<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to
Commission file number: 333-86276, 333-86278, 333-123934
--------------------------------
ING LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<Table>
Connecticut 71-0294708
- ---------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
151 Farmington Avenue, Hartford, Connecticut 06156
- ---------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
</Table>
Registrant's telephone number, including area code (860) 723-4646
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes / / No /X/
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 55,000 shares of Common Stock
as of May 12, 2005, all of which were directly owned by Lion Connecticut
Holdings Inc.
NOTE: WHEREAS ING LIFE INSURANCE AND ANNUITY COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
1
<Page>
ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS INC.)
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2005
INDEX
<Table>
<Caption>
PAGE
----
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Changes in
Shareholder's Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Narrative Analysis of the Results of
Operations and Financial Condition 15
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits 26
Signatures 30
</Table>
2
<Page>
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)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
2005 2004
--------------- ---------------
REVENUES:
Net investment income $ 254.9 $ 237.5
Fee income 119.4 117.1
Premiums 13.8 10.9
Net realized capital (losses) gains (4.0) 18.5
--------------- ---------------
Total revenue 384.1 384.0
--------------- ---------------
BENEFITS AND EXPENSES:
Interest credited and other benefits
to contractowners 187.7 187.6
Operating expenses 102.8 94.1
Amortization of deferred policy acquisition costs
and value of business acquired 49.2 37.9
--------------- ---------------
Total benefits and expenses 339.7 319.6
--------------- ---------------
Income before income taxes 44.4 64.4
Income tax expense 12.6 20.4
--------------- ---------------
Net income $ 31.8 $ 44.0
=============== ===============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<Page>
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)
<Table>
<Caption>
AS OF AS OF
MARCH 31, DECEMBER 31,
2005 2004
--------------- ---------------
(UNAUDITED)
ASSETS
Investments:
Fixed maturities, available-for-sale, at fair value
(amortized cost of $16,449.9 at 2005 and $16,684.7 at 2004) $ 16,646.5 $ 17,151.3
Equity securities, available-for-sale, at fair value
(cost of $154.4 at 2005 and $153.9 at 2004) 160.9 162.6
Mortgage loans on real estate 1,209.1 1,090.2
Policy loans 258.9 262.7
Other investments 76.4 57.0
Securities pledged (amortized cost of $1,633.5 at 2005
and $1,258.8 at 2004) 1,630.2 1,274.3
--------------- ---------------
Total investments 19,982.0 19,998.1
Cash and cash equivalents 116.7 187.3
Short-term investments under securities loan agreement 573.3 219.5
Accrued investment income 197.2 181.7
Notes receivable from affiliate 175.0 175.0
Reinsurance recoverable 2,903.0 2,902.7
Deferred policy acquisition costs 440.1 414.5
Value of business acquired 1,342.3 1,365.2
Due from affiliates 16.2 25.9
Receivables for securities sold 17.4 0.2
Other assets 99.1 99.6
Assets held in separate accounts 33,135.8 33,310.5
--------------- ---------------
Total assets $ 58,998.1 $ 58,880.2
=============== ===============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<Page>
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)
<Table>
<Caption>
AS OF AS OF
MARCH 31, DECEMBER 31,
2005 2004
--------------- ---------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims reserves $ 20,698.0 20,886.4
Notes payable 33.5 -
Due to affiliates - 49.4
Payables for securities purchased 168.7 25.1
Payables under securities loan agreement 573.3 219.5
Borrowed money 1,081.1 1,057.4
Current income taxes 92.6 82.6
Deferred income taxes 201.5 209.3
Other liabilities 288.4 315.8
Liabilities related to separate accounts 33,135.8 33,310.5
--------------- ---------------
Total liabilities 56,272.9 56,156.0
--------------- ---------------
Shareholder's equity:
Common stock (100,000 shares authorized; 55,000 shares issued and
outstanding, $50 per share value) 2.8 2.8
Additional paid-in capital 4,577.2 4,576.5
Accumulated other comprehensive income 35.6 67.1
Retained earnings (deficit) (1,890.4) (1,922.2)
--------------- ---------------
Total shareholder's equity 2,725.2 2,724.2
--------------- ---------------
Total liabilities and shareholder's equity $ 58,998.1 $ 58,880.2
=============== ===============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<Page>
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)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER RETAINED TOTAL
COMMON PAID-IN COMPREHENSIVE EARNINGS SHAREHOLDER'S
STOCK CAPITAL INCOME (DEFICIT) EQUITY
-------- ---------- ------------- ---------- -------------
Balance at December 31, 2003 $ 2.8 $ 4,646.5 $ 116.0 $ (2,119.4) $ 2,645.9
Comprehensive income:
Net income - - - 44.0 44.0
Other comprehensive income, net of tax:
Net unrealized gain on securities
($27.7 pretax) - - 17.9 - 17.9
-------------
Comprehensive income 61.9
-------- ---------- ------------- ---------- -------------
Balance at March 31, 2004 $ 2.8 $ 4,646.5 $ 133.9 $ (2,075.4) $ 2,707.8
======== ========== ============= ========== =============
Balance at December 31, 2004 $ 2.8 $ 4,576.5 $ 67.1 $ (1,922.2) $ 2,724.2
Comprehensive income (loss):
Net income - - - 31.8 31.8
Other comprehensive loss, net of tax:
Net unrealized loss on securities
(($41.9) pretax) - - (31.5) - (31.5)
-------------
Comprehensive income 0.3
-------------
Employee share based payments - 0.7 - - 0.7
-------- ---------- ------------- ---------- -------------
Balance at March 31, 2005 $ 2.8 $ 4,577.2 $ 35.6 $ (1,890.4) $ 2,725.2
======== ========== ============= ========== =============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<Page>
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)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
2005 2004
--------------- ---------------
(RESTATED)
Net cash provided by operating activities $ 296.9 $ 98.9
Cash Flows from Investing Activities:
Proceeds from the sale, maturity, or redemption of:
Fixed maturities, available-for-sale 4,581.3 8,040.2
Equity securities, available-for-sale 3.0 -
Mortgage loans on real estate 9.0 3.4
Acquisition of:
Fixed maturities, available-for-sale (4,771.5) (8,161.9)
Equity securities, available-for-sale (3.5) (17.6)
Mortgage loans on real estate (127.9) (111.1)
Policy loans 3.8 5.5
Other investments (9.2) 6.5
(Sales) purchases of property and equipment, net (6.5) 1.7
--------------- ---------------
Net cash used in investing activities (321.5) (233.3)
--------------- ---------------
Cash Flows from Financing Activities:
Deposits for investment contracts 448.1 574.2
Maturities and withdrawals from investment contracts (551.3) (436.4)
Short-term borrowings 57.2 (3.2)
--------------- ---------------
Net cash (used in) provided by financing activities (46.0) 134.6
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (70.6) 0.2
Cash and cash equivalents, beginning of period 187.3 57.8
--------------- ---------------
Cash and cash equivalents, end of period $ 116.7 $ 58.0
=============== ===============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
<Page>
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"), a stock life insurance
company domiciled in the state of Connecticut, and its wholly-owned
subsidiaries (collectively, the "Company") are providers of financial
products and services in the United States. These condensed consolidated
financial statements include ILIAC and its wholly-owned subsidiaries, ING
Insurance Company of America ("IICA") and ING Financial Advisers, LLC
("IFA"). ILIAC is a direct, wholly-owned subsidiary of Lion Connecticut
Holdings Inc. ("Lion" or "Parent"), which in turn is an indirect,
wholly-owned subsidiary of ING Groep N.V. ("ING"). ING is a global
financial services company based in The Netherlands, with American
Depository Shares listed on the New York Stock Exchange under the symbol
"ING."
The condensed consolidated financial statements and notes as of March 31,
2005 and December 31, 2004 and for the three months ended March 31, 2005
and 2004 ("interim periods") have been prepared in accordance with
generally accepted accounting principles 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 2004 Annual
Report on Form 10-K. The results of operations for the interim periods may
not be considered indicative of results to be expected for the full year.
DESCRIPTION OF BUSINESS
The Company offers qualified and nonqualified annuity contracts that
include a variety of funding and payout options for individuals and
employer-sponsored retirement plans qualified under Internal Revenue Code
Sections 401, 403, 408 and 457, as well as nonqualified deferred
compensation plans. The Company's products are offered primarily to
individuals, pension plans, small businesses and employer-sponsored groups
in the health care, government, education (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.
Annuity contracts may be deferred or immediate (payout annuities). These
products also include programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and record-keeping
services along with a variety of investment options, including affiliated
and nonaffiliated mutual funds, and variable and fixed investment options.
In addition, the Company offers wrapper agreements entered into with
retirement plans which contain certain benefit responsive guarantees (i.e.
liquidity guarantees of principal and previously accrued interest for
benefits paid under
8
<Page>
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 terms of the plan) with respect to portfolios of plan-owned assets not
invested with the Company. The Company also offers investment advisory
services and pension plan administrative services.
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
financial statements and accompanying notes. Actual results could differ
from reported results using those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial
information to conform to the current year classifications.
SIGNIFICANT ACCOUNTING POLICIES
For a description of significant accounting policies, see Note 1 to the
Consolidated Financial Statements included in the Company's 2004 Annual
Report on Form 10-K.
2. RECENTLY ADOPTED ACCOUNTING STANDARDS
SHARE-BASED PAYMENT
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standard ("FAS") No. 123 (revised 2004),
"Share-Based Payment" ("FAS 123R"), which requires all share-based payments
to employees be recognized in the financial statements based upon the fair
value. As a result of Securities and Exchange Commission ("SEC") Release
No. 33-8568: Amendment to Rule 4-01(a) of Regulation S-X Regarding the
Compliance Date for Statement of Financial Accounting Standards No. 123
(Revised 2004), "Share-Based Payment", adopted on April 14, 2005, FAS 123R
is effective at the beginning of the first annual period beginning after
June 15, 2005 for registrants. Earlier adoption is encouraged. FAS 123R
provides two transition methods, modified-prospective and
modified-retrospective.
The Company early adopted the provisions of FAS 123R on January 1, 2005,
using the modified-prospective method. Under the modified-prospective
method, compensation cost recognized in the first three months of 2005
includes: (a) compensation cost for all share-based payments granted prior
to, but not yet vested as of January 1, 2005, based on the grant date fair
value estimated in accordance with the original provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"),
and (b) compensation cost for all share-based payments granted subsequent
to January 1, 2005, based on the grant-date fair value in accordance with
the provisions of FAS 123R.
9
<Page>
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)
Results for prior periods are not restated. Prior to January 1, 2005, the
Company applied the intrinsic value-based provisions set forth in APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related Interpretations, as permitted by FAS 123. No stock based employee
compensation cost was recognized in the Statement of Operations during
2004, as all options granted during the year had an exercise price equal to
the market value of the underlying common stock on the date of grant. All
shares granted during 2005 and 2004 were those of ING, the Company's
ultimate parent. As a result of adopting FAS 123R, the Company's income
before income taxes and net income for the three months ended March 31,
2005, are $0.7 and $0.5, lower, respectively, than if it had continued to
account for share-based payments under APB 25.
3. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
Deferred policy acquisition costs ("DAC") represent policy acquisition
costs that have been capitalized and are subject to amortization. Such
costs consist principally of certain commissions, underwriting, contract
issuance, and certain agency expenses, related to the production of new and
renewal business.
Value of business acquired ("VOBA") represents the outstanding value of in
force business capitalized and is subject to amortization in purchase
accounting when the Company was acquired. The value is based on the present
value of estimated net cash flows embedded in the Company's contracts.
The amortization methodology used for DAC and VOBA varies by product
type. Statement of Financial Accounting Standards ("FAS") No. 97
applies to universal life and investment-type products, such as fixed
and variable deferred annuities. Under FAS No. 97, DAC and VOBA are
amortized, with interest, over the life of the related contracts
(usually 25 years) in relation to the present value of estimated future
gross profits from investment, mortality, and expense margins;
asset-based fees, policy administration, and surrender charges; less
policy maintenance fees and non-capitalized commissions, as well as
realized gains and losses on investments.
FAS No. 60, "Accounting and Reporting by Insurance Enterprises," applies
to traditional life insurance products, primarily whole life and term
life insurance contracts. Under FAS No. 60, DAC and VOBA are amortized
over the premium payment period, in proportion to the premium revenue
recognized.
10
<Page>
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 three months ended March 31, 2005 and 2004 within VOBA was
as follows:
<Table>
<Caption>
2004
-------------
Balance at December 31, 2003 $ 1,415.4
Adjustment for FAS No. 115 (4.1)
Additions 14.8
Interest accrued at 5% to 7% 22.9
Amortization (54.1)
-------------
Balance at March 31, 2004 $ 1,394.9
=============
<Caption>
2005
-------------
Balance at December 31, 2004 $ 1,365.3
Adjustment for FAS No. 115 6.7
Additions 11.3
Interest accrued at 5% to 7% 22.5
Amortization (63.5)
-------------
Balance at March 31, 2005 $ 1,342.3
=============
</Table>
4. INVESTMENTS
IMPAIRMENTS
The following table identifies the Company's other-than-temporary
impairments by type for the three months ended March 31, 2005 and 2004:
<Table>
<Caption>
2005 2004
----------------------------- ------------------------------
NO. OF NO. OF
IMPAIRMENT SECURITIES IMPAIRMENT SECURITIES
-------------- ------------ -------------- -------------
Residential mortgage-backed $ 26.2 69 $ 5.1 34
-------------- ------------ -------------- -------------
Total $ 26.2 69 $ 5.1 34
============== ============ ============== =============
</Table>
The remaining fair value of the fixed maturities with other-than-temporary
impairments at March 31, 2005 and 2004 is $204.3 and $130.3, respectively.
5. INCOME TAXES
The Company's effective tax rates for the three months ended March 31, 2005
and 2004 were 28.4% and 31.7%, respectively. The effective rate differs
from the expected rate primarily due to the benefit from the dividends
received deduction. The decrease in the effective rate is primarily
due to an increase in the deduction allowed for dividends received
relative to the change in pre-tax income.
11
<Page>
ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF LION CONNECTICUT HOLDINGS INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollar amounts in millions, unless otherwise stated)
6. FINANCING AGREEMENTS
The Company maintains a revolving loan agreement with SunTrust Bank,
Atlanta (the "Bank"). Under this agreement, which is due on demand, the
Company can borrow up to $125.0 from the Bank. Interest on any borrowing
accrues at an annual rate equal to (1) the cost of funds for the Bank for
the period applicable for the advance plus .225% or (2) a rate quoted by
the Bank to the Company for the borrowing. Under the agreement, the Company
incurred minimal interest expense for the three months ended March 31, 2005
and 2004, respectively. At March 31, 2005, the Company had an outstanding
balance of $33.5 with the Bank and no outstanding balance as of December
31, 2004. The outstanding balance of $33.5 at March 31, 2005 was repaid on
April 1, 2005.
7. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
Through the normal course of investment operations, the Company commits to
either purchase or sell securities, commercial mortgage loans or money
market instruments at a specified future date and at a specified price or
yield. The inability of counterparties to honor these commitments may
result in either a higher or lower replacement cost. Also, there is likely
to be a change in the value of the securities underlying the commitments.
At March 31, 2005, the Company had off-balance sheet commitments to
purchase investments equal to their fair value of $527.0, $434.7 of which
was with related parties. At December 31, 2004, the Company had off-balance
sheet commitments to purchase investments equal to their fair value of
$778.2, $440.4 of which was with related parties. During the three months
ended March 31, 2005, $5.7 was funded to related parties under these
commitments.
LITIGATION
The Company is a party to 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.
12
<Page>
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)
8. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income as of March 31,
2005 and 2004 were as follows:
<Table>
<Caption>
2005 2004
--------------- ---------------
Net unrealized capital gains (losses):
Fixed maturities $ 75.7 $ 209.0
Equity securities 6.5 16.5
Sales inducements - (0.3)
DAC/VOBA (0.4) (24.4)
Other 1.3 0.3
--------------- ---------------
Subtotal 83.1 201.1
Less: deferred income taxes 30.8 67.2
--------------- ---------------
Net unrealized capital gains 52.3 133.9
Minimum pension liability (16.7) -
--------------- ---------------
Net accumulated other comprehensive income $ 35.6 $ 133.9
=============== ===============
</Table>
Net unrealized capital gains allocated to experience-rated contracts of
$117.6 and $646.2 at March 31, 2005 and 2004, respectively, are reflected
on the Condensed Consolidated Balance Sheets in future policy benefits and
claims reserves and are not included in shareholder's equity.
Changes in accumulated other comprehensive income related to changes in net
unrealized gains (losses) on securities, including securities pledged,
excluding those related to experience-rated contractowners, were as
follows:
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
2005 2004
--------------- ---------------
Unrealized holding (losses) gains arising
during the year(1) $ (43.9) $ 48.6
Less: reclassification adjustment for (losses)
gains and other items included in net income(2) (12.4) 30.7
--------------- ---------------
Net unrealized (losses) gains on securities $ (31.5) $ 17.9
=============== ===============
</Table>
(1) Pretax net unrealized holding gains (losses) were $(58.4) and $75.2,
for the three months ended March 31, 2005 and 2004, respectively.
(2) Pretax reclassification adjustments for gains (losses) and other
items included in net income were $(16.5) and $47.5, for the three
months ended March 31, 2005 and 2004, respectively.
13
<Page>
9. RECLASSIFICATIONS AND CHANGES TO PRIOR YEAR PRESENTATION
During 2005, certain changes were made to the Statements of Cash Flows
for the three months ended March 31, 2004, to reflect the correct
balances, primarily related to short-term borrowings. As a result of
these adjustments, we have labeled the Statements of Cash Flows for the
three months ended March 31, 2004 as restated. The following summarizes
the adjustments:
<Table>
<Caption>
PREVIOUSLY
REPORTED ADJUSTMENT RESTATED
----------- ---------- --------
THREE MONTHS ENDED 3/31/2004
Net cash provided by operating $ 95.7 $ 3.2 $ 98.9
Net cash provided by financing activities 137.8 (3.2) 134.6
</Table>
14
<Page>
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 of the consolidated results of
operations presents a review of ING Life Insurance and Annuity Company
("ILIAC") and its wholly-owned subsidiaries (collectively, the
"Company") for the three month periods ended March 31, 2005 and 2004,
and financial condition as of March 31, 2005 and December 31, 2004.
This review 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 2004 Annual
Report on Form 10-K.
FORWARD-LOOKING INFORMATION/RISK FACTORS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions readers
regarding certain forward-looking statements contained in this report
and in any other statements made by, or on behalf of, the Company,
whether or not in future filings with the Securities Exchange
Commission ("SEC"). Forward-looking statements are statements not
based on historical information and which relate to future operations,
strategies, financial results, or other developments. Statements using
verbs such as "expect," "anticipate," "believe," or words of similar
import generally involve forward-looking statements. Without limiting
the foregoing, forward-looking statements include statements which
represent the Company's beliefs concerning future levels of sales and
redemptions of the Company's products, investment spreads and yields,
or the earnings and profitability of the Company's activities.
Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business,
economic, and competitive uncertainties and contingencies, many of
which are beyond the Company's control and many of which are subject
to change. These uncertainties and contingencies could cause actual
results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable
developments. Some may be national in scope, such as general economic
conditions, changes in tax law, and changes in interest rates. Some
may be related to the insurance industry generally, such as pricing
competition, regulatory developments, and industry consolidation.
Others may relate to the Company specifically, such as litigation,
regulatory action, and risks associated with the Company's investment
portfolio such as changes in credit quality, price volatility, and
liquidity. Investors are also directed to consider other risks and
uncertainties discussed 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.
15
<Page>
CRITICAL ACCOUNTING POLICIES
There have been no material changes to the Company's critical
accounting policies since the filing of the Company's 2004 Form 10-K
Annual Report.
RESULTS OF OPERATIONS
NET INCOME: Net income decreased by $12.2 to $31.8 for the three
months ended March 31, 2005, from $44.0 for the three months ended
March 31, 2004. The decrease in net income is primarily due to an
increase in operating expenses and VOBA amortization partially offset
by a decrease in income tax expense.
NET INVESTMENT INCOME: Net investment income from General Account
assets increased $17.4 to $254.9 for the three months ended March 31,
2005 from $237.5 for the three months ended March 31, 2004. The
increase is primarily related to the shifting of portfolio assets to
higher yielding investments and higher average assets under management
with fixed options.
PREMIUMS: Premiums for the three months ended March 31, 2005 increased
by $2.9 to $13.8 from $10.9 for the three months ended March 31, 2004,
primarily due to higher annuitizations as well as higher sales of
immediate annuities.
NET REALIZED CAPITAL GAINS (LOSSES): Net realized capital losses for
the three months ended March 31, 2005 were $ 4.0 compared to gains of
$18.5 for the three months ended March 31, 2004. The current year
losses are primarily due to an increase in other-than-temporary
impairments. Additionally, the net realized capital losses for the
three months ended March 31, 2005 were impacted by the increasing
interest rate environment in 2005 that negatively affected the market
value of fixed maturities and led to lower realized gains upon sale.
Partially offsetting these decreases is an increase in capital gains
on derivatives.
OPERATING EXPENSES: Operating expenses increased by $8.7 to $102.8 for
the three months ended March 31, 2005 from $94.1 for the three months
ended March 31, 2004. The increase in operating expenses is primarily
related to an increase in spending associated with strategic
initiatives, as well as expenses related to compliance with the
Sarbanes Oxley Act of 2002, higher asset based commissions, and
increased salaries.
AMORTIZATION OF DAC AND VOBA: Amortization of DAC and VOBA
increased $11.3 to $49.2 for the three months ended March 31, 2005
from $37.9 for the three months ended March 31, 2004. Amortization
of DAC and VOBA for long-duration products is recorded in
proportion to actual and estimated future gross profits. The return
on variable funds for the three months ended March 31, 2005 was
less than the long-term assumption, thereby producing an
acceleration of amortization. In comparison, for the three months
ended March 31, 2004, the return on variable funds exceeded the
long-term assumptions, producing a deceleration of amortization. The
combination of the acceleration of amortization in the first quarter
of 2005 and the deceleration of amortization in 2004 resulted in
higher amortization quarter versus quarter.
16
<Page>
INCOME TAX EXPENSE: Income tax expense decreased by $7.8 to $12.6 for
the three months ended March 31, 2005 from $20.4 for the three months
ended March 31, 2004. The decrease is primarily due to the decrease in
pre-tax income in the first quarter of 2005 and a decrease in the
Company's effective tax rate primarily resulting from an increase
in the deduction allowed for dividends received relative to the change
in pre-tax income.
FINANCIAL CONDITION
INVESTMENTS
INVESTMENT STRATEGY
The Company's investment strategy for its General Account investments
involves diversification by asset class, and seeks to add economic
diversification and to reduce the risks of credit, liquidity, and
embedded options within certain investment products, such as convexity
risk on collateralized mortgage obligations and call options. The
investment management function is centralized under ING Investment
Management LLC ("IIM"), an affiliate of the Company, pursuant to an
investment advisory agreement. Separate portfolios are established for
each general type of product within the Company.
The Company's use of derivatives is limited mainly to hedging purposes
to reduce the Company's exposure to cash flow variability of assets
and liabilities, interest rate risk, and market risk.
PORTFOLIO COMPOSITION
The following table presents the investment portfolio at March 31,
2005 and December 31, 2004.
<Table>
<Caption>
2005 2004
---------------------------------- ----------------------------------
CARRYING VALUE % CARRYING VALUE %
--------------- --------------- --------------- ---------------
Fixed maturities, including
securities pledged $ 18,276.7 91.5% $ 18,425.6 92.1%
Equity securities 160.9 0.8% 162.6 0.8%
Mortgage loans on real estate 1,209.1 6.0% 1,090.2 5.5%
Policy loans 258.9 1.3% 262.7 1.3%
Other investments 76.4 0.4% 57.0 0.3%
--------------- --------------- --------------- ---------------
$ 19,982.0 100.0% $ 19,998.1 100.0%
=============== =============== =============== ===============
</Table>
17
<Page>
FIXED MATURITIES
Fixed maturities available-for-sale as of March 31, 2005, were as
follows:
<Table>
<Caption>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ---------------
Fixed maturities:
U.S. government and government
agencies and authorities $ 579.8 $ 1.7 $ 6.3 $ 575.2
States, municipalities and political
subdivisions 32.1 0.2 1.4 30.9
U.S. corporate securities:
Public utilities 1,237.8 35.0 13.1 1,259.7
Other corporate securities 5,444.2 190.6 74.2 5,560.6
--------------- --------------- --------------- ---------------
Total U.S. corporate securities 6,682.0 225.6 87.3 6,820.3
--------------- --------------- --------------- ---------------
Foreign securities:
Government 622.9 25.0 5.6 642.3
Other 1,714.4 58.0 17.1 1,755.3
--------------- --------------- --------------- ---------------
Total foreign securities 2,337.3 83.0 22.7 2,397.6
--------------- --------------- --------------- ---------------
Residential mortgage-backed securities 5,471.9 47.8 76.0 5,443.7
Commercial mortgage-backed securities 1,654.4 50.2 16.0 1,688.6
Other asset-backed securities 1,325.9 15.4 20.9 1,320.4
--------------- --------------- --------------- ---------------
Total fixed maturities, including
fixed maturities pledged 18,083.4 423.9 230.6 18,276.7
Less: fixed maturities pledged 1,633.5 12.1 15.4 1,630.2
--------------- --------------- --------------- ---------------
Fixed maturities $ 16,449.9 $ 411.8 $ 215.2 $ 16,646.5
=============== =============== =============== ===============
</Table>
18
<Page>
Fixed maturities available-for-sale as of December 31, 2004, were as
follows:
<Table>
<Caption>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ---------------
Fixed maturities:
U.S. government and government
agencies and authorities $ 197.3 $ 0.9 $ 0.9 $ 197.3
States, municipalities and political
subdivisions 32.1 0.2 0.9 31.4
U.S. corporate securities:
Public utilities 1,207.6 50.0 5.0 1,252.6
Other corporate securities 5,846.5 275.0 25.4 6,096.1
--------------- --------------- --------------- ---------------
Total U.S. corporate securities 7,054.1 325.0 30.4 7,348.7
--------------- --------------- --------------- ---------------
Foreign securities:
Government 660.2 33.9 3.1 691.0
Other 1,656.4 78.4 6.1 1,728.7
--------------- --------------- --------------- ---------------
Total foreign securities 2,316.6 112.3 9.2 2,419.7
--------------- --------------- --------------- ---------------
Residential mortgage-backed securities 5,497.6 65.6 58.2 5,505.0
Commercial mortgage-backed securities 1,491.2 73.2 4.4 1,560.0
Other asset-backed securities 1,354.6 22.6 13.7 1,363.5
--------------- --------------- --------------- ---------------
Total fixed maturities, including
fixed maturities pledged 17,943.5 599.8 117.7 18,425.6
Less: fixed maturities pledged 1,258.8 18.0 2.5 1,274.3
--------------- --------------- --------------- ---------------
Fixed maturities $ 16,684.7 $ 581.8 $ 115.2 $ 17,151.3
=============== =============== =============== ===============
</Table>
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 March 31, 2005 and December 31, 2004. Ratings are
calculated using a rating hierarchy that considers S&P, Moody's, and
internal ratings.
19
<Page>
Total fixed maturities by quality rating category, including fixed
maturities pledged to creditors, were as follows at March 31, 2005 and
December 31, 2004:
<Table>
<Caption>
2005 2004
--------------------------------- ---------------------------------
FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL
--------------- --------------- --------------- ---------------
AAA $ 8,817.7 48.2% $ 8,675.4 47.1%
AA 999.3 5.5% 910.4 4.9%
A 3,607.4 19.7% 3,754.3 20.4%
BBB 4,217.0 23.1% 4,311.4 23.4%
BB 579.6 3.2% 698.9 3.8%
B and below 55.7 0.3% 75.2 0.4%
--------------- --------------- --------------- ---------------
Total $ 18,276.7 100.0% $ 18,425.6 100.0%
=============== =============== =============== ===============
</Table>
96.5% and 95.8% of fixed maturities were invested in securities rated
BBB and above (Investment Grade) at March 31, 2005 and December 31,
2004, 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 March 31, 2005 and December
31, 2004:
<Table>
<Caption>
2005 2004
--------------------------------- ---------------------------------
FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL
--------------- --------------- --------------- ---------------
U.S. Corporate $ 6,851.2 37.5% $ 7,380.1 40.1%
Residential Mortgage-backed 5,443.7 29.9% 5,505.0 29.9%
Foreign (1) 2,397.6 13.1% 2,419.7 13.1%
Commercial/Multifamily Mortgage-backed 1,688.6 9.2% 1,560.0 8.5%
Asset-backed 1,320.4 7.2% 1,363.5 7.4%
U.S. Treasuries/Agencies 575.2 3.1% 197.3 1.0%
--------------- --------------- --------------- ---------------
Total $ 18,276.7 100.0% $ 18,425.6 100.0%
=============== =============== =============== ===============
</Table>
(1) Primarily U.S. dollar denominated
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 March 31, 2005.
MORTGAGE LOANS
Mortgage loans, primarily commercial mortgage loans, totaled $1,209.1
at March 31, 2005 and $1,090.2 at December 31, 2004. These loans are
reported at amortized cost less impairment writedowns. If the value of
any mortgage loan is determined to be impaired (i.e., when it is
probable 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
20
<Page>
flows, 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 March 31, 2005 and
December 31, 2004, the Company had no allowance for mortgage loan
credit losses.
UNREALIZED LOSSES
Fixed maturities, including securities pledged to creditors, comprise
91.5% and 92.1% of the Company's total investment portfolio at March
31, 2005 and December 31, 2004, respectively. Unrealized losses
related to fixed maturities are analyzed in detail in the following
tables.
Fixed maturities, including securities pledged to creditors, in
unrealized loss positions for Investment Grade ("IG") and Below
Investment Grade ("BIG") securities by duration were as follows at
March 31, 2005 and December 31, 2004:
<Table>
<Caption>
2005 2004
-------------------------------------- --------------------------------------
% 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 $ 109.6 47.5% $ 6.2 2.7% $ 37.3 31.7% $ 0.5 0.4%
More than six months
and less than twelve months
below amortized cost 49.1 21.3% 0.5 0.2% 33.1 28.1% 1.6 1.4%
More than twelve months
below amortized cost 63.6 27.6% 1.6 0.7% 44.4 37.7% 0.8 0.7%
------- ------- ------- ------- ------- ------- ------- -------
Total unrealized loss $ 222.3 96.4% $ 8.3 3.6% $ 114.8 97.5% $ 2.9 2.5%
======= ======= ======= ======= ======= ======= ======= =======
</Table>
Unrealized losses at March 31, 2005 were primarily related to interest
rate movement or spread widening for other than credit-related reasons
and to securities under the guidance prescribed by Emerging Issues
Task Force ("EITF") Issue No. 99-20, "Recognition of Interest Income
and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets". Securities affected by EITF Issue No.
99-20 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
losses by duration and reason, along with the carrying amount of
securities with unrealized losses at March 31, 2005:
<Table>
<Caption>
MORE THAN
SIX MONTHS
LESS THAN AND LESS THAN MORE THAN
SIX MONTHS TWELVE MONTHS TWELVE MONTHS
--------------- --------------- ---------------
Interest rate or spread widening $ 64.4 $ 26.7 $ 26.7
EITF Issue No. 99-20 51.4 22.9 38.5
--------------- --------------- ---------------
Total unrealized loss $ 115.8 49.6 65.2
=============== =============== ===============
Carrying amount $ 3,337.6 $ 697.9 $ 583.1
=============== =============== ===============
</Table>
21
<Page>
Fixed maturities, including securities pledged to creditors, in
unrealized loss positions by market sector and duration were as
follows at March 31, 2005:
<Table>
<Caption>
COMMERCIAL/
RESIDENTIAL MULTI-FAMILY U.S.
U.S. MORTGAGE- MORTGAGE- TREASURIES/ ASSET-
CORPORATE BACKED BACKED FOREIGN AGENCIES BACKED TOTAL
--------- ------------ ------------ ------- ----------- ------- -------
Less than six months below
amortized cost $ 44.8 $ 34.6 $ 9.2 $ 13.3 $ 6.2 $ 7.7 $ 115.8
More than six months
and less than twelve months
below amortized cost 21.6 13.8 4.3 5.0 0.1 4.8 49.6
More than twelve months
below amortized cost 20.8 27.6 2.5 4.4 1.4 8.5 65.2
--------- ------------ ------------ ------- ----------- ------- -------
Total unrealized loss $ 87.2 $ 76.0 $ 16.0 $ 22.7 $ 7.7 $ 21.0 $ 230.6
========= ============ ============ ======= =========== ======= =======
</Table>
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 financial condition and near-term prospects of the
issuer; future economic conditions and market forecasts; and the
Company's intent and ability to retain the investment in the issuer
for a period of time sufficient to allow for recovery in fair value.
If it is probable that all amounts due according to the contractual
terms of an investment will not be collected, an other-than-temporary
impairment is considered to have occurred.
In addition, the Company invests in structured securities that meet
the criteria of EITF Issue No. 99-20. Under EITF Issue No. 99-20, a
determination of the required impairment is based on credit risk and
the possibility of significant prepayment risk that restricts the
Company's ability to recover the investment. An impairment is
recognized if the fair value of the security is less than book value
and there has been an adverse change in cash flow since the last
remeasurement date.
When a decline in fair value is determined to be other-than-temporary,
the individual security is written down to fair value and the loss is
accounted for as a realized loss.
The following table identifies the Company's other-than-temporary
impairments by type for the three months ended March 31, 2005 and
2004:
<Table>
<Caption>
2005 2004
--------------------------------- ---------------------------------
NO. OF NO. OF
IMPAIRMENT SECURITIES IMPAIRMENT SECURITIES
--------------- --------------- --------------- ---------------
Residential mortgage-backed $ 26.2 69 $ 5.1 34
--------------- --------------- --------------- ---------------
Total $ 26.2 69 $ 5.1 34
=============== =============== =============== ===============
</Table>
22
<Page>
NET REALIZED CAPITAL GAINS AND 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. Net realized capital
gains (losses) on investments were as follows:
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
----------------------------------
2005 2004
--------------- ---------------
Fixed maturities $ (14.2) $ 18.2
Derivatives 10.2 0.3
--------------- ---------------
Pretax net realized capital (losses) gains $ (4.0) $ 18.5
=============== ===============
After-tax net realized capital (losses) gains $ (2.6) $ 12.0
=============== ===============
</Table>
Net realized capital gains (losses) allocated to experience-rated
contracts of ($4.6) and $34.7 for the three months ended March 31,
2005 and 2004, respectively, were deducted from net realized capital
gains and an offsetting amount was reflected in future policy benefits
and claim reserves on the Condensed Consolidated Balance Sheets. Net
unamortized realized gains allocated to experience-rated
contractowners were $224.5 and $233.4 at March 31, 2005 and December
31, 2004, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Company to generate sufficient cash
flows to meet the cash requirements of operating, investing, and
financing activities.
SOURCES AND USES OF LIQUIDITY
The Company's principal sources of liquidity are product charges,
investment income, proceeds from the maturing and sale of investments,
and capital contributions. Primary uses of funds are payments of
commissions and operating expenses, interest and premium credits,
investment purchases, contract maturities, withdrawals and surrenders.
The Company's liquidity position is managed by maintaining adequate
levels of liquid assets, such as cash or cash equivalents and
short-term investments. 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.
23
<Page>
The fixed account liabilities are supported by a portfolio principally
composed of fixed rate investments that can generate predictable,
steady rates of return. The portfolio management strategy for the
fixed account considers the assets available-for-sale. This enables
the Company to respond to changes in market interest rates, changes in
prepayment risk, changes in relative values of asset sectors and
individual securities and loans, changes in credit quality outlook,
and other relevant factors. The objective of portfolio management is
to maximize returns, taking 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.
Additional sources of liquidity include borrowing facilities to meet
short-term cash requirements. ILIAC maintains 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
also maintains a $125.0 revolving loan agreement with SunTrust Bank
and a $100.0 revolving loan agreement with the Bank of New York. The
Company had an outstanding balance with SunTrust Bank of $33.5 at
March 31, 2005 and no outstanding balances under either of these
facilities as of December 31, 2004. The outstanding balance of $33.5
at March 31, 2005 was repaid on April 1, 2005. Management believes
that these sources of liquidity are adequate to meet the Company's
short-term cash obligations.
CAPITAL CONTRIBUTIONS AND DIVIDENDS
ILIAC has entered into agreements with IICA under which ILIAC has
agreed to cause IICA to have sufficient capital to meet certain
capital and surplus levels. ILIAC did not make capital contributions
to IICA during the three months ended March 31, 2005 and 2004.
The Company did not pay dividends to its parent or receive capital
contributions from its parent during the three months ended March 31,
2005 and 2004.
RECENTLY ADOPTED ACCOUNTING STANDARDS
(See the Recently Adopted Accounting Standards Footnote to the
condensed consolidated financial statements for further information.)
LEGISLATIVE INITIATIVES
Legislative proposals which have been or are being considered by
Congress include repealing 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 effect on life insurance, annuity, and other retirement
savings product sales. The President has also established an advisory
panel to study reform of the Internal Revenue Code. The panel is
scheduled to report its findings and make recommendations to the
Secretary of Treasury by the end of July, 2005. The recommendations of
this panel, if enacted by Congress, could affect the tax treatment of
life insurance companies and products. Legislation to restructure the
Social
24
<Page>
Security System and expand private pension plan incentives also may be
considered. Prospects for enactment and the ultimate effect of these
proposals are uncertain.
ITEM 4. CONTROLS AND PROCEDURES
a) 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.
b) There has not been any change in the internal controls over
financial reporting of the Company that occurred during the
period covered by this report that has materially affected or is
reasonably likely to materially affect these internal controls.
25
<Page>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to threatened or pending lawsuits/arbitrations
arising from the normal conduct of business. Due to the climate in
insurance and business litigation/arbitration, suits against the
Company sometimes include claims for substantial compensatory,
consequential or punitive damages and other types of relief. Moreover,
certain claims are asserted as class actions, purporting to represent
a group of similarly situated individuals. While it is not possible to
forecast the outcome of such lawsuits/arbitrations, in light of
existing insurance, reinsurance and established reserves, it is the
opinion of management that the disposition of such
lawsuits/arbitrations will not have a materially adverse effect on the
Company's operations or financial position.
As with many financial services companies, the Company and its
affiliates have received informal and formal requests for information
from various state and federal governmental agencies and
self-regulatory organizations in connection with inquiries and
investigations of the products and practices of the financial services
industry. In each case, the Company and its affiliates have been and
are providing full cooperation. This discussion should be read in
conjunction with the "Other Regulatory Matters" section of
"Management's Narrative Analysis of the Results of Operations and
Financial Condition" included in the Company's 2004 Form 10-K Annual
Report.
ITEM 6. EXHIBITS
3.(i) Certificate of Incorporation as amended and restated January 1,
2002, incorporated by reference to the ILIAC on Form 10-K, as
filed with the SEC on March 28, 2002 (File No. 33-23376).
3.(ii) Amended and Restated ING Life Insurance and Annuity Company
By-Laws, effective January 1, 2005.
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.
26
<Page>
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.
27
<Page>
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.
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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.
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.
29
<Page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ING LIFE INSURANCE AND ANNUITY COMPANY
--------------------------------------
(Registrant)
By /s/ David A. Wheat
--------------------------------------------------------
David A. Wheat
Director, Senior Vice President and
Chief Financial Officer
May 12, 2005 (Duly Authorized Officer and Principal Financial Officer)
- ------------
(Date)
30