Great West Life & Annuity Insurance 10-Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2007
[  ]	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 333-1173

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

COLORADO	84-0467907
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

8515 EAST ORCHARD ROAD, GREENWOOD VILLAGE, CO 80111

(Address of principal executive offices)

(303) 737-3000

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer as defined in Rule 12b-2 of the Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer [ X ]

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Act.

Yes o No [ X ]

As of November 1, 2007, 7,032,000 shares of the registrant’s common stock were outstanding, all of which were owned by the registrant’s parent company.

NOTE: This Form 10-Q is filed by the registrant only as a consequence of the sale by the registrant of a market value adjusted annuity product.

Table of Contents

		Page
Part I	Financial Information
	Item 1   Financial Statements	3.
	Condensed Consolidated Balance Sheets (Unaudited)	3.
	Condensed Consolidated Statements of Income (Unaudited)	5.
	Condensed Consolidated Statements of Stockholder’s Equity (Unaudited)	6.
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7.
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9.
	Item 2Management’s Discussion and Analysis of Financial Condition and              Results of Operations	21.
	Item 3Quantitative and Qualitative Disclosures About Market Risk	39.
	Item 4Controls and Procedures	39.
Part II	Other Information	39.
	Item 1Legal Proceedings	39.
	Item 1A Risk Factors	40.
	Item 4 Submission of Matters to a Vote of Security Holders	40.
	��
	Item 6Exhibits	40.
	Signature	40.

Part I Financial Information

Item 1. Financial Statements

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Condensed Consolidated Balance Sheets

September 30, 2007 and December 31, 2006

(In Thousands, Except Share Amounts)

(Unaudited)

		September 30,		December 31,
Assets		2007		2006
Investments:
Fixed maturities available-for-sale, at fair value
(amortized cost $13,929,367 and $15,546,700)	$	13,834,320	$	15,486,655
Fixed maturities held for trading, at fair value
(amortized cost $9,598 and $0)		9,662		-
Mortgage loans on real estate (net of allowances
of $9,448 and $15,661)		1,149,726		1,338,193
Equity investments available-for-sale, at fair
value (cost $17,628 and $17,875)		29,807		28,268
Policy loans		3,679,892		3,797,649
Short-term investments, available-for-sale
(cost approximates fair value)		445,106		1,056,705
Other limited partnership interests		323,268		345,192
Other investments		4,230		4,413
Total investments		19,476,011		22,057,075
Other assets:
Cash		27,050		33,572
Reinsurance receivable:
Related party		351,765		531,389
Other		202,607		258,355
Deferred acquisition costs and value of
business acquired		426,745		505,134
Investment income due and accrued		148,628		161,146
Receivables related to uninsured accident
and health plan claims (net of allowances of
$11,325 and $14,299)		160,413		150,854
Premiums in course of collection (net of allowances
of $3,489 and $4,351)		99,075		107,874
Deferred income taxes		233,523		173,059
Collateral under securities lending agreements		86,332		382,423
Due from parent and affiliates		33,785		10,650
Goodwill		153,623		146,030
Other intangible assets		50,344		47,112
Other assets		657,938		627,207
Separate account assets		18,179,020		16,289,974
Total assets	$	40,286,859	$	41,481,854
See notes to condensed consolidated financial statements.				(Continued)

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Condensed Consolidated Balance Sheets

September 30, 2007 and December 31, 2006

(In Thousands, Except Share Amounts)

(Unaudited)

		September 30,		December 31,
		2007		2006
Policy benefit liabilities:
Policy reserves:			��
Related party	$	2,525,631	$	4,639,829
Other		14,863,993		14,695,926
Policy and contract claims		388,276		413,022
Policyholders’ funds		386,008		386,301
Provision for policyholders’ dividends		78,201		109,700
Undistributed earnings on participating business		207,102		188,198
Total policy benefit liabilities		18,449,211		20,432,976
General liabilities:
Due to parent and affiliates		546,553		547,951
Repurchase agreements		242,475		763,779
Commercial paper		97,594		95,020
Payable under securities lending agreements		86,332		382,423
Other liabilities		807,107		840,776
Separate account liabilities		18,179,020		16,289,974
Total liabilities		38,408,292		39,352,899
Commitments and contingencies
Stockholder’s equity:
Preferred stock, $1 par value, 50,000,000 shares
authorized; none issued and outstanding		-		-
Common stock, $1 par value; 50,000,000 shares
authorized; 7,032,000 shares issued and outstanding		7,032		7,032
Additional paid-in capital		742,876		737,857
Accumulated other comprehensive income (loss)		(68,703)		(46,537)
Retained earnings		1,197,362		1,430,603
Total stockholder’s equity		1,878,567		2,128,955
Total liabilities and stockholder’s equity	$	40,286,859	$	41,481,854

See notes to condensed consolidated financial statements. (Concluded)

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 2007 and 2006
(In Thousands)
(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Revenues:
Premium income:
Related party (net of related party premiums ceded of $93,695, $988, $1,638,017 and $3,268)	$	(19,252	)	$	72,782		$	(1,418,612	)	$	192,569
Other (net of premiums ceded of $8,097, $10,158, $37,358 and $46,385)		317,536			301,729			904,433			865,560
Fee income		285,298			254,756			879,968			768,844
Net investment income		274,247			299,758			928,797			850,826
Net realized gains (losses) on
investments		9,028			(10,069	)		1,283			(32,826	)
Total revenues		866,857			918,956			1,295,869			2,644,973
Benefits and expenses:
Life and other policy benefits (net of reinsurance recoveries of $101,884, $12,635, $262,948 and $41,489)		258,472			327,063			866,681			1,027,777
Increase (decrease) in reserves:
Related party		35,037			11,461			(1,523,629	)		13,802
Other		(8,146	)		19,728			30,404			22,032
Interest paid or credited to contractholders
		121,551			126,574			371,911			357,297
Provision for policyholders’ share of earnings on participating business		3,544			124			18,753			2,889
Dividends to policyholders		16,406			22,286			71,309			73,234
Total benefits		426,864			507,236			(164,571	)		1,497,031
General insurance expenses		269,932			242,151			805,215			713,139
Amortization of deferred acquisition costs and value of business acquired		15,276			21,064			128,305			37,294
Interest expense		10,323			10,824			31,169			23,050
Total benefits and expenses		722,395			781,275			800,118			2,270,514
Income before income taxes		144,462			137,681			495,751			374,459
Provision for income taxes:
Current		36,304			49,574			124,679			106,366
Deferred		14,651			(6,488	)		50,373			6,973
Total income taxes		50,955			43,086			175,052			113,339
Net income	$	93,507		$	94,595		$	320,699		$	261,120

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Condensed Consolidated Statements of Stockholder’s Equity

Year Ended December 31, 2006 and Nine Months Ended September 30, 2007

(In Thousands)

(Unaudited)

					Accumulated Other Comprehensive Income (Loss)
	Common Stock		Additional Paid-in Capital		Unrealized Gains (Losses) on Securities			Employee Benefit Plan Adjustments			Retained Earnings			Total
Balances, January 1, 2006	$	7,032	$	728,701	$	8,266		$	(25,084	)	$	1,342,796		$	2,061,711
Net income												337,202			337,202
Other comprehensive income (loss):
Net change in unrealized losses						(23,974	)								(23,974	)
Minimum pension liability adjustment									989						989
Total comprehensive income															314,217
Impact of adoption of SFAS No. 158									(6,734	)					(6,734	)
Dividends												(249,395	)		(249,395	)
Capital contribution - stock-based compensation				4,525											4,525
Income tax benefit on stock-based compensation				4,631											4,631
Balances, December 31, 2006	$	7,032	$	737,857	$	(15,708	)	$	(30,829	)	$	1,430,603		$	2,128,955
Net income												320,699			320,699
Other comprehensive income (loss):
Net change in unrealized losses						(22,663	)								(22,663	)
Minimum pension liability adjustments									379						379
Total comprehensive income (loss)															298,415
Impact of adoption of SFAS No. 155						118						(3	)		115
Impact of adoption of FIN No. 48												(6,195	)		(6,195	)
Dividends												(547,742	)		(547,742	)
Capital contribution - stock-based compensation				2,887											2,887
Income tax benefit on stock-based compensation				2,132											2,132
Balances, September 30, 2007	$	7,032	$	742,876	$	(38,253)		$	(30,450)		$	1,197,362		$	1,878,567

See notes to condensed consolidated financial statements.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2007 and 2006

(In Thousands)

(Unaudited)

	Nine months ended September 30,
Operating activities:	2007		2006
Net income	$320,699		$261,120
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Earnings allocated to participating policyholders	18,753		2,889
Amortization of (premiums) accretion of discounts on investments, net	(45,023	)	(40,596	)
Net realized (gains) losses on investments	(1,283	)	32,826
Net purchases of trading securities	(8,634	)	—
Depreciation and amortization	157,361		57,321
Deferral of acquisition costs	(52,153	)	(43,481	)
Deferred income taxes	50,373		6,973
Changes in assets and liabilities, net of effects
of acquisitions:
Policy benefit liabilities	119,937		16,232
Reinsurance receivable	(142,552	)	76,546
Accrued interest and other receivables	(6,455	)	(6,436	)
Other, net	(134,267	)	(61,741	)
Net cash provided by operating activities	276,756		301,653
Investing activities:
Proceeds from sales, maturities and redemptions
of investments:
Fixed maturities available-for-sale	3,272,407		4,312,204
Mortgage loans on real estate	127,361		246,451
Equity investments and other limited
partnership interests	40,707		196,702
Purchases of investments:
Fixed maturities available-for-sale	(3,296,907	)	(4,904,804	)
Mortgage loans on real estate	(137,188	)	(151,520	)
Equity investments and other limited
partnership interests	(18,198	)	(49,101	)
Net change in short-term investments	1,121,595		116,414
Change in repurchase agreements	(521,304	)	114,472
Other, net	(60,235	)	(12,336	)
Net cash provided by (used in) investing activities	528,238		(131,518	)

See notes to condensed consolidated financial statements. (Continued)

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2007 and 2006

(In Thousands)

(Unaudited)

	Nine months ended September 30,
Financing Activities :	2007			2006
Contract deposits	$	910,555		$	762,816
Contract withdrawals		(1,135,321	)		(1,103,227	)
Change in due to parent and affiliates		(24,533	)		337,913
Dividends paid		(547,742	)		(187,654	)
Net commercial paper borrowings (repayments)		2,574			393
Change in bank overdrafts		(17,049	)		(7,783	)
Net cash used in financing activities		(811,516	)		(197,542	)
Net decrease in cash		(6,522	)		(27,407	)
Cash, beginning of period		33,572			57,903
Cash, end of period	$	27,050		$	30,496
Supplemental disclosures of cash flow information
Net cash paid during the periods for:
Income taxes	$	45,117		$	78,085
Interest		21,911			11,328
Non-cash investing and financing transactions during the periods:
Amounts included in due to broker related to
reinsurance acquisition	$	—		$	1,413,347
Share-based compensation expense		2,887			3,518
Return of invested reinsurance assets to The Canada
Life Assurance Company (See Note 4)		1,608,909			87,622

See notes to condensed consolidated financial statements. (Concluded)

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

1. Organization and Basis of Presentation

Great-West Life & Annuity Insurance Company and its subsidiaries (collectively, the “Company”) is a direct wholly-owned subsidiary of GWL&A Financial Inc. (“GWL&A Financial”). GWL&A Financial is an indirect wholly-owned subsidiary of Great-West Lifeco Inc. (“Lifeco”). The Company offers a wide range of life insurance, health insurance and retirement and investment products to individuals, businesses and other private and public organizations throughout the United States. The Company is an insurance company domiciled in the State of Colorado and is subject to regulation by the Colorado Division of Insurance.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America applicable to interim financial reporting requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are required to account for policy reserves, allowances for credit losses on mortgage loans, deferred policy acquisition costs and the value of business acquired, derivative instruments, valuation of privately placed fixed maturity investments, employee benefits plan obligations and taxes on income. Actual results could differ from those estimates. However, in the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and the results of its operations.

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company’s latest annual report on Form 10-K for the year ended December 31, 2006. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2007.

Reclassifications have been made to the 2006 condensed consolidated financial statements to conform to the 2007 presentation. The changes in presentation to the condensed consolidated statements of cash flows relate to the reclassification of the change in repurchase agreement borrowings from financing activities to investing activities. Reclassifications were also made in the 2006 condensed consolidated statements of income regarding the presentation of general insurance expense, amortization of deferred acquisition costs and interest expense.

A reclassification was also made in the 2006 condensed consolidated balance sheet related to certain equity investments which in 2007 are presented in other limited partnership interests and in 2006 were presented in equity investments. Other limited partnership interests include partnerships established for the purpose of investing in public and private debt and equity securities. Since the Company has minor interest in these partnerships, and has virtually no influence over the partnerships’ operating and financial policies, the cost method of accounting is used. Also included in other limited partnership interests are limited partnerships established for the purpose of investing in low-income housing that qualify for federal and state tax credits. These securities are carried at amortized cost as determined using the effective yield method.

The reclassifications had no effect on previously reported net income, total assets or total stockholder’s equity and were made in order to further enhance the readers’ understanding of the Company’s condensed consolidated financial statements.

During the nine months ended September 30, 2007, the Company purchased securities which were classified as held for trading. Assets in the held for trading category are carried at fair value with unrealized gains and losses reported in net investment income.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

2. New Accounting Pronouncements

Recently adopted accounting pronouncements

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in the Financial Accounting Standards Board (the “FASB”) Statement of Financial Accounting Standards No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses From the Sale of Investments.” SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement or rider to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The Company adopted SOP 05-1 on January 1, 2007. The adoption of SOP 05-1 did not have a material effect on the Company’s consolidated financial position or the results of its operations.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”). SFAS No. 155 permits any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation under Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” to be carried at fair value in its entirety, with changes in fair value recognized in earnings. In addition, SFAS No. 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or contain an embedded derivative. SFAS No. 155 is applicable to new or modified financial instruments in fiscal years beginning after September 15, 2006, however it may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. The Company adopted SFAS No. 155 on January 1, 2007. The adoption of SFAS No. 155 increased stockholder’s equity by $115.

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007. The adoption of FIN 48 decreased stockholder’s equity by $6,195.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No. 158”). For fiscal years ending after December 15, 2006, SFAS No. 158 requires a company to recognize in its balance sheet an asset for a defined benefit postretirement plan’s overfunded status or a liability for a plan’s underfunded status and recognize changes in the funded status of a defined benefit postretirement plan in the other comprehensive income section of stockholder’s equity in the year in which the changes occur, and provide additional disclosures. The Company adopted the recognition and disclosure provisions of SFAS No. 158 as of December 31, 2006. The adoption of SFAS No. 158 decreased accumulated other comprehensive income (loss) by $6,734. The adoption of SFAS No. 158 did not affect the results of operations for the year ended December 31, 2006, and will not affect the Company’s results of operations in future periods. For fiscal years ending after December 15, 2008, SFAS No. 158 requires a company to measure a defined benefit postretirement plan’s assets and obligations that determine its funded status as of the end of its fiscal year. The Company is evaluating the impact that the adoption of the measurement date provision of SFAS No. 158 will have on its consolidated financial position and results of operations.

In September 2006, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of assessing materiality. SAB No. 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when relevant quantitative and qualitative factors are considered, is material. SAB No. 108 permits companies to initially apply its provisions by either restating prior financial statements or recording a cumulative effect adjustment to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment to retained earnings for errors that were previously deemed immaterial but are material under the guidance in SAB No. 108. The Company adopted SAB No. 108 on December 31, 2006. The adoption of SAB No. 108 did not have a material effect on the Company’s consolidated financial position.

Accounting pronouncements that will be adopted in the future

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 also provides expanded information about the extent to which a company measures assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS No. 157 is applicable whenever other authoritative pronouncements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company will adopt the provisions of SFAS No. 157 for its fiscal year beginning January 1, 2008. The Company is evaluating the impact that the adoption of SFAS No. 157 will have on its consolidated financial position, the results of its operations and the disclosure requirements applicable to its fair value measurements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS No.159”). SFAS No. 159 permits an entity to measure financial instruments and certain other items at estimated fair value. Most of the provisions of SFAS No. 159 are elective; however, the amendment to FASB No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, applies to all entities that own trading and available-for-sale securities. The fair value option created by SFAS No. 159 permits an entity to measure eligible items at fair value as of specified election dates. The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company will adopt the provisions of SFAS No. 159 for its fiscal year beginning January 1, 2008. The Company is evaluating the impact that the adoption of SFAS No. 159 will have on its consolidated financial position and the results of its operations.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

3. Acquisitions

On May 31, 2007, the Company acquired an 80% equity interest in Benefits Management Corp. (“BMC”). The assets acquired, liabilities assumed and the Company’s equity interest in the results of BMC’s operations have been included in its consolidated financial statements since that date. The acquisition added approximately 90,000 members to the Company’s medical membership. BMC’s principal subsidiary, Allegiance Benefit Plan Management, Inc. (“Allegiance”), is a Montana-based third-party administrator of employee health plans. Allegiance is the leading medical administrator for large employer groups in Montana and it has the second largest overall market share among health plans in that state. The acquisition includes Allegiance’s physician and hospital networks, as well as BMC’s other subsidiaries, including a newly created company to sell fully-insured health benefit plans in Montana and a company that provides medical management services primarily in Montana.

On August 1, 2007, the Company announced that it reached an agreement with Franklin Templeton Investments Corp. (“Franklin Templeton”) whereby Franklin Templeton will transition its 401(k) recordkeeping business to the Company.

The Company has been providing recordkeeping services on an outsourced basis for Franklin Templeton’s 401(k) business through its FASCore, LLC subsidiary since 2006. Under the new agreement, the Company will assume additional servicing and custodial responsibilities for approximately 340 plans, representing about 64,000 participants and $1.8 billion in assets under management.

The transaction is expected to be completed in the fourth quarter of 2007.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

4. Related Party Transactions

• Effective February 1, 2007, the Company’s Healthcare segment entered into a reinsurance agreement with an affiliate, London Life International Reinsurance Corporation (“LLIRC”), to cede 50% of direct written stop loss and excess loss health insurance business on a coinsurance with funds withheld basis. Premiums ceded to LLIRC were $91,506 and $243,078 during the three and nine months ended September 30, 2007, respectively.

• On June 1, 2007, the Company’s Individual Markets segment terminated its reinsurance agreement with an affiliate, The Canada Life Assurance Company (“CLAC”), pursuant to which it had assumed 80% of certain United States life, health and annuity business on a coinsurance and coinsurance with funds withheld basis. The Company recorded, at fair value, the following on June 1, 2007 in its condensed consolidated balance sheet in connection with the termination of the reinsurance agreement.

Assets			Liabilities and Stockholder’s Equity
Fixed maturities	$	(1,177,180)	Policy reserves	$	(1,976,028)
Mortgage loans on real estate		(196,743)	Policy and contract claims		(20,256)
Policy loans		(219,149)	Policyholders’ funds		(20,464)
Reinsurance receivable		(310,865)	Provision for policyholder dividends		(31,841)
Deferred policy acquisition costs and value of business acquired		(68,809)
			Undistributed earnings on participating business		8,161
Investment income due and accrued		(15,837)
			Other liabilities		103
Premiums in course of collection		(3,540)	Total liabilities		(2,040,325)
Deferred income taxes		(18,274)
			Accumulated other comprehensive income		7,684
			Retained earnings		22,244
			Total stockholder’s equity		29,928
			Total liabilities and stockholder’s equity	$	(2,010,397)
Total assets	$	(2,010,397)

The Company recorded the following on June 1, 2007 in its condensed consolidated statement of income in connection with the termination of the reinsurance agreement.

Premium income, related party	$	(1,387,179)
Net investment income		58,569
Net realized gains (losses) on investments		(14,797)
Total revenues		(1,343,407)
Increase (decrease) in reserves, related party		(1,453,145)
Provision for policyholders’ share of earnings on participating business		8,161
Amortization of deferred acquisition costs and value of business acquired		62,961
Total benefits and expenses		(1,382,023)
Income before income taxes		38,616
Total income taxes		16,372
Net income	$	22,244

• On July 3, 2007, a wholly-owned subsidiary of the Company and CLAC amended their reinsurance agreement pursuant to which the Company assumed additional term life insurance from CLAC. As a result of this amendment, on July 3, 2007 the Company recorded $33,677 in both premium income and increase in reserves.

As a result of this amendment, the Company also recorded the following on July 3, 2007.

Assets			Liabilities and Stockholder’s Equity
Reinsurance receivable	$	33,677	Policy reserves	$	33,677
	$	33,677		$	33,677

• The Company’s separate accounts invest in shares of Maxim Series Fund, Inc., an open-end management investment company which is an affiliate of the Company, and shares of other non-affiliated mutual funds and government and corporate bonds. The Company’s separate accounts include mutual funds or other investment options that purchase guaranteed interest annuity contracts issued by the Company. During the three and nine-month periods ended September 30, 2007 and 2006, these purchases totaled $12,485, $57,448, $8,321 and $43,193, respectively. As the general account investment contracts are also included in the separate account balances in the accompanying condensed consolidated balance sheets, the Company has reduced the separate account assets and liabilities by $373,019 and $356,992 at September 30, 2007 and December 31, 2006, respectively, to eliminate these amounts in its condensed consolidated balance sheets at those dates.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

5. Impairment of Available-for-Sale Fixed Maturity and Equity Investments – Unrealized Losses

The following tables summarize unrealized investment losses by class of investment at September 30, 2007 and December 31, 2006. The Company considers these investments to be only temporarily impaired.

		September 30, 2007
		Less than twelve months				Twelve months or longer				Total
Fixed		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Maturities		fair value		loss		fair value		loss		fair value		loss
U.S. government direct obligations and U.S. agencies	$	519,529	$	3,663	$	861,420	$	17,774	$	1,380,949	$	21,437
Obligations of U.S. states and their sub-divisions		20,616		287		128,570		1,291		149,186		1,578
Foreign governments		-		-		1,765		53		1,765		53
Corporate debt securities		719,015		15,587		2,394,556		89,458		3,113,571		105,045
Mortgage-backed and asset-backed securities		1,030,294		28,241		2,258,788		98,093		3,289,082		126,334
Total fixed maturities	$	2,289,454	$	47,778	$	5,645,099	$	206,669	$	7,934,553	$	254,447
Equity investments	$	1	$	1	$	2	$	1	$	3	$	2

		December 31, 2006
		Less than twelve months				Twelve months or longer				Total
Fixed		Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Maturities		fair value		loss		fair value		loss		fair value		loss
U.S. government direct obligations and U.S. agencies	$	1,543,431	$	8,907	$	986,022	$	21,734	$	2,529,453	$	30,641
Obligations of U.S. states and their sub-divisions		279,895		6,251		456,157		16,532		736,052		22,783
Foreign governments		1,217		7		13,242		125		14,459		132
Corporate debt securities		1,157,847		15,972		2,159,779		74,447		3,317,626		90,419
Mortgage-backed and asset-backed securities		724,267		7,782		2,091,923		62,867		2,816,190		70,649
Total fixed maturities	$	3,706,657	$	38,919	$	5,707,123	$	175,705	$	9,413,780	$	214,624
Equity investments	$	309	$	1	$	79	$	4	$	388	$	5

Fixed maturity investments - At September 30, 2007 and December 31, 2006, there were 202 and 980 securities, respectively, that had been in a loss position for less than twelve months with carrying values in the amounts of $2,289,454 and $3,706,657, respectively, and unrealized losses in the amounts of $47,778 and $38,919, respectively. At September 30, 2007 and December 31, 2006, less than 1% of these securities were rated non-investment grade. At September 30, 2007 and December 31, 2006, there were 811 and 1,456 securities, respectively, that had been in a continuous loss position for twelve months or longer with carrying values in the amounts of $5,645,099 and $5,707,123, respectively, and unrealized losses in the amounts of $206,669 and $175,705, respectively. The unrealized losses on these securities are primarily attributable to changes in market interest rates and changes in credit spreads since the securities were acquired. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2007.

Equity investments - At September 30, 2007 and December 31, 2006, the Company had unrealized losses on equity investments with carrying values in the amounts of $3 and $388, respectively, and unrealized losses in the amounts of $2 and $5, respectively. The decrease in the unrealized losses is primarily due to securities that are no longer in a loss position due to improved market conditions. Of the total unrealized losses, $1 and $1 have been in loss positions for less than twelve months. At September 30, 2007, the Company does not consider any of these investments to be other-than-temporarily impaired.

Other-than-temporary impairment - During the three months ended September 30, 2007 and 2006, the Company recorded other-than-temporary impairments on fixed maturity investments in the amounts of $6,766 and $4,237, respectively. During the nine months ended September 30, 2007 and 2006, the Company recorded other-than-temporary impairments on fixed maturity investments of $29,049 and $4,237, respectively. Of the $29,049, $20,750 was recognized in connection to the termination of the CLAC reinsurance agreement (See Note 4) because the Company no longer had the intent to hold the investments until recovery. During the three months ended September 30, 2007 and 2006, the Company recorded other-than-temporary impairments on equity securities in the amount of $0 and $83, respectively. During the nine months ended September 30, 2007 and 2006, the Company recorded other-than-temporary impairments on equity securities in the amounts of $23 and $456, respectively.

6. Reinsurance

The Company enters into reinsurance transactions as both a provider and purchaser of reinsurance. In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding risks to other insurance enterprises under excess coverage and coinsurance contracts. The Company retains a maximum liability of $3,500 of coverage per individual life.

Ceded reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

7. Share-Based Compensation

Lifeco has a stock option plan that provides for the granting of options on its common shares to certain of its officers and employees and those of its subsidiaries, including the Company.

The Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”) on January 1, 2006, applying the modified prospective transition method. During the three and nine-month periods ended September 30, 2007 and 2006, the Company recognized $969, $2,887, $1,042 and $3,518, respectively, in its condensed consolidated statements of income related to share-based compensation expense.

During the nine months ended September 30, 2007, Lifeco granted 760,000 stock options to employees of the Company. The stock options vest over five and seven and one half year periods ending in August 2012 and August 2014, respectively. Compensation expense relating to these stock option grants in the amount of $4,815, computed using the accelerated method of recognition, will be recognized in the Company’s financial statements over the vesting periods. The use of the accelerated method is a change in accounting principle, which was elected upon adoption of SFAS No. 123R on January 1, 2006. The fair market value of all stock options granted subsequent to January 1, 2006 will be recognized as compensation expense over the requisite service period using the accelerated method of recognition.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

8. Components of Net Periodic Benefit Cost

The components of the cost of employee benefit plans included in operating expenses during the three and nine-month  periods ended September 30, 2007 and 2006 are as follows.

	Three months ended September 30,						Three months ended September 30,
	2007			2006			2007			2006
	Pension Benefits						Post-Retirement Medical Plan
Service cost	$	2,421		$	2,352		$	513		$	463
Interest cost		4,323			3,993			372			327
Expected return on plan assets		(5,041	)		(4,209	)		—			—
Amortization of transition obligation		(379	)		(379	)		—			—
Amortization of unrecognized prior service cost		55			115			(932	)		(932	)
Amortization of losses from earlier periods		1,219			1,362			163			139
Net periodic benefit cost	$	2,598		$	3,234		$	116		$	(3)

	Nine months ended September 30,						Nine months ended September 30,
	2007			2006			2007			2006
	Pension Benefits						Post Retirement Medical Plan
Service cost	$	7,298		$	6,947		$	1,536		$	1,359
Interest cost		12,993			11,969			1,114			1,006
Expected return on plan assets		(15,125	)		(12,600	)		—			—
Amortization of transition obligation		(1,137	)		(1,137	)		—			—
Amortization of unrecognized prior service cost		165			345			(2,796	)		(2,794	)
Amortization of losses from earlier periods		3,669			3,911			484			455
Net periodic benefit cost	$	7,863		$	9,435		$	338		$	26

The Company made a contribution to its pension plan in the amount of $3,300 during the three months ended September 30, 2007 and does not expect to make any additional contributions during the remainder of the year ending December 31, 2007.

9. Federal Income Taxes

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. The change in the deferred income tax asset between December 31, 2006 and September 30, 2007 is as follows.

Deferred tax asset, December 31, 2006	$	173,059
Increase in deferred tax asset included in other comprehensive income
related to change in unrealized (gains) losses on investment assets,		11,620
Increase in deferred tax asset related to implementation of FIN 48		99,201
Reduction in deferred tax asset related to the consolidated
statement of income		(50,373)
Other, net		16
Deferred tax asset, September 30, 2007	$	233,523

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

10. Segment Information
 

On January 1, 2007, the Company’s business segments were redefined from prior periods whereby the Individual Markets and Retirement Services segments (formerly combined as the Company’s Financial Services segment) were identified and reported separately. The segment reporting for prior periods has been restated to reflect this change in business segments.

The Company’s four business segments include: Great-West Healthcare, Individual Markets, Retirement Services and Other. The Great-West Healthcare segment markets group life and health insurance to corporate employers. The Individual Markets segment distributes life insurance and individual annuity products to both individuals and businesses through various distribution channels. The Retirement Services segment provides enrollment services, communications materials, various investment options and educational services to employer-sponsored defined contribution and voluntary 403(b) plans, as well as comprehensive administrative and record-keeping services for financial institutions and employers. The Company’s Other segment includes corporate items not directly allocated to any of its other business segments, interest expense and the activities of Great-West Life & Annuity Insurance Company of South Carolina, a wholly owned subsidiary whose sole business is the assumption of a certain block of term life insurance from CLAC. The Company’s business segments are strategic business units that offer different products and services. They are managed separately as each segment has its own unique distribution channels.

The following table summarizes the financial results of the Company’s Great-West Healthcare segment for the three and nine-month periods ended September 30, 2007 and 2006.

		Three months ended September 30,				Nine months ended September 30,
		2007		2006		2007		2006
Premium income	$	178,961	$	259,341	$	515,191	$	702,190
Fee income		175,169		172,937		532,916		522,317
Net investment income		23,105		19,088		69,077		59,814
Net realized gains (losses) on investments		(800)		(944)		4,345		156
Total revenues		376,435		450,422		1,121,529		1,284,477
Policyholder benefits		151,453		222,931		421,597		626,124
Operating expenses		170,521		165,477		505,995		501,116
Total benefits and expenses		321,974		388,408		927,592		1,127,240
Income before income taxes		54,461		62,014		193,937		157,237
Income tax expense		18,948		20,747		66,465		52,552
Net income	$	35,513	$	41,267	$	127,472	$	104,685

As described in Note 4, the Company’s Individual Markets segment terminated its reinsurance agreement with CLAC on June 1, 2007. The following table summarizes the financial results of the Company’s Individual Markets segment for the three and nine-month periods ended September 30, 2007 and 2006.

		Three months ended				Nine months ended
		September 30,				September 30,
		2007		2006		2007		2006
Premium income	$	44,459	$	74,591	$	(1,166,111)	$	285,062
Fee income		12,837		11,184		56,389		33,433
Net investment income		155,087		198,715		570,692		554,310
Net realized losses on investments		4,413		(11,930)		(8,320)		(27,247)
Total revenues		216,796		272,560		(547,350)		845,558
Policyholder benefits		162,796		214,572		(862,733)		691,537
Operating expenses		21,913		28,974		154,204		58,966
Total benefits and expenses		184,709		243,546		(708,529)		750,503
Income before income taxes		32,087		29,014		161,179		95,055
Income tax expense		11,616		9,068		58,789		31,241
Net income	$	20,471	$	19,946	$	102,390	$	63,814

The following table summarizes the financial results of the Company’s Retirement Services segment for the three and nine-month periods ended September 30, 2007 and 2006.

		Three months ended				Nine months ended
		September 30,				September 30,
		2007		2006		2007		2006
Premium income	$	2,139	$	2,482	$	5,837	$	8,045
Fee income		96,274		69,347		287,126		209,512
Net investment income		88,432		69,431		262,541		211,172
Net realized losses on investments		5,209		2,765		4,585		(4,886)
Total revenues		192,054		144,025		560,089		423,843
Policyholder benefits		56,270		47,382		166,821		136,569
Operating expenses		81,373		56,832		245,316		168,732
Total benefits and expenses		137,643		104,214		412,137		305,301
Income before income taxes		54,411		39,811		147,952		118,542
Income tax expense		19,179		10,860		47,627		27,454
Net income	$	35,232	$	28,951	$	100,325	$	91,088

The following table summarizes the financial results of the Company’s Other segment for the three and nine-month periods ended September 30, 2007 and 2006.

		Three months ended				Nine months ended
		September 30,				September 30,
		2007		2006		2007		2006
Premium  income	$	72,725	$	38,097	$	130,904	$	62,832
Fee income		1,018		1,288		3,537		3,582
Net investment income		7,623		12,524		26,487		25,530
Net realized losses on investments
		206		40		673		(849)
Total revenues		81,572		51,949		161,601		91,095
Policyholder benefits		56,345		22,351		109,744		42,801
Operating expenses		21,724		22,756		59,174		44,669
Total benefits and expenses		78,069		45,107		168,918		87,470
Income before income taxes		3,503		6,842		(7,317)		3,625
Income tax expense		1,212		2,411		2,171		2,092
Net income	$	2,291	$	4,431	$	(9,488)	$	1,533

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006
(Dollars In Thousands)
(Unaudited)

11. Commitments and Contingencies

The Company is involved in various legal proceedings that arise in the ordinary course of its business. In the opinion of management, after consultation with counsel, the resolution of these proceedings should not have a material adverse effect on the Company’s consolidated financial position or the results of its operations.

The Company has a corporate credit facility agreement in the amount of $50,000 for general corporate purposes. The credit facility matures on May 26, 2010. Interest accrues at a rate dependent on various conditions and terms of borrowings. The agreement requires the Company to maintain a minimum adjusted net worth of $900,000 plus 50% of its net income, if positive (both compiled by the unconsolidated statutory accounting basis prescribed by the National Association of Insurance Commissioners), for each quarter ending after March 31, 2005. The Company had no borrowings under the credit facility at either September 30, 2007 or December 31, 2006 and was in compliance with all covenants.

The Company makes commitments to fund partnership interests and other investments in the normal course of its business. The amount of these unfunded commitments at September 30, 2007 was $151,006, all of which is due within one year.

In connection with certain business acquisitions, the Company has agreed to pay additional consideration in future periods, based upon the attainment by the acquired entity of certain defined operating objectives. The contingent consideration obligations are not considered contractual obligations and are not accrued for prior to the attainment of the objectives. Any such contingent payments will be considered as additional purchase consideration and will result in an adjustment to the purchase price allocation in the period in which the contingency is resolved.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

This Form 10-Q contains forward-looking statements. Forward-looking statements are statements not based on historical information and that relate to future operations, strategies, financial results, or other developments. In particular, 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 or projected levels of sales of its products, investment spreads or yields, or the earnings or profitability of its activities. Forward-looking statements are necessarily based upon 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, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and 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 events or developments, some of which may be national in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments, and industry consolidation, and others of which may relate to the Company specifically, such as credit, volatility, and other risks associated with its investment portfolio, and other factors. Readers should also consider other matters, including any risks and uncertainties discussed in documents filed by the Company and certain of its subsidiaries with the Securities and Exchange Commission.

As of January 1, 2007, the Company’s business segments have been redefined from prior periods whereby the Individual Markets and Retirement Services segments (formerly combined as the Company’s Financial Services segment) were identified and reported separately. The segment reporting for prior periods has been restated to reflect this change in business segments.

Company Results of Operations

The following discussion addresses the Company’s consolidated results of operations for the three and nine-month periods ended September 30, 2007 compared with the same periods of the preceding year. The discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations section included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, to which the reader is directed for additional information.

As more fully described in Note 4 to the accompanying condensed consolidated financial statements, on June 1, 2007 the Company’s Individual Markets segment terminated one of its reinsurance agreements with an affiliate, The Canada Life Assurance Company (“CLAC”), pursuant to which it had assumed 80% of certain United States life, health and annuity business on a coinsurance and coinsurance with funds withheld basis.

Three months ended September 30, 2007 compared with the three months ended September 30, 2006

The following is a summary of certain of the Company’s consolidated financial data for the three months ended September 30, 2007 and 2006.

Income Statement Data		Three months ended September 30,
(In millions)		2007		2006
Premium income	$	299	$	374
Fee income		285		255
Net investment income		274		300
Net realized gains (losses) on investments		9		(10)
Total revenues		867		919
Policyholder benefits		427		507
Operating expenses		296		274
Total benefits and expenses		723		781
Income before income taxes		144		138
Income tax expense		51		43
Net income	$	93	$	95

Operating Data		Three months ended September 30,
(In millions)		2007		2006
Deposits to separate accounts	$	665	$	590
Deposits to investment-type contracts 1		275		295
Withdrawals from investment-type contracts		357		472
Self funded premium equivalents		1,142		1,103

¹Includes $12 million and $8 million during the three months ended September 30, 2007 and 2006, respectively, of the Company’s guaranteed interest annuity contracts purchased by affiliated funds or other separate account investment options as discussed in Note 4 to the accompanying condensed consolidated financial statements.

The Company’s consolidated net income decreased by $2 million, or 2.1%, to $93 million for the three months ended September 30, 2007 when compared to 2006.

Premium income decreased by $75 million, or 20.1%, to $299 million during the three months ended September 30, 2007 when compared to 2006. The decrease is largely due to $92 million of premiums ceded to an affiliate, London Life International Reinsurance Corporation (“LLIRC”), in the Healthcare segment under a February 1, 2007 reinsurance agreement. The decrease was partially offset by strong renewal pricing on individual stop loss business.

Fee income has increased by $30 million, or 11.8%, to $285 million during the three months ended September 30, 2007 when compared to 2006. This increase is primarily the result of the addition of participant accounts and the related account balances from the 2006 acquisitions of business from Metropolitan Life Insurance Company and its affiliates (“MetLife”) and U.S. Bank in the Retirement Services segment as well as fees generated from improvement in the United States equities market.

Net investment income decreased by $26 million, or 8.7%, to $274 million during the three months ended September 30, 2007 when compared to 2006. The decrease is primarily attributable to the impact of the return of invested assets under the termination of the CLAC reinsurance agreement partially offset by changes in invested assets due to the MetLife acquisition.

Benefits and expenses decreased by $58 million during the three months ended September 30, 2007 when compared to 2006. The decrease is attributable to the February 1, 2007 cession of benefits and expenses to London Life International Reinsurance Corporation (“LLIRC”) partially offset by additional benefits and expenses incurred due to the MetLife acquisition.

Deposits to separate accounts increased by $75 million, or 12.7%, to $665 million during the three months ended September 30, 2007 when compared to 2006. The increase is due primarily due to a combination of higher sales and transfers from unaffiliated retail investment options.

Deposits to investment-type contracts decreased by $20 million, or 6.8%, to $275 million during the three months ended September 30, 2007 when compared to 2006. The decrease was primarily attributable to a $43 million decrease due to the termination of the CLAC reinsurance agreement, partially offset by an increase to deposits to participant accounts that were acquired from MetLife.

Withdrawals from investment-type contracts decreased by $115 million, or 24.4%, to $357 million during the three months ended September 30, 2007 when compared to 2006. Of this amount, $107 million was as a result of the termination of the CLAC reinsurance agreement.

The segment information below further discusses the reasons for these changes.

Nine months ended September 30, 2007 compared with the nine months ended September 30, 2006

The following is a summary of certain of the Company’s consolidated financial data for the nine months ended September 30, 2007 and 2006.

Income Statement Data		Nine months ended September 30,
(In millions)		2007		2006
Premium income	$	(514)	$	1,058
Fee income		880		769
Net investment income		928		851
Net realized gains (losses) on investments		2		(33)
Total revenues		1,296		2,645
Policyholder benefits		(165)		1,497
Operating expenses		965		774
Total benefits and expenses		800		2,271
Income before income taxes		496		374
Income tax expense		175		113
Net income	$	321	$	261

Operating Data		Nine months ended September 30,
(In millions)		2007		2006
Deposits to separate accounts	$	2,178	$	1,803
Deposits to investment-type contracts 1		917		681
Withdrawals from investment-type contracts		1,667		1,275
Self funded premium equivalents		3,499		3,485

¹Includes $57 million and $43 million during the nine months ended September 30, 2007 and 2006, respectively, of the Company’s guaranteed interest annuity contracts purchased by affiliated funds or other separate account investment options as discussed in Note 4 to the accompanying condensed consolidated financial statements.

The Company’s consolidated net income increased by $60 million, or 23.0%, to $321 million for the nine months ended September 30, 2007 when compared to 2006. The increase in net income is primarily due to a combination of a $22 million gain as a result of the termination of the CLAC reinsurance agreement within the Individual Markets segment, higher fee income throughout all operating segments and a large decrease in waiver of premium policy reserves, improved specific stop loss margins, pharmacy benefit management revenue and increased investment gains in the Healthcare segment.

Excluding the negative premium revenue of $1,387 million resulting from the termination of the CLAC reinsurance agreement, total premiums decreased by $185 million, or 17.5%, to $873 million during the nine months ended September 30, 2007 when compared to 2006. The decrease is largely due to $243 million of premiums ceded to LLIRC in the Healthcare segment under the reinsurance agreement. This decrease was partially offset by both strong renewal pricing on individual stop loss business and increased Healthcare segment membership as a result of the Benefits Management Corp. (“BMC”) and IHN, Inc. (“IHN”) acquisitions. In addition, the offset was impacted by one large participating policyholder whose policy was converted from premium paying to reduced paid up during the three months ended March 31, 2007 within the Individual Markets segment.

Fee income has increased by $111 million, or 14.4%, to $880 million during the nine months ended September 30, 2007 when compared to 2006. This increase is primarily the result of the addition of participant accounts and the related account balances from the 2006 acquisitions of business from MetLife and U.S. Bank in the Retirement Services segment.

Net investment income increased by $77 million, or 9.0%, to $928 million during the nine months ended September 30, 2007 when compared to 2006. The increase is primarily due to $59 million of income in the Individual Markets segment from the settlement of the embedded derivative as the result of the termination of the CLAC reinsurance agreement. The remaining increase is primarily due to an increase in the Retirement Services segment resulting from increased investment assets related to the MetLife acquisition.

Excluding the decrease in policy reserves of $1,453 million and additional amortization of deferred acquisition costs of $63 million resulting from the termination of the CLAC reinsurance agreement, total benefits and expenses remained relatively constant, decreasing by $81 million, or 3.6%, to $2,190 million during the nine months ended September 30, 2007 when compared to 2006.

Deposits to separate accounts increased by $375 million, or 20.8%, to $2,178 million during the nine months ended September 30, 2007 when compared to 2006. This increase was primarily due to increased sales of the BOLI separate account product within the Individual Markets segment and higher sales and transfers from unaffiliated retail investment options in the Retirement Service segment.

Deposits to investment-type contracts increased by $236 million, or 34.7%, to $917 million during the nine months ended September 30, 2007 when compared to 2006. This increase was primarily due to a $108 million increase in deposits from participant accounts that were acquired from MetLife within the Retirement Services segment and from increases in the sale of BOLI products.

Withdrawals from investment-type contracts increased by $392 million, or 30.7%, to $1,667 million during the nine months ended September 30, 2007 when compared to 2006. This increase is primarily attributable to $497 million of withdrawals as a result of the termination of the CLAC reinsurance agreement which was partially offset by a decrease in contractually scheduled maturities of guaranteed investment contracts.

The segment information below further discusses the reasons for these changes.

Segment Results

Great-West Healthcare Segment

Three months ended September 30, 2007 compared with the three months ended September 30, 2006

The following is a summary of certain financial data of the Great-West Healthcare segment for the three months ended September 30, 2007 and 2006.

Income Statement Data		Three months ended September 30,
(In millions)		2007		2006
Premium income	$	179	$	259
Fee income		175		173
Net investment income		23		19
Net realized gains (losses) on investments		(1)		(1)
Total revenues		376		450
Policyholder benefits		151		223
Operating expenses		171		165
Total benefits and expenses		322		388
Income before income taxes		54		62
Income tax expense		19		21
Net income	$	35	$	41

Operating Data		Three months ended September 30,
(In millions)		2007		2006
Self funded premium equivalents	$	1,142	$	1,103

The following is a summary of the Great-West Healthcare membership at September 30, 2007 and June 30, 2007.

(In thousands)	September 30, 2007	June 30, 2007	Percent Change
Select and Mid Market Groups	1,170	1,219	(4.0%)
National and Specialty Risk Groups	1,031	1,045	(1.3%)
Total membership	2,201	2,264	(2.8%)

Net income for the three months ended September 30, 2007 decreased by $6 million, or 14.6%, to $35 million when compared to 2006. This decrease is due primarily to a $6.4 million reduction in net income due to the February 1, 2007 reinsurance cession to LLIRC. The decrease is partially offset by improved stop loss margins, primarily in the Mid Market segment, and increased investment income.

Premium income decreased by $80 million, or 30.9%, to $179 million during the three months ended September 30, 2007 when compared to 2006. The decrease is largely due to $92 million of premiums ceded to LLIRC. The decrease was partially offset by strong renewal pricing on individual stop loss business.

Fee income increased by $2 million, or 1.2%, to $175 during the three months ended September 30, 2007 when compared to 2006 primarily resulting from $5.1 million of fee income related to the 2007 acquisition of BMC and the acquisition of IHN in the fourth quarter of 2006.

Benefits and expenses decreased by $66 million, or 17.0%, to $322 million during the three months ended September 30, 2007 when compared to 2006. The decrease is due primarily to $84 million of benefits and expenses ceded to LLIRC, partially offset by higher operating expenses associated with acquisitions.

The decline in membership is primarily driven by declines in the Select and Mid Market groups.

Nine months ended September 30, 2007 compared with the nine months ended September 30, 2006

The following is a summary of certain financial data of the Great-West Healthcare segment for the nine months ended September 30, 2007 and 2006.

Income Statement Data		Nine months ended September 30,
(In millions)		2007		2006
Premium income	$	515	$	702
Fee income		533		522
Net investment income		69		60
Net realized gains (losses) on investments		4		-
Total revenues		1,121		1,284
Policyholder benefits		421		626
Operating expenses		506		501
Total benefits and expenses		927		1,127
Income before income taxes		194		157
Income tax expense		66		53
Net income	$	128	$	104

Operating Data		Nine months ended September 30,
(In millions)		2007		2006
Self funded premium equivalents	$	3,499	$	3,485

The following is a summary of the Great-West Healthcare segment membership at September 30, 2007 and 2006:

Membership	September 30,		Percent
(In thousands)	2007	2006	Change
Select and Mid Market Groups	1,170	1,215	(3.7%)
National and Specialty Risk Groups	1,031	887	16.2%
Total membership	2,201	2,102	4.7%

Net income for the nine months ended September 30, 2007 increased by $24 million, or 23.1%, to $128 million when compared to 2006. This increase is due primarily to a large decrease in waiver of premium policy reserves, improved specific stop loss margins, pharmacy benefit management revenue and increased investment gains. These increases are partially offset by a $17 million reduction in net income due to the February 1, 2007 reinsurance cession to LLIRC.

Premium income decreased by $187 million, or 26.6%, to $515 million during the nine months ended September 30, 2007 when compared to 2006. The decrease is largely due to $243 million of premiums ceded to LLIRC. This decrease was partially offset by strong renewal pricing on individual stop loss business and increased membership in the National and Specialty Markets segments.

Fee income increased by $11 million, or 2.1%, to $533 million during the nine months ended September 30, 2007 when compared to 2006 as a result of higher pharmacy benefits management revenue as well as the BMC and IHN acquisitions, which contributed $5.4 million and $3.0 million, respectively.

Benefits and expenses decreased by $200 million, or 17.7%, to $927 million during the nine months ended September 30, 2007 when compared to 2006. The decrease is due primarily to $222 million of benefits and expenses ceded to LLIRC. Also contributing to the decrease was a $24 million decrease in waiver of premium policy reserves that resulted from updated mortality and termination rates. These decreases were partially offset by higher specific and fully insured claims.

The increase in membership is primarily the result of approximately 90,000 additional members from the second quarter 2007 acquisition of BMC, 66,000 members from the November 2006 acquisition of IHN and expansion of other third party administration relationships. These increases are partially offset by membership declines in the Select and Mid Market segments due to lower sales volume.

Individual Markets Segment

Three months ended September 30, 2007 compared with the three months ended September 30, 2006

As more fully described in Note 4 to the accompanying condensed consolidated financial statements, on June 1, 2007 the Company’s Individual Markets segment terminated one of its reinsurance agreements with CLAC, pursuant to which it had assumed 80% of certain United States life, health and annuity business on a coinsurance and coinsurance with funds withheld basis.

The following is a summary of certain financial data of the Individual Markets segment for the three months ended September 30, 2007 and 2006.

Income Statement Data		Three months ended September 30,
(In millions)		2007		2006
Premium income	$	45	$	75
Fee income		13		11
Net investment income		155		199
Net realized gains (losses) on investments		5		(12)
Total revenues		218		273
Policyholder benefits		163		215
Operating expenses		22		29
Total benefits and expenses		185		244
Income before income taxes		33		29
Income tax expense		12		9
Net income	$	21	$	20

Operating Data		Three months ended September 30,
(In millions)		2007		2006
Deposits to separate accounts	$	134	$	134
Deposits to investment-type contracts		59		172
Withdrawals from investment-type contracts		98		211

The following is a summary of the Individual Markets segment participant accounts at September 30, 2007 and June 30, 2007.

(In thousands)	September 30, 2007	June 30, 2007	Percent Change
Policy and Participant Accounts	428	430	(0.1)%

Net income for the Individual Markets segment increased by $1 million, or 5.0%, to $21 million during the three months ended September 30, 2007 when compared to 2006.

Premium income decreased by $30 million, or 40.0%, to $45 million during the three months ended September 30, 2007 when compared to 2006. The decrease is primarily due to the termination of the CLAC reinsurance agreement in the amount of $29 million.

Fee income increased by $2 million, or 18.2%, to $13 million during the three months ended September 30, 2007 when compared to 2006. The increase is related to higher participant account balances primarily due to increased sales of the BOLI separate account product and the individual annuity separate account product. Variable asset-based fees fluctuate with changes in participant account balances. Participant account balances change due to cash flow and unrealized market gains and losses associated with changes in the United States equities market.

Net investment income decreased by $44 million, or 22.1%, to $155 million during the three months ended September 30, 2007 when compared to 2006. The decrease is primarily due to the termination of the CLAC reinsurance agreement in the amount of $43 million.

Benefits decreased by $52 million, or $24.2%, to $163 million during the three months ended September 30, 2007 when compared to 2006. The decrease is primarily due to the termination of the CLAC reinsurance agreement in the amount of $50 million.

Operating expenses decreased by $7 million, or 24.1%, to $22 million during the three months ended September 30, 2007 when compared to 2006. The decrease is primarily due to the termination of the CLAC reinsurance agreement in the amount of $8 million.

Deposits to separate accounts remained constant at $134 million during the three months ended September 30, 2007 when compared to 2006.

Deposits to investment-type contracts decreased by $113 million, or 65.7%, to $59 million. The decrease is primarily attributable to the termination of the CLAC reinsurance agreement in the amount of $43 million along with a decrease in the amount of $70 million related to a decrease in individual insurance.

Withdrawals from investment-type contracts decreased by $113 million to $98 million during the three months ended September 30, 2007 when compared to 2006. This decrease is primarily attributable to the termination of the CLAC reinsurance agreement in the amount of $107 million.

The slight decrease in participant accounts is primarily the result of policy maturities and policy surrenders.

Nine months ended September 30, 2007 compared with the nine months ended September 30, 2006

The following is a summary of certain financial data of the Individual Markets segment for the nine months ended September 30, 2007 and 2006.

Income Statement Data		Nine months ended September 30,
(In millions)		2007		2006
Premium income	$	(1,166)	$	285
Fee income		56		33
Net investment income		571		555
Net realized gains (losses) on investments		(8)		(27)
Total revenues		(547)		846
Policyholder benefits		(863)		691
Operating expenses		154		60
Total benefits and expenses		(709)		751
Income before income taxes		162		95
Income tax expense		59		31
Net income	$	103	$	64

Operating Data		Nine months ended September 30,
(In millions)		2007		2006
Deposits to separate accounts	$	422	$	285
Deposits to investment-type contracts		228		238
Withdrawals from investment-type contracts		774		463

The following is a summary of the Individual Markets segment participant accounts at September 30, 2007 and 2006.

	September 30,		Percent
(In thousands)	2007	2006	Change
Policies and Participant Accounts	428	446	(4.0%)

Net income for the Individual Markets segment increased by $39 million, or 60.9%, to $103 million during the nine months ended September 30, 2007 when compared to 2006. The increase is primarily due to a gain of $22 million resulting from the termination of the CLAC reinsurance agreement and increased fee income.

Excluding the one time recording of negative premium revenue of $1,387 million resulting from the termination of the CLAC reinsurance agreement, total premiums decreased by $64 million, or 22.5%, to $221 million during the nine months ended September 30, 2007 when compared to 2006. The decrease is primarily due to one large participating policyholder whose policy was converted from premium paying to reduced paid up during the three months ended March 31, 2007.

Fee income increased by $23 million, or 69.7%, to $56 million during the nine months ended September 30, 2007 when compared to 2006. The increase is related to higher participant account balances primarily due to increased sales of the BOLI separate account product and the individual annuity separate account product.

Net investment income increased by $16 million, or 2.9%, to $571 million during the nine months ended September 30, 2007 when compared to 2006. The increase is primarily due to $59 million of income from the settlement of the embedded derivative as the result of the termination of the CLAC reinsurance agreement, partially offset by unrealized investment losses in the amount of $46 million.

Excluding the one time recording of a decrease in policy reserves of $1,453 million and additional amortization of deferred acquisition costs of $63 million resulting from the termination of the CLAC reinsurance agreement, total benefits and expenses decreased by $70 million, or 9.3%, to $681 million during the nine months ended September 30, 2007 when compared to 2006. This decrease is due to the absence of life, health and annuity business activity that was recaptured by CLAC upon the termination of the reinsurance agreement.

Deposits to separate accounts increased by $137 million, or 48.1%, to $422 million during the nine months ended September 30, 2007 when compared to 2006. This increase was primarily due to increased sales of the BOLI separate account product.

Withdrawals from investment-type contracts increased by $311 million, or 67.2%, to $774 million during the nine months ended September 30, 2007 when compared to 2006. This increase is primarily attributable $497 million of withdrawals as a result of the termination of the CLAC reinsurance agreement which was partially offset by a decrease in contractually scheduled maturities of guaranteed investment contracts.

The slight decrease in participant accounts is primarily the result of policy maturities and policy surrenders.

Retirement Services Segment

As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, the Retirement Services segment closed on two separate agreements to acquire certain 401(k) business in the fourth quarter of 2006. The first of these agreements closed on October 2, 2006. The agreement was a 100% reinsurance transaction to acquire several parts of the full service-bundled, small and midsized 401(k) as well as some defined benefit plan business from MetLife. The second agreement, which closed on December 29, 2006, acquired the bundled, full-service defined contribution business from U.S. Bank. The combination of the two agreements resulted in the addition of nearly 4,300 plans and 440,000 participant accounts with participant account values in excess of $16.7 billion.

Three months ended September 30, 2007 compared with the three months ended September 30, 2006

The following is a summary of certain financial data of the Retirement Services segment for the three months ended September 30, 2007 and 2006.

Income Statement Data		Three months ended September 30,
(In millions)		2007		2006
Premium income	$	2	$	2
Fee income		96		70
Net investment income		88		69
Net realized gains (losses) on investments		5		3
Total revenues		191		144
Policyholder benefits		57		47
Operating expenses		81		57
Total benefits and expenses		138		104
Income before income taxes		53		40
Income tax expense		19		11
Net income	$	34	$	29

Operating Data		Three months ended September 30,
(In millions)		2007		2006
Deposits to separate accounts	$	531	$	456
Deposits to investment-type contracts 1		216		123
Withdrawals from investment-type contracts		259		261

¹Includes $12 million and $8 million during the three months ended September 30, 2007 and 2006, respectively, of the Company’s guaranteed interest annuity contracts purchased by affiliated funds or other separate account investment options as discussed in Note 4 to the accompanying condensed consolidated financial statements.

The following is a summary of the Retirement Services segment participant accounts at September 30, 2007 and June 30, 2007.

(In thousands)	September 30, 2007	June 30, 2007	Percent Change
Participant Accounts	3,523	3,494	0.8%

Net income for the Retirement Services segment increased by $5 million, or 17.2%, to $34 million during the three months ended September 30, 2007 when compared to 2006. The increase is primarily due to net income resulting from the business acquired from MetLife during the second half of 2006.

Premium income remained constant at $2 million during the three months ended September 30, 2007 when compared to 2006.

Fee income has increased by $26 million, or 37.1%, to $96 million during the three months ended September 30, 2007 when compared to 2006. The increase is primarily related to increased participant accounts and participant account balances from the blocks of business acquired and improvement in United States equity markets. Variable asset-based fees fluctuate with changes in the participant account balances. Participant account balances change due to cash flow and unrealized market gains and losses associated with changes in the United States equities market.

Investment income increased by $19 million, or 27.5%, to $88 million during the three months ended September 30, 2007 when compared to 2006. This increase is primarily due to increased investment assets related to the MetLife acquisition in October 2006.

Total benefits and expenses increased by $34 million, or 32.7%, to $138 million during the three months ended September 30, 2007 when compared to 2006. This increase is primarily related to the blocks of business obtained in the MetLife and U.S. Bank acquisitions.

Deposits to separate accounts increased by $75 million, or 16.4%, to $531 million during the three months ended September 30, 2007 when compared to 2006. The increase is due primarily due to a combination of higher 401(k) sales and transfers from unaffiliated retail investment options.

Deposits to investment-type contracts increased by $93 million, or 75.6%, to $216 million during the three months ended September 30, 2007 when compared to 2006. This increase was primarily due to a $35 million increase in deposits from participant accounts that were acquired from MetLife.

The increase in participant accounts is primarily the result of the MetLife and U.S. Bank acquisitions and new institutional record keeping clients.

Nine months ended September 30, 2007 compared with the nine months ended September 30, 2006

The following is a summary of certain financial data of the Retirement Services segment for the nine months ended September 30, 2007 and 2006.

Income Statement Data		Nine months ended September 30,
(In millions)		2007		2006
Premium income	$	6	$	8
Fee income		287		210
Net investment income		262		211
Net realized gains (losses) on investments		5		(5)
Total revenues		560		424
Policyholder benefits		167		137
Operating expenses		246		169
Total benefits and expenses		413		306
Income before income taxes		147		118
Income tax expense		48		27
Net income	$	99	$	91

Operating Data		Nine months ended September 30,
(In millions)		2007		2006
Deposits to separate accounts	$	1,757	$	1,518
Deposits to investment-type contracts 1		689		443
Withdrawals from investment-type contracts		893		812

¹Includes $57 million and $43 million during the nine months ended September 30, 2007 and 2006, respectively, of the Company’s guaranteed interest annuity contracts purchased by affiliated funds or other separate account investment options as discussed in Note 4 to the accompanying condensed consolidated financial statements.

The following is a summary of the Retirement Services segment participant accounts at September 30, 2007 and 2006.

	September 30,		Percent
(In thousands)	2007	2006	Change
Participant Accounts	3,523	2,999	17.5%

Net income for the Retirement Services segment increased by $8 million, or 8.8%, to $99 million during the nine months ended September 30, 2007 when compared to 2006. The increase is primarily due to net income resulting from the business acquired from MetLife during the second half of 2006. This increase is partially offset by a $6 million prior year tax benefit recorded in the nine months ended September 30, 2006.

Premium income decreased by $2 million to $6 million during the nine months ended September 30, 2007 when compared to 2006.

Fee income has increased by $77 million, or 36.7%, to $287 million during the nine months ended September 30, 2007 when compared to 2006. The increase is primarily related to increased participant accounts and participant account balances from the blocks of business acquired and improvement in United States equity markets.

Investment income increased by $51 million, or 24.2%, to $262 million during the nine months ended September 30, 2007 when compared to 2006. This increase is primarily due to increased investment assets related to the MetLife acquisition in October 2006.

Total benefits and expenses increased by $107 million, or 35.0%, to $413 million during the nine months ended September 30, 2007 when compared to 2006. This increase is primarily related to the blocks of business obtained in the MetLife and U.S. Bank acquisitions.

Deposits to separate accounts increased by $239 million, or 15.7%, to $1,757 million during the nine months ended September 30, 2007 when compared to 2006. The increase is due primarily to a combination of higher sales and transfers from unaffiliated retail investment options.

Deposits to investment-type contracts increased by $246 million, or 55.5%, to $689 million during the nine months ended September 30, 2007 when compared to 2006. This increase was primarily due to a $144 million increase in deposits from participant accounts that were acquired from MetLife with the remainder primarily attributable to higher 401(k) sales.

Withdrawals from investment-type contracts increased by $81 million, or 10.0%, to $893 million during the nine months ended September 30, 2007 when compared to 2006. This increase is primarily attributable to withdrawals from participant accounts that were acquired from MetLife.

The increase in participant accounts is primarily the result of the MetLife and U.S. Bank acquisitions and new institutional record keeping clients.

The following table provides information for the Retirement Services’ customer account values at September 30, 2007 and 2006.

		September 30,			Percent
(In millions)		2007		2006	change
General Account – Fixed Options:
Public / Non-profit	$	3,392	$	3,584	(5.4%)
401(k)		2,619		1,125	132.8%
	$	6,011	$	4,709	27.6%
Separate Accounts – Variable Options
Public / Non-profit	$	6,464	$	5,732	12.8%
401(k)		7,136		5,943	20.1%
	$	13,600	$	11,675	16.5%
Unaffiliated Retail:
Investment Options and
Administrative Services Only:			��
Public / Non-profit	$	46,171	$	39,959	15.5%
401(k)		21,459		6,497	230.3%
Institutional		29,659		24,872	19.2%
	$	97,289	$	71,328	36.4%

Participant account values invested in the general account fixed investment options have increased by 27.6% at September 30, 2007 to $6,011 million when compared to September 30, 2006 due primarily to the MetLife acquisition.

Participant account values invested in the segregated variable investment options have increased by 16.5% at September 30, 2007 to $13,600 million when compared to September 30, 2006 due to higher sales and improvement in the United States equities market.

Participant account values invested in unaffiliated retail investment options and participant account values where only administrative services and recordkeeping functions are provided have increased 36.4% at September 30, 2007 to $97,289 when compared to September 30, 2006. The increase is primarily attributable to the MetLife and U.S. Bank acquisitions, an increase in participants from institutional cases and improvement in the United States equity markets.

Other Segment

Three months ended September 30, 2007 compared with the three months ended September 30, 2006

The following is a summary of certain financial data of the Company’s Other segment for the three months ended September 30, 2007 and 2006.

Income Statement Data		Three months ended September 30,
(In millions)		2007		2006
Premium income	$	73	$	38
Fee income		1		1
Net investment income		8		13
Net realized gains (losses) on investments		-		-
Total revenues		82		52
Policyholder benefits		56		22
Operating expenses		22		23
Total benefits and expenses		78		45
Income before income taxes		4		7
Income tax expense		1		2
Net income	$	3	$	5

Nine months ended September 30, 2007 compared with the nine months ended September 30, 2006

The following is a summary of certain financial data of the Company’s Other segment for the nine months ended September 30, 2007 and 2006.

Income Statement Data		Nine months ended September 30,
(In millions)		2007		2006
Premium income	$	131	$	63
Fee income		4		4
Net investment income		26		25
Net realized gains (losses) on investments		1		(1)
Total revenues		162		91
Policyholder benefits		110		43
Operating expenses		59		44
Total benefits and expenses		169		87
Income before income taxes		(7)		4
Income tax expense		2		2
Net income	$	(9)	$	2

Net income for the Company’s Other segment for the three month period ended September 30, 2007 when compared to 2006 decreased by $2 million. Net income for the Company’s Other segment for the nine month period ended September 30, 2007 when compared to 2006 decreased by $11 million to a 2007 net loss of $9 million. These fluctuations and the increases in premium income and benefits and expenses are primarily attributed to increased activity under Great-West Life & Annuity Insurance Company of South Carolina’s assumption reinsurance agreement with CLAC.

General Account Investments

The Company’s primary investment objective is to acquire assets with duration and cash flow characteristics reflective of its liabilities, while meeting industry, size, issuer and geographic diversification standards. Formal liquidity and credit quality parameters have also been established.

The Company follows rigorous procedures to control interest rate risk and observes strict asset and liability matching guidelines. These guidelines ensure that even under changing market conditions, the Company’s assets will meet the cash flow and income requirements of its liabilities. Using dynamic modeling to analyze the effects of a range of possible market changes upon investments and policyholder benefits, the Company works to ensure that its investment portfolio is appropriately structured to fulfill financial obligations to its policyholders.

Fixed Maturity Investments

Fixed maturity investments include public and privately placed corporate bonds, government bonds, and mortgage-backed and asset-backed securities. The Company’s strategy related to mortgage-backed and asset-backed securities is to focus on those investments with low prepayment risk and minimal credit risk. The Company does not invest in higher-risk collateralized mortgage obligations such as interest-only and principal-only strips, and currently has no plans to invest in such securities.

Private placement investments are generally less marketable than publicly traded assets, yet they typically offer enhanced covenant protection that allows the Company, if necessary, to take appropriate action to protect its investment. The Company believes that the cost of the additional monitoring and analysis required by private placements is more than offset by their enhanced yield.

One of the Company’s primary objectives is to ensure that its fixed maturity portfolio is maintained at a high average quality so as to limit credit risk. If not externally rated, the securities are rated by the Company on a basis intended to be similar to that of the rating agencies.

The following table contains the rating distribution of the Company’s fixed maturity investment portfolio at September 30, 2007 and December 31, 2006.

	September 30,		December 31,
Credit rating	2007		2006
AAA	59.8	%	61.7	%
AA	7.6	%	7.4	%
A	15.0	%	14.5	%
BBB	16.0	%	14.6	%
BB and below (non-investment grade)	1.6	%	1.8	%
Total	100.0	%	100.0	%

Impairment of Available-for-Sale Fixed Maturity and Equity Investments

The Company classifies the majority of its fixed maturity and all of its equity investments as available-for-sale and records them at fair value with the related net gain or loss, net of policyholder related amounts and deferred taxes, being recorded in accumulated other comprehensive income in the stockholder’s equity section in the accompanying condensed consolidated balance sheets. All available-for-sale securities with gross unrealized losses at the balance sheet date are subjected to the Company’s process for the identification and evaluation of other-than-temporary impairments.

The Company’s portfolio of fixed maturities fluctuates in value based upon interest rates in financial markets and other economic factors. These fluctuations have little bearing on whether or not the investment will be ultimately recoverable. Therefore, the Company considers these declines in value as temporary. During the first nine months of 2007, interest rates have decreased, however there has been general credit tightening in the financial markets which has caused an increase in unrealized losses within the Company’s investment portfolio. During the three and nine-month periods ended September 30, 2007, the Company recorded other-than-temporary impairments on fixed maturity investments in the amounts of $7 million and $29 million, respectively. At September 30, 2007, the Company’s unrealized losses were $254 million compared to $215 million at December 31, 2006. Investments in a loss position for less than twelve months had losses that totaled $48 million, which was an increase of $9 million from December 31, 2006. Investments in a loss position for greater than twelve months had losses that totaled $207 million, which was an increase of $31 million from December 31, 2006. The Company considers these investments to be only temporarily impaired.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company’s management to adopt accounting policies to make a significant variety of estimates and assumptions. These estimates and assumptions affect, among other things, the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results can differ from the amounts previously estimated, which were based on information available at the time the estimates were made.

The critical accounting policies are those that the Company believes are important to the portrayal of its results of operations and financial condition and which require management to make difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. The Company believes that the most critical accounting policies include the reported amounts of policy reserves, allowances for credit losses on mortgage loans, deferred acquisition costs and value of business acquired, derivative instruments, valuation of privately placed fixed maturity investments, employee benefit plans, and taxes on income. Many of these policies, estimates and related judgments are common in the insurance and financial services industries.

1. Policy Reserves

Life Insurance and Annuity Reserves - The Company’s liability for contract and policy benefits is the largest liability included in its condensed consolidated balance sheets, representing 48.0% and 51.9% of total liabilities at September 30, 2007 and December 31, 2006, respectively. Life insurance and annuity policy reserves with life contingencies are computed on the basis of estimated mortality, investment yield, withdrawals, future maintenance and settlement expenses and retrospective experience rated premium refunds. If actual experience is different than estimated, adjustments to such reserves may be required. Annuity contract reserves without life contingencies are established at the contractholder’s account value.

Reinsurance - The Company enters into reinsurance transactions as both a provider and a purchaser of reinsurance. Policy reserves ceded to other insurance companies are carried as reinsurance receivables in the Company’s condensed consolidated balance sheets. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. Ceded reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations under these contracts could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer defaults. In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding risks to other insurance enterprises under excess coverage and coinsurance contracts. The Company retains a maximum of $3.5 million of coverage per individual life.

Policy and Contract Claims - Policy and contract claims include provisions for reported life and health claims in process of settlement, valued in accordance with the terms of the related policies and contracts, as well as provisions for claims incurred and unreported based primarily on the Company’s prior experience.

2. Allowance for Credit Losses on Mortgage Loans

The Company maintains an allowance for credit losses on mortgage loans at a level that, in management’s opinion, is sufficient to absorb credit losses on its impaired mortgage loans which are measured based on the fair value of the related collateral. Management considers several factors in determining the appropriate level of allowance for credit loss. These include past loss experience, current and projected economic conditions and extensive situational analysis of each individual mortgage loan. In determining the ultimate adequacy of the allowance for mortgage loans heavier consideration is given to the individual mortgage characteristics and related collateral.

3. Deferred Acquisition Costs (“DAC”) and Value of Business Acquired (“VOBA”)

Policy acquisition costs, which primarily consist of sales commissions, costs of policy issuance and underwriting and costs associated with the Company’s sales representatives related to the production of new business have been deferred to the extent recoverable. VOBA represents the present value of future profits embedded in acquired insurance, annuity and investment-type business. The recoverability of DAC and VOBA is dependent upon the future profitability of the related business. The amount of future profit is primarily dependent on investment returns, mortality, morbidity, persistency, interest crediting rates and the expenses incurred to administer the business. DAC and VOBA associated with annuity products are being amortized over the life of the contracts in proportion to the emergence of gross profits. Retrospective adjustments of these amounts are made when the Company revises its estimates of current or future gross profits, which can be affected by such factors as investment yield, realized investment gains and losses and policyholder retention. DAC and VOBA associated with traditional life insurance are amortized over the premium-paying period of the related policies in proportion to premium revenues recognized.

4. Derivative Instruments

Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or the values of securities or commodities. The Company uses certain derivative instruments, such as futures, options and swaps, for purposes of hedging its risk exposure to changes in interest rates and market exchanges. The Company designates its derivative financial instruments as (i) fair value hedges, (ii) cash flow hedges and (iii) derivatives not qualifying for hedge accounting.

• Fair value hedges - Changes in the fair value of a derivative instrument that is designated as a fair value hedge are recorded in current period earnings.

• Cash flow hedges - The effective portion of the changes in the fair value of a derivative instrument that is designated as a cash flow hedge is recorded in accumulated other comprehensive income in the condensed consolidated balance sheet and is reclassified to earnings when the cash flow of the hedged item impacts earnings. The ineffective portion of the changes in the fair value of cash flow hedges is recorded as an adjustment to net investment income.

• Derivatives not qualifying for hedge accounting - Changes in the fair value of a derivative instrument that does not qualify for hedge accounting treatment are recorded in current period earnings.

The Company generally enters into derivative transactions only with high quality institutions, as such; no losses associated with non-performance have occurred or are expected to occur. Derivative instruments are not used for speculative purposes.

5. Valuation of Privately Placed Fixed Maturity Investments

A large portion of the Company’s invested assets is stated at fair value in the condensed consolidated balance sheets based on quoted market prices. However, when such information is not available, fair value is estimated. The estimated fair values of financial instruments have been determined using available information and established valuation methodologies. To determine fair value for fixed maturity investments not actively traded, the Company utilizes discounted cash flows calculated at current market rates on investments of similar quality and term. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value of approximately 30% and 34% of the Company’s fixed maturity investments at September 30, 2007 and December 31, 2006, respectively, are valued using these types of estimates.

6. Employee Benefit Plans

The Company sponsors pension and other retirement plans in various forms covering employees who meet specific eligibility requirements. Expenses and liabilities reported in connection with these plans require an extensive use of estimates and assumptions. The estimates and assumptions include the expected interest rate used to determine the expected return on plan assets, the rate of future employee compensation increases and compensation levels and general trends in healthcare costs. Management determines these estimates and assumptions based upon currently available market data, historical performance of the plan assets and consultation with an independent actuarial consulting firm.

The estimates and assumptions utilized by the Company may differ materially from actual results obtained due to changes in market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the various plan’s participants.

See Note 8 to the accompanying condensed consolidated financial statements for further information on the Company’s employee benefit plans.

7. Taxes on Income

The Company’s effective tax rate is based upon expected income and statutory income tax rates and available tax planning opportunities. In the determination of the Company’s effective income tax rate, management considers judgments regarding its business plans, planning opportunities and expectations about their future outcomes. Certain changes or future events, such as changes in tax legislation and the commencement or completion of tax audits, could have an impact on management’s estimates and the Company’s effective tax rate.

Accounting and tax regulations require that items be included in income tax returns at different times from when they are reflected in financial statements. These timing differences give rise to deferred tax assets and liabilities. A deferred tax liability is recognized for temporary differences that will result in taxable amounts or nondeductible expenses in future years. A deferred tax asset is recognized for temporary differences that will result in tax deductible amounts or nontaxable income in future years, including carryforwards.

The application of GAAP requires management to evaluate the recoverability of its deferred tax assets. Although realization is not assured, management believes that it is more likely than not that the deferred tax assets will be realized.

The amount of income taxes paid by the Company is subject to ongoing audits in the various jurisdictions in which it carries on business. The Internal Revenue Service (the “IRS”) has completed audits of the Company’s income tax returns through 2001. IRS audits of the Company’s income tax returns for the years 2002 through 2004 are in various stages of completion. Although the results of these audits are not final, based upon available information, management believes provisions for potential audit assessments are adequate.

See Note 9 to the accompanying condensed consolidated financial statements for further information on taxes on income.

New Accounting Pronouncements

See Note 2 to the accompanying condensed consolidated financial statements for a discussion of new accounting pronouncements that the Company has recently adopted or will be adopting in the future.

Liquidity and Capital Resources

Liquidity refers to a company’s ability to generate sufficient cash flows to meet the needs of its operations. The Company manages its operations to ensure stable, reliable and cost-effective sources of cash flows to meet all of its obligations.

The principal sources of the Company’s liquidity are premium and annuity considerations, investment and fee income and investment maturities and sales. The principal uses of the Company’s liquidity relate to benefit payments, claim payments, payments to policy and contract holders in connection with policy surrenders and withdrawals, purchase of investments, commissions and general and administrative expenses.

The Company’s operations have liquidity requirements that vary among its principal product lines. Life insurance and pension plan reserves are primarily long-term liabilities. Accident and health reserves, including long-term disability, consist of both short-term and long-term liabilities. Life insurance and pension plan reserve requirements are usually stable and predictable and are supported primarily by long-term, fixed income investments. Accident and health claim demands are stable and predictable but generally shorter in term, requiring greater liquidity.

Generally, the Company has met its operating requirements by maintaining appropriate levels of liquidity in its investment portfolio and utilizing cash flows from operations. Liquidity for the Company has remained strong, as evidenced by significant amounts of short-term investments and cash that totaled $472.2 million and $1,090.3 million as of September 30, 2007 and December 31, 2006, respectively. In addition, as of September 30, 2007 and December 31, 2006, approximately 98% of the bond portfolio carried an investment grade rating, thereby providing significant liquidity to the Company's overall investment portfolio.

Funds provided by premiums and fees, investment income and maturities of investment assets are reasonably predictable and normally exceed liquidity requirements for payment of claims, benefits and expenses. However, since the timing of available funds cannot always be matched precisely to commitments, imbalances may arise when demands for funds exceed those on hand. Also, a demand for funds may arise as a result of the Company taking advantage of current investment opportunities. The sources of the funds that may be required in such situations include the issuance of commercial paper and equity securities. Management believes that the liquidity profile of its assets is sufficient to satisfy the liquidity requirements of reasonably foreseeable scenarios.

The Company’s financial strength provides the capacity and flexibility to enable it to raise funds in the capital markets through the issuance of commercial paper. The Company continues to be well capitalized, with sufficient borrowing capacity to meet the anticipated needs of its business. The Company had $97.6 million and $95.0 million of commercial paper outstanding at September 30, 2007 and December 31, 2006, respectively. The commercial paper has been given a rating of A-1+ by Standard & Poor’s Rating Services and a rating of P-1 by Moody’s Investors Services, each being the highest rating available.

Capital resources provide protection for policyholders and financial strength to support the underwriting of insurance risks and allow for continued business growth. The amount of capital resources that may be needed is determined by the Company’s senior management and Board of Directors, as well as by regulatory requirements. The allocation of resources to new long-term business commitments is designed to achieve an attractive return, tempered by considerations of risk and the need to support the Company’s existing business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s assets are purchased to fund future benefit payments to its policyholders and contractholders. The primary risk of these assets is exposure to rising interest rates. However, when the asset and liability payments are considered together, the primary risk is exposure to falling interest rates due to minimum credited rate guarantees in the liabilities. The Company’s exposure to foreign currency exchange rate fluctuations is minimal as only a nominal amount of foreign investments are held.

To manage interest rate risk, the Company invests in assets that are suited to the products that it sells. For products with fixed and highly predictable benefit payments such as certificate annuities and payout annuities, the Company invests in fixed income assets with cash flows that closely match these products’ liability cash flows. The Company is then protected against interest rate changes, as any change in the fair value of the assets will be offset by a similar change in the fair value of the liabilities. For products with uncertain timing of benefit payments such as portfolio annuities and life insurance, the Company invests in fixed income assets with expected cash flows that are earlier than the expected timing of the benefit payments.

The Company may also manage risk from time to time with interest rate derivatives such as interest rate caps that would pay it investment income if interest rates rise above the level specified in the cap, or interest rate floors that would pay it if interest rates fall below the level specified in the floor. These derivatives are only used to reduce risk and are not used for speculative purposes. As of September 30, 2007, the Company did not own any interest rate caps or interest rate floors.

As a result of the coinsurance with funds withheld agreement with CLAC, the Company had recorded a derivative financial instrument to account for the different credit risks and other characteristics of the reinsurance receivable and the investment assets of the affiliate that were underlying that receivable. This reinsurance agreement with CLAC was terminated on June 1, 2007. During its existence, the derivative was carried at fair value and changes in fair value were included in net investment income as a non-cash charge or credit. This exposed the Company’s operating results to volatility, reflecting changes in the fair value of the underlying investment portfolio, which was exposed to interest rate, market and credit risk. Due to the termination of the reinsurance agreement, the Company is no longer exposed to the interest rate, market and credit risk associated with this embedded derivative.

Item 4. Controls and Procedures

Based on their evaluation as of September 30, 2007, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information relating to the Company and its subsidiaries which is required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported in a timely manner; and is (ii) accumulated and communicated to the Company’s senior management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, so that timely decisions may be made regarding disclosure.

The Chief Executive Officer and Chief Financial Officer hereby confirm that no significant changes in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Part II Other Information

Item 1. Legal Proceedings

There are no material pending legal proceedings to which the Company or any of its subsidiaries are a party or of which any of their property is the subject.

Item 1A. Risk Factors

There are no material changes from Risk Factors as previously disclosed in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 4. Submission of Matters to a Vote of Security Holders

On July 9,2007, the Company held an annual meeting of its shareholders at which all of the directors as reported in the Company’s annual report on Form 10-K for the period ended December 31, 2006, were unanimously re-elected.

Item 6. Exhibits

Index to Exhibits:

Exhibit Number	Title	Page
31.1	Rule 13a-14(a)/15d-14(a) Certification	41
31.2	Rule 13a-14(a)/15d-14(a) Certification	42
32	18 U.S.C. 1350 Certification	43

Signature

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.

Great-West Life & Annuity Insurance Company

By:	/s/Glen R. Derback	Date:	November 14, 2007
	Glen R. Derback, Senior Vice President and Controller
	(Duly authorized officer and chief accounting officer)

Exhibit 31.1

Certification

I, Raymond L. McFeetors, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Great-West Life & Annuity Insurance Company (the “Registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2007

/s/	Raymond L. McFeetors
	Raymond L. McFeetors
	President and Chief Executive Officer

Exhibit 31.2

Certification

I, Mitchell T.G. Graye, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Great-West Life & Annuity Insurance Company (the “Registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2007

/s/	Mitchell T.G. Graye
	Mitchell T.G. Graye
	Executive Vice President and Chief Financial Officer

Exhibit 32

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Great-West Life & Annuity Insurance Company, a Colorado corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	November 14, 2007	/s/	Raymond L. McFeetors
			Raymond L. McFeetors
			President and Chief Executive Officer

Dated:	November 14, 2007	/s/	Mitchell T.G. Graye
			Mitchell T.G. Graye
			Executive Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of this Form 10-Q or as a separate disclosure document.