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)