain
254

 
242

 
10

 
9

West North Central
216

 
217

 
8

 
8

Middle Atlantic
190

 
203

 
7

 
8

East North Central
199

 
208

 
8

 
8

West South Central
119

 
128

 
5

 
5

New England
92

 
115

 
3

 
4

East South Central
70

 
68

 
3

 
3

 
2,582

 
2,636

 
100
%
 
100
%
Less: allowance for loan losses
19

 
19

 
 

 
 

Total
$
2,563

 
$
2,617

 
 

 
 


14



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

Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 
Loans
 
Percentage
 
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
 
(in millions)
 
 
 
 
Retail
$
927

 
$
947

 
36
%

36
%
Office
480

 
522

 
19

 
20

Apartments
475

 
473

 
18

 
18

Industrial
430

 
444

 
17

 
17

Mixed use
37

 
35

 
1

 
1

Hotel
42

 
34

 
2

 
1

Other
191

 
181

 
7

 
7

 
2,582

 
2,636

 
100
%
 
100
%
Less: allowance for loan losses
19

 
19

 
 

 
 

Total
$
2,563

 
$
2,617

 
 

 
 

Residential Mortgage Loans
The recorded investment in residential mortgage loans at September 30, 2016 and December 31, 2015 was $307 million and $594 million, respectively. The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration to determine when an amount for an allowance for loan losses for residential mortgage loans is appropriate. At a minimum, management updates FICO scores and LTV ratios semiannually. As of September 30, 2016 and December 31, 2015, no allowance for loan losses was recorded.
On March 30, 2016, the Company sold $250 million (amortized cost, net of unamortized discount) of its residential mortgage loans to an unaffiliated third party. The Company received cash proceeds of $260 million and recognized a gain of $10 million. As a result of the sale, the Company’s unamortized discount related to its residential mortgage loans was reduced from $21 million at December 31, 2015 to nil.
As of both September 30, 2016 and December 31, 2015, approximately 4% of residential mortgage loans had FICO scores below 640. As of September 30, 2016 and December 31, 2015, nil and approximately 1%, respectively, of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for residential mortgage loans is in California representing 52% and 37% of the portfolio as of September 30, 2016 and December 31, 2015, respectively, and in Colorado and Washington representing 19% and 13%, respectively, of the portfolio as of September 30, 2016. No other state represents more than 10% of the total residential mortgage loan portfolio.
Syndicated Loans
The recorded investment in syndicated loans at September 30, 2016 and December 31, 2015 was $409 million and $452 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 at September 30, 2016 and December 31, 2015 were $4 million and $5 million, respectively.
Troubled Debt Restructurings
The recorded investment in restructured loans was not material as of September 30, 2016 and December 31, 2015. The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for the three months and nine months ended September 30, 2016 and 2015. There are no commitments to lend additional funds to borrowers whose loans have been restructured. 
6. Deferred Acquisition Costs and Deferred Sales Inducement Costs
In the third quarter of the year, management conducts its annual review of insurance and annuity valuation assumptions relative to current experience and management expectations. To the extent that expectations change as a result of this review, management updates valuation assumptions. The impact of unlocking in the third quarter of 2016 primarily reflected continued low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. In addition, the Company’s review of its closed LTC business resulted in loss recognition due to continued low interest rates, higher morbidity and higher reinsurance expenses, slightly offset by premium increases. The impact of unlocking in the third quarter of 2015 primarily reflected the difference between the Company’s previously assumed interest rates versus the low interest rate environment partially offset by improved persistency.

15



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

The balances of and changes in DAC were as follows:
 
2016
 
2015
 
(in millions)
Balance at January 1
$
2,688

 
$
2,576

Capitalization of acquisition costs
212

(1) 
201

Amortization, excluding the impact of valuation assumptions review
(218
)
 
(235
)
Amortization, impact of valuation assumptions review
(81
)
 
(6
)
Impact of change in net unrealized securities (gains) losses
(105
)
 
64

Balance at September 30
$
2,496

 
$
2,600

(1) Includes a $27 million benefit related to the write-off of the deferred reinsurance liability in connection with the loss recognition on LTC business.
The balances of and changes in DSIC, which is included in other assets, were as follows:
 
2016
 
2015
 
(in millions)
Balance at January 1
$
334

 
$
361

Capitalization of sales inducement costs
4

 
3

Amortization, excluding the impact of valuation assumptions review
(32
)
 
(43
)
Amortization, impact of valuation assumptions review
4

 
1

Impact of change in net unrealized securities (gains) losses
(14
)
 
10

Balance at September 30
$
296

 
$
332

7. 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,
2016
 
December 31, 2015
 
(in millions)
Policyholder account balances
 
 
 
Fixed annuities
$
10,729

 
$
11,239

Variable annuity fixed sub-accounts
5,152

 
4,912

Variable universal life (“VUL”)/universal life (“UL”) insurance
2,978

 
2,897

Indexed universal life (“IUL”) insurance
975

 
808

Other life insurance
766

 
794

Total policyholder account balances
20,600

 
20,650

 
 
 
 
Future policy benefits
 
 
 
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)
2,113

 
1,057

Variable annuity guaranteed minimum accumulation benefits (“GMAB”)
8

 

Other annuity liabilities
143

 
31

Fixed annuities life contingent liabilities
1,496

 
1,501

Equity indexed annuities (“EIA”)
26

 
27

Life, disability income and long term care insurance
5,561

 
5,112

VUL/UL and other life insurance additional liabilities
598

 
452

Total future policy benefits
9,945

 
8,180

Policy claims and other policyholders’ funds
210

 
199

Total policyholder account balances, future policy benefits and claims
$
30,755

 
$
29,029


16



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

Separate account liabilities consisted of the following:
 
September 30,
2016
 
December 31, 2015
 
(in millions)
Variable annuity
$
70,715

 
$
69,333

VUL insurance
6,710

 
6,637

Other insurance
33

 
34

Total
$
77,458

 
$
76,004

8. Variable Annuity and Insurance Guarantees
The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions.
Certain UL policies offered by the Company provide secondary guarantee benefits. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.
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, 2016
 
December 31, 2015
 
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
 
$
56,748

 
$
54,787

 
$
144

 
65
 
$
54,716

 
$
52,871

 
$
297

 
65
Five/six-year reset
 
9,052

 
6,371

 
23

 
66
 
9,307

 
6,731

 
78

 
65
One-year ratchet
 
6,614

 
6,237

 
80

 
67
 
6,747

 
6,379

 
266

 
67
Five-year ratchet
 
1,587

 
1,527

 
5

 
64
 
1,613

 
1,556

 
20

 
63
Other
 
954

 
932

 
73

 
71
 
887

 
869

 
82

 
71
Total — GMDB
 
$
74,955

 
$
69,854

 
$
325

 
65
 
$
73,270

 
$
68,406

 
$
743

 
65
GGU death benefit
 
$
1,063

 
$
1,011

 
$
111

 
68
 
$
1,056

 
$
1,004

 
$
113

 
67
GMIB
 
$
251

 
$
233

 
$
12

 
68
 
$
270

 
$
251

 
$
17

 
68
GMWB:
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
GMWB
 
$
2,805

 
$
2,796

 
$
2

 
70
 
$
3,118

 
$
3,109

 
$
2

 
69
GMWB for life
 
39,652

 
39,508

 
356

 
66
 
37,301

 
37,179

 
330

 
66
Total — GMWB
 
$
42,457

 
$
42,304

 
$
358

 
66
 
$
40,419

 
$
40,288

 
$
332

 
66
GMAB
 
$
3,689

 
$
3,681

 
$
14

 
59
 
$
4,018

 
$
4,006

 
$
31

 
58
(1) 
Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals the account value are not shown in this table.
The net amount at risk for GMDB, GGU and GMAB guarantees is defined as the current guaranteed benefit amount in excess of the current contract value. The net amount at risk for GMIB and GMWB guarantees is defined as the greater of the present value of the minimum guaranteed withdrawal payments less the current contract value or zero. The present value is calculated using a discount rate that is consistent with assumptions embedded in the Company’s annuity pricing models.

17



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

The following table provides information related to insurance guarantees for which the Company has established additional liabilities:
 
September 30, 2016
 
December 31, 2015
 
Net Amount at Risk
 
Weighted Average Attained Age
 
Net Amount at Risk
 
Weighted Average Attained Age
 
(in millions, except age)
UL secondary guarantees
$
6,339

 
64
 
$
6,601

 
63
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.
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, 2015
$
9

 
$
7

 
$
693

 
$
(41
)
 
$
263

Incurred claims
9

 

 
580

 
72

 
70

Paid claims
(3
)
 

 

 

 
(19
)
Balance at September 30, 2015
$
15

 
$
7

 
$
1,273

 
$
31

 
$
314

 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
$
14

 
$
8

 
$
1,057

 
$

 
$
332

Incurred claims
10

 

 
1,056

 
9

 
99

Paid claims
(7
)
 

 

 
(1
)
 
(18
)
Balance at September 30, 2016
$
17

 
$
8

 
$
2,113

 
$
8

 
$
413

(1) 
The incurred claims for GMWB and GMAB represent the total change in the liabilities (contra liabilities).
The liabilities for guaranteed benefits are supported by general account assets.
The following table summarizes the distribution of separate account balances by asset type for variable annuity contracts providing guaranteed benefits:
 
September 30,
2016
 
December 31, 2015
 
(in millions)
Mutual funds:
 

 
 

Equity
$
40,872

 
$
39,806

Bond
23,875

 
23,700

Other
5,426

 
5,241

Total mutual funds
$
70,173

 
$
68,747

9. 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 September 30, 2016 and December 31, 2015, the Company has pledged $31 million and $30 million, respectively, of agency residential mortgage backed securities and $21 million and $22 million, respectively, of commercial mortgage backed securities. The amount of the Company’s liability including accrued interest as of both September 30, 2016 and December 31, 2015 was $50 million. The remaining maturity of outstanding repurchase agreements was less than two months and less than one month as of September 30, 2016 and December 31, 2015, respectively. The weighted average annualized interest rate on the repurchase agreements held as of September 30, 2016 and December 31, 2015 was 0.7% and 0.5%, 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 $751 million and $290 million as of September 30, 2016 and December 31, 2015, respectively. The amount of the Company’s liability including accrued interest as of both September 30, 2016 and December 31, 2015 was $150 million. The remaining maturity of outstanding FHLB advances was less than three months as of both September 30, 2016 and December 31, 2015. The weighted average annualized interest rate on the FHLB advances held as of September 30, 2016 and December 31, 2015 was 0.6% and 0.5%, respectively.

18



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

10. 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.

19



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

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:
 
September 30, 2016
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in millions)
 
Assets
 

 
 

 
 

 
 

 
Available-for-Sale securities: Fixed maturities:
 

 
 

 
 

 
 

 
Corporate debt securities
$

 
$
13,380

 
$
1,193

 
$
14,573

 
Residential mortgage backed securities

 
3,390

 
120

 
3,510

 
Commercial mortgage backed securities

 
2,617

 
33

 
2,650

 
State and municipal obligations

 
1,290

 

 
1,290

 
Asset backed securities

 
716

 
118

 
834

 
Foreign government bonds and obligations

 
275

 

 
275

 
U.S. government and agencies obligations
3

 
2

 

 
5

 
Total Available-for-Sale securities: Fixed maturities
3

 
21,670

 
1,464

 
23,137

 
Common stocks
3

 
5

 

 
8

 
Cash equivalents

 
928

 

 
928

 
Other assets:
 
 
 
 
 
 
 

 
Interest rate derivative contracts
2

 
3,591

 

 
3,593

 
Equity derivative contracts
56

 
1,357

 

 
1,413

 
Credit derivative contracts

 
1

 

 
1

 
Foreign exchange derivative contracts
1

 
70

 

 
71

 
Total other assets
59

 
5,019

 

 
5,078

 
Separate account assets measured at NAV
 
 
 
 
 
 
77,458

(1) 
Total assets at fair value
$
65

 
$
27,622

 
$
1,464

 
$
106,609

 
Liabilities
 

 
 

 
 

 
 

 
Policyholder account balances, future policy benefits and claims:
 

 
 

 
 

 
 

 
EIA embedded derivatives
$

 
$
5

 
$

 
$
5

 
IUL embedded derivatives

 

 
438

 
438

 
GMWB and GMAB embedded derivatives

 

 
1,756

 
1,756

(2) 
Total policyholder account balances, future policy benefits and claims

 
5

 
2,194

 
2,199

(3) 
Other liabilities:
 

 
 

 
 

 
 

 
Interest rate derivative contracts

 
1,603

 

 
1,603

 
Equity derivative contracts
3

 
1,843

 

 
1,846

 
Foreign exchange derivative contracts

 
35

 

 
35

 
Other derivative contracts
1

 

 

 
1

 
Total other liabilities
4

 
3,481

 

 
3,485

 
Total liabilities at fair value
$
4

 
$
3,486

 
$
2,194

 
$
5,684

 
(1) 
Amounts are comprised of certain investments 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. See Note 2 for further information.
(2) 
The fair value of the GMWB and GMAB embedded derivatives included $1.8 billion of individual contracts in a liability position and $73 million of individual contracts in an asset position.
(3) 
The Company’s adjustment for nonperformance risk resulted in a $764 million cumulative decrease to the embedded derivatives.

20



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

 
December 31, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in millions)
 
Assets
 

 
 

 
 

 
 

 
Available-for-Sale securities: Fixed maturities:
 

 
 

 
 

 
 

 
Corporate debt securities
$

 
$
13,139

 
$
1,235

 
$
14,374

 
Residential mortgage backed securities

 
3,054

 
21

 
3,075

 
Commercial mortgage backed securities

 
2,133

 
3

 
2,136

 
State and municipal obligations

 
1,149

 

 
1,149

 
Asset backed securities

 
643

 
133

 
776

 
Foreign government bonds and obligations

 
223

 

 
223

 
U.S. government and agencies obligations
4

 
35

 

 
39

 
Total Available-for-Sale securities: Fixed maturities
4

 
20,376

 
1,392

 
21,772

 
Common stocks
3

 
4

 

 
7

 
Cash equivalents
48

 
285

 

 
333

 
Other assets:
 

 
 

 
 

 
 

 
Interest rate derivative contracts

 
1,882

 

 
1,882

 
Equity derivative contracts
92

 
1,477

 

 
1,569

 
Credit derivative contracts

 
2

 

 
2

 
Foreign exchange derivative contracts
1

 
54

 

 
55

 
Total other assets
93

 
3,415

 

 
3,508

 
Separate account assets measured at NAV
 
 
 
 
 
 
76,004

(1) 
Total assets at fair value
$
148

 
$
24,080

 
$
1,392

 
$
101,624

 
Liabilities
 

 
 

 
 

 
 

 
Policyholder account balances, future policy benefits and claims:
 

 
 

 
 

 
 

 
EIA embedded derivatives
$

 
$
5

 
$

 
$
5

 
IUL embedded derivatives

 

 
364

 
364

 
GMWB and GMAB embedded derivatives

 

 
851

 
851

(2) 
Total policyholder account balances, future policy benefits and claims

 
5

 
1,215

 
1,220

(3) 
Other liabilities:
 

 
 

 
 

 
 

 
Interest rate derivative contracts

 
948

 

 
948

 
Equity derivative contracts
45

 
1,930

 

 
1,975

 
Foreign exchange derivative contracts
1

 
16

 

 
17

 
Total other liabilities
46

 
2,894

 

 
2,940

 
Total liabilities at fair value
$
46

 
$
2,899

 
$
1,215

 
$
4,160

 
(1) 
Amounts are comprised of certain investments 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. See Note 2 for further information.
(2) 
The fair value of the GMWB and GMAB embedded derivatives included $994 million of individual contracts in a liability position and $143 million of individual contracts in an asset position.
(3) 
The Company’s adjustment for nonperformance risk resulted in a $398 million cumulative decrease to the embedded derivatives.

21



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: Fixed Maturities
 
Other Derivative Contracts
 
 
Corporate Debt Securities
 
Residential Mortgage Backed Securities
 
Commercial Mortgage Backed Securities
 
Asset Backed Securities
 
Total
 
(in millions)
 
 
 
Balance, July 1, 2016
$
1,197

 
$
15

 
$

 
$
130

 
$
1,342

 
$
2

 
Total gains (losses) included in:
 

 
 

 
 

 
 

 
 

 
 
 
Net income
(1
)
 

 

 
1

 

(1) 
(2
)
(2) 
Other comprehensive income
(2
)
 

 

 

 
(2
)
 

 
Purchases
20

 
106

 
33

 

 
159

 

 
Settlements
(21
)
 
(1
)
 

 
(1
)
 
(23
)
 

 
Transfers out of Level 3

 

 

 
(12
)
 
(12
)
 

 
Balance, September 30, 2016
$
1,193

 
$
120

 
$
33

 
$
118

 
$
1,464

 
$

 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2016 included in:
 
Net investment income
$
(1
)
 
$

 
$

 
$
1

 
$

 
$

 
Benefits, claims, losses and settlement expenses

 

 

 

 

 
(2
)
 
(1) 
Included in net investment income in the Consolidated Statements of Income.
(2) 
Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB Embedded Derivatives
 
Total
 
(in millions)
Balance, July 1, 2016
$
408

 
$
1,965

 
$
2,373

Total (gains) losses included in:
 

 
 

 
 
Net income
12

(1) 
(280
)
(2) 
(268
)
Issues
25

 
77

 
102

Settlements
(7
)
 
(6
)
 
(13
)
Balance, September 30, 2016
$
438

 
$
1,756

 
$
2,194

 
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2016 included in:
Benefits, claims, losses and settlement expenses
$

 
$
(267
)
 
$
(267
)
Interest credited to fixed accounts
12

 

 
12

(1) 
Included in interest credited to fixed accounts in the Consolidated Statements of Income.
(2) 
Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.

22



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

 
Available-for-Sale Securities: Fixed Maturities
 
 
Corporate Debt Securities
 
Residential Mortgage Backed Securities
 
Commercial Mortgage Backed Securities
 
Asset Backed Securities
 
Total
 
 
(in millions)
Balance, July 1, 2015
$
1,339

 
$
8

 
$
34

 
$
118

 
$
1,499

 
Total gains (losses) included in:
 

 
 

 
 

 
 

 
 

 
Net income
(1
)
 

 

 
1

 

(1) 
Other comprehensive income
(3
)
 

 

 
2

 
(1
)
 
Purchases
91

 
37

 

 

 
128

 
Settlements
(89
)
 
(1
)
 
(2
)
 

 
(92
)
 
Transfers out of Level 3

 

 
(27
)
 
(13
)
 
(40
)
 
Balance, September 30, 2015
$
1,337

 
$
44

 
$
5

 
$
108

 
$
1,494

 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2015 included in:
Net investment income
$
(1
)
 
$

 
$

 
$
1

 
$

 
(1) 
Included in net investment income in the Consolidated Statements of Income.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB Embedded Derivatives
 
Total
 
 (in millions)
Balance, July 1, 2015
$
292

 
$
235

 
$
527

Total (gains) losses included in:
 

 
 

 


Net income
(1
)
(1) 
805

(2) 
804

Issues
31

 
69

 
100

Settlements
(5
)
 
(2
)
 
(7
)
Balance, September 30, 2015
$
317

 
$
1,107

 
$
1,424

 
Changes in unrealized (gains) losses relating to liabilities held at September 30, 2015 included in:
Benefits, claims, losses and settlement expenses
$

 
$
811

 
$
811

Interest credited to fixed accounts
(1
)
 

 
(1
)
(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.

23



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

 
Available-for-Sale Securities: Fixed Maturities
 
Other Derivative Contracts
 
 
Corporate Debt Securities
 
Residential Mortgage Backed Securities
 
Commercial Mortgage Backed Securities
 
Asset Backed Securities
 
Total
 
(in millions)
 
 
 
Balance, January 1, 2016
$
1,235

 
$
21

 
$
3

 
$
133

 
$
1,392

 
$

 
Total gains (losses) included in:
 

 
 

 
 

 
 

 
 

 
 
 
Net income
(1
)
 

 

 
1

 

(1) 
(2
)
(2) 
Other comprehensive income
26

 

 

 

 
26

 

 
Purchases
34

 
106

 
42

 

 
182

 
2

 
Settlements
(101
)
 
(7
)
 
(3
)
 
(1
)
 
(112
)
 

 
Transfers into Level 3

 

 

 
12

 
12

 

 
Transfers out of Level 3

 

 
(9
)
 
(27
)
 
(36
)
 

 
Balance, September 30, 2016
$
1,193

 
$
120

 
$
33

 
$
118

 
$
1,464

 
$

 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2016 included in:
 
Net investment income
$
(1
)
 
$

 
$

 
$
1

 
$

 
$

 
Benefits, claims, losses and settlement expenses

 

 

 

 

 
(2
)
 
(1) 
Included in net investment income in the Consolidated Statements of Income.
(2) 
Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB Embedded Derivatives
 
Total
 
(in millions)
Balance, January 1, 2016
$
364

 
$
851

 
$
1,215

Total losses included in:
 

 
 

 
 
Net income
8

(1) 
708

(2) 
716

Issues
86

 
215

 
301

Settlements
(20
)
 
(18
)
 
(38
)
Balance, September 30, 2016
$
438

 
$
1,756

 
$
2,194

 
Changes in unrealized losses relating to liabilities held at September 30, 2016 included in:
Benefits, claims, losses and settlement expenses
$

 
$
830

 
$
830

Interest credited to fixed accounts
8

 

 
8

(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.

24



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

 
Available-for-Sale Securities: Fixed Maturities
 
Common Stocks
 
Corporate Debt Securities
 
Residential Mortgage Backed Securities
 
Commercial Mortgage Backed Securities
 
Asset Backed Securities
 
Total
 
(in millions)
Balance, January 1, 2015
$
1,353

 
$
9

 
$
90

 
$
151

 
$
1,603

 
$
1

Total gains (losses) included in:
 

 
 

 
 

 
 

 
 

 
 
Net income
(1
)
 

 

 
1

 

(1) 

Other comprehensive income
(10
)
 

 

 
2

 
(8
)
 
(1
)
Purchases
142

 
68

 
31

 
1

 
242

 

Settlements
(147
)
 
(2
)
 
(4
)
 
(2
)
 
(155
)
 

Transfers into Level 3

 

 
6

 

 
6

 

Transfers out of Level 3

 
(31
)
 
(118
)
 
(45
)
 
(194
)
 

Balance, September 30, 2015
$
1,337

 
$
44

 
$
5

 
$
108

 
$
1,494

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Changes in unrealized gains (losses) relating to assets held at September 30, 2015 included in:
Net investment income
$
(1
)
 
$

 
$

 
$
1

 
$

 
$

(1) 
Included in net investment income in the Consolidated Statements of Income.
 
Policyholder Account Balances,
Future Policy Benefits and Claims
 
IUL Embedded Derivatives
 
GMWB and GMAB Embedded Derivatives
 
Total
 
 (in millions)
Balance, January 1, 2015
$
242

 
$
479

 
$
721

Total losses included in:
 

 
 

 
 
Net income
13

(1) 
426

(2) 
439

Issues
76

 
197

 
273

Settlements
(14
)
 
5

 
(9
)
Balance, September 30, 2015
$
317

 
$
1,107

 
$
1,424

 
Changes in unrealized losses relating to liabilities held at September 30, 2015 included in:
Benefits, claims, losses and settlement expenses
$

 
$
438

 
$
438

Interest credited to fixed accounts
13

 

 
13

(1) 
Included in interest credited to fixed accounts in the Consolidated Statements of Income.
(2) 
Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.
The increase to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $8 million and $162 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the three months ended September 30, 2016 and 2015, respectively.
The increase to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $295 million and $154 million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the nine months ended September 30, 2016 and 2015, respectively.
Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third-party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.

25



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, 2016
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Corporate debt securities (private placements)
$
1,190

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.0
%
-
3.0%
 
1.4
%
IUL embedded derivatives
$
438

 
Discounted cash flow
 
Nonperformance risk (1)
 
89 bps
 
 
GMWB and GMAB embedded derivatives
$
1,756

 
Discounted cash flow
 
Utilization of guaranteed withdrawals (2)
 
0.0
%
-
75.6%
 
 
 
 
 
 
 
Surrender rate
 
0.1
%
-
66.4%
 
 
 
 
 
 
 
Market volatility (3)
 
5.4
%
-
21.6%
 
 
 
 
 
 
 
Nonperformance risk (1)
 
89 bps
 
 
 
December 31, 2015
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted Average
 
(in millions)
 
 
 
 
 
 
 
 
 
Corporate debt securities (private placements)
$
1,221

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.1
%
-
3.8%
 
1.6
%
IUL embedded derivatives
$
364

 
Discounted cash flow
 
Nonperformance risk (1)
 
68 bps
 
 
GMWB and GMAB embedded derivatives
$
851

 
Discounted cash flow
 
Utilization of guaranteed withdrawals (2)
 
0.0
%
-
75.6%
 
 
 
 
 
 
 
Surrender rate
 
0.0
%
-
59.1%
 
 
 
 
 
 
 
Market volatility (3)
 
5.4
%
-
21.5%
 
 
 
 
 
 
 
Nonperformance risk (1)
 
68 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.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in nonperformance risk used in the fair value measurement of the IUL embedded derivatives in isolation would result in a significantly lower (higher) fair value measurement.
Significant increases (decreases) in utilization and volatility used in the fair value measurement of the GMWB and GMAB embedded derivatives in isolation would result 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 result 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.

26



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

Assets
Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their NAV and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Available-for-Sale Securities
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third-party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities 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 U.S. agency and foreign government securities. The fair value of these Level 2 securities is based on a market approach with prices obtained from third-party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and asset backed securities. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to the Company. The Company’s privately placed corporate bonds are typically based on a single non-binding broker quote. In addition to the general pricing controls, the Company reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs annual due diligence of third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
Separate Account Assets
The fair value of assets held by separate accounts is determined by the NAV of the funds in which those separate accounts are invested. The NAV is used as a practical expedient for fair value and represents the exit price for the separate account. Separate account assets are excluded from classification in the fair value hierarchy.
Other Assets
Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The variation margin on futures contracts is also classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include swaps and the majority of options. The fair value of certain derivatives measured using pricing models which include significant unobservable inputs are classified as Level 3 within the fair value hierarchy. Other derivative contracts consist of the Company’s macro hedge program. See Note 12 for further information on the macro hedge program. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at September 30, 2016 and December 31, 2015. See Note 11 and Note 12 for further information on the credit risk of derivative instruments and related collateral.
Liabilities
Policyholder Account Balances, Future Policy Benefits and Claims
The Company values the embedded derivatives attributable to the provisions of certain variable annuity riders using internal valuation models. These models calculate fair value by discounting expected cash flows from benefits plus margins for profit, risk and expenses less embedded derivative fees. The projected cash flows used by these models include observable capital market assumptions and incorporate significant unobservable inputs related to contractholder behavior assumptions, implied volatility, and margins for risk, profit and expenses that the Company believes an exit market participant would expect. The fair value also reflects a current estimate of the Company’s nonperformance risk specific to these embedded derivatives. Given the significant unobservable inputs to this valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the

27



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

provisions of its EIA and IUL products. Significant inputs to the EIA calculation include observable interest rates, volatilities and equity index levels and, therefore, are classified as Level 2. The fair value of the IUL embedded derivatives includes significant observable interest rates, volatilities and equity index levels and the significant unobservable estimate of the Company’s nonperformance risk. Given the significance of the nonperformance risk assumption to the fair value, the IUL embedded derivatives are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.
The Company’s Corporate Actuarial Department calculates the fair value of the embedded derivatives on a monthly basis. During this process, control checks are performed to validate the completeness of the data. Actuarial management approves various components of the valuation along with the final results. The change in the fair value of the embedded derivatives is reviewed monthly with senior management. The Level 3 inputs into the valuation are consistent with the pricing assumptions and updated as experience develops. Significant unobservable inputs that reflect policyholder behavior are reviewed quarterly along with other valuation assumptions.
Other Liabilities
Derivatives that are measured using quoted prices in active markets, such as derivatives that are exchange-traded, are classified as Level 1 measurements. The 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. Other derivative contracts consist of the Company’s macro hedge program. See Note 12 for further information on the macro hedge program. The Company’s nonperformance risk associated with uncollateralized derivative liabilities was immaterial at September 30, 2016 and December 31, 2015. See Note 11 and Note 12 for further information on the credit risk of derivative instruments and related collateral.
During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.
The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value:
 
September 30, 2016
 
 
Carrying Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
 
Financial Assets
Mortgage loans, net
$
2,870

 
$

 
$

 
$
2,991

 
$
2,991

 
Policy loans
835

 

 

 
810

 
810

 
Other investments
419

 

 
383

 
37

 
420

 
 
Financial Liabilities
Policyholder account balances, future policy benefits and claims
$
11,071

 
$

 
$

 
$
12,083

 
$
12,083

 
Short-term borrowings
200

 

 
200

 

 
200

 
Other liabilities
160

 

 

 
156

 
156

 
Separate account liabilities measured at NAV
344

 
 
 
 
 
 
 
344

(1) 

28



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

 
December 31, 2015
 
 
Carrying Value
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in millions)
 
Financial Assets
Mortgage loans, net
$
3,211

 
$

 
$

 
$
3,254

 
$
3,254

 
Policy loans
823

 

 

 
803

 
803

 
Other investments
463

 

 
416

 
33

 
449

 
 
Financial Liabilities
Policyholder account balances, future policy benefits and claims
$
11,523

 
$

 
$

 
$
12,424

 
$
12,424

 
Short-term borrowings
200

 

 
200

 

 
200

 
Other liabilities
117

 

 

 
113

 
113

 
Separate account liabilities measured at NAV
360

 
 
 
 
 
 
 
360

(1) 
(1) 
Amounts are comprised of certain investments 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. See Note 2 for further information.
Mortgage Loans, Net
The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including LTV ratio, occupancy rate, refinance risk, debt service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for the Company’s estimate of the amount recoverable on the loan.
The fair value of residential mortgage loans is determined by discounting estimated cash flows and incorporating adjustments for prepayment, administration expenses, loss severity and credit loss estimates, with discount rates based on the Company’s estimate of current market conditions.
Given the significant unobservable inputs to the valuation of mortgage loans, these measurements are classified as Level 3.
Policy Loans
Policy loans represent loans made against the cash surrender value of the underlying life insurance or annuity product. These loans and the related interest are usually realized at death of the policyholder or contractholder or at surrender of the contract and are not transferable without the underlying insurance or annuity contract. The fair value of policy loans is determined by estimating expected cash flows discounted at rates based on the U.S. Treasury curve. Policy loans are classified as Level 3 as the discount rate used may be adjusted for the underlying performance of individual policies.
Other Investments
Other investments primarily consist of syndicated loans and an investment in FHLB. The fair value of syndicated loans is obtained from a third-party pricing service or non-binding broker quotes. Syndicated loans that are priced using a market approach with observable inputs are classified as Level 2 and syndicated loans priced using a single non-binding broker quote are classified as Level 3. The fair value of the investment in FHLB is approximated by the carrying value and classified as Level 3 due to restrictions on transfer and lack of liquidity in the primary market for this asset.
Policyholder Account Balances, Future Policy Benefits and Claims
The fair value of fixed annuities in deferral status is determined by discounting cash flows using a risk neutral discount rate with adjustments for profit margin, expense margin, early policy surrender behavior, a margin for adverse deviation from estimated early policy surrender behavior and the Company’s nonperformance risk specific to these liabilities. The fair value of non-life contingent fixed annuities in payout status, EIA host contracts and the fixed portion of a small number of variable annuity contracts classified as investment contracts is determined in a similar manner. Given the use of significant unobservable inputs to these valuations, the measurements are classified as Level 3.
Short-term Borrowings
The fair value of short-term borrowings is obtained from a third-party pricing service. A nonperformance adjustment is not included as collateral requirements for these borrowings minimize the nonperformance risk. The fair value of short-term borrowings is classified as Level 2.

29



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

Other Liabilities
Other liabilities consist of future funding commitments to affordable housing partnerships and other real estate partnerships. The fair value of these future funding commitments is determined by discounting cash flows. The fair value of these commitments includes an adjustment for the Company’s nonperformance risk and is classified as Level 3 due to the use of the significant unobservable input.
Separate Account Liabilities
Certain separate account liabilities are classified as investment contracts and are carried at an amount equal to the related separate account assets. The NAV of the related separate account assets is used as a practical expedient for fair value and represents the exit price for the separate account liabilities. Separate account liabilities are excluded from classification in the fair value hierarchy.
11. 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 arrangements and collateral arrangements and qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis in the Consolidated Balance Sheets.
The following tables present the gross and net information about the Company’s assets subject to master netting arrangements:
 
 
September 30, 2016
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in the
Consolidated Balance Sheets
 
Amounts of Assets Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
 
Net Amount
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
 
 
(in millions)
 
Derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
OTC
$
3,957

 
$

 
$
3,957

 
$
(2,442
)
 
$
(659
)
 
$
(856
)
 
$

 
OTC cleared
1,098

 

 
1,098

 
(874
)
 
(223
)
 

 
1

 
Exchange-traded
23

 

 
23

 
(2
)
 

 

 
21

 
Total derivatives
$
5,078

 
$

 
$
5,078

 
$
(3,318
)
 
$
(882
)
 
$
(856
)
 
$
22

 
 
December 31, 2015
 
Gross Amounts of
Recognized Assets
 
Gross Amounts Offset in the
Consolidated Balance Sheets
 
Amounts of Assets Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
 
Net Amount
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
 
 
(in millions)
 
Derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
OTC
$
3,051

 
$

 
$
3,051

 
$
(2,293
)
 
$
(354
)
 
$
(320
)
 
$
84

 
OTC cleared
417

 

 
417

 
(313
)
 
(102
)
 

 
2

 
Exchange-traded
40

 

 
40

 
(3
)
 

 

 
37

 
Total derivatives
$
3,508

 
$

 
$
3,508

 
$
(2,609
)
 
$
(456
)
 
$
(320
)
 
$
123

(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.

30



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

The following tables present the gross and net information about the Company’s liabilities subject to master netting arrangements:
 
 
September 30, 2016
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in the
Consolidated Balance Sheets
 
Amounts of Liabilities Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
 
Net Amount
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
 
 
(in millions)
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC
$
2,609

 
$

 
$
2,609

 
$
(2,442
)
 
$

 
$
(153
)
 
$
14

 
OTC cleared
874

 

 
874

 
(874
)
 

 

 

 
Exchange-traded
2

 

 
2

 
(2
)
 

 

 

 
Total derivatives
3,485




3,485


(3,318
)



(153
)

14

 
Repurchase agreements
50

 

 
50

 

 

 
(50
)
 

 
Total
$
3,535

 
$

 
$
3,535

 
$
(3,318
)
 
$

 
$
(203
)
 
$
14

 
 
December 31, 2015
 
Gross Amounts of
Recognized Liabilities
 
Gross Amounts Offset in the
Consolidated Balance Sheets
 
 Amounts of Liabilities Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset
in the Consolidated Balance Sheets
 
Net Amount
 
Financial Instruments (1)
 
Cash Collateral
 
Securities Collateral
 
 
 
(in millions)
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTC
$
2,624

 
$

 
$
2,624

 
$
(2,293
)
 
$

 
$
(331
)
 
$

 
OTC cleared
313

 

 
313

 
(313
)
 

 

 

 
Exchange-traded
3

 

 
3

 
(3
)
 

 

 

 
Total derivatives
2,940




2,940


(2,609
)



(331
)


 
Repurchase agreements
50

 

 
50

 

 

 
(50
)
 

 
Total
$
2,990

 
$

 
$
2,990

 
$
(2,609
)
 
$

 
$
(381
)
 
$

(1) 
Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
In the tables above, the amounts of assets or liabilities presented in the Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral. The actual 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, the Company may be required to post additional collateral.
The Company’s freestanding derivative instruments are reflected in other assets and other liabilities. Repurchase agreements are reflected in short-term borrowings. See Note 12 for additional disclosures related to the Company’s derivative instruments and Note 9 for additional disclosures related to the Company’s repurchase agreements.

31



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

12. 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.
The Company’s freestanding derivative instruments are all subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 11 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, 2016
 
December 31, 2015
 
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
$
73,844

 
$
3,593

 
$
1,603

 
$
62,591

 
$
1,882

 
$
948

Equity contracts
59,441

 
1,413

 
1,846

 
69,009

 
1,569

 
1,975

Credit contracts
1,073

 
1

 

 
600

 
2

 

Foreign exchange contracts
4,659

 
71

 
35

 
4,155

 
55

 
17

Other contracts
445

 

 
1

 
2,150

 

 

Total non-designated hedges
139,462

 
5,078

 
3,485

 
138,505

 
3,508

 
2,940

 
Embedded derivatives
GMWB and GMAB (3)
N/A

 

 
1,756

 
N/A

 

 
851

IUL
N/A

 

 
438

 
N/A

 

 
364

EIA
N/A

 

 
5

 
N/A

 

 
5

Total embedded derivatives
N/A

 

 
2,199

 
N/A

 

 
1,220

Total derivatives
$
139,462

 
$
5,078

 
$
5,684

 
$
138,505

 
$
3,508

 
$
4,160

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 EIA 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 at September 30, 2016 included $1.8 billion of individual contracts in a liability position and $73 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives at December 31, 2015 included $994 million of individual contracts in a liability position and $143 million of individual contracts in an asset position.
See Note 10 for additional information regarding the Company’s fair value measurement of derivative instruments.
At September 30, 2016 and December 31, 2015, investment securities with a fair value of $940 million and $323 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $670 million and $193 million, respectively, may be sold, pledged or rehypothecated by the Company. At September 30, 2016 and December 31, 2015, the Company had sold, pledged, or rehypothecated $19 million and nil, respectively, of these securities. In addition, at September 30, 2016 and December 31, 2015, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.

32



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

The following tables present a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Income:
 
Interest Credited to Fixed Accounts
 
Benefits, Claims, Losses and Settlement Expenses
 
(in millions)
Three Months Ended September 30, 2016
 
 
 
Interest rate contracts
$

 
$
(13
)
Equity contracts
12

 
(357
)
Credit contracts

 
(3
)
Foreign exchange contracts

 
(12
)
Other contracts

 
(9
)
GMWB and GMAB embedded derivatives

 
209

IUL embedded derivatives
(5
)
 

Total gain (loss)
$
7

 
$
(185
)
Nine Months Ended September 30, 2016
 
 
 
Interest rate contracts
$

 
$
1,191

Equity contracts
10

 
(518
)
Credit contracts

 
(34
)
Foreign exchange contracts

 
(66
)
Other contracts

 
(9
)
GMWB and GMAB embedded derivatives

 
(905
)
IUL embedded derivatives
12

 

Total gain (loss)
$
22

 
$
(341
)
Three Months Ended September 30, 2015
 
 
 
Interest rate contracts
$

 
$
536

Equity contracts
(16
)
 
328

Credit contracts

 
(10
)
Foreign exchange contracts

 
6

Other contracts

 
(13
)
GMWB and GMAB embedded derivatives

 
(872
)
IUL embedded derivatives
6

 

EIA embedded derivatives
1

 

Total loss
$
(9
)
 
$
(25
)
Nine Months Ended September 30, 2015
 
 
 
Interest rate contracts
$

 
$
360

Equity contracts
(17
)
 
69

Credit contracts

 
(5
)
Foreign exchange contracts

 
(2
)
Other contracts

 
(13
)
GMWB and GMAB embedded derivatives

 
(628
)
IUL embedded derivatives
1

 

EIA embedded derivatives
1

 

Total loss
$
(15
)
 
$
(219
)

33



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 primarily using futures, options, interest rate swaptions, interest rate swaps, total return swaps and variance swaps.
The deferred premium associated with certain of the above options is paid or received semi-annually over the life of the option contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options:
 
Premiums Payable
 
Premiums Receivable
 
(in millions)
2016
(1) 
$
89

 
$
31

2017
257

 
76

2018
214

 
130

2019
260

 
131

2020
179

 
57

2021-2026
741

 
202

  Total
$
1,740

 
$
627

(1) 2016 amounts represent the amounts payable and receivable for the period from October 1, 2016 to December 31, 2016.
Actual timing and payment amounts may differ due to future contract settlements, modifications or exercises of options prior to the full premium being paid or received.
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 uses futures, options 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 Company’s macro hedge derivatives are included in Other contracts in the tables above.
EIA and IUL products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to EIA and IUL products will positively or negatively impact earnings over the life of these products. The equity component of the EIA 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 the nine months ended September 30, 2016, the Company held no derivatives that were designated as cash flow hedges.
At September 30, 2016, the Company expects to reclassify $5 million of deferred loss on derivative instruments from AOCI to earnings during the next 12 months that will be recorded in net investment income. These were originally losses on derivative instruments related to interest rate swaptions. During the nine months ended September 30, 2016 and 2015, no hedge relationships were discontinued due to forecasted transactions no longer being expected to occur according to the original hedge strategy. For the nine months ended September 30, 2016 and 2015, amounts recognized in earnings on derivative transactions that were ineffective were not material. See Note 13 for a summary of net unrealized gains included in AOCI related to previously designated cash flow hedges.
Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is two years and relates to interest credited on forecasted fixed premium product sales.
Credit Risk
Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this

34



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

program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical. See Note 11 for additional information on the Company’s credit exposure related to derivative assets.
Certain of the Company’s derivative contracts contain provisions that adjust the level of collateral the Company is required to post based on the Company’s financial strength rating (or based on the debt rating of the Company’s parent, Ameriprise Financial). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company does not maintain a specific financial strength rating or Ameriprise Financial’s debt does not maintain a specific credit rating (generally an investment grade rating). If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. At September 30, 2016 and December 31, 2015, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $152 million and $243 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2016 and December 31, 2015 was $140 million and $243 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position at September 30, 2016 and December 31, 2015 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 $12 million and nil, respectively.
13. Shareholder’s Equity
The following tables provide the amounts related to each component of OCI:
 
Three Months Ended September 30,
 
2016
 
2015
Pretax
 
Income Tax Benefit (Expense)
 
Net of Tax
 
Pretax
 
Income Tax Benefit (Expense)
 
Net of Tax
 
(in millions)
Net unrealized securities losses:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized securities gains (losses) arising during the period (1)
$
75

 
$
(25
)
 
$
50

 
$
(128
)
 
$
45

 
$
(83
)
Reclassification of net securities (gains) losses included in net income (2)
(1
)
 

 
(1
)
 
10

 
(4
)
 
6

Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables
(114
)
 
39

 
(75
)
 
78

 
(27
)
 
51

Net unrealized securities losses
(40
)
 
14

 
(26
)
 
(40
)
 
14

 
(26
)
Net unrealized derivatives gains:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net derivative losses included in net income (3)
1

 

 
1

 
1

 

 
1

Net unrealized derivatives gains
1

 

 
1

 
1

 

 
1

Other comprehensive loss
$
(39
)
 
$
14

 
$
(25
)
 
$
(39
)
 
$
14

 
$
(25
)
 
Nine Months Ended September 30,
 
2016
 
2015
Pretax
 
Income Tax Benefit (Expense)
 
Net of Tax
 
Pretax
 
Income Tax Benefit (Expense)
 
Net of Tax
 
(in millions)
Net unrealized securities gains (losses):
 
 
 
 
 
 
 
 
 
 
 
Net unrealized securities gains (losses) arising during the period (1)
$
1,067

 
$
(375
)
 
$
692

 
$
(545
)
 
$
191

 
$
(354
)
Reclassification of net securities gains included in net income (2)
(7
)
 
2

 
(5
)
 
(7
)
 
2

 
(5
)
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables
(533
)
 
186

 
(347
)
 
281

 
(98
)
 
183

Net unrealized securities gains (losses)
527

 
(187
)
 
340

 
(271
)
 
95

 
(176
)
Net unrealized derivatives gains:
 
 
 
 
 
 
 
 
 
 
 
Reclassification of net derivative losses included in net income (3)
4

 
(1
)
 
3

 
4

 
(1
)
 
3

Net unrealized derivatives gains
4

 
(1
)
 
3

 
4

 
(1
)
 
3

Other comprehensive income (loss)
$
531

 
$
(188
)
 
$
343

 
$
(267
)
 
$
94

 
$
(173
)
(1) Includes other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income during the period.
(2) Reclassification amounts are recorded in net realized investment gains.
(3) Reclassification amounts are recorded in net investment income.

35



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

Other comprehensive income (loss) related to net unrealized securities gains (losses) 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 other-than-temporary impairment 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.
The following tables present the changes in the balances of each component of AOCI, net of tax:
 
Net Unrealized Securities Gains
 
Net Unrealized Derivatives Gains
 
Total
 
(in millions)
Balance, July 1, 2016
$
769

 
$
(6
)
 
$
763

  OCI before reclassifications
(25
)
 

 
(25
)
  Amounts reclassified from AOCI
(1
)
 
1

 

Total OCI
(26
)
 
1

 
(25
)
Balance, September 30, 2016
$
743

(1) 
$
(5
)
 
$
738

Balance, January 1, 2016
$
403

 
$
(8
)
 
$
395

  OCI before reclassifications
345

 

 
345

  Amounts reclassified from AOCI
(5
)
 
3

 
(2
)
Total OCI
340

 
3

 
343

Balance, September 30, 2016
$
743

(1) 
$
(5
)
 
$
738

 
Net Unrealized Securities Gains
 
Net Unrealized Derivatives Gains
 
Total
 
(in millions)
Balance, July 1, 2015
$
591

 
$
(10
)
 
$
581

  OCI before reclassifications
(32
)
 

 
(32
)
  Amounts reclassified from AOCI
6

 
1

 
7

Total OCI
(26
)
 
1

 
(25
)
Balance, September 30, 2015
$
565

(1) 
$
(9
)
 
$
556

Balance, January 1, 2015
$
741

 
$
(12
)
 
$
729

  OCI before reclassifications
(171
)
 

 
(171
)
  Amounts reclassified from AOCI
(5
)
 
3

 
(2
)
Total OCI
(176
)
 
3

 
(173
)
Balance, September 30, 2015
$
565

(1) 
$
(9
)
 
$
556

(1) Includes $1 million and $(1) million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities at September 30, 2016 and September 30, 2015, respectively.

36



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

14. Income Taxes
The Company’s effective tax rate was 1,900.0% and 15.2% for the three months ended September 30, 2016 and 2015, respectively. The Company’s effective tax rate was 5.8% and 17.2% for the nine months ended September 30, 2016 and 2015, respectively. The effective tax rate for the three months ended September 30, 2016 is exceptionally high due to a pretax loss. The decrease in the effective tax rate for the nine months ended September 30, 2016 compared to the prior year period is primarily due to lower pretax income. The effective tax rates are lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits.
Included in the Company’s deferred income tax assets are tax benefits related to state net operating losses of $7 million which will expire beginning December 31, 2016.
The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes as well as future deductible capital losses realized for tax return purposes. Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. 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 $7 million and $8 million at September 30, 2016 and December 31, 2015, respectively.
At September 30, 2016 and December 31, 2015, the Company had $58 million and $95 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $6 million and $9 million, net of federal tax benefits, of unrecognized tax benefits at September 30, 2016 and December 31, 2015, respectively, would affect the effective tax rate.
It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of the Company, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $45 million to $55 million in the next 12 months due to resolution of IRS examinations.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net decrease of nil and $39 million in interest and penalties for the three months and nine months ended September 30, 2016, respectively. The Company recognized a net increase of $1 million and $2 million in interest and penalties for the three months and nine months ended September 30, 2015, respectively. At September 30, 2016 and December 31, 2015, the Company had a payable of $2 million and $41 million, respectively, related to accrued interest and penalties.
The Company or one or more of its subsidiaries files income tax returns as part of its inclusion in the consolidated federal income tax returns of Ameriprise Financial in the U.S. federal jurisdiction and various state jurisdictions. The IRS has completed its examinations of the 1997 through 2011 tax returns and these years are effectively settled; however, the statutes of limitation, except for 2007, remain open for certain carryover adjustments. The IRS is currently auditing the Company’s U.S. income tax returns for 2012 and 2013. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 2005 through 2014. State income tax examinations prior to 2005 are effectively settled; however, the statutes of limitation are open in certain jurisdictions back to 1997 due to potential carryover adjustments related to the IRS audit.

37



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

15. Guarantees and Contingencies
Guarantees
The Company is required by law to be a member of the guaranty fund association in every state where it is licensed to do business. In the event of insolvency of one or more unaffiliated insurance companies, the Company could be adversely affected by the requirement to pay assessments to the guaranty fund associations.
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. At both September 30, 2016 and December 31, 2015, the estimated liability was $13 million and the related premium tax asset was $12 million. The expected period over which guaranty fund assessments will be made and the related tax credits recovered is not known.
Contingencies
Insurance companies have been the subject of increasing regulatory, legislative and judicial scrutiny. Numerous state and federal regulatory agencies have commenced examinations and other inquiries of insurance companies regarding sales and marketing practices (including sales to older consumers and disclosure practices), claims handling, and unclaimed property and escheatment practices and procedures. With regard to an industry-wide investigation of unclaimed property and escheatment practices and procedures, the Company is responding to regulatory audits, market conduct examinations and other inquiries (including a multistate insurance department examination and a market conduct examination by the State of Minnesota). 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.

38



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, 2015 filed with the Securities and Exchange Commission (“SEC”) on February 25, 2016 (“2015 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.
On April 8, 2016, the Department of Labor published its final rule regarding the fiduciary status of investment advice providers to retirement investors (primarily account holders in 401(k) plans and IRAs and other types of ERISA clients) and its new and amended prohibited transaction exemptions regarding how ERISA investment advice fiduciaries can provide products manufactured by the Company and unaffiliated insurers to retirement investors. These final regulations focus in large part on conflicts of interest related to investment recommendations made by financial advisors, registered investment advisors and other investment or insurance professionals to retirement investors, how financial advisors are able to discuss IRA rollovers, as well as how financial advisors and affiliates can transact with retirement investors. Qualified accounts, particularly IRAs, make up a significant portion of the Company’s annuity product sales. The Company is continuing to review and analyze the potential impact of the final regulations on its clients and prospective clients as well as the potential impact on its business. Teams are working diligently to assess these principles-based rules and the Company will work with its selling firms and their advisors to make the necessary changes to effectively implement these new rules.
Critical Accounting Policies and 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 Policies and Estimates” in the Company’s 2015 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.

39



RIVERSOURCE LIFE INSURANCE COMPANY

Consolidated Results of Operations for the Nine Months Ended September 30, 2016 and 2015
The following table presents the Company’s consolidated results of operations:
 
Nine Months Ended September 30,
 
Change
 
2016
 
2015
 
 
(in millions)
 
 
Revenues
 
 
 
 
 
 
 
Premiums
$
315

 
$
300

 
$
15

 
5
 %
Net investment income
850

 
904

 
(54
)
 
(6
)
Policy and contract charges
1,501

 
1,405

 
96

 
7

Other revenues
303

 
320

 
(17
)
 
(5
)
Net realized investment gains
15

 
5

 
10

 
NM
Total revenues
2,984

 
2,934

 
50

 
2

 
 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
 
Benefits, claims, losses and settlement expenses
1,148

 
817

 
331

 
41

Interest credited to fixed accounts
465

 
503

 
(38
)
 
(8
)
Amortization of deferred acquisition costs
299

 
241

 
58

 
24

Other insurance and operating expenses
505

 
539

 
(34
)
 
(6
)
Total benefits and expenses
2,417

 
2,100

 
317

 
15

Pretax income
567

 
834

 
(267
)
 
(32
)
Income tax provision
33

 
144

 
(111
)
 
(77
)
Net income
$
534

 
$
690

 
$
(156
)
 
(23
)%
NM  Not Meaningful.
Overall
In the third quarter of the year, management updated its market-related inputs and implemented model changes related to the living benefit valuation. In addition, management conducted 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. The unlocking process also impacts premium deficiency testing for certain insurance products. The unfavorable unlocking impact in the third quarter of 2016 primarily reflected continued low interest rates and higher persistency on living benefit contracts that more than offset benefits from persistency on annuity contracts without living benefits, an update to market-related inputs related to the living benefit valuation and other model updates. The long-term interest rate assumption remains unchanged, but management extended the period it would take for rates to reach the long term level from 3.5 years to 5.5 years. In addition, the review of the Company’s closed long term care (“LTC”) business in the third quarter of 2016 resulted in a loss recognition of $31 million due to continued low interest rates, higher morbidity and higher reinsurance expenses, slightly offset by premium increases. The $31 million is comprised of $58 million of amortization of DAC and the release of the related deferred reinsurance liability of $27 million. The favorable unlocking impact in the prior year period primarily reflected improved policyholder behavior, an update to market-related inputs related to the living benefit valuation and model changes that more than offset the difference between the Company's previously assumed interest rates versus the low interest rate environment. The review of the Company’s LTC business in the third quarter of 2015 resulted in no loss recognition as better-than-expected premium increases, which were reflected in projections, offset higher morbidity and lower interest rates.

40



RIVERSOURCE LIFE INSURANCE COMPANY

The following table presents the total pretax impacts on the Company’s revenues and expenses attributable to unlocking for the nine months ended September 30:
Pretax Increase (Decrease)
 
2016
 
2015
 
 
(in millions)
Premiums
 
$

 
$
(3
)
Policy and contract charges
 
64

 
8

Total revenues
 
64

 
5

 
 
 
 
 
Benefits, claims, losses and settlement expenses
 
229

 
(58
)
Amortization of deferred acquisition costs
 
81

 
15

Other insurance and operating expenses
 
(27
)
 

Total benefits and expenses
 
283

 
(43
)
Total (1)
 
$
(219
)
 
$
48

(1) 
Includes a $16 million and $6 million net benefit related to the market impact on variable annuity guaranteed benefits and indexed universal life benefits for the nine months ended September 30, 2016 and 2015, respectively.
Net income decreased $156 million or 23% to $534 million for the nine months ended September 30, 2016 compared to $690 million for the prior year period. Pretax income decreased $267 million to $567 million for the nine months ended September 30, 2016 compared to $834 million for the prior year period primarily due to the impact from unlocking, market depreciation and an unfavorable $29 million LTC reserve correction in the third quarter of 2016 partially offset by a $33 million favorable change in the market impact on indexed universal life benefits, the impact on deferred acquisition costs (“DAC”), deferred sales inducement costs (“DSIC”) and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance, the market impact on variable annuity guaranteed benefits (net of hedges and the related DAC and DSIC amortization) and a $14 million increase in LTC reserves in the prior year period.
The market impact on indexed universal life benefits (net of hedges and the related DAC amortization, unearned revenue amortization and the reinsurance accrual) was a benefit of $31 million for the nine months ended September, 30, 2016 compared to an expense of $2 million for the prior year period.
The impact on DAC, DSIC and reserves for insurance features in non-traditional long-duration contracts from actual versus expected market performance based on the Company’s view of bond and equity performance was a benefit of $5 million ($3 million for DAC, $1 million for DSIC and $1 million for insurance features in non-traditional long-duration contracts) for the nine months ended September 30, 2016 reflecting favorable equity market and bond fund returns compared to a net expense of $20 million ($20 million expense for DAC, $5 million expense for DSIC and $5 million benefit for insurance features in non-traditional long-duration contracts) for the prior year period reflecting unfavorable equity market and bond fund returns.
The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $55 million for the nine months ended September 30, 2016 compared to an expense of $83 million for the prior year period.
The Company’s variable annuity account balances increased 4% to $75.9 billion at September 30, 2016 compared to the prior year period due to equity market appreciation partially offset by net outflows of $1.7 billion.
The Company’s fixed annuity account balances declined 7% to $10.2 billion at September 30, 2016 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 annuity book is expected to gradually run off and earnings on its fixed annuity business will trend down.
Revenues
Total revenues increased by $50 million or 2% to $3.0 billion for the nine months ended September 30, 2016 compared to $2.9 billion for the prior year period.
Premiums increased $15 million or 5% to $315 million for the nine months ended September 30, 2016 compared to $300 million for the prior year period primarily reflecting higher sales of immediate annuities with life contingencies.
Net investment income decreased $54 million or 6% to $850 million for the nine months ended September 30, 2016 compared to $904 million for the prior year period reflecting a decrease in investment income on fixed maturities primarily due to lower invested assets and continued low interest rates and a $10 million increase in losses related to affordable housing partnerships reflecting an impairment in the third quarter of 2016 due to tax credits being realized faster than expected.
Policy and contract charges increased $96 million or 7% to $1.5 billion for the nine months ended September 30, 2016 compared to $1.4 billion for the prior year period primarily due to the impact from unlocking, the unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal life benefits and higher fees from variable annuity guarantee sales

41



RIVERSOURCE LIFE INSURANCE COMPANY

in the prior year where the fees start on the first anniversary date and a $9 million unfavorable impact related to a life insurance premium correction in the prior year period. Policy and contract charges for the nine months ended September 30, 2016 included a $64 million favorable impact from unlocking compared to $8 million in the prior year period. The primary driver of the unlocking impact to policy and contract charges for the nine months ended September 30, 2016 was higher projected gains on reinsurance contracts resulting from unfavorable mortality experience. The primary driver of the unlocking impact to policy and contract charges for the prior year period was a positive impact from model updates related to the indexed universal life product partially offset by a negative impact from lower projected gains on reinsurance contracts resulting from favorable mortality experience. The unearned revenue amortization and the reinsurance accrual offset to the market impact on indexed universal benefits was a positive $18 million for the nine months ended September 30, 2016 compared to a positive $5 million for the prior year period.
Other revenues decreased $17 million or 5% to $303 million for the nine months ended September 30, 2016 compared to $320 million for the prior year period reflecting lower marketing support driven by lower average separate account balances and a $7 million gain on the sale of a building in the prior year period. Average variable annuity account balances decreased $3.3 billion, or 5%, from the prior year period due to net outflows and equity market depreciation.
Net realized investment gains were $15 million for the nine months ended September 30, 2016 compared to net realized investment gains of $5 million for the prior year period. For the nine months ended September 30, 2016, net realized gains of $7 million on Available-for-Sale securities due to sales, calls and tenders and a net realized gain of $10 million from the sale of certain residential mortgage loans were partially offset by a $1 million increase in the provision for loan losses on syndicated loans. For the nine months ended September 30, 2015, net realized gains of $14 million on Available-for-Sale securities due to sales, calls and tenders were partially offset by other-than-temporary impairments recognized in earnings of $7 million which primarily related to credit losses on corporate debt securities. For the nine months ended September 30, 2015, there was an increase in the provision for loan losses on syndicated loans of $1 million.
Benefits and Expenses
Total benefits and expenses increased $317 million or 15% to $2.4 billion for the nine months ended September 30, 2016 compared to $2.1 billion in the prior year period primarily due to an increase in benefits, claims, losses and settlement expenses and amortization of deferred acquisition costs partially offset by a decrease in interest credited to fixed accounts and other insurance and operating expenses.
Benefits, claims, losses and settlement expenses increased $331 million or 41% to $1.1 billion for the nine months ended September 30, 2016 compared to $817 million for the prior year period primarily reflecting the following items:
The nine months ended September 30, 2016 included a $229 million expense from unlocking compared to a $58 million benefit in the prior year period.The unlocking impact for the third quarter of 2016 primarily reflected continued low interest rates and an unfavorable impact from persistency on living benefit reserves, partially offset by a benefit from updates to withdrawal utilization and fee assumptions, as well as market-related inputs related to the living benefit valuation. The unlocking impact for the prior year period reflected an update to market-related inputs related to the living benefit valuation and a benefit from model changes that more than offset the difference between the Company's previously assumed interest rates versus the low interest rate environment.
A $29 million increase in LTC reserves from a correction related to the claim utilization assumption in the third quarter of 2016.
A net $14 million increase in LTC reserves in the prior year period.
An $18 million increase in expense related to higher reserve funding driven by the impact of higher fees from variable annuity guarantee sales in the prior year where the fees start on the first anniversary date.
A $7 million favorable impact in the prior year period from a change in the discount rate for disability income products.
A $172 million decrease in expense compared to the prior year period from the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. 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. The favorable impact of the nonperformance credit spread was $337 million for the nine months ended September 30, 2016 compared to a favorable impact of $165 million for the prior year period.
A $133 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 $288 million change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $153 million change in the market impact on derivatives hedging the variable annuity guaranteed benefits and a favorable $2 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 higher expense in the nine months ended September 30, 2016 compared to a benefit in the prior year period.

42



RIVERSOURCE LIFE INSURANCE COMPANY

Market volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in an expense in the nine months ended September 30, 2016 compared to a benefit in the prior year period.
Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net unfavorable impact compared to the prior year period.
Interest credited to fixed accounts decreased $38 million or 8% to $465 million for the nine months ended September 30, 2016 compared to $503 million for the prior year period primarily due to lower average fixed annuity account balances and the market impact on indexed universal life benefits, net of hedges, partially offset by higher average variable annuities fixed sub-account balances. The market impact on indexed universal life benefits, net of hedges was a benefit of $25 million for the nine months ended September 30, 2016 compared to an expense of $5 million for the prior year period. Average fixed annuity account balances decreased $1.0 billion or 9% to $10.4 billion for the nine months ended September 30, 2016 compared to the prior year period as older policies continue to lapse and new sales are limited due to low interest rates. Average variable annuities fixed sub-account balances increased $149 million, or 3% to $5.0 billion for the nine months ended September 30, 2016 compared to the prior year period.
Amortization of DAC increased $58 million or 24% to $299 million for the nine months ended September 30, 2016 compared to $241 million for the prior year period primarily reflecting the following items:
The impact from unlocking was an expense of $81 million for the nine months ended September 30, 2016 compared to an expense of $15 million for the prior year period. The impact of unlocking in the third quarter of 2016 primarily reflected the continued low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. The long-term interest rate assumption remains unchanged, but management extended the period it would take for rates to reach the long term level from 3.5 years to 5.5 years. In addition, in connection with the loss recognition on LTC insurance products in the third quarter of 2016, the Company wrote-off $58 million of DAC due to continued low interest rates, higher morbidity and higher reinsurance expenses, slightly offset by premium increases.
The impact on DAC from actual versus expected market performance based on the Company’s view of bond and equity performance was a benefit of $3 million for the nine months ended September 30, 2016 compared to an expense of $20 million for the prior year period reflecting favorable equity market and bond fund returns in the current year period compared to unfavorable equity market and bond fund returns in the prior year period.
The DAC offset to the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) was an expense of $9 million for the nine months ended September 30, 2016 compared to a benefit of $2 million for the prior year period.
Other insurance and operating expenses decreased $34 million or 6% to $505 million for the nine months ended September 30, 2016 compared to $539 million for the prior year period primarily due to a $27 million benefit related to the write-off of the deferred reinsurance liability in connection with the loss recognition on LTC insurance products in the third quarter of 2016.
Income Taxes
The Company’s effective tax rate was 5.8% for the nine months ended September 30, 2016 compared to 17.2% for the nine months ended September 30, 2015. The effective tax rates are lower than the statutory rate as a result of tax preferred items including the dividends received deduction and low income housing tax credits. The decrease in the effective tax rate for the nine months ended September 30, 2016 compared to the prior year period was primarily due to lower pretax income.
Market Risk
The Company’s primary market risk exposures are interest rate, equity price and credit risk. Equity price and interest rate fluctuations can have a significant impact on the Company’s results of operations, primarily due to the effects on asset-based fees and expenses, the “spread” income generated on its fixed annuities, fixed insurance and fixed portion of its variable annuities and variable insurance contracts, the value of DAC and DSIC assets, the value of liabilities for guaranteed benefits associated with its variable annuities and the value of derivatives held to hedge these benefits.
The Company’s earnings from fixed annuities, fixed insurance, and the fixed portion of variable annuities and variable insurance contracts are based upon the spread between rates earned on assets held and the rates at which interest is credited to accounts. The Company 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.

43



RIVERSOURCE LIFE INSURANCE COMPANY

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 non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through September 30, 2018 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, was $2.8 billion and 5.1%, respectively, as of September 30, 2016. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $3.5 billion and had a weighted average yield of 3.5% as of September 30, 2016. 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, 2016 was approximately 3.3%.
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 guaranteed benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying invested assets.
The variable annuity guarantees continue to be managed by utilizing a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result. The Company’s comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities: Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. The Company uses various index options across the term structure, interest rate swaps and swaptions, total return swaps and futures to manage the risk exposures. The exposures are measured and monitored daily and adjustments to the hedge portfolio are made as necessary.
The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. The Company assesses 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 uses futures, options 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, equity indexed annuities, indexed universal life insurance and the associated hedge assets, the Company assumed no change in implied market volatility despite the 10% drop in equity prices.

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RIVERSOURCE LIFE INSURANCE COMPANY

The following tables present the Company’s estimate of the impact on pretax income from the above defined hypothetical market movements as of September 30, 2016:
 
 
Equity Price Exposure to Pretax Income
Equity Price Decline 10%
 
Before Hedge Impact
 
Hedge Impact
 
Net Impact
 
 
(in millions)
Asset-based fees and expenses
 
$
(79
)
 
$

 
$
(79
)
DAC and DSIC amortization (1) (2)
 
(137
)
 

 
(137
)
Variable annuity riders:
 
 

 
 

 
 
GMDB and GMIB (2) (3)
 
(35
)
 

 
(35
)
GMWB (2) (3)
 
(533
)
 
412

 
(121
)
GMAB
 
(42
)
 
43

 
1

DAC and DSIC amortization (4)
 
N/A

 
N/A

 
(5
)
Total variable annuity riders
 
(610
)

455


(160
)
Macro hedge program (5)
 

 
17

 
17

Equity indexed annuities
 
1

 
(1
)
 

Indexed universal life insurance
 
45

 
(32
)
 
13

Total
 
$
(780
)

$
439


$
(346
)
 
 
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
 
$
(30
)
 
$

 
$
(30
)
Variable annuity riders:
 
 

 
 

 
 

GMDB and GMIB
 

 

 

GMWB
 
1,315

 
(1,305
)
 
10

GMAB
 
41

 
(38
)
 
3

DAC and DSIC amortization (4)
 
N/A

 
N/A

 
1

Total variable annuity riders
 
1,356


(1,343
)

14

Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products
 
81

 

 
81

Indexed universal life insurance
 
73

 
1

 
74

Total
 
$
1,480


$
(1,342
)

$
139

N/A Not Applicable.
(1) 
Market impact on DAC and DSIC amortization resulting from lower projected profits.
(2) 
In estimating the impact on DAC and DSIC amortization resulting from lower projected profits, the Company has not changed its assumed equity asset growth rates. This is a significantly more conservative estimate than if the Company assumed management follows its mean reversion guideline and increased near-term rates to recover the drop in equity values over a five-year period. The Company makes this same conservative assumption in estimating the impact from GMDB and GMIB riders and the life contingent benefits associated with GMWB.
(3) In the second quarter of 2016, the Company reclassified the estimated impact from certain reserves for life contingent benefits associated with GMWB provisions from the GMDB and GMIB line to the GMWB line. The estimated impact from these reserves as of December 31, 2015 was $(123) million.
(4) 
Market impact on DAC and DSIC amortization related to variable annuity riders is modeled net of hedge impact.
(5) 
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 $285 million related to a 10% equity price decline and an estimated positive net impact to pretax income of $33 million related to a 100 basis point increase in interest rates as of December 31, 2015.
Net impacts shown in the above table from GMWB and GMAB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with 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 nonperformance spread risk is not hedged.
Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These

45



RIVERSOURCE LIFE INSURANCE COMPANY

include assuming that implied market volatility does not change when equity prices fall by 10%, that management does not increase assumed equity asset growth rates to anticipate recovery of the drop in equity values when valuing DAC, DSIC and GMDB and GMIB liability values and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, the Company has not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor has the Company tried to anticipate actions management might take to increase revenues or reduce expenses in these scenarios.
The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.
Fair Value Measurements
The Company reports certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives, most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions and is not the result of a forced liquidation or distressed sale. The Company includes actual market prices, or observable inputs, in its fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. The Company validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 10 to the Consolidated Financial Statements for additional information on the Company’s fair value measurements.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price that would be received to transfer the liability to a market participant (an exit price). Since there is not a market for the Company’s obligations of its variable annuity riders and indexed universal life insurance, the Company considers the assumptions participants in a hypothetical market would make to reflect an exit price. As a result, the Company adjusts the valuation of variable annuity riders and indexed universal life insurance by updating certain contractholder assumptions, adding explicit margins to provide for profit, risk and expenses, and adjusting the rates used to discount expected cash flows to reflect a current market estimate of the Company’s nonperformance risk. The nonperformance risk adjustment is based on 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, 2016. As the Company’s estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to net income would be approximately $421 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%), based on September 30, 2016 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 $887 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 paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at both September 30, 2016 and December 31, 2015 was $50 million which is collateralized with agency residential mortgage backed securities and commercial mortgage backed securities from the Company’s investment portfolio. RiverSource Life Insurance Company is a member of the FHLB of Des Moines, which provides RiverSource Life Insurance Company access to collateralized borrowings. At both September 30, 2016 and December 31, 2015, the Company had borrowings of $150 million from the FHLB which is collateralized with commercial mortgage backed securities.
The primary uses of funds are policy benefits, commissions, other product-related acquisition and sales inducement costs, operating expenses, policy loans, dividends to Ameriprise Financial and investment purchases. The Company routinely reviews its sources and uses of funds in order to meet its ongoing obligations.
In 2009, the Company established an agreement to protect its exposure to Genworth Life Insurance Company (“GLIC”) for its reinsured LTC. In early July of 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 our domiciliary regulator and rating agencies. Management believes that this agreement and offsetting non LTC legacy arrangements with Genworth will enable the Company to recover on all net exposure in the event of an insolvency of GLIC.

46



RIVERSOURCE LIFE INSURANCE COMPANY

Capital Activity
Dividends paid by RiverSource Life Insurance Company were as follows:
 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions)
Cash dividends paid to Ameriprise Financial
$
800

 
$
675

Cash dividends received from RiverSource Life Insurance Co. of New York (“RiverSource Life of NY”)
50

 
25

Cash dividends received from RiverSource Tax Advantaged Investments, Inc.
15

 

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
 
Regulatory Capital 
Requirements
September 30,
2016
 
December 31,
2015
December 31,
2015
 
(in millions)
RiverSource Life Insurance Company (1)(2)
$
3,751

 
$
3,800

 
$
589

RiverSource Life Insurance Co. of NY (1)(2)
337

 
333

 
44

(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 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 2015 10-K.
Forward-Looking Statements
This report contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include: 
statements of the Company’s plans, intentions, expectations, objectives, or goals, including those related to the introduction, cessation, terms or pricing of new or existing products and services and the consolidated tax rate;
other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and
statements of assumptions underlying such statements.
The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements.
Such factors include, but are not limited to: 
conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;
changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act or in light of the U.S. Department of Labor rule and exemptions 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;
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, improper management of conflicts of interest or otherwise;

47



RIVERSOURCE LIFE INSURANCE COMPANY

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 and persistency in certain annuity and insurance products, or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying the Company’s valuation and hedging of guaranteed benefit annuity riders, or from assumptions regarding interest rates 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 reengineering and tax planning;
interruptions or other failures in the Company’s communications, technology and other operating systems, including errors or failures caused by third-party service providers, interference or failures caused by third-party attacks on the Company’s systems, or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and
general economic and political factors, including consumer confidence in the economy, the ability and inclination of consumers generally to invest, as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the Company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, (such as the June 2016 UK referendum on membership in the European Union) 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 2015 10-K, Part II, Item 1A of the Company’s Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 5, 2016, Part II, Item 1A of the Company’s Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 1, 2016 and Part II, Item 1A of this Form 10Q.
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, 2016.
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.

48



RIVERSOURCE LIFE INSURANCE COMPANY

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 15 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference. 
ITEM 1A. RISK FACTORS
Other than as described in RiverSource Life Insurance Company’s Quarterly Report on Form 10-Q for the quarters ended June 30, 2016 and March 31, 2016, there have been no material changes in the risk factors provided in Part I, Item 1A of its 2015 10K.
ITEM 6. EXHIBITS
The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.

49



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 2, 2016
By
/s/ John R. Woerner
 
 
 
John R. Woerner
 
 
 
Chairman and President
 
 
 
 
 
 
 
 
Date:
November 2, 2016
By
/s/ Brian J. McGrane
 
 
 
Brian J. McGrane
 
 
 
Executive Vice President and
 
 
 
Chief Financial Officer


50



RIVERSOURCE LIFE INSURANCE COMPANY

EXHIBIT INDEX
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, 2016, formatted in XBRL: (i) Consolidated Balance Sheets at September 30, 2016 and December 31, 2015; (ii) Consolidated Statements of Income for the three months and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2016 and 2015; (iv) Consolidated Statements of Shareholder’s Equity for the nine months ended September 30, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015; and (vi) Notes to the Consolidated Financial Statements.
______________________________________
*   Filed electronically herewith.


E-1