RIVERSOURCE LIFE INSURANCE CO - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - RIVERSOURCE LIFE INSURANCE CO	rvs06302016-exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - RIVERSOURCE LIFE INSURANCE CO	rvs06302016-exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - RIVERSOURCE LIFE INSURANCE CO	rvs06302016-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 June 30, 2016


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 August 1, 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 — June 30, 2016 and December 31, 2015					3
Consolidated Statements of Income — Three months and six months ended June 30, 2016 and 2015					4
Consolidated Statements of Comprehensive Income — Three months and six months ended June 30, 2016 and 2015					4
Consolidated Statements of Shareholder’s Equity — Six months ended June 30, 2016 and 2015					5
Consolidated Statements of Cash Flows — Six months ended June 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					16
9. Short-term Borrowings					18
10. Fair Values of Assets and Liabilities					18
11. Offsetting Assets and Liabilities					28
12. Derivatives and Hedging Activities					30
13. Shareholder’s Equity					33
14. Income Taxes					34
15. Guarantees and Contingencies					35
Item 2. Management’s Narrative Analysis					36
Item 4. Controls and Procedures					43

Part II. Other Information					44
Item 1. Legal Proceedings					44
Item 1A. Risk Factors					44
Item 6. Exhibits					44
Signatures					45
Exhibit Index					E-1

RIVERSOURCE LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	June 30, 2016		December 31, 2015
	(in millions, except share amounts)
Assets
Investments:
Available-for-Sale:
Fixed maturities, at fair value (amortized cost: 2016, $20,918; 2015, $20,886)	$	22,790	$	21,772
Common stocks, at fair value (cost: 2016 and 2015, $2)	7		7
Mortgage loans, at amortized cost (less allowance for loan losses: 2016 and 2015, $19)	2,892		3,211
Policy loans	829		823
Other investments	979		998
Total investments	27,497		26,811
Cash and cash equivalents	1,044		370
Reinsurance recoverables	2,471		2,415
Other receivables	255		255
Accrued investment income	240		244
Deferred acquisition costs	2,564		2,688
Other assets	6,277		4,569
Separate account assets	76,124		76,004
Total assets	$	116,472	$	113,356

Liabilities and Shareholder’s Equity
Liabilities:
Policyholder account balances, future policy benefits and claims	$	30,516	$	29,029
Short-term borrowings	200		200
Other liabilities	5,301		4,058
Separate account liabilities	76,124		76,004
Total liabilities	112,141		109,291
Shareholder’s equity:
Common stock, $30 par value; 100,000 shares authorized, issued and outstanding	3		3
Additional paid-in capital	2,465		2,465
Retained earnings	1,100		1,202
Accumulated other comprehensive income, net of tax	763		395
Total shareholder’s equity	4,331		4,065
Total liabilities and shareholder’s equity	$	116,472	$	113,356

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(in millions)
Revenues
Premiums	$	109	$	108	$	211	$	205
Net investment income	284		302		574		608
Policy and contract charges	475		475		944		935
Other revenues	101		113		199		217
Net realized investment gains	5		6		14		16
Total revenues	974		1,004		1,942		1,981
Benefits and expenses
Benefits, claims, losses and settlement expenses	332		275		558		581
Interest credited to fixed accounts	158		160		304		332
Amortization of deferred acquisition costs	65		74		155		129
Other insurance and operating expenses	179		187		356		369
Total benefits and expenses	734		696		1,373		1,411
Pretax income	240		308		569		570
Income tax provision	17		55		71		104
Net income	$	223	$	253	$	498	$	466

Supplemental Disclosures:
Total other-than-temporary impairment losses on securities	$	—	$	—	$	—	$	(1	)
Portion of loss recognized in other comprehensive income (before taxes)	—		—		—		1
Net impairment losses recognized in net realized investment gains	$	—	$	—	$	—	$	—

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
	(in millions)
Net income	$	223	$	253		$	498	$	466
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities	190		(213		)	366		(150		)
Net unrealized gains on derivatives	1		1			2		2
Total other comprehensive income (loss), net of tax	191		(212		)	368		(148		)
Total comprehensive income	$	414	$	41		$	866	$	318

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)



	Common Shares		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Total
	(in millions)
Balances at January 1, 2015	$	3	$	2,464	$	1,107		$	729		$	4,303
Comprehensive income:
Net income	—		—		466			—			466
Other comprehensive loss, net of tax	—		—		—			(148		)	(148		)
Total comprehensive income											318
Tax adjustment on share-based incentive compensation plan	—		1		—			—			1
Cash dividends to Ameriprise Financial, Inc.	—		—		(525		)	—			(525		)
Balances at June 30, 2015	$	3	$	2,465	$	1,048		$	581		$	4,097

Balances at January 1, 2016	$	3	$	2,465	$	1,202		$	395		$	4,065
Comprehensive income:
Net income	—		—		498			—			498
Other comprehensive income, net of tax	—		—		—			368			368
Total comprehensive income											866
Cash dividends to Ameriprise Financial, Inc.	—		—		(600		)	—			(600		)
Balances at June 30, 2016	$	3	$	2,465	$	1,100		$	763		$	4,331

See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Six Months Ended June 30,
	2016			2015
	(in millions)
Cash Flows from Operating Activities
Net income	$	498		$	466
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net	19			5
Deferred income tax (benefit) expense	(27		)	87
Contractholder and policyholder charges, non-cash	(173		)	(165		)
Loss from equity method investments	23			18
Net realized investment gains	(16		)	(17		)
Other-than-temporary impairments and provision for loan losses recognized in net realized investment gains	2			1
Changes in operating assets and liabilities:
Deferred acquisition costs	30			(1		)
Policyholder account balances, future policy benefits and claims, net	1,279			(73		)
Derivatives, net of collateral	(607		)	260
Reinsurance recoverables	(73		)	(70		)
Other receivables	7			18
Accrued investment income	4			8
Other, net	34			297
Net cash provided by operating activities	1,000			834

Cash Flows from Investing Activities
Available-for-Sale securities:
Proceeds from sales	252			53
Maturities, sinking fund payments and calls	1,308			1,600
Purchases	(1,591		)	(1,245		)
Proceeds from sales, maturities and repayments of mortgage loans	551			314
Funding of mortgage loans	(221		)	(242		)
Proceeds from sales and collections of other investments	60			53
Purchase of other investments	(72		)	(59		)
Purchase of land, buildings, equipment and software	(5		)	(5		)
Change in policy loans, net	(6		)	(11		)
Other, net	25			44
Net cash provided by investing activities	301			502
See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

	Six Months Ended June 30,
	2016			2015
	(in millions)
Cash Flows from Financing Activities
Policyholder account balances:
Deposits and other additions	$	999		$	984
Net transfers from (to) separate accounts	83			(102		)
Surrenders and other benefits	(989		)	(1,566		)
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	—			1
Cash received for purchased options with deferred premiums	33			8
Cash paid for purchased options with deferred premiums	(153		)	(204		)
Cash dividend to Ameriprise Financial, Inc.	(600		)	(525		)
Net cash used in financing activities	(627		)	(1,404		)
Net increase (decrease) in cash and cash equivalents	674			(68		)
Cash and cash equivalents at beginning of period	370			307
Cash and cash equivalents at end of period	$	1,044		$	239

Supplemental Disclosures:
Income taxes paid (received), net	$	115		$	(220	)
Interest paid on borrowings	1			—
Non-cash investing activity:
Affordable housing partnership commitments not yet remitted	19			9
See Notes to Consolidated Financial Statements.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

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


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


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

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

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

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

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 $514 million and $517 million as of June 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 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Investments

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



	June 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	$	13,219	$	1,431	$	(65	)	$	14,585	$	3
Residential mortgage backed securities	3,225		130		(22		)	3,333		(7		)
Commercial mortgage backed securities	2,387		136		—			2,523		—
State and municipal obligations	1,050		225		(15		)	1,260		—
Asset backed securities	775		38		(6		)	807		—
Foreign government bonds and obligations	257		27		(7		)	277		—
U.S. government and agencies obligations	5		—		—			5		—
Total fixed maturities	20,918		1,987		(115		)	22,790		(4		)
Common stocks	2		5		—			7		3
Total	$	20,920	$	1,992	$	(115	)	$	22,797	$	(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.

As of June 30, 2016 and December 31, 2015, investment securities with a fair value of $803 million and $862 million, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $195 million and $408 million, respectively, may be sold, pledged or rehypothecated by the counterparty.

As of June 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. At June 30, 2016 and December 31, 2015, approximately $998 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



	June 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	$	5,055	$	5,319	23	%	$	4,661	$	4,806	22	%
AA	960		1,181		5		1,010		1,185		5
A	3,818		4,401		19		3,749		4,101		19
BBB	9,557		10,398		46		9,964		10,278		47
Below investment grade	1,528		1,491		7		1,502		1,402		7
Total fixed maturities	$	20,918	$	22,790	100	%	$	20,886	$	21,772	100	%

At June 30, 2016 and December 31, 2015, approximately 43% 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:



	June 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	38	$	363	$	(13	)	45	$	499	$	(52	)	83	$	862	$	(65	)
Residential mortgage backed securities	23	196		(4		)	59	401		(18		)	82	597		(22		)
State and municipal obligations	—	—		—			3	121		(15		)	3	121		(15		)
Asset backed securities	17	223		(5		)	4	29		(1		)	21	252		(6		)
Foreign government bonds and obligations	2	7		—			16	31		(7		)	18	38		(7		)
Total	80	$	789	$	(22	)	127	$	1,081	$	(93	)	207	$	1,870	$	(115	)



	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 as well as a tightening of credit spreads.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 June 30,				Six Months Ended June 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 were as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
	(in millions)
Gross realized investment gains	$	10		$	5	$	13		$	22
Gross realized investment losses	(5		)	—		(8		)	(5		)
Total	$	5		$	5	$	5		$	17

See Note 13 for a rollforward of net unrealized investment gains (losses) included in AOCI.

Available-for-Sale securities by contractual maturity at June 30, 2016 were as follows:



	Amortized Cost		Fair Value
	(in millions)
Due within one year	$	505	$	515
Due after one year through five years	5,887		6,351
Due after five years through 10 years	4,354		4,595
Due after 10 years	3,785		4,666
	14,531		16,127
Residential mortgage backed securities	3,225		3,333
Commercial mortgage backed securities	2,387		2,523
Asset backed securities	775		807
Common stocks	2		7
Total	$	20,920	$	22,797

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.

Net investment income is summarized as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(in millions)
Fixed maturities	$	251	$	262	$	502	$	526
Mortgage loans	37		46		77		91
Other investments	2		3		8		8
	290		311		587		625
Less: investment expenses	6		9		13		17
Total	$	284	$	302	$	574	$	608

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 six months ended and the ending balance of the allowance for loan losses by impairment method:



	June 30,
	2016		2015
	(in millions)
Beginning balance	$	25	$	28
Charge-offs	—		(2		)
Provisions	1		1
Ending balance	$	26	$	27

Individually evaluated for impairment	$	2	$	6
Collectively evaluated for impairment	24		21

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



	June 30, 2016		December 31, 2015
	(in millions)
Individually evaluated for impairment	$	17	$	25
Collectively evaluated for impairment	3,327		3,657
Total	$	3,344	$	3,682

As of both June 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 $12 million.

During both the three months ended June 30, 2016 and 2015, the Company purchased $24 million and sold nil and $1 million, respectively, of loans. During the six months ended June 30, 2016 and 2015, the Company purchased $37 million and $36 million, respectively, and sold $250 million and $7 million, respectively, of loans. The loans sold during the six months ended June 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 $7 million and $8 million as of June 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 June 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



	Loans				Percentage
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
	(in millions)
South Atlantic	$	736	$	746	28	%	28	%
Pacific	703		709		27		27
Mountain	252		242		10		9
West North Central	209		217		8		8
Middle Atlantic	198		203		8		8
East North Central	197		208		7		8
West South Central	125		128		5		5
New England	101		115		4		4
East South Central	71		68		3		3
	2,592		2,636		100	%	100	%
Less: allowance for loan losses	19		19
Total	$	2,573	$	2,617

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



	Loans				Percentage
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
	(in millions)
Retail	$	936	$	947	36	%	36	%
Office	493		522		19		20
Apartments	472		473		18		18
Industrial	423		444		17		17
Mixed use	37		35		1		1
Hotel	33		34		1		1
Other	198		181		8		7
	2,592		2,636		100	%	100	%
Less: allowance for loan losses	19		19
Total	$	2,573	$	2,617

Residential Mortgage Loans

The recorded investment in residential mortgage loans at June 30, 2016 and December 31, 2015 was $319 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 June 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 June 30, 2016.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

As of June 30, 2016 and December 31, 2015, approximately 3% and 4%, respectively, of residential mortgage loans had FICO scores below 640. As of June 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 June 30, 2016 and December 31, 2015, respectively, and in Colorado and Washington representing 17% and 14%, respectively, of the portfolio as of June 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 June 30, 2016 and December 31, 2015 was $433 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 June 30, 2016 and December 31, 2015 were $7 million and $5 million, respectively.

Troubled Debt Restructurings

The recorded investment in restructured loans was not material as of June 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 six months ended June 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

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	125			130
Amortization	(155		)	(129		)
Impact of change in net unrealized securities (gains) losses	(94		)	47
Balance at June 30	$	2,564		$	2,624

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	2			2
Amortization	(22		)	(25		)
Impact of change in net unrealized securities (gains) losses	(14		)	7
Balance at June 30	$	300		$	345

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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:



	June 30, 2016		December 31, 2015
	(in millions)
Policyholder account balances
Fixed annuities	$	10,889	$	11,239
Variable annuity fixed sub-accounts	5,060		4,912
Variable universal life (“VUL”)/universal life (“UL”) insurance	2,947		2,897
Indexed universal life (“IUL”) insurance	910		808
Other life insurance	775		794
Total policyholder account balances	20,581		20,650

Future policy benefits
Variable annuity guaranteed minimum withdrawal benefits (“GMWB”)	2,156		1,057
Variable annuity guaranteed minimum accumulation benefits (“GMAB”)	44		—
Other annuity liabilities	120		31
Fixed annuities life contingent liabilities	1,499		1,501
Equity indexed annuities (“EIA”)	26		27
Life, disability income and long term care insurance	5,348		5,112
VUL/UL and other life insurance additional liabilities	527		452
Total future policy benefits	9,720		8,180
Policy claims and other policyholders’ funds	215		199
Total policyholder account balances, future policy benefits and claims	$	30,516	$	29,029

Separate account liabilities consisted of the following:



	June 30, 2016		December 31, 2015
	(in millions)
Variable annuity	$	69,520	$	69,333
VUL insurance	6,571		6,637
Other insurance	33		34
Total	$	76,124	$	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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



	June 30, 2016							December 31, 2015
Variable Annuity Guarantees by Benefit Type⁽¹⁾	Total Contract Value		Contract Value in Separate Accounts		Net Amount at Risk		Weighted Average Attained Age	Total Contract Value		Contract Value in Separate Accounts		Net Amount at Risk		Weighted Average Attained Age
	(in millions, except age)
GMDB:
Return of premium	$	55,533	$	53,623	$	264	65	$	54,716	$	52,871	$	297	65
Five/six-year reset	9,036		6,389		46		65	9,307		6,731		78		65
One-year ratchet	6,587		6,214		183		67	6,747		6,379		266		67
Five-year ratchet	1,581		1,522		12		64	1,613		1,556		20		63
Other	920		899		84		71	887		869		82		71
Total — GMDB	$	73,657	$	68,647	$	589	65	$	73,270	$	68,406	$	743	65

GGU death benefit	$	1,050	$	998	$	109	68	$	1,056	$	1,004	$	113	67

GMIB	$	251	$	232	$	14	68	$	270	$	251	$	17	68

GMWB:
GMWB	$	2,891	$	2,882	$	2	69	$	3,118	$	3,109	$	2	69
GMWB for life	38,476		38,351		409		66	37,301		37,179		330		66
Total — GMWB	$	41,367	$	41,233	$	411	66	$	40,419	$	40,288	$	332	66

GMAB	$	3,779	$	3,769	$	26	58	$	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.

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



	June 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	$	6,301	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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



	GMDB & GGU			GMIB		GMWB ⁽¹⁾			GMAB ⁽¹⁾			UL
	(in millions)
Balance at January 1, 2015	$	9		$	7	$	693		$	(41	)	$	263
Incurred claims	1			—		(225		)	(4		)	45
Paid claims	(1		)	—		—			—			(12		)
Balance at June 30, 2015	$	9		$	7	$	468		$	(45	)	$	296

Balance at January 1, 2016	$	14		$	8	$	1,057		$	—		$	332
Incurred claims	3			—		1,099			45			44
Paid claims	(6		)	—		—			(1		)	(12		)
Balance at June 30, 2016	$	11		$	8	$	2,156		$	44		$	364


⁽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:



	June 30, 2016		December 31, 2015
	(in millions)
Mutual funds:
Equity	$	40,061	$	39,806
Bond	23,659		23,700
Other	5,248		5,241
Total mutual funds	$	68,968	$	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 both June 30, 2016 and December 31, 2015, the Company has pledged $30 million of agency residential mortgage backed securities and $22 million of commercial mortgage backed securities. The amount of the Company’s liability including accrued interest as of both June 30, 2016 and December 31, 2015 was $50 million. The remaining maturity of outstanding repurchase agreements was less than one month as of both June 30, 2016 and December 31, 2015. The weighted average annualized interest rate on the repurchase agreements held as of June 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 $416 million and $290 million as of June 30, 2016 and December 31, 2015, respectively. The amount of the Company’s liability including accrued interest as of both June 30, 2016 and December 31, 2015 was $150 million. The remaining maturity of outstanding FHLB advances was less than four months and less than three months as of June 30, 2016 and December 31, 2015, respectively. The weighted average annualized interest rate on the FHLB advances held as of June 30, 2016 and December 31, 2015 was 0.6% and 0.5%, respectively.

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:

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


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


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


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

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



	June 30, 2016
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Available-for-Sale securities: Fixed maturities:
Corporate debt securities	$	—	$	13,388	$	1,197	$	14,585
Residential mortgage backed securities	—		3,318		15		3,333
Commercial mortgage backed securities	—		2,523		—		2,523
State and municipal obligations	—		1,260		—		1,260
Asset backed securities	—		677		130		807
Foreign government bonds and obligations	—		277		—		277
U.S. government and agencies obligations	3		2		—		5
Total Available-for-Sale securities: Fixed maturities	3		21,445		1,342		22,790
Common stocks	2		5		—		7
Cash equivalents	44		960		—		1,004
Other assets:
Interest rate derivative contracts	1		3,873		—		3,874
Equity derivative contracts	65		1,458		—		1,523
Foreign exchange derivative contracts	8		90		—		98
Other derivative contracts	—		—		2		2
Total other assets	74		5,421		2		5,497
Separate account assets measured at NAV							76,124		⁽¹⁾
Total assets at fair value	$	123	$	27,831	$	1,344	$	105,422

Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	5	$	—	$	5
IUL embedded derivatives	—		—		408		408
GMWB and GMAB embedded derivatives	—		—		1,965		1,965		⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		5		2,373		2,378		⁽³⁾
Other liabilities:
Interest rate derivative contracts	1		1,793		—		1,794
Equity derivative contracts	41		1,745		—		1,786
Credit derivative contracts	—		12		—		12
Foreign exchange derivative contracts	2		34		—		36
Other derivative contracts	2		—		—		2
Total other liabilities	46		3,584		—		3,630
Total liabilities at fair value	$	46	$	3,589	$	2,373	$	6,008


⁽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 $2.0 billion of individual contracts in a liability position and $51 million of individual contracts in an asset position.


⁽³⁾	The Company’s adjustment for nonperformance risk resulted in a $756 million cumulative decrease to the embedded derivatives.

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.

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			Other Derivative Contracts
	(in millions)
Balance, April 1, 2016	$	1,243		$	19		$	10		$	133		$	1,405		$	—
Total gains included in:
Other comprehensive income	12			—			—			—			12			—
Purchases	14			—			—			—			14			2
Settlements	(72		)	(4		)	(1		)	—			(77		)	—
Transfers into Level 3	—			—			—			12			12			—
Transfers out of Level 3	—			—			(9		)	(15		)	(24		)	—
Balance, June 30, 2016	$	1,197		$	15		$	—		$	130		$	1,342		$	2

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



	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, April 1, 2016	$	382			$	1,515			$	1,897
Total losses included in:
Net income	4			⁽¹⁾	386			⁽²⁾	390
Issues	29				70				99
Settlements	(7		)		(6		)		(13		)
Balance, June 30, 2016	$	408			$	1,965			$	2,373

Changes in unrealized losses relating to liabilities held at June 30, 2016 included in:
Benefits, claims, losses and settlement expenses	$	—			$	405			$	405
Interest credited to fixed accounts	4				—				4


⁽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.



	Available-for-Sale Securities: Fixed Maturities
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total
	(in millions)
Balance, April 1, 2015	$	1,360		$	39		$	20		$	119		$	1,538
Total losses included in:
Other comprehensive income	(19		)	—			—			—			(19		)
Purchases	36			—			31			1			68
Settlements	(38		)	—			(1		)	(2		)	(41		)
Transfers out of Level 3	—			(31		)	(16		)	—			(47		)
Balance, June 30, 2015	$	1,339		$	8		$	34		$	118		$	1,499

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, April 1, 2015	$	270		$	827			$	1,097
Total gains included in:
Net income	—			(659		)	⁽¹⁾	(659		)
Issues	26			64				90
Settlements	(4		)	3				(1		)
Balance, June 30, 2015	$	292		$	235			$	527

Changes in unrealized gains relating to liabilities held at June 30, 2015 included in:
Benefits, claims, losses and settlement expenses	$	—		$	(651	)		$	(651	)


⁽¹⁾	Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.



	Available-for-Sale Securities: Fixed Maturities															Other Derivative Contracts
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total			Other Derivative Contracts
	(in millions)
Balance, January 1, 2016	$	1,235		$	21		$	3		$	133		$	1,392		$	—
Total gains included in:
Other comprehensive income	28			—			—			—			28			—
Purchases	14			—			9			—			23			2
Settlements	(80		)	(6		)	(3		)	—			(89		)	—
Transfers into Level 3	—			—			—			12			12			—
Transfers out of Level 3	—			—			(9		)	(15		)	(24		)	—
Balance, June 30, 2016	$	1,197		$	15		$	—		$	130		$	1,342		$	2

Changes in unrealized gains (losses) relating to assets held at June 30, 2016 included in:
Net investment 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 (gains) losses included in:
Net income	(4		)	⁽¹⁾	988			⁽²⁾	984
Issues	61				138				199
Settlements	(13		)		(12		)		(25		)
Balance, June 30, 2016	$	408			$	1,965			$	2,373

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2016 included in:
Benefits, claims, losses and settlement expenses	$	—			$	1,021			$	1,021
Interest credited to fixed accounts	(4		)		—				(4		)


⁽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.

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			Common Stocks
	(in millions)
Balance, January 1, 2015	$	1,353		$	9		$	90		$	151		$	1,603		$	1
Total losses included in:
Other comprehensive income	(7		)	—			—			—			(7		)	(1		)
Purchases	51			31			31			1			114			—
Settlements	(58		)	(1		)	(2		)	(2		)	(63		)	—
Transfers into Level 3	—			—			6			—			6			—
Transfers out of Level 3	—			(31		)	(91		)	(32		)	(154		)	—
Balance, June 30, 2015	$	1,339		$	8		$	34		$	118		$	1,499		$	—

Changes in unrealized gains (losses) relating to assets held at June 30, 2015 included in:
Net investment 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 (gains) losses included in:
Net income	14			⁽¹⁾	(379		)	⁽²⁾	(365		)
Issues	45				128				173
Settlements	(9		)		7				(2		)
Balance, June 30, 2015	$	292			$	235			$	527

Changes in unrealized (gains) losses relating to liabilities held at June 30, 2015 included in:
Benefits, claims, losses and settlement expenses	$	—			$	(373	)		$	(373	)
Interest credited to fixed accounts	14				—				14


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


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

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $97 million and $(45) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the three months ended June 30, 2016 and 2015, respectively.

The increase (decrease) to pretax income of the Company’s adjustment for nonperformance risk on the fair value of its embedded derivatives was $287 million and $(8) million, net of DAC, DSIC, unearned revenue amortization and the reinsurance accrual for the six months ended June 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.

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:



	June 30, 2016
	Fair Value		Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,193	Discounted cash flow	Yield/spread to U.S. Treasuries	0.5	%	-	3.4%	1.6	%
Other derivative contracts	$	2	Option pricing model	Correlation ⁽¹⁾					0.9
IUL embedded derivatives	$	408	Discounted cash flow	Nonperformance risk ⁽²⁾	88 bps
GMWB and GMAB embedded derivatives	$	1,965	Discounted cash flow	Utilization of guaranteed withdrawals ⁽³⁾	0.0	%	-	75.6%
				Surrender rate	0.0	%	-	59.1%
				Market volatility ⁽⁴⁾	5.6	%	-	22.3%
				Nonperformance risk ⁽²⁾	88 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 ⁽²⁾	68 bps
GMWB and GMAB embedded derivatives	$	851	Discounted cash flow	Utilization of guaranteed withdrawals ⁽³⁾	0.0	%	-	75.6%
				Surrender rate	0.0	%	-	59.1%
				Market volatility ⁽⁴⁾	5.4	%	-	21.5%
				Nonperformance risk ⁽²⁾	68 bps


⁽¹⁾	Represents the correlation between equity returns and interest rates used in the valuation of the derivative contract.

⁽²⁾ The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.


⁽³⁾	The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.


⁽⁴⁾	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 the correlation used in the fair value measurement of Level 3 derivatives 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 system 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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

Assets

Cash Equivalents

Cash equivalents include highly liquid investments with original 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 June 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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

valuation, these measurements are classified as Level 3. The embedded derivatives attributable to these provisions are recorded in policyholder account balances, future policy benefits and claims.

The Company uses various Black-Scholes calculations to determine the fair value of the embedded derivatives associated with the provisions of its 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 June 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:



	June 30, 2016
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	2,892	$	—	$	—	$	3,055	$	3,055
Policy loans	829		—		—		806		806
Other investments	442		—		389		48		437

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	11,228	$	—	$	—	$	12,349	$	12,349
Short-term borrowings	200		—		200		—		200
Other liabilities	113		—		—		109		109
Separate account liabilities measured at NAV	343								343		⁽¹⁾

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



	December 31, 2015
	Carrying Value		Fair Value
	Carrying 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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Other Liabilities

Other liabilities consist of future funding commitments to affordable housing 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:



	June 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
							Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
	(in millions)
Derivatives:
OTC	$	4,312	$	—	$	4,312	$	(2,492	)	$	(779	)	$	(1,026	)	$	15
OTC cleared	1,168		—		1,168		(966		)	(201		)	—			1
Exchange-traded	17		—		17		(14		)	—			—			3
Total derivatives	$	5,497	$	—	$	5,497	$	(3,472	)	$	(980	)	$	(1,026	)	$	19



	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
							Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral			Securities Collateral			Net Amount
	(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.

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:



	June 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
							Financial Instruments ⁽¹⁾			Cash Collateral		Securities Collateral			Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral		Securities Collateral			Net Amount
	(in millions)
Derivatives:
OTC	$	2,649	$	—	$	2,649	$	(2,492	)	$	—	$	(136	)	$	21
OTC cleared	966		—		966		(966		)	—		—			—
Exchange-traded	15		—		15		(14		)	—		—			1
Total derivatives	3,630		—		3,630		(3,472		)	—		(136		)	22
Repurchase agreements	50		—		50		—			—		(50		)	—
Total	$	3,680	$	—	$	3,680	$	(3,472	)	$	—	$	(186	)	$	22



	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
							Financial Instruments ⁽¹⁾			Cash Collateral		Securities Collateral			Net Amount
							Financial Instruments ⁽¹⁾			Cash Collateral		Securities Collateral			Net Amount
	(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.

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:



	June 30, 2016						December 31, 2015
	Notional		Gross Fair Value				Notional		Gross Fair Value
	Notional		Assets⁽¹⁾		Liabilities⁽²⁾		Notional		Assets⁽¹⁾		Liabilities⁽²⁾
	(in millions)
Derivatives not designated as hedging instruments
Interest rate contracts	$	73,223	$	3,874	$	1,794	$	62,591	$	1,882	$	948
Equity contracts	60,180		1,523		1,786		69,009		1,569		1,975
Credit contracts	861		—		12		600		2		—
Foreign exchange contracts	4,884		98		36		4,155		55		17
Other contracts	439		2		2		2,150		—		—
Total non-designated hedges	139,587		5,497		3,630		138,505		3,508		2,940

Embedded derivatives
GMWB and GMAB ⁽³⁾	N/A		—		1,965		N/A		—		851
IUL	N/A		—		408		N/A		—		364
EIA	N/A		—		5		N/A		—		5
Total embedded derivatives	N/A		—		2,378		N/A		—		1,220
Total derivatives	$	139,587	$	5,497	$	6,008	$	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 June 30, 2016 included $2.0 billion of individual contracts in a liability position and $51 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 June 30, 2016 and December 31, 2015, investment securities with a fair value of $1.2 billion and $323 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $893 million and $193 million, respectively, may be sold, pledged or rehypothecated by the Company. At June 30, 2016 and December 31, 2015, the Company had $52 million and nil, respectively, of securities that were sold, pledged, or rehypothecated. In addition, at June 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.

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 June 30, 2016
Interest rate contracts	$	—	$	449
Equity contracts	1		(96		)
Credit contracts	—		(15		)
Foreign exchange contracts	—		(19		)
GMWB and GMAB embedded derivatives	—		(450		)
IUL embedded derivatives	3		—
Total gain (loss)	$	4	$	(131	)



Six Months Ended June 30, 2016
Interest rate contracts	$	—		$	1,204
Equity contracts	(2		)	(161		)
Credit contracts	—			(31		)
Foreign exchange contracts	—			(54		)
GMWB and GMAB embedded derivatives	—			(1,114		)
IUL embedded derivatives	17			—
Total gain (loss)	$	15		$	(156	)



Three Months Ended June 30, 2015
Interest rate contracts	$	—		$	(562	)
Equity contracts	(2		)	(137		)
Credit contracts	—			14
Foreign exchange contracts	—			(2		)
Other contracts	—			6
GMWB and GMAB embedded derivatives	—			592
IUL embedded derivatives	4			—
Total gain (loss)	$	2		$	(89	)



Six Months Ended June 30, 2015
Interest rate contracts	$	—		$	(176	)
Equity contracts	(1		)	(259		)
Credit contracts	—			5
Foreign exchange contracts	—			(8		)
GMWB and GMAB embedded derivatives	—			244
IUL embedded derivatives	(5		)	—
Total loss	$	(6	)	$	(194	)

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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⁾	$	153	$	37
2017		257		76
2018		205		130
2019		248		130
2020		179		57
2021-2026		672		202
Total		$	1,714	$	632

⁽¹⁾2016 amounts represent the amounts payable and receivable for the period from July 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 six months ended June 30, 2016, the Company held no derivatives that were designated as cash flow hedges.

At June 30, 2016, the Company expects to reclassify $6 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 six months ended June 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 six months ended June 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 three 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 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 June 30, 2016 and December 31, 2015, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $157 million and $243 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of June 30, 2016 and December 31, 2015

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

was $136 million and $243 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position at June 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 $21 million and nil, respectively.

13. Shareholder’s Equity

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



	Three Months Ended June 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⁾	$	523		$	(185	)	$	338		$	(632	)	$	221		$	(411	)
Reclassification of net securities gains included in net income ⁽²⁾	(6		)	2			(4		)	(5		)	2			(3		)
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables	(222		)	78			(144		)	309			(108		)	201
Net unrealized securities gains (losses)	295			(105		)	190			(328		)	115			(213		)
Net unrealized derivatives gains:
Reclassification of net derivative losses included in net income⁽³⁾	2			(1		)	1			1			—			1
Net unrealized derivatives gains	2			(1		)	1			1			—			1
Other comprehensive income (loss)	$	297		$	(106	)	$	191		$	(327	)	$	115		$	(212	)



	Six Months Ended June 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⁾	$	992		$	(350	)	$	642		$	(417	)	$	146		$	(271	)
Reclassification of net securities gains included in net income ⁽²⁾	(6		)	2			(4		)	(17		)	6			(11		)
Impact of deferred acquisition costs, deferred sales inducement costs, unearned revenue, benefit reserves and reinsurance recoverables	(419		)	147			(272		)	203			(71		)	132
Net unrealized securities gains (losses)	567			(201		)	366			(231		)	81			(150		)
Net unrealized derivatives gains:
Reclassification of net derivative losses included in net income⁽³⁾	3			(1		)	2			3			(1		)	2
Net unrealized derivatives gains	3			(1		)	2			3			(1		)	2
Other comprehensive income (loss)	$	570		$	(202	)	$	368		$	(228	)	$	80		$	(148	)

⁽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.

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.

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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



	Net Unrealized Securities Gains				Net Unrealized Derivatives Gains			Total
	(in millions)
Balance, April 1, 2016	$	579			$	(7	)	$	572
OCI before reclassifications	194				—			194
Amounts reclassified from AOCI	(4		)		1			(3		)
Total OCI	190				1			191
Balance, June 30, 2016	$	769		⁽¹⁾	$	(6	)	$	763



Balance, January 1, 2016	$	403			$	(8	)	$	395
OCI before reclassifications	370				—			370
Amounts reclassified from AOCI	(4		)		2			(2		)
Total OCI	366				2			368
Balance, June 30, 2016	$	769		⁽¹⁾	$	(6	)	$	763



	Net Unrealized Securities Gains				Net Unrealized Derivatives Gains			Total
	(in millions)
Balance, April 1, 2015	$	804			$	(11	)	$	793
OCI before reclassifications	(210		)		—			(210		)
Amounts reclassified from AOCI	(3		)		1			(2		)
Total OCI	(213		)		1			(212		)
Balance, June 30, 2015	$	591		⁽¹⁾	$	(10	)	$	581



Balance, January 1, 2015	$	741			$	(12	)	$	729
OCI before reclassifications	(139		)		—			(139		)
Amounts reclassified from AOCI	(11		)		2			(9		)
Total OCI	(150		)		2			(148		)
Balance, June 30, 2015	$	591		⁽¹⁾	$	(10	)	$	581

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

14. Income Taxes

The Company’s effective tax rate was 7.1% and 17.9% for the three months ended June 30, 2016 and 2015, respectively. The Company’s effective tax rate was 12.5% and 18.2% for the six months ended June 30, 2016 and 2015, respectively. 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 rates for the three and six months ended June 30, 2016 compared to the prior year periods was primarily due to a $16 million benefit in the second quarter of 2016 related to the completion of tax audits from previous years.

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

RIVERSOURCE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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 June 30, 2016 and December 31, 2015, respectively.

At June 30, 2016 and December 31, 2015, the Company had $60 million and $95 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $8 million and $9 million, net of federal tax benefits, of unrecognized tax benefits at June 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 $50 million to $60 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 six months ended June 30, 2016. The Company recognized a net increase of $1 million in interest and penalties for both the three months and six months ended June 30, 2015. At June 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 field examination of the 1997 through 2011 tax returns. However, for federal income tax purposes, tax years 1997 through 2006, 2008 and 2009 remain open for certain unagreed-upon issues. 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 1997 through 2012 and remain open for all years after 2012.

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 June 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.

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.

Consolidated Results of Operations for the Six Months Ended June 30, 2016 and 2015

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



	Six Months Ended June 30,				Change
	2016		2015		Change
	(in millions)
Revenues
Premiums	$	211	$	205	$	6		3	%
Net investment income	574		608		(34		)	(6	)
Policy and contract charges	944		935		9			1
Other revenues	199		217		(18		)	(8	)
Net realized investment gains	14		16		(2		)	(13	)
Total revenues	1,942		1,981		(39		)	(2	)

Benefits and expenses
Benefits, claims, losses and settlement expenses	558		581		(23		)	(4	)
Interest credited to fixed accounts	304		332		(28		)	(8	)
Amortization of deferred acquisition costs	155		129		26			20
Other insurance and operating expenses	356		369		(13		)	(4	)
Total benefits and expenses	1,373		1,411		(38		)	(3	)
Pretax income	569		570		(1		)	—
Income tax provision	71		104		(33		)	(32	)
Net income	$	498	$	466	$	32		7	%

RIVERSOURCE LIFE INSURANCE COMPANY

Overall

Net income increased $32 million or 7% to $498 million for the six months ended June 30, 2016 compared to $466 million for the prior year period. Pretax income decreased $1 million to $569 million for the six months ended June 30, 2016 compared to $570 million for the prior year period primarily due to equity market depreciation and 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 partially offset by lower DAC and DSIC amortization due to better than expected persistency, the market impact on variable annuity guaranteed benefits (net of hedges and the related DAC and DSIC amortization) and a $14 million increase in long term care (“LTC”) reserves in the prior year period.

The market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC and DAC amortization) was an expense of $35 million for the six months ended June 30, 2016 compared to an expense of $64 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 an expense of $9 million ($5 million for DAC, $1 million for DSIC and $3 million for insurance features in non-traditional long duration contracts) for the six months ended June 30, 2016 compared to a benefit of $16 million ($5 million for DAC, $1 million for DSIC and $10 million for insurance features in non-traditional long duration contracts) for the prior year period. The primary driver of the year-over-year difference is due to a change in how the Company is recalibrating expected bond fund returns based on current interest rates and spreads while still assuming ultimate rates and spreads do not change from the original expectations. Previously, the difference between actual and expected interest rates directly impacted income in the current period and there would be an offsetting impact during annual unlocking. The prior year benefit reflected favorable equity market and bond fund returns.

The Company’s variable annuity account balances decreased 3% to $74.6 billion at June 30, 2016 compared to the prior year period due to net outflows of $1.3 billion and equity market depreciation.

The Company’s fixed annuity account balances declined 8% to $10.3 billion at June 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 decreased by $39 million or 2% to $1.9 billion for the six months ended June 30, 2016 compared to $2.0 billion for the prior year period.

Net investment income decreased $34 million or 6% to $574 million for the six months ended June 30, 2016 compared to $608 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.

Other revenues decreased $18 million or 8% to $199 million for the six months ended June 30, 2016 compared to $217 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 $4.9 billion, or 7%, from the prior year period due to net outflows and equity market depreciation.

Net realized investment gains were $14 million for the six months ended June 30, 2016 compared to net realized investment gains of $16 million for the prior year period. For the six months ended June 30, 2016, net realized gains of $6 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 six months ended June 30, 2015, net realized gains of $17 million on Available-for-Sale securities due to sales, calls and tenders were partially offset by a $1 million increase in the provision for loan losses on syndicated loans.

Benefits and Expenses

Total benefits and expenses decreased $38 million or 3% for the six months ended June 30, 2016 compared to the prior year period primarily due to a decrease in benefits, claims, losses and settlement expenses and interest credited to fixed accounts partially offset by an increase in amortization of deferred acquisition costs.

Benefits, claims, losses and settlement expenses decreased $23 million or 4% to $558 million for the six months ended June 30, 2016 compared to $581 million for the prior year period primarily reflecting the following items:


•	A net $14 million increase in LTC reserves in the prior year period.


•	The market impact on reserves for insurance features in non-traditional long-duration contracts was a $3 million expense for the six months ended June 30, 2016 compared to a $10 million benefit in the prior year period. See additional discussion above in the Overall section.


•	A $10 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.

RIVERSOURCE LIFE INSURANCE COMPANY


•	The impact on DSIC from actual versus expected market performance based on the Company’s view of bond and equity performance was an expense of $1 million for the six months ended June 30, 2016 compared to a benefit of $1 million for the prior year period. See additional discussion above in the Overall section.

•

A $354 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 $334 million for the six months ended June 30, 2016 compared to an unfavorable impact of $20 million for the prior year period.

•

A $303 million increase in expense from other market impacts on variable annuity guaranteed benefits, net of hedges in place to offset those risks and the related DSIC amortization. This increase was the result of an unfavorable $1.7 billion change in the market impact on variable annuity guaranteed living benefits reserves, a favorable $1.4 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits and no 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 first half of 2016 compared to a benefit in the prior year period.


•	Equity market impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in higher expense in the first half of 2016 compared to the prior year period.


•	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 first half of 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 $28 million or 8% to $304 million for the six months ended June 30, 2016 compared to $332 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. The market impact on indexed universal life benefits, net of hedges was a benefit of $20 million for the six months ended June 30, 2016 compared to an expense of $1 million for the prior year period. Average fixed annuity account balances decreased $1.2 billion or 10% to $10.5 billion for the six months ended June 30, 2016 compared to the prior year period as older policies continue to lapse and new sales are limited due to low interest rates.

Amortization of DAC increased $26 million or 20% to $155 million for the six months ended June 30, 2016 compared to $129 million for the prior year period primarily reflecting the following items:


•	The impact on DAC from actual versus expected market performance based on the Company’s view of bond and equity performance was an expense of $5 million for the six months ended June 30, 2016 compared to a benefit of $5 million for the prior year period. See additional discussion above in the Overall section.


•	The DAC offset to the market impact on variable annuity guaranteed benefits (net of hedges and the related DSIC amortization) was an expense of $15 million for the six months ended June 30, 2016 compared to a benefit of $7 million for the prior year period.

Income Taxes

The Company’s effective tax rate was 12.5% for the six months ended June 30, 2016 compared to 18.2% for the six months ended June 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 six months ended June 30, 2016 compared to the prior year period was primarily due to a $16 million benefit in the second quarter of 2016 related to the completion of tax audits from previous years.

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

RIVERSOURCE LIFE INSURANCE COMPANY

impact on pretax income. However, the current low interest rate environment is resulting in interest rates below the level of some of the Company’s liability guaranteed minimum interest rates (“GMIRs”). Hence, a modest rise in interest rates would not necessarily result in changes to all the liability credited rates while projected asset purchases would capture the full increase in interest rates. This dynamic would result in widening spreads under a modestly rising rate scenario given the current relationship between the current level of interest rates and the underlying GMIRs on the business.

As a result of the low interest rate environment, the Company’s current reinvestment yields are generally lower than the current portfolio yield. The Company expects its portfolio income yields to continue to decline in future periods if interest rates remain low. The carrying value and weighted average yield of non-structured fixed maturity securities and commercial mortgage loans that may generate proceeds to reinvest through June 30, 2018 due to prepayment, maturity or call activity at the option of the issuer, excluding securities with a make-whole provision, was $2.4 billion and 4.9%, respectively, as of June 30, 2016. In addition, residential mortgage-backed securities, which are subject to prepayment risk as a result of the low interest rate environment, totaled $3.3 billion and had a weighted average yield of 3.5% as of June 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 six months ended June 30, 2016 was approximately 3.5%.

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.

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 June 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	$	(78	)	$	—		$	(78	)
DAC and DSIC amortization ^(1) (2)	(124		)	—			(124		)
Variable annuity riders:
GMDB and GMIB ^{(2) (3)}	(31		)	—			(31		)
GMWB ^{(2) (3)}	(604		)	479			(125		)
GMAB	(48		)	48			—
DAC and DSIC amortization ⁽⁴⁾	N/A			N/A			(4		)
Total variable annuity riders	(683		)	527			(160		)
Macro hedge program ⁽⁵⁾	—			16			16
Equity indexed annuities	1			(1		)	—
Indexed universal life insurance	34			(26		)	8
Total	$	(850	)	$	516		$	(338	)



	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	$	(29	)	$	—		$	(29	)
Variable annuity riders:
GMDB and GMIB	—			—			—
GMWB	1,274			(1,238		)	36
GMAB	46			(42		)	4
DAC and DSIC amortization ⁽⁴⁾	N/A			N/A			(4		)
Total variable annuity riders	1,320			(1,280		)	36
Fixed annuities, fixed insurance and fixed portion of variable annuities and variable insurance products	34			—			34
Indexed universal life insurance	66			1			67
Total	$	1,391		$	(1,279	)	$	108

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 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

RIVERSOURCE LIFE INSURANCE COMPANY

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 June 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 $418 million, net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 35%), based on June 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 $1.0 billion.

The Company enters into short-term borrowings, which may include repurchase agreements and Federal Home Loan Bank (“FHLB”) advances to reduce reinvestment risk. Short-term borrowings allow the Company to receive cash to reinvest in longer-duration assets, while paying back the short-term debt with cash flows generated by the fixed income portfolio. The balance of repurchase agreements at both June 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 June 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.

Capital Activity

Dividends paid by RiverSource Life Insurance Company were as follows:



	Six Months Ended June 30,
	2016		2015
	(in millions)
Cash dividends paid to Ameriprise Financial	$	600	$	525
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		—

RIVERSOURCE LIFE INSURANCE COMPANY

Regulatory Capital

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



	Actual Capital				Regulatory Capital Requirements
	June 30, 2016		December 31, 2015		December 31, 2015
	(in millions)
RiverSource Life Insurance Company ⁽¹⁾⁽²⁾	$	3,802	$	3,800	$	589
RiverSource Life Insurance Co. of NY ⁽¹⁾⁽²⁾	345		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;


•	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

RIVERSOURCE LIFE INSURANCE COMPANY

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 recent 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 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 June 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.

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

The Company is including the following revised risk factor, which should be read in conjunction with the description of risk factors provided in Part I, Item 1A of RiverSource Life Insurance Company’s 2015 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.

Changes in and the adoption of accounting standards or inaccurate estimates or assumptions in applying accounting policies could have a material impact on RiverSource Life’s financial statements and changes in the regulation of independent registered public accounting firms are present with increasing frequency in connection with broader market reforms.

RiverSource Life’s accounting policies and methods are fundamental to how it records and reports its financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of RiverSource Life’s assets or liabilities and results of operations and are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, RiverSource Life could be required to correct and restate prior period financial statements.

RiverSource Life prepares financial statements in accordance with U.S. generally accepted accounting principles. From time to time, the Financial Accounting Standards Board, the SEC and other regulators may change the financial accounting and reporting standards governing the preparation of RiverSource Life’s financial statements. In addition, the conduct of RiverSource Life’s independent registered public accounting firm is overseen by the Public Company Accounting Oversight Board. These and other regulators may make additional inquiries regarding, or change their application of, existing laws and regulations regarding RiverSource Life’s independent auditor, financial statements or other financial reports and the possibility of such additional inquiries or changes is increasing in frequency in connection with broader market reforms. These changes are difficult to predict, and could impose additional governance, internal control and disclosure demands. In some cases, RiverSource Life could be required to apply a new or revised standard retroactively, resulting in RiverSource Life restating prior period financial statements. It is possible that the changes could have a material adverse effect on RiverSource Life’s financial condition and results of operations. For example, PricewaterhouseCoopers LLP (“PwC”) informed Riversource Life that it has identified a potential issue related to its independence under Rule 2-01(c)(1)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”). The Loan Rule prohibits accounting firms, such as PwC, from being deemed independent if they have certain financial relationships with their audit clients or certain affiliates of those clients. Pursuant to the SEC’s application of the Loan Rule, PwC has advised RiverSource Life that certain relationships between PwC and its lenders who also are record owners of various funds in the Columbia Threadneedle family of funds (collectively, the “Columbia Threadneedle Funds”) or certain other entities within the Ameriprise Financial investment company complex, may implicate the Loan Rule. On June 20, 2016, the Staff of the SEC issued a “no-action” letter confirming that it would not recommend that the SEC commence enforcement action against an unrelated fund that relied on audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. The SEC Staff stated that the relief under the letter is temporary and will expire 18 months after the issuance of the letter. If it was determined that PwC was not independent, or RiverSource Life does not receive some form of exemptive relief, among other things, the financial statements audited by PwC and the interim financial statements reviewed by PwC may have to be audited and reviewed, respectively, by another independent registered public accounting firm. PwC has advised us that, based on its knowledge and analyses of RiverSource Life’s facts and circumstances, it is not aware of any facts that would preclude reliance by RiverSource Life, its affiliates and other entities within the Ameriprise Financial investment company complex on the no-action letter. PwC has also affirmed to RiverSource Life that they are able to exercise objective and impartial judgment in their audits of RiverSource Life, its affiliates and the Columbia Threadneedle Funds, are independent accountants within the meaning of PCAOB Rule 3520 and in their view can continue to serve as RiverSource Life’s independent registered public accounting firm.

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.

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:	August 1, 2016	By	/s/ John R. Woerner
			John R. Woerner
			Chairman and President


Date:	August 1, 2016	By	/s/ Brian J. McGrane
			Brian J. McGrane
			Executive Vice President and
			Chief Financial Officer

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 June 30, 2016, formatted in XBRL: (i) Consolidated Balance Sheets at June 30, 2016 and December 31, 2015; (ii) Consolidated Statements of Income for the three months and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2016 and 2015; (iv) Consolidated Statements of Shareholder’s Equity for the six months ended June 30, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015; and (vi) Notes to the Consolidated Financial Statements.

______________________________________

* Filed electronically herewith.

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RIVERSOURCE LIFE INSURANCE CO - FORM 10-Q - August 1, 2016

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RIVERSOURCE LIFE INSURANCE CO Reports