Voya Retirement Insurance & Annuity 10Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2006

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: 333-133151, 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)

151 Farmington Avenue

Hartford, Connecticut

(Address of principal executive offices)

71-0294708

(IRS Employer Identification No.)

06156

(Zip Code)

(860) 723-4646

(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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 August 10, 2006, 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 June 30, 2006

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 June 30,				Six Months Ended June 30,
				2006		2005		2006		2005
Revenues:
	Net investment income		$	254.2	$	273.3	$	510.2	$	526.5
	Fee income			130.7		118.4		261.2		236.6
	Premiums			10.0		12.4		21.6		26.2
	Net realized capital (losses) gains			(3.1)		2.0		(9.5)		(0.1)
	Other income			3.2		0.2		6.7		1.4
Total revenue				395.0		406.3		790.2		790.6
Benefits and expenses:
	Interest credited and other benefits
		to contractowners		221.6		191.7		408.2		379.4
	Operating expenses			115.6		105.8		228.5		208.6
	Amortization of deferred policy acquisition
		costs and value of business acquired		(43.6)		44.1		(17.8)		93.3
	Interest expense			0.7		0.2		1.6		0.4
Total benefits and expenses				294.3		341.8		620.5		681.7
Income before income taxes				100.7		64.5		169.7		108.9
Income tax expense				27.4		19.1		44.3		31.7
Net income			$	73.3	$	45.4	$	125.4	$	77.2

The accompanying notes are an integral part of these consolidated 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
				June 30,		December 31,
				2006		2005
				(Unaudited)
Assets
Investments:
	Fixed maturities, available-for-sale, at fair value
		(amortized cost of $16,280.3 at 2006 and $16,749.5 at 2005)	$	15,770.5	$	16,740.5
	Equity securities, available-for-sale, at fair value
		(cost of $220.6 at 2006 and $166.9 at 2005)		225.7		170.1
	Mortgage loans on real estate			1,616.6		1,396.0
	Policy loans			263.2		262.4
	Other investments			227.6		144.6
	Securities pledged (amortized cost of $1,425.6 at 2006 and $1,260.8 at 2005)			1,384.5		1,247.6
Total investments				19,488.1		19,961.2
Cash and cash equivalents				313.5		212.5
Short-term investments under securities loan agreement				579.0		318.1
Accrued investment income				194.1		203.6
Reinsurance recoverable				2,752.6		2,796.7
Deferred policy acquisition costs				567.9		512.4
Value of business acquired				1,353.7		1,294.4
Notes receivable from affiliate				175.0		175.0
Short-term loan from affiliate				-		131.0
Due from affiliates				7.9		18.6
Other assets				95.3		66.5
Assets held in separate accounts				38,406.7		35,899.8
Total assets			$	63,933.8	$	61,589.8

The accompanying notes are an integral part of these consolidated 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
				June 30,		December 31,
				2006		2005
				(Unaudited)
Liabilities and Shareholder's Equity
Future policy benefits and claims reserves			$	20,623.9	$	20,932.8
Payable for securities purchased				62.3		3.1
Payables under securities loan agreement				579.0		318.1
Borrowed money				809.6		941.1
Due to affiliates				90.6		63.8
Current income taxes				19.5		46.9
Deferred income taxes				308.9		183.3
Other liabilities				308.4		301.5
Liabilities related to separate accounts				38,406.7		35,899.8
Total liabilities				61,208.9		58,690.4

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			4,450.3		4,579.6
	Accumulated other comprehensive loss			(175.9)		(5.3)
	Retained earnings (deficit)			(1,552.3)		(1,677.7)
Total shareholder's equity				2,724.9		2,899.4
Total liabilities and shareholder's equity			$	63,933.8	$	61,589.8

The accompanying notes are an integral part of these consolidated 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		Income (Loss)		(Deficit)		Equity
Balance at December 31, 2004						$	2.8	$	4,576.5	$	67.1	$	(1,922.2)	$	2,724.2
	Comprehensive income:
		Net income					-		-		-		77.2		77.2
		Other comprehensive income,
			net of tax:
				Change in net unrealized capital gain
					(loss) on securities ($32.7 pretax)		-		-		18.8		-		18.8
	Total comprehensive income														96.0
	Employee share-based payments						-		1.2		-		-		1.2
Balance at June 30, 2005						$	2.8	$	4,577.7	$	85.9	$	(1,845.0)	$	2,821.4

Balance at December 31, 2005						$	2.8	$	4,579.6	$	(5.3)	$	(1,677.7)	$	2,899.4
	Comprehensive loss:
		Net income					-		-		-		125.4		125.4
		Other comprehensive loss,
			net of tax:
				Change in net unrealized capital gain
					(loss) on securities ($(99.6) pretax),
					including tax valuation allowance
					of $(110.4)		-		-		(170.6)		-		(170.6)
	Total comprehensive loss														(45.2)
	Dividends paid						-		(131.0)		-		-		(131.0)
	Employee share-based payments						-		1.7		-		-		1.7
Balance at June 30, 2006						$	2.8	$	4,450.3	$	(175.9)	$	(1,552.3)	$	2,724.9

The accompanying notes are an integral part of these consolidated 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)

				Six Months Ended June 30,
				2006		2005
						(Restated)

Net cash provided by operating activities			$	543.1	$	425.5

Cash Flows from Investing Activities:
	Proceeds from the sale, maturity, or redemption of:
		Fixed maturities, available-for-sale		5,856.8		10,174.1
		Equity securities, available-for-sale		59.2		35.5
		Mortgage loans on real estate		106.1		137.3
	Acquisition of:
		Fixed maturities, available-for-sale		(5,652.0)		(10,519.9)
		Equity securities, available-for-sale		(100.1)		(36.0)
		Mortgage loans on real estate		(326.7)		(200.6)
	Other investments			(52.9)		(21.1)
	Other, net			(12.4)		(6.7)
Net cash used in investing��activities				(122.0)		(437.4)

Cash Flows from Financing Activities:
	Deposits received for investment contracts			1,055.9		1,036.7
	Maturities and withdrawals from investment contracts			(1,244.5)		(1,040.5)
	Short-term loans with affiliate			131.0		(14.0)
	Short-term borrowings, net			(131.5)		58.1
	Dividends to parent			(131.0)		-
Net cash (used in) provided by financing activities				(320.1)		40.3
Net increase in cash and cash equivalents				101.0		28.4
Cash and cash equivalents, beginning of period				212.5		187.1
Cash and cash equivalents, end of period			$	313.5	$	215.5

The accompanying notes are an integral part of these consolidated 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 include ILIAC and its wholly-owned subsidiaries, ING Financial Advisers, LLC (“IFA”) and 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 200 Northfield Drive, Windsor, Connecticut that will serve as the principal executive offices of the Company and other Hartford based operations of the Company and its affiliates (the “Windsor Property”).

On December 31, 2005, ILIAC’s subsidiary, ING Insurance Company of America (“IICA”), merged with and into ILIAC. As of the merger date, IICA ceased to exist and ILIAC became the surviving corporation. The merger did not have an impact on ILIAC, as IICA was a wholly-owned subsidiary and already included in the consolidated financial statements for all periods presented.

The condensed consolidated financial statements and notes as of June 30, 2006, and for the three and six months ended June 30, 2006 and 2005, have been prepared in accordance with accounting principles generally accepted in the United States and are unaudited.

The condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations, and cash flows, for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and related notes as presented in the Company’s 2005 Annual Report on Form 10-K/A. The results of operations for the interim periods may not be considered indicative of results to be expected for the full year.

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)

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 generally are 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated 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 (see Reclassifications and Changes to Prior Year Presentation footnote).

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 2005 Annual Report on Form 10-K/A.

2.	Recently Adopted Accounting Standards

The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments

On November 3, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standards (“FAS”) No. 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP FAS No. 115-1”). FSP FAS No. 115-1 replaces the impairment evaluation guidance of the Emerging Issues Tax Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”).

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)

FSP FAS No. 115-1 addresses the determination of when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. In addition, it includes considerations for accounting subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporarily impaired. FSP FAS No. 115-1 further clarifies that an impairment loss should be recognized no later than when the impairment is deemed other-than-temporary, even if a decision to sell an impaired security has not been made. FSP FAS No. 115-1 references existing guidance on other-than-temporary impairments.

FSP FAS No. 115-1 was effective for reporting periods beginning after December 15, 2005, and was implemented by the Company during the fourth quarter of 2005. The Company recognized impairment losses of $0.3 and $23.9 for the three and six months ended June 30, 2006, respectively, 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 required disclosures are included in the Investments footnote.

Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights

In June 2005, the EITF reached a consensus on EITF Issue No. 04-5, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights” (“EITF 04-5”), which states that the general partner in a limited partnership should presume that it controls and, thus, should consolidate the limited partnership, unless the limited partners have either (a) substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (b) substantive participating rights. EITF 04-5 applies to limited partnerships that are not variable interest entities under FASB Interpretation (“FIN”) No. 46R: “Consolidation of Variable Interest Entities” (“FIN 46R”). EITF 04-5 was effective immediately for all new limited partnerships formed and for existing limited partnerships for which partnership agreements were modified after June 29, 2005, and was effective for all other limited partnerships at the commencement of the first reporting period beginning after December 15, 2005.

The adoption of EITF 04-5 had no impact on the Company, as the Company’s investments in limited partnerships are generally considered variable interest entities under FIN 46R, and are accounted for using the cost or equity method of accounting since the Company is not the primary beneficiary. Investments in limited partnerships are included in Other investments on the Condensed Consolidated Balance Sheets.

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)

3.	New Accounting Standards

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FIN 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 in accordance with FAS No. 109, “Accounting for Income Taxes.”

FIN 48 prescribes a two-step process for determining the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The first step is recognition: A company first determines whether a tax position is more likely than not to be sustained upon examination, based on the technical merits of the position. The second is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit recognized in the financial statements. The benefit under step two is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. No benefit will be recognized on tax positions that do not meet the more-likely-than-not recognition standard. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is in the process of determining the impact of FIN 48.

Accounting for Servicing of Financial Assets

In March 2006, the FASB issued FAS No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140” (“FAS No. 156”). FAS No. 156 requires the separate recognition of servicing assets and servicing liabilities each time an obligation to service a financial asset is undertaken by entering into a servicing contract and permits the fair value measurement of servicing assets and servicing liabilities. In addition, FAS No. 156 does the following:

•

Clarifies when a servicer should separately recognize servicing assets and liabilities;

•

Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable;

•

Permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, provided that the available-for-sale securities are identified in some manner as offsetting the exposure to changes in fair value of servicing assets and servicing liabilities that are subsequently measured at fair value; and

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)

•

Requires additional disclosures for all separately recognized servicing assets and servicing liabilities.

FAS No. 156 requirements for recognition and initial measurement of servicing assets and servicing liabilities should be applied prospectively to all transactions entered into after the beginning of the first fiscal year that commences after September 15, 2006. The Company has determined that the adoption of FAS No. 156 will not have a material effect on the financial position, results of operations, or cash flows.

Accounting for Certain Hybrid Financial Instruments

In February 2006, FASB issued FAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (“FAS No. 155”), which permits the application of fair value accounting to certain hybrid financial instruments in their entirety if they contain embedded derivatives that would otherwise require bifurcation under FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS No. 133”). Under this approach, changes in fair value would be recognized currently in earnings. In addition, FAS No. 155 does the following:

•

Clarifies which interest-only strips and principal-only strips are not subject to derivative accounting under FAS No. 133;

•

Requires that interests in securitized financial assets be analyzed to identify interests that are freestanding derivatives or that are hybrid instruments that contain embedded derivatives requiring bifurcation;

•

Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and

•

Allows a qualifying special-purpose entity to hold derivative financial instruments that pertain to beneficial interests, other than another derivative financial instrument.

FAS No. 155 is effective for all instruments acquired, issued, or subject to a remeasurement event, occurring after the beginning of the first fiscal year that commences after September 15, 2006. The Company is in the process of determining the impact of FAS No. 155.

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,

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)

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 coverages, that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider, to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 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 life 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 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. The Company is in the process of determining the impact of adoption of SOP 05-1.

4.	Investments

Equity Securities

Equity securities, available-for-sale, included investments with fair values of $48.9 and $49.5 in ING proprietary funds as of June 30, 2006 and December 31, 2005, 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)

Other-Than-Temporary Impairments

The following tables identify the Company’s other-than-temporary impairments, included in Net realized capital gains (losses), by type for the three and six months ended June 30, 2006 and 2005.

		Three Months Ended June 30,
		2006			2005
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. corporate	$	0.3	3	$	-	-
Residential mortgage-backed		5.5	16		7.6	52
Total	$	5.8	19	$	7.6	52

		Six Months Ended June 30,
		2006			2005
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. Treasuries/Agencies	$	6.4	4	$	-	-
U.S. corporate		8.7	20		-	-
Foreign⁽¹⁾		1.8	3		-	-
Residential mortgage-backed		14.6	62		33.8	74
Other asset-backed		7.0	1		-	-
Equity		0.1	3		-	-
Total	$	38.6	93	$	33.8	74

⁽¹⁾ Primarily U.S. dollar denominated.

The above schedules for the three and six months ended June 30, 2006 include $5.5 and $14.7, respectively, in other-than-temporary write-downs related to the analysis of credit-risk and the possibility of significant prepayment risk. The remaining $0.3 and $23.9 in write-downs for the three and six months ended June 30, 2006, respectively, relate 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, based upon the requirements of FSP FAS No. 115-1. The following tables summarize these write-downs by type for the three and six months ended June 30, 2006.

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)

		Three Months Ended June 30, 2006
			No. of
		Impairment	Securities
U.S. corporate	$	0.3	3
Total	$	0.3	3

		Six Months Ended June 30, 2006
			No. of
		Impairment	Securities
U.S. Treasuries/Agencies	$	6.4	4
U.S. corporate		8.7	20
Foreign⁽¹⁾		1.8	3
Other asset-backed		7.0	1
Total	$	23.9	28

⁽¹⁾ Primarily U.S. dollar denominated.

The remaining fair value of investments with other-than-temporary impairments at June 30, 2006 and 2005 was $443.0 and $187.9, 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.

5.	Deferred Policy Acquisition Costs and Value of Business Acquired

Activity for the six months ended June 30, 2006 and 2005, within deferred policy acquisition costs (“DAC”), was as follows:

				2006		2005
Balance at January 1			$	512.4	$	414.5
	Deferrals of commissions and expenses			67.0		60.6
	Amortization:
		Amortization		(31.0)		(28.1)
		Interest accrued at 5% to 7%		17.8		14.4
	Net amortization included in Condensed Consolidated
		Statements of Operations		(13.2)		(13.7)
	Change in unrealized capital (gains) losses on
		available-for-sale securities		1.7		1.7
Balance at June 30			$	567.9	$	463.1

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)

Activity for the six months ended June 30, 2006 and 2005, within value of business acquired (“VOBA”), was as follows:

				2006		2005
Balance at January 1			$	1,294.4	$	1,365.2
	Deferrals of commissions and expenses			23.4		25.2
	Amortization:
		Amortization		(10.9)		(124.4)
		Interest accrued at 5% to 7%		41.9		44.8
	Net amortization included in Condensed Consolidated
		Statements of Operations		31.0		(79.6)
	Change in unrealized capital (gains) losses on
		available-for-sale securities		4.9		4.5
Balance at June 30			$	1,353.7	$	1,315.3

In determining its DAC and VOBA balances, the Company continuously evaluates its assumptions and estimates of gross profit. Adjustments to estimated gross profits require that the amortization be revised ("unlocking") retroactively to the date of the policy or contract issuance. The cumulative unlocking adjustment is recognized as a component of current period amortization. In the quarter ended June 30, 2006, the Company refined its estimates of persistency, expenses and other assumptions, which resulted in positive unlocking of $75.6 in the second quarter of 2006.

6.	Capital Contributions and Dividends

During the six months ended June 30, 2006 and 2005, ILIAC did not receive any contributions from its parent.

During the six months ended June 30, 2006, ILIAC paid $131.0 in cash dividends on its common stock to its parent. During the six months ended June 30, 2005, ILIAC did not pay any dividends to its parent.

7.	Income Taxes

Effective January 1, 2006, ILIAC files a consolidated federal income tax return with ING America Insurance Holdings (“ING AIH”), an affiliate, and certain other subsidiaries of ING AIH that are eligible corporations qualified to file consolidated federal income tax returns as part of the ING AIH affiliated group. Effective January 1, 2006, ILIAC is party to a federal tax allocation agreement with ING AIH and its subsidiaries that are part of the group, whereby ING AIH charges its subsidiaries for federal taxes each subsidiary would have incurred were it not a member of the consolidated group and credits each subsidiary for losses at the statutory federal tax rate.

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 Company’s effective tax rates for the three months ended June 30, 2006 and 2005, were 27.2% and 29.6%, respectively. The effective tax rates for the six months ended June 30, 2006 and 2005, were 26.1% and 29.1%, respectively. The effective rates differ from the expected rate primarily due to the benefit from the dividends received deduction. The decrease in the effective rates for both the three months and six months ended June 30, 2006 and June 30, 2005, is primarily due to an increase in the deduction allowed for dividends received relative to the change in income before income taxes.

As of June 30, 2006, the Company had a $110.4 valuation allowance related to unrealized capital losses on investments, which is included in Accumulated other comprehensive income (loss). The Company had no valuation allowance as of December 31, 2005.

8.	Financing Agreements

Line-of-Credit

ILIAC maintains a $100.0 uncommitted line-of-credit agreement with Svenska Handelsbanken AB (Publ.) (“Svenska”), 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. Interest on any of ILIAC’s borrowing accrues at an annual rate equal to the rate quoted by Svenska to ILIAC for the borrowing. Under this agreement, ILIAC incurred minimal interest expense for the three months ended June 30, 2006. As of June 30, 2006, ILIAC had no amounts outstanding under the line-of-credit agreement.

Reciprocal Loan Agreement

ILIAC maintains a reciprocal loan agreement with ING AIH 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 borrowing is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, ILIAC incurred interest expense of $0.4 and $1.0 for the three and six months ended June 30, 2006, respectively, and incurred minimal interest expense for the three and six months ended June 30, 2005. ILIAC earned interest income of $0.7 and $1.7 for the three and six months ended June 30, 2006, respectively, and $0.2 and $0.6 for the three and six months ended June 30, 2005, respectively. Interest expense and income are included in Interest expense and Net investment income, respectively, on the Condensed Consolidated

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)

Statements of Operations. At June 30, 2006, ILIAC did not have any receivable or payable from/to ING AIH under the reciprocal loan agreement. At December 31, 2005, ILIAC had $131.0 receivable from ING AIH under the reciprocal loan agreement.

For information on the Company’s additional financing agreements, see the Financing Agreements footnote to the Company’s 2005 Annual Report on Form 10-K/A.

9.	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 June 30, 2006, the Company had off-balance sheet commitments to purchase investments equal to their fair value of $652.3, $367.8 of which was with related parties. At December 31, 2005, the Company had off-balance sheet commitments to purchase investments equal to their fair value of $516.7, $398.0 of which was with related parties. During the three and six months ended June 30, 2006, $20.6 and $34.1, respectively, was funded to related parties under these commitments.

Financial Guarantees

In the second quarter of 2006, the Company purchased 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 recover any losses under the agreement by sale or collection of the received reference obligation. As of June 30, 2006, the maximum potential future exposure to the Company under the guarantee was $30.0.

New Construction

During the second quarter of 2006, NWL entered into several agreements related to the construction and development of the Windsor Property, including the following:

•

An agreement with Spazzarini Construction Company, Inc. for site development work at the Windsor Property, with a maximum estimated cost of $11.0.

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)

•

A Sales and Use Tax Relief Program Implementing Agreement (“Program Implementing Agreement”) with the Connecticut Development Authority (“CDA”) for a Connecticut sales and use tax exemption of up to $3.1 over a three year period related to the acquisition of up to $51.6 of certain tangible personal property and services for use in connection with the Windsor Property. ILIAC entered into an agreement with the CDA guaranteeing certain payment and performance obligations of NWL under the Program Implementing Agreement.

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. For information on the focus of such regulatory inquiries and the actions undertaken by ING in connection therewith, see the Commitments and Contingent Liabilities footnote to the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K/A. One topic of the New York Attorney General inquiries and investigations relates to endorsement of the Company's products by the New York State United Teachers ("NYSUT") and the sale of the Company's products to NYSUT members. The Company and its affiliates have been and are providing full cooperation with each such regulatory inquiry. In connection with one such investigation, the Company and its affiliate, ING Financial Advisers, LLC, have been named in a petition for relief and cease and desist order filed by the New Hampshire Bureau of Securities Regulation concerning ING’s administration of the New Hampshire state employees deferred compensation plan. ING is cooperating with this regulator in an attempt to resolve the matter. Other federal and state regulators could initiate similar actions in this or other areas of ING’s business.

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)

10.

Accumulated Other Comprehensive Income (Loss)

Shareholder’s equity included the following components of Accumulated other comprehensive income (loss) as of June 30, 2006 and 2005.

				2006		2005
Net unrealized capital gains (losses):
	Fixed maturities, available-for-sale		$	(537.4)	$	457.3
	Equity securities, available-for-sale			4.0		7.9
	DAC/VOBA adjustment on available-for-sale securities			11.8		(3.3)
	Sales inducements adjustment on available-for-sale
		securities		0.2		(0.1)
	Other investments			1.2		1.1
	Less: allocation to experience-rated contracts			(437.2)		305.3
Unrealized capital (losses) gains, before tax				(83.0)		157.6
Deferred income tax asset (liability)				29.1		(55.0)
Deferred tax asset valuation allowance				(110.4)		-
Net unrealized capital (losses) gains				(164.3)		102.6
Minimum pension liability, net of tax				(11.6)		(16.7)
Accumulated other comprehensive (loss) income			$	(175.9)	$	85.9

Net unrealized capital gains (losses) allocated to experience-rated contracts at June 30, 2006 and 2005, 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, were as follows for the six months ended June 30, 2006 and 2005.

			2006		2005
Net unrealized capital holding (losses) gains arising
	during the period⁽¹⁾	$	(112.8)	$	28.3
Less: reclassification adjustment for (losses) gains and other
	items included in net income⁽²⁾		(52.6)		9.5
Net unrealized capital (losses) gains on securities		$	(60.2)	$	18.8

⁽¹⁾

Pretax unrealized capital holding (losses) gains arising during the period were $(186.6) and $49.3 for the six months ended June 30, 2006 and 2005, respectively.

⁽²⁾

Pretax reclassification adjustments for (losses) gains and other items included in net income were $(87.0) and $16.6 for the six months ended June 30, 2006 and 2005, 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)

11.

Reclassifications and Changes to Prior Year Presentation

During 2006, certain changes were made to the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2005, to reflect the correct balances, primarily related to short-term loans with affiliate and derivatives. As a result of these adjustments, the Company has labeled the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2005, as restated. The following summarizes the adjustments:

			Previously
Six Months Ended June 30, 2005			Reported		Adjustment		Restated
	Net cash provided by operating activities	$	415.0	$	10.5	$	425.5
	Net cash used in investing activities		(441.1)		3.7		(437.4)
	Net cash provided by financing activities		54.3		(14.0)		40.3

Item 2.

Management’s Narrative Analysis of the Consolidated 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 the three and six months ended June 30, 2006 and 2005 and financial condition as of June 30, 2006 and December 31, 2005. 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 2005 Annual Report on Form 10-K/A.

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 which represent the Company’s beliefs concerning future levels of sales and redemptions of the Company’s products, investment spreads and yields, or the earnings and profitability of the Company’s activities.

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

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

(5)

changes in underwriting and actual experience could materially affect profitability;

(6)

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

(7)

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

(8)

changes in federal income tax law could make some products less attractive to contractowners and increase tax costs;

(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)

changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect profitability and financial condition; and

(12)

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.

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

On May 11, 2006, ILIAC organized Northfield Windsor LLC as a wholly-owned subsidiary for the purpose of purchasing, constructing, developing, leasing, and managing a new corporate office facility to be located at 200 Northfield Drive, Windsor, Connecticut that will serve as the principal executive offices of the Company and other Hartford based operations of the Company and its affiliates (the “Windsor Property”).

On December 31, 2005, ILIAC’s subsidiary ING Insurance Company of America (“IICA”) merged with and into ILIAC. As of the merger date, IICA ceased to exist and ILIAC became the surviving corporation. The merger did not have an impact on ILIAC, as IICA was a wholly-owned subsidiary and already included in the consolidated financial statements for all periods presented.

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies since the filing of the Company’s 2005 Annual Report on Form 10-K/A.

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 on variable assets under management (“AUM”), (b) investment income earned on fixed AUM, and (c) certain other fees. Fee income is primarily generated from separate account assets supporting variable options under variable annuity contract investments, as designated by contractowners. Net investment income from fixed AUM is mainly generated from annuity products with fixed investment options. The Company’s 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.

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.

A low general level of short-, intermediate-, and long-term interest rates has put pressure on interest spreads on existing blocks of business, as declining investment portfolio spread draws closer to minimum crediting rates on certain products. The compression of the yields between interest credited on spread-based products and declining asset yields will be a concern until new money rate investments are higher than overall investment portfolio yields. Rising interest rates negatively impacted the fair value of the Company’s fixed maturity portfolio and resulted in capital losses.

Volatile equity market performance has also presented challenges for the Company, as fee revenue from variable AUM is affected by equity market performance. In addition, variable product demand often mirrors consumer demand for equity market investments. During 2006, gains in the equity markets have led to increases in the Company’s AUM.

The improving economy and a recovery in the employment market, combined with higher corporate confidence, have improved the demand for retirement and savings-type products.

The Company’s results of operations for the three months and six months ended June 30, 2006, and changes therein, were primarily impacted by DAC and VOBA model refinements and changing equity markets. In addition, interest rate movements had an unfavorable impact on the Company’s operations.

				Three Months Ended June 30,				$ Increase	% Increase
				2006		2005		(Decrease)	(Decrease)
Revenues:
	Net investment income		$	254.2	$	273.3	$	(19.1)	(7.0)%
	Fee income			130.7		118.4		12.3	10.4%
	Premiums			10.0		12.4		(2.4)	(19.4)%
	Net realized capital (losses) gains			(3.1)		2.0		(5.1)	NM
	Other income			3.2		0.2		3.0	NM
Total revenue				395.0		406.3		(11.3)	(2.8)%
Benefits and expenses:
	Interest credited and other
		benefits to contractowners		221.6		191.7		29.9	15.6%
	Operating expenses			115.6		105.8		9.8	9.3%
	Amortization of deferred policy
		acquisition costs and value
		of business acquired		(43.6)		44.1		(87.7)	NM
	Interest expense			0.7		0.2		0.5	NM
Total benefits and expenses				294.3		341.8		(47.5)	(13.9)%
Income before income taxes				100.7		64.5		36.2	56.1%
Income tax expense				27.4		19.1		8.3	43.5%
Net income			$	73.3	$	45.4	$	27.9	61.5%
Effective tax rate				27.2%		29.6%

NM - Not meaningful.

				Six Months Ended June 30,				$ Increase	% Increase
				2006		2005		(Decrease)	(Decrease)
Revenues:
	Net investment income		$	510.2	$	526.5	$	(16.3)	(3.1)%
	Fee income			261.2		236.6		24.6	10.4%
	Premiums			21.6		26.2		(4.6)	(17.6)%
	Net realized capital losses			(9.5)		(0.1)		(9.4)	NM
	Other income			6.7		1.4		5.3	NM
Total revenue				790.2		790.6		(0.4)	(0.1)%
Benefits and expenses:
	Interest credited and other
		benefits to contractowners		408.2		379.4		28.8	7.6%
	Operating expenses			228.5		208.6		19.9	9.5%
	Amortization of deferred policy
		acquisition costs and value
		of business acquired		(17.8)		93.3		(111.1)	NM
	Interest expense			1.6		0.4		1.2	NM
Total benefits and expenses				620.5		681.7		(61.2)	(9.0)%
Income before income taxes				169.7		108.9		60.8	55.8%
Income tax expense				44.3		31.7		12.6	39.7%
Net income			$	125.4	$	77.2	$	48.2	62.4%
Effective tax rate				26.1%		29.1%

NM - Not meaningful.

Revenues

Total revenue decreased for the three months ended June 30, 2006, primarily due to a decrease in Net investment income and an increase in Net realized capital losses, partially offset by an increase in Fee income, while total revenue for the six months ended June 30, 2006, remained fairly consistent.

The decrease in Net investment income for the three and six months ended June 30, 2006, is due to lower average fixed AUM, which reflects the runoff annuity block of business as well as lower investment yields.

Fee income increased for the three and six months ended June 30, 2006, as average variable AUM increased driven by overall favorable equity market conditions and net cashflow in the first half of 2006. Partially offsetting this increase is a decline in net contractowner cash inflows during the second quarter of 2006.

During the three and six months ended June 30, 2006, Net realized capital losses increased due to higher other-than-temporary impairments recognized in 2006 and higher losses on sales of investments in fixed maturities, driven by rising interest rates. These losses were partially offset by realized gains on derivatives, as the value of the Company’s interest rate swaps increased, due to the increase in interest rates.

Benefits and Expenses

Total benefits and expenses decreased for the three and six months ended June 30, 2006, due to a decrease in Amortization of DAC and VOBA, partially offset by higher Interest credited and other benefits to contractowners and Operating expenses.

The decrease in Amortization of DAC and VOBA for the three and six months ended June 30, 2006, is primarily driven by positive unlocking of $75.6 in the second quarter of 2006 due to assumption changes and model refinements. In addition, amortization was lower due to overall higher equity market performance during the first half of 2006 compared to the same period of 2005, which drove higher estimated future gross profits.

Interest credited and other benefits to contractowners increased for the three and six months ended June 30, 2006, primarily due to unfavorable product experience.

Operating expenses increased for the three and six months ended June 30, 2006 in conjunction with higher non-deferred commission expense and the continued growth of the business during 2006.

Income Taxes

Income tax expense increased for the three and six months ended June 30, 2006, which reflects the increase in Income before income 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 risk. In addition, the Company seeks to mitigate the impact of cash flow variability from embedded options within certain investment products, such as prepayment options and 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 of the Company, pursuant to an investment advisory agreement. Separate portfolios are established for groups of products with similar liability characteristics within the Company.

Portfolio Composition

The following table presents the investment portfolio at June 30, 2006 and December 31, 2005.

			2006			2005
			Carrying Value	%		Carrying Value	%
Fixed maturities, available-for-sale,
	including securities pledged	$	17,155.0	88.0%	$	17,988.1	90.1%
Equity securities, available-for-sale			225.7	1.2%		170.1	0.9%
Mortgage loans on real estate			1,616.6	8.3%		1,396.0	7.0%
Policy loans			263.2	1.3%		262.4	1.3%
Other investments			227.6	1.2%		144.6	0.7%
Total investments		$	19,488.1	100.0%	$	19,961.2	100.0%

Fixed Maturities

Fixed maturities, available-for-sale, were as follows as of June 30, 2006.

						Gross		Gross
						Unrealized		Unrealized
				Amortized		Capital		Capital		Fair
				Cost		Gains		Losses		Value
Fixed maturities:
	U.S. government and government
		agencies and authorities	$	431.5	$	0.3	$	15.4	$	416.4
	State, municipalities, and political
		subdivisions		41.9		-		0.7		41.2

	U.S. corporate securities:
		Public utilities		1,232.2		6.5		47.0		1,191.7
		Other corporate securities		5,080.3		44.2		179.7		4,944.8
	Total U.S. corporate securities			6,312.5		50.7		226.7		6,136.5

	Foreign securities⁽¹⁾:
		Government		537.6		15.8		16.6		536.8
		Other		1,972.7		16.3		77.0		1,912.0
	Total foreign securities			2,510.3		32.1		93.6		2,448.8

	Residential mortgage-backed securities			4,632.1		25.3		230.6		4,426.8
	Commercial mortgage-backed securities			2,427.4		11.3		77.6		2,361.1
	Other asset-backed securities			1,350.2		3.3		29.3		1,324.2

	Total fixed maturities, including
		fixed maturities pledged		17,705.9		123.0		673.9		17,155.0
	Less: fixed maturities pledged			1,425.6		3.0		44.1		1,384.5

Total fixed maturities			$	16,280.3	$	120.0	$	629.8	$	15,770.5

⁽¹⁾	Primarily U.S. dollar denominated.

Fixed maturities, available-for-sale, were as follows as of December 31, 2005.

						Gross		Gross
						Unrealized		Unrealized
				Amortized		Capital		Capital		Fair
				Cost		Gains		Losses		Value
Fixed maturities:
	U.S. government and government
		agencies and authorities	$	504.1	$	0.6	$	8.4	$	496.3
	State, municipalities, and political
		subdivisions		40.0		0.5		0.9		39.6

	U.S. corporate securities:
		Public utilities		1,260.3		24.1		16.8		1,267.6
		Other corporate securities		5,981.9		109.8		89.7		6,002.0
	Total U.S. corporate securities			7,242.2		133.9		106.5		7,269.6

	Foreign securities⁽¹⁾:
		Government		704.4		30.0		7.7		726.7
		Other		1,815.5		41.8		28.8		1,828.5
	Total foreign securities			2,519.9		71.8		36.5		2,555.2

	Residential mortgage-backed securities			4,453.7		33.6		98.9		4,388.4
	Commercial mortgage-backed securities			2,099.1		29.7		27.0		2,101.8
	Other asset-backed securities			1,151.3		5.8		19.9		1,137.2

	Total fixed maturities, including
		fixed maturities pledged		18,010.3		275.9		298.1		17,988.1
	Less: fixed maturities pledged			1,260.8		5.2		18.4		1,247.6

Total fixed maturities			$	16,749.5	$	270.7	$	279.7	$	16,740.5

⁽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- at June 30, 2006 and December 31, 2005. Ratings are calculated using a rating hierarchy that considers Standard & Poor’s, Moody’s Investor’s Service, Inc., and internal ratings.

Total fixed maturities by quality rating category, including fixed maturities pledged to creditors, were as follows at June 30, 2006 and December 31, 2005.

		2006			2005
		Fair	% of		Fair	% of
		Value	Total		Value	Total
AAA	$	8,250.6	48.1%	$	7,951.3	44.2%
AA		1,029.2	6.0%		1,148.5	6.4%
A		3,141.4	18.3%		3,984.8	22.2%
BBB		4,044.3	23.6%		4,270.5	23.7%
BB		597.2	3.5%		540.4	3.0%
B and below		92.3	0.5%		92.6	0.5%
Total	$	17,155.0	100.0%	$	17,988.1	100.0%

96.0% and 96.5% of fixed maturities were invested in securities rated BBB and above (Investment Grade) at June 30, 2006 and December 31, 2005, 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 fixed maturities pledged to creditors, were as follows at June 30, 2006 and December 31, 2005.

		2006			2005
		Fair	% of		Fair	% of
		Value	Total		Value	Total
U.S. corporate, states, and municipalities	$	6,177.7	36.0%	$	7,309.2	40.6%
Residential mortgage-backed		4,426.8	25.8%		4,388.4	24.4%
Foreign		2,448.8	14.3%		2,555.2	14.2%
Commercial mortgage-backed		2,361.1	13.8%		2,101.8	11.7%
Other asset-backed		1,324.2	7.7%		1,137.2	6.3%
U.S. Treasuries/Agencies		416.4	2.4%		496.3	2.8%
Total	$	17,155.0	100.0%	$	17,988.1	100.0%

The Company did not have any investments in a single issuer, other than obligations of the U.S. government, with a carrying value in excess of 10% of the Company’s shareholder’s equity at June 30, 2006 or December 31, 2005.

Equity Securities

Equity securities, available-for-sale, included investments with fair values of $48.9 and $49.5 in ING proprietary funds as of June 30, 2006 and December 31, 2005, respectively.

Mortgage Loans

Mortgage loans, primarily commercial mortgage loans, totaled $1,616.6 and $1,396.0 at June 30, 2006 and December 31, 2005, 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. The carrying value of the impaired loans is reduced by establishing a permanent write-down charged to realized loss. At June 30, 2006 and December 31, 2005, 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 19.9% and 22.0% of properties in California at June 30, 2006 and December 31, 2005, respectively.

Unrealized Capital Losses

Fixed maturities, including securities pledged to creditors, comprise 88.0% and 90.1% of the Company’s total investment portfolio at June 30, 2006 and December 31, 2005, respectively. Unrealized capital losses related to fixed maturities are analyzed in detail in the following tables.

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 at June 30, 2006 and December 31, 2005.

			2006						2005
				% 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	$	128.3	19.0%	$	10.9	1.6%	$	99.3	33.3%	$	3.1	1.0%
More than six months
	and less than twelve
	months below
	amortized cost		263.6	39.1%		4.4	0.7%		75.2	25.2%		1.8	0.6%
More than twelve months
	below amortized cost		263.3	39.1%		3.4	0.5%		117.3	39.4%		1.4	0.5%
Total unrealized capital loss		$	655.2	97.2%	$	18.7	2.8%	$	291.8	97.9%	$	6.3	2.1%

Unrealized capital losses in fixed maturities at June 30, 2006 and December 31, 2005, were primarily related to interest rate movement or spread widening and 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 loss positions at June 30, 2006 and December 31, 2005.

					More than
			Less than		Six Months		More than
			Six Months		and less than		Twelve Months
			Below		Twelve Months		Below
			Amortized		Below		Amortized
2006			Cost		Amortized Cost		Cost		Total
Interest rate or spread widening		$	69.0	$	152.6	$	114.8	$	336.4
Mortgage and other asset-backed
	securities		70.2		115.4		151.9		337.5
Total unrealized capital loss		$	139.2	$	268.0	$	266.7	$	673.9
Fair value		$	4,555.5	$	4,796.1	$	4,109.5	$	13,461.1

2005
Interest rate or spread widening		$	55.7	$	33.9	$	62.7	$	152.3
Mortgage and other asset-backed
	securities		46.7		43.1		56.0		145.8
Total unrealized capital loss		$	102.4	$	77.0	$	118.7	$	298.1
Fair value		$	5,936.2	$	2,790.7	$	2,643.6	$	11,370.5

Unrealized capital losses in fixed maturities, including securities pledged to creditors, by market sector and duration were as follows at June 30, 2006 and December 31, 2005.

					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
2006			Cost		Amortized Cost		Cost		Loss
U.S. Treasuries/Agencies		$	0.3	$	7.4	$	7.7	$	15.4
U.S. corporate, state, and
	municipalities		46.5		108.8		72.1		227.4
Foreign			22.1		36.5		35.0		93.6
Residential mortgage-backed			49.2		62.7		118.7		230.6
Commercial mortgage-backed			13.4		42.2		22.0		77.6
Other asset-backed			7.7		10.4		11.2		29.3
Total		$	139.2	$	268.0	$	266.7	$	673.9

2005
U.S. Treasuries/Agencies		$	3.1	$	3.8	$	1.5	$	8.4
U.S. corporate, state, and
	municipalities		40.4		18.9		48.1		107.4
Foreign			12.2		11.2		13.1		36.5
Residential mortgage-backed			29.1		33.1		36.7		98.9
Commercial mortgage-backed			13.7		6.4		6.9		27.0
Other asset-backed			3.9		3.6		12.4		19.9
Total		$	102.4	$	77.0	$	118.7	$	298.1

Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities is 94.1% of the average book value as of June 30, 2006. In addition, this category includes 799 securities, which have an average quality rating of AA-. No other-than-temporary impairment loss was considered necessary for these fixed maturities as of June 30, 2006.

Overall, there has been an increase in unrealized capital losses from December 31, 2005 to June 30, 2006. This increase is largely caused by an increase in prevailing market interest rates, which tends to have a negative market value impact on fixed maturities.

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 tables identify the Company’s other-than-temporary impairments by type for the three and six months ended June 30, 2006 and 2005.

		Three Months Ended June 30,
		2006			2005
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. corporate	$	0.3	3	$	-	-
Residential mortgage-backed		5.5	16		7.6	52
Total	$	5.8	19	$	7.6	52

		Six Months Ended June 30,
		2006			2005
			No. of			No. of
		Impairment	Securities		Impairment	Securities
U.S. Treasuries/Agencies	$	6.4	4	$	-	-
U.S. corporate		8.7	20		-	-
Foreign		1.8	3		-	-
Residential mortgage-backed		14.6	62		33.8	74
Other asset-backed		7.0	1		-	-
Equity		0.1	3		-	-
Total	$	38.6	93	$	33.8	74

The above schedules for the three and six months ended June 30, 2006, include $5.5 and $14.7, respectively, in other-than-temporary write-downs related to the analysis of credit-risk and the possibility of significant prepayment risk. The remaining $0.3 and $23.9 in write-downs for the three and six months ended June 30, 2006, respectively, relate 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, based upon the requirements of Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) Statement of Financial Accounting Standards (“FAS”) No. 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The following tables summarize these write-downs by type for the three and six months ended June 30, 2006.

		Three Months Ended June 30, 2006
			No. of
		Impairment	Securities
U.S. corporate	$	0.3	3
Total	$	0.3	3

		Six Months Ended June 30, 2006
			No. of
		Impairment	Securities
U.S. Treasuries/Agencies	$	6.4	4
U.S. corporate		8.7	20
Foreign⁽¹⁾		1.8	3
Other asset-backed		7.0	1
Total	$	23.9	28

⁽¹⁾ Primarily U.S. dollar denominated.

The Company may sell securities during the period in which fair value has declined below amortized cost for fixed income securities 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 carrying value of investments and proceeds from sale, maturity, and redemption, as well as losses incurred due to other-than-temporary impairment, of investments and changes in fair value of derivatives. Net realized capital gains (losses) on investments were as follows for the three and six months ended June 30, 2006 and 2005.

		Three Months Ended June 30,
		2006		2005
Fixed maturities, available-for-sale	$	(43.9)	$	23.8
Equity securities, available-for-sale		1.7		1.7
Derivatives		5.8		(5.1)
Less: allocation to experience-rated contracts		(33.3)		18.4
Net realized capital (losses) gains	$	(3.1)	$	2.0
After-tax net realized capital (losses) gains	$	(2.0)	$	1.3

		Six Months Ended June 30,
		2006		2005
Fixed maturities, available-for-sale	$	(87.1)	$	5.1
Equity securities, available-for-sale		4.8		1.7
Derivatives		21.9		6.9
Less: allocation to experience-rated contracts		(50.9)		13.8
Net realized capital (losses) gains	$	(9.5)	$	(0.1)
After-tax net realized capital (losses) gains	$	(6.2)	$	(0.1)

During the three and six months ended June 30, 2006, Net realized capital losses increased due to higher other-than-temporary impairments recognized in 2006 and higher losses on sales of investments in fixed maturities, driven by rising interest rates. These losses were partially offset by realized gains on derivatives, as the value of the Company’s interest rate swaps increased, due to the increase in interest rates.

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 (losses) allocated to experienced-rated contracts were $186.6 and $240.3, at June 30, 2006 and December 31, 2005, respectively.

Income Taxes

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 and premium 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 Resources

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. ILIAC did not have any receivable or payable from/to ING AIH under the reciprocal loan agreement as of June 30, 2006. ILIAC had $131.0 receivable from ING AIH under the reciprocal loan agreement as of December 31, 2005.

•

A $100.0 uncommitted, perpetual revolving note facility with the Bank of New York. At June 30, 2006 and December 31, 2005, ILIAC had no amounts outstanding under the revolving note facility.

•

A $75.0 uncommitted line-of-credit agreement with PNC Bank, effective December 19, 2005. Borrowings are guaranteed by ING AIH, with maximum aggregate borrowings outstanding at anytime to ING AIH and its affiliates of $75.0. At June 30, 2006 and December 31, 2005, 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 June 30, 2006, 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 six months ended June 30, 2006 and 2005, ILIAC did not receive any contributions from its parent.

Financial Guarantees

Recently Adopted Accounting Standards

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

Legislative 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. Private pension reform legislation, which Congress passed in early August 2006 (Presidential signature now pending but expected to occur in August), contains a number of provisions which are likely to have a beneficial effect on annuity and defined contribution products. Certain recommendations made in late 2005 by the President’s Tax Advisory Panel on Federal Tax Reform could adversely affect the market for some life insurance and annuity products if enacted by Congress. However, there are no indications at the present time that Congress will enact fundamental tax reforms in 2006, or that it has a favorable view of the Tax Panel’s recommendations regarding tax-preferred savings.

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

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. 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 2005 Annual Report on Form 10-K/A filed on April 7, 2006 (SEC File No. 033-23376). One topic of the New York Attorney General inquiries and investigations relates to endorsement of the Company's products by the New York State United Teachers ("NYSUT") and the sale of the Company's products to NYSUT members. The Company and its affiliates have been and are providing full cooperation with each such regulatory inquiry. In connection with one such investigation, the Company and its affiliate, ING Financial Advisers, LLC, have been named in a petition for relief and cease and desist order filed by the New Hampshire Bureau of Securities Regulation concerning ING’s administration of the New Hampshire state employees deferred compensation plan. ING is cooperating with this regulator in an attempt to resolve the matter. Other federal and state regulators could initiate similar actions in this or other areas of ING’s business.

Item 1A.

Risk Factors

In addition to the normal risks of business, the Company is subject to significant risks and uncertainties, including those which are described below.

Equity market volatility could negatively impact profitability and financial condition

The decline of the equity markets over an extended period of time may reduce the profitability and negatively affect the financial condition of the Company due to the following:

•

Sales of variable annuity products may decrease as prospective customers seek products with higher returns.

•

Account values of separate accounts that support annuity products may decrease, which results in a decrease in fees and profits earned on the accounts. The amount of fees the Company earns on variable annuity products is based on such account values.

•

If the Company’s expectations of future performance and profits decrease, it may be required to accelerate the amortization of deferred policy acquisition costs, decreasing profits.

•

If the Company’s net amount at risk under certain guaranteed minimum death benefits increases, the amount of required reserve increases. If reserves are not adequate, the Company may need to increase reserves through a charge to earnings.

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

Changes in interest rates may negatively affect the Company’s attempts to maintain profitable spreads between the amounts earned on its general account investments and the amounts paid under its annuity contracts.

As interest rates rise, fixed annuity contract surrenders and withdrawals may increase as contractowners seek higher returns. To raise the cash necessary to fund such surrenders and withdrawals, the Company may need to sell assets at capital losses. An increase in contract surrenders and withdrawals may also require the Company to accelerate amortization of deferred policy acquisition costs relating to such contracts, further reducing profits.

As interest rates decline, borrowers may prepay or redeem mortgages and bonds with embedded call options that are owned as investments by the Company. This may force the Company to reinvest the proceeds at lower interest rates. All of the Company’s fixed annuity products, and the fixed account options included in some of the Company’s variable annuity products, contain minimum interest rate guarantees that limit the Company’s ability to lower interest rates credited to contractowners in response to lower investment returns. A decrease in the difference between earned investment income and the interest credited to contractowners further reduces profits. This decrease in profits may also require the Company to accelerate amortization of deferred policy acquisition costs.

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

The Company’s investment portfolio is subject to several risks, including the following:

•

An increase in defaults or delinquency in investment portfolios, including derivative contracts;

•

Greater difficulty selling privately placed and certain asset-backed fixed maturity securities and commercial mortgage loans at attractive prices and in a timely manner, as both are less liquid than publicly traded fixed maturity securities;

•

Borrower prepayment or redemption, prior to maturity, of mortgages that back mortgage-backed securities and bonds with embedded call options could force the Company to reinvest proceeds at lower interest rates;

•

An increase in environmental liability exposure from the Company’s commercial mortgage loan portfolio; and

•

Losses in the commercial mortgage loan portfolio as a result of economic downturns or natural disasters.

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

The Company is exposed to various risks arising from natural disasters, including hurricanes, floods, earthquakes, tornadoes, and pandemic disease, caused by a virus such as H5N1 (the “Avian flu” virus), as well as man-made disasters, including acts of terrorism and military actions, which may adversely affect results of operations and financial condition, as follows:

•

Losses in the Company’s investment portfolio due to significant volatility in global financial markets or the failure of counterparties to perform.

•

Changes in the rate of lapses and surrenders of existing policies/contracts, as well as sales of new policies/contracts.

•

Disruption of the Company’s normal business operations due to catastrophic property damage, loss of life, or disruption of public and private infrastructure, including communications and financial services.

While the Company has a business continuation and crisis management plan, there can be no assurance that the Company’s plan and insurance coverages would be effective in mitigating any negative effects on operations or profitability in the event of a disaster.

Changes in underwriting and actual experience could materially affect profitability

The Company prices its products based on long-term assumptions regarding investment returns, mortality, persistency, and operating costs. Management establishes target returns for each product based upon these factors and the average amount of regulatory and rating agency capital that the Company must hold to support in-force contracts. The Company monitors and manages pricing and sales mix to achieve target returns. Profitability from new business emerges over a period of years, depending on the nature and life of the product, and is subject to variability as actual results may differ from pricing assumptions.

The Company’s profitability depends on the following:

•

Adequacy of investment margins;

•

Management of market and credit risks associated with investments;

•

Ability to maintain premiums and contract charges at a level adequate to cover mortality, benefits, and contract administration expenses;

•

Adequacy of contract charges on variable contracts to cover the cost of product features;

•

Persistency of policies to ensure recovery of acquisition expenses; and

•

Management of operating costs and expenses within anticipated pricing allowances.

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

Ratings are an important factor in establishing the competitive position of insurance companies. A downgrade, or the potential for a downgrade, of any of the Company’s ratings may lead to lower assets under management, which will result in lower fee income as follows:

•

Increase in annuity contract surrenders and withdrawals;

•

Termination of relationships with broker-dealers, banks, agents, wholesalers, and other distributors of products and services; and

•

Reduction of new annuity contract sales.

The Company cannot predict what actions rating organizations may take, or what actions it may be required to take in response to the actions of rating organizations, which could adversely affect the Company. Rating organizations assign ratings based upon several factors, including the following:

•

Statutory capital;

•

Risk of investment portfolio;

•

Views of the rating organization;

•

Economic trends affecting the financial services industry;

•

Changes in models and formulas used by rating organizations to assess the financial strength of a rated company;

•

Enterprise risk management; and

•

Other circumstances outside the rated company’s control.

Competition could negatively affect the ability to maintain or increase profitability

The insurance industry is intensely competitive. The Company competes based on factors including the following:

•

Name recognition and reputation;

•

Service;

•

Investment performance;

•

Product features;

•

Price;

•

Perceived financial strength; and

•

Claims paying and credit ratings.

The Company’s competitors include insurers, broker-dealers, financial advisors, asset managers, and other financial institutions, which may, for example, have greater market share, offer a broader range of products, or have higher claims-paying or credit ratings than the Company.

In recent years, there has been substantial consolidation among companies in the financial services industry resulting in increased competition from large, well-capitalized financial services firms. Many of these firms also have been able to increase their distribution systems through mergers or contractual arrangements. Furthermore, larger competitors may lower operating costs and have an ability to absorb greater risk, while maintaining financial strength ratings, allowing them to price products more competitively. The Company expects consolidation to continue and perhaps accelerate in the future, increasing competitive pressure.

Changes in federal income tax law could make some products less attractive to contractowners and increase tax costs

The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs Act and Growth Tax Relief Reconciliation Act of 2003 contain provisions that will, over time, significantly lower individual tax rates. This decrease will reduce the benefits of deferral on the build-up of value of annuities. Many of these provisions expire in 2008 and 2010. The Bush Administration, however, has proposed that many of the rate reductions and tax-favored savings initiatives be made permanent. Although the Company cannot predict the overall effect on product sales, some of these tax law changes could hinder sales and result in the increased surrender of annuity contracts.

Litigation may adversely affect profitability and financial condition

The Company is, and may be in the future, subject to legal actions in the ordinary course of insurance, investment management and other business operations. These legal actions may include proceedings relating to aspects of businesses and operations that are specific to the Company, and proceedings that are typical of the businesses in which the Company operates. Some of these proceedings may be brought on behalf of a class. Plaintiffs may seek large or indeterminate amounts of damage, including compensatory, liquidated, treble and/or punitive damages. Given the large or indeterminate amounts sometimes sought, and the inherent unpredictability of litigation, it is possible that an adverse outcome could, from time to time, have an adverse effect on the Company’s reputation, results of operations or cash flows in particular quarterly or annual periods.

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

The Company’s insurance and securities business is subject to comprehensive state and federal regulation and supervision throughout the United States. The primary purpose of state regulation is to protect contractowners, and not necessarily to protect creditors and investors. State insurance regulators, state attorneys general, the National Association of Insurance Commissioners, the SEC, and the NASD continually reexamine existing laws and regulations and may impose changes in the future. Changes in legislation and administrative policies in areas such as employee benefit plan regulation, financial services regulation, and federal taxation, could lessen the competitive advantages of certain of the Company’s products, result in the surrender of existing contracts and policies, increase costs, or reduce new product sales, thus reducing the Company’s profitability.

Since 2002, the insurance industry has become the focus of increased regulatory scrutiny as various state and federal governmental agencies and self-regulatory organizations conduct inquiries and investigations into the products and practices of the financial services industries. These initiatives currently focus on areas such as, inappropriate trading of fund shares; revenue sharing and directed brokerage; sales and marketing practices; suitability; arrangements with service providers; pricing; compensation and sales incentives; potential conflicts of interest; potential anti-competitive activity; reinsurance; specific product types (including group annuities and indexed annuities); and adequacy of disclosure. It is likely that the scope of these industry investigations will become broader before they conclude.

In some cases, this regulatory scrutiny has led to new proposed legislation and regulation that could significantly affect the financial services industry, including businesses in which the Company is engaged, or has resulted in regulatory penalties and litigation. At this time, the Company does not believe that any of this regulatory scrutiny will have a material adverse affect on it. However, the Company cannot guarantee that new laws, regulations and other regulatory actions aimed at the business practices under scrutiny would not adversely affect its business. The adoption of new laws and regulations, enforcement actions or litigation, whether or

not involving the Company, could influence the manner in which the Company distributes its products, cause significant harm to the Company’s reputation, and adversely impact profitability.

Changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect profitability and financial condition

The Company’s financial statements are subject to the application of generally accepted accounting principles, or GAAP, which is periodically revised and/or expanded. Accordingly, the Company is required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board. The adoption of new or revised accounting standards could change the Company’s current accounting treatment and have a material adverse effect on the timing and/or amount of its reported profitability and financial condition.

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

The Company is highly dependent on automated systems to record and process Company and customer transactions. The Company may experience a failure of its operating systems or a compromise of their security due to technical system flaws, clerical or record-keeping errors, or tampering or manipulation of those systems by employees or unauthorized third parties. Information security risks also exist with respect to the use of portable electronic devices, such as laptops, which are particularly vulnerable to loss and theft. The Company may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, natural disasters, acts of terrorism, epidemics, computer viruses and electrical/telecommunications outages). All of these risks are also applicable where the Company relies on outside vendors to provide services to it and its customers. Operating system failures or disruptions or the compromise of security with respect to operating systems or portable electronic devices could subject the Company to regulatory sanctions, or other claims, harm the Company’s reputation, interrupt the Company’s operations and adversely affect the Company’s business, results of operations or financial condition.

Item 6.

Exhibits

3.(i)

Certificate of Incorporation as amended and restated January 1, 2002, incorporated by reference to the ILIAC Form 10-K, as filed with the SEC on March 28, 2002 (File No. 33-23376).

3.(ii)

Amended and Restated ING Life Insurance and Annuity Company By-Laws, effective January 1, 2005, incorporated by reference to the ILIAC Form 10-Q, as filed with the SEC on May 13, 2005 (File No. 033-23376).

4.(a)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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.

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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

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.

Incorporated by reference to Post-Effective Amendment No. 43 to Registration Statement on Form N-4 (File No. 33-75962), as filed on April 11, 2006.

Incorporated by reference to Post-Effective Amendment No. 43 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 14, 2006.

31.1

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

31.2

Certificate of Brian D. Comer 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 Brian D. Comer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

August 10, 2006

(Date)

ING Life Insurance and Annuity Company

(Registrant)

By:

/s/ David A. Wheat

David A. Wheat

Director, Executive Vice President, and

Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

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Voya Retirement Insurance & Annuity 10-Q2006 Q2 Quarterly report

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