VARIABLE ANNUITY ACCOUNT I OF ING INSURANCE CO OF AMERICA - 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, 2001 Commission file number 33-81010

ING Insurance Company of America
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Florida 06-1286272
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5100 West Lemon Street, Suite 213, Tampa, Florida 33609
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(Address of principal executive offices) (ZIP Code)

(Registrant's telephone number, including area code) (860) 273-0123

AETNA INSURANCE COMPANY OF AMERICA
------------------------------------
(FORMER NAME IF CHANGED SINCE LAST REPORT)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the 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. [ X ]

As of March 25, 2002 there were 25,500 shares of common stock outstanding, par
value $100 per share, all of which were held by ING Life Insurance and Annuity
Company.

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction
I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.

ING INSURANCE COMPANY OF AMERICA
(Formerly known as Aetna Insurance Company of America,
a wholly owned subsidiary of ING Life Insurance and Annuity Company)
Annual Report on Form 10-K
For the Year Ended December 31, 2001

TABLE OF CONTENTS

* Item omitted pursuant to General Instruction I(2) of Form 10-K.
** Item prepared in accordance with General Instruction I(2) of Form 10-K.

2

PART I

ITEM 1. BUSINESS

ORGANIZATION OF BUSINESS

ING Insurance Company of America ("IICA," or the "Company"), formerly known as
Aetna Insurance Company of America ("AICA") is a stock life insurance company
organized in 1990 under the insurance laws of Connecticut. Effective January 5,
2000, the Company's state of domicile changed from Connecticut to Florida. The
Company is a wholly owned subsidiary of ING Life Insurance and Annuity Company
("ILIAC"), formerly known as Aetna Life Insurance and Annuity Company ("ALIAC").
ILIAC is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.
("HOLDCO"), which is a wholly owned subsidiary of Aetna Retirement
Services, Inc.("ARSI"). ARSI is ultimately owned by ING Groep N.V. ("ING").

On December 13, 2000, ING America Insurance Holdings, Inc., an indirect wholly
owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna Financial
Services business, of which the Company is a part, and the Aetna International
businesses for approximately $7.7 billion. The purchase price was comprised of
approximately $5.0 billion in cash and the assumption of $2.7 billion of
outstanding debt and other net liabilities. In connection with the acquisition,
Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). At the time of
the sale, Lion entered into certain transition services agreements with a former
related party, Aetna U.S. Healthcare which was renamed Aetna Inc. ("former
Aetna"). Refer to Note 1 of the Notes to Financial Statements for more
information on the acquisition.

Effective January 1, 2002, the Board of Directors of the Company approved an
amendment to the Certificate of Incorporation of the Company to change the name
of the corporation to ING Insurance Company of America. The sole shareholder of
the Company executed a written consent approving and adopting the name change
effective January 1, 2002. Appropriate approvals were obtained from the State of
Florida Department of Insurance.

The Company has one operating segment and all revenue reported by the Company
comes from external customers.

PRODUCTS AND SERVICES

The Company principally offers annuity contracts to individuals on a qualified
and nonqualified basis and to employer-sponsored retirement plans qualified
under Internal Revenue Code Sections 401, 403 and 408. These contracts may be
deferred or immediate ("payout annuities").

INVESTMENT OPTIONS

The Company's products provide customers with variable and/or fixed investment
options. Variable options generally provide for full assumption by the customer
of investment risks. Assets supporting variable options are held in separate
accounts that invest in affiliated and/or unaffiliated mutual funds. Affiliated
mutual funds include funds managed by Aeltus Investment Management, Inc.
("Aeltus"), an affiliate of the Company, and funds managed by ILIAC and
subadvised by outside

3

ITEM 1. BUSINESS (continued)
INVESTMENT OPTIONS (continued)

investment advisers. Variable separate account investment income and realized
capital gains and losses are not reflected in the Company's statements of
income.

Fully guaranteed fixed options provide guarantees on investment return, maturity
values, and if applicable, benefit payments. Other fixed options are "experience
rated" and require the customer to assume investment (including realized capital
gains and losses on the sale of invested assets) and other risks subject to,
among other things, principal and interest guarantees. These fixed options
require the customer to assume investment (including realized capital gains and
losses on the sale of invested assets) and other risks subject to, among other
things, those guarantees. The Company will not be issuing these other fixed
options in 2002 and beyond.

FEES AND MARGINS

Insurance charges or other fees earned by the Company vary by product and
depend, among other factors, on 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. When a customer selects an affiliated mutual fund as
a variable funding option, the Company may receive compensation from the fund's
adviser, administrator or other affiliated entity for the performance of certain
shareholder services. In the case of funds advised by Aeltus, these fees are
equal to one-half of the investment advisory fee Aeltus receives.

In addition, when a customer selects an unaffiliated mutual fund as a variable
funding option, the Company may receive distribution (12b-1) and service plan
fees, as well as, compensation from the fund's adviser, administrator or other
affiliated entity for the performance of certain shareholder services.

For fixed funding options, the Company 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.

ASSETS UNDER MANAGEMENT

The substantial portion of fees or other charges and margins is based on assets
under management. Assets under management are principally affected by net
deposits (i.e. deposits, including new contracts, less surrenders), investment
performance (e.g., interest credited to customer accounts for fixed options or
market performance for variable options) and customer retention. Assets under
management, excluding net unrealized capital gains and losses related to market
value adjustments required under Financial Accounting Standard ("FAS") No. 115,
were $0.9 billion, $1.1 billion and $1.3 billion at December 31, 2001, 2000 and
1999, respectively. Assets under management are available for contractholder
withdrawal and are subject to fair value adjustments and/or deferred surrender
charges.

4

ITEM 1. BUSINESS (continued)
ASSETS UNDER MANAGEMENT (continued)

To encourage customer retention and recover acquisition expenses, contracts
typically impose a surrender charge on policyholder balances withdrawn within a
period of time after the contract's inception. The period of time and level of
the charge vary by product. More favorable credited rates may also be offered
after policies have been in force for a period of time. Existing tax penalties
on annuity 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.

PRINCIPAL MARKETS AND METHOD OF DISTRIBUTION

The Company's products are offered primarily to individuals and
employer-sponsored groups in the education market. The Company's products
generally are sold through a managed network of broker/ dealers and dedicated
career agents.

COMPETITION

Competition arises from other insurance companies, as well as an array of
financial services companies including banks, mutual funds and other investment
managers. 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.

RESERVES

Reserves for investment contracts (deferred annuities and immediate annuities
without life contingent payouts) are equal to cumulative deposits plus credited
interest less withdrawals and charges thereon. For the investment contracts
which are experience-rated, the reserves also reflect net realized capital
gains/losses on the sale of invested assets, (which the Company reflects through
credited rates on an amortized basis) and net unrealized capital gains/losses
related to FAS No. 115.

Reserves, as described above, are computed amounts that, with additions from
deposits to be received and with interest on such reserves compounded annually
at assumed rates, are expected to be sufficient to meet the Company's policy
obligations at their maturities or to pay expected death or retirement benefits
or other withdrawal requests.

GENERAL ACCOUNT INVESTMENTS

Consistent with the nature of the contract obligations involved in the Company's
operations, the majority of the general account assets are invested in long-term
debt securities such as: U.S. corporate debt securities, U.S. government
securities, foreign government and corporate debt securities, residential
mortgage-backed securities, commercial and multifamily mortgage-backed
securities and other asset-backed securities. It is management's objective that
the portfolios be of high quality while achieving competitive investment yields
and returns. Investment portfolios generally

5

ITEM 1. BUSINESS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)

match the duration of the insurance liabilities they support. The general
account of the Company has been segmented to improve the asset/liability
matching process. The duration of investments is monitored and security
purchases and sales are executed with the objective of having adequate funds
available to satisfy the Company's maturing liabilities.

On April 1, 2001, ING Investment Management, LLC replaced Aeltus as the adviser
of the Company's general account investments.

See Management's Analysis of the Results of Operations--General Account
Investments for further discussion of investments.

OTHER MATTERS

a. 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 investment activities 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.

Operations conducted by the Company are subject to regulation by various
insurance agencies where the Company conducts business, in particular the
Insurance Department of Connecticut, prior to January 5, 2000, and the Florida
Department of Insurance, subsequent to January 5, 2000. Among other matters,
these agencies may regulate premium rates, trade practices, agent licensing,
policy forms, and underwriting and claims practices.

The Securities and Exchange Commission ("SEC") and, to a lesser extent, the
states regulate the sales and investment management activities and operations of
the Company. Regulations of the SEC, Department of Labor and Internal Revenue
Service also impact certain of the Company's annuity and other investment and
retirement products. These products involve Separate Accounts and mutual funds
registered under the Investment Company Act of 1940.

ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001

On June 7, 2001 the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA") was signed into law. EGTRRA contains important changes to many of the
Internal Revenue Code provisions governing qualified defined contribution and
defined benefit plans, Section 457 deferred compensation plans,
Section 403(b) tax sheltered annuity arrangements and individual retirement
accounts and annuities ("IRAs"). These changes include significant increases in
the contribution limits under retirement plans and IRAs and new rollover
provisions that increase the portability of retirement account assets.

6

ITEM 1. BUSINESS (continued)
OTHER MATTERS (continued)

INSURANCE HOLDING COMPANY LAWS

A number of states, including Florida and Connecticut, regulate affiliated
groups of insurers, such as the group to which the Company belongs, 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. For
information regarding payments of dividends by the Company, see "Liquidity &
Capital Resources" in Management's Analysis of the Results of Operations and
Note 5 of Notes to Financial Statements.

INSURANCE COMPANY GUARANTY FUND ASSESSMENTS

Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for certain
obligations of insolvent insurance companies to policyholders and claimants.
There were no after-tax charges to earnings for guaranty fund obligations for
the year ended December 31, 2001; and, after-tax charges were $0.1 million for
the years ended December 31, 2000 and 1999.

For information regarding certain other potential regulatory changes relating to
the Company's businesses, see "Forward-Looking Information/Risk Factors" in
Management's Analysis of the Results of Operations.

b. Ratings

The Company's financial strength ratings at March 25, 2002 and November 9, 2001
are as follows:

c. Miscellaneous

The Company utilizes the employees of ING and its affiliates (primarily ILIAC)
and receives an expense allocation, at cost, based on the utilization of these
employees.

The Company uses ILIAC's computer facilities. The Company's management believes
that ILIAC's computer facilities, systems and related procedures are adequate to
meet its business needs. ILIAC's data processing systems and backup and security
policies, practices and procedures are regularly evaluated by ILIAC's management
and internal auditors and are modified as considered necessary.

The Company is not dependent upon any single customer and no single customer
accounted for 10% or more of revenue in 2001. 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.

7

ITEM 2. PROPERTIES

The Company's principal executive office is located at 5100 West Lemon Street,
Suite 213, Tampa, Florida 33609 and its principal office for operations is
located at 151 Farmington Avenue, Hartford, Connecticut 06156. The Company
occupies office space that is leased by ILIAC or other affiliates. Expenses
associated with these offices are allocated on a direct and indirect basis to
the Company.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently involved in any material litigation.

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

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

PART II

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

All of the Company's outstanding shares are owned by ILIAC. For information on
dividends and capital contributions refer to Note 5 of the Notes to Financial
Statements.

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS

Management's analysis of the results of operations is presented in lieu of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, pursuant to General Instruction I(2)(a) of Form 10-K.

OVERVIEW

On December 13, 2000, ING America Insurance Holdings, Inc., an indirect wholly
owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna Financial
Services business, of which the Company is a part, and the Aetna International
businesses for approximately $7.7 billion. The purchase price was comprised of
approximately $5.0 billion in cash and the assumption of $2.7 billion of
outstanding debt and other net liabilities. In connection with the acquisition,
Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). At the time of
the sale, Lion entered into certain transition services agreements with a former
related party, Aetna U.S. Healthcare which was renamed Aetna Inc. ("former
Aetna"). Refer to Note 1 of the Notes to Financial Statements.

Refer to "Organization of Business" regarding the name change of the Company.

All references to financial data for the year ended December 31, 2000 in this
section represents an aggregation of the pre-acquisition period of the eleven
months ended November 30, 2000 and the post acquisition period of the one month
ended December 31, 2000.

8

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS

(1) Excludes net unrealized capital gains of $4.2 million and $0.9 million
at December 31, 2001 and 2000, respectively, and net unrealized capital
losses of $4.5 million at December 31, 1999.
(2) Includes $63.2 million, $66.9 million and $78.7 million related to the
assets supporting a guaranteed interest option at December 31, 2001,
2000, and 1999, respectively.
(3) Includes $564.9 million, $719.8 million and $870.3 million at December
31, 2001, 2000 and 1999, respectively, of assets held and managed by
unaffiliated mutual funds.
(4) Includes $266.7 million, $285.2 million and $340.8 million of assets
managed by an affiliate of the Company at December 31, 2001, 2000 and
1999, respectively, and includes $65.8 million, $99.0 million and $120.3
million of assets managed by the Company's parent, ILIAC, at Decem-
ber 31, 2001, 2000 and 1999, respectively.

Compared to prior years, the Company's net income decreased $3.5 million and
increased $3.0 million in 2001 and 2000, respectively. Excluding goodwill and
net realized capital gains and losses, net income decreased $2.0 million and
increased $3.3 million in 2001 and 2000, respectively. The decrease in net
income excluding goodwill and net realized capital gains and losses was
primarily due to a decrease in charges assessed against policyholders and an
increase in the effective tax rate partially offset by a decrease in operating
expenses. The increase in 2000 net income excluding net realized capital losses
was due to an increase in charges assessed against policyholders, lower
operating expenses and a decline in the effective tax rate.

Substantially all of the charges assessed against policyholders are derived from
assets under management. Assets under management decreased by $206.6 million in
2001 and $227.4 million in 2000. The decrease in 2001 was primarily due to a
continued decline in the stock market throughout most of 2001. The decrease in
2000 was primarily due to declines in the stock market, which began in

9

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)

the second half of 2000. In spite of the decline in the second half of 2000,
assets under management for the year ended December 31, 2000 remained higher
than the prior year, resulting in a slight increase in charges assessed against
policyholders in 2000 when compared to 1999.

Annuity deposits relate to annuity contracts not containing life contingencies.
Deposits increased $22.8 million in 2001 and decreased $15.2 million in 2000.
The increase for the year ended December 31, 2001, compared to the prior year,
was primarily due to an increase in employer sponsored annuity sales partially
offset by a decrease in individual annuity sales. The increase in employer
sponsored sales and decrease in individual annuity sales is primarily the result
of the Company's decision to focus its marketing efforts on expanding its
employer sponsored business and to not actively market its annuity products to
individuals. The decrease for the year ended December 31, 2000 is attributable
to a decrease in deposits from new contracts because the Company has not
actively marketed its individual annuity products since late in 1998. Refer to
"Outlook" below.

Compared to the prior year, lower operating expenses for the year ended
December 31, 2001 is primarily the result of management's decision to not
actively market its individual annuity products and its continued focus on
expense reduction initiatives. Lower operating expenses in 2000, when compared
to the prior year, are a direct result of the Company's decision to not actively
market its annuity products to individuals. Refer to "Outlook" below.

The effective tax rate for the year ended December 31, 2001 increased compared
to the prior year primarily due to a decrease in the deduction for dividends
received and the disallowance of goodwill amortization as a deduction. The
effective tax rate for the year ended December 31, 2000, compared to the same
period in 1999, is primarily related to the deduction allowed for dividends
received and a favorable prior period adjustment.

OUTLOOK

The Company's strategy is to increase assets under management and improve
profitability by continuing to focus on distribution opportunities, primarily in
Florida. Effective January 5, 2000, the Company changed its state of domicile
from Connecticut to Florida. The Company has focused its marketing efforts
principally on expanding its group annuity sales with the offering, through
dedicated agents and brokers, of contracts to public, tax exempt and private
employers sponsoring retirement plans.

Although the Company has offered annuities marketed to individuals, principally
non-qualified annuities and qualified individual retirement annuities, it is not
actively marketing these products.

GENERAL ACCOUNT INVESTMENTS

The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. The duration of
these investments is monitored, and investment purchases and sales are executed
with the objective of having adequate funds available to satisfy the Company's
maturing

10

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)

liabilities. The risks associated with investments supporting "experience-rated"
products are assumed by customers subject to, among other things, principal and
interest guarantees.

The Company's invested assets were comprised of the following:

(1) Includes $7.8 million and $5.8 million of debt securities pledged to
creditors at December 31, 2001 and 2000, respectively. Refer to "Invest-
ments" in Note 1 of the Notes to Financial Statements.
(2) Includes $2.3 million of short-term investments pledged to creditors at
December 31, 2000. Refer to "Investments" in Note 1 of the Notes to
Financial Statements.

DEBT SECURITIES

At December 31, 2001 and 2000, the Company's carrying value of available for
sale debt securities including debt securities pledged to creditors (herein
after referred to as "total debt securities") represented 100% and 97%,
respectively, of the total general account invested assets. For the same
periods, debt securities of $120.1 million (91% of the total debt securities)
and $119.1 million (90% of the total debt securities), respectively, supported
experience-rated contracts. Total debt securities reflected net unrealized
capital gains of $4.2 million at December 31, 2001 and net unrealized capital
losses of $0.8 million at December 31, 2000. It is management's objective that
the portfolio of debt securities be of high quality and be well-diversified by
market sector. The debt securities 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
agencies. The average quality rating of the Company's debt securities portfolio
at December 31, 2001 and 2000 was AA-.

The percent of total debt securities investments by quality ratings is as
follows:

11

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)

The percent of total debt securities investments by market sector is as follows:

RISK MANAGEMENT AND MARKET-SENSITIVE INSTRUMENTS

The Company regularly evaluates the appropriateness of investments relative to
its management approved investment guidelines and the business objective of the
portfolios. The Company manages interest rate risk by seeking to maintain a
tight duration band, while credit risk is managed by maintaining high average
quality ratings and diversified sector exposure within the debt securities
portfolio. In connection with its investment and risk management objectives, the
Company also uses financial instruments whose fair value is at least partially
determined by, among other things, levels of or changes in domestic interest
rates (short-term or long-term), duration, prepayment rates, or credit
ratings/spreads.

The risks associated with investments supporting experience-rated annuity
products are assumed by those contractholders and not by the Company (subject
to, among other things, principal and interest guarantees). Risks associated
with the investments and liabilities related to experience-rated annuity
products are not included in the sensitivity analysis presented below.

The following discussion about the Company's risk management activities includes
forward-looking statements that involve risk and uncertainties. Set forth below
are management's projections of hypothetical net losses in fair value of
shareholder's equity related to the Company's market-sensitive instruments if an
immediate increase of 100 basis points in interest rates and an immediate
decrease of 10% in prices for domestic equity securities were to occur
(sensitivity analysis). The instruments included in this analysis are not
leveraged and are held for purposes other than trading. While the Company
believes that the assumed market rate changes are reasonably possible in the
near term, actual results may differ, particularly as a result of any management
actions that would be taken to mitigate such hypothetical losses in fair value
of shareholder's equity.

INTEREST RATE RISK

Assuming an immediate increase of 100 basis points in interest rates, the net
hypothetical loss in fair value of shareholder's equity related to financial
instruments is estimated to be $0.2 million and $0.1 million (after-tax) at
December 31, 2001 and 2000, respectively. The Company believes that an interest
rate shift of this magnitude represents a moderately adverse scenario, and is
approximately equal to the historical annual volatility of interest rate
movements for the Company's intermediate-

12

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
GENERAL ACCOUNT INVESTMENTS (continued)

term available-for-sale debt securities. The Company has included corresponding
changes in certain insurance liabilities in this sensitivity analysis.

The risks associated with investments supporting experience-rated annuity
products are assumed by those contractholders and not by the Company (subject
to, among other things, certain minimum guarantees). Risks associated with the
investments and liabilities related to experience-rated annuity products are not
included in the sensitivity analysis presented below.

Based on the Company's overall exposure to interest rate risk, the Company
believes that these changes in market rates would not materially affect the
near-term financial position, results of operations or cash flows of the
Company.

LIQUIDITY AND CAPITAL RESOURCES

Generally, the Company meets its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio and using overall
cash flows from deposits, income received on investments and capital
contributions. Cash provided from these sources was used primarily for operating
expenses and to fund contract withdrawals.

Debt securities have durations that were selected to approximate the durations
of the liabilities they support. The general account of the Company has been
segmented to improve the asset/liability matching process. The duration of these
investments is monitored, and investment purchases and sales are executed with
the objective of having adequate funds available to satisfy the Company's
maturing liabilities.

As the Company's investment strategy focuses on matching asset and liability
durations, and not specific cash flows, and since these duration assessments are
dependent on numerous cash flow assumptions, asset sales may, from time to time,
be required to satisfy liability obligations and/or rebalance asset portfolios.
The investment portfolios are closely monitored to assess asset and liability
matching in order to rebalance the portfolios as conditions warrant.

Given the quality ratings of the Company's debt securities portfolio (see
"General Account Investments"), management expects the vast majority of the
Company's investments in debt securities to be repaid in accordance with
contractual terms. In addition, most of the debt securities in the portfolio are
highly marketable and can be sold to enhance cash flow before maturity.

Effective January 5, 2000, the Company changed its state of domicile from
Connecticut to Florida. All dividends paid by the Company to ILIAC must be
approved in advance by the Insurance Commissioner of the State of Florida. For
the years ended December 31, 2001 and 1999, it did not pay any dividends to
ILIAC. For the year ended December 31, 2000, the Company paid a dividend to
ILIAC of $2.4 million relating to the Florida re-domestication. In order to
comply with Florida state law, the par value of the Company's common stock was
changed from $2,000 per share to $100 per share at the time of redomestication.
The Company also amended its articles of incorporation and authorized additional
shares of capital stock, which were purchased by its parent. This transaction
had no effect on the value of the Company's common capital stock or total
shareholder's equity.

13

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

The Company has entered into support agreements with ILIAC under which ILIAC has
agreed to cause the Company to have sufficient capital to meet a certain capital
and surplus level. The Company did not receive any capital contributions
relating to these agreements in 2001 and 2000 and 1999.

See "Statements of Cash Flows" for additional information.

CRITICAL ACCOUNTING POLICIES

GENERAL

We have identified the accounting policies below as critical to our business
operations and understanding of our results of operations. For a detailed
discussion of the application of these and other accounting policies, see Note 1
in the Notes to Consolidated Financial Statements. Note that the application of
these accounting policies in the preparation of this report requires management
to use judgments involving assumptions and estimates concerning future results
or other developments including the likelihood, timing or amount of one or more
future transactions or events. There can be no assurance that actual results
will not differ from those estimates. These judgments are reviewed frequently by
senior management, and an understanding of them may enhance the reader's
understanding of the Company's financial statements and Management's Discussion
and Analysis.

AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

We amortize our deferred policy acquisition costs and value of business acquired
on our annuity and pension contracts in proportion to estimated gross profits
and adjusted to reflect actual gross profits over the life of the contracts (up
to 30 years for annuity and pension contracts). Our estimated gross profits are
computed based on assumptions related to the underlying contracts including, but
not limited to, charges assessed against policyholders, margins, lapse,
persistency, expenses and asset growth rates.

Our current estimated gross profits include certain judgments concerning charges
assessed against policyholders, margins, lapse, persistency, expenses and asset
growth that are based on a combination of actual company experience and
historical market experience of equity and fixed income returns. Estimated gross
profits are adjusted periodically to take into consideration the actual
experience to date and changes in future assumptions. Short-term variances of
actual results from the judgments made by management can impact quarter to
quarter earnings.

INCOME TAXES

The Company establishes reserves for possible adjustments by various taxing
authorities. Management believes there are sufficient reserves provided for, or
adequate defenses against, any such adjustments.

14

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
FORWARD-LOOKING INFORMATION/RISK FACTORS

The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a
"safe harbor" for forward-looking statements, so long as (1) those statements
are identified as forward-looking, and (2) the statements are accompanied by
meaningful cautionary statements that identify important factors that could
cause actual results to differ materially from those discussed in the statement.
We want to take advantage of these safe harbor provisions.

Certain information contained in this Management's Analysis of the Results of
Operations is forward-looking within the meaning of the 1995 Act or Securities
and Exchange Commission rules. This information includes, but is not limited to
the information that appears under the headings: (1) "Results of
Operations--Outlook" and (2) "General Account Investments--Risk Management and
Market Sensitive Instruments/Interest Rate Risk". In writing this Management's
Analysis of the Results of Operations, we also used the following words, or
variations of these words and similar expressions, where we intended to identify
forward-looking statements:

- Expects - Plans
- Projects - Believes
- Anticipates - Seeks
- Intends - Estimates

These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of significant uncertainties and
other factors, many of which are outside our control, that could cause actual
results to differ materially from these statements. You should not put undue
reliance on these forward-looking statements. We disclaim any intention or
obligation to update or revise forward-looking statements, whether as a result
of new information, future events or otherwise.

Set forth below are certain important risk factors that, in addition to general
economic conditions and other factors (some of which are discussed elsewhere in
this report), may affect these forward-looking statements and our businesses
generally.

CERTAIN FACTORS PARTICULAR TO THE COMPANY'S OPERATIONS

SIGNIFICANT CHANGES IN FINANCIAL MARKETS COULD AFFECT EARNINGS. Significant
changes in financial markets could impact the level of assets under management
and administration in our businesses, and, in turn, our level of asset-based
fees in those businesses. For example, significant increases in interest rates
or decreases in equity markets would directly affect the level of assets under
management and administration and, in addition, may increase the level of
withdrawals and decrease the level of deposits by customers. Customers under
those circumstances may seek to diversify among asset managers or seek
investment alternatives that we do not offer. Significant declines in the value
of investments also may affect our ability to pass through investment losses to
certain experience rated customers, whether due to triggering minimum guarantees
or other business reasons.

DECREASES IN RATINGS COULD AFFECT ASSETS UNDER MANAGEMENT. Decreases in the
claims-paying ratings of the Company could have the effect of decreasing new
sales and deposits and increasing withdrawals and surrenders in our businesses.
Such changes in sales and deposits, withdrawals and surrenders

15

ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued)
FORWARD-LOOKING INFORMATION/RISK FACTORS (continued)

would adversely affect the level of asset-based fees of our businesses.
Claims-paying ratings of the Company are periodically reviewed and subject to
changes, in certain cases, based on factors beyond our control.

EARLY WITHDRAWAL OF ASSETS COULD AFFECT EARNINGS. We incur up-front costs, such
as commissions, when we sell our annuity and other financial services products.
We generally defer these costs and recognize them over time. As a result, the
retention of assets under these products is an important component of
profitability. We generally seek to structure our products and sales to
encourage retention of assets under management and administration or recover
costs, through surrender charges, higher credited rates to customers if we
retain their assets for longer periods, paying renewal commissions, paying
service fees or other terms. However, if customers withdraw assets earlier than
we anticipated when we priced the products, it would adversely affect
profitability. We could also experience competitive pressure to lower margins.

LITIGATION CAN ADVERSELY AFFECT US. Litigation also could adversely affect us,
both through costs of defense and adverse results or settlements. Refer to Note
10 of Notes to Financial Statements for information regarding litigation.

CHANGES IN REGULATION COULD AFFECT THE OPERATIONS OF EACH OF OUR
BUSINESSES. Each of our businesses is subject to comprehensive regulation.
These businesses could be adversely affected by:

- - Increases in minimum capital and other financial viability requirements for
insurance operations;
- - Changes in the taxation of insurance companies; and
- - Changes in the tax treatment of annuity products as well as changes in
capital gains tax rates. Certain of these changes, should they occur, could
affect the attractiveness to customers of our products.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See "General Account Investments" in Management's Analysis of the Results of
Operations.

16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors........................................ 18

Financial Statements:

Statements of Income for the Year ended December 31, 2001, One
Month Ended December 31, 2000, the Eleven Months Ended
November 30, 2000 and for the Year Ended December 31, 1999..... 20

Balance Sheets as of December 31, 2001 and 2000................... 21

Statements of Changes in Shareholder's Equity for the Year ended
December 31, 2001, One Month Ended December 31, 2000, the
Eleven Months Ended November 30, 2000 and for the Year Ended
December 31, 1999.............................................. 22

Statements of Cash Flows for the Year ended December 31, 2001, One
Month Ended December 31, 2000, the Eleven Months Ended
November 30, 2000 and for the Year Ended December 31, 1999..... 23

Notes to Financial Statements..................................... 24

17

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
ING Insurance Company of America

We have audited the accompanying balance sheet of ING Insurance Company of
America (formerly Aetna Insurance Company of America and hereafter referred to
as the Company) as of December 31, 2001, and the related statements of income,
changes in shareholder's equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ING Insurance Company of
America at December 31, 2001, and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.

As discussed in Note 1, the Company adopted Financial Accounting Standards (FAS)
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and FAS
No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES.

/s/ Ernst & Young LLP

Hartford, Connecticut
January 31, 2002

18

INDEPENDENT AUDITORS' REPORT

The Shareholder and Board of Directors
ING Insurance Company of America:

We have audited the accompanying balance sheet of ING Insurance Company of
America, formerly known as Aetna Insurance Company of America, as of
December 31, 2000, and the related statements of income, changes in
shareholder's equity and cash flows for the period from December 1, 2000 to
December 31, 2000 ("Successor Company"), and for the period from January 1, 2000
to November 30, 2000 and the year ended December 31, 1999 ("Preacquisition
Company"). These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the Successor Company's financial statements referred to above
present fairly, in all material respects, the financial position of Aetna
Insurance Company of America at December 31, 2000, and the results of its
operations and its cash flows for the period from December 1, 2000 to
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America. Further, in our opinion, the Preacquisition
Company's financial statements referred to above present fairly, in all material
respects, the results of its operations and its cash flows for the period from
January 1, 2000 to November 30, 2000, and the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 1 to the financial statements, effective November 30, 2000,
ING America Insurance Holdings Inc. acquired all of the outstanding stock of
Aetna Inc., Aetna Insurance Company of America's indirect parent and sole
shareholder in a business combination accounted for as a purchase. As a result
of the acquisition, the financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.

/s/ KPMG LLP

Hartford, Connecticut
March 27, 2001

19

ING INSURANCE COMPANY OF AMERICA
(Formerly known as Aetna Insurance Company of America,
a wholly owned subsidiary of ING Life Insurance and Annuity Company)

STATEMENTS OF INCOME
(millions)

SEE NOTES TO FINANCIAL STATEMENTS.

20

ING INSURANCE COMPANY OF AMERICA
(Formerly known as Aetna Insurance Company of America,
a wholly owned subsidiary of ING Life Insurance and Annuity Company)

BALANCE SHEETS
(millions, except share data)

SEE NOTES TO FINANCIAL STATEMENTS.

21

ING INSURANCE COMPANY OF AMERICA
(Formerly known as Aetna Insurance Company of America,
a wholly owned subsidiary of ING Life Insurance and Annuity Company)

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(millions)

SEE NOTES TO FINANCIAL STATEMENTS.

22

ING INSURANCE COMPANY OF AMERICA
(Formerly known as Aetna Insurance Company of America,
a wholly owned subsidiary of ING Life Insurance and Annuity Company)

STATEMENTS OF CASH FLOWS
(millions)

SEE NOTES TO FINANCIAL STATEMENTS.

23

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ING Insurance Company of America ("IICA", or the "Company"), formerly known
as Aetna Insurance Company of America ("AICA"), is a provider of financial
services in the United States. The Company is a wholly-owned subsidiary of
ING Life Insurance and Annuity Company ("ILIAC"), formerly known as Aetna
Life Insurance and Annuity Company ("ALIAC"). ILIAC is a wholly-owned
subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a
wholly-owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"), whose
ultimate parent is ING Groep N.V. ("ING").

The Company has one operating segment and all revenue reported by the
Company comes from external customers.

BASIS OF PRESENTATION

These financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. Certain
reclassifications have been made to 2000 and 1999 financial information to
conform to the 2001 presentation.

On December 13, 2000, ING America Insurance Holdings, Inc., an indirect
wholly-owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna
Financial Services business, of which the Company is a part, and the Aetna
International business, for approximately $7.7 billion. The purchase price
was comprised of approximately $5.0 billion in cash and the assumption of
$2.7 billion of outstanding debt and other net liabilities. In connection
with the acquisition, Aetna Inc. was renamed Lion Connecticut Holdings Inc.
("Lion"). At the time of the sale, Lion entered into certain transition
services agreements with a former related party, Aetna U.S. Healthcare which
was renamed Aetna Inc. ("former Aetna").

For accounting purposes, the acquisition was recorded as of November 30,
2000 using the purchase method. The effects of this transaction, including
the recognition of goodwill, were pushed down and reflected on the financial
statements of certain ARSI (a subsidiary of Lion) subsidiaries, including
the Company. The Balance Sheet changes related to accounting for this
purchase were entirely non-cash in nature and accordingly have been excluded
from the pre-acquisition Statements of Cash Flows for the eleven months
ended November 30, 2000.

The purchase price was allocated to assets and liabilities based on their
respective fair values. This revaluation resulted in a net increase to
assets, excluding the effects of goodwill, of $3.2 million and a net
increase to liabilities of $1.1 million. Additionally, the Company
established goodwill of $98.9 million. Goodwill was being amortized over a
period of 40 years (refer to "Future Accounting Standard" within Note 1).

The allocation of the purchase price to assets and liabilities has been
subjected to further refinement throughout 2001 as additional information
has become available to more precisely

24

NOTES TO FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

estimate the fair values of the Company's respective assets and liabilities
at the purchase date. The refinements to the Company's purchase price
allocations are as follows:

The Company completed a full review relative to the assumptions and profit
streams utilized in the development of value of business acquired ("VOBA")
and determined that certain refinements were necessary. Such refinements
resulted in a reduction of VOBA;

The Company, after giving further consideration to certain exposures in the
general marketplace, determined that a reduction of its investment portfolio
carrying value was warranted; and

The Company adjusted its reserves for policyholder funds left with the
company in order to conform its accounting policies with those of ING.

The net impact of the refinements in purchase price allocations, as
described above, resulted in a net decrease to assets, excluding the effects
of goodwill, of $9.4 million, a net decrease to liabilities of $3.9 million,
and a net increase to the Company's goodwill of $5.5 million.

Unaudited pro forma consolidated net income for the period from the January
1, 2000 to November 30, 2000 and for the year-ended December 31, 1999,
assuming that the acquisition of the Company occurred at the beginning of
each period, would have been approximately $5.5 million and $2.9 million,
respectively. The pro forma adjustments, which do not affect revenues,
primarily reflect goodwill amortization.

NEW ACCOUNTING STANDARD

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended and interpreted by FAS No.
137, Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133, FAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment of FASB No. 133, and certain FAS No. 133
implementation issues. This standard, as amended, requires companies to
record all derivatives on the balance sheet as either assets or liabilities
and measure those instruments at fair value. The manner in which companies
are to record gains or losses resulting from changes in the fair values of
those derivatives depends on the use of the derivative and whether it
qualifies for hedge accounting. FAS 133 was effective for the Company's
financial statements beginning January 1, 2001.

Adoption of FAS No. 133 did not have a material effect on the Company's
financial position or results of operations given the Company's limited
derivative and embedded derivative holdings.

25

NOTES TO FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

FUTURE ACCOUNTING STANDARD

ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS

In July 2001, the FASB issued FAS No. 142, Accounting for Goodwill and
Intangible Assets. Under the new standard, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the new standard.
Other intangible assets will continue to be amortized over their useful
lives.

The Company will apply the new rules on the accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application
of the nonamortization provisions of the new standard is expected to result
in an increase in net income; however, the Company is still assessing the
impact of the new standard. During 2002, the Company will perform the
required impairment tests of goodwill as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and
financial position of the Company.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

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

Debt and equity securities are classified as available for sale and carried
at fair value. Securities are written down (as realized capital losses) for
other than temporary declines in value. 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 on the sale
of invested assets) and other risks subject to, among other things,
principal and interest guarantees. Realized capital gains and losses on
sales of, and unrealized capital gains and losses on, investments supporting
these products are reflected in policyholder's funds left with the Company.

Realized capital gains and losses on all other investments are reflected in
the Company's results of operations. Unrealized capital gains and losses on
all other investments are reflected in shareholders' equity, net of related
income taxes. Purchases and sales of debt and equity securities are recorded
on the trade date.

26

NOTES TO FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair values for debt and equity securities are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are
not available, fair values are measured utilizing quoted market prices for
similar securities or by using discounted cash flow methods.

Short-term investments, consisting of money market instruments and other
debt 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.

Cost for mortgage-backed securities is adjusted for unamortized premiums and
discounts, which are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments. The
Company does not accrue interest on problem debt securities when management
believes the collection of interest is unlikely.

The Company engages in securities lending whereby certain domestic
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 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.

In September 2000, the FASB issued FAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. In
accordance with this new standard, general account securities on loan are
reflected on the balance sheet as "Securities pledged to creditors," which
includes the following:

At December 31, 2001, securities pledged to creditors consisted entirely of
debt securities.

GOODWILL

Goodwill, which represents the excess of cost over the fair value of net
assets acquired, was amortized on a straight-line basis over 40 years.

27

NOTES TO FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company will adopt FAS 142, Accounting for Goodwill and Intangible
Assets, for 2002 and will change its method of accounting for goodwill
accordingly. Refer to "Future Accounting Standard" within Note 1 for related
information regarding accounting for goodwill.

DEFERRED POLICY ACQUISITION COSTS

Certain costs of acquiring certain insurance business are deferred. These
costs, all of which vary with and are primarily related to the production of
new and renewal business, consist principally of commissions, certain
expenses of underwriting and issuing contracts, and certain agency expenses.
For certain annuity contracts, such costs are amortized in proportion to
estimated gross profits and adjusted to reflect actual gross profits over
the life of the contracts (up to 30 years for annuity and pension
contracts).

Periodically, modifications may be made to deferred annuity contract
features, such as shortening the surrender charge period or waiving the
surrender charge, or changing the mortality and expense fees. Unamortized
deferred policy acquisition costs associated with these modified contracts
are not written off, but rather, continue to be associated with the original
block of business to which these costs were previously recorded. Such costs
are amortized based on revised estimates of expected gross profits based
upon the contract after the modification.

Deferred policy acquisition costs are written off to the extent that it is
determined that gross profits are not adequate to cover related expenses.

VALUE OF BUSINESS ACQUIRED

VOBA is an asset and represents the present value of estimated net cash
flows embedded in the Company's contracts acquired by ING. VOBA is amortized
in proportion to estimated gross profits and adjusted to reflect actual
gross profits over the life of the contracts (up to 30 years for annuity
contracts). VOBA is written off to the extent that it is determined that
gross profits are not adequate to recover the asset.

Activity for the year-ended December 31, 2001 within VOBA was as follows:

The estimated amount of VOBA to be amortized, net of interest, over the next
five years is $8.0 million, $6.7 million, $6.6 million, $5.4 million and
$3.9 million for the years 2002, 2003, 2004,

28

NOTES TO FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2005, and 2006 respectively. Actual amortization incurred during these years
may vary as assumptions are modified to incorporate actual results.

RESERVES

Reserves for limited payment contracts (i.e., annuities with life contingent
payout) are computed on the basis of assumed investment yield and mortality,
including a margin for adverse deviation which is assumed to provide for
expenses. The assumptions vary by plan, year of issue and policy duration.

Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts and immediate annuities without life contingent
payouts. Reserves on such contracts are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from
4.60% to 9.00% for 2001 and from 3.80% to 8.00% for 2000 and 1999), 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 FAS No. 115. Reserves on contracts subject to
experience rating reflect the rights of contractholders, plan participants
and the Company.

REVENUE RECOGNITION

For certain annuity contracts, charges assessed against policyholders' funds
for the cost of insurance, surrender charges, actuarial margin and other
fees are recorded as revenue in charges assessed against policyholders.
Other amounts received for these contracts are reflected as deposits and are
not recorded as 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.

SEPARATE ACCOUNTS

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

Separate Account assets supporting variable options under annuity contracts
are invested, as designated by the contractholder or participant under a
contract (who bears the investment risk subject, in limited cases, to
minimum guaranteed rates) in shares of mutual funds which are managed by an
affiliate of the Company, or other selected unaffiliated mutual funds.

Separate Accounts assets are carried at fair value. At December 31, 2001
unrealized gains of $1.1 million, after taxes, on assets supporting a
guaranteed interest option are reflected in shareholder's equity. The
amounts in 2000 were immaterial.

29

NOTES TO FINANCIAL STATEMENTS (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Separate Accounts liabilities are carried at fair value, except for those
relating to the guaranteed interest option. Reserves relating to the
guaranteed interest option are maintained at fund value and reflect interest
credited at rates ranging from 3.00% to 14.00% in 2001 and 3.80% to 14.00%
in 2000.

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

TAXES

The Company files a consolidated federal income tax return with its parent,
ILIAC. 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

Debt securities available-for-sale at December 31, 2001 were as follows:

30

NOTES TO FINANCIAL STATEMENTS (continued)

2. INVESTMENTS (continued)

Debt securities available-for-sale at December 31, 2000 were as follows:

As of December 31, 2001 and 2000, net unrealized appreciation (depreciation)
of $4.2 million and $0.8 million, respectively, on available-for-sale debt
securities pledged to creditors included $3.9 million and $(4.5) million,
respectively, related to experience-rated contracts, which were not
reflected in shareholder's equity but in policyholders' funds left with the
Company.

The amortized cost and fair value of total debt securities for the
year-ended December 31, 2001 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called or prepaid.

31

NOTES TO FINANCIAL STATEMENTS (continued)

2. INVESTMENTS (continued)

At December 31, 2001 and 2000, debt securities carried at fair values of
$5.8 million and $5.7 million, respectively, were on deposit as required by
various state regulatory agencies.

Investments in equity securities available for sale as of December 31, were
as follows:

There were no investments in equity securities at December 31, 2001.

The Company does 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, 2001.

3. FINANCIAL INSTRUMENTS

ESTIMATED FAIR VALUE

The carrying values and estimated fair values of the Company's investment
contract liabilities at December 31, 2001 and 2000 were as follows:

Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount 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 instrument. 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.

32

NOTES TO FINANCIAL STATEMENTS (continued)

3. FINANCIAL INSTRUMENTS (continued)

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

INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH
THE COMPANY):

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 contractholder 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 hat determined to be payable.

OFF-BALANCE-SHEET AND OTHER FINANCIAL INSTRUMENTS

The Company did not have any transactions in off-balance-sheet or other
financial instruments in 2001 or 2000.

4. NET INVESTMENT INCOME

Sources of net investment income were as follows:

Net investment income includes amounts allocable to experience-rated
contractholders of $7.3 million for the year-ended December 31, 2001, $0.7
million and $8.2 million for the one and eleven month periods ended December
31, 2000 and November 30, 2000, respectively, and $8.6 million for the
year-ended December 31, 1999, respectively. Interest credited to
contractholders is included in current and future benefits.

33

NOTES TO FINANCIAL STATEMENTS (continued)

5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY

Effective January 5, 2000 the Company changed its state of domicile from
Connecticut to Florida. All dividends paid to ILIAC by the Company must be
approved in advance by the Insurance Commissioner of the State of Florida.
Prior to January 5, 2000 the Company was domiciled in the State of
Connecticut.

For the years-ended December 31, 2001 and 1999 the Company did not pay any
dividends to ILIAC. For the year-ended December 31, 2000, the Company paid a
dividend to ILIAC of $2.4 million relating to the Florida redomestication.
In order to comply with Florida state law, the par value of the Company's
common stock was changed from $2,000 per share to $100 per share at the time
of redomestication. The Company also amended its articles of incorporation
and authorized additional shares of capital stock, which were purchased by
its parent. This transaction had no effect on the value of the Company's
common capital stock or total shareholder's equity.

The Insurance Departments of the State of Florida and the State of
Connecticut recognize as net income and capital and surplus, those amounts
determined in conformity with statutory accounting practices prescribed or
permitted by the respective Departments, which differ in certain respects
from accounting principles generally accepted in the United States of
America. Statutory net income (loss) was $1.1 million, $5.7 million, and
$(0.1) million for the years-ended December 31, 2001, 2000 and 1999,
respectively. Statutory capital and surplus was $59.7 million and $57.3
million as of December 31, 2001 and 2000, respectively.

The Company has entered into support agreements with ILIAC under which ILIAC
has agreed to cause the Company to have sufficient capital to meet a certain
capital and surplus level. The Company received no capital contributions
relating to these agreements in 2001, 2000, or 1999

As of December 31, 2001, the Company does 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.

For 2001, the Company was required to implement statutory accounting changes
ratified by the National Association of Insurance Commissioners and state
insurance departments ("Codification"). The cumulative effect of
Codification to the Company's statutory surplus as of December 31, 2001 was
an increase of $1.2 million.

6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS

Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.

34

NOTES TO FINANCIAL STATEMENTS (continued)

6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued)

Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses (excluding those related to experience rated
contractholders in 2001, 2000 and 1999) were as follows:

Net realized capital gains (losses) of $1.3 million, $(1.1) million and
$(1.1) million, respectively, allocable to experience-rated contracts, were
deducted from net realized capital gains and losses and an offsetting amount
was reflected in policyholders' funds left with the Company for the
year-ended December 31, 2001, eleven months ended November 30, 2000 and
year-ended December 31, 1999, respectively. The amounts for one month ended
December 31, 2000 were immaterial. Net unamortized losses were
$(1.1) million, $(1.9) million and $(1.0) million for the year ended
December 31, 2001, eleven months ended November 30, 2000 and year-ended
December 31, 1999, respectively. Net amortized losses for the one month
ended December 31, 2000 were not significant.

Changes in shareholder's equity related to changes in accumulated other
comprehensive income (loss) (i.e., unrealized capital gains and losses on
securities including securities pledged to creditors), were as follows:

Net unrealized capital gains allocable to experienced rated contracts of
$3.9 million and $0.5 million at December 31, 2001 and 2000, respectively,
are reflected on the Balance Sheets in policyholders' funds left with the
Company and are not included in shareholder's equity.

35

NOTES TO FINANCIAL STATEMENTS (continued)

6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued)

Shareholder's equity included the following accumulated other comprehensive
income, which is net of amounts allocable to experience rated
contractholders, at December 31:

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

(1) Pretax unrealized holding gains (losses) arising during the period
were $2.6 million $1.8 million and $(4.5) million for 2001, 2000, and
1999, respectively.
(2) Pretax reclassification adjustments for gains (losses) and other items
included in net income were $0.9 million, $(1.0) million and
$(0.2) million for 2001, 2000 and 1999, respectively.

7. INCOME TAXES

The Company files a consolidated federal income tax return with the ILIAC
consolidated group. The Company has a tax allocation agreement with ILIAC
whereby the Company is charged by its parent for taxes it would have
incurred were it not a member of the consolidated group and is credited for
losses at the statutory rate.

36

NOTES TO FINANCIAL STATEMENTS (continued)

7. INCOME TAXES (continued)

Income taxes consist of:

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

37

NOTES TO FINANCIAL STATEMENTS (continued)

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: