ING LIFE INSURANCE & ANNUITY CO - 10-K Annual Report

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

Form 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004 Commission file number: 333-86276, 333-86278, 333-104456
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ING LIFE INSURANCE AND ANNUITY COMPANY
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(Exact name of registrant as specified in its charter)

Connecticut 71-0294708
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(State or other jurisdiction of (IRS employer
incorporation or organization identification no.)

151 Farmington Avenue, Hartford, Connecticut 06156
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (866) 723-4646
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Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of Act: None

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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K.

Yes /X/ No / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes / / No /X/

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 55,000 shares of Common Stock
as of March 28, 2005, all of which were directly owned by Lion Connecticut
Holdings Inc.

NOTE: WHEREAS ING LIFE INSURANCE AND ANNUITY COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION I(2).

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)
Annual Report on Form 10-K
For the Year Ended December 31, 2004

TABLE OF CONTENTS

* Item prepared in accordance with General Instruction I(2) of Form 10-K.
** Item omitted pursuant to General Instruction I(2) of Form 10-K, except as
to Part III, Item 10 with respect to compliance with Sections 406 and 407
of the Sarbanes-Oxley Act of 2002.
*** Although item may be omitted pursuant to General Instruction I(2) of Form
10-K, the Company has provided certain disclosures under this item.

2

PART I

ITEM 1. BUSINESS
(Dollar amounts in millions, unless otherwise stated)

ORGANIZATION OF BUSINESS

ING Life Insurance and Annuity Company ("ILIAC"), a stock life insurance company
domiciled in the state of Connecticut, and its wholly-owned subsidiaries
(collectively, the "Company") are providers of financial products and services
in the United States. The consolidated financial statements found in Part II,
Item 8 of this Annual Report include ILIAC and its wholly-owned subsidiaries,
ING Insurance Company of America ("IICA"), ING Financial Advisers, LLC ("IFA"),
and, through February 28, 2002, ING Investment Adviser Holding, Inc. ("IA
Holdco"). Until March 30, 2003, ILIAC was a wholly-owned subsidiary of ING
Retirement Holdings, Inc. ("HOLDCO"), which was a wholly-owned subsidiary of ING
Retirement Services, Inc. ("IRSI"). Until March 30, 2003, IRSI was a
wholly-owned subsidiary of Lion Connecticut Holdings Inc. ("Lion"), which in
turn was ultimately owned by ING Groep N.V. ("ING"). On March 30, 2003, a series
of mergers occurred in the following order: IRSI merged into Lion and HOLDCO
merged into Lion. As a result, ILIAC is now a direct wholly-owned subsidiary of
Lion, which in turn, is an indirect, wholly-owned subsidiary of ING. ING is a
global financial services company based in The Netherlands, with American
Depository Shares listed on the New York Stock Exchange under the symbol "ING."

DESCRIPTION OF BUSINESS

The Company offers qualified and nonqualified annuity contracts that include a
variety of funding and payout options for individuals and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403, 408,
and 457, as well as nonqualified deferred compensation plans.

The Company has one operating segment, ING U.S. Financial Services ("USFS"),
which offers the products described below.

PRODUCTS AND SERVICES

Annuity contracts may be deferred or immediate (payout annuities). These
products also include programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and record-keeping
services along with a variety of investment options, including affiliated and
non-affiliated mutual funds and variable and fixed investment options. In
addition, the Company also offers wrapper agreements entered into with
retirement plans which contain certain benefit responsive guarantees (i.e.,
liquidity guarantees of principal and previously accrued interest for benefits
paid under the terms of the plan) with respect to portfolios of plan-owned
assets not invested with the Company. The Company also offers investment
advisory services and pension plan administrative services.

Annuity contracts offered by the Company contain variable and/or fixed
investment options. Variable options generally provide for full assumption (and,
in limited cases, provide for partial assumption) by the customer of investment
risks. Assets supporting variable annuity options are held in Separate Accounts
that invest in mutual funds managed and/or distributed by ILIAC or its
affiliates, or managed and/or distributed by unaffiliated entities. Variable
Separate Account investment income and realized capital gains and losses are not
reflected in the Consolidated Statements of Operations.

3

ITEM 1. BUSINESS (continued)

Fixed options are either "fully-guaranteed" or "experience-rated".
Fully-guaranteed fixed options provide guarantees on investment returns,
maturity values and, if applicable, benefit payments. Experience-rated fixed
options require the customer to assume investment risks (including realized
capital gains and losses on the sale of invested assets) and other risks subject
to, among other things, principal and interest guarantees.

FEES AND MARGINS

Insurance and expense charges, investment management fees, and other fees earned
by the Company vary by product and depend on, among other factors, the funding
option selected by the customer under the product. For annuity products where
assets are allocated to variable funding options, the Company may charge the
Separate Account asset-based insurance and expense fees.

In addition, where the customer selects a variable funding option, ILIAC may
receive compensation from the fund's adviser, administrator, or other
affiliated entity for the performance of certain shareholder services. ILIAC
and/or IFA may also receive administrative service, distribution (12b-1),
and/or service plan fees from the funds in which customers invest, in addition
to compensation from the fund's adviser, administrator, or other affiliated
entity for the performance of certain shareholder services. For variable
option mutual funds managed by ILIAC, ILIAC receives an investment advisory
fee, from which it pays a subadvisory fee to an affiliated or unaffiliated
investment manager.

In connection with programs offered to qualified plans and nonqualified deferred
compensation plans that package administrative and recordkeeping services along
with a menu of investment options, ILIAC and/or IFA may receive 12b-1 and
service plan fees, as well as compensation, from the affiliated or unaffiliated
fund's adviser, administrator, or other affiliated entity for the performance of
certain shareholder services. For fixed funding options, ILIAC earns a margin,
which is based on the difference between income earned on the investments
supporting the liability and interest credited to customers. The Company may
also receive other fees or charges depending on the nature of the products.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

The Company's products are offered primarily to individuals, pension plans,
small businesses, and employer-sponsored groups in the health care, government,
education (collectively "not-for-profit" organizations), and corporate markets.
The Company's products generally are sold through pension professionals,
independent agents and brokers, third party administrators, banks, dedicated
career agents, and financial planners.

The Company is not dependent upon any single customer and no single customer
accounted for more than 10% of consolidated revenue in 2004. In addition, the
loss of business from any one, or a few, independent brokers or agents would not
have a material adverse effect on the earnings of the Company.

ASSETS UNDER MANAGEMENT AND ADMINISTRATION

A substantial portion of the Company's fees or other charges and margins are
based on assets under management. Assets under management are principally
affected by net deposits (i.e., new deposits less surrenders), investment
performance (i.e., interest credited to customer accounts for fixed options
or market performance for variable options), and customer retention. A
portion of the Company's fee income is also based

4

ITEM 1. BUSINESS (continued)

on assets under administration which are assets that are not on the Company's
Balance Sheets and for which the Company provides administrative services
only. The Company's customer assets under management and administration and
deposits were as follows at December 31:

Assets under management are generally available for contractowners withdrawal
and are generally subject to market value adjustments and/or deferred
surrender charges. To encourage customer retention and recover acquisition
expenses, contracts typically impose a surrender charge on contractowner
balances withdrawn within a period of time after the contract's inception.
The period of time and level of the charge vary by product. In addition, an
approach incorporated into certain recent variable annuity contracts with
fixed funding options allows contractholders to receive an incremental
interest rate if withdrawals from the fixed account are spread over a period
of five years. Further, more favorable credited rates may be offered after
policies have been in force for a period of time. Existing tax penalties on
annuity and certain custodial account distributions prior to age 59-1/2
provide further disincentive to customers for premature surrenders of account
balances, but generally do not impede transfers of those balances to products
of competitors.

COMPETITION

Increasing competition within the retirement savings business from traditional
insurance carriers, as well as banks, mutual fund companies, and other
investment managers, offers consumers many choices. Principal competitive
factors are reputation for investment performance, product features, service,
cost, and the perceived financial strength of the investment manager or sponsor.
Competition may affect, among other matters, both business growth and the
pricing of the Company's products and services.

INVESTMENT OVERVIEW AND STRATEGY

The Company's investment strategy involves diversification by asset class,
and seeks to add economic diversification and to reduce the risks of credit,
liquidity, and embedded options within certain investment products, such as
convexity risk on collateralized mortgage obligations and call options. The
investment management function is centralized under ING Investment Management
LLC ("IIM"), an affiliate of the Company, pursuant to an investment advisory
agreement. Separate portfolios are established for each general type of
product within the Company.

5

ITEM 1. BUSINESS (continued)

The Company's General Account invests primarily in fixed maturity investments,
including publicly issued bonds (including government bonds), privately placed
notes and bonds, mortgage-backed securities, and asset-backed securities. The
primary investment strategy is to optimize the risk-adjusted return through
superior asset selection predicated on a developed relative value approach,
credit research and monitoring, superior management of interest rate risk,
and active exploration into new investment product opportunities. Investments
are purchased when market returns, adjusted for risk and expenses, are
sufficient to profitably support growth of the liability block of business. In
addition, assets and liabilities are analyzed and reported for internal
management purposes on an option-adjusted basis. The level of required capital
of given transactions is a primary factor in determining relative value among
different investment and liability alternatives, within the scope of each
product type's objective. An active review of existing holdings identifies
specific assets that could be effectively traded in order to enhance the
risk-adjusted returns of the portfolio, while minimizing adverse tax and
accounting impacts. The Company strives to maintain a portfolio average asset
quality rating of A, excluding mortgage loans, but including mortgage-backed
securities, which are reported with bonds, based on Standard & Poor's ("S&P")
ratings classifications.

The Company's use of derivatives is limited mainly to hedging purposes to reduce
the Company's exposure to cash flow variability of assets and liabilities,
interest rate risk, and market risk.

RATINGS

On December 15, 2004, S&P reaffirmed its AA (Very Strong) counterparty credit
and financial strength rating of ING's primary U.S. insurance operating
companies ("ING U.S."), including the Company. S&P also on this date revised the
outlook on the core insurance operating companies from negative to stable,
reflecting ING's commercial position and diversification, financial flexibility,
reduced capital leverage, and improved profitability. The outlook revisions
recognize ING's progress in setting a more focused and decisive strategic
direction and implementing more integrated financial management across banking
and insurance.

On December 17, 2004, Moody's Investor's Service, Inc. ("Moody's") issued a
credit opinion affirming the financial strength rating of ING U.S., including
the Company, of Aa3 (Excellent) with a stable outlook. The rating is based on
the strong implicit support and financial strength of the parent company, ING.
Furthermore, Moody's noted that ING U.S. has built a leading market share in the
domestic individual life insurance, annuity, and retirement plan businesses. ING
U.S. enjoys product diversity, further enhancing its credit profile through the
use of these multiple distribution channels.

On December 22, 2004, A.M. Best Company, Inc. ("A.M. Best") reaffirmed the
financial strength rating of A+ (Superior) of ING U.S., including the
Company, while maintaining its negative outlook for ING U.S. These rating
actions follow ING's announcement of its intention to sell Life Insurance
Company of Georgia ("LOG"), as well as the conclusion of A.M. Best's review
of ING's plan to exit the U.S. individual reinsurance business. ING closed
the transaction to exit the U.S. individual life reinsurance business on
December 31, 2004, and the sale of LOG is expected to be completed during the
second quarter of 2005, subject to regulatory approval. Neither of these
transactions directly impact the Company.

6

ITEM 1. BUSINESS (continued)

REGULATION

The Company's operations are subject to comprehensive regulation throughout the
United States. The laws of the various jurisdictions establish supervisory
agencies, including the state insurance departments, with broad authority to
grant licenses to transact business and regulate many aspects of the products
and services offered by the Company, as well as solvency and reserve adequacy.
Many agencies also regulate the investment activities of insurance companies on
the basis of quality, diversification, and other quantitative criteria. The
Company's operations and accounts are subject to examination at regular
intervals by certain of these regulators.

ILIAC is subject to the insurance laws of the State of Connecticut, where it is
domiciled, and other jurisdictions in which it transacts business. The primary
regulators of the Company's insurance operations are the insurance departments
of Connecticut, Florida, and New York. Among other matters, these agencies may
regulate premium rates, trade practices, agent licensing, policy forms,
underwriting and claims practices, minimum interest rates to be credited to
fixed annuity customer accounts, and the maximum interest rates that can be
charged on policy loans.

The Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD") and, to a lesser extent, the states regulate the
sales and investment management activities and operations of the Company.
Generally, the Company's variable annuity products and certain of its fixed
annuities are registered as securities with the SEC. Regulations of the SEC,
Department of Labor ("DOL"), and Internal Revenue Service ("IRS") also impact
certain of the Company's annuity, life insurance and other investment and
retirement products. These products may involve Separate Accounts and mutual
funds registered under the Investment Company Act of 1940. The Company also
provides a variety of products and services to employee benefit plans that are
covered by the Employee Retirement Income Security Act of 1974 ("ERISA").

INSURANCE HOLDING COMPANY LAWS

A number of states regulate affiliated groups of insurers such as the Company
under holding company statutes. These laws, among other things, place certain
restrictions on transactions between affiliates such as dividends and other
distributions that may be paid to the Company's parent corporation.

INSURANCE COMPANY GUARANTY FUND ASSESSMENTS

Insurance companies are assessed the costs of funding the insolvencies of other
insurance companies by the various state guaranty associations, generally based
on the amount of premiums companies collect in that state.

The Company accrues the 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 premiums written in each state. The Company has estimated this
liability to be $8.5 and $9.3 as of December 31, 2004 and 2003, respectively,
and has recorded a reserve. The Company has also recorded an asset of $5.5 and
$2.5 as of December 31, 2004 and 2003, respectively, for future credits to
premium taxes for assessments already paid.

7

ITEM 1. BUSINESS (continued)

For information regarding certain other potential regulatory changes relating to
the Company's businesses, see "Risk Factors" in Part 1, Item 1 "Business."

EMPLOYEES

ILIAC had 1,954 employees as of December 31, 2004, primarily focused on managing
the product distribution, marketing, customer service, and product and financial
management of the Company. The Company also utilizes services provided by ING
North America Insurance Corporation, Inc. and other affiliates. These services
include new business processing, actuarial, risk management, human resources,
investment management, finance, information technology, and legal and compliance
services. The affiliated companies are reimbursed for the Company's use of
various services and facilities under a variety of intercompany agreements.

RISK FACTORS

In addition to the normal risks of business, the Company is subject to
significant risks and uncertainties, including those which are described below.

EQUITY MARKET VOLATILITY COULD NEGATIVELY IMPACT THE COMPANY'S
PROFITABILITY AND FINANCIAL CONDITION

The sales and profitability of the Company's variable annuity products could be
impacted by declines in the equity markets. Generally, sales of variable
annuities decrease when equity markets decline over an extended period of time.
The amount of fees the Company receives on its variable annuity products is
based on the account values of the Separate Accounts which support such variable
earnings. A decline in the equity markets will likely result in a decrease in
such account values and therefore a decrease in the fees the Company receives on
its variable annuities. To the extent that the actual performance of the equity
markets and the Company's expectations of future performance decrease its future
profit expectations, the Company may be required to accelerate the amount of
deferred acquisition cost amortization in a given period, potentially negatively
impacting its net income in a period.

THE COMPANY'S EFFORTS TO REDUCE THE IMPACT OF INTEREST RATE CHANGES ON ITS
PROFITABILITY AND FINANCIAL CONDITION MAY NOT BE EFFECTIVE

The Company attempts to reduce the impact of changes in interest rates on the
profitability and financial condition of its fixed annuity operations. The
Company accomplishes this reduction primarily by managing the duration of its
assets relative to the duration of its liabilities. During a period of rising
interest rates, annuity contract surrenders and withdrawals may increase as
customers seek to achieve higher returns. Despite its efforts to reduce the
impact of rising interest rates, the Company may be required to sell assets to
raise the cash necessary to respond to such surrenders and withdrawals, thereby
realizing capital losses on the assets sold. An increase in policy surrenders
and withdrawals may also require the Company to accelerate amortization of
policy acquisition costs relating to these contracts, which would further reduce
its net income.

During periods of declining interest rates, borrowers may prepay or redeem
mortgages and bonds that the Company owns, which would force it to reinvest the
proceeds at lower interest rates. The Company's General Account products
generally contain minimum interest rate guarantees. These minimum guarantees may

8

ITEM 1. BUSINESS (continued)

constrain the Company's ability to lower credited rates in response to lower
investment returns. Therefore, it may be more difficult for the Company to
maintain its desired spread between the investment income it earns and the
interest it credits to its customers, thereby reducing its profitability.

A DOWNGRADE IN ANY OF THE RATINGS FOR THE COMPANY MAY, AMONG OTHER THINGS,
INCREASE POLICY SURRENDERS AND WITHDRAWALS, REDUCE NEW SALES, AND TERMINATE
RELATIONSHIPS WITH DISTRIBUTORS, ANY OF WHICH COULD ADVERSELY AFFECT ITS
PROFITABILITY AND FINANCIAL CONDITION

Ratings are important factors in establishing the competitive position of
insurance companies. A downgrade, or the potential for such a downgrade, of any
of the ratings for the Company could, among other things:

- - Materially increase the number of annuity contract surrenders and
withdrawals;

- - Result in the termination of relationships with broker-dealers, banks,
agents, wholesalers, and other distributors of the Company's products and
services; and

- - Reduce new sales of annuity contracts.

Any of these consequences could adversely affect the Company's profitability and
financial condition.

Rating organizations assign ratings based upon several factors. While most of
the factors relate to the rated company, some of the factors relate to the views
of the rating organization, general economic conditions, and circumstances
outside the rated company's control. In addition, rating organizations may
employ different models and formulas to assess financial strength of a rated
company, and from time to time rating organizations have, in their discretion,
altered the models. Changes to the models, general economic conditions, or
circumstances outside the Company's control could impact a rating organization's
judgment of its rating and the subsequent rating it assigns the Company. The
Company cannot predict what actions rating organizations may take, or what
actions it may be required to take in response to the actions of rating
organizations, which could adversely affect the Company.

THE COMPANY'S ABILITY TO GROW DEPENDS IN PART UPON THE CONTINUED
AVAILABILITY OF CAPITAL.

The Company has, in the past, required capital as it increased its reserves
associated with its growth from sales of products although no capital
contributions were needed in 2004. Although the Company believes it has
sufficient capital to fund its immediate growth and capital needs, the amount of
capital required and the amount of capital available can vary from period to
period due to a variety of circumstances, some of which are neither predictable
nor foreseeable, nor necessarily within its control. A lack of sufficient
capital could hinder the Company's ability to grow.

THE COMPANY'S INVESTMENT PORTFOLIO IS SUBJECT TO SEVERAL RISKS THAT MAY
DIMINISH THE VALUE OF ITS INVESTED ASSETS AND ADVERSELY AFFECT ITS SALES,
PROFITABILITY AND THE INVESTMENT RETURNS CREDITED TO CERTAIN OF ITS
CUSTOMERS

The Company's investment portfolio is subject to several risks, including, among
other things:

- - The Company may experience an increase in defaults or delinquency in the
investment portfolios, including the commercial mortgage loan portfolio.

9

ITEM 1. BUSINESS (continued)

- - The Company may have greater difficulty selling privately placed fixed
maturity securities and commercial mortgage loans at attractive prices, in a
timely manner, or both, because they are less liquid than its publicly traded
fixed maturity securities.

- - During periods of declining interest rates, borrowers may prepay or redeem
prior to maturity (i) mortgages that back certain mortgage-backed securities
and (ii) bonds with embedded call options that the Company owns which would
force it to reinvest the proceeds received at lower interest rates.

- - Environmental liability exposure may result from the Company's commercial
mortgage loan portfolio.

- - The Company may experience losses in its commercial mortgage loan portfolio
as a result of economic downturns or losses attributable to natural disasters
in certain regions.

Any of these consequences may diminish the value of the Company's invested
assets and adversely affect its sales, profitability, or the investment returns
credited to its customers.

CHANGES IN REGULATION IN THE UNITED STATES MAY REDUCE THE COMPANY'S
PROFITABILITY

The Company's insurance business is subject to comprehensive regulation and
supervision throughout the United States by both state and federal regulators.
The primary purpose of state regulation of the insurance business is to protect
contractowners, and not necessarily to protect other constituencies such as
creditors or investors. State insurance regulators, state attorneys general, the
National Association of Insurance Commissioners, the SEC, and the NASD
continually reexamine existing laws and regulations and may impose changes in
the future. Changes in federal legislation and administrative policies in areas
such as employee benefit plan regulation, financial services regulation, and
federal taxation could lessen the advantages of certain of the Company's
products as compared to competing products, or possibly result in the surrender
of some existing contracts and policies or reduced sales of new products and,
therefore, could reduce the Company's profitability.

The insurance industry has recently become the focus of greater regulatory
scrutiny due to questionable business practices relating to trading and pricing
within the mutual fund and variable annuity industries, allegations related to
improper special payments, price-fixing, conflicts of interest and improper
accounting practices, and other misconduct alleged by and initiatives of the New
York Attorney General, state insurance departments, and in related litigation.
As a result, a large number of insurance companies, including certain ING
affiliates, have been requested to provide information to regulatory
authorities. In some cases, this regulatory scrutiny has led to new proposed
legislation regulating insurance companies, regulatory penalties and related
litigation. At this time, the Company does not believe that any such regulatory
scrutiny will materially impact it; however, the Company cannot guarantee that
new laws, regulations, or other regulatory action aimed at the business
practices under scrutiny would not adversely affect its business. The adoption
of new laws or regulations, enforcement action or litigation, whether or not
involving the Company, could influence the manner in which it distributes its
insurance products, which could adversely impact the Company.

ITEM 2. PROPERTIES

The Company's home office is located at 151 Farmington Avenue, Hartford,
Connecticut, 06156. All Company office space is leased or subleased by the
Company or its other affiliates. The Company pays substantially all

10

ITEM 2. PROPERTIES (continued)

expenses associated with its leased and subleased office properties. Affiliates
within ING's U.S. operations provide the Company with various management,
finance, investment management and other administrative services, from
facilities located at 5780 Powers Ferry Road, N.W., Atlanta, Georgia 30327-4390.
The affiliated companies are reimbursed for the Company's use of these services
and facilities under a variety of intercompany agreements.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to threatened or pending lawsuits/arbitrations arising
from the normal conduct of business. Due to the climate in insurance and
business litigation/arbitration, suits against the Company sometimes include
claims for substantial compensatory, consequential or punitive damages and other
types of relief. Moreover, certain claims are asserted as class actions,
purporting to represent a group of similarly situated individuals. While it is
not possible to forecast the outcome of such lawsuits/arbitrations, in light of
existing insurance, reinsurance and established reserves, it is the opinion of
management that the disposition of such lawsuits/arbitrations will not have a
materially adverse effect on the Company's operations or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

11

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no public trading market for ILIAC common stock. All of ILIAC's
outstanding common stock is owned by Lion, a Connecticut holding and management
company which is ultimately owned by ING.

The Company's ability to pay dividends to its parent is subject to the prior
approval of insurance regulatory authorities of the State of Connecticut for
payment of any dividend, which, when combined with other dividends paid within
the preceding 12 months, exceeds the greater of (1) 10% of statutory surplus at
the prior year end or (2) ILIAC's prior year statutory net gain from operations.

ILIAC paid a cash dividend of $70.0 to Lion in 2004 and did not pay cash
dividends to Lion in 2003 or 2002. However, on February 28, 2002, ILIAC
contributed 100% of the stock of IA Holdco to HOLDCO in the form of a $60.1
dividend distribution.

ILIAC did not receive capital contributions from its parent in 2004 and received
$230.0 and $164.3 in capital contributions from its parent during 2003 and 2002,
respectively.

ITEM 6. SELECTED FINANCIAL DATA
(Dollar amounts in millions, unless otherwise stated)

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
3-YEAR SUMMARY OF SELECTED FINANCIAL DATA

12

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollar amounts in millions, unless otherwise stated)

OVERVIEW

The following narrative analysis of the consolidated results of operations
presents a review of ING Life Insurance and Annuity Company ("ILIAC") and its
wholly-owned subsidiaries (collectively, the "Company") for each of the two
years ended December 31, 2004 and 2003 and financial condition as of December
31, 2004 versus December 31, 2003. This item should be read in its entirety and
in conjunction with the selected financial data, consolidated financial
statements and related notes, and other supplemental data, which can be found
under Part II, Item 6 and Item 8 contained herein.

FORWARD-LOOKING INFORMATION/RISK FACTORS

In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other
statements made by, or on behalf of, the Company, whether or not in future
filings with the Securities Exchange Commission ("SEC"). Forward-looking
statements are statements not based on historical information and which
relate to future operations, strategies, financial results, or other
developments. Statements using verbs such as "expect," "anticipate,"
"believe," or words of similar import generally involve forward-looking
statements. Without limiting the foregoing, forward-looking statements
include statements which represent the Company's beliefs concerning future
levels of sales and redemptions of the Company's products, investment spreads
and yields, or the earnings and profitability of the Company's activities.

Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law, and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments, and industry consolidation. Others
may relate to the Company specifically, such as litigation, regulatory action,
and risks associated with the Company's investment portfolio such as changes in
credit quality, price volatility, and liquidity. Investors are also directed to
consider other risks and uncertainties discussed in "Risk Factors" in Item 1
contained herein and in other documents filed by the Company with the SEC.
Except as may be required by the federal securities laws, the Company disclaims
any obligation to update forward-looking information.

CRITICAL ACCOUNTING POLICIES

GENERAL

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the use of estimates and
assumptions in certain circumstances that affect amounts reported in the
accompanying consolidated financial statements and related footnotes. These
estimates and assumptions are evaluated on an on-going basis based on historical
developments, market conditions, industry trends, and other information that is
reasonable under the circumstances. There can be no assurance that actual
results will conform to estimates and assumptions, and that reported results of
operations will not be materially

13

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
CRITICAL ACCOUNTING POLICIES (continued)

adversely affected by the need to make future accounting adjustments to
reflect changes in these estimates and assumptions from time to time.

The Company has identified the following estimates as critical in that they
involve a higher degree of judgment and are subject to a significant degree of
variability: reserves, other-than-temporary impairment testing, and amortization
of deferred acquisition costs ("DAC") and value of business acquired ("VOBA").
In developing these estimates, management makes subjective and complex judgments
that are inherently uncertain and subject to material changes as facts and
circumstances develop. Although variability is inherent in these estimates,
management believes the amounts provided are appropriate based upon the facts
available upon compilation of the consolidated financial statements.

RESERVES

The Company establishes and carries actuarially determined reserve liabilities
which are calculated to meet its future obligations. Changes in or deviations
from the assumptions used can significantly affect the Company's reserve levels
and related future operations.
Reserves for deferred annuity investment contracts and immediate annuities
without life contingent benefits are equal to cumulative deposits less charges
and withdrawals plus credited interest thereon (rates range from 1.5% to 11.9%
for all years presented), net of adjustments for investment experience that the
Company is entitled to reflect in future credited interest. These reserves also
include unrealized gains/losses related to investments and unamortized realized
gains/losses on investments for experience-rated contracts. Reserves on
experience-rated contracts reflect the rights of contractholders, plan
participants, and the Company.

Reserves for immediate annuities with life contingent benefits are computed on
the basis of assumed interest discount rates, mortality, and expenses, including
a margin for adverse deviations. Such assumptions generally vary by plan, year
of issue and policy duration. Reserve interest rates range from 4.9% to 9.5% for
all years presented.

Because the sale of the domestic individual life insurance business on October
1, 1998 was substantially in the form of an indemnity reinsurance agreement, the
Company includes an amount in reinsurance recoverable on the Consolidated
Balance Sheets, which approximates the Company's total individual life reserves.

Unpaid claims and claim expenses for all lines of insurance include benefits for
reported losses and estimates of benefits for losses incurred but not reported.

OTHER-THAN-TEMPORARY IMPAIRMENT TESTING

The Company's accounting policy requires that a decline in the value of an
investment below its amortized cost basis be assessed to determine if the
decline is other-than-temporary. If so, the investment is deemed to be
other-than-temporarily impaired, and a charge is recorded in net realized
capital losses equal to the difference between fair value and the amortized cost
basis of the investment. The fair value of the other-than-temporarily impaired
investment becomes its new cost basis.

14

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
CRITICAL ACCOUNTING POLICIES (continued)

In addition, the Company invests in structured securities that meet the criteria
of Emerging Issues Task Force ("EITF") Issue No. 99-20, "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets." Under EITF Issue No. 99-20, a determination of
the required impairment is based on credit risk and the possibility of
significant prepayment risk that restricts the Company's ability to recover the
investment. An impairment is recognized if the fair value of the security is
less than amortized cost and there has been an adverse change in cash flow since
the remeasurement date. When a decline in fair value is determined to be
other-than-temporary, the individual security is written down to fair value and
the loss is accounted for as a realized loss.

The evaluation of other-than-temporary impairments included in the General
Account is a quantitative and qualitative process, which is subject to risks and
uncertainties and is intended to determine whether declines in the fair value of
investments should be recognized in current period earnings. The risks and
uncertainties include the length of time and extent to which the fair value has
been less than amortized cost, changes in general economic conditions, the
issuer's financial condition or near-term recovery prospects, and the effects of
changes in interest rates.

AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

DAC represents policy acquisition costs that have been capitalized and are
subject to amortization. Such costs consist principally of certain
commissions, underwriting, contract issuance, and certain agency expenses,
related to the production of new and renewal business.

VOBA represents the outstanding value of in force business capitalized and is
subject to amortization in purchase accounting when the Company was acquired.
The value is based on the present value of estimated net cash flows embedded
in the Company's contracts.

The amortization methodology used for DAC and VOBA varies by product type.
Statement of Financial Accounting Standards ("FAS") No. 60, "Accounting and
Reporting by Insurance Enterprises," applies to traditional life insurance
products, primarily whole life and term life insurance contracts. Under FAS No.
60, DAC and VOBA are amortized over the premium payment period, in proportion to
the premium revenue recognized.

FAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," applies to universal life and investment-type products, such as
fixed and variable deferred annuities. Under FAS No. 97, DAC and VOBA are
amortized, with interest, over the life of the related contracts (usually 25
years) in relation to the present value of estimated future gross profits from
investment, mortality, and expense margins; asset-based fees, policy
administration, and surrender charges; less policy maintenance fees and
non-capitalized commissions, as well as realized gains and losses on
investments.

Changes in assumptions can have a significant impact on DAC and VOBA balances
and amortization rates. Several assumptions are considered significant in the
estimation of future gross profits associated with variable deferred annuity
products. One of the most significant assumptions involved in the estimation of
future gross profits is the assumed return associated with the variable account
performance. To reflect the volatility in the equity markets, this assumption
involves a combination of near-term expectations and long-term assumptions
regarding market performance. The overall return on the variable account is
dependent on multiple factors,
15

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
CRITICAL ACCOUNTING POLICIES (continued)

including the relative mix of the underlying sub-accounts among bond funds
and equity funds, as well as equity sector weightings. Other significant
assumptions include surrender and lapse rates, estimated interest spread, and
estimated mortality.

Due to the relative size and sensitivity to minor changes in underlying
assumptions of DAC and VOBA balances, the Company performs a quarterly and
annual analysis of DAC and VOBA for the annuity and life businesses,
respectively. The DAC and VOBA balances are evaluated for recoverability and are
reduced to the extent that estimated future gross profits are inadequate to
recover the asset.

At each evaluation date, actual historical gross profits are reflected, and
estimated future gross profits and related assumptions are evaluated for
continued reasonableness. Any adjustment in estimated profit requires that the
amortization rate be revised ("unlocking"), retroactively to the date of the
policy or contract issuance. The cumulative prior period adjustment is
recognized as a component of current period amortization. In general, increases
in investment, mortality, and expense margins, and thus estimated future
profits, lower the rate of amortization. However, decreases in investment,
mortality, and expense margins, and thus estimated future profits, increase the
rate of amortization.

ANALYSIS OF DAC/VOBA

During 2004, VOBA amortization increased principally due to higher actual
gross profits, as a result of the margins earned on higher fixed and variable
assets and fewer other-than-temporary impairments. Also, surrenders increased,
which resulted in higher amortization for certain business.

The actual Separate Account return in 2004 exceeded the long-term assumption,
thereby producing deceleration of DAC/VOBA amortization of $2.6 before tax. As a
part of the regular analysis of DAC/VOBA, at the end of 2004, the Company
unlocked its assumptions regarding policyholder withdrawal behavior. Based on
experience studies, assumed rates of full surrender for variable annuities were
modified downward, producing a deceleration of DAC/VOBA amortization of $1.2
before tax. The combined effect of the actual variable return for 2004 exceeding
long-term assumptions and modification of expectations regarding future
withdrawal behavior was a deceleration of DAC/VOBA amortization totaling $3.8
before tax, or $2.5, net of $1.3 million of federal income tax expense.

During 2003 the Company reset long-term assumptions for the Separate Account
returns from 9.0% to 8.5% (gross before rate of return management fees and
mortality, expense, and other policy charges), reflecting a blended return of
equity and other sub-accounts. The 2003 unlocking adjustment was primarily
driven by improved market performance compared to expected performance during
2003. For the year ended December 31, 2003, the Company recorded a deceleration
of DAC/VOBA amortization totaling $3.7 before tax, or $2.4, net of $1.3 of
federal income tax expense.

As part of the regular analysis of DAC/VOBA, at the end of 2002, the Company
unlocked its long-term rate of return assumptions. The Company reset
long-term return assumptions for the Separate Account returns to 9.0% (gross
before fund management fees and mortality, expense, and other policy
charges), as of December 31, 2002, reflecting a blended return of equity and
other sub-accounts. The unlocking adjustment in 2002 was primarily driven by
the sustained downturn in the equity markets and revised expectations for
future returns. Dring 2002, the Company recorded an acceleration of DAC/VOBA
amortization totaling $45.6 before tax, or $29.7, net of $15.9 of federal
income tax benefit.

16

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
CRITICAL ACCOUNTING POLICIES (continued)

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

NET INCOME: Net income increased by $44.7 to $199.3 for 2004, from $154.6 for
2003. Higher net income is the result of higher fee income and higher investment
income and margins, partially offset by an increase in interest credited and
other benefits to contractholders, operating expenses, and the amortization of
VOBA.

NET INVESTMENT INCOME: Net investment income from General Account assets
increased $64.0 to $983.1 for 2004 from $919.1 for 2003. The increase is
primarily related to higher fixed assets under management in 2004, as well as to
the inclusion of interest income on the guaranteed portion of the separate
accounts beginning in 2004 as required with the adoption of Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts."

FEE INCOME: Fee income increased $59.9 to $455.7 for 2004 from $395.8 for 2003.
A substantial portion of fee income is calculated based on variable assets under
management. The increase in fee income was primarily related to an increase in
the Company's average variable assets under management due to strong sales and
positive equity market performance in 2004 and 2003.

PREMIUMS: Premiums for 2004 decreased by $11.6 to $38.5 from $50.1 for 2003,
primarily due to a decrease in sales of immediate annuities with life
contingencies.

NET REALIZED CAPITAL GAINS: Net realized capital gains for 2004 decreased by
$39.3 to $25.2 from $64.5 for 2003. The decrease in gains is primarily due to
rising interest rates in 2004 partially offset by a decrease in
other-than-temporary impairments. In an increasing rate environment, the market
value of fixed maturities in the portfolios decreases, which in turn results in
lower realized gains upon sale.

INTEREST CREDITED AND OTHER BENEFITS TO CONTRACTOWNERS: Interest credited and
other benefits to contractowners increased $16.0 to $739.4 for 2004 from
$723.4 for 2003. The increase in the balance in the year was primarily due to
an increase in average assets under management with fixed options, as well as to
the inclusion of interest credited to contractowners on the guaranteed portion
of the separate accounts, as required by SOP 03-1, partially offset by a
decrease in credited interest rates to contractowners resulting from a
management decision to lower credited rates to contractowners.

OPERATING EXPENSES: Operating expenses increased by $10.1 to $394.0 for 2004
from $383.9 for 2003. The increase is primarily related to the growth of the
business.

AMORTIZATION OF DAC AND VOBA: Amortization of DAC and VOBA increased $20.9 to
$127.4 for 2004, from $106.5 for 2003. The increase is primarily related to
higher VOBA amortization of $17.2. Amortization of long-duration products is
recorded in proportion to actual and estimated future gross profits.
Estimated gross profits are computed based on assumptions related to the
underlying contracts, including but not limited to interest margins,
surrenders, withdrawals, expenses, and asset growth. VOBA amortization
increased principally due to higher actual gross profits, as a result of the
margins earned on higher fixed and variable assets and fewer
other-than-temporary impairments.

17

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)

FINANCIAL CONDITION

INVESTMENTS

INVESTMENT STRATEGY

The Company's investment strategy for its General Account investments
involves diversification by asset class, and seeks to add economic
diversification and to reduce the risks of credit, liquidity, and embedded
options within certain investment products, such as convexity risk on
collateralized mortgage obligations and call options. The investment
management function is centralized under ING Investment Management LLC
("IIM"), an affiliate of the Company, pursuant to an investment advisory
agreement. Separate portfolios are established for each general type of
product within the Company.

The Company invests its General Account primarily in fixed maturity
investments, including publicly issued bonds (including government bonds),
privately placed notes and bonds, mortgage-backed securities, and
asset-backed securities. The primary investment strategy is to optimize the
risk-adjusted return through superior asset selection predicated on a
developed relative value approach, credit research and monitoring, superior
management of interest rate risk, and active exploration into new investment
product opportunities. Investments are purchased when market returns,
adjusted for risk and expenses, are sufficient to profitably support growth
of the liability block of business. In addition, assets and liabilities are
analyzed and reported for internal management purposes on an option-adjusted
basis. The level of required capital of given transactions is a primary
factor in determining relative value among different investment and liability
alternatives, within the scope of each product type's objective. An active
review of existing holdings identifies specific assets that could be
effectively traded in order to enhance the risk-adjusted returns of the
portfolio, while minimizing adverse tax and accounting impacts. The Company
strives to maintain a portfolio average asset quality rating of A, excluding
mortgage loans, but including mortgage-backed securities, which are reported
with bonds, based on Standard & Poor's ("S&P") ratings classifications.

The Company's use of derivatives is limited mainly to hedging purposes to reduce
the Company's exposure to cash flow variability of assets and liabilities,
interest rate risk, and market risk.

PORTFOLIO COMPOSITION

The following table presents the investment portfolio at December 31, 2004 and
2003.

18

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
FINANCIAL CONDITION (continued)

FIXED MATURITIES

Fixed maturities available-for-sale as of December 31, 2004, were as follows:

19

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
FINANCIAL CONDITION (continued)

Fixed maturities available-for-sale as of December 31, 2003, were as follows:

At December 31, 2004 and 2003, the Company's carrying value of
available-for-sale fixed maturities, including fixed maturities pledged to
creditors, (hereinafter referred to as "total fixed maturities") represented
92.1% and 93.4% of the total General Account invested assets, respectively. For
the same periods, $13,714.0, or 74.4% of total fixed maturities and $13,744.9,
or 77.7% of total fixed maturities, respectively, supported experience-rated
products. Total fixed maturities reflected net unrealized capital gains of
$482.1 and $615.1 at December 31, 2004 and 2003, respectively.

It is management's objective that the portfolio of fixed maturities be of high
quality and be well diversified by market sector. The fixed maturities in the
Company's portfolio are generally rated by external rating agencies and, if not
externally rated, are rated by the Company on a basis believed to be similar to
that used by the rating

20

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
FINANCIAL CONDITION (continued)

agencies. The average quality rating of the Company's fixed maturities
portfolio was AA- at December 31, 2004 and 2003. Ratings are calculated using
a rating hierarchy that considers S&P, Moody's, and internal ratings.

Total fixed maturities by quality rating category, including fixed maturities
pledged to creditors, were as follows at December 31:

95.8% of fixed maturities were invested in securities rated BBB and above
(Investment Grade) at December 31, 2004 and 2003.

Fixed maturities rated BB and below (Below Investment Grade) may have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than is the case with higher rated fixed
maturities.

Total fixed maturities by market sector, including fixed maturities pledged to
creditors, were as follows, at December 31:

(1) Primarily U.S. dollar denominated

The amortized cost and fair value of total fixed maturities as of December
31, 2004 are shown below by contractual maturity. Actual maturities may
differ from contractual maturities because securities may be restructured,
called, or prepaid.

21

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
FINANCIAL CONDITION (continued)

At December 31, 2004 and 2003, fixed maturities with carrying values of $10.9
and $11.2, respectively, were on deposit as required by regulatory authorities.

The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10% of
the Company's shareholder's equity at December 31, 2004 or 2003.

MORTGAGE LOANS

Mortgage loans, primarily commercial mortgage loans, totaled $1,090.2 at
December 31, 2004 and $754.5 at December 31, 2003. These loans are reported at
amortized cost less impairment writedowns. If the value of any mortgage loan is
determined to be impaired (i.e., when it is probable that the Company will be
unable to collect on all amounts due according to the contractual terms of the
loan agreement), the carrying value of the mortgage loan is reduced to either
the present value of expected cash flows, cash flows from the loan (discounted
at the loan's effective interest rate), or fair value of the collateral. If the
loan is in foreclosure, the carrying value is reduced to the fair value of the
underlying collateral, net of estimated costs to obtain and sell. The carrying
value of the impaired loans is reduced by establishing a permanent write down
charged to realized loss. At December 31, 2004 and 2003, the Company had no
allowance for mortgage loan credit losses.

OTHER-THAN-TEMPORARY IMPAIRMENTS

The Company analyzes the General Account investments to determine whether there
has been an other-than-temporary decline in fair value below the amortized cost
basis. Management considers the length of time and the extent to which the fair
value has been less than amortized cost; the financial condition and near-term
prospects of the issuer; future economic conditions and market forecasts; and
the Company's intent and ability to retain the investment in the issuer for a
period of time sufficient to allow for recovery in fair value. If it is probable
that all amounts due according to the contractual terms of an investment will
not be collected, an other-than-temporary impairment is considered to have
occurred.

In addition, the Company invests in structured securities that meet the criteria
of Emerging Issues Task Force ("EITF") Issue No. 99-20 "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets." Under EITF Issue No. 99-20, a determination of
the required impairment is based on credit risk and the possibility of
significant prepayment risk that restricts the

22

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
FINANCIAL CONDITION (continued)

Company's ability to recover the investment. An impairment is recognized if the
fair value of the security is less than book value and there has been an adverse
change in cash flow since the last remeasurement date.

When a decline in fair value is determined to be other-than-temporary, the
individual security is written down to fair value and the loss is accounted for
as a realized loss.

The following table identifies the Company's other-than-temporary impairments by
type as of December 31:

NET REALIZED CAPITAL GAINS AND LOSSES

Net realized capital gains (losses) are comprised of the difference between the
carrying value of investments and proceeds from sale, maturity, and redemption,
as well as losses incurred due to impairment of investments. Net realized
capital gains (losses) on investments were as follows:

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of the Company to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.

SOURCES AND USES OF LIQUIDITY

The Company's principal sources of liquidity are product charges, investment
income, proceeds from the maturing and sale of investments, and capital
contributions. Primary uses of funds are payments of commissions and operating
expenses, interest and premium credits, investment purchases, contract
maturities, withdrawals and surrenders.

23

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)

The Company's liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments. For
a description of the Company's asset/liability management strategy, see Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk."

Additional sources of liquidity include borrowing facilities to meet
short-term cash requirements. ILIAC maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), an affiliate, whereby
either party can borrow from the other up to 3% of ILIAC's statutory admitted
assets as of the prior December 31 from one another. ILIAC also maintains a
$125.0 revolving loan agreement with SunTrust Bank and a $100.0 revolving
loan agreement with the Bank of New York. The Company had no outstanding
balance under any of these facilities as of December 31, 2004 and 2003.
Management believes that these sources of liquidity are adequate to meet the
Company's short-term cash obligations.

CAPITAL CONTRIBUTIONS AND DIVIDENDS

ILIAC did not receive capital contributions from its parent in 2004 and received
$230.0 and $164.3 in capital contributions during 2003 and 2002, respectively.

ILIAC has entered into agreements with IICA under which ILIAC has agreed to
cause IICA to have sufficient capital to meet certain capital and surplus
levels. ILIAC did not make capital contributions to IICA in 2004, 2003, or 2002.

The Company's ability to pay dividends to its parent is subject to the prior
approval of insurance regulatory authorities of the State of Connecticut for
payment of any dividend, which, when combined with other dividends paid within
the preceding 12 months, exceeds the greater of (1) 10% of statutory surplus at
prior year end or (2) ILIAC's prior year statutory net gain from operations.

ILIAC paid a cash dividend of $70.0 to Lion in 2004 and did not pay cash
dividends to Lion in 2003 or 2002. However, on February 28, 2002, ILIAC
contributed 100% of the stock of IA Holdco to HOLDCO in the form of a $60.1
dividend distribution.

SEPARATE ACCOUNTS

Separate Account assets and liabilities generally represent funds maintained to
meet specific investment objectives of contractowners who bear the investment
risk, subject, in limited cases, to certain minimum guaranteed rates. Investment
income and investment gains and losses generally accrue directly to such
contractowners. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company or its
affiliates.

Separate Account assets supporting variable options under annuity contracts are
invested, as designated by the contractowner or participant (who bears the
investment risk subject, in limited cases, to certain minimum guarantees) under
a contract, in shares of mutual funds which are managed by the Company or its
affiliates, or other selected mutual funds not managed by the Company or its
affiliates.

24

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)

Separate Account assets and liabilities are carried at fair value and shown as
separate captions in the Consolidated Balance Sheets. Deposits, investment
income and net realized and unrealized capital gains and losses of the Separate
Accounts are not reflected in the Consolidated Financial Statements (with the
exception of realized and unrealized capital gains and losses on the assets
supporting the guaranteed interest option). The Consolidated Statements of Cash
Flows do not reflect investment activity of the Separate Accounts.

Assets and liabilities of separate account arrangements that do not meet the
criteria in Statement of Position 03-1, "Accounting and Reporting by
Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and
for Separate Accounts," ("SOP 03-1") for presentation in the separate caption
in the Consolidated Balance Sheets (primarily guaranteed interest options)
and revenue and expenses related to such arrangements, are consolidated in
the financial statements in the General Account. At December 31, 2004 and
2003, unrealized gains of $7.3 and $55.7, respectively, on assets supporting
a guaranteed interest option are reflected in shareholder's equity.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

Through the normal course of investment operations, the Company commits to
either purchase or sell securities, commercial mortgage loans, or money market
instruments at a specified future date and at a specified price or yield. The
inability of counterparties to honor these commitments may result in either a
higher or lower replacement cost. Also, there is likely to be a change in the
value of the securities underlying the commitments. At December 31, 2004 and
2003, the Company had off-balance sheet commitments to purchase investments
equal to their fair value of $778.2 and $154.3, respectively.

As of December 31, 2004, the Company had certain contractual obligations due
over a period of time as summarized in the following table:

Operating lease obligations relate to the rental of office space under various
non-cancelable operating lease agreements that expire through January 2009.

Purchase obligations consist primarily of commitments to purchase investments
during 2005.

Reserves for insurance contract obligations consist of actuarially determined
liabilities for the Company to meet its further obligations under its variable
annuity, fixed annuity, and other investment and retirement products.

25

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)

REINSURANCE

The Company utilizes indemnity reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverable balances deemed probable of recovery are reflected as
assets on the Consolidated Balance Sheets.

SECURITIES LENDING

The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Initial
collateral, primarily cash, is required at a rate of 102% of the market value of
the loaned domestic securities. The collateral is deposited by the borrower with
a lending agent, and retained and invested by the lending agent according to the
Company's guidelines to generate additional income. The market value of the
loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value of the loaned securities fluctuates.

REPURCHASE AGREEMENTS

The Company engages in dollar repurchase agreements ("dollar rolls") and
repurchase agreements to increase the return on investments and improve
liquidity. These transactions involve a sale of securities and an agreement to
repurchase substantially the same securities as those sold. Company policies
require a minimum of 95% of the fair value of securities pledged under dollar
rolls and repurchase agreement transactions to be maintained as collateral. Cash
collateral received is invested in fixed maturities and the offsetting
collateral liability is included in borrowed money on the Consolidated Balance
Sheets. At December 31, 2004 and 2003, the carrying value of the securities
pledged in dollar rolls and repurchase agreements was $1,274.3 and $1,644.8,
respectively. The carrying value of the securities pledged in dollar rolls and
repurchase agreements is included in pledged securities on the Balance Sheets.
The repurchase obligation related to dollar rolls and repurchase agreements
totaled $1,057.4 and $1,519.3 at December 31, 2004 and 2003, respectively. The
repurchase obligation related to dollar rolls and repurchase agreements is
included in borrowed money on the Consolidated Balance Sheets.

The primary risk associated with short-term collateralized borrowings is that
the counterparty will be unable to perform under the terms of the contract. The
Company's exposure is limited to the excess of the net replacement cost of the
securities over the value of the short-term investments, an amount that was not
material at December 31, 2004. The Company believes the counterparties to the
dollar roll and repurchase agreements are financially responsible and that the
counterparty risk is immaterial.

RISK-BASED CAPITAL

The National Association of Insurance Commissioners' ("NAIC") risk-based capital
requirements require insurance companies to calculate and report information
under a risk-based capital formula. These requirements are intended to allow
insurance regulators to monitor the capitalization of insurance companies based
upon the type and mixture of risks inherent in a company's operations. The
formula includes components

26

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)

for asset risk, liability risk, interest rate exposure, and other factors. ILIAC
has complied with the NAIC's risk-based capital reporting requirements. Amounts
reported indicate that ILIAC has total adjusted capital above all required
capital levels.

RECENTLY ADOPTED ACCOUNTING STANDARDS

(See Significant Accounting Policies in Notes to the Consolidated Financial
Statements for further information.)

ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN NONTRADITIONAL
LONG-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS

The Company adopted SOP 03-1 on January 1, 2004. SOP 03-1 establishes several
new accounting and disclosure requirements for certain nontraditional
long-duration contracts and for separate accounts including, among other things,
a requirement that assets and liabilities of separate account arrangements that
do not meet certain criteria be accounted for as general account assets and
liabilities, and that revenues and expenses related to such arrangements be
consolidated with the respective lines in the Consolidated Statements of
Operations. In addition, SOP 03-1 requires that additional liabilities be
established for certain guaranteed death and other benefits and for products
with certain patterns of cost of insurance charges. In addition, sales
inducements provided to contractholders must be recognized on the Consolidated
Balance Sheets separately from deferred acquisition costs and amortized as a
component of benefits expense using methodologies and assumptions consistent
with those used for amortization of deferred policy acquisition costs.

The Company evaluated all requirements of SOP 03-1 which resulted in the
consolidation of the Separate Account supporting the guarantee option into the
General Account and deferring, amortizing, and recognizing separately, sales
inducements to contractholders. Requirements to establish additional liabilities
for minimum guaranteed benefits are also applicable to the Company, however, the
Company's policies on contract liabilities have historically been, and continue
to be, in conformity with the newly established requirements. Requirements for
recognition of additional liabilities for products with certain patterns of cost
of insurance charges are not applicable to the Company. The adoption of SOP 03-1
did not have a significant effect on the Company's financial position, results
of operations, or cash flows.

In the fourth quarter of 2004, the Company implemented Technical Practice Aid
6300.05 - 6300.08, "Q&As Related to the Implementation of SOP 03-1, Accounting
and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounting" (the "TPA").

The TPA, which was approved in September 2004, provides additional guidance
regarding certain implicit assessments that may be used in the testing of the
base mortality function on contracts, which is performed to determine whether
additional liabilities are required in conjunction with SOP 03-1. In
addition, the TPA provides additional guidance surrounding the allowed level
of aggregation of additional liabilities determined under SOP 03-1. The
adoption of the TPA did not have an impact on the Company's financial
position, results of operations, or cash flows.

The implementation of SOP 03-1 also raised questions regarding the
interpretation of the requirements of FAS No. 97, "Accounting and Reporting
by Insurance Enterprises for Certain Long-Duration Contracts and for Realized
Gains and Losses from the Sale of Investments," concerning when it is
appropriate to record an

27

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
RECENTLY ADOPTED ACCOUNTING STANDARDS (continued)

unearned revenue liability related to the insurance benefit function. To
clarify its position, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. FAS 97-1 ("FSP FAS 97-1"), "Situations in
Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Permit or Require
Accrual of an Unearned Revenue Liability," effective for fiscal periods
beginning subsequent to the date the guidance was issued, June 18, 2004. The
Company adopted FSP FAS 97-1 on July 1, 2004. The adoption of FSP FAS 97-1
did not have an impact on the Company's financial position, results of
operations, or cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based
Payment" ("FAS 123R"), which requires that all share-based payments be
recognized in the financial statements based upon the fair value. FAS 123R is
effective at the beginning of the first interim or annual period beginning after
June 15, 2005. Earlier adoption is encouraged. FAS 123R provides two transition
methods, modified-prospective and modified-retrospective.

The modified-prospective method recognizes the grant-date fair value of
compensation for new awards granted after the effective date and unvested awards
beginning in the fiscal period in which the recognition provisions are first
applied. Prior periods are not restated. The modified-retrospective method
permits entities to restate prior periods by recognizing the compensation cost
based on amounts previously reported in the pro forma footnote disclosures as
required under FAS No. 123, "Accounting for Stock-Based Compensation."

The Company intends to early adopt the provisions of FAS 123R on January 1, 2005
using the modified-prospective method. The adoption of FAS 123R is not expected
to have a material impact on the Company's financial position, results of
operations or cash flows. Prior to January 2005, the Company applied the
intrinsic value-based provisions set forth in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic
value method, compensation expense is determined on the measurement date, which
is the first date on which both the number of shares the employee is entitled to
receive and the exercise price are known. Compensation expense, if any, is
measured based on the award's intrinsic value, which is the excess of the market
price of the stock over the exercise price on the measurement date.

LEGISLATIVE INITIATIVES

Certain elements of the Jobs and Growth Tax Relief Reconciliation Act of
2003, in particular the reduction in the tax rates on long-term capital gains
and corporate dividends, could impact the relative competitiveness of the
Company's products, especially variable annuities. While sales of products do
not appear to have been reduced to date, the long term effect of the Job and
Growth Act of 2003 on the Company's financial condition or results of
operations cannot be reasonably estimated at this time.

The American Jobs Creation Act of 2004 allows tax-free distributions to be
made from the Company's Policyholders' Surplus Account in 2005 and 2006.
Under prior law, the Company was allowed to defer from taxation a portion of
statutory income under certain circumstances. The deferred income was
accumulated in the Policyholders' Surplus Account and is taxable only under
conditions that management considers to be remote. Therefore, no federal
income taxes have been provided on the accumulated balance of $17.2 as of
December 31, 2004. Based on currently available information, the Company
anticipates that the new law will permanently eliminate any potential tax on
the accumulated balance of $17.2.

28

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
LEGISLATIVE INITIATIVES (continued)

Other legislative proposals under consideration include repealing the estate
tax, reducing the taxation on annuity benefits, changing the taxation of
products, and changing life insurance company taxation. Some of these
proposals, if enacted, could have a material effect on life insurance,
annuity and other retirement savings product sales. The impact on the
Company's products cannot be predicted.

Legislation to restructure the Social Security System and expand private
pension plan incentives also may be considered. Prospects for enactment and
the ultimate effect of these proposals are uncertain.

REGULATORY MATTERS

As with many financial services companies, the Company and its affiliates have
received informal and formal requests for information from various state and
federal governmental agencies and self-regulatory organizations in connection
with inquiries and investigations of the products and practices of the financial
services industry. In each case, the Company and its affiliates have been and
are providing full cooperation.

FUND REGULATORY ISSUES

Since 2002, there has been increased governmental and regulatory activity
relating to mutual funds and variable insurance products. This activity has
primarily focused on inappropriate trading of fund shares, revenue sharing and
directed brokerage, compensation, sales practices and suitability, arrangements
with service providers, pricing, compliance and controls, and adequacy of
disclosure.

In addition to responding to governmental and regulatory requests on fund
regulatory issues, ING management, on its own initiative, conducted, through
special counsel and a national accounting firm, an extensive internal review of
mutual fund trading in ING insurance, retirement, and mutual fund products. The
goal of this review was to identify any instances of inappropriate trading in
those products by third parties or by ING investment professionals and other ING
personnel.

The internal review identified several isolated arrangements allowing third
parties to engage in frequent trading of mutual funds within the variable
insurance and mutual fund products of certain affiliates of the Company, and
identified other circumstances where frequent trading occurred despite measures
taken by ING intended to combat market timing. Each of the arrangements has been
terminated and disclosed to regulators, to the independent trustees of ING Funds
(U.S.) and in Company reports previously filed with the Securities and Exchange
Commission ("SEC") pursuant to the Securities Exchange Act of 1934, as
amended.

An affiliate of the Company, ING Funds Distributors, LLC ("IFD") has received
notice from the staff of the National Association of Securities Dealers ("NASD")
that the staff has made a preliminary determination to recommend that
disciplinary action be brought against IFD and one of its registered persons for
violations of the NASD Conduct Rules and federal securities laws in connection
with frequent trading arrangements.

Other regulators, including the SEC and the New York Attorney General, are
also likely to take some action with respect to certain ING affiliates before
concluding their investigation of ING relating to fund trading. The potential
outcome of such action is difficult to predict but could subject certain
affiliates to adverse consequences, including, but not limited to, settlement
payments, penalties, and other financial liability. It is

29

ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
REGULATORY MATTERS (continued)

not currently anticipated, however, that the actual outcome of such action
will have a material adverse effect on ING or ING's U.S.-based operations,
including the Company.

ING has agreed to indemnify and hold harmless the ING Funds from all damages
resulting from wrongful conduct by ING or its employees or from ING's
internal investigation, any investigations conducted by any governmental or
self-regulatory agencies, litigation or other formal proceedings, including
any proceedings by the SEC. Management reported to the ING Funds Board that
ING management believes that the total amount of any indemnification
obligations will not be material to ING or ING's U.S.-based operations,
including the Company.

OTHER REGULATORY MATTERS

The New York Attorney General and other regulators are also conducting broad
inquiries and investigations involving the insurance industry. These initiatives
currently focus on, among other things, compensation and other sales incentives,
potential conflicts of interest, potential anti-competitive activity, marketing
practices, certain financial reinsurance arrangements, and disclosure. It is
likely that the scope of these investigations will further broaden before the
investigations are concluded. U.S. affiliates of ING have received formal and
informal requests in connection with such investigations, and are cooperating
fully with each request for information.

These initiatives may result in new legislation and regulation that could
significantly affect the financial services industry, including businesses in
which the Company is engaged.

In light of these and other developments, U.S. affiliates of ING, including the
Company, periodically review whether modifications to their business practices
are appropriate.

For further discussion of the Company's regulatory matters, see "Risk Factors"
in Part 1, Item 1 "Business."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Asset/liability management is integrated into many aspects of the Company's
operations, including investment decisions, product development, and
determination of crediting rates. As part of the risk management process,
different economic scenarios are modeled, including cash flow testing required
for insurance regulatory purposes, to determine that existing assets are
adequate to meet projected liability cash flows. Key variables in the modeling
process include interest rates, anticipated contractowner behavior, and variable
separate account performance. Contractowners bear the investment risk related to
variable annuity products, subject, in limited cases, to certain minimum
guaranteed rates.

The fixed account liabilities are supported by a portfolio principally
composed of fixed rate investments that can generate predictable, steady
rates of return. The portfolio management strategy for the fixed account
considers the assets available-for-sale. This enables the Company to respond
to changes in market interest rates, changes in prepayment risk, changes in
relative values of asset sectors and individual securities and loans, changes
in credit quality outlook, and other relevant factors. The objective of
portfolio management is to maximize returns, taking into account interest
rate and credit risk, as well as other risks. The Company's asset/liability
management discipline includes strategies to minimize exposure to loss as
interest rates and economic and market conditions change.

30

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (continued)

On the basis of these analyses, management believes there is currently no
material solvency risk to the Company.

INTEREST RATE RISK

The Company defines interest rate risk as the risk of an economic loss due to
adverse changes in interest rates. This risk arises from the Company's primary
activity of investing fixed annuity premiums received in interest-sensitive
assets and carrying these funds as interest-sensitive liabilities. The Company
manages the interest rate risk in its assets relative to the interest rate risk
in its liabilities. A key measure used to quantify this exposure is duration.
Duration measures the sensitivity of the assets and liabilities to changes in
interest rates.

To calculate duration related to annuities, the Company projects asset and
liability cash flows under stochastic arbitrage free interest rate scenarios and
calculates their net present value using LIBOR/swap spot rates. Duration is
calculated by revaluing these cash flows given a small change in interest rates
and determining the percentage change in the fair value. The cash flows used in
this calculation include the expected coupon and principal payments on the
assets and all benefit cash flows on the interest-sensitive liabilities. The
projections include assumptions that reflect the effect of changing interest
rates on the prepayment, lapse, leverage, and/or option features of instruments,
where applicable. Such assumptions relate primarily to mortgage-backed
securities, collateralized mortgage obligations, callable corporate obligations,
and fixed rate deferred and immediate annuities.

For further discussion of the Company's interest rate risks, see "Risk
Factors" in Part 1, Item 1 "Business."

MARKET RISK

The Company's operations are significantly influenced by changes in the
equity markets. The Company's profitability depends largely on the amount of
assets under management, which is primarily driven by the level of sales,
equity market appreciation and depreciation, and the persistency of the in
force block of business. Prolonged and precipitous declines in the equity
markets can have a significant impact on the Company's operations. As a
result, sales of variable products may decline and surrender activity may
increase, as customer sentiment towards the equity market turns negative.
Lower assets under management will have a negative impact on the Company's
financial results, primarily due to lower fee income on variable annuities.
Furthermore, the Company may experience a reduction in profit margins if a
significant portion of the assets held in the variable annuity separate
account move to the general account and the Company is unable to earn an
acceptable investment spread, particularly in light of the low interest rate
environment and the presence of contractually guaranteed interest credited
rates.

In addition, prolonged declines in the equity market may also decrease the
Company's expectations of future gross profits, which are utilized to determine
the amount of DAC/VOBA to be amortized in a given financial statement period. A
significant decrease in the Company's estimated gross profits would require the
Company to accelerate the amount of DAC/VOBA amortization in a given period,
potentially causing a material adverse deviation in the period's net income.
Although an acceleration of DAC/VOBA amortization would have a negative impact
on the Company's earnings, it would not affect the Company's cash flow or
liquidity position. For further discussion, see "Risk Factors" in Part 1, Item 1
"Business."

31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
ING Life Insurance and Annuity Company

We have audited the accompanying consolidated balance sheets of ING Life
Insurance and Annuity Company as of December 31, 2004 and 2003, and the
related consolidated statements of operations, changes in shareholder's
equity, and cash flows for each of the three years in the period ended
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of an opinion on
the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ING Life Insurance
and Annuity Company as of December 31, 2004 and 2003, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally accepted accounting
principles.

As discussed in Note 1 to the financial statements, the Company changed the
accounting principle for goodwill and other intangible assets effective
January 1, 2002. As discussed in the Note 14 to the financial statements, the
Company restated certain amounts presented in the statements of cash flows
related to its payables for securities purchased, short-term borrowings, and
investment contracts for the years ended December 31, 2003 and 2002.

/s/ Ernst & Young LLP

Atlanta, Georgia
March 31, 2005

33

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

34

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

35

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(In Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

36

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
37

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

ING Life Insurance and Annuity Company ("ILIAC"), a stock life insurance
company domiciled in the state of Connecticut, and its wholly-owned
subsidiaries (collectively, the "Company") are providers of financial
products and services in the United States. These consolidated financial
statements include ILIAC and its wholly-owned subsidiaries, ING Insurance
Company of America ("IICA"), ING Financial Advisers, LLC ("IFA") and,
through February 28, 2002, ING Investment Adviser Holding, Inc. ("IA
Holdco"). Until March 30, 2003, ILIAC was a wholly-owned subsidiary of ING
Retirement Holdings, Inc. ("HOLDCO"), which was a wholly-owned subsidiary
of ING Retirement Services, Inc. ("IRSI"). Until March 30, 2003, IRSI was a
wholly-owned subsidiary of Lion Connecticut Holdings Inc. ("Lion"), which
in turn was ultimately owned by ING Groep N.V. ("ING"). On March 30, 2003,
a series of mergers occurred in the following order: IRSI merged into Lion
and HOLDCO merged into Lion. As a result, ILIAC is now a direct,
wholly-owned subsidiary of Lion, which in turn is an indirect, wholly-owned
subsidiary of ING. ING is a global financial services company based in The
Netherlands, with American Depository Shares listed on the New York Stock
Exchange under the symbol "ING."

DESCRIPTION OF BUSINESS

The Company offers qualified and nonqualified annuity contracts that
include a variety of funding and payout options for individuals and
employer-sponsored retirement plans qualified under Internal Revenue Code
Sections 401, 403, 408 and 457, as well as nonqualified deferred
compensation plans. The Company's products are offered primarily to
individuals, pension plans, small businesses and employer-sponsored groups
in the health care, government, education (collectively "not-for-profit"
organizations), and corporate markets. The Company's products generally are
distributed through pension professionals, independent agents and brokers,
third party administrators, banks, dedicated career agents, and financial
planners.

Annuity contracts may be deferred or immediate (payout annuities). These
products also include programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and record-keeping
services along with a variety of investment options, including affiliated
and nonaffiliated mutual funds, and variable and fixed investment options.
In addition, the Company offers wrapper agreements entered into with
retirement plans which contain certain benefit responsive guarantees (i.e.
liquidity guarantees of principal and previously accrued interest for
benefits paid under the terms of the plan) with respect to portfolios of
plan-owned assets not invested with the Company. The Company also offers
investment advisory services and pension plan administrative services.

RECENTLY ADOPTED ACCOUNTING STANDARDS

ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN
NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS

The Company adopted Statement of Position ("SOP") 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts," on January 1, 2004. SOP 03-1
establishes several new accounting and disclosure requirements for certain
nontraditional long-duration contracts and for separate accounts including,
among other things, a requirement that assets

38

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

and liabilities of separate account arrangements that do not meet certain
criteria be accounted for as general account assets and liabilities, and
that revenues and expenses related to such arrangements, be consolidated
with the respective lines in the Consolidated Statements of Operations. In
addition, the SOP requires that additional liabilities be established for
certain guaranteed death and other benefits and for products with certain
patterns of cost of insurance charges. In addition, sales inducements
provided to contractowners must be recognized on the Consolidated Balance
Sheets separately from deferred acquisition costs and amortized as a
component of benefits expense using methodology and assumptions consistent
with those used for amortization of deferred policy acquisition costs
("DAC").

The Company evaluated all requirements of SOP 03-1 which resulted in the
consolidation of the Separate Account supporting the guarantee option into
the General Account. Requirements to establish additional liabilities for
minimum guarantee benefits are applicable to the Company; however, the
Company's policies on contract liabilities have historically been, and
continue to be, in conformity with the newly established requirements.
Requirements for recognition of additional liabilities for products with
certain patterns of cost of insurance charges are not applicable to the
Company. The adoption of SOP 03-1 had no significant effect on the
Company's financial position, results of operations, or cash flows.

In the fourth quarter of 2004, the Company implemented Technical Practice
Aid 6300.05 - 6300.08, "Q&As Related to the Implementation of SOP 03-1,
"Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts" (the
"TPA").

The TPA, which was approved in September 2004, provides additional guidance
regarding certain implicit assessments that may be used in testing of the
base mortality function on contracts, which is performed to determine
whether additional liabilities are required in conjunction with SOP 03-1.
In addition, the TPA provides additional guidance surrounding the allowed
level of aggregation of additional liabilities determined under SOP 03-1.
The adoption of the TPA did not have an impact on the Company's financial
position, results of operations, or cash flows.

The implementation of SOP 03-1 also raised questions regarding the
interpretation of the requirements of Statement of Financial Accounting
Standards ("FAS") No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," concerning when it is appropriate to
record an unearned revenue liability related to the insurance benefit
function. To clarify its position, the Financial Accounting Standards Board
("FASB") issued FASB Staff Position No. FAS 97-1 ("FSP FAS 97-1"),
"Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97
Permit or Require Accrual of an Unearned Revenue Liability," effective for
fiscal periods beginning subsequent to the date the guidance was issued,
June 18, 2004. The Company adopted FSP FAS 97-1 on July 1, 2004 which did
not have an impact on the Company's financial position, results of
operations, or cash flows.

THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO
CERTAIN INVESTMENTS

In March 2004, the Emerging Issues Task Force ("EITF") reached a final
consensus on EITF Issue No. 03-1 ("EITF-03-1"), "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain

39

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments," requiring that a three-step impairment model be applied to
securities within its scope. The three-step model is applied on a
security-by-security basis as follows:

Step 1: Determine whether an investment is impaired. An investment is
impaired if the fair value of the investment is less than its cost
basis.
Step 2: Evaluate whether an impairment is other-than-temporary.
Step 3: If the impairment is other-than-temporary, recognize an
impairment loss equal to the difference between the investment's
cost and its fair value.

On September 30, 2004, the FASB issued FASB Staff Position No. EITF Issue
03-1-1 ("FSP EITF 03-1-1"), "Effective Date of Paragraphs 10-20 of EITF
Issue No. 03-1, `The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments,'" which delayed the EITF Issue No.
03-1 original effective date of July 1, 2004 related to steps two and three
of the impairment model introduced. The delay is in effect until a final
consensus can be reached on such guidance. Despite the delay of the
implementation of steps two and three, other-than-temporary impairments are
still to be recognized as required by existing guidance.

Earlier consensus reached by the EITF on this issue required that certain
quantitative and qualitative disclosures be made for unrealized losses on
debt and equity securities that have not been recognized as
other-than-temporary impairments. These disclosures were adopted by the
Company, effective December 31, 2003, and are included in the Investments
footnote.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Derivative Implementation Group ("DIG"), responsible for issuing
guidance on behalf of the FASB for implementation of FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," issued
Statement No. 133 Implementation Issue No. B36, "Embedded Derivatives:
Modified Coinsurance Arrangements and Debt Instruments That Incorporate
Credit Risk Exposures That Are Unrelated or Only Partially Related to the
Credit Worthiness of the Obligor under Those Instruments" ("DIG B36").
Under this interpretation, modified coinsurance and coinsurance with funds
withheld reinsurance agreements as well as other types of receivables and
payables where interest is determined by reference to a pool of fixed
maturity assets or a total return debt index may be determined to contain
embedded derivatives that are required to be bifurcated from the host
instrument. The required date of adoption of DIG B36 for the Company was
October 1, 2003. The adoption did not have an impact on the Company's
financial position, results of operations, or cash flows.

VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46").
In December 2003, the FASB modified FIN 46 to make certain technical
revisions and address certain implementation issues that had arisen. FIN 46
provides a new framework for identifying variable interest entities
("VIEs") and determining when a company should include the assets,
liabilities, noncontrolling interests and results of activities of a VIE in
its consolidated financial statements.

40

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

In general, a VIE is a corporation, partnership, limited-liability
corporation, trust, or any other legal structure used to conduct activities
or hold assets that either (1) has an insufficient amount of equity to
carry out its principal activities without additional subordinated
financial support, (2) has a group of equity owners that are unable to make
significant decisions about its activities, or (3) has a group of equity
owners that do not have the obligation to absorb losses or the right to
receive returns generated by its operations.

FIN 46 requires a VIE to be consolidated if a party with an ownership,
contractual or other financial interest in the VIE (a variable interest
holder) is obligated to absorb a majority of the risk of loss from the
VIE's activities, is entitled to receive a majority of the VIE's residual
returns (if no party absorbs a majority of the VIE's losses), or both. A
variable interest holder that consolidates the VIE is called the primary
beneficiary. Upon consolidation, the primary beneficiary generally must
initially record all of the VIE's assets, liabilities, and noncontrolling
interests at fair value and subsequently account for the VIE as if it were
consolidated based on majority voting interest. FIN 46 also requires
disclosures about VIEs that the variable interest holder is required to
consolidate and those VIEs it is not required to consolidate but in which
it has a significant variable interest.

The Company holds investments in VIEs in the form of private placement
securities, structured securities, securitization transactions, and limited
partnerships with an aggregate fair value of $8,489.3 as of December 31,
2004. These VIEs are held by the Company for investment purposes.
Consolidation of these investments in the Company's financial statements is
not required as the Company is not the primary beneficiary for any of these
VIEs. Book value as of December 31, 2004 of $8,396.1 represents the maximum
exposure to loss except for those structures for which the Company also
receives asset management fees.

GUARANTEES

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"), to clarify accounting and
disclosure requirements relating to a guarantor's issuance of certain types
of guarantees, or groups of similar guarantees, even if the likelihood of
the guarantor's having to make any payments under the guarantee is remote.
The disclosure provisions are effective for financial statements for fiscal
years ended after December 15, 2002. For certain guarantees, the
interpretation also requires that guarantors recognize a liability equal to
the fair value of the guarantee upon its issuance. This initial recognition
and measurement provision is to be applied only on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company has
performed an assessment of its guarantees and believes that all of its
guarantees are excluded from the scope of this interpretation.

GOODWILL IMPAIRMENT

During 2002, the Company adopted FAS No. 142, "Goodwill and Other
Intangible Assets." The adoption of this standard resulted in the
recognition of an impairment loss of $2,412.1, net of taxes of $1,298.8,
related to prior acquisitions, recorded retroactive to the first quarter of
2002. Prior quarters of 2002 were restated accordingly. This impairment
loss represented the entire carrying amount of goodwill, net of accumulated
amortization. This impairment charge is shown as a change in accounting
principle on the December 31, 2002 Consolidated Statement of Operations.

41

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based
Payment" ("FAS 123R"), which requires all share-based payments be
recognized in the financial statements based upon the fair value. FAS 123R
is effective at the beginning of the first interim or annual period
beginning after June 15, 2005. Earlier adoption is encouraged. FAS 123R
provides two transition methods, modified-prospective and
modified-retrospective.

The modified-prospective method recognizes the grant-date fair value of
compensation for new and unvested awards beginning in the fiscal period in
which the recognition provisions are first applied. Prior periods are not
restated. The modified-retrospective method, entities are allowed to
restate prior periods by recognizing the compensation cost in the amount
previously reported in the pro forma footnote disclosures as required under
FAS No. 123, "Accounting for Stock-Based Compensation."

The Company intends to early adopt the provisions of FAS 123R on January 1,
2005 using the modified-prospective method. The adoption of FAS 123R is not
expected to have a material impact on the Company's financial position,
results of operations or cash flows. Prior to January 2005, the Company
applied the intrinsic value-based provisions set forth in APB Opinion No.
25, "Accounting for Stock Issued to Employees". Under the intrinsic value
method, compensation expense is determined on the measurement date, which
is the first date on which both the number of shares the employee is
entitled to receive and the exercise price are known. Compensation expense,
if any, is measured based on the award's intrinsic value, which is the
excess of the market price of the stock over the exercise price on the
measurement date.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from reported results using those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to prior years financial
information to conform to the current year presentation, including a
reclassification in the amount of $9.2, net of tax, from retained earnings
to accumulated other comprehensive income as of December 31, 2001 (see
footnote 14).

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.

INVESTMENTS

All of the Company's fixed maturity and equity securities are currently
designated as available-for-sale. Available-for-sale securities are
reported at fair value and unrealized gains and losses on these securities

42

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

are included directly in shareholder's equity, after adjustment for related
changes in deferred policy acquisition costs ("DAC"), value of business
acquired ("VOBA"), and deferred income taxes.

OTHER-THAN-TEMPORARY IMPAIRMENTS

The Company analyzes the General Account investments to determine whether
there has been an other-than-temporary decline in fair value below the
amortized cost basis in accordance with FAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management considers
the length of time and the extent to which fair value has been less than
amortized cost; the financial condition and near-term prospects of the
issuer; future economic conditions and market forecasts; and the Company's
intent and ability to retain the investment in the issuer for a period of
time sufficient to allow for recovery in fair value. If it is probable that
all amounts due according to the contractual terms of a debt security will
not be collected, an other-than-temporary impairment is considered to have
occurred.

In addition, the Company invests in structured securities that meet the
criteria of EITF Issue No. 99-20 "Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets." Under Issue No. EITF 99-20, a determination of the
required impairment is based on credit risk and the possibility of
significant prepayment risk that restricts the Company's ability to recover
the investment. An impairment is recognized if the fair value of the
security is less than amortized cost and there has been an adverse change
in cash flow since the last remeasurement date.

When a decline in fair value is determined to be other-than-temporary, the
individual security is written down to fair value and the loss is accounted
for as a realized loss.

EXPERIENCE-RATED PRODUCTS

Included in available-for-sale securities are investments that support
experience-rated products. Experience-rated products are products where the
customer, not the Company, assumes investment (including realized capital
gains and losses) and other risks, subject to, among other things, minimum
principal and interest guarantees. Unamortized realized gains and losses on
the sale of and unrealized capital gains and losses on investments
supporting these products are included in future policy benefits and claims
reserves on the Consolidated Balance Sheets. Realized capital gains and
losses on all other investments are reflected in the Consolidated
Statements of Operations. Unrealized capital gains and losses on all other
investments are reflected in shareholder's equity, net of related income
taxes.

PURCHASES AND SALES

Purchases and sales of fixed maturities and equity securities (excluding
private placements) are recorded on the trade date. Purchases and sales of
private placements and mortgage loans are recorded on the closing date.

VALUATION

Fair values for fixed maturities are obtained from independent pricing
services or broker/dealer quotations. Fair values for privately placed
bonds are determined using a matrix-based model. The matrix-based model
considers the level of risk-free interest rates, current corporate spreads,
the credit quality of the issuer, and

43

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

cash flow characteristics of the security. The fair values for actively
traded equity securities are based on quoted market prices. For equity
securities not actively traded, estimated fair values are based upon values
of issues of comparable yield and quality or conversion value where
applicable.

Mortgage loans on real estate are reported at amortized cost less
impairment writedowns. If the value of any mortgage loan is determined to
be impaired (i.e., when it is probable the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to the
present value of expected cash flows from the loan, discounted at the
loan's effective interest rate, or to the loan's observable market price,
or the fair value of the collateral. If the loan is in foreclosure, the
carrying value is reduced to the fair value of the underlying collateral,
net of estimated costs to obtain and sell. The carrying value of the
impaired loans is reduced by establishing a permanent writedown charged to
realized loss.

Policy loans are carried at unpaid principal balances.

Short-term investments, consisting primarily of money market instruments
and other fixed maturities issues purchased with an original maturity of 91
days to one year, are considered available-for-sale and are carried at fair
value, which approximates amortized cost.

SECURITIES LENDING

The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Initial collateral, primarily cash, is required at a rate of 102% of the
market value of the loaned domestic securities. The collateral is deposited
by the borrower with a lending agent, and retained and invested by the
lending agent according to the Company's guidelines to generate additional
income. The market value of the loaned securities is monitored on a daily
basis with additional collateral obtained or refunded as the market value
of the loaned securities fluctuates.

REPURCHASE AGREEMENTS

The Company engages in dollar repurchase agreements ("dollar rolls") and
repurchase agreements to increase the return on investments and improve
liquidity. These transactions involve a sale of securities and an agreement
to repurchase substantially the same securities as those sold. Company
policies require a minimum of 95% of the fair value of securities pledged
under dollar rolls and repurchase agreement transactions to be maintained
as collateral. Cash collateral received is invested in fixed maturities and
the offsetting collateral liability is included in borrowed money on the
Consolidated Balance Sheets.

DERIVATIVES

The Company's use of derivatives is limited mainly to hedging purposes.
However, these derivatives are not accounted for using hedge accounting
treatment under FAS No. 133 and the Company does not seek hedge accounting
treatment. The Company enters into interest rate, equity market, and
currency contracts, including swaps, caps, and floors to reduce and manage
risks associated with changes in value, yield, price or cash flow or
exchange rates of assets or liabilities held or intended to be held.
Changes in the fair value of open derivative contracts are recorded in net
realized capital gains and losses. Derivatives are included in other
investments on the Consolidated Balance Sheets.

44

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company also has investments in certain fixed maturity instruments and
has retail annuity products that contain embedded derivatives, including
those whose market value is at least partially determined by, among other
things, levels of or changes in domestic and/or foreign interest rates
(short- or long-term), exchange rates, prepayment rates, equity markets, or
credit ratings/spreads. Changes in the fair value of embedded derivatives
are recorded in net realized capital gains (losses) in the Consolidated
Statements of Operations. Embedded derivatives are included in fixed
maturities.

DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

DAC represents policy acquisition costs that have been capitalized and
are subject to amortization. Such costs consist principally of certain
commissions, underwriting, contract issuance, and certain agency
expenses, related to the production of new and renewal business.

VOBA represents the outstanding value of in force business capitalized
and is subject to amortization in purchase accounting when the Company was
acquired. The value is based on the present value of estimated net cash
flows embedded in the Company's contracts.

The amortization methodology used for DAC and VOBA varies by product type.
FAS No. 60, "Accounting and Reporting by Insurance Enterprises," applies to
traditional life insurance products, primarily whole life and term life
insurance contracts. Under FAS No. 60, DAC and VOBA are amortized over the
premium payment period, in proportion to the premium revenue recognized.

FAS No. 97 applies to universal life and investment-type products, such as
fixed and variable deferred annuities. Under FAS No. 97, DAC and VOBA are
amortized, with interest, over the life of the related contracts (usually
25 years) in relation to the present value of estimated future gross
profits from investment, mortality, and expense margins; asset-based fees,
policy administration, and surrender charges; less policy maintenance fees
and non-capitalized commissions, as well as realized gains and losses on
investments.

Changes in assumptions can have a significant impact on DAC and VOBA
balances and amortization rates. Several assumptions are considered
significant in the estimation of future gross profits associated with
variable deferred annuity products. One of the most significant assumptions
involved in the estimation of future gross profits is the assumed return
associated with the variable account performance. To reflect the volatility
in the equity markets, this assumption involves a combination of near-term
expectations and long-term assumptions regarding market performance. The
overall return on the variable account is dependent on multiple factors,
including the relative mix of the underlying sub-accounts among bond funds
and equity funds, as well as equity sector weightings. Other significant
assumptions include surrender and lapse rates, estimated interest spread,
and estimated mortality.

Due to the relative size and sensitivity to minor changes in underlying
assumptions of DAC and VOBA balances, the Company performs a quarterly and
annual analysis of DAC and VOBA for the annuity and life businesses,
respectively. The DAC and VOBA balances are evaluated for recoverability
and are reduced to the extent that estimated future gross profits are
inadequate to recover the asset.

45

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

At each evaluation date, actual historical gross profits are reflected, and
estimated future gross profits and related assumptions are evaluated for
continued reasonableness. Any adjustment in estimated profit requires that
the amortization rate be revised ("unlocking"), retroactively to the date
of the policy or contract issuance. The cumulative prior period adjustment
is recognized as a component of current period amortization. In general,
increases in investment, mortality, and expense margins, and thus estimated
future profits, lower the rate of amortization. However, decreases in
investment, mortality, and expense margins, and thus estimated future
profits, increase the rate of amortization.

RESERVES

The Company establishes and carries actuarially determined reserve
liabilities which are calculated to meet its future obligations. Changes in
or deviations from the assumptions used can significantly affect the
Company's reserve levels and related future operations.

Reserves for deferred annuity investment contracts and immediate annuities
without life contingent benefits are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from
1.5% to 11.9% for all years presented) net of adjustments for investment
experience that the Company is entitled to reflect in future credited
interest. These reserves also include unrealized gains/losses related to
investments and unamortized realized gains/losses on investments for
experience-rated contracts. Reserves on experience-rated contracts reflect
the rights of contractholders, plan participants, and the Company.

Reserves for immediate annuities with life contingent benefits are computed
on the basis of assumed interest discount rates, mortality, and expenses,
including a margin for adverse deviations. Such assumptions generally vary
by plan, year of issue and policy duration. Reserve interest rates range
from 4.9% to 9.5% for all years presented.

Because the sale of the domestic individual life insurance business on
October 1, 1998 was substantially in the form of an indemnity reinsurance
agreement, the Company includes an amount in reinsurance recoverable on the
Consolidated Balance Sheet, which approximates the Company's total
individual life reserves. See Note 11 to the Consolidated Balance Sheets.

Unpaid claims and claim expenses for all lines of insurance include
benefits for reported losses and estimates of benefits for losses incurred
but not reported.

SALES INDUCEMENTS

Sales inducements represent benefits paid to contractowners that are
incremental to the amounts the Company credits on similar contracts and are
higher than the contract's expected ongoing crediting rates for periods
after the inducement. As of January 1, 2004, such amounts are reported
separately and included in Other Assets on the Consolidated Balance Sheet
in accordance with SOP 03-1. Prior to 2004, sales inducements were recorded
as a component of DAC on the Consolidated Balance Sheet. Beginning in 2004,
sales inducements are amortized as a component of interest credited and
other benefits to contractowners using methodologies and assumptions
consistent with those used for amortization of DAC.

46

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

REVENUE RECOGNITION

For most annuity contracts, fee income for the cost of insurance,
surrenders, expenses, and other fees are recorded as revenue as charges are
assessed against contractowners. Other amounts received for these contracts
are reflected as deposits and are not recorded as premiums or revenue.
Related policy benefits are recorded in relation to the associated premiums
or gross profit so that profits are recognized over the expected lives of
the contracts. When annuity payments with life contingencies begin under
contracts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity and reflected as an offsetting amount in both premiums and current
and future benefits on the Consolidated Statements of Operations. Premiums
on the Consolidated Statements of Operations primarily represent amounts
received for immediate annuities with life contingencies.

SEPARATE ACCOUNTS

Separate Account assets and liabilities generally represent funds
maintained to meet specific investment objectives of contractowners who
bear the investment risk, subject, in limited cases, to certain minimum
guaranteed rates. Investment income and investment gains and losses
generally accrue directly to such contractowners. The assets of each
account are legally segregated and are not subject to claims that arise out
of any other business of the Company or its affiliates.

Separate Account assets supporting variable options under annuity contracts
are invested, as designated by the contractowner or participant (who bears
the investment risk subject, in limited cases, to minimum guaranteed rates)
under a contract in shares of mutual funds which are managed by the Company
or its affiliates, or other selected mutual funds not managed by the
Company or its affiliates.

Separate Account assets and liabilities are carried at fair value and shown
as separate captions in the Consolidated Balance Sheets. Deposits,
investment income and net realized and unrealized capital gains and losses
of the Separate Accounts are not reflected in the Consolidated Financial
Statements (with the exception of realized and unrealized capital gains and
losses on the assets supporting the guaranteed interest option). The
Consolidated Statements of Cash Flows do not reflect investment activity of
the Separate Accounts.

Assets and liabilities of separate account arrangements that do not meet
the criteria in SOP 03-1 for presentation in the separate caption in the
Consolidated Balance Sheets (primarily guaranteed interest options), and
revenue and expenses related to such arrangements, are consolidated in the
financial statements with the general account. At December 31, 2004 and
2003, unrealized gains of $7.3 and $55.7, respectively, on assets
supporting a guaranteed interest option are reflected in shareholder's
equity.

REINSURANCE

The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverable balances deemed
probable of recovery are reflected as assets on the Consolidated Balance
Sheets. Of the reinsurance recoverable on the Consolidated

47

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Balance Sheets, $2.9 billion and $3.0 billion at December 31, 2004 and
2003, respectively, is related to the reinsurance recoverable from Lincoln
National Corporation ("Lincoln") arising from the sale of the Company's
domestic life insurance business in 1998 (See Note 11).

INCOME TAXES

The Company is taxed at regular corporate rates after adjusting income
reported for financial statement purposes for certain items. Deferred
income tax expenses/benefits result from changes during the year in
cumulative temporary differences between the tax basis and book basis of
assets and liabilities.

2. INVESTMENTS

Fixed maturities and equity securities available-for-sale as of December
31, 2004, were as follows:

48

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

2. INVESTMENTS (continued)

Fixed maturities and equity securities available-for-sale as of December
31, 2003, were as follows:

At December 31, 2004 and 2003, net unrealized appreciation of $490.8 and
$630.5, respectively, on total fixed maturities, including fixed
maturities pledged to creditors, and equity securities, included $357.5
and $491.5, respectively, related to experience-rated contracts, which
were not reflected in shareholder's equity but in future policy benefits
and claim reserves.

49

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

2. INVESTMENTS (continued)

The aggregate unrealized losses and related fair values of investments with
unrealized losses as of December 31, 2004, are shown below by duration:

Of the unrealized losses, less than 6 months in duration of $37.7, there
were $9.5 in unrealized losses that are primarily related to interest rate
movement or spread widening for other than credit-related reasons. The
remaining unrealized losses of $28.2, as of December 31, 2004, related to
securities reviewed for impairment under the guidance proscribed by EITF
Issue No. 99-20. This category includes U.S. government-backed securities,
principal protected securities, and structured securities which did not
have an adverse change in cash flows for which the carrying amount was
$1,746.2.

Of the unrealized losses, more than 6 months and less than 12 months in
duration, of $34.9, there were $16.4 in unrealized losses that are
primarily related to interest rate movement or spread widening for other
than credit-related reasons. The remaining unrealized losses of $18.5, as
of December 31, 2004, related to securities reviewed for impairment under
the guidance proscribed by EITF Issue No. 99-20. This category includes
U.S. government-backed securities, principal protected securities, and
structured securities which did not have an adverse change in cash flows
for which the carrying amount was $829.2.

An analysis of the unrealized losses, more than 12 months in duration, of
$45.6 follows. There were $15.9 in unrealized losses that are primarily
related to interest rate movement or spread widening for other than
credit-related reasons. The remaining unrealized losses of $29.7, as of
December 31, 2004, related to securities reviewed for impairment under the
guidance proscribed by EITF Issue No. 99-20. This category includes U.S.
government-backed securities, principal protected securities, and
structured securities which did not have an adverse change in cash flows
for which the carrying amount was $505.6.

The amortized cost and fair value of total fixed maturities for the year
ended December 31, 2004 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.

50

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

2. INVESTMENTS (continued)

At December 31, 2004 and 2003, fixed maturities with carrying values of
$10.9 and $11.2, respectively, were on deposit as required by regulatory
authorities.

The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 2004 or 2003.

The Company has various categories of CMOs that are subject to different
degrees of risk from changes in interest rates and, for CMOs that are not
agency-backed, defaults. The principal risks inherent in holding CMOs are
prepayment and extension risks related to dramatic decreases and increases
in interest rates resulting in the repayment of principal from the
underlying mortgages either earlier or later than originally anticipated.
At December 31, 2004 and 2003, approximately 4.1% and 2.8%, respectively,
of the Company's CMO holdings were invested in types of CMOs which are
subject to more prepayment and extension risk than traditional CMOs (such
as interest-only or principal-only strips).

The Company enters into dollar repurchase agreements ("dollar rolls") and
repurchase agreements to increase its return on investments and improve
liquidity. At December 31, 2004 and 2003, the carrying value of the
securities pledged in dollar rolls and repurchase agreements was $1,274.3
and $1,644.8, respectively. The carrying value of the securities pledged in
dollar rolls and repurchase agreements is included in pledged securities on
the Balance Sheets. The repurchase obligation related to dollar rolls and
repurchase agreements totaled $1,057.4 and $1,519.3 at December 31, 2004
and 2003, respectively. The repurchase obligation related to dollar rolls
and repurchase agreements is included in borrowed money on the Consolidated
Balance Sheets.

IMPAIRMENTS

The following table identifies the Company's other-than-temporary
impairments by type as of December 31:

The remaining fair value of the fixed maturities with other-than-temporary
impairments at December 31, 2004 and 2003 is $125.0 and $123.1,
respectively.

51

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

2. INVESTMENTS (continued)

NET INVESTMENT INCOME

Sources of net investment income were as follows:

NET REALIZED CAPITAL GAINS AND LOSSES

Net realized capital gains (losses) are comprised of the difference between
the carrying value of investments and proceeds from sale, maturity, and
redemption, as well as losses incurred due to impairment of investments.
Net realized capital gains (losses) on investments were as follows:

Net realized capital gains allocated to experience-rated contracts of
$42.0, $43.9, and $63.6 for the years ended December 31, 2004, 2003 and
2002, respectively, were deducted from net realized capital gains and an
offsetting amount was reflected in future policy benefits and claim
reserves on the Consolidated Balance Sheets. Net unamortized realized gains
(losses) allocated to experienced-rated contractholders were $233.4,
$213.7, and $199.3 at December 31, 2004, 2003 and 2002, respectively.

52

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

2. INVESTMENTS (continued)

Proceeds from the sale of fixed maturities and equity securities and the
related gross gains and losses, excluding those related to
experience-related contractholders, were as follows:

Changes in shareholder's equity related to changes in accumulated other
comprehensive income (net unrealized capital gains and losses on
securities, including securities pledged excluding those related to
experience-rated contractholders) were as follows:

3. FINANCIAL INSTRUMENTS

ESTIMATED FAIR VALUE

The following disclosures are made in accordance with the requirements of
FAS No. 107, "Disclosures about Fair Value of Financial Instruments." FAS
No. 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it
is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates, in
many cases, could not be realized in immediate settlement of the
instrument.

FAS No. 107 excludes certain financial instruments, including insurance
contracts, and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company.

53

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

3. FINANCIAL INSTRUMENTS (continued)

The following valuation methods and assumptions were used by the Company in
estimating the fair value of the following financial instruments:

FIXED MATURITIES: The fair values for the actively traded marketable bonds
are determined based upon the quoted market prices. The fair values for
marketable bonds without an active market are obtained through several
commercial pricing services which provide the estimated fair values. Fair
values of privately placed bonds are determined using a matrix-based
pricing model. The model considers the current level of risk-free interest
rates, current corporate spreads, the credit quality of the issuer, and
cash flow characteristics of the security. Also considered are factors such
as the net worth of the borrower, the value of collateral, the capital
structure of the borrower, the presence of guarantees, and the Company's
evaluation of the borrower's ability to compete in their relevant market.
Using this data, the model generates estimated market values which the
Company considers reflective of the fair value of each privately placed
bond.

EQUITY SECURITIES: Fair values of these securities are based upon quoted
market price.

MORTGAGE LOANS ON REAL ESTATE: The fair values for mortgage loans on real
estate are estimated using discounted cash flow analyses and rates
currently being offered in the marketplace for similar loans to borrowers
with similar credit ratings. Loans with similar characteristics are
aggregated for purposes of the calculations.

CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND POLICY LOANS: The
carrying amounts for these assets approximate the assets' fair values.

ASSETS HELD IN SEPARATE ACCOUNTS: Assets held in separate accounts are
reported at the quoted fair values of the individual securities in the
separate accounts.

INVESTMENT CONTRACT LIABILITIES (INCLUDED IN FUTURE POLICY BENEFITS AND
CLAIM RESERVES):

WITH A FIXED MATURITY: Fair value is estimated by discounting cash
flows at interest rates currently being offered by, or available to,
the Company for similar contracts.

WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable
to the contractowners upon demand. However, the Company has the right
under such contracts to delay payment of withdrawals which may
ultimately result in paying an amount different than that determined to
be payable on demand.

LIABILITIES RELATED TO SEPARATE ACCOUNTS: The carrying amounts for these
liabilities approximate their fair value.

54

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

3. FINANCIAL INSTRUMENTS (continued)

The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 2004 and 2003 were as follows:

Fair value estimates are made at a specific point in time, based on
available market information and judgments about various financial
instruments, such as estimates of timing and amounts of future cash flows.
Such estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holdings of a
particular financial instrument, nor do they consider the tax impact of the
realization of unrealized gains or losses. In many cases, the fair value
estimates cannot be substantiated by comparison to independent markets, nor
can the disclosed value be realized in immediate settlement of the
instruments. In evaluating the Company's management of interest rate, price
and liquidity risks, the fair values of all assets and liabilities should
be taken into consideration, not only those presented above.

DERIVATIVE FINANCIAL INSTRUMENTS

INTEREST RATE FLOORS

Interest rate floors are used to manage the interest rate risk in the
Company's bond portfolio. Interest rate floors are purchased contracts that
provide the Company with an annuity in a declining interest rate
environment. The Company had no open interest rate floors at December 31,
2004 or 2003.

INTEREST RATE CAPS

Interest rate caps are used to manage the interest rate risk in the
Company's bond portfolio. Interest rate caps are purchased contracts that
provide the Company with an annuity in an increasing interest rate
environment. The notional amount, carrying value and estimated fair value
of the Company's open interest rate caps as of December 31, 2004 were
$527.8, $5.9, and $5.9, respectively. The notional amount,

55

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

3. FINANCIAL INSTRUMENTS (continued)

carrying value and estimated fair value of the Company's open interest rate
caps as of December 31, 2003 were $739.6, $8.2, and $8.2, respectively.

INTEREST RATE SWAPS

Interest rate swaps are used to manage the interest rate risk in the
Company's bond portfolio and well as the Company's liabilities. Interest
rate swaps represent contracts that require the exchange of cash flows at
regular interim periods, typically monthly or quarterly. The notional
amount, carrying value and estimated fair value of the Company's open
interest rate swaps as of December 31, 2004 were $1,766.0, $2.1, and $2.1,
respectively. The notional amount, carrying value and estimated fair value
of the Company's open interest rate swaps as of December 31, 2003 were
$950.0, $(14.4), and $(14.4), respectively.

FOREIGN EXCHANGE SWAPS

Foreign exchange swaps are used to reduce the risk of a change in the
value, yield, or cash flow with respect to invested assets. Foreign
exchange swaps represent contracts that require the exchange of foreign
currency cash flows for US dollar cash flows at regular interim periods,
typically quarterly or semi-annually. The notional amount, carrying value,
and estimated fair value of the Company's open foreign exchange rate swaps
as of December 31, 2004 were $126.5, $(28.4), and $(28.4), respectively.
The notional amount, carrying value and estimated fair value of the
Company's open foreign exchange rate swaps as of December 31, 2003 were
$78.1, $(12.8), and $(12.8), respectively.

4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

Activity for the year-ended December 31, 2004, 2003 and 2002 within VOBA
was as follows:

Balance at December 31, 2001 $ 1,601.8
Adjustment for unrealized gain (loss) (21.9)
Additions 25.0
Interest accrued at 7% 86.8
Amortization (253.3)
---------------------------------------------------------------------------
Balance at December 31, 2002 1,438.4
Adjustment for unrealized gain (loss) 6.2
Additions 59.1
Interest accrued at 7% 92.2
Amortization (180.5)
---------------------------------------------------------------------------
Balance at December 31, 2003 1,415.4
Adjustment for unrealized gain (loss) 7.9
Additions 50.1
Interest accrued at 6% 92.3
Amortization (200.5)
---------------------------------------------------------------------------
Balance at December 31, 2004 $ 1,365.2
===========================================================================

56

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
(continued)

The estimated amount of VOBA to be amortized, net of interest, over the
next five years is $112.2, $105.8, $97.4, $92.4, and $90.6 for the years
2005, 2006, 2007, 2008 and 2009, respectively. Actual amortization incurred
during these years may vary as assumptions are modified to incorporate
actual results.

During 2004, VOBA amortization increased principally due to higher actual
gross profits, a result of the margins earned on higher fixed and variable
assets and fewer other-than-temporary impairments. Also, surrenders
increased, which resulted in higher amortization for certain business.

During 2003 the Company reset long-term assumptions for the Separate
Account returns from 9.0% to 8.5% (gross before fund management fees and
mortality, expense, and other policy charges), reflecting a blended return
of equity and other sub-accounts. The 2003 unlocking adjustment was
primarily driven by improved market performance compared to expected during
2003. For the year ended December 31, 2003, the Company recorded a
deceleration of DAC/VOBA amortization totaling $3.7 before tax, or $2.4,
net of $1.3 of federal income tax expense.

As part of the regular analysis of DAC/VOBA, at the end of third quarter of
2002, the Company unlocked its long-term rate of return assumptions. The
Company reset long-term return assumptions for the Separate Account returns
to 9.0% (gross before fund management fees and mortality, expense, and
other policy charges), as of December 31, 2002, reflecting a blended return
of equity and other sub-accounts. The unlocking adjustment in 2002 was
primarily driven by the sustained downturn in the equity markets and
revised expectations for future returns. During 2002, the Company recorded
an acceleration of DAC/VOBA amortization totaling $45.6 before tax, or
$29.7, net of $15.9 of federal income tax benefit.

5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY

The Company's ability to pay dividends to its parent is subject to the
prior approval of insurance regulatory authorities of the State of
Connecticut for payment of any dividend, which, when combined with other
dividends paid within the preceding 12 months, exceeds the greater of (1)
10% of statutory surplus at prior year end or (2) ILIAC's prior year
statutory net gain from operations.

ILIAC paid a cash dividend of $70.0 to Lion in 2004 and did not pay cash
dividends to Lion in 2003 or 2002. However, on February 28, 2002, ILIAC
contributed 100% of the stock of IA Holdco to HOLDCO in the form of a $60.1
dividend distribution. ILIAC did not receive capital contributions from its
parent in 2004 and received $230.0 and $164.3 in capital contributions
during 2003 and 2002, respectively.

The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and capital and surplus those amounts determined
in conformity with statutory accounting practices prescribed or permitted
by the Department, which differ in certain respects from accounting
principles generally accepted in the United States. Statutory net income
(loss) was $217.2, $67.5, and $148.8 for the years ended December 31, 2004,
2003, and 2002, respectively. Statutory capital and surplus was $1,344.5
and $1,230.7 as of December 31, 2004 and 2003, respectively.

57

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
(continued)

As of December 31, 2004, the Company did not utilize any statutory
accounting practices, which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.

6. Additional Insurance Benefits and Minimum Guarantees

Under SOP 03-1, the Company calculates an additional liability ("SOP
reserves") for certain guaranteed minimum death benefits ("GMDBs") in order
to recognize the expected value of death benefits in excess of the
projected account balance over the accumulation period based on total
expected assessments.

The Company regularly evaluates estimates used to adjust the additional
liability balance, with a related charge or credit to benefit expense, if
actual experience or other evidence suggests that earlier assumptions
should be revised.

As of December 31, 2004, the Separate Account liability subject to SOP 03-1
for guaranteed minimum benefits and the additional liability recognized
related to minimum guarantees was $4,396.0 and $0.7, respectively.

The aggregate fair value of equity securities (including mutual funds)
supporting separate accounts with additional insurance benefits and minimum
investment return guarantees as of December 31, 2004 was $4,396.0.

7. INCOME TAXES

ILIAC files a consolidated federal income tax return with its subsidiary,
IICA. ILIAC has a federal tax allocation agreement with IICA whereby ILIAC
charges its subsidiary for federal taxes it would have incurred were it not
a member of the consolidated group and credits IICA for losses at the
statutory federal tax rate.

58

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

7. INCOME TAXES (continued)

Income taxes (benefits) from continuing operations consist of the
following:

Income taxes were different from the amount computed by applying the
federal income tax rate to income from continuing operations before income
taxes for the following reasons:

59

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

7. INCOME TAXES (continued)

The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, are presented below:

Net unrealized capital gains and losses are presented as a component of
Other Comprehensive Income in shareholder's equity, net of deferred taxes.

Under prior law, the Company was allowed to defer from taxation a portion
of income. The deferred income was accumulated in the Policyholders'
Surplus Account and only becomes taxable under certain conditions, which
management believes to be remote. Furthermore, the American Jobs Creation
Act of 2004 allows certain tax-free distributions from the Policyholders'
Surplus Account during 2005 and 2006. Therefore, based on currently
available information, no federal income taxes have been provided on the
Policyholders' Surplus Account accumulated balance of $17.2 million.

Valuation allowances are provided when it is considered more likely than
not that deferred tax assets will not be realized. No valuation allowance
has been established at this time, as management believes the above
conditions presently do not exist.

The Company establishes reserves for probable proposed adjustments by
various taxing authorities. Management believes there are sufficient
reserves provided for, or adequate defenses against any such adjustments.
The Internal Revenue Service (the "Service") has completed examinations of
the federal income tax returns of the Company for all years through the
December 13, 2000 short period. The tax benefit associated with the
settlement of the most recent audit is included in the 2004 financial
statements. The Service has commenced its examination for the tax years
ended December 31, 2000 and 2001. Additionally, various state tax audits
are in process.

60

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

8. BENEFIT PLANS

DEFINED BENEFIT PLAN

ING North America Insurance Corporation ("ING North America") sponsors the
ING Americas Retirement Plan (the "Retirement Plan"), effective as of
December 31, 2001. Substantially all employees of ING North America and its
subsidiaries and affiliates (excluding certain employees) are eligible to
participate, including the Company's employees other than Company agents.

The Retirement Plan is a tax-qualified defined benefit plan, the benefits
of which are guaranteed (within certain specified legal limits) by the
Pension Benefit Guaranty Corporation ("PBGC"). As of January 1, 2002, each
participant in the Retirement Plan (except for certain specified employees)
earns a benefit under a final average compensation formula. Subsequent to
December 31, 2001, ING North America is responsible for all Retirement Plan
liabilities. The costs allocated to the Company for its employees'
participation in the Retirement Plan were $19.0 for 2004, $15.1 for 2003,
and $6.4 for 2002, respectively.

DEFINED CONTRIBUTION PLAN

ING North America sponsors the ING Savings Plan and ESOP (the "Savings
Plan"). Substantially all employees of ING North America and its
subsidiaries and affiliates (excluding certain employees, including but not
limited to Career Agents) are eligible to participate, including the
Company's employees other than Company agents. Career Agents are certain,
full-time insurance salesmen who have entered into a career agent agreement
with the Company and certain other individuals who meet specified
eligibility criteria. The Savings Plan is a tax-qualified profit sharing
and stock bonus plan, which includes an employee stock ownership plan
("ESOP") component. Savings Plan benefits are not guaranteed by the PBGC.
The Savings Plan allows eligible participants to defer into the Savings
Plan a specified percentage of eligible compensation on a pre-tax basis.
ING North America matches such pre-tax contributions, up to a maximum of 6%
of eligible compensation. All matching contributions are subject to a
4-year graded vesting schedule (although certain specified participants are
subject to a 5-year graded vesting schedule). All contributions made to the
Savings Plan are subject to certain limits imposed by applicable law.
Pre-tax charges of operations of the Company for the Savings Plan were
$8.0, $7.1 and $7.1 in 2004, 2003, and 2002, respectively.

OTHER BENEFIT PLANS

The Company also sponsors a tax-qualified profit sharing plan for Career
Agents that is intended to satisfy the requirements of Code Section 401(K).

In addition to providing retirement plan benefits, the Company, in
conjunction with ING North America, provides certain supplemental
retirement benefits to eligible employees; defined benefit pension plans
for insurance salesmen who have entered into a career agent agreement and
certain other individuals; and health care and life insurance benefits to
retired employees and their eligible dependents. The supplemental
retirement plan and defined benefit pension plan are non-qualified defined
benefit pension plans, which means all benefits are payable from the
general assets of the Company. The post-retirement health care plan is
contributory, with retiree contribution levels adjusted annually. The
defined benefit plan for salesmen was terminated effective January 1, 2002,
and all benefit accruals ceased. The life insurance plan

61

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

8. BENEFIT PLANS (continued)

provides a flat amount of noncontributory coverage and optional
contributory coverage. The benefit charges allocated to the Company related
to all of these plans for the years ended December 31, 2004, 2003, and
2002, were not significant.

9. RELATED PARTY TRANSACTIONS

OPERATING AGREEMENTS

ILIAC has certain agreements whereby it incurs expenses with affiliated
entities. The agreements are as follows:

- Investment advisory agreement with ING Investment Management LLC
("IIM"), in which IIM provides asset management and accounting
services. The Company records a fee, which is paid quarterly, based on
the value of the assets under management. For the years ended December
31, 2004, 2003, and 2002, expenses were incurred in the amounts of
$58.8, $53.8, and $46.5, respectively.

- Services agreement between the Company and its affiliates effective
January 2001, and amended effective January 1, 2002. For the years
ended December 31, 2004, 2003, and 2002, net expenses related to the
agreement where incurred in the amount of $8.6, $19.2, and $13.4,
respectively.

- Expense sharing agreement with ING North America Insurance
Corporation, Inc., dated as of January 1, 2001, as amended effective
January 1, 2002, for administrative, management, financial, and
information technology services. For the years ended December 31,
2004, 2003, and 2002, expenses were incurred in the amounts of $132.9,
$136.4, and $126.0, respectively.

Management and service contracts and all cost sharing arrangements with
other affiliated companies are allocated in accordance with the Company's
expense and cost allocation methods.

INVESTMENT ADVISORY AND OTHER FEES

ILIAC serves as investment advisor to certain variable funds used in
Company products (collectively, the "Company Funds"). The Company Funds pay
ILIAC, as investment advisor, a daily fee which, on an annual basis,
ranged, depending on the Fund, from 0.5% to 1.0% of their average daily net
assets. Each of the Company Funds managed by ILIAC are subadvised by
investment advisors, in which case ILIAC pays a subadvisory fee to the
investment advisors, which may include affiliates. ILIAC is also
compensated by the Separate Accounts for bearing mortality and expense
risks pertaining to variable life and annuity contracts. Under the
insurance and annuity contracts, the Separate Accounts pay ILIAC a daily
fee, which, on an annual basis is, depending on the product, up to 3.4% of
their average daily net assets. The amount of compensation and fees
received from affiliated mutual funds and separate accounts, amounted to
$209.2, $201.4 (excludes fees paid to Aeltus Investment Management, Inc.,
now known as ING Investment Management LLP ("Aeltus")), and $391.8
(includes fees paid to Aeltus through February 28, 2002, when IA Holdco,
Aeltus' parent, ceased to be a subsidiary of ILIAC) in 2004, 2003, and
2002, respectively.

RECIPROCAL LOAN AGREEMENT

ILIAC maintains a reciprocal loan agreement with ING AIH, an indirect
wholly-owned subsidiary of ING and affiliate to ILIAC, to facilitate the
handling of unusual and/or unanticipated short-term cash

62

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

9. RELATED PARTY TRANSACTIONS (continued)

requirements. Under this agreement, which became effective in June 2001
and expires on April 1, 2011, ILIAC and ING AIH can borrow up to 3% of
ILIAC's statutory admitted assets as of the preceding December 31 from one
another. Interest on any ILIAC borrowings is charged at the rate of ING
AIH's cost of funds for the interest period plus 0.15%. Interest on any
ING AIH borrowings is charged at a rate based on the prevailing interest
rate of U.S. commercial paper available for purchase with a similar
duration. Under this agreement, ILIAC incurred interest expense of $0.2,
0.1, and $0.1, for the years ended December 31, 2004, 2003, and 2002,
respectively, and earned interest income of $1.3, $0.9, and $2.1 for the
years ended December 31, 2004, 2003, and 2002, respectively. At December
31, 2004 and 2003, respectively, ILIAC had a $25.0 and $41.4 receivable
from ING AIH under this agreement.

NOTES FROM AFFILIATE

On December 29, 2004, ING USA Annuity and Life Insurance Company ("ING
USA") issued surplus notes in the aggregate principal amount of $400.0 (the
"Notes") scheduled to mature on December 29, 2034, to its affiliates,
ILIAC, ReliaStar Life Insurance Company ("ReliaStar Life"), and Security
Life of Denver International Limited ("SLDI"), in an offering that was
exempt from the registration requirements of the Securities Act of 1933.
The Company's $175.0 Notes Receivable from ING USA bears interest at a rate
of 6.257% per year. Any payment of principal and/or interest is subject to
the prior approval of the Insurance Commissioner of the state of Iowa.
Interest is scheduled to be paid semi-annually in arrears on June 29 and
December 29 of each year, commencing on June 29, 2005.

TAX SHARING AGREEMENTS

ILIAC has a federal tax sharing agreement with IICA, whereby ILIAC charges
its subsidiary for federal taxes it would have incurred were it not a
member of the consolidated group and credits the member for losses at the
statutory federal tax rate.

ILIAC has also entered into a state tax sharing agreement with ING AIH and
each of the specific subsidiaries that are parties to the agreement. The
state tax agreement applies to situations in which ING AIH and all or some
of the subsidiaries join in the filing of a state or local franchise,
income tax, or other tax return on a consolidated, combined, or unitary
basis.

CAPITAL TRANSACTIONS AND DIVIDENDS

In 2004, ILIAC did not receive any capital contributions. In 2003, ILIAC
received $230.0 in cash capital contributions from Lion. In addition,
ILIAC received capital contributions in the form of investments in
affiliated mutual funds of $164.3 from HOLDCO.

ILIAC paid a cash dividend of $70.0 to Lion in 2004 and did not pay any
cash dividends to Lion in 2003 or 2002. However, on February 28, 2002,
ILIAC contributed 100% of the stock of IA Holdco to HOLDCO in the form of a
$60.1 dividend distribution.

63

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

10. FINANCING AGREEMENTS

The Company maintains a revolving loan agreement with SunTrust Bank,
Atlanta (the "Bank"). Under this agreement, which is due on demand, the
Company can borrow up to $125.0 from the Bank. Interest on any borrowing
accrues at an annual rate equal to (1) the cost of funds for the Bank for
the period applicable for the advance plus .225% or (2) a rate quoted by
the Bank to the Company for the borrowing. Under the agreement, the Company
incurred minimal interest expense for the years ended December 31, 2004,
2003, and 2002, respectively. At December 31, 2004 and 2003, the Company
did not have any balances payable to the Bank.

The Company also maintains a perpetual revolving loan agreement with Bank
of New York ("BONY"). Under this agreement, the Company can borrow up to
$100.0 from BONY. Interest on any of the Company borrowing accrues at an
annual rate equal to (1) the cost of funds for BONY for the period
applicable for the advance plus .35% or (2) a rate quoted by BONY to the
Company for the borrowing. Under this agreement, the Company incurred
minimal interest expense for the years ended December 31, 2004, 2003, and
2002. At December 31, 2004 and 2003, the Company did not have any balances
payable to BONY.

Also see Reciprocal Loan Agreement in Note 9.

11. REINSURANCE

At December 31, 2004, the Company had reinsurance treaties with six
unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks and guaranteed death and living benefits
under its variable contracts. The Company remains liable to the extent its
reinsurers do not meet their obligations under the reinsurance agreements.

On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1.0 billion in cash. The transaction is generally
in the form of an indemnity reinsurance arrangement, under which Lincoln
contractually assumed from the Company certain policyholder liabilities and
obligations, although the Company remains directly obligated to
contractowners.

Effective January 1, 1998, 90% of the mortality risk on substantially all
individual universal life product business written from June 1, 1991
through October 31, 1997 was reinsured externally. Beginning November 1,
1997, 90% of new business written on these products was reinsured
externally. Effective October 1, 1998 this agreement was assigned from the
third party reinsurer to Lincoln.

Effective December 31, 1988, the Company entered into a modified
coinsurance reinsurance agreement ("MODCO") with Aetna Life Insurance
Company ("Aetna Life"), (formerly an affiliate of the Company),
in which substantially all of the nonparticipating individual life and
annuity business written by Aetna Life prior to 1981 was assumed by the
Company. Effective January 1, 1997, this agreement was amended to
transition (based on underlying investment rollover in Aetna Life) from a
modified coinsurance arrangement to a coinsurance agreement. As a result of
this change, reserves were ceded to the Company from Aetna Life as
investment rollover occurred. Effective October 1, 1998, this agreement was
fully transitioned to a coinsurance arrangement and this business along
with the Company's direct individual life insurance business, with the
exception of certain supplemental contracts with reserves of $61.1 and
$63.8 as of December 31, 2004 and 2003, respectively, was sold to Lincoln.

64

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

11. REINSURANCE (continued)

On December 16, 1988, the Company assumed $25.0 of premium revenue from
Aetna Life, for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company is also
responsible for administering fixed annuity payments that are made to
annuitants receiving variable payments. Reserves of $19.3 and $20.4 were
maintained for this contract as of December 31, 2004 and 2003,
respectively.

The effect of reinsurance on premiums and recoveries for the years ended
December 31, 2004, 2003 and 2002, were as follows:

12. COMMITMENTS AND CONTINGENT LIABILITIES

LEASES

The Company leases its office space and certain other equipment under
operating leases that expire through 2009.

For the years ended December 31, 2004, 2003, and 2002, rent expense for
leases was $18.1, $20.8 and $18.1, respectively. The future net minimum
payments under noncancelable leases for the years ended December 31, 2005
through 2009 are estimated to be $16.7, $15.4, $14.0, $1.3, and $0.5,
respectively, and $0.1 thereafter. The Company pays substantially all
expenses associated with its leased and subleased office properties.
Expenses not paid directly by the Company are paid for by an affiliate and
allocated back to the Company.

COMMITMENTS

Through the normal course of investment operations, the Company commits to
either purchase or sell securities, commercial mortgage loans or money
market instruments at a specified future date and at a specified price or
yield. The inability of counterparties to honor these commitments may
result in either a higher or lower replacement cost. Also, there is likely
to be a change in the value of the securities underlying the commitments.
At December 31, 2004, the Company had off-balance sheet commitments to
purchase investments of $778.2 with an estimated fair value of $778.2.

65

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

12. COMMITMENTS AND CONTINGENT LIABILITIES (continued)

LITIGATION

The Company is a party to threatened or pending lawsuits/arbitrations
arising from the normal conduct of business. Due to the climate in
insurance and business litigation/arbitration, suits against the Company
sometimes include claims for substantial compensatory, consequential or
punitive damages and other types of relief. Moreover, certain claims are
asserted as class actions, purporting to represent a group of similarly
situated individuals. While it is not possible to forecast the outcome of
such lawsuits/arbitrations, in light of existing insurance, reinsurance and
established reserves, it is the opinion of management that the disposition
of such lawsuits/arbitrations will not have a materially adverse effect on
the Company's operations or financial position.

REGULATORY MATTERS

As with many financial services companies, the Company and its affiliates
have received informal and formal requests for information from various
state and federal governmental agencies and self-regulatory organizations
in connection with inquiries and investigations of the products and
practices of the financial services industry. In each case, the Company and
its affiliates have been and are providing full cooperation.

FUND REGULATORY ISSUES

Since 2002, there has been increased governmental and regulatory activity
relating to mutual funds and variable insurance products. This activity has
primarily focused on inappropriate trading of fund shares, revenue sharing
and directed brokerage, compensation, sales practices and suitability,
arrangements with service providers, pricing, compliance and controls, and
adequacy of disclosure.

In addition to responding to governmental and regulatory requests on fund
regulatory issues, ING management, on its own initiative, conducted,
through special counsel and a national accounting firm, an extensive
internal review of mutual fund trading in ING insurance, retirement, and
mutual fund products. The goal of this review was to identify any instances
of inappropriate trading in those products by third parties or by ING
investment professionals and other ING personnel.

The internal review identified several isolated arrangements allowing third
parties to engage in frequent trading of mutual funds within the variable
insurance and mutual fund products of certain affiliates of the Company,
and identified other circumstances where frequent trading occurred despite
measures taken by ING intended to combat market timing. Each of the
arrangements has been terminated and disclosed to regulators, to the
independent trustees of ING Funds (U.S.) and in Company reports previously
filed with the Securities and Exchange Commission ("SEC") pursuant to the
Securities Exchange Act of 1934, as amended.

An affiliate of the Company, ING Funds Distributors, LLC ("IFD") has
received notice from the staff of the National Association of Securities
Dealers ("NASD") that the staff has made a preliminary determination to
recommend that disciplinary action be brought against IFD and one of its
registered persons for violations of the NASD Conduct Rules and federal
securities laws in connection with frequent trading arrangements.

66

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

12. COMMITMENTS AND CONTINGENT LIABILITIES (continued)

Other regulators, including the SEC and the New York Attorney General, are
also likely to take some action with respect to certain ING affiliates
before concluding their investigation of ING relating to fund trading. The
potential outcome of such action is difficult to predict but could subject
certain affiliates to adverse consequences, including, but not limited to,
settlement payments, penalties, and other financial liability. It is not
currently anticipated, however, that the actual outcome of such action will
have a material adverse effect on ING or ING's U.S.-based operations,
including the Company.

ING has agreed to indemnify and hold harmless the ING Funds from all
damages resulting from wrongful conduct by ING or its employees or from
ING's internal investigation, any investigations conducted by any
governmental or self-regulatory agencies, litigation or other formal
proceedings, including any proceedings by the SEC. Management reported to
the ING Funds Board that ING management believes that the total amount of
any indemnification obligations will not be material to ING or ING's U.S.-
based operations, including the Company.

OTHER REGULATORY MATTERS

The New York Attorney General and other regulators are also conducting
broad inquiries and investigations involving the insurance industry. These
initiatives currently focus on, among other things, compensation and other
sales incentives, potential conflicts of interest, potential
anti-competitive activity, marketing practices, certain financial
reinsurance arrangements, and disclosure. It is likely that the scope of
these investigations will further broaden before the investigations are
concluded. U.S. affiliates of ING have received formal and informal
requests in connection with such investigations, and are cooperating fully
with each request for information.

These initiatives may result in new legislation and regulation that could
significantly affect the financial services industry, including businesses
in which the Company is engaged.

In light of these and other developments, U.S. affiliates of ING, including
the Company, periodically review whether modifications to their business
practices are appropriate.

67

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

13. OTHER COMPREHENSIVE INCOME

The components of other comprehensive income for the years ended December
31, 2004 and 2003 were as follows:

Net unrealized capital gains allocated to experience-rated contracts of
$357.5 and $491.5 at December 31, 2004 and 2003, respectively, are
reflected on the Consolidated Balance Sheets in future policy benefits and
claims reserves and are not included in shareholder's equity.

Changes in accumulated other comprehensive income related to changes in net
unrealized gains (losses) on securities, including securities pledged,
excluding those related to experience-rated contractholders, were as
follows:

(1) Pretax net unrealized holding gains (losses) were $28.6, $(74.0), and
$196.0, for the years ended December 31, 2004, 2003, and 2002,
respectively.
(2) Pretax reclassification adjustments for gains (losses) and other items
included in net income were $78.1, $(71.6), and $101.1, for the years
ended December 31, 2004, 2003, and 2002, respectively.

68

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions, unless otherwise stated)

14. RECLASSIFICATIONS AND CHANGES TO PRIOR YEAR PRESENTATION

During 2004, certain changes were made to the 2003 and 2002 Statements of
Operations to reflect the correct balances, as follows:

- Certain changes were made to the classification of reinsurance ceded
related to certain products, which were included as a reduction to
premiums.

- Certain changes were made to the classification of certain annuity and
other products, which were included in premium income.

- Certain changes were made to the classification of certain benefits to
contractowners, which were included as a reduction to premiums.

In addition, certain reclassifications have been made to conform to the
current year presentation.

These changes had no impact on net income or shareholder's equity of the
Company. We deemed these changes to the Statement of Operations as
immaterial, and, as such, have not labeled the Statement of Operations as
restated. The following summarizes the corrections to to each financial
statement line item:

69

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Also, during 2004, certain changes were made to the 2003 and 2002
Statements of Cash Flows to restate the correct balances, primarily
related to payables for securities purchased, short-term borrowings, and
investment contracts. As a result of these adjustments, we have
labeled the Statements of Cash Flows for 2003 and 2002 as restated. The
following summarizes the adjustments:

70

QUARTERLY DATA (UNAUDITED)

Restatement of Financial Information: During the quarterly period ended
June 30, 2003, the Company incorrectly recorded investment income and
realized capital gains related to Separate Accounts. The Company noted the
effect of this error during the compilation of the December 31, 2003
financial statements and made the appropriate changes to the quarterly
periods ended June 30, 2003 and September 30, 2003.

The following tables show the previously reported and restated for each of
the periods affected in 2003.

* Restated

71

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) The Company carried out an evaluation, under the supervision and
with the participation of its management, including its Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934) as of the
end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that the Company's current disclosure
controls and procedures are effective in ensuring that material
information relating to the Company required to be disclosed in
the Company's periodic SEC filings is made known to them in a
timely manner.

(b) There has not been any change in the internal controls over
financial reporting of the Company that occurred during the
period covered by this report that has materially affected or is
reasonably likely to materially affect these internal controls.

ITEM 9B. OTHER INFORMATION

None

72

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to General Instruction I(2) of Form 10-K, except with
respect to compliance with Sections 406 and 407 of the Sarbanes-Oxley
Act of 2002.

(a) CODE OF ETHICS FOR FINANCIAL PROFESSIONALS

The Company has approved and adopted a Code of Ethics for
Financial Professionals, pursuant to the requirements of Section
406 of the Sarbanes-Oxley Act of 2002 (which was filed as Exhibit
14 to the Form 10-K, as filed with the SEC on March 29, 2004,
File No. 033-23376). Any waiver of the Code of Ethics will be
disclosed by the Company by way of a Form 8-K filing.

(b) DESIGNATION OF BOARD FINANCIAL EXPERT

The Company has designated David A. Wheat, Director, Senior Vice
President and Chief Financial Officer of the Company, as its
Board Financial Expert, pursuant to the requirements of Section
407 of the Sarbanes-Oxley Act of 2002. Because the Company is a
wholly-owned subsidiary of Lion, it does not have any outside
directors sitting on its board.

ITEM 11. EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I(2) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I(2) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I(2) of Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(Dollar amounts in millions, unless otherwise stated)

In 2004 and 2003, Ernst & Young LLP ("Ernst & Young") served as the
principal external auditing firm for ING including ILIAC. ING
subsidiaries, including ILIAC, are allocated Ernst & Young fees
attributable to services rendered by Ernst & Young to each subsidiary.
Ernst & Young fees allocated to the Company for the years ended
December 31, 2004 and 2003 are detailed below, along with a
description of the services rendered by Ernst & Young to the Company:

* Less than $0.1.

73

AUDIT FEES

Fees for audit services include fees associated with professional
services rendered by the auditors for the audit of the annual
financial statements of the Company and review of the Company's
interim financial statements.

AUDIT-RELATED FEES

Audit-related fees were allocated to ILIAC for assurance and related
services that are reasonably related to the performance of the audit
or review of the financial statements and are not reported under the
audit fee item above. These services consisted primarily of audits of
SEC product filings, advice on accounting matters, and progress
review on International Financial Reporting Standards and Sarbanes-
Oxley projects.

TAX FEES

There were minimal tax fees allocated to ILIAC in 2004 and 2003. This
category typically includes tax compliance, tax advice, and tax
planning professional services. These services typically consist of:
tax compliance including the review of original and amended tax
returns, assistance with questions regarding tax audits, and tax
planning and advisory services relating to common forms of domestic
taxation (i.e., income tax and capital tax).

ALL OTHER FEES

There were minimal fees allocated to ILIAC in 2004 and no fees in 2003
under the category of "all other fees." This category typically
includes fees paid for products and services other than the audit
fees, audit-related fees and tax fees, described above, and consists
primarily of non-recurring support and advisory services.

PRE-APPROVAL POLICIES AND PROCEDURES

ILIAC has adopted the pre-approval policies and procedures of ING.
Audit, audit-related, and non-audit services provided to the Company
by ING's independent auditors are pre-approved by ING's audit
committee. Pursuant to ING's pre-approval policies and procedures, the
ING audit committee is required to pre-approve all services provided
by ING's independent auditors to ING and its majority owned legal
entities, including the Company. The ING pre-approval policies and
procedures distinguish four types of services: (1) audit services, (2)
audit-related services, (3) non-audit services, and (4) prohibited
services (as described in the Sarbanes-Oxley Act).

The ING pre-approval procedures consist of a general pre-approval
procedure and a specific pre-approval procedure.

GENERAL PRE-APPROVAL PROCEDURE

ING's audit committee pre-approves audit, audit-related, and non-audit
services to be provided by ING's external audit firms on an annual
basis, provided that the amount for such pre-approved service may not
be exceeded. ING's audit committee receives an overview of all
services provided,

74

including related fees and supported by sufficiently detailed
information. ING's audit committee evaluates this overview
retrospectively on a semi-annual basis.

SPECIFIC PRE-APPROVAL PROCEDURE

In addition to audit committee pre-approval, all audit-related and
non-audit engagements that are expected to generate fees in excess of
EUR 100,000 need specific approval of ING's Chief Financial Officer
("CFO"). These engagements are submitted in advance to the General
Manager of ING Corporate Audit Services, who will advise ING's CFO on
the compatibility of such services with the independence policy.
Further, in addition to audit committee pre-approval under the general
pre-approval procedures, the audit committee must approve on a
case-by-case basis:

(i) Each individual audit-related and non-audit engagement which is
expected to generate fees in excess of EUR 250,000;

(ii) All further audit-related and non-audit engagements over and
above the pre-approved amounts.

In 2004, 100% of each of the audit-related services, tax services and
all other services were pre-approved by ING's audit committee.

75

PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Financial statements. See Item 8 on Page 32.
2. Financial statement schedules. See Index to Consolidated Financial
Statement Schedules on Page 80.

EXHIBITS

3.(i) Certificate of Incorporation as amended and restated January 1,
2002, incorporated by reference to the ILIAC on Form 10-K, as filed
with the SEC on March 28, 2002 (File No. 33-23376).

3.(ii) By-Laws, as restated January 1, 2002, incorporated by reference to
the ILIAC on Form 10-K, as filed on March 28, 2002 (File No.
33-23376).

4.(a) Instruments Defining the Rights of Security Holders, Including
Indentures (Annuity Contracts)

Incorporated by reference to Post-Effective Amendment No. 14 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
July 29, 1997.

Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75980), as filed on
February 12, 1997.

Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
February 11, 1997.

Incorporated by reference to Post-Effective Amendment No. 5 to
Registration Statement on Form N-4 (File No. 33-75986), as filed on
April 12, 1996.

Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 333-01107), as filed on
February 4, 1999.

Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4 (File No. 33-75988), as filed on
April 15, 1996.

Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-81216), as filed on
April 17, 1996.

Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-91846), as filed on
April 15, 1996.

Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-91846), as filed on
August 6, 1996.

Incorporated by reference to Registration Statement on Form N-4
(File No. 333-01107), as filed on February 21, 1996.

Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75982), as filed on
February 20, 1997.

76

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (continued)

Incorporated by reference to Post-Effective Amendment No. 7 to
Registration Statement on Form N-4 (File No. 33-75992), as filed on
February 13, 1997.

Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75974), as filed on
February 28, 1997.

Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75962), as filed on
April 17, 1996.

Incorporated by reference to Post-Effective Amendment No. 14 to
Registration Statement on Form N-4 (File No. 33-75962), as filed on
April 17, 1998.

Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75982), as filed on
April 22, 1996.

Incorporated by reference to Post-Effective Amendment No. 8 to
Registration Statement on Form N-4 (File No. 33-75980), as filed on
August 19, 1997.

Incorporated by reference to Registration Statement on Form N-4
(File No. 333-56297), as filed on June 8, 1998.

Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-79122), as filed on
August 16, 1995.

Incorporated by reference to Post-Effective Amendment No. 32 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
December 16, 1997.

Incorporated by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
September 29, 1997.

Incorporated by reference to Post-Effective Amendment No. 26 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
February 21, 1997.

Incorporated by reference to Post-Effective Amendment No. 35 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
April 17, 1998.

Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 33-87932), as filed on
September 19, 1995.

Incorporated by reference to Post-Effective Amendment No. 8 to
Registration Statement on Form N-4 (File No. 33-79122), as filed on
April 17, 1998.

Incorporated by reference to Post-Effective Amendment No. 7 to
Registration Statement on Form N-4 (File No. 33-79122), as filed on
April 22, 1997.

Incorporated by reference to Post-Effective Amendment No. 21 to
Registration Statement on Form N-4 (File No. 33-75996), as filed on
February 16, 2000.

77

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (continued)

Incorporated by reference to Post-Effective Amendment No. 13 to
Registration Statement on Form N-4 (File No. 333-01107), as filed on
April 7, 1999.

Incorporated by reference to Post-Effective Amendment No. 37 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
April 9, 1999.

Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 333-87305), as filed on
December 13, 1999.

Incorporated by reference to Post-Effective Amendment No. 18 to
Registration Statement on Form N-4 (File No. 33-56297), as filed on
August 30, 2000.

Incorporated by reference to Post-Effective Amendment No.17 to
Registration Statement on Form N-4 (File No. 33-75996), as filed on
April 7, 1999.

Incorporated by reference to Post-Effective Amendment No. 19 to
Registration Statement on From N-4 (File No. 333-01107), as filed on
February 16, 2000.

Incorporated by reference to the Registration Statement on Form S-2
(File No. 33- 64331), as filed on November 16, 1995.

Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-2 (File No. 33-64331), as filed on
January 17, 1996.

Incorporated by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-75988), as filed on
December 30, 2003

Incorporated by reference to Post-Effective Amendment No. 18 to
Registration Statement on Form N-4 (File No. 33-75980), as filed on
April 16, 2003.

Incorporated by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-4 (File No. 33-81216), as filed on
April 11, 2003.

Incorporated by reference to Registration Statement on Form N-4
(File No. 333-109860), as filed on October 21, 2003.

Incorporated by reference to Post-Effective Amendment No. 39 to
Registration Statement on Form N-4 (File No. 33-75962), as filed on
December 17, 2004.

10. MATERIAL CONTRACTS

10.(a) Distribution Agreement, dated as of December 13, 2000, between Aetna
Inc., renamed Lion Connecticut Holdings Inc. ("Lion"), and Aetna U.S.
Healthcare Inc., renamed Aetna Inc., incorporated by reference to
ILIAC's Form 10-K filed on March 30, 2001 (File No. 33-23376).

(b) Employee Benefits Agreement, dated as of December 13, 2000, between
Aetna Inc, renamed Lion, and Aetna U.S. Healthcare, renamed Aetna
Inc., incorporated by reference to the Company's Form 10-K filed on
March 30, 2001 (File No. 33-23376).

78

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (continued)

(c) Tax Sharing Agreement, dated as of December 13, 2000, among Aetna Inc.
renamed Lion, Aetna U.S. Healthcare, Inc. renamed Aetna Inc. and ING
America Insurance Holdings, Inc., incorporated by reference to the
Company's Form 10-K filed on March 30, 2001 (File No. 33-23376).

(d) Lease Agreement, dated as of December 13, 2000, by and between Aetna
Life Insurance Company and ILIAC, incorporated by reference to the
Company's Form 10-K filed on March 30, 2001 (File No. 33-23376).

(e) Real Estate Services Agreement, dated as of December 13, 2000, between
Aetna Inc. and ILIAC, incorporated by reference to the Company's Form
10-K filed on March 30, 2001 (File No. 33-23376).

(f) Tax Sharing Agreement between ILIAC and ING Insurance Company of
America, effective January 1, 2001, incorporated by reference to the
Company's Form 10-K filed on March 29, 2004 (File No. 033-23376).

(g) Tax Sharing Agreement between ILIAC, ING America Insurance Holding,
Inc. and affiliated companies, effective January 1, 2001, incorporated
by reference to the Company's Form 10-K filed on March 29, 2004 (File
No. 033-23376).

(h) Investment Advisory Agreement between ILIAC and ING Investment
Management LLC, dated March 31, 2001, as amended effective January 1,
2003, incorporated by reference to the Company's Form 10-K filed on
March 29, 2004 (File No. 033-23376).

(i) Reciprocal Loan Agreement between ILIAC and ING America Insurance
Holdings, Inc., effective June 1, 2001, incorporated by reference to
the Company's Form 10-K filed on March 29, 2004 (File No. 033-23376).

(j) Services Agreement between ILIAC and the affiliated companies listed
in Exhibit B to the Agreement, dated as of January 1, 2001, as amended
effective January 1, 2002, incorporated by reference to the Company's
Form 10-K filed on March 29, 2004 (File No. 033-23376).

(k) Services Agreement between ILIAC and ING North America Insurance
Corporation, dated as of January 1, 2001, as amended effective January
1, 2002, incorporated by reference to the Company's Form 10-K filed on
March 29, 2004 (File No. 033-23376).

(l) Services Agreement between ILIAC and ING Financial Advisers, LLC.,
effective June 1, 2002, incorporated by reference to the Company's
Form 10-K filed on March 29, 2004 (File No. 033-23376).

(m) Administrative Services Agreement between ILIAC, ReliaStar Life
Insurance Company of New York and the affiliated companies specified
in Exhibit A to the Agreement, effective March 1, 2003, incorporated
by reference to the Company's Form 10-K filed on March 29, 2004 (File
No. 033-23376).

(n) First Amendment to the Administrative Services Agreement between
ILIAC, RLNY and the affiliated companies specified in Exhibit A to the
Agreement, effective as of August 1, 2004.

79

(o) Amendment to Investment Advisory Agreement between ILIAC and ING
Investment Management LLC, effective October 14, 2003, incorporated by
reference to the Company's Form 10-K filed on March 29, 2004 (File No.
033-23376).

(p) Surplus Note for $175,000,000 aggregate principal amount, dated
December 29, 2004 issued by ING USA Annuity and Life Insurance Company
to its affiliate, ILIAC.

(q) Underwriting Agreement dated November 17, 2000 between Aetna Life
Insurance and Annuity Company (now ING Life Insurance and Annuity
Company ("ILIAC" or "Registrant") and Aetna Investment Services, LLC
(now ING Financial Advisers, LLC), incorporated by reference to
Pre-Effective Amendment No. 1 to Registration Statement on Form N-4,
as filed with the Securities and Exchange Commission ("SEC") on
November 30, 2000 (File No. 333-49176).

14. ING Code of Ethics for Financial Professionals, incorporated by
reference to the Company's Form 10-K filed on March 29, 2004 (File No.
033-23376).

31.1 Certificate of David A. Wheat pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2 Certificate of Brian D. Comer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1 Certificate of David A. Wheat pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certificate of Brian D. Comer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

80

INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

81

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
ING Life Insurance and Annuity Company

We have audited the consolidated financial statements of ING Life Insurance
and Annuity Company as of December 31, 2004 and 2003, and for each of the
three years in the period ended December 31, 2004, and have issued our report
thereon dated March 31, 2005. Our audits also included the financial
statement schedules listed in Item 15. These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion
based on our audits.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP

Atlanta, Georgia

March 31, 2005

82

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS INC.)

SCHEDULE I
Summary of Investments--Other than Investments in Affiliates
As of December 31, 2004
(In millions)

* See Notes 2 and 3 of Notes to Consolidated Financial Statements.

(1) The term "foreign" includes foreign governments, foreign political
subdivisions, foreign public utilities and all other bonds of foreign
issuers. Substantially all of the Company's foreign securities are
denominated in U.S. dollars.

83

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

SCHEDULE IV
Reinsurance Information
As of and for the years ended December 31, 2004, 2003, and 2002
(In millions)

* Certain amounts related to the prior year have been revised.

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

ING LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)

(Date) March 28, 2005 By /s/ David A. Wheat
------------- ------------------------------------------------
David A. Wheat
Director, Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on or before March 28, 2005.

85

EXHIBIT 10.(n)

FIRST AMENDMENT
TO THE
ADMINISTRATIVE SERVICES AGREEMENT

This First Amendment, effective as of August 1, 2004, is made to the
Administrative Services Agreement (the "Agreement"), dated as of March 1, 2003,
entered into by and between ReliaStar Life Insurance Company of New York, a New
York insurance company and the affiliated companies specified in Exhibit A to
the Agreement.

IN CONSIDERATION, of the mutual promises set forth herein, and intending to be
legally bound hereby, the parties agree to amend the Agreement as follows:

1. THE AGREEMENT SHALL BE AMENDED TO ADD THE FOLLOWING NEW SECTION: TERM. This
Agreement shall be effective on the first day of March 2003, and shall end
of the 31st day of March, 2005. This Agreement shall be automatically
renewed on the first day of each calendar year thereafter for a
twelve-month period under the same terms and conditions, subject to the
provisions for termination set forth therein.

2. Except as specifically amended by this First Amendment, the Agreement
remains in full force and effect.

IN WITNESS WHEREOF, the parties have caused this First Amendment to be duly
executed as of the date first written above.

RELIASTAR LIFE INSURANCE COMPANY
OF NEW YORK

By /s/ Paula Cludray-Engelke
-------------------------------------------
Paula Cludray-Engelke
Secretary

ING USA ANNUITY AND LIFE INSURANCE
COMPANY

By /s/ Paula Cludray-Engelke
-------------------------------------------
Paula Cludray-Engelke
Secretary

ING FINANCIAL ADVISERS, LLC

By /s/ John F. Todd
-------------------------------------------
John F. Todd
Assistant Secretary

86

ING LIFE INSURANCE AND ANNUITY COMPANY

By /s/ Paula Cludray-Engelke
-------------------------------------------
Paula Cludray-Engelke
Secretary

ING NORTH AMERICA INSURANCE CORPORATION

By /s/ John F. Todd
-------------------------------------------
John F. Todd
Assistant Secretary

RELIASTAR LIFE INSURANCE COMPANY

By /s/ Paula Cludray-Engelke
-------------------------------------------
Paula Cludray-Engelke
Secretary

SECURITY LIFE OF DENVER INSURANCE COMPANY

By /s/ Paula Cludray-Engelke
-------------------------------------------
Paula Cludray-Engelke
Secretary

SOUTHLAND LIFE INSURANCE COMPANY

By /s/ Paula Cludray-Engelke
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Paula Cludray-Engelke
Secretary

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EXHIBIT 10.(p)

THIS SURPLUS NOTE HAS BEEN ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AND MAY NOT BE REOFFERED, RESOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE PURCHASER OF THIS
SURPLUS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS SURPLUS NOTE MAY BE
RELYING ON THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144A UNDER THE SECURITIES ACT.

6.257% SURPLUS NOTE

December 29, 2004 Amount: $175,000,000.00

For value received, ING USA Annuity and Life Insurance Company, an Iowa
corporation ("Borrower"), promises to pay to the order of ING Life Insurance and
Annuity Company, a Connecticut corporation ("Lender"), the principal sum of One
Hundred Seventy Five Million Dollars ($175,000,000.00) on December 29, 2034 (the
"Scheduled Maturity Date") and to pay interest thereon from the effective date
of this Surplus Note, semiannually in arrears on June 29 and December 29 in each
year, commencing June 29, 2005 (each a "Scheduled Interest Payment Date"), at
the rate of 6.257% per annum, until the principal hereof is paid. The date upon
which any state or federal agency or court obtains an order or grants approval
for the rehabilitation, liquidation, conservation, reorganization, receivership,
dissolution or the commencement of any bankruptcy, insolvency or similar
proceeding of Borrower shall also be deemed to be the Scheduled Maturity Date.
Principal and interest shall be payable on the terms and conditions set out
below.

1. Principal and interest payments shall be payable at the office of Lender in
the city of Hartford, Connecticut, or such other place as Lender shall
designate in writing to Borrower. Payments shall be made in collected and
immediately available funds in lawful money of the United States of
America.

2. Interest on this Surplus Note shall be computed on the basis of a year of
360 days and for the actual number of days elapsed. In any event should a
Scheduled Interest Payment Date or Scheduled Maturity Date fall on a day
other than a Business Day (as hereinafter defined), then such payment of
principal or interest shall be due on the next following day that is a
Business Day, with the same force and effect as if made on the Scheduled
Interest Payment Date or Scheduled Maturity Date hereof, and no additional
interest shall accrue as to such payment for the period after such date;
provided, however, that if such next following day that is a Business Day
shall fall in the next calendar month, then such payment of principal or
interest shall be due on the Business Day immediately preceding such
Scheduled Interest Payment Date or Scheduled Maturity Date. For purposes of
this Surplus Note, "Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in New York City are required
by law to close, provided that banking institutions located at the place of
payment designated by Lender are carrying out transactions in U.S. dollars.

3. (a) No principal payment shall be permitted on this Surplus Note unless
such payment has received the prior approval of the Commissioner of
the Iowa Insurance Division (the "Commissioner").

(b) Periodic interest payments shall be paid as required under the terms
of this Surplus Note, subject to the prior approval of the
Commissioner.

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(c) Borrower shall use its best efforts to obtain the approval of the
Commissioner for the payment by Borrower of interest on and principal
of this Surplus Note on the Scheduled Interest Payment Dates or
Scheduled Maturity Date hereof, and, in the event any such approval
has not been obtained for any such payment or any portion thereof at
or prior to the Scheduled Interest Payment Date or Scheduled Maturity
Date hereof, as the case may be, to continue to use its best efforts
to obtain such approval promptly thereafter. Not less than thirty (30)
days prior to each Scheduled Interest Payment Date or Scheduled
Maturity Date hereof (excluding any such Scheduled Maturity Date which
arises as a result of the obtaining of an order or the granting of
approval for the rehabilitation, liquidation, conservation,
reorganization, receivership, dissolution or the commencement of any
bankruptcy, insolvency or similar proceeding of Borrower), Borrower
will seek the approval of the Commissioner to make each payment of
interest on and the principal of this Surplus Note. In the event the
Commissioner does not approve Borrower's request to make an interest
or principal payment as scheduled herein, Borrower shall promptly
notify Lender or any subsequent holder of this Surplus Note thereof.

(d) If the Commissioner does not approve the making of any payment or
portion thereof of principal of or interest on this Surplus Note on
the Scheduled Interest Payment Date or Scheduled Maturity Date hereof,
the Scheduled Interest Payment Date or Scheduled Maturity Date as the
case may be, shall be extended and such payment or any unpaid portion
thereof shall be made by Borrower on the next following Business Day
on which Borrower shall have the approval of the Commissioner to make
such payment or any unpaid portion thereof. Interest will continue to
accrue on any such unpaid principal through the actual date of payment
at the rate of interest stated on the face hereof. Interest will not
accrue on interest with respect to which the Scheduled Interest
Payment Date has been extended, during such period of extension.

(e) If the Commissioner approves the making of a payment of principal
and/or interest in an amount insufficient to satisfy Borrower's
obligations under this Surplus Note and other surplus notes issued on
the Effective Date, payment shall be made on this Surplus Note and
each other surplus note issued on the Effective Date on a pro-rata
basis.

4. Subject to the prior approval of the Commissioner, Borrower may prepay this
Surplus Note in whole on, or within thirty (30) days after, the tenth
anniversary of the execution of this Surplus Note, upon thirty (30) days
written notice to Lender, without premium or penalty, at the principal
amount so to be prepaid, plus accrued interest thereon to the date of such
prepayment.

5. In the event of the dissolution, liquidation, receivership, insolvency or
bankruptcy of Borrower, repayment of principal and payment of interest
under this Surplus Note shall be subordinated to the prior payment of, or
provision for, all liabilities (as reported in the statutory statement of
assets and liabilities) of Borrower, other than debts owed by Borrower to
other holders of surplus notes issued by Borrower, with which this Surplus
Note shall rank pari passu, but shall rank superior to the claim, interest,
and equity of the shares or shareholders of Borrower.

6. No act or failure on the part of Borrower with respect to any of the terms
or provisions hereof shall give Lender any right to declare the unpaid
principal or interest on this Surplus Note to be due and payable
immediately or otherwise than in accordance with the terms and conditions
hereof. However, once payment due hereunder has been approved by the
Commissioner, the payment shall be made when due. If Borrower fails to pay
the full amount of such approved payment on the date such amount is
scheduled to be paid, such approved amount will be immediately payable on
such date without any action on the part of Lender and, to the extent
permitted by applicable law, interest will also accrue on any such approved
but unpaid interest through the actual date of payment at the rate of
interest stated on the face hereof. In the event that Borrower fails to
perform any of its other obligations hereunder, Lender may pursue any
available remedy

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to enforce the performance of any provision of this Surplus Note, provided
however, that such remedy shall in no event include the right to declare
this Surplus Note immediately payable. Borrower shall reimburse Lender, in
full, for any reasonable expense incurred by Lender in connection with
enforcing the performance of this Surplus Note, including, but not limited
to, reasonable attorneys' fees and expenses. A delay or omission by Lender
in exercising any right or remedy accruing as a result of Borrower's
failure to perform its obligations hereunder and the continuation thereof
shall not impair such right or remedy or constitute a waiver of or
acquiescence in such non-performance by Borrower. To the extent permitted
by law, no remedy is exclusive of any other remedy and all remedies are
cumulative.

7. Borrower covenants that it shall not consolidate with, or merge into, any
other corporation or convey or transfer its properties, assets and in force
business substantially as an entirety to any person, unless (i) Borrower
provides the holder of the Surplus Note with advance written notice of such
consolidation, merger, conveyance or transfer and a certificate of an
authorized officer of Borrower stating that it has complied with all terms
contained in this Section 7; and (ii) the corporation formed by such
consolidation or into which Borrower is merged or the person which acquires
by conveyance or transfer, the properties, assets and in force business of
Borrower substantially as an entirety shall be a corporation organized and
existing under the laws of the United States of America, any State thereof
or the District of Columbia and shall expressly assume, in a manner
satisfactory to the holder of this Surplus Note, the due and punctual
payment of the principal of and interest on this Surplus Note in accordance
with its terms and the performance of every covenant of this Surplus Note
on the part of Borrower to be performed or observed. Upon any consolidation
of Borrower with, or merger of Borrower into, any other corporation or any
conveyance or transfer of the properties, assets and in force business of
Borrower substantially as an entirety to any person in accordance with this
Section 7, the successor corporation formed by such consolidation or into
which Borrower is merged or to which such conveyance or transfer is made
shall succeed to, and be substituted for, and may exercise every right and
power of, Borrower under this Surplus Note, with the same effect as if such
successor corporation had been named as Borrower herein.

8. Borrower covenants that, in the event Lender or any subsequent holder of
this Surplus Note desires to sell, transfer or convey its interest in this
Surplus Note, Borrower will fully cooperate and promptly take all
reasonable measures to facilitate such sale, transfer or conveyance,
including, but not limited to, providing the information referenced in Rule
144A(d)(4), as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended. THIS SURPLUS NOTE HAS BEEN ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND MAY
NOT BE REOFFERED, RESOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE PURCHASER OF THIS
SURPLUS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS SURPLUS NOTE MAY BE
RELYING ON THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144A UNDER THE SECURITIES ACT.

9. No amendments shall be made to this Surplus Note without the consent of
Borrower and Lender, and the prior approval of the Commissioner.

10. Except for the conditions described in subsections (a) and (b) of Section 3
above, no provision of this Surplus Note shall alter or impair the
obligation of Borrower, which is absolute and unconditional, to pay the
principal of, and interest on, this Surplus Note at the times, place and
rate, and in the coin or currency, herein prescribed. No provision of this
Surplus Note shall extinguish the ultimate liability of Borrower for the
payment of principal and interest hereunder.

11. This Surplus Note shall be governed by the laws of the State of Iowa and
shall be effective as of December 29, 2004.

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IN WITNESS WHEREOF, Borrower has caused this Surplus Note to be executed in its
name and attested to by its authorized officer and its corporate seal to be
hereunder affixed, all as of the date first written above.

ING USA Annuity and Life Insurance Company

By: /s/ David S. Pendergrass
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David S. Pendergrass
Vice President and Treasurer

ATTEST:/s/ Spencer Shell
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