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

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

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FORM 10-Q

(Mark One)

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

For the quarterly period ended MARCH 31, 2004

OR

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

For the transition period from ___________________ to

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

ING LIFE INSURANCE AND ANNUITY COMPANY
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(Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code (860) 723-4646

- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /

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 May 14, 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 H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).

1

ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS INC.)
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2004

INDEX

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

PART I. FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions)

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

3

CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions, except share data)

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

4

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

5

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

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

6

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

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

7

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

1. BASIS OF PRESENTATION

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

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

The condensed consolidated financial statements and notes as of
March 31, 2004 and December 31, 2003 and for the three-month
periods ended March 31, 2004 and 2003 ("interim periods") have been
prepared in accordance with accounting principles generally
accepted in the United States of America and are unaudited. The
condensed consolidated financial statements reflect all normal
recurring adjustments , which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial
position, results of operations and cash flows for the interim
periods. These condensed consolidated financial statements and
notes should be read in conjunction with the consolidated financial
statements and related notes as presented in the Company's 2003
Annual Report on Form 10-K. The results of operations for the
interim periods should not be considered indicative of results to
be expected for the full year. Certain reclassifications have been
made to 2003 financial information to conform to the 2004
presentation.

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

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2. RECENTLY ADOPTED ACCOUNTING STANDARDS

The Company adopted Statement of Position ("SOP") 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts," on January 1, 2004.
SOP 03-1 establishes several new accounting and disclosure requirements
for certain nontraditional long-duration contracts and for separate
accounts including, among other things, a requirement that assets and
liabilities of separate account arrangements that do not meet certain
criteria be accounted for as general account assets and liabilities
and that revenues and expenses related to such arrangements be
consolidated w/the respective revenue and expense lines in the
Condensed Consolidated Statement of Operations. In addition, the SOP
requires additional liabilities be established for certain guaranteed
death and other benefits and for products with certain patterns of cost
of insurance charges, and that sales inducements provided to
contractholders be recognized on the balance sheet separately from
deferred acquisition costs and amortized as a component of benefits
expense using methodology and assumptions consistent with those used
for amortization of deferred policy acquisition costs.

The Company evaluated all requirements of SOP 03-1 and determined that
it is affected by the SOP's requirements to account for certain
separate account arrangements as general account arrangements and to
defer, amortize, and recognize separately, sales inducements to
contractholders. Requirements to establish additional liabilities for
minimum guarantee benefits are applicable to the Company, however, the
Company's policies on policy liabilities have historically been, and
continue to be, in conformity with the requirements newly established.
Requirements for recognition of additional liabilities for products
with certain patterns of cost of insurance charges are not applicable
to the Company.

The adoption of SOP 03-1 did not have a significant effect on the
Company's results of operations, and had no impact on the Company's
net income.

In 2003, the Derivative Implementation Group ("DIG") responsible for
issuing guidance on behalf of the FASB for implementation of FAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
issued Statement 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 Company adopted DIG B36 on October 1, 2003. The Company
has modified coinsurance treaties that are applicable to the guidance.
The applicable contracts, however, have been determined to generate
embedded derivatives with a fair value of zero. Therefore, the guidance
has no impact on the Company's financial position, results of
operations or cash flows.

9

3. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

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

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

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

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

VOBA activity for the three month periods ended March 31, 2004 and
2003 was as follows:

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4. INVESTMENTS

IMPAIRMENTS

During the three months ended March 31, 2004, the Company determined
that thirty-six fixed maturities had other than temporary impairments.
As a result, for the three months ended March 31, 2004, the Company
recognized a pre-tax loss of $5.1 million to reduce the carrying value
of the fixed maturities to their fair value at the time of impairment.
During the three months ended March 31, 2003, the Company determined
that fifty-eight fixed maturities had other than temporary impairments.
As a result, for the three months ended March 31, 2003, the Company
recognized a pre-tax loss of $42.1 million to reduce the carrying value
of the fixed maturities to their fair value at the time of impairment.

The fair value of the remaining impaired fixed maturities at March 31,
2004 and 2003 is $64.1 million and $151.9 million, respectively.

5. 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 limited 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.

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

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

Assets and liabilities of separate account arrangements that do not
meet the criteria in SOP 03-1 for separate presentation in the
Condensed Consolidated Balance Sheets (those arrangements supporting
the guaranteed interest option), and revenues and expenses related to
such arrangements, were reclassified to the general account on
January 1, 2004, in accordance with the SOP requirements.

6. ADDITIONAL INSURANCE BENEFITS AND MINIMUM GUARANTEES

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

The SOP reserve calculated is the minimum guaranteed death benefits
("MGDB") reserve and is determined each period by estimating the
expected value of death benefits in excess of the projected account
balance and recognizing the excess ratably over the accumulation period
based on total expected assessments. The Company regularly evaluates
estimates used to adjust the additional liability balance, with a
related charge or credit to benefit expense, if actual experience or
other evidence suggests that earlier assumptions should be revised. The
following assumptions and methodology were used to determine the MGDB
SOP reserve at March 31, 2004:

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As of March 31, 2004, the separate account liability subject to SOP
03-1 for minimum guaranteed benefits and the additional liability
recognized related to minimum guarantees is $4,737.6 million and $0.9
million, respectively. During the three months ended March 31, 2004,
incurred guaranteed benefits and paid guaranteed benefits were $0.2
million and 0.1 million, respectively. The net amount at risk (net of
reinsurance) and the weighted average attained age of contractholders
is $43.2 million and 67, respectively, as of March 31, 2004.

The aggregate fair value of assets, by major investment asset category,
supporting separate accounts with additional insurance benefits and
minimum investment return guarantees as of March 31, 2004 are:

7. SALES INDUCEMENTS

Sales inducements represent benefits paid to contractholders that are
incremental to the amounts the Company credits on similar contracts and
are higher than the contract's expected ongoing crediting rates for
periods after the inducement. As of January 1, 2004, such amounts are
reported separately on the balance sheet in accordance with SOP 03-1.
Prior to 2004, sales inducements were recorded as a component of other
assets on the Condensed Consolidated Balance Sheets. Sales inducements
are amortized as a component of benefit expense using methodology and
assumptions consistent with those used for amortization of DAC. During
the three months ended March 31, 2004, the Company capitalized
$0.7 million and amortized $1.4 million of sales inducements,
respectively. The unamortized balance of capitalized sales inducements
as of March 31, 2004 is $21.1 million.

8. BENEFIT PLANS

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").
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 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. 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 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.
Benefit accruals under the SERPs ceased effective as of December 31,
2001.

Net periodic benefit costs for the SERP and the Agents Non-Qualified
Plan for the periods ended March 31, 2004 and 2003 were as follows:

Contributions for the SERP and Agents' Non-Qualified Plan are expected
to be $9.4 million during 2004.

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.

Net periodic benefit costs for retired employees' and retired agents'
post-retirement health care benefits for the periods ended March 31,
2004 and 2003 were as follows:

Contributions for retired employees' and retired agents'
post-retirement health care benefits are expected to be $1.6 million
during 2004.

CHANGES IN ASSUMPTIONS

Changes in the weighted-average assumptions used in the measurement of
the benefit obligation for the Retirement Plan were as follows:

EFFECT OF RECENTLY ENACTED LEGISLATION

On December 8, 2003, President Bush signed into law the Medicare
Prescription Drug Improvement and Modernization Act of 2003. The act
expands Medicare, primarily by including a prescription drug benefit
starting in 2006. Employers currently sponsoring such prescription drug
programs will have a range of options to potentially reduce program
costs. Pursuant to guidance from the FASB under FSP FAS 106-1, ING has
chosen to defer recognition of the Act in these disclosures. Therefore,
all measures of the accumulated post retirement benefit obligation and
the net periodic post retirement benefit cost included in these
disclosures do not reflect the effects of the above named Act on the
plans. Specific authoritative guidance on the accounting for the
federal subsidy possibly payable under the Act is pending and that
guidance, when issued, could require the sponsor to change previously
reported information.

9. INCOME TAXES

The effective tax rates for the three months ended March 31, 2004 and
2003 were 31.7% and 29.1%, respectively. The increase in effective tax
rate resulted primarily from a larger increase in pre-tax book income
relative to the increase in the deduction allowed for dividends
received.

10. COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS

Through the normal course of investment operations, the Company commits
to either purchase or sell securities, commercial mortgage loans or
money market instruments at a specified future date and at a specified
price or yield. The inability of counterparties to

13

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 March 31, 2004 and
December 31, 2003, the Company had off-balance sheet commitments to
purchase investments equal to the fair value of $344.0 million and
$154.3 million, respectively.

LITIGATION

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

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

OVERVIEW

The following narrative analysis of the results of operations and
financial condition presents a review of the ING Life Insurance and
Annuity Company and its wholly-owned subsidiaries ("ILIAC", or the
"Company") as of March 31, 2004 and December 31, 2003 and for the
three-month periods ended March 31, 2004 and 2003. This review should
be read in conjunction with the condensed consolidated financial
statements and other data presented herein, as well as the
"Management's Narrative Analysis of the Results of Operations and
Financial Condition" section contained in the Company's 2003 Annual
Report on Form 10-K.

NATURE OF BUSINESS

The Company offers qualified and nonqualified annuity contracts that
include a variety of funding and payout options for individuals and
employer sponsored retirement plans qualified under Internal Revenue
Code Sections 401, 403 and 457, as well as nonqualified deferred
compensation plans. Annuity contracts may be deferred or immediate
(payout annuities). These products also include programs offered to
qualified plans and nonqualified deferred compensation plans that
package administrative and record-keeping services along with a variety
of investment options, including affiliated and nonaffiliated mutual
funds and variable and fixed investment options. In addition, the
Company also offers wrapper agreements entered into with retirement
plans which contain certain benefit responsive guarantees (i.e.
liquidity guarantees of principal and previously accrued interest for
benefits paid under the terms of the plan) with respect to portfolios
of plan-owned assets not invested with the Company. The Company also
offers investment advisory services and pension plan administrative
services.

RECENTLY ADOPTED ACCOUNTING STANDARDS

The Company adopted Statement of Position ("SOP") 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts," on January 1, 2004.
SOP 03-1 establishes several new accounting and disclosure requirements
for certain nontraditional long-duration contracts and for separate
accounts including, among other things, a requirement that assets and
liabilities of separate account arrangements that do not meet certain
criteria be accounted for as general account assets and liabilities and
that revenues and expenses related to such arrangements be consilidated
w/the respective revenue and expense lines in the Condensed
Consolidated Statements of Operations. In addition, the SOP requires
additional liabilities be established for certain guaranteed death and
other benefits and for Universal Life products with certain patterns of
cost of insurance charges, and that sales inducements provided to
contractholders be recognized on the balance sheet separately from
deferred acquisition costs and amortized as a component of benefits
expense using methodology and assumptions consistent with those used
for amortization of deferred policy acquisition costs.

The Company evaluated all requirements of SOP 03-1 and determined that
it is affected by the SOP's requirements to account for certain
separate account arrangements as general account arrangements, and to
recognize sales inducements to

15

contractholders. Requirements to establish additional liabilities for
minimum guarantee benefits are applicable to the Company, however, the
Company's policies on policy liabilities have historically been, and
continue to be, in conformity with the requirements newly established.
Requirements for recognition of additional liabilities for products
with certain patterns of cost of insurance charges are not applicable
to the Company.

The adoption of SOP 03-1 did not have a significant effect on the
Company's results of operations, and had no impact on the Company's
net income.

In 2003, the Derivative Implementation Group ("DIG") responsible for
issuing guidance on behalf of the FASB for implementation of FAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
issued Statement 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 Company adopted DIG B36 on October 1, 2003. The Company
has modified coinsurance treaties that are applicable to the guidance.
The applicable contracts, however, have been determined to generate
embedded derivatives with a fair value of zero. Therefore, the guidance
has no impact on the Company's financial position, results of
operations or cash flows.

CRITICAL ACCOUNTING POLICIES

GENERAL

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of
estimates and assumptions in certain circumstances. These estimates and
assumptions are evaluated on an on-going basis based on historical
developments, market conditions, industry trends and other information
that is reasonable under the circumstances. There can be no assurance
that actual results will conform to estimates and assumptions, and that
reported results of operations will not be affected in a materially
adverse manner by the need to make future accounting adjustments to
reflect changes in these estimates and assumptions from time to time.

The Company has identified the following estimates as critical in that
they involve a higher degree of judgment and are subject to a
significant degree of variability. In developing these estimates
management makes subjective and complex judgments that are inherently
uncertain and subject to material change as facts and circumstances
develop. Although variability is inherent in these estimates,
management believes the amounts provided are appropriate based upon the
facts available upon compilation of the condensed consolidated
financial statements.

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INVESTMENT IMPAIRMENT TESTING

The Company reviews the general account investments for impairments by
considering the length of time and the extent to which the fair value
has been less than amortized cost; the financial condition and
near-term prospects of the issuer; future economic conditions and
market forecasts; and the Company's intent and ability to retain the
investment in the issuer for a period of time sufficient to allow for
recovery in fair value. Based on the facts and circumstances of each
case, management uses judgment in deciding whether any calculated
impairments are temporary or other than temporary. For those
impairments judged to be other than temporary, the Company reduces the
carrying value of those investments to the current fair value and
records impairment losses for the difference.

AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS
ACQUIRED

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

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

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

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

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SALES INDUCEMENTS

Sales inducements represent benefits paid to contractholders that are
incremental to the amounts the Company credits on similar contracts and
are higher than the contract's expected ongoing crediting rates for
periods after the inducement. Such amounts are reported separately on
the balance sheet and are amortized as a component of benefit expense
using methodology and assumptions consistent with those used for
amortization of DAC.

FORWARD-LOOKING INFORMATION/RISK FACTORS

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

Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which
are beyond the Company's control and many of which are subject to
change. These uncertainties and contingencies could cause actual
results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.

Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable
developments. Some may be national in scope, such as general economic
conditions, changes in tax law and changes in interest rates (for
additional information, see the Legislative Initiatives section below).
Some may relate 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.

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RESULTS OF OPERATIONS

Premiums for the period ended March 31, 2004 decreased by $13.8 million
compared to the period ended March 31, 2003, primarily due to a
decrease in immediate annuities with life contingencies.

Fee income increased $22.5 million for the three months ended March 31,
2004 compared to the three months ended March 31, 2003. A
substantial portion of fee income is calculated based on
variable assets under management. The increase in fee income was
primarily due to an increase in the Company's average daily variable
assets under management. The Company' variable assets under management
increased due to normal net cash inflows driven by improved equity
market returns during the several month period prior to the assets
under management levels at each respective time period.

Net investment income remained relatively stable during the three
months ended March 31, 2004 compared to the same period in 2003.

Net realized capital gains for the three month period ended
March 31, 2004 increased by $15.0 million compared to the same
period ended March 31, 2003. Net realized gains result from sales of
fixed maturity investments having a fair value greater than book
value. The increase in net realized capital gains is the result of
significant credit related and interest related losses realized in
early 2003.

Interest credited and other benefits to policyholders for the period
ended March 31, 2004 compared to the same period in 2003, decreased by
$14.7 million. The decrease in credited interest rates resulting from a
management decision to lower credited rates

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to policyholders was partially offset by an increase in average assets
under management with fixed options.

Underwriting, acquisition, and insurance expenses were relatively
stable for the period ended March 31, 2004 compared to the same
period in 2003.

Amortization of deferred policy acquisition costs and value of business
acquired for the three month period ended March 31, 2004, decreased
by $18.6 million compared to the same period in 2003. Decreased
amortization during the period was primarily due to improved market
and fund performance, insurance in force higher than the projected
account value, and a change in fixed annuity surrender assumptions.
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.

Net income increased by $31.6 million for the three month period
ended March 31, 2004, compared to the same period ended March 31,
2003. Higher net income was the result of increased fee income and
net realized capital gains, lower interest credited to policyholders
and amortization of deferred policy acquisition costs and value of
business acquired, partially offset by a reduction in premiums.

The Company's annuity deposits and assets under management are as
follows:

(1) Excludes net unrealized capital gains of $861.1 million and
$789.8 million at March 31, 2004 and 2003, respectively.
(2) Includes $13,586.8 million at March 31, 2004 and $9,112.0 million
at March 31, 2003 related to deposits into the Company's products
and invested in unaffiliated mutual funds.
(3) Represents assets for which the Company provides administrative
services only.

FINANCIAL CONDITION

INVESTMENTS

FIXED MATURITIES

At March 31, 2004 and December 31, 2003, the Company's carrying value
of available for sale fixed maturities including securities pledged to
creditors (hereinafter referred to as "total fixed maturities")
represented 93.4% and 93.5%, respectively, of the total general
account invested assets. For the same periods, $14,104.0 million, or
74.0% of total fixed maturities, and $13,744.9 million, or 78.4% of
total fixed maturities, respectively, supported experience-rated
products. Total fixed maturities reflected net unrealized capital
gains of $861.1 million and $615.1 million at March 31, 2004 and
December 31, 2003, respectively.

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

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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 March 31, 2004 and December 31,
2003.

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:

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 fixed maturity investment will
not be collected, an other than temporary impairment is considered to
have occurred.

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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 America Insurance
Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate. Under
this agreement, which became effective in June 2001 and expires in
April 2011, the Company and ING AIH can borrow up to 3.0% of the
Company's statutory admitted assets as of the preceding December 31
from one another. Management believes that its sources of liquidity are
adequate to meet the Company's short-term cash obligations.

The National Association of Insurance Commissioners' ("NAIC")
risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula.
These requirements are intended to allow insurance regulators to
monitor the capitalization of insurance companies based upon the type
and mixture of risks inherent in a Company's operations. The formula
includes components for asset risk, liability risk, interest rate
exposure, and other factors. The Company has complied with the NAIC's
risk-based capital reporting requirements. Amounts reported indicate
that the Company has total adjusted capital above all required capital
levels.

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.

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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 tax position of the Company's products cannot be
predicted.

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ITEM 4. 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-15(e)
and 15d-15(e) 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 has not been any change in the internal controls over
financial reporting of the Company that occurred during the
period covered by this report that has materially affected or is
reasonably likely to materially affect these internal controls.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

As with many financial services companies, the Company and affiliates
of the Company have received requests for information from various
governmental and self-regulatory agencies in connection with
investigations related to trading in investment company shares. In each
case, full cooperation and responses are being provided. The Company is
also reviewing its policies and procedures in this area.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

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.

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SIGNATURES

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

ING LIFE INSURANCE AND ANNUITY
COMPANY
(Registrant)

By
- ---------------- ----------------------------------------
(Date) David A. Wheat
Director, Senior Vice President and
Chief Financial Officer

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