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, 2003

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

ING LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
(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

- --------------------------------------------------------------------------------
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 25, 2004, 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, 2003

TABLE OF CONTENTS

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

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PART I

ITEM 1. BUSINESS

ORGANIZATION OF BUSINESS

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 consolidated financial statements
include ILIAC and its wholly-owned subsidiaries, ING Insurance Company of
America ("IICA"), ING Financial Advisers, LLC ("IFA"), and, through February 28,
2002 ING Investment Adviser Holding, Inc. ("IA Holdco"). Until March 30, 2003,
ILIAC was a wholly-owned subsidiary of ING Retirement Holdings, Inc. ("HOLDCO"),
which was a wholly-owned subsidiary of ING Retirement Services, Inc. ("IRSI").
Until March 30, 2003, IRSI was a wholly-owned subsidiary of Lion Connecticut
Holding Inc. ("Lion"), which in turn was ultimately owned by ING Groep N.V.
("ING"), a financial services company based in The Netherlands. On March 30,
2003, a series of mergers occurred in the following order: IRSI merged into
Lion, HOLDCO merged into Lion and IA Holdco merged into Lion. As a result, ILIAC
is now a direct wholly-owned subsidiary of Lion.

HOLDCO contributed IFA to the Company on June 30, 2000. On February 28, 2002,
ILIAC contributed 100% of the stock of IA Holdco and its subsidiaries to HOLDCO
(former ILIAC parent) in the form of a $60.1 million dividend distribution. The
primary operating subsidiary of IA Holdco is Aeltus Investment Management, Inc.
("Aeltus"). Accordingly, fees earned by Aeltus were not included in Company
results subsequent to the dividend date. As a result of this transaction, the
Investment Management Services segment is no longer reflected as an operating
segment of the Company.

On December 13, 2000, ING America Insurance Holdings, Inc. ("ING AIH"), an
indirect wholly-owned subsidiary of ING, acquired Aetna Inc., comprised of the
Aetna Financial Services business, of which the Company is a part, and Aetna
International businesses, for approximately $7,700.0 million. The purchase price
was comprised of approximately $5,000.0 million in cash and the assumption of
$2,700.0 million of outstanding debt and other net liabilities. In connection
with the acquisition, Aetna Inc. was renamed Lion.

PRODUCTS AND SERVICES

Management has determined that under Statement of Financial Accounting Standards
No. 131 DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the
Company has one operating segment, ING U.S. Financial Services ("USFS").

The Company's USFS segment 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.

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INVESTMENT OPTIONS

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 advised and/or distributed by ILIAC or its
affiliates, or advised and/or distributed by unaffiliated entities. Variable
separate account investment income and realized capital gains and losses are not
reflected in the Company's consolidated statements of income. Fixed options are
either "fully-guaranteed" or "experience-rated". Fully-guaranteed fixed options
provide guarantees on investment return, 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 in addition to the compensation from the fund's adviser, administrator or
other affiliated entity for the performance of certain shareholder services. In
the case of the variable option mutual funds advised 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.

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., deposits less surrenders), investment
performance (i.e., interest credited to customer accounts for fixed options or
market performance for variable options) and customer retention. The Company's
assets under management, excluding net unrealized capital gains and losses on
debt securities that support fixed annuities, were $51,751.5 million, $46,426.7
million and $50,781.4 million at December 31, 2003, 2002 and 2001, respectively.

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Approximately 93% and 94% of assets under management at December 31, 2003 and
2002, respectively, allowed for policyholder withdrawal. Approximately 83% and
85% of assets under management at December 31, 2003 and 2002, respectively, are
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 policyholder balances withdrawn within a
period of time after the contract's inception. The period of time and level of
the charge vary by product. 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.

Assets under management are summarized in the Results of Operations section of
Management's Narrative Analysis of the Results of Operations and Financial
Condition.

A portion of the Company's fee revenue is also based on assets under
administration. Assets under administration are assets for which the Company
provides administrative services only. Assets under administration were
$21,102.5 million at December 31, 2003, $13,613.0 million at December 31, 2002
and $10,317.4 million at December 31, 2001.

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.

COMPETITION

Competition arises from an array of financial services companies including other
insurance companies, banks, mutual funds and other investment managers.
Principal competitive factors are reputation for investment performance, product
features, service, cost and the perceived financial strength of the investment
manager or sponsor. Competition may affect, among other matters, both business
growth and the pricing of the Company's products and services.

RESERVES

Reserves for limited payment contracts (i.e. annuities with life contingent
payout) are computed on the basis of assumed investment yield and mortality,
including a margin for adverse deviation, which is assumed to provide for
expenses. The assumptions vary by plan, year of issue and policy duration.
Reserves for investment contracts (i.e. deferred annuities and immediate
annuities without life contingent payouts) are equal to cumulative deposits plus
credited interest for fixed options less withdrawals and charges thereon. For
those investment contracts which are "experience-rated", the reserves also
reflect net realized capital gains/losses on the sale of invested assets, which
the Company reflects through credited rates on an amortized basis, and

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unrealized capital gains/losses related to FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."

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

OTHER MATTERS

REGULATION

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

Operations conducted by the Company are subject to regulation by various state
insurance departments in the states where the Company conducts business, in
particular 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 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.
Regulations of the SEC, Department of Labor ("DOL") and Internal Revenue Service
also impact certain of the Company's annuity, life insurance and other
investment and retirement products. These products 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").

ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001

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

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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

Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for certain
obligations of insolvent insurance companies to policyholders and claimants.
There were no charges to earnings for guaranty fund obligations during 2003 and
no material charges during 2002 and 2001. While the Company has historically
recovered more than half of its guaranty fund assessments through statutorily
permitted premium tax offsets, significant increases in assessments could
jeopardize future efforts to recover such assessments. For information regarding
certain other potential regulatory changes relating to the Company's businesses,
see Management's Narrative Analysis of the Results of Operations and Financial
Condition--Forward-Looking Information/Risk Factors.

MISCELLANEOUS

In addition to its own employees and computer facilities and systems, the
Company also uses the services of employees, computer facilities and systems
which certain affiliates provide either directly or through third party service
providers. Management believes that the Company's computer facilities, systems
and related procedures are adequate to meet its business needs. The Company's
data processing systems and backup and security policies, practices and
procedures are regularly evaluated by the Company's management and internal
auditors and are modified as considered necessary.

The Company is not dependent upon any single customer and no single customer
accounted for more than 10% of consolidated revenue in 2003. 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.

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 expenses
associated with its leased and subleased office properties. Expenses not paid
directly by the Company are paid for by an affiliate and allocated back to the
Company.

ITEM 3. 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

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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

PART II

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

All of the Company's outstanding shares are owned by Lion Connecticut Holdings
Inc., a Connecticut holding and management company which is ultimately owned by
ING.

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 7. 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 Company's results for its operating segment,
USFS, for the twelve month periods ended December 31, 2003 versus 2002. This
review should be read in conjunction with the consolidated financial statements
and other data presented.

CHANGE IN ACCOUNTING PRINCIPLE

During 2002, the Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards 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. The Company, in accordance with FAS No.
142, recorded the impairment loss retroactive to the first quarter of 2002;
prior quarters of 2002 were restated accordingly. This impairment loss
represented the entire carrying amount of goodwill, net of accumulated
amortization. This impairment charge was shown as a change in accounting
principle on the December 31, 2002 Consolidated Income Statement.

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RESULTS OF OPERATIONS

USFS

(1) Excludes net unrealized capital gains of $615.1 million, $725.9 million and
$291.0 million at December 31, 2003, 2002 and 2001, respectively.
(2) Includes $12,766.6 million $9,304.1 million and $11,272.2 million at
December 31, 2003, 2002 and 2001, respectively, of assets invested through
the Company's products in unaffiliated mutual funds.
(3) Represents assets for which the Company provides administrative services
only.

Premiums for the year ended December 31, 2003 decreased by $2.9 million compared
to the year ended December 31, 2002, primarily due to a decrease in immediate
annuities with life contingencies.

Fee income decreased $24.2 million between December 31, 2003 and December 31,
2002. A substantial portion of fee income is calculated based on variable assets
under management. The decrease in fee income was primarily due to a decrease in
the Company's average daily variable assets under management. The

9

Company' variable assets under management declined due to normal net cash
outflows, partially offset by improved equity market returns.

Net investment income decreased $40.1 million for the year ended December 31,
2003 compared to the same period in 2002. Net investment income decreased
primarily due to the lower interest rate environment.

Net realized capital gains for the year ended December 31, 2003 increased by
$165.5 million compared to the year ended 2002. Net realized gains resulted
from sales of fixed maturity investments having a fair value greater than
book value primarily due to declining interest rates.

Interest credited and other benefits to policyholders for the year ended
December 31, 2003 compared to the same period in 2002, increased by $11.2
million. The increase in the balance in the year was primarily due to an
increase in average assets under management with fixed options partially offset
by a decrease in credited interest rates to policyholders resulting from a
management decision to lower credited rates to policyholders as a result of the
lower interest rate environment in 2003 compared to 2002.

Underwriting, acquisition, and insurance expenses were higher by $25.2
million for the year ended December 31, 2003 as compared to the same period
in 2002. An increase in general expenses was partially offset by an increase
in policy acquisition costs deferred and by a decrease in commissions
resulting in the overall increase in underwriting, acquisition, and insurance
expenses. General expenses increased primarily due to an increase in staff
costs. Commissions decreased during the period as a result of a decrease in
new and renewal business generated during the year ended December 31, 2003 as
compared to the same periods in 2002.

Amortization of deferred policy acquisition costs and value of business acquired
for the year ended December 31, 2003, decreased by $75.0 million compared to the
same period in 2002. Decreased amortization during the year was primarily due to
improved market and fund performance. 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, withdraws,
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.

The cumulative effect of change in accounting principle for the year ended
December 31, 2002, was a loss of $2,412.1 million, related to the adoption of
FAS No. 142, which addresses the value of goodwill and other intangible assets.

Net income, excluding cumulative effect of change in accounting principle,
increased by $91.8 million for the year ended December 31, 2003, as compared to
the year ended December 31, 2002. Higher earnings are the result of increased
net realized capital gains and lower amortization of deferred policy acquisition
costs and value of business acquired, partially offset by a reduction in fee
income, net investment income and an increase in underwriting, acquisition and
insurance expenses.

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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.

Investment Management Services' net income for the year ended December 31, 2002,
was $4.7 million. The 2002 results reflect operating results through February
28, 2002 only.

FINANCIAL CONDITION

INVESTMENTS

FIXED MATURITIES

At December 31, 2003 and 2002, 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 94% of the
total general account invested assets. For the same periods, $13,744.9 million,
or 78% of total fixed maturities and $11,808.4 million, or 74% of total fixed
maturities, respectively, supported experience-rated products. Total fixed
maturities reflected net unrealized capital gains of $615.1 million and $725.9
million at December 31, 2003 and 2002, respectively.

It is management's objective that the portfolio of fixed maturities is 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- at December 31, 2003 and 2002.

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.

The percentage of total fixed maturities by quality rating category is as
follows:

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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.

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
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

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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 2003, the Company received $230.0 million in cash capital contributions from
Lion. In 2002, the Company received capital contributions in the form of
investments in affiliated mutual funds of $164.3 million from HOLDCO. The
Company did not receive capital contributions in 2001.

In conjunction with the sale of Aetna, Inc. to ING AIH, the Company was
restricted from paying any dividends to its parent for a two year period from
the date of sale without prior approval by the Insurance Commissioner of the
State of Connecticut. This restriction expired on December 13, 2002. The Company
did not pay dividends to its parent in 2003, 2002 or 2001.

On February 28, 2002, ILIAC contributed 100% of the stock of IA Holdco to HOLDCO
in the form of a $60.1 million distribution.

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: investment impairment testing, amortization of deferred acquisition
costs and value of business acquired and goodwill impairment testing. 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 consolidated financial statements.

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INVESTMENT IMPAIRMENT TESTING

The Company reviews the general account investments for impairments by analyzing
the amount and length of time amortized cost has exceeded fair value, and by
making certain estimates and assumptions regarding the issuing companies'
business prospects, future economic conditions and market forecasts. 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 record
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 and non-capitalized commissions.

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
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. 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
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 variable deferred annuity products
is the assumed return associated with future variable 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
variable 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.

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

14

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

GOODWILL IMPAIRMENT TESTING

The Company tested goodwill as of January 1, 2002, for impairment using fair
value calculations based on the present value of estimated future cash flows
from business currently in force and business that we estimate we will add in
the future. These calculations require management to make estimates on the
amount of future revenues and the appropriate discount rate. The calculated
fair value of goodwill and the resulting impairment loss recorded is based on
these estimates, which require a significant amount of management judgment.
The adoption of FAS No. 142 resulted in the impairment of the Company's
entire goodwill balance during 2002. Refer to Note 1 of the Consolidated
Financial Statements for a discussion of the results of the Company's
goodwill testing procedures and to Management's Narrative Analysis of the
Results of Operations and Financial Condition for the impact these procedures
had on the Company's income.

OFF-BALANCE SHEET ARRANGEMENTS

In January 2003, the FASB issued FASB Interpretation 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO.51 ("FIN 46"). In
December 2003, the FASB modified FIN 46 to make certain technical revisions and
address certain implementation issues that had arisen. FIN 46 provides a new
framework for identifying variable interest entities ("VIE") and determining
when a company should include the assets, liabilities, noncontrolling interests
and results of activities of a VIE in its consolidated financial statements.

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

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

15

At December 31, 2003, the Company held the following investments that, for
purposes of FIN 46, were evaluated and determined to not require consolidation
in the Company's financial statements:

(1) Represents maximum exposure to loss except for those structures for which
the Company also receives asset management fees.

As of December 31, 2003, 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 fund additional limited
partnerships and commitments to enter into mortgage loan arrangements during
2004.

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.

16

OTHER REGULATORY MATTERS

Like many financial services companies, certain U.S. affiliates of ING Groep
N.V. have received informal and formal requests for information since
September 2003 from various governmental and self-regulatory agencies in
connection with investigations related to mutual funds and variable insurance
products. ING has cooperated fully with each request.

In addition to responding to regulatory requests, ING management initiated an
internal review of trading in ING insurance, retirement, and mutual fund
products. The goal of this review has been to identify whether there have
been any instances of inappropriate trading in those products by third
parties or by ING investment professionals and other ING personnel. This
internal review is being conducted by independent special counsel and
auditors. Additionally, ING reviewed its controls and procedures in a
continuing effort to deter improper frequent trading in ING products. ING's
internal reviews related to mutual fund trading are continuing.

The internal review has identified several arrangements allowing third
parties to engage in frequent trading of mutual funds within our variable
insurance and mutual fund products, and identified other circumstances where
frequent trading occurred despite measures taken by ING intended to combat
market timing. Most of the identified arrangements were initiated prior to
ING's acquisition of the businesses in question. In each arrangement
identified, ING has terminated the inappropriate trading, taken steps to
discipline or terminate employees who were involved, and modified policies
and procedures to deter inappropriate activity. While the review is not
completed, management believes the activity identified does not represent a
systemic problem in the businesses involved.

These instances included agreements (initiated in 1998) that permitted one
variable life insurance customer of Reliastar Life Insurance Company
("Reliastar") to engage in frequent trading, and to submit orders until 4pm
Central Time, instead of 4pm Eastern Time. Reliastar was acquired by ING in
2000. The late trading arrangement was immediately terminated when current
senior management became aware of it in 2002. ING believes that no profits
were realized by the customer from the late trading aspect of the arrangement.

In addition, the review has identified five arrangements that allowed
frequent trading of funds within variable insurance products issued by
Reliastar and by ING USA Annuity & Life Insurance Company; and in certain ING
Funds. ING entities did not receive special benefits in return for any of
these arrangements, which have all been terminated. The internal review also
identified two investment professionals who engaged in improper frequent
trading in ING Funds.

ING will reimburse any ING Fund or its shareholders affected by inappropriate
trading for any profits that accrued to any person who engaged in improper
frequent trading for which ING is responsible. Management believes that the
total amount of such reimbursements will not be material to ING or its U.S.
business.

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
SEC. Forward-looking statements are statements not based on historical
information and which relate to future

17

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 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.

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 policyholder behavior
and variable separate account performance. Contractholders bear the majority
of the investment risk related to variable insurance products.

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 in to 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.

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

18

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

19

REPORT OF INDEPENDENT AUDITORS

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, 2003 and 2002, and the related
consolidated income statements, consolidated statements of changes in
shareholder's equity, and consolidated statements of cash flows for each of the
three years in the period ended December 31, 2003. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our 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, 2003 and 2002, and the results of its
operations and its cash flows for each of the three years ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States.

As discussed in Note 1 to the financial statements, the Company changed its
accounting principle for goodwill and other intangible assets effective January
1, 2002.

/s/ Ernst & Young LLP

Atlanta, Georgia
March 22, 2004

20

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

CONSOLIDATED INCOME STATEMENTS
(Millions)

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

21

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

CONSOLIDATED BALANCE SHEETS
(Millions, except share data)

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

22

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

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

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

23

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)

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

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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 consolidated financial
statements include ILIAC and its wholly-owned subsidiaries, ING Insurance
Company of America ("IICA"), ING Financial Advisers, LLC ("IFA") and,
through February 28, 2002, ING Investment Adviser Holding, Inc. ("IA
Holdco"). Until March 30, 2003, ILIAC was a wholly-owned subsidiary of ING
Retirement Holdings, Inc. ("HOLDCO"), which was a wholly-owned subsidiary
of ING Retirement Services, Inc. ("IRSI"). Until March 30, 2003, IRSI was a
wholly-owned subsidiary of Lion Connecticut Holding, Inc. ("Lion"), which
in turn was ultimately owned by ING Groep N.V. ("ING"), a financial
services company based in The Netherlands. On March 30, 2003, a series of
mergers occurred in the following order: IRSI merged into Lion, HOLDCO
merged into Lion and IA Holdco merged into Lion. As a result, ILIAC is now
a direct wholly-owned subsidiary of Lion.

HOLDCO contributed IFA to the Company on June 30, 2000 and contributed IA
Holdco to the Company on July 1, 1999. On February 28, 2002, ILIAC
distributed 100% of the stock of IA Holdco to HOLDCO in the form of a $60.1
million dividend distribution. The primary operating subsidiary of IA
Holdco is Aeltus Investment Management, Inc. ("Aeltus"). Accordingly, fees
earned by Aeltus were not included in Company results subsequent to the
dividend date. As a result of this transaction, the Investment Management
Services is no longer reflected as an operating segment of the Company.

On December 13, 2000, ING America Insurance Holdings, Inc. ("ING AIH"), an
indirect wholly-owned subsidiary of ING, acquired Aetna Inc., comprised of
the Aetna Financial Services business, of which the Company is a part, and
Aetna International businesses, for approximately $7,700.0 million. The
purchase price was comprised of approximately $5,000.0 million in cash and
the assumption of $2,700.0 million of outstanding debt and other net
liabilities. In connection with the acquisition, Aetna Inc. was renamed
Lion.

In the fourth quarter of 2001, ING announced its decision to pursue a move
to a fully integrated U.S. structure that would separate manufacturing from
distribution in its retail and worksite operations to support a more
customer-focused business strategy. As a result of the integration, the
Company's Worksite Products and Individual Products operating segments were
realigned into one reporting segment, U.S. Financial Services ("USFS").

USFS 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, USFS 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

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

respect to portfolios of plan-owned assets not invested with the Company.
USFS also offers investment advisory services and pension plan
administrative services.

Investment Management Services, through February 28, 2002, provided:
investment advisory services to affiliated and unaffiliated institutional
and retail clients on a fee-for-service basis; underwriting services to the
ING Series Fund, Inc. (formerly known as the Aetna Series Fund, Inc.), and
the ING Variable Portfolios, Inc. (formerly known as the Aetna Variable
Portfolios, Inc.); distribution services for other company products; and
trustee, administrative, and other fiduciary services to retirement plans
requiring or otherwise utilizing a trustee or custodian.

DESCRIPTION OF BUSINESS

The Company offers qualified and nonqualified annuity contracts that
include a variety of funding and payout options for employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, as well as nonqualified deferred compensation plans. The
Company's products are offered primarily to individuals, pension plans,
small businesses and employer-sponsored groups in the health care,
government, educations (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.

RECENTLY ADOPTED ACCOUNTING STANDARDS

ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS

During 2002, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards 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. The Company, in
accordance with FAS No. 142, recorded the impairment loss retroactive to
the first quarter of 2002; prior quarters of 2002 were restated
accordingly. This impairment loss represented the entire carrying amount of
goodwill, net of accumulated amortization. This impairment charge was shown
as a change in accounting principle on the December 31, 2002 Consolidated
Income Statement.

Application of the nonamortization provision (net of tax) of the standard
resulted in an increase in net income of $61.9 million for the twelve
months ended December 31, 2001. Had the Company been accounting for
goodwill under FAS No. 142 for all periods presented, the Company's net
income would have been as follows:

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the FASB issued FAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as amended and interpreted by
FAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES--Deferral of the Effective Date of FASB Statement 133,
FAS No.138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN
HEDGING ACTIVITIES--an Amendment of FAS No. 133, and certain FAS No. 133
implementation issues. This standard, as amended, requires companies to
record all derivatives on the balance sheet as either assets or liabilities
and measure those instruments at fair value. The manner in which companies
are to record gains or losses resulting from changes in the fair values of
those derivatives depends on the use of the derivative and whether it
qualifies for hedge accounting. FAS No. 133 was effective for the Company's
financial statements beginning January 1, 2001.

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

The Company utilizes, interest rate swaps, caps and floors, foreign
exchange swaps and warrants in order to manage interest rate and price risk
(collectively, market risk). These financial exposures are monitored and
managed by the Company as an integral part of the overall risk management
program. Derivatives are recognized on the balance sheet at their fair
value. The Company chose not to designate its derivative instruments as
part of hedge transactions. Therefore, changes in the fair value of the
Company's derivative instruments are recorded immediately in the
consolidated statements of income as part of realized capital gains and
losses.

Warrants are carried at fair value and are recorded as either derivative
instruments or FAS No. 115 available for sale securities. Warrants that are
considered derivatives are carried at fair value if they are readily
convertible to cash. The values of these warrants can fluctuate given that
the companies that underlie the warrants are non-public companies. At
December 31, 2003 and 2002, the estimated value of these warrants,
including the value of their effectiveness, in managing market risk, was
immaterial. These warrants will be revalued each quarter and the change in
the value of the warrants will be included in the consolidated statements
of income.

The Company, at times, may own warrants on common stock which are not
readily convertible to cash as they contain certain conditions which
preclude their convertibility and therefore, will not be included in assets
or liabilities as derivatives. If conditions are satisfied and the
underlying stocks become marketable, the warrants would be reclassified as
derivatives and recorded at fair value as an adjustment through current
period results of operations.

The Company occasionally purchases a financial instrument that contains a
derivative that is "embedded" in the instrument. In addition, the Company's
insurance products are reviewed to determine whether they contain an
embedded derivative. The Company assesses whether the economic
characteristics of the embedded derivative are clearly and closely related
to the economic characteristics of the remaining component of the financial
instrument or insurance product (i.e., the host contract) and whether a
separate instrument with the same terms as the embedded instrument would
meet the definition of a derivative instrument. When it is determined that
the embedded derivative possesses economic characteristics that are

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

not clearly and closely related to the economic characteristics of the
host contract and that a separate instrument with the same terms would
qualify as a derivative instrument, the embedded derivative is separated
from the host contract and carried at fair value. However, in cases where
the host contract is measured at fair value, with changes in fair value
reported in current period earnings or the Company is unable to reliably
identify and measure the embedded derivative for separation from its host
contracts, the entire contract is carried on the balance sheet at fair
value and is not designated as a hedging instrument.

The Derivative Implementation Group ("DIG") responsible for issuing
guidance on behalf of the FASB for implementation of FAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES recently
issued Statement Implementation Issue No. B36, EMBEDDED DERIVATIVES:
MODIFIED COINSURANCE ARRANGEMENTS AND DEBT INSTRUMENTS THAT INCORPORATE
CREDIT RISK EXPOSURES THAT ARE UNRELATED OR ONLY PARTIALLY RELATED TO THE
CREDIT WORTHINESS OF THE OBLIGOR UNDER THOSE INSTRUMENTS ("DIG B36"). Under
this interpretation, modified coinsurance and coinsurance with funds
withheld reinsurance agreements as well as other types of receivables and
payables where interest is determined by reference to a pool of fixed
maturity assets or total return debt index may be determined to contain
embedded derivatives that are required to be bifurcated. The required date
of adoption of DIG B36 for the Company was October 1, 2003. The Company
completed its evaluation of DIG B36 and determined that the Company had
modified coinsurance treaties that require implementation of the guidance.
The applicable contracts, however, were determined to generate embedded
derivatives with a fair value of zero. Therefore, the guidance, while
implemented, did not impact the Company's financial position, results of
operations or cash flows.

GUARANTEES

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES,
INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS, to clarify
accounting and disclosure requirements relating to a guarantor's issuance
of certain types of guarantees. FIN 45 requires entities to disclose
additional information of certain guarantees, or groups of similar
guarantees, even if the likelihood of the guarantor's having to make any
payments under the guarantee is remote. The disclosure provisions are
effective for financial statements for fiscal years ended after
December 15, 2003. For certain guarantees, the interpretation also requires
that guarantors recognize a liability equal to the fair value of the
guarantee upon its issuance. This initial recognition and measurement
provision is to be applied only on a prospective basis to guarantees issued
or modified after December 31, 2003. The Company has performed an
assessment of its guarantees and believes that all of its guarantees are
excluded from the scope of this interpretation.

VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FASB Interpretation 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO.51 ("FIN 46"). In
December 2003, the FASB modified FIN 46 to make certain technical revisions
and address certain implementation issues that had arisen. FIN 46 provides
a new framework for identifying variable interest entities ("VIE") and
determining when a company should include the assets, liabilities,
noncontrolling interests and results of activities of a VIE in its
consolidated financial statements.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

At December 31, 2003, the Company held the following investments that, for
purposes of FIN 46, were evaluated and determined to not require
consolidation in the Company's financial statements:

(1) Represents maximum exposure to loss except for those structures for
which the Company also receives asset management fees

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.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

reported in the financial statements and accompanying notes. Actual results
could differ from reported results using those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year financial
information to conform to the current year classifications.

CASH AND CASH EQUIVALENTS

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

INVESTMENTS

All of the Company's fixed maturity and equity securities are currently
designated as available-for-sale. Available-for-sale securities are
reported at fair value and unrealized gains and losses on these securities
are included directly in shareholder's equity, after adjustment for related
charges in deferred policy acquisition costs, value of business acquired,
and deferred income taxes.

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 Issue No. EITF 99-20, a
determination of the required impairment is based on credit risk and the
possibility of significant prepayment risk that restricts the Company's
ability to recover the investment. An impairment is recognized if the fair
value of the security is less than amortized cost and there has been an
adverse change in cash flow since the last remeasurement date.

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

Included in available-for-sale securities are investments that support
experience-rated products. Experience-rated products are products where the
customer, not the Company, assumes investment (including realized capital
gains and losses) and other risks, subject to, among other things, minimum
guarantees. Realized gains and losses on the sale of, as well as unrealized
capital gains and losses on, investments supporting these products are
included in other policyholders' funds on the Consolidated

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Balance Sheets. Realized capital gains and losses on all other investments
are reflected in the Company's results of operations. Unrealized capital
gains and losses on all other investments are reflected in shareholder's
equity, net of related income taxes.

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

Fair values for fixed maturities are obtained from independent pricing
services or broker/dealer quotations. Fair values for privately placed
bonds are determined using a matrix-based model. The matrix-based model
considers the level of risk-free interest rates, current corporate spreads,
the credit quality of the issuer and cash flow characteristics of the
security. The fair values for equity securities are based on quoted market
prices. For equity securities not actively traded, estimated fair values
are based upon values of issues of comparable yield and quality or
conversion value where applicable.

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.

In September 2000, the FASB issued FAS No. 140, ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. In
accordance with this new standard, general account securities on loan are
reflected on the Consolidated Balance Sheet as "Securities pledged to
creditors". Total securities pledged to creditors at December 31, 2003 and
2002 consisted entirely of fixed maturities.

The investment in affiliated mutual funds represents an investment in
mutual funds managed by the Company and its affiliates, and is carried at
fair value.

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

Policy loans are carried at unpaid principal balances, net of impairment
reserves.

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

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reverse dollar repurchase agreement and reverse repurchase agreement
transactions are accounted for as collateralized borrowings, where the
amount borrowed is equal to the sales price of the underlying securities.
These transactions are reported in "Other Liabilities."

The Company's use of derivatives is limited to economic hedging purposes.
The Company enters into interest rate and currency contracts, including
swaps, caps, and floors to reduce and manage risks associated with changes
in value, yield, price, cash flow or exchange rates of assets or
liabilities held or intended to be held. Changes in the fair value of open
derivative contracts are recorded in net realized capital gains and losses.

On occasion, the Company sells call options written on underlying
securities that are carried at fair value. Changes in the fair value of
these options are recorded in net realized capital gains or losses.

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 fees,
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.

DAC and VOBA are written off to the extent that it is determined that
future policy premiums and investment income or gross profits are not
adequate to cover related expenses.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Activity for the years-ended December 31, 2003, 2002 and 2001 within VOBA
were as follows:

The estimated amount of VOBA to be amortized, net of interest, over the
next five years is $112.3 million, $106.4 million, $99.9 million, $94.7
million and $90.7 million for the years 2004, 2005, 2006, 2007 and 2008,
respectively. Actual amortization incurred during these years may vary as
assumptions are modified to incorporate actual results.

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

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

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

POLICY LIABILITIES AND ACCRUALS

Future policy benefits and claims reserves include reserves for universal
life, immediate annuities with life contingent payouts and traditional life
insurance contracts. Reserves for universal life products are equal to
cumulative deposits less withdrawals and charges plus credited interest
thereon. Reserves for traditional life insurance contracts represent the
present value of future benefits to be paid to or on behalf of
policyholders and related expenses less the present value of future net
premiums.

Reserves for immediate annuities with life contingent payout contracts are
computed on the basis of assumed investment yield, 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 2.0% to 9.5% for all years presented. Investment yield is based on
the Company's experience. Mortality and withdrawal rate assumptions are
based on relevant Company experience and are periodically reviewed against
both industry standards and experience.

Because the sale of the domestic individual life insurance business was
substantially in the form of an indemnity reinsurance agreement, the
Company reported an addition to its reinsurance recoverable approximating
the Company's total individual life reserves at the sale date (see Note
11).

Other policyholders' funds include reserves for deferred annuity investment
contracts and immediate annuities without life contingent payouts. Reserves
on such contracts are equal to cumulative deposits less charges and
withdrawals plus credited interest thereon (rates range from 3.0% to 10.1%
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 FAS No. 115 for
experience-rated contracts. Reserves on contracts subject to experience
rating reflect the rights of contractholders, plan participants and the
Company.

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.

REVENUE RECOGNITION

For certain annuity contracts, fee income for the cost of insurance,
expenses, and other fees assessed against policyholders are recorded as
revenue in the fee income line on the Consolidated Income Statements. Other
amounts received for these contracts are reflected as deposits and are not
recorded as revenue but are included in the other policyholders' funds line
on the Consolidated Balance Sheets. Related policy benefits are recorded in
relation to the associated premiums or gross profit so that profits are
recognized over the expected lives of the contracts. When annuity payments
with life contingencies begin under contracts that were initially
investment contracts, the accumulated balance in the account is treated as
a single premium for the purchase of an annuity and reflected as an
offsetting amount in both premiums and current and future benefits in the
Consolidated Income Statements.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPARATE ACCOUNTS

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

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

Separate Account assets are carried at fair value. At December 31, 2003 and
2002, unrealized gains of $36.2 million and of $29.7 million, respectively,
after taxes, on assets supporting a guaranteed interest option are
reflected in shareholder's equity.

Separate Account liabilities are carried at fair value, except for those
relating to the guaranteed interest option. Reserves relating to the
guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 2.4% to 7.3% in 2003 and 3.0% to
10.0% in 2002.

Separate Account assets and liabilities are 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.

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 Company's Balance
Sheets. Of the reinsurance recoverable on the Balance Sheets, $3.0 billion
at both December 31, 2003 and 2002 is related to the reinsurance
recoverable from Lincoln National Corporation ("Lincoln") arising from the
sale of the Company's domestic life insurance business.

INCOME TAXES

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

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred corporate tax is stated at the face value and is calculated for
temporary valuation differences between carrying amounts of assets and
liabilities in the balance sheet and tax bases based on tax rates that are
expected to apply in the period when the assets are realized or the
liabilities are settled.

Deferred tax assets are recognized to the extent that it is probable that
taxable profits will be available against which the deductible temporary
differences can be utilized. A deferred tax asset is recognized for the
carryforward of unused tax losses to the extent that it is probable that
future taxable profits will be available for compensation.

2. INVESTMENTS

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

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 2003 and 2002, net unrealized appreciation of $615.1
million and $725.9 million, respectively, on available-for-sale fixed
maturities including fixed maturities pledged to creditors included $491.5
million and $563.1 million, respectively, related to experience-rated
contracts, which were not reflected in shareholder's equity but in other
policyholders' funds.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The aggregate unrealized losses and related fair values of investments with
unrealized losses as of December 31, 2003, are shown below by duration:

Of the losses more than 6 months and less than 12 months in duration of
$65.5 million, there were $20.4 million in unrealized losses that are
primarily related to interest rate movement or spread widening for other
than credit-related reasons. Business and operating fundamentals are
performing as expected. The remaining losses of $45.1 million as of
December 31, 2003 included the following items:

- $21.5 million of unrealized losses related to securities reviewed for
impairment under the guidance proscribed by EITF 99-20. This category
includes U.S. government-backed securities, principal protected
securities and structured securities which did not have an adverse
change in cash flows for which the carrying amount was $594.2 million.
- $15.0 million of unrealized losses relating to the energy/utility
industry, for which the carrying amount was $202.8 million. During 2003,
the energy sector recovered due to a gradually improving economic
picture and the lack of any material accounting irregularities similar
to those experienced in the prior two years. The Company's year-end
analysis indicates that we can expect the debt to be serviced in
accordance with the contractual terms.
- $5.3 million of unrealized losses relating to non-domestic issues, with
no unrealized loss exposure per country in excess of $3.0 million for
which the carrying amount was $111.4 million. The Company's credit
exposures are well diversified in these markets including banking and
beverage companies.
- $3.2 million of unrealized losses relating to the telecommunications/
cable/media industry, for which the carrying amount was $83.5 million.
During 2003, the sector recovered somewhat due to a gradually improving
economy and reduced investor concern with management decisions even
though it remains challenged by over capacity. The Company's exposure
is primarily focused in the largest and most financially secure
companies in the sector.

An analysis of the losses more than 12 months in duration of $9.9 million
follows. There were $0.6 million in unrealized losses that are primarily
related to interest rate movement or spread widening for other than
credit-related reasons. Business and operating fundamentals are performing
as expected. The remaining losses of $9.3 million as of December 31, 2003
included the following significant items:

- $8.7 million of unrealized losses related to securities reviewed for
impairment under the guidance proscribed by EITF 99-20. This category
includes U.S. government-backed securities, principal protected
securities and structured securities which did not have an adverse
change in cash flows for which the carrying amount was $47.2 million.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

- The remaining unrealized losses totaling $0.6 million relate to a
carrying amount of $9.0 million.

The amortized cost and fair value of total fixed maturities for the year
ended December 31, 2003 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.

At December 31, 2003 and 2002, fixed maturities with carrying values of
$11.2 million and $10.5 million, 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, 2003 or 2002.

The Company has various categories of CMOs that are subject to different
degrees of risk from changes in interest rates and, for CMOs that are not
agency-backed, defaults. The principal risks inherent in holding CMOs are
prepayment and extension risks related to dramatic decreases and increases
in interest rates resulting in the repayment of principal from the
underlying mortgages either earlier or later than originally anticipated.
At December 31, 2003 and 2002, approximately 2.8% and 5.5%, respectively,
of the Company's CMO holdings were invested in types of CMOs which are
subject to more prepayment and extension risk than traditional CMOs (such
as interest-only or principal-only strips).

Investments in equity securities as of December 31 were as follows:

Beginning in April 2001, the Company entered into reverse dollar repurchase
agreement ("dollar rolls") and reverse repurchase agreement transactions to
increase its return on investments and improve liquidity. These
transactions involve a sale of securities and an agreement to repurchase
substantially the same securities as

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

those sold. The dollar rolls and reverse repurchase agreements are
accounted for as short-term collateralized financings and the repurchase
obligation is reported as borrowed money in "Other Liabilities" on the
Consolidated Balance Sheets. The repurchase obligation totaled $1.5 billion
and $1.3 billion at December 31, 2003 and 2002, respectively. 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, 2003. The Company believes the
counterparties to the dollar roll and reverse repurchase agreements are
financially responsible and that the counterparty risk is immaterial.

IMPAIRMENTS

During 2003, the Company determined that eighty-seven fixed maturities had
other than temporary impairments. As a result, at December 31, 2003, the
Company recognized a pre-tax loss of $94.4 million to reduce the carrying
value of the fixed maturities to their combined fair value of $123.1
million. During 2002, the Company determined that fifty-six fixed
maturities had other than temporary impairments. As a result, at December
31, 2002, the Company recognized a pre-tax loss of $106.4 million to reduce
the carrying value of the fixed maturities to their combined fair value of
$124.7 million. During 2001, the Company determined that fourteen fixed
maturities had other than temporary impairments. As a result, at December
31, 2001, the Company recognized a pre-tax loss of $51.8 million to reduce
the carrying value of the fixed maturities to their fair value of $10.5
million.

3. FINANCIAL INSTRUMENTS

ESTIMATED FAIR VALUE

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

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

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

FIXED MATURITIES: The fair values for the actively traded marketable bonds
are determined based upon the quoted market prices. The fair values for
marketable bonds without an active market are obtained through several
commercial pricing services which provide the estimated fair values. Fair
values of privately placed bonds are determined using a matrix-based
pricing model. The model considers the current level of risk-free interest
rates, current corporate spreads, the credit quality of the issuer and cash
flow characteristics of

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the security. Using this data, the model generates estimated market values
which the Company considers reflective of the fair value of each privately
placed bond. Fair values for privately placed bonds are determined through
consideration of factors such as the net worth of the borrower, the value
of collateral, the capital structure of the borrower, the presence of
guarantees and the Company's evaluation of the borrower's ability to
compete in their relevant market.

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

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

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

OTHER FINANCIAL INSTRUMENTS REPORTED AS ASSETS: The carrying amounts for
these financial instruments (primarily premiums and other accounts
receivable and accrued investment income) approximate those assets' fair
values.

INVESTMENT CONTRACT LIABILITIES (INCLUDED IN OTHER POLICYHOLDERS' FUNDS):

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

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

The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 2003 and 2002 were as follows:

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

DERIVATIVE FINANCIAL INSTRUMENTS

INTEREST RATE FLOORS

Interest rate floors are used to manage the interest rate risk in the
Company's bond portfolio. Interest rate floors are purchased contracts that
provide the Company with an annuity in a declining interest rate
environment. The Company had no open interest rate floors at December 31,
2003 or 2002.

INTEREST RATE CAPS

Interest rate caps are used to manage the interest rate risk in the
Company's bond portfolio. Interest rate caps are purchased contracts that
provide the Company with an annuity in an increasing interest rate
environment. The notional amount, carrying value and estimated fair value
of the Company's open interest rate caps as of December 31, 2003 were
$739.6 million, $8.2 million and $8.2 million, respectively. The notional
amount, carrying value and estimated fair value of the Company's open
interest rate caps as of December 31, 2002 were $256.4 million, $0.7
million and $0.7 million, respectively.

INTEREST RATE SWAPS

Interest rate swaps are used to manage the interest rate risk in the
Company's bond portfolio and well as the Company's liabilities. Interest
rate swaps represent contracts that require the exchange of cash flows at
regular interim periods, typically monthly or quarterly. The notional
amount, carrying value and estimated fair value of the Company's open
interest rate swaps as of December 31, 2003 were $950.0 million, $(14.4)
million and $(14.4) million, respectively. The notional amount, carrying
value and estimated fair value of the Company's open interest rate swaps as
of December 31, 2002 were $400.0 million, $(6.8) million and $(6.8)
million, respectively.

FOREIGN EXCHANGE SWAPS

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

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

exchange rate swaps as of December 31, 2002 were $49.4 million, $(0.5)
million and $(0.5) million, respectively.

EMBEDDED DERIVATIVES

The Company also had investments in certain fixed maturity instruments that
contain embedded derivatives, including those whose market value is at
least partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short- or long-term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
estimated fair value of the embedded derivatives within such securities as
of December 31, 2003 and 2002 was $(3.7) million and $(1.4) million,
respectively.

4. NET INVESTMENT INCOME

Sources of net investment income were as follows:

Net investment income includes amounts allocable to experience rated
contractholders of $783.3 million, $766.9 million and $704.2 million for
the years-ended December 31, 2003, 2002 and 2001, respectively. Interest
credited to contractholders is included in future policy benefits and
claims reserves.

5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY

In conjunction with the sale of Aetna, Inc. to ING AIH, the Company was
restricted from paying any dividends to its parent for a two year period
from the date of sale without prior approval by the Insurance Commissioner
of the State of Connecticut. This restriction expired on December 13, 2002.
The Company did not pay dividends to its parent in 2003, 2002 or 2001.

The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and capital and surplus those amounts determined
in conformity with statutory accounting practices prescribed or permitted
by the Department, which differ in certain respects from accounting
principles generally accepted in the United States of America. Statutory
net income (loss) was $67.5 million, $148.8 million,

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and $(92.3) million for the years ended December 31, 2003, 2002 and 2001,
respectively. Statutory capital and surplus was $1,230.7 million and
$1,006.0 million as of December 31, 2003 and 2002, respectively.

As of December 31, 2003, the Company does not utilize any statutory
accounting practices, which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.

6. CAPITAL GAINS AND LOSSES

Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold. Net realized capital
gains (losses) on investments were as follows:

Net realized capital gains of $43.9 million, $63.6 million and $117.0
million for the years ended December 31, 2003, 2002 and 2001, respectively,
allocable to experience rated contracts, were deducted from net realized
capital gains and an offsetting amount was reflected in Other
policyholders' funds on the Consolidated Balance Sheets. Net unamortized
gains allocable to experienced-rated contractholders were $213.7 million,
$199.3 million and $172.7 million at December 31, 2003, 2002 and 2001,
respectively.

Proceeds from the sale of total fixed maturities and the related gross
gains and losses (excluding those related to experience-related
contractholders) were as follows:

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Net unrealized capital gains allocable to experience-rated contracts of
$491.5 million and $563.1 million at December 31, 2003 and 2002,
respectively, are reflected on the Consolidated Balance Sheets in Other
policyholders' funds and are not included in shareholder's equity.
Shareholder's equity included the following accumulated other comprehensive
income, which is net of amounts allocable to experience-rated
contractholders:

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

(1) Pretax unrealized holding gains (losses) arising during the year were
$(74.0) million, $196.0 million and $12.7 million for the years ended
December 31, 2003, 2002 and 2001, respectively.
(2) Pretax reclassification adjustments for gains (losses) and other items
included in net income were $(71.6) million, $101.1 million and $(19.8)
million for the years ended December 31, 2003, 2002 and 2001,
respectively.

7. 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 of 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.

Activity for the year ended December 31, 2003 within the severance
liability and positions eliminated related to such actions were as follows:

8. INCOME TAXES

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

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Income taxes consist of the following:

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

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes.

The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax
return purposes under the Deficit Reduction Act of 1984. The balance in
such account was approximately $17.2 million at December 31, 2003. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes under current tax
law the conditions under which such taxes would become payable are remote.

The Internal Revenue Service (the "Service") has completed examinations of
the federal income tax returns of the Company through 1997. Discussions are
being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1998 through 2000.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS

DEFINED BENEFIT PLAN

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

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

DEFINED CONTRIBUTION PLANS

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

The Company sponsors the ING 401(k) Plan for ILIAC Agents (formerly the ING
401(k) Plan for ALIAC Agents, and originally named the Agents of Aetna Life
Insurance and Annuity Company Incentive Savings Plan) (the "Agents 401(k)
Plan"), which is a tax-qualified profit sharing plan. The Agents 401(k)
Plan covers Career Agents (defined below) who meet certain requirements.
Benefits under the Agents 401(k) Plan are not guaranteed by the PBGC. The
Agents 401(k) Plan allows eligible participants to defer into the Agents
401(k) Plan a specified percentage of eligible earnings on a pre-tax basis.
The Company matches such pre-tax contribution, at the rate of 50%, up to a
maximum of 6% of eligible earnings. Effective January 1, 2002, all matching
contributions are subject to a 4-year vesting schedule, except Career
Agents who were credited with vesting service earned prior to January 1,
2002, are subject to a 3-year vesting schedule. All contributions made to
the Agents 401(k) Plan are subject to certain limits imposed by applicable
law. Pre-tax charges of operations of the Company for the Agents 401(k)
Plan were $1.0 million in 2003 and $1.0 in 2002, respectively.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NON-QUALIFIED RETIREMENT PLANS

As of December 31, 2001, the Company, in conjunction with ING, offers
certain eligible employees (excluding, among others, Career Agents (as
defined below)) the Supplemental ING Retirement Plan for Aetna Financial
Services and Aetna International Employees ("SERP"). The SERP is a
non-qualified defined benefit pension plan, which means all benefits are
payable from the general assets of the Company and ING. SERP benefits are
not guaranteed by the PBGC. Benefit accruals under the SERP ceased
effective as of December 31, 2001. Benefits under the SERP are determined
based on an eligible employees years of service and such employee's average
annual compensation for the highest five years during the last ten years of
employment.

Effective January 1, 2002, the Company, in conjunction with ING, offers
certain employees (other than Career Agents) supplemental retirement
benefits under the ING Americas Supplemental Executive Retirement Plan (the
"Americas Supplemental Plan"). The Americas Supplemental Plan is a
non-qualified defined benefit pension plan, which means all benefits are
payable from the general assets of the Company and ING. Americas
Supplemental Plan benefits are not guaranteed by the PBGC. Benefits under
the Americas Supplemental Plan are based on the benefits formula contained
in the Retirement Plan, but without taking into account the compensation
and benefit limits imposed by applicable law. Any benefits payable from the
Americas Supplemental Plan are reduced by the benefits payable to the
eligible participant under the Retirement Plan.

The Company, in conjunction with ING, sponsors the Pension Plan for Certain
Producers of ING Life Insurance and Annuity Company (formerly the Pension
Plan for Certain Producers of Aetna Life Insurance and Annuity Company)
(the "Agents Non-Qualified Plan"), a non-qualified defined benefit pension
plan. This plan covers certain full-time insurance salesmen who have
entered into a career agent agreement with the Company and certain other
individuals who meet the eligibility criteria specified in the plan
("Career Agents"). The Agents Non-Qualified Plan was terminated effective
January 1, 2002. In connection with the termination, all benefit accruals
ceased and all accrued benefits were frozen. Benefits under this plan are
payable from the general assets of the Company and ING and are not
guaranteed by the PBGC.

The Company also sponsors the Producers' Incentive Savings Plan ("PIP"),
which is a non-qualified deferred compensation plan for eligible Career
Agents and certain other individuals who meet the eligibility criteria
specified in the PIP. The PIP is unfunded, which means benefit payments are
made from the general assets of the Company. PIP benefits are not
guaranteed by the PBGC. Eligible PIP participants can defer either 4% or 5%
of eligible earnings, depending on their commission level, which is 100%
matched by the Company. Matching contributions are fully vested when
contributed to the PIP. In addition, eligible PIP participants can
contribute up to an additional 10% of eligible earnings, with no Company
match on such contributions. Pretax charges of operations of the Company
for the PIP were $0.6 million for 2003 and $0.9 million for 2002.

The Company also sponsors the Producers' Deferred Compensation Plan
("DCP"), which is a non-qualified deferred compensation plan for eligible
Career Agents and certain other individuals who meet the eligibility
criteria specified in the DCP. The DCP is unfunded, which means benefit
payments are made from the general assets of the Company. DCP benefits are
not guaranteed by the PBGC. Eligible

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

participants can defer up to 100% of eligible earnings, provided the
election to defer is made within the applicable election period established
by the Company. Amounts contributed to the DCP are not matched by the
Company. DCP participants are 100% vested in amounts contributed to the
DCP.

The following tables summarize the benefit obligations and the funded
status for the SERP and the Agents Non-Qualified Plan for the years ended
December 31, 2003 and 2002:

At December 31, 2003 and 2002, the accumulated benefit obligation was $97.2
million and $99.7 million, respectively.

The weighted-average assumptions used in the measurement of the December
31, 2003 and 2002 benefit obligation for the Retirement Plan were as
follows:

Net periodic benefit costs for the years ended December31, 2003 and 2002
were as follows:

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

POST-RETIREMENT BENEFITS

In addition to providing pension benefits, the Company, in conjunction with
ING, provides certain health care and life insurance benefits for retired
employees and certain agents, including certain Career Agents. Generally,
retired employees and eligible Career Agents pay a portion of the cost of
these post-retirement benefits, usually based on their years of service
with the Company. The amount a retiree or eligible Career Agent pays for
such coverage is subject to change in the future.

The following tables summarize the benefit obligations and the funded
status for retired employees' and retired agents' post-retirement health
care benefits over the years ended December 31, 2003 and 2002:

The medical health care trend rate was 10% for 2004, gradually decreasing
to 5.0% by 2009. Increasing the health care trend by 1% would increase the
benefit obligation by $3.3 million as of December 31, 2003. Decreasing the
health care trend rate by 1% would decrease the benefit obligation by $2.9
million as of December 31, 2003.

Net periodic benefit costs were as follows:

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. RELATED PARTY TRANSACTIONS

INVESTMENT ADVISORY AND OTHER FEES

ILIAC serves as investment advisor to certain variable funds used in
Company products (collectively, the "Company Funds"). The Company Funds pay
ILIAC, as investment advisor, a daily fee which, on an annual basis,
ranged, depending on the Fund, from 0.5% to 1.0% of their average daily net
assets. Each of the Company Funds managed by ILIAC are subadvised by
investment advisors, in which case ILIAC pays a subadvisory fee to the
investment advisors, which may include affiliates. The Company is also
compensated by the separate accounts for bearing mortality and expense
risks pertaining to variable life and annuity contracts. Under the
insurance and annuity contracts, the separate accounts pay the Company a
daily fee, which, on an annual basis is, depending on the product, up to
3.4% of their average daily net assets. The amount of compensation and
fees received from affiliated mutual funds and separate accounts,
amounted to $201.4 million (excludes fees paid to Aeltus), $391.8 million
(includes fees paid to Aeltus through February 28, 2002 when IA Holdco,
Aeltus' parent, ceased to be a subsidiary of ILIAC) and $421.7 million in
2003, 2002 and 2001, respectively.

RECIPROCAL LOAN AGREEMENT

ILIAC maintains a reciprocal loan agreement with ING AIH, an indirect
wholly-owned subsidiary of ING and affiliate to ILIAC, to facilitate the
handling of unusual and/or unanticipated short-term cash requirements.
Under this agreement, which became effective in June 2001 and expires on
April 1, 2011, ILIAC and ING AIH can borrow up to 3% of ILIAC's statutory
admitted assets as of the preceding December 31 from one another. Interest
on any ILIAC borrowings is charged at the rate of ING AIH's cost of funds
for the interest period plus 0.15%. Interest on any ING AIH borrowings is
charged at a rate based on the prevailing interest rate of U.S. commercial
paper available for purchase with a similar duration. Under this agreement,
ILIAC incurred interest expense of $0.1 million for the years ended
December 31, 2003, 2002 and 2001, respectively, and earned interest income
of $0.9 million, $2.1 million and $3.3 million for the years ended December
31, 2003, 2002 and 2001, respectively. At December 31, 2003, ILIAC had a
$41.4 million receivable from ING AIH under this agreement. At December
2002, the Company had no receivables under this agreement.

CAPITAL TRANSACTIONS

In 2003, the Company received $230.0 million in cash capital contributions
from Lion. In 2002, the Company received capital contributions in the form
of investments in affiliated mutual funds of $164.3 million from HOLDCO.

OTHER

Premiums due and other receivables include $0.1 million due from affiliates
at December 31, 2003 and 2002. Other liabilities include $92.3 million and
$3.5 million due to affiliates for the years ended December 31, 2003 and
2002, respectively.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. REINSURANCE

At December 31, 2003, the Company had reinsurance treaties with six
unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks and guaranteed death and living benefits
under its variable contracts. The Company remains liable to the extent its
reinsurers do not meet their obligations under the reinsurance agreements.

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

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

Effective December 31, 1988, the Company entered into a modified
coinsurance reinsurance agreement ("MODCO") with Aetna Life Insurance
Company ("Aetna Life"), (formerly an affiliate of the Company), in which
substantially all of the nonparticipating individual life and annuity
business written by Aetna Life prior to 1981 was assumed by the Company.
Effective January 1, 1997, this agreement was amended to transition (based
on underlying investment rollover in Aetna Life) from a modified
coinsurance arrangement to a coinsurance agreement. As a result of this
change, reserves were ceded to the Company from Aetna Life as investment
rollover occurred. Effective October 1, 1998, this agreement was fully
transitioned to a coinsurance arrangement and this business along with the
Company's direct individual life insurance business, with the exception of
certain supplemental contracts with reserves of $63.8 million and $66.2
million as of December 31, 2003 and 2002, respectively, was sold to
Lincoln.

On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life, for the purchase and administration of a life contingent
single premium variable payout annuity contract. In addition, the Company
is also responsible for administering fixed annuity payments that are made
to annuitants receiving variable payments. Reserves of $20.4 million and
$19.6 million were maintained for this contract as of December 31, 2003 and
2002, respectively.

The effect of reinsurance on premiums and recoveries was as follows:

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENT LIABILITIES

LEASES

For the years ended December 31, 2003, 2002 and 2001, rent expense for
leases was $20.8 million, $18.1 million and $17.6 million, respectively.
The future net minimum payments under noncancelable leases for the years
ended December 31, 2004 through 2008 are estimated to be $17.2 million,
$16.1 million, $14.6 million, $13.1 million, and $0.7 million,
respectively, and $0.1 million thereafter. The Company pays substantially
all expenses associated with its leased and subleased office properties.
Expenses not paid directly by the Company are paid for by an affiliate and
allocated back to the Company.

COMMITMENTS

Through the normal course of investment operations, the Company commits to
either purchase or sell securities, commercial mortgage loans or money
market instruments at a specified future date and at a specified price or
yield. The inability of counterparties to honor these commitments may
result in either 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, 2003 and 2002, the Company had off-balance sheet commitments
to purchase investments of $154.3 million with an estimated fair value of
$154.3 million and $236.7 million with an estimated fair value of $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
materially adverse effect on the Company's operations or financial
position.

OTHER REGULATORY MATTERS

Like many financial services companies, certain U.S. affiliates of ING
Groep N.V. have received informal and formal requests for information
since September 2003 from various governmental and self-regulatory
agencies in connection with investigations related to mutual funds and
variable insurance products. ING has cooperated fully with each request.

In addition to responding to regulatory requests, ING management
initiated an internal review of trading in ING insurance, retirement,
and mutual fund products. The goal of this review has been to identify
whether there have been any instances of inappropriate trading in those
products by third parties or by ING investment professionals and other
ING personnel. This internal review is being conducted by independent
special counsel and auditors. Additionally, ING reviewed its controls
and procedures in a continuing effort to deter improper frequent trading
in ING products. ING's internal reviews related to mutual fund trading
are continuing.

55

The internal review has identified several arrangements allowing third
parties to engage in frequent trading of mutual funds within our
variable insurance and mutual fund products, and identified other
circumstances where frequent trading occurred despite measures taken by
ING intended to combat market timing. Most of the identified
arrangements were initiated prior to ING's acquisition of the businesses
in question. In each arrangement identified, ING has terminated the
inappropriate trading, taken steps to discipline or terminate employees
who were involved, and modified policies and procedures to deter
inappropriate activity. While the review is not completed, management
believes the activity identified does not represent a systemic problem
in the businesses involved.

These instances included agreements (initiated in 1998) that permitted
one variable life insurance customer of Reliastar Life Insurance Company
("Reliastar") to engage in frequent trading, and to submit orders until
4pm Central Time, instead of 4pm Eastern Time. Reliastar was acquired by
ING in 2000. The late trading arrangement was immediately terminated
when current senior management became aware of it in 2002. ING believes
that no profits were realized by the customer from the late trading
aspect of the arrangement.

In addition, the review has identified five arrangements that allowed
frequent trading of funds within variable insurance products issued by
Reliastar and by ING USA Annuity & Life Insurance Company; and in
certain ING Funds. ING entities did not receive special benefits in
return for any of these arrangements, which have all been terminated.
The internal review also identified two investment professionals who
engaged in improper frequent trading in ING Funds.

ING will reimburse any ING Fund or its shareholders affected by
inappropriate trading for any profits that accrued to any person who
engaged in improper frequent trading for which ING is responsible.
Management believes that the total amount of such reimbursements will
not be material to ING or its U.S. business.

13. 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 December 31, 2003 and 2002 in
the table below. Effective with the third quarter of 2002, items that were
previously not allocated back to USFS but reported in Other are now
allocated to USFS and reported in the restated financial information for
the periods ending December 31, 2003 and 2002.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Summarized financial information for the Company's principal operations for
December 31, were 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 variety 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 ccounts; 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 (refer to Note 1).
(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.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

QUARTERLY DATA (UNAUDITED)

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

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

* Restated

58

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Within the 90-day period prior to the filing of this report, the
Company carried out an evaluation, under the supervision and with
the participation of its management, including its Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14 of
the Securities Exchange Act of 1934). 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 have not been any significant changes in the internal
controls of the Company or other factors that could significantly
affect these internal controls subsequent to the date the Company
carried out its evaluation.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

(a) CODE OF ETHICS FOR FINANCIAL PROFESSIONALS

The Company has approved and adopted a Code of Ethics for
Financial Professions, pursuant to the requirements of Section
406 of the Sarbanes-Oxley Act of 2002 (attached). Any waiver of
the Code of Ethics will be disclosed by the Company by way of a
Form 8-K filing.

(b) DESIGNATION OF BOARD FINANCIAL EXPERT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

59

PART IV

ITEM 15 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

The following documents are filed as part of this report:

1. Financial statements. See Item 8 on Page 22.
2. Financial statement schedules. See Index on Financial Statement
Schedules on Page 72.

EXHIBITS

1(a) Underwriting Agreement dated November 17, 2000 between Aetna Life
Insurance and Annuity Company (now ING Life Insurance and Annuity
Company ("ILIAC" or "Registrant")) and Aetna Investment Services,
LLC (now ING Financial Advisers, LLC, incorporated by reference to
Pre-Effective Amendment No. 1 to Registration Statement on Form N-4,
as filed with the Securities and Exchange Commission ("SEC") on
November 30, 2000 (File No. 333-49176).
3.(i) Certificate of Incorporation as amended and restated January 1,
2002. Incorporated by reference to the ILIAC on Form 10-K, as filed
with the SEC on March 28, 2002 (File No. 33-23376).
3.(ii) By-Laws, as restated January 1, 2002. Incorporated by reference to
the ILIAC on Form 10-K, as filed on March 28, 2002 (File No.
33-23376).

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

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

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

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

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

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

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

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

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

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

60

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

61

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

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

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

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

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

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

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

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

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

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

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

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

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

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

62

10. Material Contracts

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

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

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

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

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

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

10.(g) Tax Sharing Agreement between ILIAC and ING Insurance Company of
America, effective January 1, 2001.

10.(h) Tax Sharing Agreement between ILIAC, ING America Insurance Holding,
Inc. and affiliated companies, effective January 1, 2001.

10.(i) Services Agreement between ILIAC and the affiliated companies listed
on Exhibit B to that Agreement, effective January 1, 2001.

10.(j) Services Agreement between ILIAC and ING North American Insurance
Corporation, Inc., effective January 1, 2001.

10.(k) Investment Advisory Agreement between ILIAC and ING Investment
Management LLC, effective March 31, 2001.

10.(l) Reciprocal Loan Agreement between ILIAC and ING America Insurance
Holdings, Inc., effective June 1, 2001.

10.(m) Amendment to Services Agreement between ILIAC and the affiliated
companies listed in Exhibit B to the Agreement, effective January 1,
2002.

10.(n) Amendment to Services Agreement between ILIAC and ING North
American Insurance Corporation, Inc., effective January 1, 2002.

63

10.(o) Services Agreement between ILIAC and ING Financial Advisers, LLC.,
effective June 1, 2002.

10.(p) Amendment to Investment Advisory Agreement between ILIAC and ING
Investment Management LLC, effective January 1, 2003.

10.(q) Administrative Services Agreement between ILIAC, ReliaStar Life
Insurance Company of New York and the affiliated companies specified
in Exhibit A to the Agreement, effective March 1, 2003.

10.(r) Amendment to Investment Advisory Agreement between ILIAC and ING
Investment Management LLC, effective October 14, 2003.

14. ING Code of Ethics for Financial Professionals.

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

31.2 Certificate of Keith Gubbay pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

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

32.2 Certificate of Keith Gubbay pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(b) Reports on form 8-K.

None.

64

INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedules other than those listed above are omitted because they are not
required or not applicable.

65

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
ING Life Insurance and Annuity Company

We have audited the consolidated financial statements of ING Life Insurance and
Annuity Company and Subsidiaries as of December 31, 2003 and 2002, and for each
of the three years in the period ended December 31, 2003, and have issued our
report thereon dated March 22, 2004. Our audits also included the financial
statement schedules listed in Item 15. These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits.

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

/s/ Ernst & Young LLP

Atlanta, Georgia
March 22, 2004

66

SCHEDULE I
Summary of Investments--As of December 31, 2003
(Millions)

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

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

67

SCHEDULE III
Supplementary Insurance Information
As of and for the years ended December 31, 2003, 2002 and 2001
(Millions)

(1) USFS includes deferred annuity contracts that fund defined contribution and
deferred compensation plans, immediate annuity contracts; mutual funds;
distribution services for annuities 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
variety 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 service. 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 (refer to Note 1).
(3) Other includes consolidating adjustments between USFS and Investment
Management Services.
(4) The allocation of net investment income is based upon the investment year
method or specific identification of certain portfolios within specific
segments.
(5) Includes net realized capital gains and losses and fee income.

69

SCHEDULE IV
Reinsurance Information
As of and for the years ended December 31, 2003, 2002 and 2001
(Millions)

70

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

ING LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)

Date March 25, 2004 By /s/ David A. Wheat
-------------- ------------------
David A. Wheat
Director, Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on or before March 25, 2004.