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RIVERSOURCE LIFE INSURANCE CO – 10-Q – MANAGEMENT'S NARRATIVE ANALYSIS
Overview
RiverSource Life Insurance Company ("RiverSource Life") 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onFebruary 25, 2022 ("2021 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 withU.S. generally accepted accounting principles ("GAAP"). Management's narrative analysis is presented pursuant to General Instructions H(2)(a) of Form 10-Q in lieu of Management's Discussion and Analysis of Financial Condition and Results of Operations.
See Note 1 to the Consolidated Financial Statements for additional information.
The coronavirus disease 2019 (''COVID-19'') pandemic has presented ongoing
significant economic and societal disruption and market unpredictability, which
has affected the Company's business and operating environment driven by what has
been a low interest rate environment and volatility and changes in the equity
markets and the potential associated implications to client behavior. COVID-19
continues its ongoing impact and has been occurring in multiple waves, so there
are still no reliable estimates of how long the implications from the pandemic
will last, the effects current and other new variants will ultimately have, how
many people are likely to be affected by it, or its impact on the overall
economy. There is still significant uncertainty around the extent to which the
COVID-19 pandemic will continue to impact the Company's business, results of
operations, and financial condition, which depends on current and future
developments, including the ultimate scope, duration and severity of the
pandemic, success of worldwide vaccination efforts, multiple mutations of
COVID-19 or similar diseases, the effectiveness of the Company's office
reopenings, the additional measures that may be taken by various governmental
authorities in response to the outbreak, the actions of third parties in
response to the pandemic, and the possible further impacts on the global
economy. Given the ongoing impact of the pandemic, financial results may not be
comparable to previous years and the results presented in this report may not
necessarily be indicative of future operating results. For further information
regarding the impact of the COVID-19 pandemic, and any potentially material
effects, see Part 1 - Item 1A "Risk Factors" in the Company's 2021 10-K.
The Company consolidates certain variable interest entities for which it
provides investment management services. These entities are defined as
consolidated investment entities ("CIEs"). While the consolidation of the CIEs
impacts the Company's balance sheet and income statement, the exposure to these
entities is unchanged and there is no impact to the underlying business results.
For further information on CIEs, see Note 4 to the Consolidated Financial
Statements. Changes in the fair value of assets and liabilities related to the
CIEs, primarily syndicated loans and debt, are reflected in net investment
income.
Critical Accounting Estimates
The accounting and reporting policies that the Company uses affect its Consolidated Financial Statements. Certain of the Company's accounting and reporting policies are critical to an understanding of the Company's financial condition and results of operations. In some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of the Consolidated Financial Statements. These accounting policies are discussed in detail in "Management's Narrative Analysis - Critical Accounting Estimates" in the Company's 2021 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.
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RIVERSOURCE LIFE INSURANCE COMPANY
Consolidated Results of Operations for the Three Months Ended
2021
The following table presents the Company's consolidated results of operations:
Three Months Ended March 31,
2022 2021 Change
(in millions)
Revenues
Premiums $ 73 $ 78 $ (5) (6) %
Net investment income 159 247 (88) (36)
Policy and contract charges 564 547 17 3
Other revenues 173 128 45 35
Net realized investment gains (losses) 18 48 (30) (63)
Total revenues 987 1,048 (61) (6)
Benefits and expenses
Benefits, claims, losses and settlement expenses 210 652 (442) (68)
Interest credited to fixed accounts 141 159 (18) (11)
Amortization of deferred acquisition costs 92 2 90 NM
Interest and debt expense 19 21 (2) (10)
Other insurance and operating expenses 171 194 (23) (12)
Total benefits and expenses 633 1,028 (395) (38)
Pretax income 354 20 334 NM
Income tax provision 39 2 37 NM
Net income $ 315 $ 18 $ 297 NM
NM Not Meaningful.
Overall
Net income increased
compared to the prior year period. Pretax income increased
three months ended
The following impacts were significant drivers of the period-over-period change
in pretax income:
•The market impact on non-traditional long-duration products (including variable
and fixed deferred annuity contracts and universal life ("UL") insurance
contracts), net of hedges and the related deferred sales inducement costs
("DSIC") and deferred acquisition costs ("DAC") amortization, unearned revenue
amortization and the reinsurance accrual was a benefit of $134 million for the
three months ended March 31, 2022 compared to an expense of $396 million for the
prior year period.
•The impact on variable annuity and variable universal life products for the
difference between assumed and updated separate account investment performance
on DAC, DSIC, unearned revenue amortization, reinsurance accrual and additional
insurance benefit reserves ("mean reversion related impact") was an expense of
$59 million for the three months ended March 31, 2022 compared to a benefit of
$56 million for the prior year period.
•A
insurance claims in the current period compared to the benefit of COVID-19
related impacts in the year ago period.
•Net realized investment gains of$18 million for the three months endedMarch 31, 2022 compared to net realized investment gains of$48 million for the prior year period. Variable annuity account balances decreased 1% to$85.8 billion as ofMarch 31, 2022 compared to the prior year period due to net outflows of$1.9 billion , partially offset by market appreciation. Variable annuity sales decreased 27% compared to the prior year period reflecting a decrease in sales of variable annuities with living benefit guarantees. The risk profile of its inforce block continues to improve, with account values with living benefit riders down to 60% as ofMarch 31, 2022 compared to 63% a year ago. This trend is expected to continue and meaningfully shift the mix of business away from products with living benefit guarantees over time. The Company continues to optimize its risk profile and shift its business mix to lower risk offerings. During the fourth quarter of 2021, the Company made the decision to discontinue new sales of substantially all of its variable annuities with living benefit guarantees at the end of 2021, with a full exit by mid-2022. In addition, the Company has discontinued new sales of its universal life insurance with secondary guarantees and its single-pay fixed universal life with a long term care rider products at the end of 2021.
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RIVERSOURCE LIFE INSURANCE COMPANY Fixed deferred annuity account balances declined 4% to$7.5 billion as ofMarch 31, 2022 compared to the prior year period as policies continue to lapse and the discontinuance of new sales of fixed deferred annuities and fixed index annuities. During the third quarter of 2021, the Company closed on a transaction to reinsure RiverSource Life's fixed deferred and immediate annuity policies.
Revenues
Net investment income decreased$88 million , or 36%, for the three months endedMarch 31, 2022 compared to the prior year period reflecting lower average invested assets due to the sale of investments to a reinsurer as a result of the fixed deferred and immediate annuity reinsurance transaction, a decrease in investment income on fixed maturities due to lower yields as a result of continued low interest rates, and lower net investment income of consolidated CIEs. Policy and contract charges increased$17 million , or 3%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting a favorable change in unearned revenue amortization and the reinsurance accrual offset to the market impact of IUL benefits. Other revenues increased$45 million , or 35%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting the yield on deposit receivables arising from reinsurance transactions. Net realized investment gains were$18 million for the three months endedMarch 31, 2022 compared to net realized investment gains of$48 million for the prior year period. The three months endedMarch 31, 2022 included net realized gains of$17 million on Available-for-Sale securities. The three months endedMarch 31, 2021 included net realized gains of$49 million on Available-for-Sale securities due to sales, calls and tenders.
Benefits and Expenses
Benefits, claims, losses and settlement expenses decreased$442 million , or 68%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting the following items: •A$207 million decrease in expense primarily reflecting the impact of year-over-year changes in the unhedged nonperformance credit spread risk adjustment on variable annuity guaranteed benefits. The unfavorable impact of the nonperformance credit spread was$18 million for the three months endedMarch 31, 2022 compared to an unfavorable impact of$225 million for the prior year period. As the undiscounted embedded derivative liability on which the nonperformance credit spread is applied increases (decreases), the impact of the nonperformance credit spread on benefits expenses is favorable (unfavorable). Additionally, as the estimate of the nonperformance credit spread over the LIBOR swap curve tightens or widens, the embedded derivative liability will increase or decrease. •A$339 million decrease 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 decrease was the result of a favorable$1.3 billion change in the market impact on derivatives hedging the variable annuity guaranteed benefits, partially offset by an unfavorable$950 million change in the market impact on variable annuity guaranteed living benefits reserves. The main market drivers contributing to these changes are summarized below:
•Equity market impact on the variable annuity guaranteed living benefits
liability net of the impact on the corresponding hedge assets resulted in a
benefit for the three months ended
prior year period.
•Interest rate impact on the variable annuity guaranteed living benefits
liability net of the impact on the corresponding hedge assets resulted in a
higher expense for the three months ended
year period.
•Volatility impact on the variable annuity guaranteed living benefits liability net of the impact on the corresponding hedge assets resulted in a lower expense for the three months endedMarch 31, 2022 compared to the prior year period. •Other unhedged items, including the difference between the assumed and actual underlying separate account investment performance, fixed income credit exposures, transaction costs and various behavioral items, were a net expense for the three months endedMarch 31, 2022 compared to a net benefit for the prior year period. •The mean reversion related impact was an expense of$34 million for the three months endedMarch 31, 2022 compared to a benefit of$34 million for the prior year period.
•A
normalized levels compared to the prior year period which benefited from
COVID-19 related impacts.
Interest credited to fixed accounts decreased
months ended
reflecting the following items:
•A$29 million decrease in expense from the unhedged nonperformance credit spread risk adjustment on IUL benefits. The favorable impact of the nonperformance credit spread was$28 million for the three months endedMarch 31, 2022 compared to an unfavorable impact of$1 million for the prior year period. 43
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RIVERSOURCE LIFE INSURANCE COMPANY •A$14 million increase in expense from other market impacts on IUL benefits, net of hedges, which was an expense of$12 million for the three months endedMarch 31, 2022 compared to a benefit of$2 million for the prior year period. The increase in expense was primarily due to an increase in the IUL embedded derivative in the current period, which reflected higher option costs due to a higher new money rate.
Amortization of DAC increased
2022
•The DAC offset to the market impact on non-traditional long-duration products was an expense of$11 million for the three months endedMarch 31, 2022 compared to a benefit of$46 million for the prior year period. •The mean reversion related impact was an expense of$25 million for the three months endedMarch 31, 2022 compared to a benefit of$22 million for the prior year period.
•A decrease in amortization reflecting lower than expected client exit rates.
Other insurance and operating expenses decreased$23 million , or 12%, for the three months endedMarch 31, 2022 compared to the prior year period primarily reflecting lower expenses from the consolidation of CIEs.
Income Taxes
The Company's effective tax rate was 11.1% for the three months endedMarch 31, 2022 compared to 9.1% for the prior year period. The increase in the effective tax rate for the three months endedMarch 31, 2022 compared toMarch 31, 2021 is primarily the result of higher pretax income and a decrease in low income housing tax credits, partially offset by an increase in foreign tax credits in the current period compared to the prior period. See Note 15 to the Consolidated Financial Statements for additional discussion on income taxes.
Market Risk
The Company's primary market risk exposures are interest rate, equity price and
credit risk. Equity price and interest rate fluctuations can have a significant
impact on the Company's results of operations, primarily due to the effects on
asset-based fees and expenses, the "spread" income generated on its fixed
insurance, fixed portion of its variable annuities and variable insurance
contracts, and the fixed deferred annuities, 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 insurance, the fixed portion of variable
annuities and variable insurance contracts, and fixed deferred annuities are
based upon the spread between rates earned on assets held and the rates at which
interest is credited to accounts. The Company primarily invests in fixed rate
securities to fund the rate credited to clients. The Company guarantees an
interest rate to the holders of these products. Investment assets and client
liabilities generally differ as it relates to basis, repricing or maturity
characteristics. Rates credited to clients' accounts generally reset at shorter
intervals than the yield on the underlying investments. Therefore, in an
increasing interest rate environment, higher interest rates may be reflected in
crediting rates to clients sooner than in rates earned on invested assets, which
could result in a reduced spread between the two rates, reduced earned income
and a negative impact on pretax income. However, the current low interest rate
environment is resulting in interest rates below the level of some of the
Company's liability guaranteed minimum interest rates ("GMIRs"). Hence, a modest
rise in interest rates would not necessarily result in changes to all the
liability credited rates while projected asset purchases would capture the full
increase in interest rates. This dynamic would result in widening spreads under
a modestly rising rate scenario given the current relationship between the
current level of interest rates and the underlying GMIRs on the business.
As a result of the current interest rate environment, the Company's reinvestment
yields are generally lower than the current portfolio yield. The Company expects
its portfolio income yields to continue to decline in future periods should
interest rates remain comparatively low. The carrying value and weighted average
yield of total non-structured fixed maturity securities and commercial mortgage
loans in the Company's investment portfolio that may generate proceeds to
reinvest through March 31, 2024 due to prepayment, maturity or call activity at
the option of the issuer, excluding securities with a make-whole provision, were
$1.0 billion and 3.9%, respectively, as of March 31, 2022 . In addition,
residential mortgage-backed securities, which could be subject to prepayment
risk if the low interest rate environment continues, totaled $2.4 billion and
had a weighted average yield of 2.1% as of March 31, 2022 . While these amounts
represent investments that could be subject to reinvestment risk, it is also
possible that these investments will be used to fund liabilities or may not be
prepaid and will remain invested at their current yields. In addition to the
interest rate environment, the mix of benefit payments versus product sales as
well as the timing and volumes associated with such mix may impact the Company's
investment yield. Furthermore, reinvestment activities and the associated
investment yield may also be impacted by corporate strategies implemented at
management's discretion. The average yield for investment purchases during the
three months ended March 31, 2022 was approximately 2.9%.
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RIVERSOURCE LIFE INSURANCE COMPANY The reinvestment of proceeds from maturities, calls and prepayments at rates below the current portfolio yield, which may be below the level of some liability GMIRs, will have a negative impact to future operating results. To mitigate the unfavorable impact that the low interest rate environment has on the Company's spread income, it assesses reinvestment risk in its investment portfolio and monitors this risk in accordance with its asset/liability management framework. In addition, the Company may reduce the crediting rates on its fixed products when warranted, subject to guaranteed minimums. In addition to the fixed rate exposures noted above, the Company also has the following variable annuity guarantee benefits: guaranteed minimum withdrawal benefits ("GMWB"), guaranteed minimum accumulation benefits ("GMAB"), guaranteed minimum death benefits ("GMDB") and guaranteed minimum income benefits ("GMIB"). Each of these benefits guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying invested assets. The variable annuity guarantees continue to be managed by utilizing a hedging program which attempts to match the sensitivity of the assets with the sensitivity of the liabilities. This approach works with the premise that matched sensitivities will produce a highly effective hedging result. The Company's comprehensive hedging program focuses mainly on first order sensitivities of assets and liabilities: Equity Market Level (Delta), Interest Rate Level (Rho) and Volatility (Vega). Additionally, various second order sensitivities are managed. The Company uses various options, swaptions, swaps and futures to manage risk exposures. The exposures are measured and monitored daily and adjustments to the hedge portfolio are made as necessary. The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. The Company assesses this residual risk under a range of scenarios in creating and executing the macro hedge program. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives used contain settlement provisions linked to both equity returns and interest rates; the remaining are interest rate contracts or equity contracts. The macro hedge program could result in additional earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory capital volatility, may not be closely aligned to changes in the variable annuity guarantee embedded derivatives. To evaluate interest rate and equity price risk, the Company performs sensitivity testing which measures the impact on pretax income from the sources listed below for a 12-month period following a hypothetical 100 basis point increase in interest rates or a hypothetical 10% decline in equity prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of variable annuity riders, indexed annuities, IUL insurance and the associated hedge assets, the Company assumed no change in implied market volatility despite the 10% drop in equity prices.
The following tables present the Company's estimate of the impact on pretax
income from the above defined hypothetical market movements as of
2022
Equity Price Exposure to Pretax Income
Equity Price Decline 10% Before Hedge Impact Hedge Impact Net Impact
(in millions)
Asset-based fees and expenses $ (66) $ - $ (66)
DAC and DSIC amortization (1) (2) (26) - (26)
Variable annuities:
GMDB and GMIB (2) (12) - (12)
GMWB (2) (499) 556 57
GMAB (27) 28 1
Structured variable annuities 397 (365) 32
DAC and DSIC amortization (3) N/A N/A (12)
Total variable annuities (141) 219 66
Macro hedge program (4) - 119 119
IUL insurance 66 (71) (5)
Total $ (167) $ 267 $ 88
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RIVERSOURCE LIFE INSURANCE COMPANY
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 $ (14) $ - $ (14)
Variable annuities:
GMWB 1,031 (1,263) (232)
GMAB 9 (12) (3)
Structured variable annuities (20) 117
97
DAC and DSIC amortization (3) N/A N/A 21 Total variable annuities 1,020 (1,158) (117) Macro hedge program (4) - (1) (1)
Fixed annuities, fixed insurance and fixed portion of variable
annuities and variable insurance products
53 - 53 IUL insurance 19 2 21 Total$ 1,078 $ (1,157) $ (58) N/A Not Applicable.
(1) Market impact on DAC and DSIC amortization resulting from lower projected
profits.
(2) In estimating the impact to pretax income on DAC and DSIC amortization and additional insurance benefit reserves, the assumed equity asset growth rates reflect what management would follow in its mean reversion guidelines.
(3) Market impact on DAC and DSIC amortization related to variable annuity
riders is modeled net of hedge impact.
(4) The market impact of the macro hedge program is modeled net of any related
impact to DAC and DSIC amortization.
The above results compare to an estimated positive net impact to pretax income of$98 million related to a 10% equity price decline and an estimated negative net impact to pretax income of$170 million related to a 100 basis point increase in interest rates as ofDecember 31, 2021 . The change in interest rate exposure as ofMarch 31, 2022 compared toDecember 31, 2021 was driven by variable annuity riders, specifically GMWB, primarily due to changes in market rates. Net impacts shown in the above table from GMWB riders result largely from differences between the liability valuation basis and the hedging basis. Liabilities are valued using fair value accounting principles, with risk margins incorporated in contractholder behavior assumptions and with discount rates increased to reflect a current market estimate of the Company's risk of nonperformance specific to these liabilities. The Company's hedging is based on its determination of economic risk, which excludes certain items in the liability valuation including the nonperformance spread risk. Actual results will differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10% and that the 100 basis point increase in interest rates is a parallel shift of the yield curve. Furthermore, the Company has not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor has the Company tried to anticipate all strategic actions management might take to increase revenues or reduce expenses in these scenarios. The selection of a 100 basis point interest rate increase as well as a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.
Fair Value Measurements
The Company reports certain assets and liabilities at fair value; specifically, separate account assets, derivatives, embedded derivatives, most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions and is not the result of a forced liquidation or distressed sale. The Company includes actual market prices, or observable inputs, in its fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. The Company validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 11 to the Consolidated Financial Statements for additional information on the Company's fair value measurements.
Fair Value of Liabilities and Nonperformance Risk
Companies are required to measure the fair value of liabilities at the price
that would be received to transfer the liability to a market participant (an
exit price). Since there is not a market for the Company's obligations of its
variable annuity riders, fixed deferred indexed annuities, structured variable
annuities, and IUL insurance, the Company considers the assumptions participants
in a hypothetical market would make to reflect an exit price. As a result, the
Company adjusts the valuation of variable annuity riders, fixed deferred indexed
annuities, structured variable annuities, and IUL insurance by updating certain
contractholder assumptions,
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RIVERSOURCE LIFE INSURANCE COMPANY adding explicit margins to provide for risk, 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 ofMarch 31, 2022 . As the Company's estimate of this spread widens or tightens, the liability will decrease or increase. If this nonperformance credit spread moves to a zero spread over the LIBOR swap curve, the reduction to future net income would be approximately$420 million , net of DAC, DSIC, unearned revenue amortization, the reinsurance accrual and income taxes (calculated at the statutory tax rate of 21%), based onMarch 31, 2022 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 $854 million .
The Company enters into short-term borrowings, which may include repurchase
agreements and Federal Home Loan Bank ("FHLB") advances to reduce reinvestment
risk. Short-term borrowings allow the Company to receive cash to reinvest in
longer-duration assets, while maintaining the flexibility to pay back the
short-term debt with cash flows generated by the fixed income portfolio.
RiverSource Life Insurance Company is a member of the FHLB of Des Moines , which
provides RiverSource Life Insurance Company access to collateralized borrowings.
As of both March 31, 2022 and December 31, 2021 , the Company had estimated
maximum borrowing capacity of $4.0 billion under the FHLB facility, of which
$200 million was outstanding as of both March 31, 2022 and December 31, 2021 ,
and is collateralized with commercial mortgage backed securities.
There have been no material changes to the Company's contractual obligations
disclosed in the Company's 2021 10-K.
See Note 10 to the Consolidated Financial Statements for further information
about the Company's long-term debt.
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. The Company believes these cash flows will be sufficient to fund its short-term and long-term operating liquidity needs and dividends to Ameriprise Financial. In 2009, the Company established an agreement to protect its exposure toGenworth Life Insurance Company ("GLIC") for its reinsured long term care ("LTC"). In 2016, substantial enhancements to this reinsurance protection agreement were finalized. The terms of these confidential provisions within the agreement have been shared, in the normal course of regular reviews, with the Company's domiciliary regulator and rating agencies. GLIC is domiciled inDelaware , so in the event GLIC were subjected to rehabilitation or insolvency proceedings, such proceedings would be located in (and governed by)Delaware laws.Delaware courts have a long tradition of respecting commercial and reinsurance affairs as well as contracts among sophisticated parties. Similar credit protections to what the Company has with GLIC have been tested and respected inDelaware and elsewhere inthe United States , and as a result the Company believes its credit protections would be respected even in the unlikely event that GLIC becomes subject to rehabilitation or insolvency proceedings inDelaware . Accordingly, while no credit protections are perfect, the Company believes the correct way to think about the risks represented by its counterparty credit exposure to GLIC is not the full amount of the gross liability that GLIC reinsures, but a much smaller net exposure to GLIC (if any that might exist after taking into account the Company's credit protections). Thus, management believes that this agreement and offsetting non LTC legacy arrangements with Genworth will enable the Company to recover on all net exposure in all material respects in the event of a rehabilitation or insolvency of GLIC. Capital Activity Cash dividends or distributions paid and received byRiverSource Life Insurance Company were as follows: Three Months Ended March 31, 2022 2021 (in millions) Paid to Ameriprise Financial $ 300$ 250
For dividends or distributions from the life insurance companies, notifications
to state insurance regulators were made in advance of payments in excess of
statutorily defined thresholds.
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RIVERSOURCE LIFE INSURANCE COMPANY
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: Regulatory Capital Actual Capital (1) Requirements (2) December 31, December 31, March 31, 2022 2021 2021 (in millions) RiverSource Life Insurance Company$ 3,131 $ 3,419 $ 502 RiverSource Life Insurance Co. of NY 273 310 42
(1) Actual capital, as defined by the
Commissioners
statutory capital and surplus, plus certain statutory valuation reserves.
(2) Regulatory capital requirement is the company action level and is based on the statutory risk-based capital filing. The regulatory capital requirement is only required to be calculated annually.
Forward-Looking Statements
This report contains forward-looking statements that reflect the Company's
plans, estimates and beliefs. The Company's actual results could differ
materially from those described in these forward-looking statements. Examples of
such forward-looking statements include:
•statements of the Company's plans, intentions, expectations, objectives, or goals, including those related to the introduction, cessation, terms or pricing of new or existing products and services and the consolidated tax rate; •statements of the Company's position, future performance and ability to pursue business strategy relative to the spread and impact of the COVID-19 pandemic and the related market, economic, client, governmental and healthcare system response;
•statements about the expected trend in the shift to lower-risk products,
including the exit from variable annuities with living benefit riders and the
discontinuance of new sales of universal life insurance with secondary
guarantees;
•other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance ofthe United States and of global markets; and
•statements of assumptions underlying such statements.
The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," "forecast," "on track," "project," "continue," "able to remain," "resume," "deliver," "develop," "evolve," "drive," "enable," "flexibility," "scenario," "case" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements.
Such factors include, but are not limited to:
•the impacts on the Company's business of the COVID-19 pandemic and the related
economic, client, governmental and healthcare system responses;
•market fluctuations and general economic and political factors, including
volatility in the
volatility in the markets for the Company's products;
•changes in interest rates and periods of low interest rates;
•adverse capital and credit market conditions or any downgrade in the Company's
credit ratings;
•effects of competition and the Company's larger competitors' economies of
scale;
•declines in the Company's investment management performance;
•the Company's and its affiliates' ability to compete in attracting and
retaining talent, including AFS attracting and retaining financial advisors;
•impairment, negative performance or default by financial institutions or other
counterparties;
•poor performance of the Company's variable products;
•changes in valuation of securities and investments included in the Company's
assets;
•effects of the elimination of LIBOR on, and value of, securities and other
assets and liabilities tied to LIBOR;
•the determination of the amount of allowances taken on loans and investments;
•the illiquidity of the Company's investments;
•failures by other insurers that lead to higher assessments the Company owes to
state insurance guaranty funds;
•failures or defaults by counterparties to the Company's reinsurance
arrangements;
•inadequate reserves for future policy benefits and claims or for future
redemptions and maturities;
•deviations from the Company's assumptions regarding morbidity, mortality and
persistency affecting the Company's profitability;
•changes to the Company's or its affiliates' reputation arising from employee or
agent misconduct or otherwise;
•direct or indirect effects of or responses to climate change;
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RIVERSOURCE LIFE INSURANCE COMPANY
•interruptions or other failures in the Company's operating systems and
networks, including errors or failures caused by third-party service providers,
interference or third-party attacks;
•interruptions or other errors in the Company's telecommunications or data
processing systems;
•identification and mitigation of risk exposure in market environments, new
products, vendors and other types of risk;
•occurrence of natural or man-made disasters and catastrophes;
•legal and regulatory actions brought against the Company;
•changes to laws and regulations that govern operation of the Company's
business;
•changes in corporate tax laws and regulations and interpretations and
determinations of tax laws impacting the Company's products;
•protection of the Company's intellectual property and claims the Company
infringes the intellectual property of others; and
•changes in and the adoption of new accounting standards.
The Company cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that the Company is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the "Risk Factors" discussion included in Part I, Item 1A of the Company's 2021 10-K.
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