Voya Retirement Insurance & Annuity 10Q 2008 Q1 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 March 31, 2008 OR
o	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: 333-150147, 333-133157, 333-133158, 333-130833, 333-130827
ING LIFE INSURANCE AND ANNUITY COMPANY (Exact name of registrant as specified in its charter)
Connecticut (State or other jurisdiction of incorporation or organization) One Orange Way Windsor, Connecticut (Address of principal executive offices)		71-0294708 (IRS Employer Identification No.) 06095-4774 (Zip Code)
(860) 580-4646 (Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 55,000 shares of Common Stock, $50 par value, as of May 12, 2008, are issued and outstanding, all of which were directly owned by Lion Connecticut Holdings Inc.

NOTE: WHEREAS ING LIFE INSURANCE AND ANNUITY COMPANY MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q, THIS FORM IS BEING FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Form 10-Q for the period ended March 31, 2008

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

Condensed Consolidated Statements of Operations

(Unaudited)

(In millions)

				Three Months Ended March 31,
				2008		2007
Revenues:
	Net investment income		$	260.9	$	264.2
	Fee income			171.2		186.7
	Premiums			7.3		18.4
	Broker-dealer commission revenue			177.3		100.4
	Net realized capital (losses) gains			(59.9)		1.5
	Other income			3.6		7.9
Total revenue				560.4		579.1
Benefits and expenses:
	Interest credited and other benefits to contractowners			195.9		180.6
	Operating expenses			161.4		151.7
	Broker-dealer commission expense			177.3		100.4
	Net amortization of deferred policy acquisition
		costs and value of business acquired		94.9		43.4
	Interest expense			0.3		2.3
Total benefits and expenses				629.8		478.4
(Loss) income before income taxes				(69.4)		100.7
Income tax (benefit) expense				(43.7)		28.5
Net (loss) income			$	(25.7)	$	72.2

The accompanying notes are an integral part of these financial statements

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Condensed Consolidated Balance Sheets

(In millions, except share data)

				As of		As of
				March 31,		December 31,
				2008		2007
				(Unaudited)
Assets
Investments:
	Fixed maturities, available-for-sale, at fair value
		(amortized cost of $13,465.7 at 2008 and $13,374.7 at 2007)	$	13,111.2	$	13,316.3
	Equity securities, available-for-sale, at fair value
		(cost of $425.1 at 2008 and $440.1 at 2007)		405.0		446.4
	Short-term investment			26.2		167.9
	Mortgage loans on real estate			2,061.5		2,089.4
	Policy loans			269.0		273.4
	Limited partnerships/corporations			652.1		636.1
	Other investments			87.4		34.8
	Securities pledged (amortized cost of $1,106.4 at 2008 and $940.2 at 2007)			1,107.3		934.1
Total investments				17,719.7		17,898.4
Cash and cash equivalents				382.7		252.3
Short-term investments under securities loan agreement,
	including collateral delivered			468.2		202.7
Accrued investment income				186.5		168.3
Receivable for securities sold				15.9		5.6
Reinsurance recoverable				2,564.6		2,594.4
Deferred policy acquisition costs				747.6		728.6
Value of business acquired				1,199.2		1,253.2
Notes receivable from affiliate				175.0		175.0
Short-term loan to affiliate				153.5		-
Due from affiliates				11.4		10.6
Property and equipment				156.8		147.4
Other assets				116.0		112.1
Assets held in separate accounts				45,275.9		48,091.2
Total assets			$	69,173.0	$	71,639.8

The accompanying notes are an integral part of these financial statements

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Condensed Consolidated Balance Sheets

(In millions, except share data)

				As of		As of
				March 31,		December 31,
				2008		2007
				(Unaudited)
Liabilities and Shareholder's Equity
Future policy benefits and claims reserves			$	18,830.9	$	18,569.1
Payable for securities purchased				32.2		0.2
Payables under securities loan agreement				407.9		183.9
Notes payable				9.9		9.9
Borrowed money				685.8		738.4
Due to affiliates				104.9		130.7
Current income taxes				43.6		56.8
Deferred income taxes				182.0		275.9
Other liabilities				680.3		542.7
Liabilities related to separate accounts				45,275.9		48,091.2
Total liabilities				66,253.4		68,598.8

Shareholder's equity:
	Common stock (100,000 shares authorized, 55,000
		issued and outstanding; $50 per share value)		2.8		2.8
	Additional paid-in capital			4,159.8		4,159.3
	Accumulated other comprehensive loss			(130.0)		(33.8)
	Retained earnings (deficit)			(1,113.0)		(1,087.3)
Total shareholder's equity				2,919.6		3,041.0
Total liabilities and shareholder's equity			$	69,173.0	$	71,639.8

The accompanying notes are an integral part of these financial statements.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Condensed Consolidated Statements of Changes in Shareholder’s Equity

(Unaudited)

(In millions)

									Accumulated
							Additional		Other		Retained		Total
					Common		Paid-In		Comprehensive		Earnings		Shareholder's
					Stock		Capital		Loss		(Deficit)		Equity
Balance at December 31, 2006					$	2.8	$	4,299.5	$	(14.0)	$	(1,274.6)	$	3,013.7
	Cumulative effect of changes in accounting principles					-		-		-		(31.1)		(31.1)
Balance at January 1, 2007						2.8		4,299.5		(14.0)		(1,305.7)		2,982.6
	Comprehensive income:
		Net income				-		-		-		72.2		72.2
		Other comprehensive loss, net of tax:
			Change in net unrealized capital gains
				(losses) on securities ($(5.9) pretax)		-		-		(3.9)		-		(3.9)
			Pension liability ($(0.3) pretax)			-		-		(0.2)		-		(0.2)
	Total comprehensive income													68.1
	Employee share-based payments					-		1.2		-		-		1.2
Balance at March 31, 2007 (Restated)					$	2.8	$	4,300.7	$	(18.1)	$	(1,233.5)	$	3,051.9

Balance at December 31, 2007					$	2.8	$	4,159.3	$	(33.8)	$	(1,087.3)	$	3,041.0
	Comprehensive income:
		Net loss				-		-		-		(25.7)		(25.7)
		Other comprehensive loss, net of tax:
			Change in net unrealized capital gains (losses)
				on securities ($(148.0) pretax)		-		-		(96.2)		-		(96.2)
	Total comprehensive loss													(121.9)
	Employee share-based payments					-		0.5		-		-		0.5
Balance at March 31, 2008					$	2.8	$	4,159.8	$	(130.0)	$	(1,113.0)	$	2,919.6

The accompanying notes are an integral part of these financial statements.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)

				Three Months Ended March 31,
				2008		2007

Net cash provided by operating activities			$	193.0	$	164.2

Cash Flows from Investing Activities:
	Proceeds from the sale, maturity, disposal or redemption of:
		Fixed maturities, available-for-sale		1,454.9		2,912.2
		Equity securities, available-for-sale		309.8		20.9
		Mortgage loans on real estate		41.2		35.0
	Acquisition of:
		Fixed maturities, available-for-sale		(1,705.7)		(2,398.1)
		Equity securities, available-for-sale		(305.7)		(91.1)
		Mortgage loans on real estate		(13.1)		(64.4)
	Policy loans, net			4.4		1.7
	Derivatives, net			(22.4)		8.7
	Limited partnerships, net			(20.1)		(13.2)
	Short-term investments, net			141.7		(22.3)
	Collateral delivered			(41.5)		-
	Other investments, net			(4.3)		6.1
	Purchases of fixed assets, net			(9.3)		(24.9)
Net cash (used in) provided by investing activities				(170.1)		370.6

Cash Flows from Financing Activities:
	Deposits received for investment contracts			885.8		393.5
	Maturities and withdrawals from investment contracts			(572.2)		(996.0)
	Short-term loans to affiliates			(153.5)		-
	Short-term borrowings			(52.6)		(46.8)
Net cash provided by (used in) financing activities				107.5		(649.3)
Net increase (decrease) in cash and cash equivalents				130.4		(114.5)
Cash and cash equivalents, beginning of period				252.3		311.2
Cash and cash equivalents, end of period			$	382.7	$	196.7

The accompanying notes are an integral part of these financial statements.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

1.	Organization and Significant Accounting Policies

Basis of Presentation

ING Life Insurance and Annuity Company (“ILIAC”) is a stock life insurance company domiciled in the state of Connecticut. ILIAC and its wholly-owned subsidiaries (collectively, the “Company”) are providers of financial products and services in the United States. ILIAC is authorized to conduct its insurance business in all states and in the District of Columbia.

The condensed consolidated financial statements for the three months ended March 31, 2008, include ILIAC and its wholly-owned subsidiaries, ING Financial Advisers, LLC (“IFA”) and Directed Services LLC (“DSL”). For the three months ended March 31, 2007, ILIAC’s wholly-owned subsidiaries also included Northfield Windsor LLC (“NWL”). ILIAC is a direct, wholly-owned subsidiary of Lion Connecticut Holdings Inc. (“Lion” or “Parent”), which is an indirect, wholly-owned subsidiary of ING Groep N.V. (“ING”). ING is a global financial services holding company based in The Netherlands, with American Depository Shares listed on the New York Stock Exchange under the symbol “ING.”

On May 11, 2006, ILIAC organized NWL as a wholly-owned subsidiary for the purpose of purchasing, constructing, developing, leasing, and managing a new corporate office facility to be located at One Orange Way, Windsor, Connecticut, that would serve as the principal executive office of ILIAC and as corporate offices for other Hartford based operations of the Company and its affiliates (the “Windsor Property”). Effective October 1, 2007, the principal executive office of ILIAC was changed to One Orange Way, Windsor, Connecticut.

On October 31, 2007, ILIAC’s subsidiary, NWL merged with and into ILIAC. As of the merger date, NWL ceased to exist, and ILIAC became the surviving corporation. The merger did not have an impact on ILIAC’s condensed consolidated results of operations and financial position, as NWL was a wholly-owned subsidiary and already included in the condensed consolidated financial statements for all periods presented since its formation.

The condensed consolidated financial statements and notes as of March 31, 2008, and for the three months ended March 31, 2008 and 2007, have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are unaudited.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations, and cash flows, for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and related notes as presented in the Company’s 2007 Annual Report on Form 10-K. The results of operations for the interim periods may not be considered indicative of results to be expected for the full year.

Description of Business

The Company offers qualified and nonqualified annuity contracts that include a variety of funding and payout options for individuals and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408, and 457, as well as nonqualified deferred compensation plans. The Company’s products are offered primarily to individuals, pension plans, small businesses, and employer-sponsored groups in the health care, government, and education markets (collectively “not-for-profit” organizations) and corporate markets. The Company’s products are generally distributed through pension professionals, independent agents and brokers, third party administrators, banks, dedicated career agents, and financial planners.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates.

Reclassifications

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

Significant Accounting Policies

For a description of significant accounting policies, see the Organization and Significant Accounting Policies footnote to the Consolidated Financial Statements included in the Company’s 2007 Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies since the filing of the Company’s 2007 Annual Report on Form 10-K, except as noted in the Recently Adopted Accounting Standards footnote.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

2.	Recently Adopted Accounting Standards

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 157, “Fair Value Measurements” (“FAS No. 157”). FAS No. 157 provides guidance for using fair value to measure assets and liabilities whenever other standards require (or permit) assets or liabilities to be measured at fair value. FAS No. 157 does not expand the use of fair value to any new circumstances.

Under FAS No. 157, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, FAS No. 157 establishes a fair value hierarchy that prioritizes the information used to develop such assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. FAS No. 157 also requires separate disclosure of fair value measurements by level within the hierarchy and expanded disclosure of the effect on earnings for items measured using unobservable data.

FAS 157 was adopted by the Company on January 1, 2008. As a result of implementing FAS 157, the Company recognized $1.7, before tax, as an increase to Net income on the date of adoption related to the fair value measurements of investment contract guarantees. The impact of implementation was included in Interest credited and other benefits to contractholders on the Condensed Consolidated Statements of Operations. The Company recognized no other adjustments to its financial statements related to the adoption of FAS 157, and new disclosures are included in the Financial Instruments footnote.

The Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS No. 159”), which allows a company to make an irrevocable election, on specific election dates, to measure eligible items at fair value with unrealized gains and losses recognized in earnings at each subsequent reporting date. The election to measure an item at fair value may be determined on an instrument by instrument basis, with certain exceptions. If the fair value option is elected, any upfront costs and fees related to the item will be recognized in earnings as incurred. Items eligible for the fair value option include:

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Certain recognized financial assets and liabilities;

Rights and obligations under certain insurance contracts that are not financial instruments;

Host financial instruments resulting from the separation of an embedded nonfinancial derivative instrument from a nonfinancial hybrid instrument; and

Certain commitments.

FAS No. 159 was adopted by the Company on January 1, 2008. In implementing FAS No. 159, the Company elected not to take the fair value option for any eligible assets or liabilities in existence on January 1, 2008.

Offsetting of Amounts Related to Certain Contracts

On April 30, 2007, the FASB issued a Staff Position on FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts” (“FSP FIN 39-1”), which permits a reporting entity to offset fair value amounts recognized for the right to reclaim or the obligation to return cash collateral against fair value amounts recognized for derivative instruments under master netting arrangements. FSP FIN 39-1 had no effect on the financial condition, results of operations, or cash flows upon adoption by the Company on January 1, 2008, as it is the Company’s accounting policy to not offset such fair value amounts.

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which creates a single model to address the accounting for the uncertainty in income tax positions recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold and measurement criteria that must be satisfied to recognize a financial statement benefit of tax positions taken, or expected to be taken, on an income tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

FIN 48 was adopted by the Company on January 1, 2007. As a result of implementing FIN 48, the Company recognized a cumulative effect of change in accounting principle of $2.9 as a reduction to January 1, 2007 Retained earnings (deficit).

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts

In September 2005, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”), which states that when an internal replacement transaction results in a substantially changed contract, the unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement assets, related to the replaced contract should not be deferred in connection with the new contract. Contract modifications that meet various conditions defined by SOP 05-1 and result in a new contract that is substantially unchanged from the replaced contract, however, should be accounted for as a continuation of the replaced contract.

SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, by amendment, endorsement, or rider, to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 applies to internal replacements made primarily to contracts defined by FAS No. 60, “Accounting and Reporting by Insurance Enterprises” (“FAS No. 60”), as short-duration and long-duration insurance contracts, and by FAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments” (“FAS No. 97”), as investment contracts.

SOP 05-1 was adopted by the Company on January 1, 2007, and is effective for internal replacements occurring on or after that date. As a result of implementing SOP 05-1, the Company recognized a cumulative effect of change in accounting principle of $43.4, before tax, or $28.2, net of $15.2 of income taxes, as a reduction to January 1, 2007 Retained earnings (deficit). In addition, the Company revised its accounting policy on the amortization of deferred policy acquisition costs ("DAC") and value of business acquired ("VOBA") to include internal replacements.

3.	New Accounting Pronouncements

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivatives Instruments and Hedging Activities” (“FAS No. 161”), which requires enhanced disclosures about objectives and strategies for using derivatives, fair value amounts of and gains and losses on derivative instruments, and credit-risk-related contingent features in derivative agreements, including:

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

How and why derivative instruments are used;

How derivative instruments and related hedged items are accounted for under FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities (“FAS No. 133”), and its related interpretations; and

How derivative instruments and related hedged items affect an entity’s financial statements.

The provisions of FAS No. 161 are effective for financial statements issued for fiscal years and interim periods after November 15, 2008, with early application encouraged. The Company is in the process of determining the impact of adoption of FAS No. 161 for its derivative instruments. The Company’s derivatives, however, are generally not accounted for using hedge accounting treatment under FAS No. 133, as the Company has not historically sought hedge accounting treatment.

Business Combinations

In December 2007, the FASB issued FAS No. 141 (revised 2007), “Business Combinations” (“FAS No. 141R”), which replaces FAS No. 141, “Business Combinations,” as issued in 2001. FAS No. 141R requires most identifiable assets, liabilities, noncontrolling interest, and goodwill, acquired in a business combination to be recorded at full fair value as of the acquisition date, even for acquisitions achieved in stages. In addition, the statement requires:

Acquisition-related costs to be recognized separately and generally expensed;

Non-obligatory restructuring costs to be recognized separately when the liability is incurred;

Contractual contingencies acquired to be recorded at acquisition-date fair values;

A bargain purchase, which occurs when the fair value of net assets acquired exceeds the consideration transferred plus any non-controlling interest in the acquiree, to be recognized as a gain; and

The nature and financial effects of the business combination to be disclosed.

FAS No. 141R also amends or eliminates various other authoritative literature.

The provisions of FAS No. 141R are effective for fiscal years beginning on or after December 15, 2008 for all business combinations occurring on or after that date. As such, this standard will impact any Company acquisitions that occur on or after January 1, 2009.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

4.	Financial Instruments

Fair Value Measurements

FAS No. 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements.

Fair Value Hierarchy

The Company has categorized its financial instruments into a three level hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the Condensed Consolidated Balance Sheets are categorized as follows:

Level 1 - Unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2 - Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 2 inputs include the following:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in non-active markets;

Inputs other than quoted market prices that are observable; and

Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These valuations, whether derived internally or obtained from a third party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2008.

				Level 1		Level 2		Level 3⁽¹⁾		Total
Assets:
	Fixed maturities, available-for-sale, including
		securities pledged	$	213.7	$	12,201.8	$	1,803.0	$	14,218.5
	Equity securities, available-for-sale			405.0		-		-		405.0
	Other investments (primarily derivatives)			-		87.4		-		87.4
	Cash and cash equivalents and short-term
		investments under securities loan agreement		850.9		-		-		850.9
	Assets held in separate accounts			40,333.3		4,942.6		-		45,275.9

Total			$	41,802.9	$	17,231.8	$	1,803.0	$	60,837.7

Liabilities:
	Investment contract guarantees		$	-	$	-	$	106.6	$	106.6
	Other liabilities (primarily derivatives)			-		335.7		-		335.7
Total			$	-	$	335.7	$	106.6	$	442.3

⁽¹⁾	Level 3 assets and liabilities accounted for 2.8% of total assets and liabilities measured at fair value on a recurring basis.
	Excluding separate accounts assets for which the policyholder bears the risk, the Level 3 assets and liabilities in relation
	to total assets and liabilities measured at fair value on a recurring basis totaled 11.2%.

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

Fixed maturities, available-for-sale: The fair values for the actively traded marketable bonds are determined based upon the quoted market prices or dealer quotes. The fair values for marketable bonds without an active market are obtained through several commercial pricing services, which provide the estimated fair values. Fair values of privately placed bonds are determined using a matrix-based pricing model. The model considers the current level of risk-free interest rates, current corporate spreads, the credit quality of the issuer, and cash flow characteristics of the security. Also considered are factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the presence of guarantees, and the Company’s evaluation of the borrower’s ability to compete in their relevant market. Using this data, the model generates estimated market values which the Company considers reflective of the fair value of each privately placed bond.

Equity securities, available-for-sale: Fair values of these securities are based upon quoted market price.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Cash and cash equivalents and Short-term investments under securities loan agreement: The carrying amounts for cash reflect the assets’ fair values. The fair values for cash equivalents and short-term investments are determined based on quoted market prices.

Assets held in separate accounts: Assets held in separate accounts are reported at the quoted fair values of the underlying investments in the separate accounts. Mutual funds, short-term investments and cash are included in Level 1. Bonds are included in Level 2.

Other financial instruments reported as assets and liabilities: The carrying amounts for these financial instruments (primarily derivatives) reflect the fair value of the assets and liabilities. Derivatives are carried at fair value (on the Condensed Consolidated Balance Sheets), which is determined using the Company’s derivative accounting system in conjunction with key financial data from third party sources or through values established by third party brokers.

Investment contract guarantees: The Company records liabilities, which can be either positive or negative, for annuity contracts containing guaranteed credited rates in accordance with FAS No. 133. The guarantee is treated as an embedded derivative and is required to be reported separately from the host contract. The fair value of the obligation is calculated based on the income approach as described in FAS 157. The income associated with the contracts is projected using actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of risk neutral scenarios and other best estimate assumptions. Explicit risk margins in the actuarial assumptions underlying valuations are included, as well as an explicit recognition of all non-performance risks as required by FAS 157.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities as of March 31, 2008.

							Investment
				Fixed			Contract
				Maturities			Guarantees
Balance at January 1, 2008			$	1,737.6		$	(76.4)
	Capital gains (losses):
		Net realized capital gains (losses)		0.3	⁽¹⁾		(30.2)	⁽³⁾
		Net unrealized capital gains (losses)⁽²⁾		41.5			-
	Total net realized and unrealized capital gains (losses)			41.8			(30.2)

		Purchases, sales, issuances, and settlements, net		23.6			-
		Transfer in (out) of Level 3		-			-
Balance at March 31, 2008			$	1,803.0		$	(106.6)

⁽¹⁾	This amount is included in Net realized capital gains (losses) on the Condensed Statements of Operations.
⁽²⁾	The amounts in this line are included in Accumulated other comprehensive income (loss) on the Condensed Balance Sheets.
⁽³⁾	This amount is included in Interest credited and other benefits to contractowners on the Condensed Statements of Operations.
	All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because
	it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis.

5.	Investments

Other-Than-Temporary Impairments

The following table identifies the Company’s other-than-temporary impairments by type for the three months ended March 31, 2008 and 2007.

		Three Months Ended March 31,
		2008			2007
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. corporate	$	18.2	41	$	9.1	25
Foreign⁽¹⁾		10.1	19		1.4	2
Residential mortgage-backed		13.8	9		0.6	7
Other asset-backed		7.4	10		-	-
Total	$	49.5	79	$	11.1	34

⁽¹⁾ Primarily U.S. dollar denominated.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The above schedule includes $22.2 and $0.6 for the three months ended March 31, 2008 and 2007, respectively, in other-than-temporary write-downs related to the analysis of credit risk, the possibility of significant prepayment risk, and severity and duration of unrealized losses. The remaining write-downs are related to investments that the Company does not have the intent to retain for a period of time sufficient to allow for recovery in fair value. The following table summarizes these write-downs by type for the three months ended March 31, 2008 and 2007.

		Three Months Ended March 31,
		2008			2007
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. corporate	$	15.4	32	$	9.1	25
Foreign⁽¹⁾		10.1	19		1.4	2
Residential mortgage-backed		1.8	1		-	-
Total	$	27.3	52	$	10.5	27

⁽¹⁾ Primarily U.S. dollar denominated.

The remaining fair value of fixed maturities with other-than-temporary impairments as of March 31, 2008 and 2007 was $1,271.1 and $991.2, respectively.

The Company may sell securities during the period in which fair value has declined below amortized cost for fixed maturities or cost for equity securities. In certain situations, new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

6.	Deferred Policy Acquisition Costs and Value of Business Acquired

Activity within DAC was as follows for the three months ended March 31, 2008 and 2007.

				2008		2007
Balance at January 1			$	728.6	$	622.6
	Deferrals of commissions and expenses			43.6		35.8
	Amortization:
		Amortization		(38.8)		(20.1)
		Interest accrued at 5% to 7%		12.1		10.4
	Net amortization included in Condensed Consolidated
		Statements of Operations		(26.7)		(9.7)
	Change in unrealized capital (gains) losses on
		available-for-sale securities		2.1		(0.9)
	Implementation of SOP 05-1			-		(6.0)
Balance at March 31			$	747.6	$	641.8

Activity within VOBA was as follows for the three months ended March 31, 2008 and 2007.

				2008		2007
Balance at January 1			$	1,253.2	$	1,340.2
	Deferrals of commissions and expenses			8.8		10.6
	Amortization:
		Amortization		(88.2)		(55.1)
		Interest accrued at 5% to 7%		20.0		21.4
	Net amortization included in Condensed Consolidated
		Statements of Operations		(68.2)		(33.7)
	Change in unrealized capital (gains) losses on
		available-for-sale securities		5.4		(2.3)
	Implementation of SOP 05-1			-		(37.4)
Balance at March 31			$	1,199.2	$	1,277.4

During the first quarter of 2008, the Company revised and unlocked the assumptions related to lower estimated future gross profits and mutual fund revenue, resulting in an $42.0 increase in amortization of DAC and VOBA.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

7.	Capital Contributions and Dividends

During the three months ended March 31, 2008 and 2007, ILIAC did not receive any capital contributions from its Parent.

During the three months ended March 31, 2008 and 2007, ILIAC did not pay any dividends on its common stock to its Parent.

8.	Income Taxes

The Company’s effective tax rates for the three months ended March 31, 2008 and 2007 were (63.0)% and 28.3%, respectively. The effective rates differ from the expected rate primarily due to the following items:

	Three months ended March 31
	2008	2007
Statutory rate	(35.0)%	35.0%
Dividend received deduction	(10.4)%	(7.9)%
IRS Audit Settlement	(14.3)%	0.0%
Other	(3.3)%	1.2%
Effective rate at March 31	(63.0)%	28.3%

Valuation allowances are provided when it is considered unlikely that deferred tax assets will be realized. As of March 31, 2008 and December 31, 2007, the Company had a $6.4 valuation allowance related to unrealized capital losses on investments, which is included in Accumulated other comprehensive income (loss).

Unrecognized Tax Benefits

In first quarter 2008, the Internal Revenue Service (“IRS”) finalized the audit of tax years 2002 and 2003. The IRS is currently examining tax years 2004, 2005 and 2006. In addition, the Company and the IRS have agreed to enter the Compliance Assurance Program (“CAP”) for tax year 2008. The Company is under audit by New York for years 1995 through 2000. It is reasonably possible that the aforementioned New York state audits may be settled within the next twelve months. It is reasonably possible that the unrecognized tax benefit on uncertain tax positions related to the New York state tax audit will decrease by up to $11.4. The timing of the settlement and any potential future payment of the remaining $19.0 cannot be reliably estimated.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

A reconciliation of the change in unrecognized income tax benefits for first quarter of 2008 is as follows:

Balance at December 31, 2007	$	47.4
Additions for tax positions related to current year		0.7
Reductions for tax positions related to prior years		(9.9)
Reductions for settlement with taxing authorities		(7.8)
Balance at March 31, 2008	$	30.4

The Company had $42.6 of unrecognized tax benefits as of December 31, 2007 and $33.4 of unrecognized tax benefits as of March 31, 2008 that would affect the Company’s effective tax rate if recognized.

Interest and Penalties

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in Current income taxes and Income tax expense on the Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Operations, respectively. The Company had accrued interest of $16.9 as of December 31, 2007 and $12.4 as of March 31, 2008. The decrease in accrued interest primarily relates to the settlement of the 2002 and 2003 IRS audit.

9.	Financing Agreements

Reciprocal Loan Agreement

ILIAC maintains a reciprocal loan agreement with ING America Insurance Holdings, Inc. (“ING AIH”), an affiliate, to facilitate the handling of unanticipated short-term cash requirements that arise in the ordinary course of business. Under this agreement, which became effective in June 2001 and expires on April 1, 2011, either party can borrow from the other up to 3% of ILIAC’s statutory admitted assets as of the preceding December 31. Interest on any ILIAC borrowing is charged at the rate of ING AIH’s cost of funds for the interest period, plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Under this agreement, ILIAC incurred an immaterial amount of interest expense for the three months ended March 31, 2008 and $2.0 for the three months ended March 31, 2007. The Company earned interest income of $0.7 and $0.2 for the three months ended March 31, 2008 and 2007, respectively. Interest expense and income are included in Interest expense and Net investment income, respectively, on the Condensed Consolidated Statements of Operations. As of March 31, 2008, the Company had a $153.5 receivable due from ING AIH under this agreement, and no amounts outstanding as of December 31, 2007.

For information on the Company’s additional financing agreements, see the Financing Agreements footnote to the Consolidated Financial Statements included in the Company’s 2007 Annual Report on Form 10-K.

10.

Commitments and Contingent Liabilities

Commitments

Through the normal course of investment operations, the Company commits to either purchase or sell securities, commercial mortgage loans, or money market instruments, at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either a higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments.

At March 31, 2008, the Company had off-balance sheet commitments to purchase investments equal to their fair value of $1,021.0, $272.1 of which was with related parties. At December 31, 2007, the Company had off-balance sheet commitments to purchase investments equal to their fair value of $357.8, $226.6 of which was with related parties. During the three months ended March 31, 2008, $51.8 was funded to related parties under these commitments.

Financial Guarantees

The Company owns a 3-year credit-linked note arrangement, whereby the Company will reimburse the guaranteed party upon payment default of the referenced obligation. Upon such default, the Company reimburses the guaranteed party for the loss under the reference obligation, and the Company receives that reference obligation in settlement. The Company can then seek recovery of any losses under the agreement by sale or collection of the received reference obligation. As of March 31, 2008, the maximum liability of the Company under the guarantee was $30.0.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Cash Collateral

Under the terms of the Company’s Over-The-Counter Derivative International Swaps and Derivatives Association, Inc. Agreements (“ISDA Agreements”), the Company may receive from, or deliver to, counterparties, collateral to assure that all terms of the ISDA Agreements will be met with regard to the Credit Support Annex (“CSA”). The terms of the CSA call for the Company to pay interest on any cash received equal to the Federal Funds rate. As of March 31, 2008, the Company delivered $60.3 of cash collateral, which was included in Short-term investments under securities loan agreement, including collateral delivered, on the Condensed Consolidated Balance Sheets. As of December 31, 2007, the Company delivered $18.8 of cash collateral, which was included in Short-term investments under securities loan agreement, including collateral delivered, on the Condensed Consolidated Balance Sheets.

Litigation

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

Regulatory Matters

As with many financial services companies, the Company and its affiliates have received informal and formal requests for information from various state and federal governmental agencies and self-regulatory organizations in connection with inquiries and investigations of the products and practices of the financial services industry. In each case, the Company and its affiliates have been and are providing full cooperation. For information on the focus of such regulatory inquiries and the actions undertaken by ING in connection therewith, see the Other Regulatory Matters section of the Commitments and Contingent Liabilities footnote to the Consolidated Financial Statements included in the Company’s 2007 Annual Report on Form 10-K.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

11.

Accumulated Other Comprehensive Income (Loss)

Shareholder’s equity included the following components of Accumulated other comprehensive income (loss) as of March 31, 2008 and 2007.

			2008		2007
Net unrealized capital gains (losses):
	Fixed maturities, available-for-sale	$	(353.6)	$	39.2
	Equity securities, available-for-sale		(20.1)		6.1
	DAC/VOBA adjustment on available-for-sale securities		15.3		0.7
	Sales inducements adjustment on available-for-sale securities		0.4		-
	Premium deficiency reserve adjustment		-		(36.6)
	Other investments		(0.4)		-
	Less: allocation to experience-rated contracts		(175.9)		22.1
Unrealized capital losses, before tax			(182.5)		(12.7)
Deferred income tax asset			63.9		4.4
Deferred tax asset valuation allowance			(6.4)		-
Net unrealized capital losses			(125.0)		(8.3)
Pension liability, net of tax			(5.0)		(9.8)
Accumulated other comprehensive loss		$	(130.0)	$	(18.1)

Net unrealized capital gains (losses) allocated to experience-rated contracts of $(175.9) and $22.1 as of March 31, 2008 and 2007, respectively, are reflected on the Condensed Consolidated Balance Sheets in Future policy benefits and claims reserves and are not included in Shareholder’s equity.

Changes in Accumulated other comprehensive income (loss), net of DAC, VOBA, and tax (excluding the tax valuation allowance), related to changes in unrealized capital gains (losses) on securities, including securities pledged and excluding those related to experience-rated contracts, were as follows for the three months ended March 31, 2008 and 2007.

			2008		2007
Net unrealized capital holding gains (losses) arising
	during the period⁽¹⁾	$	(128.3)	$	(9.7)
Less: reclassification adjustment for gains (losses) and other
	items included in Net income⁽²⁾		(32.1)		(5.8)
Net change in unrealized capital gains (losses) on securities		$	(96.2)	$	(3.9)

⁽¹⁾

Pretax net unrealized capital holding gains (losses) arising during the period were $(197.4) and $(14.6) for the three months ended March 31, 2008 and 2007, respectively.

⁽²⁾

Pretax reclassification adjustments for gains (losses) and other items included in Net income were $(49.4) and $(8.7) for the three months ended March 31, 2008 and 2007, respectively.

ING Life Insurance and Annuity Company and Subsidiaries

(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

12.

Changes to Prior Years Presentation

In the fourth quarter of 2007, the Company identified $43.1 in unreconciled net liabilities before taxes. While the correction of this error was not material to the prior period financial statements, correction of the error through the income statement would have been material to the 2007 Statement of Operations. In accordance with the guidance provided in SEC Staff Accounting Bulletin (“SAB”) Topic IN, “Financial Statements - Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company restated the prior period financial statements to correct this error by adjusting January 1, 2005 Retained earnings. The effect of the restatement on the interim prior period financial statements is as follows:

			Previously
			Reported		Adjustment		Restated

March 31, 2007
	Retained earnings (net of tax)	$	(1,261.5)	$	28.0	$	(1,233.5)
	Total shareholder's equity (net of tax)		3,023.9		28.0		3,051.9

Item 2.

Management’s Narrative Analysis of the Results of Operations and Financial Condition

(Dollar amounts in millions, unless otherwise stated)

Overview

The following narrative analysis presents a review of the consolidated results of operations of ING Life Insurance and Annuity Company (“ILIAC”) and its wholly-owned subsidiaries (collectively, the “Company”) for each of the three months ended March 31, 2008 and 2007, and financial condition as of March 31, 2008 and December 31, 2007. This item should be read in its entirety and in conjunction with the condensed consolidated financial statements and related notes, which can be found under Part I, Item 1. contained herein, as well as the “Management’s Narrative Analysis of the Results of Operations and Financial Condition” section contained in the Company’s 2007 Annual Report on Form 10-K.

Forward-Looking Information/Risk Factors

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

Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond the Company’s control and many of which are subject to change. These uncertainties and contingencies could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable developments, including, but not limited to the following:

(1)

Equity market volatility could negatively impact profitability and financial condition;

(2)

Changes in interest rates could have a negative impact on profitability and financial condition;

(3)

The Company’s investment portfolio is subject to risks that may reduce the value of invested assets and adversely affect sales, profitability, and investment returns credited to contractowners;

(4)

Changes in underwriting and actual experience could materially affect profitability;

(5)

A downgrade in the Company’s ratings may negatively affect profitability and financial condition;

(6)

The Company’s results of operations and financial condition may be adversely affected by general economic and business conditions or adverse capital market conditions that are less favorable than anticipated;

(7)

Competition could negatively affect the ability to maintain or increase profitability;

(8)

Changes in federal income tax law or interpretations of existing tax law could affect profitability and financial condition by making some products less attractive to contractowners and increasing tax costs of contractowners or the Company;

(9)

Litigation may adversely affect profitability and financial condition;

(10)

Changes in regulation in the United States and recent regulatory investigations may reduce profitability;

(11)

The Company’s products are subject to extensive regulation and failure to meet any of the complex product requirements may reduce profitability;

(12)

A failure of the Company’s operating systems or a compromise of security with respect to operating systems or portable electronic devices could adversely affect the Company’s results of operations and financial condition;

(13)

The occurrence of natural or man-made disasters may adversely affect the Company’s results of operations and financial condition; and

(14)

The occurrence of unidentified or unanticipated risks could negatively affect the Company’s business or result in losses.

Investors are also directed to consider the risks and uncertainties discussed in this Item 2. and in Item 1A. of Part II contained herein, as well as in other documents filed by the Company with the SEC. Except as may be required by the federal securities laws, the Company disclaims any obligation to update forward-looking information.

Basis of Presentation

ILIAC is a stock insurance company domiciled in the state of Connecticut. ILIAC and its wholly-owned subsidiaries are providers of financial products and services in the United States. ILIAC is authorized to conduct its insurance business in all states and in the District of Columbia.

ILIAC is a direct, wholly-owned subsidiary of Lion Connecticut Holdings Inc. (“Lion” or “Parent”), which is an indirect, wholly-owned subsidiary of ING Groep N.V. (“ING”). ING is a global financial services holding company based in The Netherlands, with American Depository Shares listed on the New York Stock Exchange under the symbol “ING”.

The Company has one operating segment.

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies since the filing of the Company’s 2007 Annual Report on Form 10-K.

Results of Operations

Overview

Products offered by the Company include qualified and nonqualified annuity contracts that include a variety of funding and payout options for individuals and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408, and 457, as well as nonqualified deferred compensation plans.

The Company derives its revenue mainly from (a) fee income generated from separate account assets supporting variable options under variable annuity contract investments, as designated by contractowners, (b) investment income earned on assets supporting fixed assets under management (“AUM”), mainly generated from annuity products with fixed investment options, and (c) certain other fees. The Company’s benefits and expenses primarily consist of (a) interest credited and other benefits to contractowners, (b) amortization of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”), (c) expenses related to the selling and servicing of the various products offered by the Company, and (d) other general business expenses. In addition, the Company collects broker-dealer commissions through its subsidiary Directed Services LLC (“DSL”), which are, in turn, paid to broker-dealers and expensed.

Economic Analysis

The current economic environment presents challenges for the Company and the insurance industry. The Company’s sales and financial results continue to be affected by economic trends.

Equity market performance affects the Company, as fee revenue from variable AUM is generally affected by equity market performance. In addition, variable product demand often mirrors consumer demand for equity market investments. Poor equity market performance during the first quarter of 2008 unfavorably impacted AUM related to variable annuity products.

The changing market interest rate environment during the first quarter of 2008, in combination with the slow economic growth resulted in a substantial increase in unrealized and realized losses in 2008, as compared to the same period for 2007.

Results of Operations

The Company’s results of operations for the three months ended March 31, 2008, and changes therein, were impacted by higher realized capital losses and unfavorable product experience driven by poor equity market performance and lower AUM.

				Three Months Ended March 31,				$ Increase	% Increase
				2008		2007		(Decrease)	(Decrease)
Revenues:
	Net investment income		$	260.9	$	264.2	$	(3.3)	(1.2)%
	Fee income			171.2		186.7		(15.5)	(8.3)%
	Premiums			7.3		18.4		(11.1)	(60.3)%
	Broker-dealer commission revenue			177.3		100.4		76.9	76.6%
	Net realized capital (losses) gains			(59.9)		1.5		(61.4)	NM
	Other income			3.6		7.9		(4.3)	(54.4)%
Total revenue				560.4		579.1		(18.7)	(3.2)%
Benefits and expenses:
	Interest credited and other
		benefits to contractowners		195.9		180.6		15.3	8.5%
	Operating expenses			161.4		151.7		9.7	6.4%
	Broker-dealer commission expense			177.3		100.4		76.9	76.6%
	Net amortization of deferred policy
		acquisition costs and value
		of business acquired		94.9		43.4		51.5	118.7%
	Interest expense			0.3		2.3		(2.0)	(87.0)%
Total benefits and expenses				629.8		478.4		151.4	31.6%
Income (loss) before income taxes				(69.4)		100.7		(170.1)	(168.9)%
Income tax (benefit) expense				(43.7)		28.5		(72.2)	NM
Net (loss) income			$	(25.7)	$	72.2	$	(97.9)	(135.6)%
Effective tax rate				63.0%		28.3%

NM - Not meaningful.

Revenues

Total revenue decreased for the three months ended March 31, 2008, primarily reflecting higher Net realized capital losses and decreases in Fee income and Premiums.

The increase in Net realized capital losses for the three months ended March 31, 2008, was primarily due to higher losses on derivatives. The losses on derivatives were related to interest rate swaps and driven by the decline of LIBOR rates.

Fee income decreased for the three months ended March 31, 2008, as average AUM decreased related to variable annuity products decreased, driven by downward equity markets.

The decrease in Premiums for the three months ended March 31, 2008, was due to decline in annuitizations of retirement products driven by unfavorable market conditions. Changes of this type were entirely offset by the decrease in reserves reflected in the Interest credited and other benefits to contractowners.

Benefits and Expenses

Total benefits and expenses increased for the three months ended March 31, 2008, primarily due to increases in Net amortization of DAC and VOBA, Operating expenses, and Interest credited and other benefits to contractowners.

The Net amortization of DAC and VOBA increased for the three months ended March 31, 2008, reflecting lower estimated future gross profits driven by the decline in equity market performance.

Operating expenses for the three months ended March 31, 2008 increased due to higher overhead costs and an increase in investment advisory fees on annuity products.

Interest credited and other benefits to contractowners increased for the three months ended March 31, 2008, primarily driven by the increase in reserves associated with investment contract guarantees due to the decrease in swap rates and the widening of credit spreads. In addition, unfavorable mortality experience on annuity products resulted in higher reserves. These increases were partially offset by a decrease in reserves due to model refinements.

Income Taxes

Income tax expense decreased for the three months ended March 31, 2008, primarily due to the audit settlement with the Internal Revenue Service (“IRS”), dividends received deduction, and lower income before taxes.

Financial Condition

Investments

Investment Strategy

The Company’s investment strategy focuses on diversification by asset class. The Company seeks to achieve economic diversification, while reducing overall credit risk and liquidity risks. In addition, the Company seeks to mitigate the impact of cash flow variability from embedded options within certain investment products, such as prepayment options, interest rate options embedded in collateralized mortgage obligations, and call options embedded in corporate bonds. The investment management function is centralized under ING Investment Management LLC, an affiliate, pursuant to an investment advisory agreement. Separate portfolios are established for groups of products with similar liability characteristics within the Company.

Fair Value Measurements

The fair values of Level 3 assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These valuations, whether derived internally or obtained from a third party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In light of the methodologies employed to obtain the fair value of financial assets and liabilities classified as Level 3, additional information is presented below with particular attention addressed to investment contract guarantees due to the impact on current Net income.

The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities as of March 31, 2008.

							Investment
				Fixed			Contract
				Maturities			Guarantees
Balance at January 1, 2008			$	1,737.6		$	(76.4)
	Capital gains (losses):
		Net realized capital gains (losses)		0.3	⁽¹⁾		(30.2)	⁽³⁾
		Net unrealized capital gains (losses)⁽²⁾		41.5			-
	Total net realized and unrealized capital gains (losses)			41.8			(30.2)

		Purchases, sales, issuances, and settlements, net		23.6			-
		Transfer in (out) of Level 3		-			-
Balance at March 31, 2008			$	1,803.0		$	(106.6)

⁽¹⁾	This amount is included in Net realized capital gains (losses) on the Condensed Statements of Operations.
⁽²⁾	The amounts in this line are included in Accumulated other comprehensive income (loss) on the Condensed Balance Sheets.
⁽³⁾	This amount is included in Interest credited and other benefits to contractowners on the Condensed Statements of Operations.
	All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is
	impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis.

The losses on investment contract guarantees were primarily related to decreases in swap rates and a widening of credit spreads during the first quarter of 2008.

Portfolio Composition

The following table presents the investment portfolio at March 31, 2008 and December 31, 2007.

			2008			2007
			Carrying Value	%		Carrying Value	%
Fixed maturities, available-for-sale,
	including securities pledged	$	14,218.5	80.3%	$	14,250.4	79.6%
Equity securities, available-for-sale			405.0	2.3%		446.4	2.5%
Mortgage loans on real estate			2,061.5	11.6%		2,089.4	11.7%
Policy loans			269.0	1.5%		273.4	1.5%
Other investments			765.7	4.3%		838.8	4.7%
Total investments		$	17,719.7	100.0%	$	17,898.4	100.0%

Fixed Maturities

Fixed maturities, available-for-sale, were as follows as of March 31, 2008.

						Gross		Gross
						Unrealized		Unrealized
				Amortized		Capital		Capital		Fair
				Cost		Gains		Losses		Value
Fixed maturities:
	U.S. Treasuries		$	206.2	$	7.6	$	-	$	213.8
	U.S. government agencies and authorities			8.0		0.1		0.1		8.0
	State, municipalities, and political subdivisions			56.8		-		2.0		54.8

	U.S. corporate securities:
		Public utilities		1,025.9		14.6		19.8		1,020.7
		Other corporate securities		4,082.2		58.1		115.1		4,025.2
	Total U.S. corporate securities			5,108.1		72.7		134.9		5,045.9

	Foreign securities⁽¹⁾:
		Government		388.1		14.6		9.8		392.9
		Other		1,959.2		35.5		66.0		1,928.7
	Total foreign securities			2,347.3		50.1		75.8		2,321.6

	Residential mortgage-backed securities			4,060.9		154.6		195.4		4,020.1
	Commercial mortgage-backed securities			1,855.7		2.3		162.4		1,695.6
	Other asset-backed securities			929.1		6.5		76.9		858.7

	Total fixed maturities, including securities pledged			14,572.1		293.9		647.5		14,218.5
	Less: securities pledged			1,106.4		17.2		16.3		1,107.3
Total fixed maturities			$	13,465.7	$	276.7	$	631.2	$	13,111.2

⁽¹⁾	Primarily U.S. dollar denominated.

Fixed maturities, available-for-sale, were as follows as of December 31, 2007.

						Gross		Gross
						Unrealized		Unrealized
				Amortized		Capital		Capital		Fair
				Cost		Gains		Losses		Value
Fixed maturities:
	U.S. Treasuries		$	11.2	$	0.7	$	-	$	11.9
	U.S. government agencies and authorities			0.6		-		-		0.6
	State, municipalities, and political subdivisions			66.1		0.1		2.2		64.0

	U.S. corporate securities:
		Public utilities		1,049.1		10.8		15.6		1,044.3
		Other corporate securities		3,855.1		46.1		65.2		3,836.0
	Total U.S. corporate securities			4,904.2		56.9		80.8		4,880.3

	Foreign securities⁽¹⁾:
		Government		379.3		17.1		6.6		389.8
		Other		1,955.8		29.9		40.3		1,945.4
	Total foreign securities			2,335.1		47.0		46.9		2,335.2

	Residential mortgage-backed securities			4,146.1		101.8		63.5		4,184.4
	Commercial mortgage-backed securities			1,927.3		10.7		52.3		1,885.7
	Other asset-backed securities			924.3		5.5		41.5		888.3

	Total fixed maturities, including securities pledged			14,314.9		222.7		287.2		14,250.4
	Less: securities pledged			940.2		8.0		14.1		934.1
Total fixed maturities			$	13,374.7	$	214.7	$	273.1	$	13,316.3

⁽¹⁾ Primarily U.S. dollar denominated.

It is management’s objective that the portfolio of fixed maturities be of high quality and be well diversified by market sector. The fixed maturities in the Company’s portfolio are generally rated by external rating agencies and, if not externally rated, are rated by the Company on a basis believed to be similar to that used by the rating agencies. The average quality rating of the Company’s fixed maturities portfolio was AA- as of March 31, 2008 and December 31, 2007. Ratings are calculated using a rating hierarchy that considers Standard & Poor’s, Moody’s Investor’s Service, Inc., and internal ratings.

Total fixed maturities, including securities pledged to creditors, by quality rating category were as follows as of March 31, 2008 and December 31, 2007.

		2008			2007
		Fair	% of		Fair	% of
		Value	Total		Value	Total
AAA	$	6,320.6	44.4%	$	6,446.7	45.3%
AA		1,006.0	7.1%		956.4	6.7%
A		2,239.9	15.8%		2,114.4	14.8%
BBB		3,921.2	27.6%		3,932.9	27.6%
BB		528.5	3.7%		591.0	4.1%
B and below		202.3	1.4%		209.0	1.5%
Total	$	14,218.5	100.0%	$	14,250.4	100.0%

94.9% and 94.4% of fixed maturities were invested in securities rated BBB and above (Investment Grade) as of March 31, 2008 and December 31, 2007, respectively.

Fixed maturities rated BB and below (Below Investment Grade) may have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities.

Total fixed maturities by market sector, including securities pledged to creditors, were as follows at March 31, 2008 and December 31, 2007.

		2008			2007
		Fair	% of		Fair	% of
		Value	Total		Value	Total
U.S. Treasuries	$	213.8	1.5%	$	11.9	0.1%
U.S. government agencies and authorities		8.0	0.1%		0.6	0.0%
U.S. corporate, states, and municipalities		5,100.7	35.9%		4,944.3	34.7%
Foreign		2,321.6	16.3%		2,335.2	16.4%
Residential mortgage-backed		4,020.1	28.3%		4,184.4	29.4%
Commercial mortgage-backed		1,695.6	11.9%		1,885.7	13.2%
Other asset-backed		858.7	6.0%		888.3	6.2%
Total	$	14,218.5	100.0%	$	14,250.4	100.0%

The amortized cost and fair value of fixed maturities, excluding securities pledged, as of March 31, 2008, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called, or prepaid.

			Amortized		Fair
			Cost		Value
Due to mature:
	One year or less	$	356.0	$	356.7
	After one year through five years		2,616.5		2,641.1
	After five years through ten years		2,934.3		2,903.2
	After ten years		1,819.6		1,743.1
	Mortgage-backed securities		5,916.6		5,715.7
	Other asset-backed securities		929.1		858.7
Less: securities pledged to creditors			1,106.4		1,107.3
Fixed maturities, excluding securities pledged to creditors		$	13,465.7	$	13,111.2

Subprime Mortgage Exposure

Since the third quarter of 2007, credit markets have become more turbulent amid concerns about subprime mortgages and collateralized debt obligations (“CDOs”). This in turn has resulted in a general widening of credit spreads, reduced price transparency, reduced liquidity, increased rating agency downgrades and increased volatility across certain markets.

To date, this market disruption has had a limited impact on the Company, which does not originate or purchase subprime or Alt-A whole-loan mortgages. Subprime lending is the origination of loans to customers with weaker credit profiles. The Company defines Alt-A Loans to include residential mortgage loans to customers who have strong credit profiles but lack some element(s), such as documentation to substantiate income. Commencing in the fourth quarter of 2007, the Company expanded its definition of Alt-A loans to include residential mortgage loans to borrowers that would otherwise be classified as prime but whose loan structure provides repayment options to the borrower that increase the risk of default. Further, during the fourth quarter, the industry coalesced around classifying any residential mortgage backed securities (“RMBS”) not clearly identifiable as prime or subprime into the Alt-A category and the Company is following that lead. The following summarizes the Company’s exposure to subprime and Alt-A mortgages as of March 31, 2008 and December 31, 2007.

As of March 31, 2008, the fair value and gross unrealized losses related to the Company’s exposure to subprime mortgages was $369.4 and $53.9, respectively, representing 2.1% of total investments. 94.0% of these securities were rated “AAA” or “AA”. As of December 31, 2007, the fair value and gross unrealized losses related to the Company’s exposure to subprime mortgages was $410.2 and $32.9, respectively, representing 2.3% of total investments. 95.5% of these securities were rated “AAA” or “AA”. This exposure was primarily in the form of asset-backed

securities (“ABS”) structures, collateralized by subprime residential mortgages (“ABS Home Equity”) and one CDO position backed by ABS Home Equity. Of the total subprime residential mortgage backed securities portfolio as of March 31, 2008, 27.6% were issued in 2007, 22.9% in 2006, and 49.5% in 2005 and prior. Of the total subprime residential mortgage backed securities portfolio as of December 31, 2007, 35.7% were issued in 2007, 14.8% in 2006, and 49.5% in 2005 and prior. The ABS CDO had no unrealized loss and a fair value of $0.1 at March 31, 2008. At December 31, 2007, the ABS CDO had no unrealized loss and a fair value of $0.4.

As of March 31, 2008, the Company’s exposure to Alt-A mortgages was concentrated in RMBS, and the fair value and gross unrealized losses aggregated to $1.1 billion and $149.8, respectively, representing 6.2% of total investments. 100.0% of these securities were AAA-rated. As of December 31, 2007, the Company’s exposure to Alt-A mortgages was concentrated in RMBS, and the fair value and gross unrealized losses aggregated to $1.3 billion and $38.1, respectively, representing 7.2% of total investments. 99.9% of these securities were AAA-rated. As of March 31, 2008, the Alt-A mortgage backed securities portfolio included 13.6% issued in 2007, 29.1% in 2006, and 57.3% in 2005 and prior. As of December 31, 2007, the Alt-A mortgage backed securities portfolio included 28.4% issued in 2007, 12.9% in 2006, and 58.7% in 2005 and prior.

As of March 31, 2008, total RMBS (including CMO and ABS structures) was $4.0 billion with 5.7% consisting of subprime residential mortgage backed securities and 17.0% consisting of Alt-A mortgage backed securities. As of December 31, 2007, total RMBS (including CMO and ABS structures) was $4.2 billion with 9.8% consisting of subprime residential mortgage backed securities and 30.4% consisting of Alt-A mortgage backed securities. The RMBS portfolio is of high credit quality with 100.0% of the portfolio rated AAA as of March 31, 2008 and December 31, 2007, respectively. Further, as of March 31, 2008 and December 31, 2007, 11.6% and 12.4%, respectively, of the RMBS portfolio was issued by the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), the Federal National Mortgage Association ("FNMA" or "Fannie Mae"), or the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"), which are government agencies or instrumentalities that guarantee the credit quality of the underlying mortgage pools.

Commercial Mortgage-backed and Other Asset-backed Securities

While the delinquency rates on commercial mortgages have been stable in recent years, commercial real estate rents and property values have recently become more volatile. In addition, there are growing concerns with consumer loans as a result of the current economic environment, which includes lower family income and higher unemployment rates.

As of March 31, 2008 and December 31, 2007, the fair value of the Company’s Commercial mortgage-backed securities (“CMBS”) totaled $1.7 billion and $1.9 billion, respectively, and Other ABS, excluding subprime exposure, totaled $489.5 and $512.8, respectively. CMBS investments represent pools of commercial mortgages that are broadly diversified across property types and geographical areas. As of March 31, 2008, the Other ABS was also broadly diversified both by type and issuer with credit card receivables, automobile receivables, public utility and collateralized loan obligations comprising 40.2%, 18.3%, 19.0% and 12.2%, respectively, of total Other ABS, excluding subprime exposure. As of December 31, 2007, the Other ABS was broadly diversified by both type and issuer with credit card receiveables, automobile receivables, public utility and collateralized loan obligations comprising 34.5%, 18.8%, 17.6% and 13.3%, respectively, of total Other ABS, excluding subprime exposure.

The following tables summarize the Company’s exposure to CMBS and Other ABS holdings by credit quality and vintage year as of March 31, 2008:

CMBS
% of Total CMBS		Vintage

AAA	87.3%	2007	23.1%
AA	7.4%	2006	19.3%
A	5.1%	2005 and prior	57.6%
BBB	0.2%

Other ABS
% of Total Other ABS		Vintage

AAA	60.7%	2008	0.2%
AA	14.5%	2007	17.3%
A	10.7%	2006	23.5%
BBB	14.1%	2005 and prior	59.0%

Mortgage Loans on Real Estate

Mortgage loans on real estate, primarily commercial mortgage loans, totaled $2,061.5 and $2,089.4 as of March 31, 2008 and December 31, 2007, respectively. These loans are reported at amortized cost, less impairment write-downs. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable that the Company will be unable to collect on all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to either the present value of expected cash flows from the loan, discounted at the loan’s effective interest rate, or fair value of the collateral. If the loan is in foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell. As of March 31, 2008 and December 31, 2007, the Company had no allowance for mortgage loan credit losses. The properties collateralizing mortgage loans are geographically dispersed throughout the United States, with the largest concentration of 17.3% and 16.8% of properties in California as of March 31, 2008 and December 31, 2007, respectively.

Unrealized Capital Losses

Unrealized capital losses in fixed maturities, including securities pledged to creditors, for Investment Grade (“IG”) and Below Investment Grade (“BIG”) securities by duration were as follows as of March 31, 2008 and December 31, 2007.

			2008						2007
				% of IG			% of IG			% of IG			% of IG
			IG	and BIG		BIG	and BIG		IG	and BIG	BIG		and BIG
Less than six months
	below amortized cost	$	143.0	22.1%	$	8.8	1.4%	$	44.8	15.7%	$	4.1	1.4%
More than six months
	and less than twelve
	months below
	amortized cost		200.5	30.9%		13.7	2.1%		119.5	41.6%		11.8	4.1%
More than twelve months
	below amortized cost		272.0	42.0%		9.5	1.5%		102.0	35.5%		5.0	1.7%
Total unrealized capital loss		$	615.5	95.0%	$	32.0	5.0%	$	266.3	92.8%	$	20.9	7.2%

Unrealized capital losses in fixed maturities as of March 31, 2008 and December 31, 2007, were primarily caused by interest rate movement or spread widening to mortgage and other asset-backed securities. Mortgage and other asset-backed securities include U.S. government-backed securities, principal protected securities, and structured securities, which did not have an adverse change in cash flows. The following table summarizes the unrealized capital losses by duration and reason, along with the fair value of fixed maturities, including securities pledged to creditors, in unrealized capital loss positions as of March 31, 2008 and December 31, 2007.

					More Than
			Less Than		Six Months		More Than
			Six Months		and less than		Twelve Months
			Below		Twelve Months		Below
			Amortized		Below		Amortized
2008			Cost		Amortized Cost		Cost		Total
Interest rate or spread widening		$	46.4	$	68.4	$	98.0	$	212.8
Mortgage and other asset-backed
	securities		105.4		145.8		183.5		434.7
Total unrealized capital loss		$	151.8	$	214.2	$	281.5	$	647.5
Fair value		$	3,319.0	$	1,421.8	$	2,686.3	$	7,427.1

					More Than
			Less Than		Six Months		More Than
			Six Months		and less than		Twelve Months
			Below		Twelve Months		Below
			Amortized		Below		Amortized
2007			Cost		Amortized Cost		Cost		Total
Interest rate or spread widening		$	18.8	$	62.3	$	48.8	$	129.9
Mortgage and other asset-backed
	securities		30.1		69.0		58.2		157.3
Total unrealized capital loss		$	48.9	$	131.3	$	107.0	$	287.2
Fair value		$	2,256.2	$	2,217.7	$	3,612.1	$	8,086.0

Unrealized capital losses in fixed maturities, including securities pledged to creditors, by market sector and duration were as follows as of March 31, 2008 and December 31, 2007.

				More Than
		Less Than		Six Months		More Than
		Six Months		and Less Than		Twelve Months		Total
		Below		Twelve Months		Below		Unrealized
		Amortized		Below		Amortized		Capital
2008		Cost		Amortized Cost		Cost		Loss
U.S. government agencies and authorities	$	0.1	$	-	$	-	$	0.1
U.S. corporate, state, and municipalities		30.2		49.0		57.7		136.9
Foreign		16.1		19.4		40.3		75.8
Residential mortgage-backed		56.3		84.1		55.0		195.4
Commercial mortgage-backed		34.2		27.0		101.2		162.4
Other asset-backed		14.9		34.7		27.3		76.9
Total unrealized capital loss	$	151.8	$	214.2	$	281.5	$	647.5

				More Than
		Less Than		Six Months		More Than
		Six Months		and Less Than		Twelve Months		Total
		Below		Twelve Months		Below		Unrealized
		Amortized		Below		Amortized		Capital
2007		Cost		Amortized Cost		Cost		Loss
U.S. corporate, state, and municipalities	$	10.7	$	40.7	$	31.6	$	83.0
Foreign		8.1		21.6		17.2		46.9
Residential mortgage-backed		17.3		18.2		28.0		63.5
Commercial mortgage-backed		4.2		33.4		14.7		52.3
Other asset-backed		8.6		17.4		15.5		41.5
Total unrealized capital loss	$	48.9	$	131.3	$	107.0	$	287.2

Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 88.7% of the average book value as of March 31, 2008. In addition, this category includes 739 securities, which have an average quality rating of AA-. No other-than-temporary impairment loss was considered necessary for these fixed maturities as of March 31, 2008.

Other-Than-Temporary Impairments

The Company analyzes the general account investments to determine whether there has been an other-than-temporary decline in fair value below the amortized cost basis. Management considers the length of time and the extent to which the fair value has been less than amortized cost, the issuer’s financial condition and near-term prospects, future economic conditions and market forecasts, interest rate changes, and the Company’s intent to retain the investment for a period of time sufficient to allow for recovery in fair value. If it is probable that all amounts due according to the contractual terms of an investment will not be collected, an other-than-temporary impairment is considered to have occurred.

In addition, the Company invests in asset-backed securities. Determination of the required impairment is based on the analysis discussed in the preceding paragraph, as well as credit risk and the possibility of significant prepayment risk that restricts the Company’s ability to recover the investment. An impairment is recognized if the fair value of the security is less than book value and there has been an adverse change in cash flow since the last remeasurement date.

When a decline in fair value is determined to be other-than-temporary, the individual security is written down to fair value, and the loss is recorded in Net realized capital gains (losses).

The following table identifies the Company’s other-than-temporary impairments by type for the three months ended March 31, 2008 and 2007.

		Three Months Ended March 31,
		2008			2007
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. corporate	$	18.2	41	$	9.1	25
Foreign		10.1	19		1.4	2
Residential mortgage-backed		13.8	9		0.6	7
Other asset-backed		7.4	10		-	-
Total	$	49.5	79	$	11.1	34

The above schedules include $22.2 and $0.6 for the three months ended March 31, 2008 and 2007, respectively, in other-than-temporary write-downs related to the analysis of credit risk, the possibility of significant prepayment risk, and severity and duration of unrealized losses. The remaining write-downs are related to investments that the Company does not have the intent to retain for a period of time sufficient to allow for recovery in fair value. The following table summarizes these write-downs by type for the three months ended March 31, 2008 and 2007.

		Three Months Ended March 31,
		2008			2007
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. corporate	$	15.4	32	$	9.1	25
Foreign		10.1	19		1.4	2
Residential mortgage-backed		1.8	1		-	-
Total	$	27.3	52	$	10.5	27

The Company may sell securities during the period in which fair value has declined below amortized cost for fixed maturities or cost for equity securities. In certain situations new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security.

Net Realized Capital Gains (Losses)

Net realized capital gains (losses) are comprised of the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to other-than-temporary impairment of investments and changes in fair value of derivatives. The cost of the investments on disposal is determined based on specific identification of securities. Net realized capital gains (losses) on investments were as follows for the three months ended March 31, 2008 and 2007.

		Three Months Ended March 31,
		2008		2007
Fixed maturities, available-for-sale	$	(0.9)	$	(17.1)
Equity securities, available-for-sale		(1.7)		4.5
Derivatives		(105.1)		(16.9)
Other investments		(0.1)		(0.1)
Less: allocation to experience-rated contracts		(47.9)		(31.1)
Net realized capital gains (losses)	$	(59.9)	$	1.5
After-tax net realized capital gains (losses)	$	(38.9)	$	1.0

Net realized capital gains (losses) allocated to experience-rated contracts were deducted from Net realized capital gains (losses) and an offsetting amount was reflected in Future policy benefits and claim reserves on the Condensed Consolidated Balance Sheets. Net unamortized realized capital gains allocated to experience-rated contractowners were $46.9 and $53.8 at March 31, 2008 and December 31, 2007, respectively.

Liquidity and Capital Resources

Liquidity is the ability of the Company to generate sufficient cash flows to meet the cash requirements of operating, investing, and financing activities.

Sources and Uses of Liquidity

The Company’s principal sources of liquidity are product charges, investment income, proceeds from the maturity and sale of investments, and capital contributions. Primary uses of these funds are payments of commissions and operating expenses, interest credits, investment purchases, and contract maturities, withdrawals, and surrenders.

The Company’s liquidity position is managed by maintaining adequate levels of liquid assets, such as cash, cash equivalents, and short-term investments. Asset/liability management is integrated into many aspects of the Company’s operations, including investment decisions, product development, and determination of crediting rates. As part of the risk management process, different economic scenarios are modeled, including cash flow testing required for insurance regulatory purposes, to determine that existing assets are adequate to meet projected liability cash flows. Key variables in the modeling process include interest rates, anticipated contractowner behavior, and variable separate account performance. Contractowners bear the investment risk related to variable annuity products, subject, in limited cases, to certain minimum guaranteed rates.

The fixed account liabilities are supported by a general account portfolio, principally composed of fixed rate investments with matching duration characteristics that can generate predictable, steady rates of return. The portfolio management strategy for the fixed account considers the assets available-for-sale. This strategy enables the Company to respond to changes in market interest rates, prepayment risk, relative values of asset sectors and individual securities and loans, credit quality outlook, and other relevant factors. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risk, as well as other risks. The Company’s asset/liability management discipline includes strategies to minimize exposure to loss as interest rates and economic and market conditions change.

Liquidity and Capital Reserves

Additional sources of liquidity include borrowing facilities to meet short-term cash requirements that arise in the ordinary course of business. ILIAC maintains the following agreements:

A reciprocal loan agreement with ING America Insurance Holdings, Inc. (“ING AIH”), an affiliate, whereby either party can borrow from the other up to 3% of ILIAC’s statutory admitted assets as of the prior December 31. As of March 31, 2008, the Company had a $153.5 receivable due from ING AIH and no amounts outstanding as of December 31, 2007.

A $100.0 uncommitted, perpetual revolving note facility with the Bank of New York. As of March 31, 2008 and December 31, 2007, ILIAC had no amounts outstanding under the revolving note facility.

A $75.0 uncommitted line-of-credit agreement with PNC Bank. Borrowings are guaranteed by ING AIH, with maximum aggregate borrowings outstanding at anytime to ING AIH and its affiliates of $75.0. As of March 31, 2008 and December 31, 2007, ILIAC had no amounts outstanding under the line-of-credit agreement.

A $100.0 uncommitted line-of-credit agreement with Svenska Handelsbanken AB (Publ.), effective June 2, 2006. Borrowings are guaranteed by ING AIH, with maximum aggregate borrowings outstanding at anytime to ING AIH and its affiliates of $100.0. As of March 31, 2008 and December 31, 2007, ILIAC had no amounts outstanding under the line-of-credit agreement.

Management believes that these sources of liquidity are adequate to meet the Company’s short-term cash obligations.

Capital Contributions and Dividends

During the three months ended March 31, 2008 and 2007, ILIAC did not receive any capital contributions from its Parent.

During the three months ended March 31, 2008 and 2007, ILIAC did not pay any dividends on its common stock to its Parent.

Financial Guarantees

Cash Collateral

Income Taxes

Income tax obligations consist of the allowance on uncertain tax benefits related to IRS tax audits and state tax exams that have not been completed. The current liability of $21.5 may be paid in less than one year, upon completion of such audits and exams. The timing of the payment of the remaining allowance of $19.3 cannot be reliably estimated.

Recently Adopted Accounting Standards

(See the Recently Adopted and New Accounting Standards footnotes to the condensed consolidated financial statements.)

Legislative and Regulatory Initiatives

Legislative proposals, which have been or are being considered by Congress, include repealing/modifying the estate tax, reducing the taxation on annuity benefits, changing the tax treatment of insurance products relative to other financial products, and changing life insurance company taxation. Some of these proposals, if enacted, could have a material adverse effect on life insurance, annuity, and other retirement savings product sales, while others could have a material beneficial effect. There are no indications at the present time, however, that Congress will enact tax changes that will adversely affect the Company’s products in 2008. Legislation is pending in the House of Representatives and the Senate to increase disclosure of 401(k) and other defined contribution plan fees charged by plan investment and service providers. In addition, the Department of Labor and the SEC have several regulatory initiatives underway to improve fee disclosures in defined contribution plans and mutual funds. Legislative or regulatory action to change fee disclosure requirements could adversely impact the market for certain of the Company’s defined contribution retirement services products, but the timing and content of such changes are uncertain at this time. The IRS and the Treasury have published final regulations, effective in 2009, that update and consolidate the rules applicable to 403(b) tax deferred annuity arrangements. The final regulations impose broad written plan document and operational compliance requirements on all 403(b) programs and contain new restrictions on annuity exchanges. The final regulations have the potential to change the marketplace for 403(b) service providers in a fundamental way and could have a material beneficial effect on providers that position themselves to assist 403(b) sponsors with plan document and

operational compliance or otherwise assist with streamlining overall plan administration.

Item 4.

Controls and Procedures

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

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

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

ING Life Insurance and Annuity Company (“ILIAC”) and its wholly-owned subsidiaries (collectively, the “Company”) are involved in threatened or pending lawsuits/arbitrations arising from the normal conduct of business. Due to the climate in insurance and business litigation/arbitrations, suits against the Company sometimes include claims for substantial compensatory, consequential, or punitive damages, and other types of relief. Moreover, certain claims are asserted as class actions, purporting to represent a group of similarly situated individuals. While it is not possible to forecast the outcome of such lawsuits/arbitrations, in light of existing insurance, reinsurance, and established reserves, it is the opinion of management that the disposition of such lawsuits/arbitrations will not have a materially adverse effect on the Company’s operations or financial position.

As with many financial services companies, the Company and its affiliates have received informal and formal requests for information from various state and federal governmental agencies and self-regulatory organizations in connection with inquiries and investigations of the products and practices of the financial services industry. In each case, the Company and its affiliates have been and are providing full cooperation. For information on the focus of such regulatory inquiries and the actions undertaken by ING in connection therewith, see the “Other Regulatory Matters” section of “Management’s Narrative Analysis of the Results of Operations and Financial Condition” included in the Company’s 2007 Annual Report on Form 10-K filed on March 31, 2008 (SEC File No. 033-23376).

Item 1A.

Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report for the fiscal year ended December 31, 2007.

Item 6.

Exhibits

See Exhibit Index on pages 48-51 hereof.

SIGNATURE

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

May 12, 2008

(Date)

ING Life Insurance and Annuity Company

(Registrant)

By:/s/

David A. Wheat

Executive Vice President and

Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

	Exhibit Index

Exhibit Number	Description of Exhibit
3.1	Certificate of Incorporation as amended and restated October 1, 2007, incorporated by reference to the ILIAC Form 10-K, as filed with the SEC on March 31, 2008 (File No. 33-23376).

3.2	Amended and Restated ING Life Insurance and Annuity Company By-Laws, effective October 1, 2007, incorporated by reference to the ILIAC Form 10-K, as filed with the SEC on March 31, 2008 (File No. 33-23376).

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.38	Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 10, 2002.

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

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

4.41	Incorporated by reference to Post-Effective Amendment No. 39 to Registration Statement on Form N-4 (File No. 33-75962), as filed on December 17, 2004.

4.42	Incorporated by reference to Initial Registration Statement on Form N-4 (File No. 333-130822), as filed on January 3, 2006.

4.43	Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-87131), as filed on December 15, 1999.

4.44	Incorporated by reference to Registration Statement on Form N-4 (File No. 33-59749), as filed on June 1, 1995.

4.45	Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-59749), as filed on April 16, 1997.

4.46	Incorporated by reference to Post-Effective Amendment No. 9 to Registration Statement on Form N-4 (File No. 33-80750), as filed on April 17, 1998.

4.47	Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 33-80750), as filed on April 23, 1997.

4.48	Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-59749), as filed on November 26, 1997.

4.49	Incorporated by reference to Registration Statement on Form S-2 (File No. 33-63657), as filed on October 25, 1995.

4.50	Incorporated by reference to Pre-Effective Amendment No. 3 to Registration Statement on Form S-2 (File No. 33-63657), as filed on January 17, 1996.

4.51	Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form S-2 (File No. 33-63657), as filed on November 24, 1997.

4.52	Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form S-2 (File No. 33-64331), as filed on November 24, 1997.

4.53	Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-59749), as filed on November 26, 1997.

4.54	Incorporated by reference to Registration Statement on Form N-4 (File No. 33-59749), as filed on June 1, 1995.

4.55	Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-59749), as filed on April 16, 1997.

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

31.2⁺	Certificate of Richard T. Mason pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

32.2⁺	Certificate of Richard T. Mason pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

⁺ Filed herewith.

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Litigious
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