ING LIFE INSURANCE & ANNUITY CO - 10-Q Quarterly Report

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

FORM 10-Q

(Mark One)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 333-86276, 333-86278, 333-104456

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 formal fiscal year, if changed since last report

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 ______

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 August 12, 2003, 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 H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings, Inc.)
Form 10-Q for the period ended June 30, 2003

INDEX

2

PART I. FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions)

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

3

ITEM 1. FINANCIAL STATEMENTS (continued)
ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Lion Connecticut Holdings, Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions, except share data)

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

4

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

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

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

5

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)

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

6

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

ING Life Insurance and Annuity Company ("ILIAC"), and its wholly-owned
subsidiaries (collectively, the "Company") are providers of financial
products and services in the United States. These condensed consolidated
financial statements include ILIAC and its wholly-owned subsidiaries, ING
Insurance Company of America ("IICA"), ING Financial Advisers, LLC, and,
through February 28, 2002, Aetna Investment Adviser Holding Company, Inc.
("IA Holdco"). ILIAC is a wholly-owned subsidiary of Lion Connecticut
Holdings, Inc. ("Lion Connecticut"). Lion Connecticut is ultimately owned by
ING Groep N.V. ("ING"), a financial services company based in The
Netherlands.

On February 28, 2002, ILIAC contributed 100% of the stock of IA Holdco and
its subsidiaries to Lion Connecticut Holdings, Inc. ("HOLDCO," former ILIAC
parent company), resulting in a distribution totaling $60.1 million. As a
result of this transaction, the Investment Management Services segment is no
longer reflected as an operating segment of the Company.

The condensed consolidated financial statements and notes as of June 30,
2003 and December 31, 2002 and for the three and six-month periods ended
June 30, 2003 and 2002 ("interim periods") have been prepared in accordance
with accounting principles generally accepted in the United States of
America and are unaudited. The condensed consolidated financial statements
reflect all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for the fair presentation of
the consolidated financial position, results of operations and cash flows
for the interim periods. These condensed consolidated financial statements
and notes should be read in conjunction with the consolidated financial
statements and related notes as presented in the Company's 2002 Annual
Report on Form 10-K. The results of operations for the interim periods
should not be considered indicative of results to be expected for the full
year. Certain reclassifications have been made to 2002 financial information
to conform to the 2003 presentation.

The Company conducts its business through one reporting segment, U.S.
Financial Services ("USFS"), and revenue reported by the Company is
predominantly derived from external customers.

2. RECENTLY ADOPTED ACCOUNTING STANDARDS

ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS

During 2002, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("FAS") No. 142,
"Goodwill and Other Intangible Assets" ("FAS No. 142"). The adoption of this
standard resulted in an impairment loss of $2,412.1 million which was
recorded by the Company in the fourth quarter of 2002. This impairment loss
represented the entire carrying amount of goodwill, net of accumulated
amortization. This impairment charge was shown as a change in accounting
principle on the December 31, 2002 Consolidated Income Statement. Effective
January 1, 2002, the Company applied the

7

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

2. RECENTLY ADOPTED ACCOUNTING STANDARDS (continued)
non-amortization provision of the new standard, therefore, the Company's net
income is comparable for all periods presented.

3. NEW ACCOUNTING PRONOUNCEMENTS

In July 2003, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 03-1, ACCOUNTING AND REPORTING BY
INSURANCE ENTERPRISES FOR CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND
FOR SEPARATE ACCOUNTS, which the Company intends to adopt on January 1,
2004. The impact on the financial statements is not known at this time.

4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

Deferred Policy Acquisition Costs ("DAC") is an asset, which represents
certain costs of acquiring certain insurance business, which are deferred
and amortized. These costs, all of which vary with and are primarily related
to the production of new and renewal business, consist principally of
commissions, certain underwriting and contract issuance expenses, and
certain agency expenses. Value of business acquired ("VOBA") is an asset,
which represents the present value of estimated net cash flows embedded in
the Company's contracts, which existed at the time the Company was acquired
by ING. DAC and VOBA are evaluated for recoverability at each balance sheet
date and these assets would be reduced to the extent that gross profits are
inadequate to recover the asset.

The amortization methodology varies by product type based upon two
accounting standards: FAS No. 60, "Accounting and Reporting by Insurance
Enterprises" ("FAS No. 60") and FAS No. 97, "Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains
and Losses from the Sale of Investments" ("FAS No. 97").

Under FAS No. 60, acquisition costs for traditional life insurance products,
which primarily include whole life and term life insurance contracts, are
amortized over the premium payment period in proportion to the premium
revenue recognition.

Under FAS No. 97, acquisition costs for universal life and investment-type
products, which include universal life policies and fixed and variable
deferred annuities, are amortized over the life of the blocks of policies
(usually 25 years) in relation to the emergence of estimated gross profits
from surrender charges, investment margins, mortality and expense margins,
asset-based fee income, and actual realized gains (losses) on investments.
Amortization is adjusted retrospectively when estimates of current or future
gross profits to be realized from a group of products are revised.

8

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED (continued)
VOBA activity for the six months ended June 30, 2003 was as follows:

5. INVESTMENTS

IMPAIRMENTS

During the three months ended June 30, 2003, the Company determined that
fifty-three fixed maturities had other than temporary impairments. As a
result, for the three months ended June 30, 2003, the Company recognized a
pre-tax loss of $24.1 million to reduce the carrying value of the fixed
maturities to their fair value of $124.0 million at the time of impairment.
During the three months ended June 30, 2002, the Company determined that
twelve fixed maturities had other than temporary impairments. As a result,
for the three months ended June 30, 2002, the Company recognized a pre-tax
loss of $32.1 million to reduce the carrying value of the fixed maturities
to their fair value of $15.2 million.

During the first six months of 2003, the Company determined that
seventy-five fixed maturities had other than temporary impairments. As a
result, for the six months ended June 30, 2003, the Company recognized a
pre-tax loss of $66.2 million to reduce the carrying value of the fixed
maturities to their fair value of $152.9 million at the time of impairment.
During the first six months of 2002, the Company determined that seventeen
fixed maturities had other than temporary impairments. As a result, for the
six months ended June 30, 2002, the Company recognized a pre-tax loss of
$35.3 million to reduce the carrying value of the fixed maturities to their
fair value of $13.5 million.

6. SEVERANCE

In December 2001, ING announced its intentions to further integrate and
streamline the U.S.-based operations of ING Americas (a business division of
ING which includes the Company) in order to build a more customer-focused
organization. During the first quarter 2003, the Company performed a
detailed analysis of its severance accrual. As part of this analysis, the
Company corrected the initial planned number of people to eliminate from 580
to 515 (corrected from the 2002 Annual Report on Form 10-K) and extended the
date of expected substantial completion for severance actions to June 30,
2003.

9

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

6. SEVERANCE (continued)
Activity for the six months ended June 30, 2003 within the severance
liability and positions eliminated related to such actions were as follows:

7. INCOME TAXES

The Company's effective tax rates for the six months ended June 30, 2003 and
2002 were 32.0% and 33.7%, respectively. The effective tax rates for the
three months ended June 30, 2003 and 2002 were 32.5% and 32.8%,
respectively. The decreases in effective tax rates result primarily from an
increase in the deduction allowed for dividends received.

8. COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS

Through the normal course of investment operations, the Company commits to
either purchase or sell securities, commercial mortgage loans or money
market instruments at a specified future date and at a specified price or
yield. The inability of counterparties to honor these commitments may result
in either higher or lower replacement cost. Also, there is likely to be a
change in the value of the securities underlying the commitments. At
June 30, 2003 and December 31, 2002, the Company had off-balance sheet
commitments to purchase investments equal to the fair value of $256.8
million and $236.7 million, respectively.

LITIGATION

The Company is a party to threatened or pending lawsuits arising from the
normal conduct of business. Due to the climate in insurance and business
litigation, 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, in light of
existing insurance, reinsurance and established reserves, it is the opinion
of management that the disposition of such lawsuits will not have a
materially adverse effect on the Company's operations or financial position.

9. SEGMENT INFORMATION

The Company's realignment of Worksite Products and Individual Products
operating segments into one reporting segment (USFS) is reflected in the
restated summarized financial information for the period ended June 30, 2002
in the table below. Effective with the third quarter of 2002, items that
were previously not allocated to USFS but reported in the Other segment are
now allocated to USFS and reported in the restated financial information for
the period ending June 30, 2002.

10

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

9. SEGMENT INFORMATION (continued)
Summarized financial information for the Company's principal operations for
the six months ended June 30, 2003 and 2002 was as follows:

(1) USFS includes deferred annuity contracts that fund defined
contribution and deferred compensation plans, immediate annuity
contracts; mutual funds; distribution services for annuities and
mutual funds; programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and record-
keeping services along with a menu of investment options; wrapper
agreements containing certain benefit responsive guarantees that are
entered into with retirement plans, whose assets are not invested with
the Company; investment advisory services and pension plan
administrative services. USFS also includes deferred and immediate
annuity contracts, both qualified and nonqualified, that are sold to
individuals and provide variable or fixed investment options or a
combination of both.
(2) Investment Management Services include: investment advisory services
to affiliated and unaffiliated institutional and retail clients;
underwriting; distribution for Company mutual funds and a former
affiliate's separate accounts; and trustee, administrative and other
services to retirement plans. On February 28, 2002, IA Holdco and its
subsidiaries, which comprised this segment, were distributed to
HOLDCO.
(3) Other includes consolidating adjustments between USFS and Investment
Management Services.
(4) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses. While operating earnings is the
measure of profit or loss used by the Company's management when
assessing performance or making operating decisions, it does not
replace net income as a measure of profitability.

11

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

OVERVIEW

The following narrative analysis of the results of operations and financial
condition presents a review of the ING Life Insurance and Annuity Company and
its wholly-owned subsidiaries ("ILIAC", or the "Company") as of June 30, 2003
and December 31, 2002 and for the three and six-month periods ended June 30,
2003 and 2002. This review should be read in conjunction with the condensed
consolidated financial statements and other data presented herein, as well as
the "Management's Narrative Analysis of the Results of Operations and Financial
Condition" section contained in the Company's 2002 Annual Report on Form 10-K.

NATURE 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 and
457, as well as nonqualified deferred compensation plans. Annuity contracts may
be deferred or immediate (payout annuities). These products also include
programs offered to qualified plans and nonqualified deferred compensation plans
that package administrative and record-keeping services along with a variety of
investment options, including affiliated and nonaffiliated mutual funds and
variable and fixed investment options. In addition, the Company 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.

RECENTLY ADOPTED ACCOUNTING STANDARDS

ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS

During 2002, the Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("FAS") No. 142, "Goodwill and Other
Intangible Assets" ("FAS No.142"). The adoption of this standard resulted in an
impairment loss of $2,412.1 million which was recorded by the Company in the
fourth quarter of 2002. This impairment loss represented the entire carrying
amount of goodwill, net of accumulated amortization. This impairment charge was
shown as a change in accounting principle on the December 31, 2002 Consolidated
Income Statement. Effective January 1, 2002, the Company applied the
non-amortization provision of the new standard, therefore, the Company's net
income is comparable for all periods presented.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2003, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 03-1, ACCOUNTING AND REPORTING BY INSURANCE
ENTERPRISES FOR CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE
ACCOUNTS, which the Company intends to adopt on January 1, 2004. The impact on
the consolidated financial statements is not known at this time.

12

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
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. 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
affected in a materially adverse manner 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. In developing these estimates management makes subjective and
complex judgments that are inherently uncertain and subject to material change
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 condensed consolidated financial
statements.

INVESTMENT IMPAIRMENT TESTING

The Company reviews the general account investments for impairments by
considering 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. Based on the facts and
circumstances of each case, management uses judgment in deciding whether any
calculated impairments are temporary or other than temporary. For those
impairments judged to be other than temporary, the Company reduces the carrying
value of those investments to the current fair value and records impairment
losses for the difference.

AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

Deferred policy acquisition costs ("DAC") and value of business acquired
("VOBA") are amortized with interest over the life of the contracts (usually 25
years) in relation to the present value of estimated gross profits from
projected interest margins, asset-based fees, policy administration and
surrender charges less policy maintenance fees.

Changes in assumptions can have a significant impact on the calculation of
DAC/VOBA and its related amortization patterns. Due to the relative size of the
DAC/VOBA balance and the sensitivity of the calculation to minor changes in the
underlying assumptions and the related volatility that could result in the
reported DAC/VOBA balance, the Company performs a quarterly analysis of DAC/
VOBA. At each balance sheet date, actual historical gross profits are reflected
and expected future gross profits and related assumptions are evaluated for
continued reasonableness.

13

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
CRITICAL ACCOUNTING POLICIES (continued)
Any adjustment in estimated profit requires that the amortization rate be
revised retroactively to the date of policy or contract issuance ("unlocking"),
which could be significant. The cumulative difference related to prior periods
is recognized as a component of the current period's amortization, along with
amortization associated with the actual gross profits of the period. In general,
increases in estimated returns result in increased expected future profitability
and may lower the rate of amortization, while increases in lapse/surrender and
mortality assumptions or decreases in returns reduce the expected future
profitability of the underlying business and may increase the rate of
amortization.

One of the most significant assumptions involved in the estimation of future
gross profits for variable universal life and deferred annuity products is the
assumed return associated with future separate account performance. To reflect
the near-term and long-term volatility in the equity markets this assumption
involves a combination of near-term expectations and a long-term assumption
about market performance. The overall return generated by the separate account
is dependent on several factors, including the relative mix of the underlying
sub-accounts among bond funds and equity funds as well as equity sector
weightings.

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 and 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 (for additional information, see the Legal Initiatives
section below). 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 credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the SEC. The Company disclaims any obligation to update
forward-looking information.

14

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS

USFS

(1) Excludes net unrealized capital gains of $1,016.1 million and $353.3
million at June 30, 2003 and 2002, respectively.
(2) Includes $10,618.7 million at June 30, 2003 and $10,512.2 million at
June 30, 2002 related to deposits into the Company's products and invested
in unaffiliated mutual funds.
(3) Represents assets for which the Company provides administrative services
only.

Premiums for the three and six month periods ended June 30, 2003 decreased by
$8.6 million and $12.0 million, respectively, compared to the same periods in
2002, primarily due to a decrease in immediate annuities with life
contingencies.

15

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
USFS (continued)
Fee income for the three months ended June 30, 2003 decreased by $11.8 million
compared to the same period in 2002. During the six month period ended June 30,
2003, fee income decreased by $33.3 million compared to same period in 2002. The
decrease in fee income during the comparative periods was principally due to
lower average variable assets under management. Substantially all of the fee
income on variable assets is calculated based on assets under management, which
decreased due to the continued decline in the equity markets, and customer
transfers to fixed options.

Net investment income during the three months ended June 30, 2003 decreased by
$35.3 million compared to the same period in 2002. Net investment income for the
six months ended June 30, 2003 compared to the six months ended June 30, 2002,
decreased $24.9 million. The decrease in net investment income is primarily due
to lower investment yields partially offset by an increase in average assets
under management with fixed options.

Net realized capital gains for the three and six month periods ended June 30,
2003 increased by $88.0 million and $108.2 million, respectively, compared to
the same periods in 2002. The increase in net realized capital gains is a direct
result of a decrease in the 10-year treasury rate between the comparative
periods. A significant variable affecting realized gains and losses is the
10-year treasury yield. This rate decreased from 4.8% to 3.5% between June 30,
2002 and 2003. In a declining rate environment, the market value of fixed
maturities held in the Company's portfolio increases assuming no credit
deterioration. The increase in net realized gains reflects the impact of this
variable on the overall sale of fixed maturities.

Interest credited and other benefits to contractholders for the three and six
months ended June 30, 2003, compared to the same periods in 2002, decreased by
$15.8 million and $4.6 million, respectively. A decrease in credited rates to
contractholders partially offset by an increase in average assets under
management with fixed options resulted in the overall decrease in interest
credited and other benefits to contractholders.

Underwriting, acquisition, and insurance expenses were higher by $12.9 million
and $2.8 million for the three and six months ended June 30, 2003, respectively,
as compared to the same periods in 2002. An increase in general expenses and a
decrease policy acquisition costs deferred were offset by a decrease in
commissions, which resulted in the increase in underwriting, acquisition, and
insurance expenses. Policy acquisition costs deferred were primarily affected by
the decrease in commissions. Commissions decreased during the period as a result
of a decrease in new and renewal business (fee income and premiums) generated
during the three and six months ended June 30, 2003 as compared to the same
periods in 2002.

Amortization of deferred policy acquisition costs and value of business acquired
for the three and six month periods ended June 30, 2003, decreased by $37.0
million and $13.0 million, respectively, compared to the same periods in 2002.
Decreased amortization during the three and six month periods ended June 30,
2003 was primarily due to improved stock market and fund performance. The
positive market conditions resulted in negative amortization for the three
months ended June 30, 2003. Amortization of long-duration products is recorded
in proportion to actual and estimated future gross profits. Estimated gross
profits are computed based on underlying assumptions related to the underlying
contracts, including but not limited to interest margins, mortality, lapse,
premium

16

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
USFS (continued)
persistency, expenses, and asset growth. The decrease in the amortization of
deferred policy acquisition costs and value of insurance acquired reflects the
impact of these variables on the overall book of business.

Net income increased by $48.9 million and $37.1 million for the three and six
months ended June 30, 2003, as compared to the three and six months ended
June 30, 2002. The increased earnings are the result of net realized gains,
lower amortization of value of business acquired due to better market and fund
performance during the quarter, and lower interest credited and other benefits
to contractholders. The increase to net income was partially offset by a
reduction in net investment income, fee income and an increase in underwriting,
acquisition and insurance expenses.

NON-OPERATING SEGMENT

The non-operating segment of the Company relates to Investment Management
Services, which is comprised of IA Holdco and its subsidiaries, which were
distributed to HOLDCO on February 28, 2002 (refer to Note 1 of the Condensed
Consolidated Notes to the Financial Statements).

Investment Management Services' net income for the six months ended June 30,
2002 was $4.7 million. The 2002 results reflect operating results through
February 28, 2002 only.

FINANCIAL CONDITION

INVESTMENTS

FIXED MATURITIES

At June 30, 2003 and December 31, 2002, the Company's carrying value of
available for sale fixed maturities including securities pledged to creditors
(hereinafter referred to as "total fixed maturities") represented 93% and 94% of
the total general account invested assets, respectively. For the same periods,
$13,478.2 million, or 75% of total fixed maturities including securities pledged
to creditors, and $11,808.4 million, or 74% of total fixed maturities,
respectively, supported experience-rated products. Total fixed maturities
including securities pledged to creditors reflected net unrealized capital gains
of $1,016.1 million and $725.9 million at June 30, 2003 and December 31, 2002,
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 agencies. The average quality rating of the Company's
fixed maturities portfolio was AA and AA- at June 30, 2003 and December 31,
2002, respectively.

Fixed maturities rated BBB and below 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.

17

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
INVESTMENTS (continued)
The percentage of total fixed maturities by quality rating category is as
follows:

The percentage of total fixed maturities by market sector is as follows:

(1) Primarily U.S. dollar denominated

The Company analyzes the general account investments to determine whether there
has been an other than temporary decline in fair value below the amortized cost
basis in accordance with FAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management considers the length of time and the
extent to which 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 a debt security will not be collected, an other than temporary impairment is
considered to have occurred.

In addition, the Company invests in structured securities that meet the criteria
of 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 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.

18

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
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.
The Company's principal sources of liquidity are deposits on contracts, product
charges, investment income, maturing investments, and capital contributions.
Primary uses of liquidity are payments of commissions and operating expenses,
interest and premium credits, investment purchases, as well as withdrawals and
surrenders.

The Company's liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include a borrowing facility to meet short-term
cash requirements. The Company maintains a reciprocal loan agreement with ING
America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and
affiliate. Under this agreement, which became effective in June 2001 and expires
in April 2011, the Company and ING AIH can borrow up to 3% of the Company's
statutory admitted assets as of the preceding December 31 from one another.
Management believes that its sources of liquidity are adequate to meet the
Company's short-term cash obligations.

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

In the first six months of 2003, the Company received a capital contribution of
$200.0 million from Lion Connecticut Holdings, Inc.

LEGISLATIVE INITIATIVES

The Jobs and Growth Tax Relief Reconciliation Act of 2003 which was enacted in
the second quarter may impact the Company. The Act's provisions, which reduce
the tax rates on long-term capital gains and corporate dividends, impact the
relative competitiveness of the Company's products especially variable
annuities.

Other legislative proposals under consideration include repealing the estate
tax, changing the taxation of products, changing life insurance company taxation
and making changes to nonqualified deferred compensation arrangements. 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 tax position and products cannot be predicted.

19

ITEM 4. CONTROLS AND PROCEDURES

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

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to threatened or pending lawsuits arising from the normal
conduct of business. Due to the climate in insurance and business litigation,
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, in light of existing insurance, reinsurance and established
reserves, it is the opinion of management that the disposition of such lawsuits
will not have a materially adverse effect on the Company's operations or
financial position.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

None.

(b) Reports on form 8-K.

None.

20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ING LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)

August 12, 2003 By /s/ Cheryl L. Price
- ------------------- ----------------------------------------
(Date) Cheryl L. Price
Vice President and Chief Accounting
Officer

By /s/ David A. Wheat
----------------------------------------
David A. Wheat
Senior Vice President and Chief
Financial Officer

21

CERTIFICATION

I, David A. Wheat, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ING Life Insurance and
Annuity Company;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

Date: August 12, 2003

By /s/ David A. Wheat
- --------------------------------------------------
David A. Wheat
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)

22

CERTIFICATION

I, Keith Gubbay, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ING Life Insurance and
Annuity Company;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

Date August 12, 2003

By /s/ Keith Gubbay
- --------------------------------------------------
Keith Gubbay
President
(Duly Authorized Officer and Principal Executive
Officer)

23

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of ING Life
Insurance and Annuity Company (the "Company") hereby certifies that, to the
officer's knowledge, the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

August 12, 2003 By /s/ David A. Wheat
- ---------------------------------------- -------------------------------------------------
(Date) David A. Wheat
Senior Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.

24

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of ING Life
Insurance and Annuity Company (the "Company") hereby certifies that, to the
officer's knowledge, the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

August 12, 2003 By /s/ Keith Gubbay
- ---------------------------------------- -------------------------------------------------
(Date) Keith Gubbay
President

The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document.

25