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ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)

Index to Consolidated Financial Statements


	Page
Report of Independent Registered Public Accounting Firm	3
Consolidated Financial Statements:
Consolidated Balance Sheets
as of December 31, 2011 and 2010	4
Consolidated Statements of Operations
for the years ended December 31, 2011, 2010, and 2009	6
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2011, 2010, and 2009	7
Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 2011, 2010, and 2009	8
Consolidated Statements of Cash Flows
for the years ended December 31, 2011, 2010, and 2009	9
Notes to Consolidated Financial Statements	11

Report of Independent Registered Public Accounting Firm

The Board of Directors
ING Life Insurance and Annuity Company

We have audited the accompanying consolidated balance sheets of ING Life Insurance and Annuity Company and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, changes in shareholder's equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ING Life Insurance and Annuity Company and subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, in 2009 the Company changed its method of accounting for the recognition and presentation of other-than-temporary impairments. Also, as discussed in Note 1 to the financial statements, the Company retrospectively changed its method of accounting for costs associated with acquiring or renewing insurance contracts. Additionally, as discussed in Note 1 to the financial statements, the Company has elected to change its method of recognizing actuarial gains and losses related to its pension and post-retirement benefit plans.

/s/ Ernst & Young LLP

Atlanta, Georgia
December 18, 2012

ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Balance Sheets
(In millions, except share data)


	As of December 31,
	2011		2010
Assets
Investments:
Fixed maturities, available-for-sale, at fair value
(amortized cost of $16,577.9 at 2011 and $15,104.5 at 2010)	$	18,134.6	$	16,066.9
Fixed maturities, at fair value using the fair value option		511.9		453.4
Equity securities, available-for-sale, at fair value
(cost of $131.8 at 2011 and $179.6 at 2010)		144.9		200.6
Short-term investments		216.8		222.4
Mortgage loans on real estate		2,373.5		1,842.8
Loan - Dutch State obligation		417.0		539.4
Policy loans		245.9		253.0
Limited partnerships/corporations		510.6		463.5
Derivatives		446.6		179.9
Securities pledged (amortized cost of $572.5 at 2011 and $936.5 at 2010)		593.7		962.2
Total investments		23,595.5		21,184.1
Cash and cash equivalents		217.1		231.0
Short-term investments under securities loan agreement,
including collateral delivered		524.8		675.4
Accrued investment income		260.2		240.5
Receivable for securities sold		16.7		5.6
Reinsurance recoverable		2,276.3		2,355.9
Deferred policy acquisition costs, Value of business acquired,
and Sales inducements to contract holders		947.2		1,197.2
Notes receivable from affiliate		175.0		175.0
Short-term loan to affiliate		648.0		304.1
Due from affiliates		52.9		102.4
Property and equipment		84.7		87.4
Other assets		56.3		52.9
Assets held in separate accounts		45,295.2		46,489.1
Total assets	$	74,149.9	$	73,100.6


ING Life Insurance and Annuity Company and Subsidiaries
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Balance Sheets
(In millions, except share data)

	As of December 31,
		2011		2010
Liabilities and Shareholder's Equity
Future policy benefits and claims reserves	$	23,062.3		$	21,491.6
Payable for securities purchased		3.3			33.3
Payables under securities loan agreement, including collateral held		634.8			680.1
Short-term debt		—			214.5
Long-term debt		4.9			4.9
Due to affiliates		126.0			121.2
Current income tax payable to Parent		1.3			49.3
Deferred income taxes		355.2			269.7
Other liabilities		690.6			654.9
Liabilities related to separate accounts		45,295.2			46,489.1
Total liabilities		70,173.6			70,008.6

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		4,533.0			4,326.0
Accumulated other comprehensive income (loss)		747.5			390.5
Retained earnings (deficit)		(1,307.0	)		(1,627.3	)
Total shareholder's equity		3,976.3			3,092.0
Total liabilities and shareholder's equity	$	74,149.9		$	73,100.6


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




5


ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Statements of Operations
(In millions)

	Years Ended December 31,
		2011		2010			2009
Revenues:
Net investment income	$	1,420.9		$	1,342.3		$	1,242.1
Fee income		614.0			583.5			526.4
Premiums		33.9			67.3			35.0
Broker-dealer commission revenue		218.3			220.0			275.3
Net realized capital gains (losses):
Total other-than-temporary impairments		(116.8	)		(199.2	)		(433.5	)
Less: Portion of other-than-temporary impairments
recognized in Other comprehensive income (loss)		(9.5	)		(52.1	)		(39.0	)
Net other-than-temporary impairments
recognized in earnings		(107.3	)		(147.1	)		(394.5	)
Other net realized capital gains (losses)		(108.5	)		128.3			368.4
Total net realized capital gains (losses)		(215.8	)		(18.8	)		(26.1	)
Other income		14.5			33.3			27.9
Total revenues		2,085.8			2,227.6			2,080.6
Benefits and expenses:
Interest credited and other benefits
to contract owners		763.4			769.2			720.8
Operating expenses		692.0			789.8			668.3
Broker-dealer commission expense		218.3			220.0			275.3
Net amortization of deferred policy acquisition
costs and value of business acquired		94.2			(41.2	)		59.1
Interest expense		2.6			2.9			3.5
Total benefits and expenses		1,770.5			1,740.7			1,727.0
Income (loss) before income taxes		315.3			486.9			353.6
Income tax expense (benefit)		(5.0	)		109.0			32.2
Net income (loss)	$	320.3		$	377.9		$	321.4


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




6


ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Statements of Changes in Shareholder's Equity
(In millions)


	Common Stock		Additional Paid -In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Total Shareholder's Equity




Balance at January 1, 2009 - As previously filed	$	2.8	$	4,161.3		$	(482.1	)	$	(2,117.5	)	$	1,564.5
Cumulative effect of change in accounting:
Deferred policy acquisition costs							(71.8	)		(367.7	)		(439.5	)
Actuarial gains (losses) for pension and post
retirement benefit plans							18.0			(18.0	)		—
Balance at January 1, 2009 - As revised		2.8		4,161.3			(535.9	)		(2,503.2	)		1,125.0
Cumulative effect of change in accounting:
Other-than-temporary impairments		—		—			(176.6	)		176.6			—
Comprehensive income (loss):
Net income (loss)		—		—			—			321.4			321.4
Other comprehensive income (loss), after tax		—		—			728.8			—			728.8
Total comprehensive income (loss)													1,050.2
Contribution of capital		—		365.0			—			—			365.0
Employee related benefits		—		1.9			—			—			1.9
Balance at December 31, 2009 - As revised		2.8		4,528.2			16.3			(2,005.2	)		2,542.1
Comprehensive income (loss):
Net income (loss)		—		—			—			377.9			377.9
Other comprehensive income (loss), after tax		—		—			374.2			—			374.2
Total comprehensive income (loss)													752.1
Dividends paid		—		(203.0	)		—			—			(203.0	)
Employee related benefits		—		0.8			—			—			0.8
Balance at December 31, 2010 - As revised		2.8		4,326.0			390.5			(1,627.3	)		3,092.0
Comprehensive income (loss):
Net income (loss)		—		—			—			320.3			320.3
Other comprehensive income (loss), after tax		—		—			357.0			—			357.0
Total comprehensive income (loss)													677.3
Capital contribution		—		201.0			—			—			201.0
Employee related benefits		—		6.0			—			—			6.0

Balance at December 31, 2011 - As revised	$	2.8	$	4,533.0		$	747.5		$	(1,307.0	)	$	3,976.3


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




8


ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Statements of Cash Flows
(In millions)
	Years Ended December 31,
	2011		2010		2009
Cash Flows from Operating Activities:
Net income	$	320.3	$	377.9	$	321.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Capitalization of deferred policy acquisition costs, value of
business acquired, and sales inducements		(88.9	)	(93.9	)	(81.3	)
Net amortization of deferred policy acquisition costs, value of
business acquired, and sales inducements		97.7		(37.3	)	61.5
Net accretion/decretion of discount/premium		37.0		44.3		45.4
Future policy benefits, claims reserves, and interest credited		639.0		608.8		605.6
Provision for deferred income taxes		(65.3	)	33.6		19.2
Net realized capital losses (gains)		215.8		18.8		26.1
Depreciation		3.5		3.4		10.4
Change in:
Accrued investment income		(19.7	)	(23.3	)	(11.4	)
Reinsurance recoverable		79.6		74.0		79.3
Other receivable and assets accruals		(3.5	)	(86.0	)	130.9
Due to/from affiliates		54.3		17.2		7.9
Other payables and accruals		(91.9	)	85.5		46.0
Other, net		(64.8	)	(36.1	)	(111.7	)
Net cash provided by operating activities		1,113.1		986.9		1,149.3
Cash Flows from Investing Activities:
Proceeds from the sale, maturity, disposal or redemption of:
Fixed maturities		6,468.5		6,340.3		5,864.2
Equity securities, available-for-sale		63.1		12.9		99.4
Mortgage loans on real estate		332.8		179.2		308.7
Limited partnerships/corporations		93.0		87.2		116.2
Acquisition of:
Fixed maturities		(7,662.0	)	(7,383.5	)	(6,215.4	)
Equity securities, available-for-sale		(5.7	)	(16.7	)	(25.2	)
Mortgage loans on real estate		(863.1	)	(147.2	)	(87.2	)
Limited partnerships/corporations		(68.5	)	(85.5	)	(49.3	)
Derivatives, net		(78.6	)	(147.3	)	(170.8	)
Policy loans, net		7.1		1.7		13.1
Short-term investments, net		5.3		313.1		(492.7	)
Loan-Dutch State obligation		122.4		134.7		124.8
Collateral held, net		105.3		4.7		(4.4	)
Sales (purchases) of fixed assets, net		(0.8	)	—		13.5
Net cash used in investing activities		(1,481.2	)	(706.4	)	(505.1	)



9

ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)

1. Business, Basis of Presentation and Significant Accounting Policies

Business

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 the District of Columbia.

ILIAC is a direct, wholly owned subsidiary of Lion Connecticut Holdings Inc. ("Lion" or "Parent"), which is a direct, wholly owned subsidiary of ING America Insurance Holdings, Inc. ("ING AIH"). ING AIH 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."

As part of a restructuring plan approved by the European Commission (“EC”), ING has agreed to separate its banking and insurance businesses by 2013. ING intends to achieve this separation by divestment of its insurance and investment management operations, including the Company. ING has announced that it will explore all options for implementing the separation including one or more initial public offerings, sales, or a combination thereof. On November 10, 2010, ING announced that, in connection with the restructuring plan, it will prepare for a base case of an initial public offering of the Company and its U.S.-based insurance and investment management affiliates.

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 and related services. The Company's products are offered primarily to individuals, pension plans, small businesses, and employer-sponsored groups in the health care, government, and education markets (collectively “not-for-profit” organizations) and corporate markets. The Company's products are generally distributed through pension professionals, independent agents and brokers, third party administrators, banks, dedicated career agents, and financial planners.

Products offered by the Company include deferred and immediate (i.e., payout) annuity contracts. Company 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., guarantees of principal and previously accrued interest for benefits paid under the terms of the plan) with respect to portfolios of plan-owned assets not invested with the Company. The Company also offers pension and retirement savings plan administrative services.

The Company has one operating segment.

Basis of Presentation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The Consolidated Financial Statements include the accounts of ILIAC and its subsidiaries, ING Financial Advisers, LLC (“IFA”) and Directed Services LLC (“DSL”).

Intercompany transactions and balances between ILIAC and its subsidiaries have been eliminated. Certain reclassifications have been made to prior year financial information to conform to the current year classifications, including the presentation of changes in fair value of embedded derivatives within annuity products and the presentation of market value adjustment items in order to align with the presentation of the Consolidated Financial Statements of ING AIH. For the years ended December 31, 2011, 2010, and 2009, respectively, reclassifications decreased Fee income by $(1.1), $(6.3), and $(7.4), (decreased) increased Other net realized capital gains (losses) by $(216.1), $9.3, and $219.4, decreased Other income by $(6.0), $(1.4), and $(2.1), and (decreased) increased Interest credited and other benefits to contract owner by $(223.2), $1.6, and $209.9, in the Statements of Operations. Such reclassifications had no impact on Shareholder's equity or Net income (loss).

Accounting Changes

Employee Benefit Plans

As of January 1, 2012, the Company voluntarily changed its method of recognizing actuarial gains and losses related to its pension and post-retirement benefit plans. Previously, actuarial gains and losses were recognized in Accumulated other comprehensive income and, to the extent outside a corridor, amortized into operating results over the average remaining service period of active plan participants or the average remaining life expectancy of inactive plan participants, as applicable. The Company has elected to immediately recognize actuarial gains and losses in the Consolidated Statements of Operations in the year in which the gains and losses occur. The new accounting method is preferable, as it eliminates the delay in recognition of actuarial gains and losses. These gains and losses are generally only measured annually as of December 31 and, accordingly, will generally be recorded during the fourth quarter.

The Company's change in accounting methodology has been applied retrospectively. The cumulative effect of this change as of January 1, 2009, is a decrease to Retained earnings, with a corresponding increase to Accumulated other comprehensive income, of $18.0, net of tax. In addition, the impact of this change on the Company's Net income was a (decrease) increase of $(7.2) $(3.8), and $0.7 for the years ended December 31, 2011, 2010, and 2009, respectively. The impact of this change as of December 31, 2011, 2010, and 2009, respectively, is an additional decrease to Retained earnings, with a corresponding increase to Accumulated other comprehensive income, of $28.4, $21.3, and $17.4, net of tax.

Deferred Acquisition Costs

In October 2010, the FASB issued ASU 2010-26, “Financial Services - Insurance (ASC Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” (“ASU 2010-26”), which clarifies what costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. Costs that should be capitalized include (1) incremental direct costs of successful contract acquisition and (2) certain costs related directly to successful acquisition activities (underwriting, policy issuance and processing, medical and inspection, and sales force contract selling) performed by the insurer for the contract. Advertising costs should be included in deferred acquisition costs only if the capitalization criteria in the U.S. GAAP direct-response advertising guidance are met. All other acquisition-related costs should be charged to expense as incurred.

The provisions of ASU 2010-26 were adopted retrospectively by the Company on January 1, 2012. As a result of implementing ASU 2010-26, the Company recognized a cumulative effect of change in accounting principle of $367.7, net of income taxes of $198.0, as a reduction to January 1, 2009 Retained earnings (deficit). In addition, the Company recognized a $71.8 decrease to Accumulated other comprehensive income ("AOCI").

Significant Accounting Policies

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates.

The Company has identified the following accounts and policies as significant in that they involve a higher degree of judgment, are subject to a significant degree of variability, and contain accounting estimates:

Reserves for future policy benefits, valuation and amortization of deferred policy acquisition costs (“DAC”), value of business acquired (“VOBA”), valuation of investments and derivatives, impairments, income taxes, and contingencies.

Fair Value Measurement

The Company measures the fair value of its financial assets and liabilities based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or non-performance risk, including the Company's own credit risk. The estimate of an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability. The Company utilizes a number of valuation sources to determine the fair values of its financial assets and liabilities, including quoted market prices, third-party commercial pricing services, third-party brokers, and industry-standard, vendor-provided software that models the value based on market observable inputs, and other internal modeling techniques based on projected cash flows.

The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Consolidated Balance Sheets are categorized as follows:

	Level 1 - Unadjusted quoted prices for identical assets or liabilities in an active market. The Company defines an active market as a market in which transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
	Level 2 - Quoted prices in markets that are not active or valuation techniques that require inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
	a.	Quoted prices for similar assets or liabilities in active markets;
	b.	Quoted prices for identical or similar assets or liabilities in non-active markets;
	c.	Inputs other than quoted market prices that are observable; and
	d.	Inputs that are derived principally from or corroborated by observable market data through correlation or other means.
	Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These valuations, whether derived internally or obtained from a third party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability.

When available, the estimated fair value of securities is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing, or other similar techniques. See the Financial Instruments note to these Consolidated Financial Statements for additional information regarding the fair value of specific financial assets and liabilities.

Investments

The accounting policies for the Company's principal investments are as follows:

Fixed Maturities and Equity Securities: All of the Company's fixed maturities and equity securities are currently designated as available-for-sale, except those accounted for using the fair value option (“FVO”). Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in Accumulated other comprehensive income (loss) (“AOCI”), and presented net of related changes in DAC, VOBA, and deferred income taxes.

Certain CMOs, primarily interest-only and principal-only strips, are accounted for as hybrid instruments and valued at fair value with changes in the fair value recorded in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

Purchases and sales of fixed maturities and equity securities, excluding private placements, are recorded on the trade date. Purchases and sales of private placements and mortgage loans are recorded on the closing date. Investment gains and losses on sales of securities are generally determined on a first-in-first-out (“FIFO”) basis.

Interest income on fixed maturities is recorded when earned using an effective yield method, giving effect to amortization of premiums and accretion of discounts. Dividends on equity securities are recorded when declared. Such dividends and interest income are recorded in Net investment income on the Consolidated Statements of Operations.

Included within fixed maturities are loan-backed securities, including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), and asset-backed securities (“ABS”). Amortization of the premium or discount from the purchase of these securities considers the estimated timing and amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for single class and multi-class mortgage-backed securities (“MBS”) and ABS are estimated by management using inputs obtained from third-party specialists, including broker-dealers, and based on management's knowledge of the current market. For credit-sensitive MBS and ABS, and certain prepayment-sensitive securities, the effective yield is recalculated on a prospective basis. For all other MBS and ABS, the effective yield is recalculated on a retrospective basis.

Short-term Investments: Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of purchase. These investments are stated at fair value.

Assets Held in Separate Accounts: Assets held in separate accounts are reported at the fair values of the underlying investments in the separate accounts. The underlying investments include mutual funds, short-term investments, and cash, and fixed maturities.

Mortgage Loans on Real Estate: The Company's mortgage loans on real estate are all commercial mortgage loans, which are reported at amortized cost, less impairment write-downs and allowance for losses. 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 all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the lower of 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. For those mortgages that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. The carrying value of the impaired loans is reduced by establishing a permanent write-down recorded in Net realized capital gains (losses) in the Consolidated Statements of Operations.

All mortgage loans are evaluated by the Company's investment professionals, including an appraisal of loan-specific credit quality, property characteristics, and market trends. Loan performance is monitored on a loan-specific basis. The Company's review includes submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review evaluates whether the properties are performing at a consistent and acceptable level to secure the debt.

All mortgages are evaluated for the purpose of quantifying the level of risk. Those loans with higher risk are placed on a watch list and are closely monitored for collateral deficiency or other credit events that may lead to a potential loss of principal or interest. The Company defines delinquent mortgage loans consistent with industry practice as 60 days past due.

As of December 31, 2011 and 2010, all mortgage loans are held-for-investment. The Company diversifies its mortgage loan portfolio by geographic region and property type to reduce concentration risk. The Company manages risk when originating mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate.

The Company records an allowance for probable incurred, but not specifically identified, losses.

Loan - Dutch State Obligation: The reported value of The State of the Netherlands (the “Dutch State”) loan obligation is based on the outstanding loan balance plus any unamortized premium.

Policy Loans: The reported value of policy loans is equal to the carrying value of the loans. Interest income on such loans is recorded as earned in Net investment income using the contractually agreed upon interest rate. Generally, interest is capitalized on the policy's anniversary date. Valuation allowances are not established for policy loans, as these loans are collateralized by

the value of the associated insurance contracts. Any unpaid principal or interest on the loan is deducted from the account value or the death benefit prior to settlement of the policy.

Limited Partnerships/Corporations: The Company uses the equity method of accounting for investments in limited partnership interests, primarily private equities and hedge funds. Generally, the Company records its share of earnings using a lag methodology, relying upon the most recent financial information available, where the contractual right exists to receive such financial information on a timely basis. The Company's equity in earnings from limited partnership interests accounted for under the equity method is recorded in Net investment income.

Securities Lending: The Company engages in securities lending whereby certain domestic securities from its portfolio are loaned to other institutions for short periods of time. Initial collateral, primarily cash, is required at a rate of 102% of the market value of the loaned securities. Generally, the lending agent retains all of the cash collateral. Collateral retained by the agent is invested in liquid assets on behalf of the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates.

As of December 31, 2011 and 2010, the fair value of loaned securities was $515.8 and $651.7, respectively, and is included in Securities pledged on the Consolidated Balance Sheets. Collateral received is included in Short-term investments under securities loan agreement, including collateral delivered. As of December 31, 2011 and 2010, liabilities to return collateral of $524.8 and $675.5, respectively, are included in Payables under securities loan agreement, including collateral held, on the Consolidated Balance Sheets.

Other-than-temporary Impairments

The Company periodically evaluates its available-for-sale general account investments to determine whether there has been an other-than-temporary decline in fair value below the amortized cost basis. Factors considered in this analysis include, but are not limited to, 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 changes in ratings of the security. An extended and severe unrealized loss position on a fixed maturity may not have any impact on: (a) the ability of the issuer to service all scheduled interest and principal payments, and (b) the evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for certain equity securities, the Company gives greater weight and consideration to a decline in market value and the likelihood such market value decline will recover.

Effective April 1, 2009, the Company prospectively adopted guidance on the recognition and presentation of OTTI losses (see the “Adoption of New Pronouncements” section below). When assessing the Company's intent to sell a security or if it is more likely than not the Company will be required to sell a security before recovery of its amortized cost basis, management evaluates facts and circumstances such as, but not limited to, decisions to rebalance the investment portfolio and sales of investments to meet cash flow or capital needs.

When the Company has determined it has the intent to sell or if it is more likely than not that the Company will be required to sell a security before recovery of its amortized cost basis and the fair value has declined below amortized cost (“intent impairment”), the individual security is written down from amortized cost to fair value, and a corresponding charge is recorded in Net realized capital gains (losses) in the Consolidated Statements of Operations as an OTTI. If the Company does not intend to sell the security and it is not more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, but the Company has determined that there has been an other-than-temporary decline in fair value below the amortized cost basis, the OTTI is bifurcated into the amount representing the present value of the decrease in cash flows expected to be collected (“credit impairment”) and the amount related to other factors (“noncredit impairment”). The credit impairment is recorded in Net realized capital gains (losses) in the Consolidated Statements of Operations. The noncredit impairment is recorded in Other comprehensive income (loss) on the Consolidated Balance Sheets.

Prior to April 1, 2009, the Company recognized in earnings an OTTI for a fixed maturity in an unrealized loss position, unless it could assert that it had both the intent and ability to hold the fixed maturity for a period of time sufficient to allow for a recovery of estimated fair value to the security's amortized cost. The entire difference between the fixed maturity's amortized cost basis and its estimated fair value was recognized in earnings if the security was determined to have an OTTI.

There was no change in guidance for equity securities which, when an OTTI has occurred, continue to be impaired for the entire difference between the equity security's cost and its estimated fair value.

The Company uses the following methodology and significant inputs to determine the amount of the OTTI credit loss:

The Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows expected to be received. The discount rate is generally the effective interest rate of the fixed maturity prior to impairment.
When determining collectability and the period over which the value is expected to recover, the Company applies the same considerations utilized in its overall impairment evaluation process, which incorporates information regarding the specific security, the industry and geographic area in which the issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated using assumptions derived from the Company's best estimates of likely scenario-based outcomes, after giving consideration to a variety of variables that include, but is not limited to: general payment terms of the security; the likelihood that the issuer can service the scheduled interest and principal payments; the quality and amount of any credit enhancements; the security's position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; and changes to the rating of the security or the issuer by rating agencies.
Additional considerations are made when assessing the unique features that apply to certain structured securities such as RMBS, CMBS, and ABS. These additional factors for structured securities include, but are not limited to: the quality of underlying collateral; expected prepayment speeds; current and forecasted loss severity; and the payment priority within the tranche structure of the security.
When determining the amount of the credit loss for U.S. and foreign corporate securities, foreign government securities and state and political subdivision securities, the Company considers the estimated fair value as the recovery value when available information does not indicate that another value is more appropriate. When information is identified that indicates a recovery value other than estimated fair value, the Company considers in the determination of recovery value the same considerations utilized in its overall impairment evaluation process, which incorporates available information and the Company's best estimate of scenarios-based outcomes regarding the specific security and issuer; possible corporate restructurings or asset sales by the issuer; the quality and amount of any credit enhancements; the security's position within the capital structure of the issuer; fundamentals of the industry and geographic area in which the security issuer operates, and the overall macroeconomic conditions.

In periods subsequent to the recognition of the credit related impairment components of OTTI on a fixed maturity through Net realized capital gains (losses) on the Consolidated Statements of Operations, the Company accounts for the impaired security as if it had been purchased on the measurement date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income over the remaining term of the fixed maturity in a prospective manner based on the amount and timing of estimated future cash flows.

Derivatives

The Company's use of derivatives is limited mainly to economic hedging to reduce the Company's exposure to cash flow variability of assets and liabilities, interest rate risk, credit risk, exchange rate risk, and market risk. It is the Company's policy not to offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value executed with the same counterparty under a master netting arrangement.

The Company enters into interest rate, equity market, credit default, and currency contracts, including swaps, futures, forwards, caps, floors, and options, to reduce and manage various risks associated with changes in value, yield, price, cash flow, or exchange rates of assets or liabilities held or intended to be held, or to assume or reduce credit exposure associated with a referenced asset, index, or pool. The Company also utilizes options and futures on equity indices to reduce and manage risks associated with its annuity products. Open derivative contracts are reported as either Derivatives or Other liabilities, as appropriate, on the Consolidated Balance Sheets at fair value. Changes in the fair value of derivatives are recorded in Net realized capital gains (losses) in the Consolidated Statements of Operations.

To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either (i) a hedge of the exposure to changes in the estimated fair value of a recognized asset or liability (“fair value hedge”); or (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship.

Fair Value Hedge Relationship: For derivative instruments that are designated and qualify as a fair value hedge (e.g., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the hedged item, to the extent of the risk being hedged, are recognized in Other net realized capital gains (losses).
Cash Flow Hedge Relationship: For derivative instruments that are designated and qualify as a cash flow hedge (e.g., hedging the exposure to the variability in expected future cash flows that is attributable to interest rate risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction impacts earnings in the same line item associated with the forecasted transaction. The ineffective portion of the derivative's change in value, if any, along with any of the derivative's change in value that is excluded from the assessment of hedge effectiveness, are recorded in Other net realized capital gains (losses).

When hedge accounting is discontinued because it is determined that the derivative is no longer expected to be highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried in the Consolidated Balance Sheets at its estimated fair value, with subsequent changes in estimated fair value recognized immediately in Other net realized capital gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in Other comprehensive income (loss) related to discontinued cash flow hedges are released into the Consolidated Statements of Operations when the Company's earnings are affected by the variability in cash flows of the hedged item.

When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried in the Consolidated Balance Sheets at its estimated fair value, with changes in estimated fair value recognized currently in Other net realized capital gains (losses). Derivative gains and losses recorded in Other comprehensive income (loss) pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable are recognized immediately in Other net realized capital gains (losses).

If the Company's current debt and claims paying ratings were downgraded in the future, the terms in the Company's derivative agreements may be triggered, which could negatively impact overall liquidity. For the majority of the Company's counterparties, there is a termination event should the Company's long-term debt ratings drop below BBB+/Baa1.

The carrying amounts for these financial instruments, which can be assets or liabilities, reflect the fair value of the assets and liabilities.

The Company also has investments in certain fixed maturities, and has issued certain annuity products, that contain embedded derivatives whose fair value is at least partially determined by levels of or changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity markets, or credit ratings/spreads. Embedded derivatives within fixed maturities are included with the host contract on the Consolidated Balance Sheets, and changes in fair value are recorded in Other net realized capital gains (losses) in the Consolidated Statements of Operations. Embedded derivatives within annuity products are included in Future policy benefits on the Consolidated Balance Sheets, and changes in the fair value are recorded in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, and other highly liquid investments, such as money market instruments and debt instruments with maturities of three months or less at the time of purchase. Cash and cash equivalents are stated at fair value.

Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation. Expenditures for replacements and major improvements are capitalized; maintenance and repair expenditures are expensed as incurred. Depreciation on property and equipment is provided on a straight-line basis over the estimated useful lives of the assets with the exception of land and artwork, which are not depreciated.

The Company's property and equipment are depreciated using the following estimated useful lives.

Estimated Useful Lives

Buildings

Furniture and fixtures

Leasehold improvements

Equipment

40 years

5 years

10 years, or the life of the lease, whichever is shorter

3 years

Deferred Policy Acquisition Costs and Value of Business Acquired

DAC represents policy acquisition costs that have been capitalized and are subject to amortization and interest. Capitalized costs are incremental, direct costs of contract acquisition, as well as certain costs related directly to acquisition activities. Such costs consist principally of certain commissions, sales, and contract issuance and processing expenses directly related to the successful acquisition of new and renewal business. Indirect or unsuccessful acquisition costs, maintenance, product development and overhead expenses are charged to expense as incurred. VOBA represents the outstanding value of in force business acquired and is subject to amortization and interest. The value is based on the present value of estimated net cash flows embedded in the insurance contracts at the time of the acquisition and increased for subsequent deferrable expenses on purchased policies.

Amortization Methodologies

The Company amortizes DAC and VOBA related to fixed and variable deferred annuity contracts over the estimated lives of the contracts in relation to the emergence of estimated gross profits. Assumptions as to mortality, persistency, interest crediting rates, returns associated with separate account performance, impact of hedge performance, expenses to administer the business, and certain economic variables, such as inflation, are based on the Company's experience and overall capital markets. At each valuation date, actual historical gross profits are reflected and estimated gross profits, and related assumptions, are evaluated for continued reasonableness. Adjustments to estimated gross profits require that amortization rates be revised retroactively to the date of the contract issuance ("unlocking").

The Company also reviews the estimated gross profits for each block of business to determine the recoverability of DAC and VOBA balances each period. DAC and VOBA are deemed to be recoverable if the estimated gross profits exceed these balances.

Assumptions

Changes in assumptions can have a significant impact on DAC and VOBA balances and amortization rates. Several assumptions are considered significant in the estimation of future gross profits associated with the Company's variable products. One significant assumption is the assumed return associated with the variable account performance. To reflect the volatility in the equity markets, this assumption involves a combination of near-term expectations and long-term assumptions

ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)

regarding market performance. The overall return on the variable account is dependent on multiple factors, including the relative mix of the underlying sub-accounts among bond funds and equity funds, as well as equity sector weightings. The Company's practice assumes that intermediate-term appreciation in equity markets reverts to the long-term appreciation in equity markets. The Company monitors market events and only changes the assumption when sustained deviations are expected. This methodology incorporates a 9% long-term equity return assumption, and a 14% cap. The reversion to the mean methodology was implemented prospectively on January 1, 2011.

Prior to January 1, 2011, the Company utilized a static long-term equity return assumption for projecting account balance growth in all future years. This return assumption was reviewed annually or more frequently, if deemed necessary. Actual returns that were higher than long-term expectations produced higher contract owner account balances, which increased future fee expectations resulting in higher expected gross profits. The opposite result occurred when returns were lower than long-term expectations.

Other significant assumptions include estimated policyholder behavior assumptions, such as surrender, lapse, and annuitization rates. Estimated gross profits of variable annuity contracts are sensitive to these assumptions.

Contract owners may periodically exchange one contract for another, or make modifications to an existing contract. These transactions are identified as internal replacements. Internal replacements that are determined to result in substantially unchanged contracts are accounted for as continuations of the replaced contracts. Any costs associated with the issuance of the new contracts are considered maintenance costs and expensed as incurred. Unamortized DAC and VOBA related to the replaced contracts continue to be deferred and amortized in connection with the new contracts. Internal replacements that are determined to result in contracts that are substantially changed are accounted for as extinguishments of the replaced contracts, and any unamortized DAC and VOBA related to the replaced contracts are written off to Net amortization of deferred policy acquisition costs and value of business acquired in the Consolidated Statements of Operations.

Future Policy Benefits and Contract Owner Accounts

Reserves

The Company establishes and carries actuarially-determined reserves that are calculated to meet its future obligations under its variable annuity and fixed annuity products. The principal assumptions used to establish liabilities for future policy benefits are based on Company experience and periodically reviewed against industry standards. These assumptions include mortality, morbidity, policy lapse, renewal, retirement, investment returns, inflation, and expenses. Changes in, or deviations from, the assumptions used can significantly affect the Company's reserve levels and related future operations.

Reserves for individual immediate annuities with life contingent payout benefits are equal to the present value of expected future payments. Assumptions as to interest rates, mortality, and expenses are based upon the Company's experience at the period the policy is sold, including a margin for adverse deviation. Such assumptions generally vary by annuity plan type, year of issue, and policy duration. Interest rates used to calculate the present value of future benefits ranged from 4.5% to 6.0%.

Although assumptions are “locked-in” upon the issuance of immediate annuities with life contingent payout benefits, significant changes in experience or assumptions may require the Company to provide for expected future losses on a product by establishing premium deficiency reserves. Premium deficiency reserves are determined based on best estimate assumptions that exist at the time the premium deficiency reserve is established and do not include a margin for adverse deviations. Reserves are recorded in Future policy benefits on the Consolidated Balance Sheets.

Contract Owner Accounts

Contract owner account balances relate to investment-type contracts.

Account balances for individual and group deferred annuity investment contracts and individual immediate annuities without life contingent payouts are equal to cumulative deposits, less charges and withdrawals, plus credited interest thereon. Credited interest rates vary by product and ranged from 0.0% to 7.0% for the years 2011, 2010, and 2009.

Guarantees

The Company records reserves for product guarantees, which can be either assets or liabilities, for annuity contracts containing guaranteed credited rates. The guarantee is treated as an embedded derivative or a stand-alone derivative (depending on the underlying product) and is reported at fair value.

Reserves for guaranteed minimum death benefits (“GMDB”) on certain variable annuities are determined by estimating the value of expected benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. Expected experience is based on a range of scenarios. Assumptions used, such as near-term and long-term equity market return, lapse rate, and mortality, are consistent with assumptions used in estimating gross profits for purposes of amortizing DAC, and, thus, are subject to the same variability and risk. The assumptions of investment performance and volatility are consistent with the historical experience of the appropriate underlying equity index, such as the Standard & Poor's (“S&P”) 500 Index. The Company periodically evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised.

Products with guaranteed credited rates treat the guarantee as an embedded derivative for Stabilizer products and a stand-alone derivative for Managed custody guarantee (“MCG”) products. These derivatives are measured at estimated fair value with changes in estimated fair value reported in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

The estimated fair value of the Stabilizer and MCG contracts is determined based on the present value of projected future claims, minus the present value of future guaranteed premiums. At inception of the contract the Company projects a guaranteed premium to be equal to the present value of the projected future claims. The income associated with the contracts is projected using actuarial and capital market assumptions, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of risk neutral scenarios and other best estimate assumptions. Explicit risk margins are included, as well as an explicit recognition of all nonperformance risks. Nonperformance risk for product guarantees contains adjustments to the fair values of these contract liabilities related to the current credit standing of ING Insurance and the Company based on the credit default swaps with similar term to maturity and priority of payment. The ING Insurance credit default spread is applied to the discount factors for product guarantees in the Company's valuation model in order to incorporate credit risk into the fair values of these product guarantees.

See the Additional Insurance Benefits and Minimum Guarantees note to these Consolidated Financial Statements for more information.

Separate Accounts

Separate account assets and liabilities generally represent funds maintained to meet specific investment objectives of contract owners who bear the investment risk, subject, in limited cases, to certain minimum guarantees. Investment income and investment gains and losses generally accrue directly to such contract owners. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company or its affiliates.

Separate account assets supporting variable options under variable annuity contracts are invested, as designated by the contract owner or participant (who bears the investment risk subject, in limited cases, to minimum guaranteed rates) under a contract, in shares of mutual funds that are managed by the Company or its affiliates, or in other selected mutual funds not managed by the Company or its affiliates.

The Company reports separately, as assets and liabilities, investments held in the separate accounts and liabilities of separate accounts if:

Such separate accounts are legally recognized;
Assets supporting the contract liabilities are legally insulated from the Company's general account liabilities;
Investments are directed by the contract holder; and
All investment performance, net of contract fees and assessments, is passed through to the contract holder.

The Company reports separate account assets and liabilities that meet the above criteria at fair value on the Consolidated Balance Sheets based on the fair value of the underlying investments. Investment income and net realized and unrealized capital gains (losses) of the separate accounts, however, are not reflected in the Consolidated Statements of Operations. The Consolidated Statements of Cash Flows do not reflect investment activity of the separate accounts.

Repurchase Agreements

The Company engages in dollar repurchase agreements with mortgage-backed securities (“dollar rolls”) and repurchase agreements with other collateral types to increase its return on investments and improve liquidity. Such arrangements meet the requirements to be accounted for as financing arrangements. The Company enters into dollar roll transactions by selling existing mortgage-backed securities and concurrently entering into an agreement to repurchase similar securities within a short time frame at a lower price. Under repurchase agreements, the Company borrows cash from a counterparty at an agreed upon interest rate for an agreed upon time frame and pledges collateral in the form of securities. At the end of the agreement, the counterparty returns the collateral to the Company, and the Company, in turn, repays the loan amount along with the additional agreed upon interest. Company policy requires that at all times during the term of the dollar roll and repurchase agreements that cash or other collateral types obtained is sufficient to allow the Company to fund substantially all of the cost of purchasing replacement assets. Cash received is invested in short-term investments, with the offsetting obligation to repay the loan included as a liability on the Consolidated Balance Sheets.

The carrying value of the securities pledged in dollar rolls and repurchase agreement transactions and the related repurchase obligation are included in Securities pledged and Short-term debt, respectively, on the Consolidated Balance Sheets. As of December 31, 2011 and 2010, the carrying value of the securities pledged in dollar rolls and repurchase agreement transactions, the related repurchase obligation, including accrued interest, and the collateral posted by the counterparty in connection with the change in the value of pledged securities that will be released upon settlement, were as follows.


	2011	2010
Securities pledged	$ —	$216.7
Repurchase obligation	—	214.5
Collateral	—	—

The Company also enters into reverse repurchase agreements. These transactions involve a purchase of securities and an agreement to sell substantially the same securities as those purchased. Company policy requires that, at all times during the term of the reverse repurchase agreements, cash or other collateral types provided is sufficient to allow the counterparty to fund substantially all of the cost of purchasing replacement assets. As of December 31, 2011 and 2010, the Company did not have any securities pledged under reverse repurchase agreements.

The primary risk associated with short-term collateralized borrowings is that the counterparty will be unable to perform under the terms of the contract. The Company's exposure is limited to the excess of the net replacement cost of the securities over the value of the short-term investments. The Company believes the counterparties to the dollar rolls, repurchase, and reverse repurchase agreements are financially responsible and that the counterparty risk is minimal.

Recognition of Insurance Revenue and Related Benefits

For most annuity contracts, charges assessed against contract owner funds for the cost of insurance, surrenders, expenses, and other fees are recorded as revenue as charges are assessed. Other amounts received for these contracts are reflected as deposits and are not recorded as premiums or revenue. When annuity payments with life contingencies begin under contracts that were initially investment contracts, the accumulated balance in the account is treated as a single premium for the purchase of an annuity and reflected in both Premiums and Interest credited and other benefits to contract owners in the consolidated Statements of Operations.

Premiums on the Consolidated Statements of Operations primarily represent amounts received for immediate annuities with life contingent payouts. Premiums, benefits, and expenses are presented net of reinsurance ceded to other companies.

Income Taxes

The Company's deferred tax assets and liabilities resulting from temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.

The results of the Company's operations are included in the consolidated tax return of ING AIH. Generally, the Company's consolidated financial statements recognize the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods pursuant to the provisions of Accounting Standards Codification topic 740, Income Taxes (ASC 740) as if the Company were a separate taxpayer rather than a member of ING AIH's consolidated income tax return group with the exception of any net operating loss carryforwards and capital loss carryforwards, which are recorded pursuant to the tax sharing agreement. The Company's tax sharing agreement with ING AIH states that for each taxable year during which the Company is included in a consolidated federal income tax return with ING AIH will pay to the Company an amount equal to the tax benefit of the Company's net operating loss carryforwards and capital loss carryforwards generated in such year, without regard to whether such net operating loss carryforwards and capital loss carryforwards are actually utilized in the reduction of the consolidated federal income tax liability for any consolidated taxable year.

The Company evaluates and tests the recoverability of its deferred tax assets. Deferred tax assets represent the tax benefit of future deductible temporary differences and operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, the Company considers many factors, including:

The nature and character of the deferred tax assets and liabilities;
Taxable income in prior carryback years;
Projected future taxable income, exclusive of reversing temporary differences and carryforwards;
Projected future reversals of existing temporary differences;
The length of time carryforwards can be utilized; and
Any prudent and feasible tax planning strategies the Company would employ to avoid a tax benefit from expiring unused.

Management uses certain assumptions and estimates in determining the income taxes payable or refundable to/from the Parent for the current year, the deferred income tax liabilities and assets for items recognized differently in its financial statements from amounts shown on its income tax returns, and the federal income tax expense. Determining these amounts requires analysis and interpretation of current tax laws and regulations, including the loss limitation rules associated with change in control. Management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change.

The Company determines whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority before any part of the benefit can be recognized in the financial statements. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in the Consolidated Financial Statements. The Company measures the tax position as the largest amount that is greater than 50% likely of being realized upon ultimate resolution with the tax authority that has full knowledge of all relevant information.

Reinsurance

The Company utilizes reinsurance agreements to reduce its exposure to losses from GMDBs in its annuity insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as the direct insurer of the risks reinsured.

The Company has a significant concentration of reinsurance arising from the disposition of its individual life insurance business. In 1998, the Company entered into an indemnity reinsurance agreement with a subsidiary of Lincoln National Corporation (“Lincoln”). The Lincoln subsidiary established a trust to secure it obligations to the Company under the reinsurance transaction. Of the Reinsurance recoverable on the Consolidated Balance Sheets, $2.2 billion and $2.3 billion at December 31, 2011 and 2010, respectively, equal the Company's total individual life reserves and are related to the reinsurance recoverable from the subsidiary of Lincoln under this reinsurance agreement. Individual life reserves are included in Future policy benefits and claims reserves on the Consolidated Balance Sheets.

Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance. The Company also evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverable balances deemed probable of recovery are recognized as assets on the Company's Consolidated Balance Sheets.

Contingencies

A loss contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Examples of loss contingencies include pending or threatened adverse litigation, threat of expropriation of assets, and actual or possible claims and assessments. Amounts related to loss contingencies are accrued if it is probable that a loss has been incurred and the amount can be reasonably estimated, based on the Company's best estimate of the ultimate outcome. If determined to meet the criteria for a reserve, the Company also evaluates whether there are external legal or other costs directly associated with the resolution of the matter and accrues such costs if estimable.

Adoption of New Pronouncements

Financial Instruments

A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-02, “Receivables (Accounting Standards Codification^TM(“ASC”) Topic 310): A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring” (“ASU 2011-02”), which clarifies the guidance on a creditor's evaluation of whether it has granted a concession and whether the debtor is experiencing financial difficulties, as follows:

If a debtor does not have access to funds at a market rate for similar debt, the restructuring would be considered to be at a below-market rate;
An increase in the contractual interest rate does not preclude the restructuring from being considered a concession, as the new rate could still be below the market interest rate;
A restructuring that results in a delay in payment that is insignificant is not a concession;
A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debt without the modification to determine if the debtor is experiencing financial difficulties; and
A creditor is precluded from using the effective interest rate test.

Also, ASU 2011-02 requires disclosure of the information required in ASU 2010-20 about troubled debt restructuring, which was previously deferred by ASU 2011-01.

The provisions of ASU 2011-02 were adopted by the Company on July 1, 2011, and applied retrospectively to January 1, 2011. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, or cash flows for the year ended December 31, 2011, as there were no troubled debt restructurings during that period.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

In July 2010, the FASB issued ASU 2010-20, “Receivables (ASC Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”), which requires certain existing disclosures to be disaggregated by class of financing receivable, including the rollforward of the allowance for credit losses, with the ending balance further disaggregated on the basis of impairment method. For each disaggregated ending balance, an entity also is required to disclose the related recorded investment in financing receivables, the nonaccrual status of financing receivables, and impaired financing receivables.

ASU 2010-20 also requires new disclosures by class of financing receivable, including credit quality indicators, aging of past due amounts, the nature and extent of troubled debt restructurings and related defaults, and significant purchases and sales of financing receivables disaggregated by portfolio segment.

In January 2011, the FASB issued ASU 2011-01, which temporarily delayed the effective date of the disclosures about troubled debt restructurings in ASU 2010-20.

The provisions of ASU 2010-20 were adopted by the Company on December 31, 2010, and are included in the Financial Instruments note to these Consolidated Financial Statements, except for the disclosures about troubled debt restructurings included in ASU 2011-02, which was adopted by the Company on July 1, 2011 (see above). The disclosures that include information for activity that occurs during a reporting period were adopted by the Company on January 1, 2011 and are included in the Financial Instruments note to these Consolidated Financial Statements. As this pronouncement only pertains to additional disclosure, the adoption had no effect on the Company's financial condition, results of operations, or cash flows.

Scope Exception Related to Embedded Credit Derivatives

In March 2010, the FASB issued ASU 2010-11, “Derivatives and Hedging (ASC Topic 815): Scope Exception Related to Embedded Credit Derivatives” (“ASU 2010-11”), which clarifies that the only type of embedded credit derivatives that are exempt from bifurcation requirements are those that relate to the subordination of one financial instrument to another.

The provisions of ASU 2010-11 were adopted by the Company on July 1, 2010. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, or cash flows upon adoption, as the guidance is consistent with that previously applied.

Improvements to Financial Reporting by Enterprises Involved in Variable Interest Entities

In December 2009, the FASB issued ASU 2009-17, “Consolidations (ASC Topic 810): Improvements to Financial Reporting by Enterprises Involved in Variable Interest Entities,” (“ASU 2009-17”), which eliminates the exemption for qualifying special-purpose entities (“QSPEs”), as well as amends the consolidation guidance for variable interest entities (“VIEs”), as follows:

Removes the quantitative-based assessment for consolidation of VIEs and, instead, requires a qualitative assessment of whether an entity has the power to direct the VIE's activities, and whether the entity has the obligation to absorb losses or the right to receive benefits that could be significant to the VIE;
Requires an ongoing reassessment of whether an entity is the primary beneficiary of a VIE; and
Requires enhanced disclosures, including (i) presentation on the balance sheet of assets and liabilities of consolidated VIEs that meet the separate presentation criteria and disclosure of assets and liabilities recognized on the balance sheet and (ii) the maximum exposure to loss for those VIEs in which a reporting entity is determined not to be the primary beneficiary, but in which the reporting entity has a variable interest.

In addition, in February 2010, the FASB issued ASU 2010-10, “Consolidation (ASC Topic 810): Amendments for Certain Investment Funds” (ASU 2010-10), which defers to ASU 2009-17 for reporting entity's interests in certain investment funds that have attributes of investment companies, for which the reporting entity does not have an obligation to fund losses, and that are not structured as securitization entities.

The provisions of ASU 2009-17 and ASU 2010-10 were adopted on January 1, 2010. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, or cash flows upon adoption, as the consolidation conclusions were consistent with those under previous U.S. GAAP. The disclosure provisions required by ASU 2009-17 are presented in the Financial Instruments note to these Consolidated Financial Statements.

Recognition and Presentation of Other-than-temporary Impairments

In April 2009, the FASB issued new guidance on recognition and presentation of OTTIs, included in ASC Topic 320, “Investments-Debt and Equity Securities”, which requires:

Noncredit related impairments to be recognized in Other comprehensive income (loss), if management asserts that it does not have the intent to sell the security and that it is more likely than not that the entity will not have to sell the security before recovery of the amortized cost basis;
Total OTTIs to be presented in the Consolidated Statements of Operations with an offset recognized in AOCI for the noncredit related impairments;
A cumulative effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized OTTI from Retained earnings (deficit) to AOCI; and
Additional interim disclosures for debt and equity securities regarding types of securities held, unrealized losses, and OTTIs.

These provisions, as included in ASC Topic 320, were adopted by the Company on April 1, 2009. As a result of implementation, the Company recognized a cumulative effect of change in accounting principle of $176.6 after considering the effects of DAC and income taxes of $(95.7) and $33.5, respectively, as an increase to April 1, 2009 Retained earnings (deficit) with a corresponding decrease to AOCI, with no overall change to shareholder's equity. See the Investments note to these Consolidated Financial Statements for further information on the Company's OTTIs, including additional required disclosures.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued new guidance on disclosures about derivative instruments and hedging activities, included in ASC Topic 815, “Derivatives and Hedging”, which requires enhanced disclosures about objectives and strategies for using derivatives, fair value amounts of, and gains and losses on, derivative instruments, and credit-risk-related contingent features in derivative agreements, including:

How and why derivative instruments are used;
How derivative instruments and related hedged items are accounted for; and
How derivative instruments and related hedged items affect an entity's financial statements.

These provisions, as included in ASC Topic 815, were adopted by the Company on January 1, 2009, and are included in the “Derivative Financial Instruments” section above and the Fair Value Measurements note to these Consolidated Financial Statements. As the pronouncement only pertains to additional disclosure, the adoption had no effect on the Company's financial condition, results of operations, or cash flows.

Accounting for Transfers of Financial Assets

In December 2009, the FASB issued ASU 2009-16 “Transfers and Servicing (ASC Topic 860): Accounting for Transfers of Financial Assets” (“ASU 2009-16”), which eliminates the QSPE concept and requires a transferor of financial assets to:

Consider the transferor's continuing involvement in assets, limiting the circumstances in which a financial asset should be derecognized when the transferor has not transferred the entire asset to an entity that is not consolidated;
Account for the transfer as a sale only if an entity transfers an entire financial asset and surrenders control, unless the transfer meets the conditions for a participating interest; and
Recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of financial assets accounted for as a sale.

The provisions of ASU 2009-16 were adopted on January 1, 2010. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, or cash flows upon adoption, as the Company did not have any QSPEs under previous U.S. GAAP, and the requirements for sale accounting treatment are consistent with those previously applied by the Company.

Business Combinations and Non-controlling Interests

Disclosure of Supplementary Pro Forma Information for Business Combinations
In December 2010, the FASB issued ASU 2010-29, “Business Combinations (ASC Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”), which clarifies that if an entity presents comparative financial statements, it should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. Also, ASU 2010-29 expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and earnings.

The provisions of ASU 2010-29 were adopted by the Company on January 1, 2011 for business combinations occurring on or after that date. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, cash flows, or disclosures for the year ended December 31, 2011, as there were no business combinations during the period.

Accounting and Reporting for Decreases in Ownership of a Subsidiary
In January 2010, the FASB issued ASU 2010-02 “Consolidations (ASC Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification,” (“ASU 2010-02”), which clarifies that the scope of the decrease in ownership provisions applies to the following:

A subsidiary or group of assets that is a business or nonprofit activity;
A subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; and
An exchange of a group of assets that constitutes a business or nonprofit activity for a noncontrolling interest in an entity (including an equity method investee or joint venture).

ASU 2010-02 also notes that the decrease in ownership guidance does not apply to sales of in substance real estate and expands disclosure requirements.

The provisions of ASU 2010-02 were adopted, retrospectively, by the Company on January 1, 2010. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, or cash flows for the years ended December 31, 2011, 2010, and 2009, as there were no decreases in ownership of a subsidiary during those periods.

Fair Value

Improving Disclosures about Fair Value Measurements

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosure (ASC Topic 820): Improving Disclosures about Fair Value Measurements,” (“ASU 2010-06”), which requires several new disclosures, as well as clarification to existing disclosures, as follows:

Significant transfers in and out of Level 1 and Level 2 fair value measurements and the reason for the transfers;
Purchases, sales, issuances, and settlement, in the Level 3 fair value measurements reconciliation on a gross basis;
Fair value measurement disclosures for each class of assets and liabilities (i.e., disaggregated); and
Valuation techniques and inputs for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair value measurements.

The provisions of ASU 2010-06 were adopted by the Company on January 1, 2010, except for the disclosures related to the Level 3 reconciliation, which were adopted by the Company on January 1, 2011. The disclosures required by ASU 2010-06 are included in the Financial Instruments note to these Consolidated Financial Statements. As the pronouncement only pertains to additional disclosure, the adoption had no effect on the Company's financial condition, results of operations, or cash flows.

Measuring the Fair Value of Certain Alternative Investments

In September 2009, the FASB issued ASU 2009-12, “Fair Value Measurements and Disclosures (ASC Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2009-12”), which allows the use of net asset value to estimate the fair value of certain alternative investments, such as interests in hedge funds, private equity funds, real estate funds, venture capital funds, offshore fund vehicles, and funds of funds. In addition, ASU 2009-12 requires disclosures about the attributes of such investments.

The provisions of ASU 2009-12 were adopted by the Company on December 31, 2009. The Company determined, however, that there was no effect on the Company's financial condition, results of operations, or cash flows upon adoption, as its guidance is consistent with that previously applied by the Company. The disclosure provisions required by ASU 2009-12 are presented in the Investments note to these Consolidated Financial Statements.

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued new guidance on interim disclosures about fair value of financial instruments, included in ASC Topic 825, “Financial Instruments”, which requires that the fair value of financial instruments be disclosed in an entity's interim financial statements, as well as in annual financial statements. The provisions included in ASC Topic 825 also require that fair value information be presented with the related carrying value and that the method and significant assumptions used to estimate fair value, as well as changes in method and significant assumptions, be disclosed.

These provisions, as included in ASC Topic 825, were adopted by the Company on April 1, 2009, and are presented in the Fair Value Measurements note to these Consolidated Financial Statements. The adoption had no effect on the Company's financial condition, results of operations, or cash flows, as the pronouncement only pertains to additional disclosure.

Other Pronouncements

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which states that an entity has the option to present total comprehensive income and the components of net income and other comprehensive income either in a single, continuous statement of comprehensive income or in two separate, consecutive statements.

In December 2011, the FASB issued ASU 2011-12, which defers the ASU 2011-05 requirements to present, on the face of the financial statements, the effects of reclassification out of AOCI on the components of net income and other comprehensive income.

The Company early adopted provisions of ASU 2011-05 and ASU 2010-12 as of December 31, 2011, and applied the provisions retrospectively. The Consolidated Statement of Comprehensive Income, with corresponding revisions to the Consolidated Statements of Changes in Shareholder's Equity, is included in the Consolidated Financial Statements. In addition, the required disclosures are included in the AOCI note to these Consolidated Financial Statements.

Consolidation Analysis of Investments Held through Separate Accounts

In April 2010, the FASB issued ASU 2010-15, “Financial Services - Insurance ASC Topic 944): How Investments Held through Separate Accounts Affect an Insurer's Consolidation Analysis of Those Investments” (“ASU 2010-15”), which clarifies that an insurance entity generally should not consider any separate account interests in an investment held for the benefit of policyholders to be the insurer's interests, and should not combine those separate account interests with its general account interest in the same investment when assessing the investment for consolidation.

The provisions of ASU 2010-15 were adopted by the Company on January 1, 2011; however, the Company determined that there was no effect on its financial condition, results of operations, or cash flows upon adoption, as the guidance is consistent with that previously applied by the Company.

ING Life Insurance and Annuity Company and Subsidiaries

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

Notes to Consolidated Financial Statements

(Dollar amounts in millions, unless otherwise stated)

Subsequent Events

In May 2009, the FASB issued new guidance on subsequent events, included in ASC Topic 855, “Subsequent Events,” which establishes:

The period after the balance sheet date during which an entity should evaluate events or transactions for potential recognition or disclosure in the financial statements;
The circumstances under which an entity should recognize such events or transactions in its financial statements; and
Disclosures regarding such events or transactions and the date through which an entity has evaluated subsequent events.

These provisions, as included in ASC Topic 855, were adopted by the Company on June 30, 2009. In addition, in February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”, which clarifies that a Securities and Exchange Commission (“SEC”) filer should evaluate subsequent events through the date the financial statements are issued and eliminates the requirement for an SEC filer to disclose that date, effective upon issuance. The Company determined that there was no effect on the Company's financial condition, results of operations, or cash flows upon adoption, as the guidance is consistent with that previously applied by the Company.

Future Adoption of Accounting Pronouncements

Disclosures about Offsetting Assets & Liabilities

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (ASC Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), which requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.

The provisions of ASU 2011-11 are effective, retrospectively, for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual reporting periods. The Company is currently in the process of determining the disclosure impact of adoption of the provisions of ASU 2011-11.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”) In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”), which includes the following amendments:

The concepts of highest and best use and valuation premise are relevant only when measuring the fair value of nonfinancial assets;
The requirements for measuring the fair value of equity instruments are consistent with those for measuring liabilities;
An entity is permitted to measure the fair value of financial instruments managed within a portfolio at the price that would be received to sell or transfer a net position for a particular risk; and
The application of premiums and discounts in a fair value measurement is related to the unit of account for the asset or liability.

ASU 2011-04 also requires additional disclosures, including use of a nonfinancial asset in a way that differs from its highest and best use, categorization by level for items in which fair value is required to be disclosed, and further information regarding Level 3 fair value measurements.

The provisions of ASU 2011-04 are effective during interim or annual periods beginning after December 15, 2011, and should be applied prospectively. As the pronouncement only pertains to additional disclosures, the adoption had no effect on the Company's financial condition, results of operations or cash flows.

Reconsideration of Effective Control for Repurchase Agreements

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (ASC Topic 860): Reconsideration of Effective Control for Repurchase Agreements” (“ASU 2011-03”), which removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, and (2) the collateral maintenance implementation guidance related to that criterion.

The provisions of ASU 2011-03 are effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively. The Company determined, however, that there was no effect on the Company's financial condition, results of operations or cash flows as the policy is consistent with that previously applied by the Company.

2. Investments

Fixed Maturities and Equity Securities

Available-for-sale and fair value option fixed maturities and equity securities were as follows as of December 31, 2011.


	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Derivatives Embedded⁽³⁾		Fair Value		OTTI ⁽²⁾


Fixed maturities:
U.S. Treasuries	$	1,096.6	$	135.0	$	—	$	—	$	1,231.6	$	—
U.S. government agencies
and authorities		379.7		31.0		—		—		410.7		—
State, municipalities, and
political subdivisions		95.1		10.9		—		—		106.0		—
U.S. corporate securities:
Public utilities		1,915.1		198.0		5.8		—		2,107.3		—
Other corporate securities		6,251.8		572.8		25.3		—		6,799.3		—
Total U.S. corporate
securities		8,166.9		770.8		31.1		—		8,906.6		—
Foreign securities⁽¹⁾:
Government		308.5		39.8		3.1		—		345.2		—
Other		4,352.5		328.8		38.4		—		4,642.9		—
Total foreign securities		4,661.0		368.6		41.5		—		4,988.1		—
Residential mortgage-backed
securities:
Agency		1,442.0		218.7		3.4		39.4		1,696.7		0.7
Non-Agency		513.4		66.7		49.5		19.8		550.4		28.8
Total Residential mortgage-
backed securities		1,955.4		285.4		52.9		59.2		2,247.1		29.5
Commercial mortgage-
backed securities		866.1		51.0		5.8		—		911.3		4.4
Other asset-backed securities		441.5		19.4		22.1		—		438.8		4.2

Total fixed maturities,
including securities pledged		17,662.3		1,672.1		153.4		59.2		19,240.2		38.1
Less: securities pledged		572.5		22.4		1.2		—		593.7		—
Total fixed maturities		17,089.8		1,649.7		152.2		59.2		18,646.5		38.1
Equity securities		131.8		13.1		—		—		144.9		—
Total investments	$	17,221.6	$	1,662.8	$	152.2	$	59.2	$	18,791.4	$	38.1

⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾Represents other-than-temporary impairments ("OTTI") reported as a component of Other comprehensive income.
⁽³⁾Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

Available-for-sale and fair value option fixed maturities and equity securities were as follows as of December 31, 2010.


	Amortized Cost		Gross Capital Unrealized Gains		Gross Unrealized Capital Losses		Derivatives Embedded⁽³⁾		Fair Value		OTTI ⁽²⁾


Fixed maturities:
U.S. Treasuries	$	717.0	$	4.7	$	7.3	$	—	$	714.4	$	—
U.S. government agencies
and authorities		536.7		45.9		—		—		582.6		—
State, municipalities, and
political subdivisions		145.9		5.0		10.2		—		140.7		—
U.S. corporate securities:
Public utilities		1,442.0		73.5		13.3		—		1,502.2		—
Other corporate securities		5,380.1		392.0		31.1		—		5,741.0		0.3
Total U.S. corporate
securities		6,822.1		465.5		44.4		—		7,243.2		0.3
Foreign securities⁽¹⁾:
Government		446.3		39.6		5.0		—		480.9		—
Other		4,089.5		240.5		37.4		—		4,292.6		0.1
Total foreign securities		4,535.8		280.1		42.4		—		4,773.5		0.1
Residential mortgage-backed
securities:
Agency		1,419.3		234.6		8.3		36.5		1,682.1		0.8
Non-Agency		696.7		62.3		49.2		17.8		727.6		28.0
Total Residential mortgage-
backed securities		2,116.0		296.9		57.5		54.3		2,409.7		28.8
Commercial mortgage-
backed securities		1,005.6		54.2		30.2		—		1,029.6		14.5
Other asset-backed securities		615.3		16.2		42.7		—		588.8		15.7

Total fixed maturities,
including securities pledged		16,494.4		1,168.5		234.7		54.3		17,482.5		59.4
Less: securities pledged		936.5		35.0		9.3		—		962.2		—
Total fixed maturities		15,557.9		1,133.5		225.4		54.3		16,520.3		59.4
Equity securities		179.6		21.0		—		—		200.6		—
Total investments	$	15,737.5	$	1,154.5	$	225.4	$	54.3	$	16,720.9	$	59.4
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾Represents other-than-temporary impairments ("OTTI") reported as a component of Other comprehensive income.
⁽³⁾Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

The amortized cost and fair value of total fixed maturities, including securities pledged, as of December 31, 2011, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called, or prepaid. MBS and other ABS are shown separately because they are not due at a single maturity date.


		Amortized Cost	Fair Value
Due to mature:
One year or less	$	271.1	$	288.4
After one year through five years		4,147.2		4,375.9
After five years through ten years		5,199.4		5,587.3
After ten years		4,781.6		5,391.4
Mortgage-backed securities		2,821.5		3,158.4
Other asset-backed securities		441.5		438.8
Fixed maturities, including securities pledged	$	17,662.3	$	19,240.2

The Company did not have any investments in a single issuer, other than obligations of the U.S. government and government agencies and the State of the Netherlands (the “Dutch State”) loan obligation, with a carrying value in excess of 10% of the Company's Shareholder's equity at December 31, 2011 and 2010.

At December 31, 2011 and 2010, fixed maturities with fair values of $13.6 and $13.4, respectively, were on deposit as required by regulatory authorities.

The Company invests in various categories of CMOs, including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to dramatic decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. At December 31, 2011 and 2010, approximately 41.1% and 35.5%, respectively, of the Company's CMO holdings were invested in those types of CMOs, such as interest-only or principal only strips, which are subject to more prepayment and extension risk than traditional CMOs.

Certain CMOs, primarily interest-only and principal-only strips, are accounted for as hybrid instruments and valued at fair value with changes in the fair value reported in Other net realized gains (losses) in the Consolidated Statements of Operations.

Transfer of Alt-A RMBS Participation Interest and Related Loan to Dutch State

On January 26, 2009, ING announced it reached an agreement, for itself and on behalf of certain ING affiliates including the Company, with the Dutch State on an Illiquid Assets Back-Up Facility covering 80% of ING's Alt-A RMBS. Refer to the Related Party Transactions note to these Consolidated Financial Statements for further details of these agreements.

Variable Interest Entities

The Company holds certain VIEs for investment purposes. VIEs may be in the form of private placement securities, structured securities, securitization transactions, or limited partnerships. The Company has reviewed each of its holdings and determined that consolidation of these investments in the Company's financial statements is not required, as the Company is not the primary beneficiary, because the Company does not have both the power to direct the activities that most significantly impact the entity's economic performance and the obligation or right to potentially significant losses or benefits, for any of its investments in VIEs. The Company provided no non-contractual financial support and its carrying value represents the Company's exposure to loss. The carrying value of collateralized loan obligations (“CLOs”) of $0.9 and $0.6 at December 31, 2011 and 2010, respectively, is included in Limited partnerships/corporations on the Consolidated Balance Sheets. Income and losses recognized on these investments are reported in Net investment income on the Consolidated Statements of Operations.

Securitizations

The Company invests in various tranches of securitization entities, including RMBS, CMBS and ABS. Some RMBS investments are in various senior level tranches of mortgage securitizations issued and guaranteed by Fannie Mae, Freddie Mac, or a similar government-sponsored entity, typically referred to as “agency pass-through” investments. These securitizations pool residential mortgages and pass through the principal and interest to investors based on the terms of each tranche or portion of the total pool. Investments held by the Company in non-agency RMBS and CMBS also include interest-only, principal-only, and inverse floating securities. Through its investments, the Company is not obligated to provide any financial or other support to these entities.

Each of the RMBS, CMBS, and ABS entities described above are thinly capitalized by design, and considered VIEs under ASC 810-10-25 as amended by ASU 2009-17. As discussed above, the Company's involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer, or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor does the Company function in any of these roles. The Company through its investments or other arrangements does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, the Company is not the primary beneficiary and will not consolidate any of the RMBS, CMBS, and ABS entities in which it holds investments. These investments are accounted for as investments as described in the Business, Basis of Presentation and Significant Accounting Policies note to these Consolidated Financial Statements.

Fixed Maturity Securities Credit Quality - Ratings

The Securities Valuation Office ("SVO") of the National Association of Insurance Commissioners (“NAIC”) evaluates the fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” An internally developed rating is used as permitted by the NAIC if no rating is available. The NAIC designations are generally similar to the credit quality designations of a Nationally Recognized Statistical Rating Organization (“NRSRO”) for marketable fixed maturity securities, called “rating agency designations,” except for certain structured securities as described below. NAIC designations of "1," highest quality, and "2," high quality, include fixed maturity securities generally considered investment grade (“IG”) by such rating organizations. NAIC designations 3 through 6 include fixed maturity securities generally considered below investment grade (“BIG”) by such rating organizations.

The NAIC adopted revised designation methodologies for non agency RMBS, including RMBS backed by subprime mortgage loans reported within ABS, that became effective December 31, 2009 and for CMBS that became effective December 31, 2010. The NAIC's objective with the revised designation methodologies for these structured securities was to increase the accuracy in assessing expected losses, and to use the improved assessment to determine a more appropriate capital requirement for such structured securities. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from such structured securities.

As a result of time lags between the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date, such as private placements. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.

Information about the Company's fixed maturity securities holdings, including securities pledged, by NAIC designations is set forth in the following tables. Corresponding rating agency designation does not directly translate into NAIC designation, but represents the Company's best estimate of comparable ratings from rating agencies, including Moody's, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.

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. Ratings are derived from three NRSRO ratings and are applied as follows based on the number of agency rating received:

when three ratings are received then the middle rating is applied;
when two ratings are received then the lower rating is applied;
when a single rating is received, the NRSRO rating is applied;
and, when ratings are unavailable then an internal rating is applied.

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, for IG and BIG securities by duration, based on NAIC designations, were as follows at December 31, 2011 and 2010.


	2011						2010
			% of IG			% of IG			% of IG			% of IG
		IG	and BIG	BIG		and BIG	IG		and BIG	BIG		and BIG
Six months or less below
amortized cost	$	38.4	25.0%	$	7.1	4.6%	$	72.0	30.6%	$	12.6	5.4	%
More than six months
and twelve months or
less below amortized
cost		12.5	8.1%		4.1	2.7%		0.9	0.4%		1.1	0.5	%
More than twelve
months below amortized
cost		61.4	40.1%		29.9	19.5%		106.5	45.4%		41.6	17.7	%
Total unrealized capital
loss	$	112.3	73.2%	$	41.1	26.8%	$	179.4	76.4%	$	55.3	23.6	%

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, for securities rated BBB and above (Investment Grade (“IG”)) and securities rated BB and below (Below Investment Grade (“BIG”)) by duration, based on NRSRO ratings, were as follows at December 31, 2011 and 2010.


	2011						2010
			% of IG			% of IG			% of IG				% of IG
	IG		and BIG		BIG	and BIG		IG	and BIG		BIG		and BIG
Six months or less below
amortized cost	$	38.3	25.0%	$	7.2	4.7%	$	72.0	30.6	%	$	12.6	5.4	%
More than six months
and twelve months or
less below amortized
cost		6.8	4.4%		9.8	6.4%		1.6	0.7	%		0.4	0.2	%
More than twelve
months below amortized
cost		42.1	27.4%		49.2	32.1%		70.9	30.2	%		77.2	32.9	%
Total unrealized capital
loss	$	87.2	56.8%	$	66.2	43.2%	$	144.5	61.5	%	$	90.2	38.5	%

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturities, including securities pledged to creditors, by market sector and duration were as follows as of December 31, 2011 and 2010.


	Six Months or Less Below Amortized Cost				More Than Six Months and Twelve Months or Less Below Amortized Cost				More Than Twelve Months Below Amortized Cost				Total



		Fair	Unrealized			Fair	Unrealized			Fair	Unrealized			Fair	Unrealized
		Value	Capital Loss			Value	Capital Loss			Value	Capital Loss			Value	Capital Loss
2011
U.S. Treasuries	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
U.S. corporate,
state, and
municipalities		595.1		22.8		46.5		3.0		52.9		5.3		694.5		31.1
Foreign		435.3		19.1		49.9		4.6		169.5		17.8		654.7		41.5

Residential
mortgage-backed		49.4		1.6		97.0		5.2		175.4		46.1		321.8		52.9

Commercial
mortgage-backed		28.3		1.8		69.0		2.5		8.9		1.5		106.2		5.8
Other asset-backed		32.6		0.2		4.9		1.3		44.1		20.6		81.6		22.1

Total	$	1,140.7	$	45.5	$	267.3	$	16.6	$	450.8	$	91.3	$	1,858.8	$	153.4

2010
U.S. Treasuries	$	475.6	$	7.3	$	—	$	—	$	—	$	—	$	475.6	$	7.3
U.S. corporate,
state, and
municipalities		1,043.1		38.6		21.8		1.1		142.9		14.9		1,207.8		54.6
Foreign		866.3		30.1		14.9		0.9		101.7		11.4		982.9		42.4

Residential
mortgage-backed		400.5		6.8		0.2		—		240.7		50.7		641.4		57.5

Commercial
mortgage-backed		5.1		—		—		—		184.0		30.2		189.1		30.2
Other asset-backed		121.4		1.8		0.1		—		132.1		40.9		253.6		42.7

Total	$	2,912.0	$	84.6	$	37.0	$	2.0	$	801.4	$	148.1	$	3,750.4	$	234.7

Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 83.2% of the average book value as of December 31, 2011.

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive periods as indicated in the tables below, were as follows for December 31, 2011 and 2010.


	Amortized Cost								Unrealized Capital Loss							Number of Securities
		<	20	%		>	20	%		<	20	%		>	20%	<	20	%	>	20	%
2011
Six months or less below amortized cost	$		1,197.2		$		60.1		$		46.9		$		16.9		256			31
More than six months and twelve months or
less below amortized cost			270.3				25.1				13.9				9.1		52			9
More than twelve months below amortized
cost			355.6				103.9				26.7				39.9		129			37
Total	$		1,823.1		$		189.1		$		87.5		$		65.9		437			77

2010
Six months or less below amortized cost	$		3,190.2		$		68.6		$		98.5		$		22.3		491			19
More than six months and twelve months or
less below amortized cost			129.3				19.6				8.2				4.6		52			3
More than twelve months below amortized
cost			353.5				223.9				23.2				77.9		87			69
Total	$		3,673.0		$		312.1		$		129.9		$		104.8		630			91

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, by market sector for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive periods as indicated in the tables below, were as follows for December 31, 2011 and 2010.


	Amortized Cost								Unrealized Capital Loss								Number of Securities
		<	20	%		>	20	%		<	20	%		>	20	%	<	20	%	>	20	%
2011
U.S. Treasuries	$		—		$		—		$		—		$		—			—			—
U.S. corporate, state and municipalities			717.7				7.9				28.8				2.3			119			3
Foreign			670.5				25.7				31.9				9.6			122			7
Residential mortgage-backed			276.5				98.2				19.0				33.9			119			47
Commercial mortgage-backed			110.1				1.9				5.4				0.4			16			1
Other asset-backed			48.3				55.4				2.4				19.7			61			19
Total	$		1,823.1		$		189.1		$		87.5		$		65.9			437			77

2010
U.S. Treasuries	$		482.9		$		—		$		7.3		$		—			3			—
U.S. corporate, state and municipalities			1,218.7				43.7				40.2				14.4			188			5
Foreign			1,013.7				11.6				39.6				2.8			137			4
Residential mortgage-backed			599.6				99.3				25.7				31.8			160			47
Commercial mortgage-backed			155.1				64.2				9.5				20.7			19			5
Other asset-backed			203.0				93.3				7.6				35.1			123			30
Total	$		3,673.0		$		312.1		$		129.9		$		104.8			630			91

At December 31, 2011, the Company held no fixed maturity with an unrealized capital loss in excess of $10.0. At December 31, 2010, the Company held 1 fixed maturity with an unrealized capital loss in excess of $10.0. The unrealized capital loss on this fixed maturity equaled $10.0, or 4.3% of the total unrealized capital losses, as of December 31, 2010.

All investments with fair values less than amortized cost are included in the Company's other-than-temporary impairment analysis, and impairments were recognized as disclosed in OTTI, which follows this section. After detailed impairment analysis was completed, management determined that the remaining investments in an unrealized loss position were not other-than-temporarily impaired, and therefore no further other-than-temporary impairment was necessary.

Other-Than-Temporary Impairments

The following tables identify the Company's credit-related and intent-related impairments included in the Consolidated Statements of Operations, excluding noncredit impairments included in AOCI, by type for the years ended December 31, 2011, 2010, and 2009.


	2011			2010				2009
			No of				No. of			No. of
		Impairment	Securities		Impairment		Securities		Impairment	Securities
U.S. Treasuries	$	—	—	$	1.7		1	$	156.0	15
Public utilities		—	—		1.3		5		—	—
Other U.S. corporate		20.4	17		5.3		19		47.8	57
Foreign⁽¹⁾		27.8	50		42.4		20		50.6	42

Residential mortgage-backed		8.2	38		14.8		53		31.6	69
Commercial mortgage-
backed		28.2	8		20.5		8		17.7	11
Other asset-backed		22.7	53		58.5		42		43.4	32
Limited partnerships		—	—		1.6		4		17.6	17
Equity securities		—	—		—	*	1		19.5	9

Mortgage loans on real estate		—	—		1.0		1		10.3	4
Total	$	107.3	166	$	147.1		154	$	394.5	256

*	Less than $0.1.
⁽¹⁾	Primarily U.S. dollar denominated.

The above tables include $17.6, $48.4, and $112.2 for the years ended December 31, 2011, 2010, and 2009, respectively, in other-than-temporary write-downs related to credit impairments, which are recognized in earnings. The remaining $89.7, $98.7, and $282.3, in write-downs for the years ended December 31, 2011, 2010, and 2009, respectively, are related to intent impairments.

The following tables summarize these intent impairments, which are also recognized in earnings, by type for the years ended December 31, 2011, 2010, and 2009.


		2011		2010			2009
			No. of			No. of			No. of
	Impairment		Securities		Impairment	Securities		Impairment	Securities
U.S. Treasuries	$	—	—	$	1.7	1	$	156.0	15
Public utilities		—	—		1.4	5		—	—
Other U.S. corporate		20.4	17		5.3	19		35.9	42
Foreign⁽¹⁾		23.7	46		28.5	15		48.7	41

Residential mortgage-backed		1.6	7		8.6	18		2.4	1
Commercial mortgage-
backed		22.9	8		16.2	6		17.7	11
Other asset-backed		21.1	50		37.0	26		21.6	10
Total	$	89.7	128	$	98.7	90	$	282.3	120
⁽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 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.

The fair value of fixed maturities with other-than-temporary impairments as of December 31, 2011, 2010, and 2009 was $1.9 billion, $2.0 billion, and $3.0 billion, respectively.

The following tables identify the amount of credit impairments on fixed maturities for the years ended December 31, 2011, 2010, and 2009, for which a portion of the OTTI was recognized in AOCI, and the corresponding changes in such amounts.


	2011				2010				2009
Balance at January 1	$	50.7		$		46.0		$		—
Implementation of OTTI guidance included in ASC Topic 320⁽¹⁾		—				—				25.1
Additional credit impairments:
On securities not previously impaired		0.9				12.0				13.6
On securities previously impaired		6.7				11.7				8.8
Reductions:
Intent Impairments		(8.7	)			(5.9	)			—
Securities sold, matured, prepaid or paid down		(30.2	)			(13.1	)			(1.5	)
Balance at December 31	$	19.4		$		50.7		$		46.0

⁽¹⁾Represents credit losses remaining in Retained earnings related to the adoption of new guidance on OTTI, included in ASC Topic 320, on April 1, 2009.

Net Investment Income

Sources of Net investment income were as follows for the years ended December 31, 2011, 2010, and 2009.


		2011		2010		2009
Fixed maturities	$	1,224.2	$	1,182.4	$	1,125.7
Equity securities, available-for-sale		13.6		15.3		15.4
Mortgage loans on real estate		118.1		104.0		113.4
Real estate		—		—		6.6
Policy loans		13.7		13.3		13.7
Short-term investments and cash equivalents		0.8		0.8		2.4
Limited partnerships/corporations		84.2		56.4		(7.2	)
Other		11.3		11.6		11.9
Gross investment income		1,465.9		1,383.8		1,281.9
Less: investment expenses		45.0		41.5		39.8
Net investment income	$	1,420.9	$	1,342.3	$	1,242.1

Net Realized Capital Gains (Losses)

Net realized capital gains (losses) are comprised of the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to credit-related and intent-related other-than-temporary impairment of investments and changes in fair value of fixed maturities accounted for using the fair value option and derivatives. The cost of the investments on disposal is generally determined based on first-in-first-out (“FIFO”) methodology. Net realized capital gains (losses) on investments were as follows for the years ended December 31, 2011, 2010, and 2009.


	2011			2010			2009
Fixed maturities, available-for-sale, including securities pledged	$	112.6		$	38.7		$	(15.1	)
Fixed maturities, at fair value using the fair value option		(60.6	)		(39.2	)		57.0
Equity securities, available-for-sale		7.4			4.1			(2.9	)
Derivatives		(64.3	)		(44.6	)		(190.2	)
Embedded Derivatives - fixed maturities		4.9			8.0			(77.4	)
Embedded Derivatives - product guarantees		(216.1	)		9.3			219.4
Other investments		0.3			4.9			(16.9	)
Net realized capital gains (losses)	$	(215.8	)	$	(18.8	)	$	(26.1	)
After-tax net realized capital gains (losses)	$	(53.3	)	$	1.5		$	75.2

Proceeds from the sale of fixed maturities and equity securities and the related gross realized gains and losses were as follows for the periods ended December 31, 2011, 2010, and 2009.


		2011		2010		2009
Proceeds on sales	$	5,596.3	$	5,312.9	$	4,674.6
Gross gains		249.0		213.6		228.5
Gross losses		33.6		27.8		87.4

3. Financial Instruments

The following tables present the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010.


				2011
		Level 1		Level 2		Level 3⁽¹⁾		Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	1,180.3	$	51.3	$	—	$	1,231.6
U.S. government agencies and authorities		—		410.7		—		410.7
U.S. corporate, state and municipalities		—		8,883.5		129.1		9,012.6
Foreign		—		4,937.0		51.1		4,988.1
Residential mortgage-backed securities		—		2,206.1		41.0		2,247.1
Commercial mortgage-backed securities		—		911.3		—		911.3
Other asset-backed securities		—		411.1		27.7		438.8
Equity securities, available-for-sale		125.9		—		19.0		144.9
Derivatives:
Interest rate contracts		5.7		437.6		—		443.3
Foreign exchange contracts		—		0.7		—		0.7
Credit contracts		—		2.6		—		2.6

Cash and cash equivalents, short-term investments, and
short-term investments under securities loan agreement		953.9		4.8		—		958.7
Assets held in separate accounts		40,556.8		4,722.3		16.1		45,295.2
Total	$	42,822.6	$	22,979.0	$	284.0	$	66,085.6

Liabilities:
Product guarantees	$	—	$	—	$	221.0	$	221.0
Fixed Indexed Annuities		—		—		16.3		16.3
Derivatives:
Interest rate contracts		—		306.4		—		306.4
Foreign exchange contracts		—		32.4		—		32.4
Credit contracts		—		8.6		12.6		21.2
Total	$	—	$	347.4	$	249.9	$	597.3

⁽¹⁾Level 3 net assets and liabilities accounted for 0.1% of total net assets and liabilities measured at fair value on a recurring basis. Excluding separate accounts assets for which the policyholder bears the risk, the Level 3 net assets and liabilities in relation to total net assets and liabilities measured at fair value on a recurring basis totaled 0.1%.


				2010
		Level 1		Level 2		Level 3⁽¹⁾		Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	646.1	$	68.3	$	—	$	714.4
U.S. government agencies and authorities		—		582.6		—		582.6
U.S. corporate, state and municipalities		—		7,372.7		11.2		7,383.9
Foreign		—		4,762.1		11.4		4,773.5
Residential mortgage-backed securities		—		2,155.0		254.7		2,409.7
Commercial mortgage-backed securities		—		1,029.6		—		1,029.6
Other asset-backed securities		—		341.1		247.7		588.8
Equity securities, available-for-sale		172.9		—		27.7		200.6
Derivatives:
Interest rate contracts		3.5		169.0		—		172.5
Foreign exchange contracts		—		0.7		—		0.7
Credit contracts		—		6.7		—		6.7

Cash and cash equivalents, short-term investments, and
short-term investments under securities loan agreement		1,128.8		—		—		1,128.8
Assets held in separate accounts		42,337.4		4,129.4		22.3		46,489.1
Total	$	44,288.7	$	20,617.2	$	575.0	$	65,480.9

Liabilities:
Product guarantees		—		—	$	3.0	$	3.0
Fixed Indexed Annuities		—		—		5.6		5.6
Derivatives:
Interest rate contracts		0.1		227.0		—		227.1
Foreign exchange contracts		—		38.5		—		38.5
Credit contracts		—		1.1		13.6		14.7
Total	$	0.1	$	266.6	$	22.2	$	288.9

⁽¹⁾Level 3 net assets and liabilities accounted for 0.8% of total net assets and liabilities measured at fair value on a recurring basis. Excluding separate accounts assets for which the policyholder bears the risk, the Level 3 net assets and liabilities in relation to total net assets and liabilities measured at fair value on a recurring basis totaled 2.8%.

Transfers in and out of Level 1 and 2

There were no transfers between Level 1 and Level 2 for the year ended December 31, 2011.

During 2010, certain U.S. Treasury securities valued by commercial pricing services where prices are derived using market observable inputs have been transferred from Level 1 to Level 2. These securities for the year ended December 31, 2010, include U.S. Treasury strips of $60.6 in which prices are modeled incorporating a variety of market observable information in their valuation techniques, including benchmark yields, broker-dealer quotes, credit quality, issuer spreads, bids, offers and other reference data. The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.

Valuation of Financial Assets and Liabilities

As described below, certain assets and liabilities are measured at estimated fair value on the Company's Consolidated Balance Sheets. In addition, further disclosure of estimated fair values is included in this Financial Instruments note. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement which is determined based on a hypothetical transaction at the measurement date, from a market participant's perspective. The Company considers three broad valuation techniques when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available.

The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of “exit price” and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third party commercial pricing services, brokers, and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from brokers and third party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from the third party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades, or monitoring of trading volumes.

All valuation methods and assumptions are validated at least quarterly to ensure the accuracy and relevance of the fair values. There were no material changes to the valuation methods or assumptions used to determine fair values during 2011 and 2010, except for the Company's use of commercial pricing services to value certain CMOs which commenced in the first quarter of 2010. Certain CMOs were previously valued using an average of broker quotes when more than one broker quote is provided.

The following valuation methods and assumptions were used by the Company in estimating reported values for the investments and derivatives described below:

Fixed maturities: The fair values for the actively traded marketable bonds are determined based upon the quoted market prices and are classified as Level 1 assets. Assets in this category would primarily include certain U.S. Treasury securities. The fair values for marketable bonds without an active market are obtained through several commercial pricing services which provide the estimated fair values. These services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, broker-dealer quotes, credit quality, issuer spreads, bids, offers and other reference data and are classified as Level 2 assets. This category includes U.S. and foreign corporate bonds, ABS, U.S. agency and government guaranteed securities, CMBS, and RMBS, including certain CMO assets and subprime RMBS. During the first quarter of 2011, the market for subprime RMBS had been determined to be active, and as such, these securities are now included in Level 2 of the valuation hierarchy.

Generally, the Company does not obtain more than one vendor price from pricing services per instrument. The Company uses a hierarchy process in which prices are obtained from a primary vendor, and, if that vendor is unable to provide the price, the next vendor in the hierarchy is contacted until a price is obtained or it is determined that a price cannot be obtained from a commercial pricing service. When a price cannot be obtained from a commercial pricing service, independent broker quotes are solicited. Securities priced using independent broker quotes are classified as Level 3.

Broker quotes and prices obtained from pricing services are reviewed and validated monthly through an internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades, or monitoring of trading volumes. At December 31, 2011, $194.9 and $14.8 billion of a total of $19.2 billion in fixed maturities, including securities pledged, were valued using unadjusted broker quotes and unadjusted prices obtained from pricing services, respectively, and

verified through the review process. The remaining balance in fixed maturities consisted primarily of privately placed bonds valued using a matrix-based pricing model.

All prices and broker quotes obtained go through the review process described above including valuations for which only one broker quote is obtained. After review, for those instruments where the price is determined to be appropriate, the unadjusted price provided is used for financial statement valuation. If it is determined that the price is questionable, another price may be requested from a different vendor. For certain CMO assets, the average of several broker quotes may be used when multiple quotes are available. The internal valuation committee then reviews all prices for the instrument again, along with information from the review, to determine which price best represents “exit price” for the instrument.

Fair values of privately placed bonds are primarily determined using a matrix-based pricing model and are classified as Level 2 assets. The model considers the current level of risk-free interest rates, current corporate spreads, the credit quality of the issuer, and cash flow characteristics of the security. Also considered are factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the presence of guarantees, and the Company's evaluation of the borrower's ability to compete in its relevant market. Using this data, the model generates estimated market values which the Company considers reflective of the fair value of each privately placed bond. In addition, certain privately placed bonds are valued using broker quotes and internal pricing models and are classified as Level 3 assets. The Company's internal pricing models utilize the Company's best estimate of expected future cash flows discounted at a rate of return that a market participant would require. The significant inputs to the models include, but are not limited to, current market inputs, such as credit loss assumptions, assumed prepayment speeds and business performance.

Equity securities, available-for-sale: Fair values of publicly traded equity securities are based upon quoted market price and are classified as Level 1 assets. Other equity securities, typically private equities or equity securities not traded on an exchange, are valued by other sources such as analytics or brokers and are classified as Level 3 assets.

Cash and cash equivalents, Short-term investments, and Short-term investments under securities loan agreement: The fair values for cash equivalents and certain short-term investments are determined based on quoted market prices. These assets are classified as Level 1. Other short-term investments are valued and classified in the fair value hierarchy consistent with the policies described herein, depending on investment type.

Derivatives: The carrying amounts for these financial instruments, which can be assets or liabilities, reflect the fair value of the assets and liabilities. Derivatives are carried at fair value (on the Consolidated Balance Sheets), which is determined using the Company's derivative accounting system in conjunction with observable key financial data from third party sources, such as yield curves, exchange rates, Standard & Poor's 500 Index prices, and London Interbank Offered Rates, or through values established by third party brokers. Counterparty credit risk is considered and incorporated in the Company's valuation process through counterparty credit rating requirements and monitoring of overall exposure. It is the Company's policy to transact only with investment grade counterparties with a credit rating of A- or better. The Company's own credit risk is also considered and incorporated in the Company's valuation process. Valuations for the Company's futures and interest rate forward contracts are based on unadjusted quoted prices from an active exchange and, therefore, are classified as Level 1. The Company also has certain credit default swaps that are priced using models that primarily use market observable inputs, but contain inputs that are not observable to market participants, which have been classified as Level 3. All other derivative instruments are valued based on market observable inputs and are classified as Level 2.

Product guarantees: The Company records reserves for Stabilizer and Managed custody guarantees ("MCG") contracts containing guaranteed credited rates in accordance with ASC 815. The guarantee is treated as an embedded derivative or a stand-alone derivative (depending on the underlying product) and is required to be reported at fair value. The fair value of the obligation is calculated based on the income approach as described in ASC 820. The income associated with the contracts is projected using actuarial and capital market assumptions, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of risk neutral scenarios and other market implied assumptions. These derivatives are classified as Level 3 liabilities. Explicit risk margins in the actuarial assumptions underlying valuations are included, as well as an explicit recognition of all nonperformance risks as required by U.S. GAAP. Nonperformance risk for product guarantees contains adjustments to the fair values of these contract liabilities related to the current credit standing of ING Verzekeringen N.V. ("ING V") and the Company based on credit default swaps ("CDS") with similar term to maturity and priority of payment. The ING V credit default spread is applied to the

discount factors for product guarantees in the Company’s valuation model in order to incorporate credit risk into the fair values of these product guarantees.

The Company also records for its FIA contracts an embedded derivative liability for interest payments to contract holders above the minimum guaranteed interest rate, in accordance with U.S. GAAP for derivative instruments and hedging activities. The guarantee is treated as an embedded derivative and is required to be reported separately from the host contract. The fair value of the obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by market implied assumptions. These derivatives are classified as Level 3 liabilities in the fair value hierarchy.

Assets held in separate accounts: Assets held in separate accounts are reported at the quoted fair values of the underlying investments in the separate accounts. The underlying investments include mutual funds, short-term investments and cash, the valuations of which are based upon a quoted market price and are included in Level 1. Bond valuations are obtained from third party commercial pricing services and brokers and are classified in the fair value hierarchy consistent with the policies described above for Fixed maturities.

Level 3 Financial Instruments

The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair value of financial assets and liabilities classified as Level 3, additional information is presented below.

ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)
Notes to Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)

The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities for the year ended December 31, 2011.


															December 31, 2011
				Total realized/unrealized gains (losses) included in:
																												Change in unrealized gains (losses) included in earnings⁽³⁾

	Fair Value as of January 1																								Fair Value as of December 31
				Net Income			OCI													Transfers in to Level 3⁽²⁾		Transfers out of Level 3⁽²⁾
				Net Income			OCI			Purchases		Issuances		Sales			Settlements			Transfers in to Level 3⁽²⁾		Transfers out of Level 3⁽²⁾
Fixed maturities, including securities
pledged:
U.S. corporate, state and
municipalities	$	11.2		$	(0.3	)	$	6.7	$	19.0		$	—	$	—		$	(43.3	)	$	135.8	$	—		$	129.1		$	(0.3	)
Foreign		11.4			0.5			—		30.9			—		(19.7	)		(1.5	)		29.9		(0.4	)		51.1			(0.8	)
Residential mortgage-backed
securities		254.7			(3.0	)		1.7		57.1			—		(38.5	)		(8.1	)		5.3		(228.2	)		41.0			(0.9	)
Other asset-backed securities		247.7			(26.8	)		15.8		—			—		(119.7	)		(8.7	)		—		(80.6	)		27.7			(3.5	)
Total fixed maturities, including
securities pledged		525.0			(29.6	)		24.2		107.0			—		(177.9	)		(61.6	)		171.0		(309.2	)		248.9			(5.5	)

Equity securities, available for sale		27.7			0.1			0.1		4.3			—		(4.2	)		—			—		(9.0	)		19.0			—
Derivatives, net		(13.6	)		0.8			—		0.2			—		—			—			—		—			(12.6	)		0.6
Product guarantees		(3.0	)		(212.5)⁽¹⁾			—		(5.5	)		—		—			—			—		—			(221.0	)		—
Fixed Indexed Annuities		(5.6	)		(3.6)⁽¹⁰			—		(7.1	)		—		—			—			—		—			(16.3	)		—
Separate Accounts⁽⁴⁾		22.3			—			—		9.8			—		(3.4	)		—			—		(12.6	)		16.1			0.1

⁽¹⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract -by-contract basis. These amounts are included in Other net realized gains (losses) in the Consolidated Statements of Operations.
⁽²⁾The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
⁽³⁾For financial instruments still held as of December 31, amounts are included in Net investment income and Other net realized capital gains (losses) in the Consolidated Statements of Operations.
⁽⁴⁾The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities which result in a net zero impact on net income (loss) for the Company.

The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities for the year ended December 31, 2010.


	December 31, 2010
	Fair Value as of January 1		Total realized/unrealized gains (losses) included in:														Fair Value as of December 31

																			Change in unrealized gains (losses) included in earnings⁽³⁾
										Purchases, issuances, and settlements		Transfers in to Level 3⁽²⁾		Transfers out of Level 3⁽²⁾
			Net Income			OCI
			Net Income			OCI
Fixed maturities, including securities pledged:
U.S. corporate, state and municipalities	—		$	—		$		—	$	—		$	11.2	$	— $		11.2		$	—
Foreign	—			0.1				0.6		2.7			8.0		—		11.4			—
Residential mortgage-backed securities	1,284.1			(24.1	)			4.3		62.5			0.6		(1,072.7	)	254.7			(26.8	)
Other asset-backed securities	188.8			(59.4	)			93.3		(20.2	)		45.2		—		247.7			(59.3	)
Total fixed maturities, including securities pledged	1,472.9			(83.4	)			98.2		45.0			65.0		(1,072.7	)	525.0			(86.1	)

Equity securities, available-for-sale	39.8			(0.4	)			0.6		13.8			—		(26.1	)	27.7			—
Derivatives, net	(48.3	)		0.3				—		34.4			—		—		(13.6	)		1.8
Product guarantees	(6.0	)		9.0		⁽¹	⁾	—		(6.0	)		—		—		(3.0	)		—
Fixed Indexed Annuities	—			0.3		⁽¹	⁾	—		(5.9	)		—		—		(5.6	)		—
Separate Accounts⁽⁴⁾	56.3			5.8				—		(57.7	)		17.9		—		22.3			1.0

The transfers out of Level 3 during the year ended December 31, 2011 in Fixed maturities, including securities pledged, are primarily due to the Company's determination that the market for subprime RMBS securities has become active. While the valuation methodology has not changed, the Company has concluded that the frequency of transactions in the market for subprime RMBS securities represent regularly occurring market transactions and therefore are now classified as Level 2. The transfers out of Level 3 during the year ended December 31, 2010 in Fixed maturities, including securities pledged, are primarily due to an increased utilization of vendor valuations for certain CMO assets.

The remaining transfers in and out of Level 3 for fixed maturities, equity securities and separate accounts during the years ended December 31, 2011 and 2010 are due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3, as these securities are generally less liquid with very limited trading activity or where less transparency exists corroborating the inputs to the valuation methodologies. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate.

The carrying values and estimated fair values of certain of the Company's financial instruments were as follows at December 31, 2011 and 2010.


	2011					2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturities, available-for-sale, including
securities pledged	$	18,728.3	$	18,728.3	$	17,029.1	$	17,029.1
Fixed maturities, at fair value using the fair
value option		511.9		511.9		453.4		453.4
Equity securities, available-for-sale		144.9		144.9		200.6		200.6
Mortgage loans on real estate		2,373.5		2,423.1		1,842.8		1,894.8
Loan-Dutch State obligation		417.0		421.9		539.4		518.7
Policy loans		245.9		245.9		253.0		253.0
Limited partnerships/corporations		510.6		510.6		463.5		493.8
Cash, cash equivalents, short-term investments,
and short-term investments under securities
loan agreement		958.7		958.7		1,128.8		1,128.8
Derivatives		446.6		446.6		179.9		179.9
Notes receivable from affiliates		175.0		165.2		175.0		177.0
Assets held in separate accounts		45,295.2		45,295.2		46,489.1		46,489.1
Liabilities:
Investment contract liabilities:
With a fixed maturity		1,222.4		1,369.1		1,313.2		1,311.5
Without a fixed maturity		18,410.3		21,739.8		16,902.6		16,971.6
Product guarantees		221.0		221.0		3.0		3.0
Fixed Indexed Annuities		16.3		16.3		5.6		5.6
Derivatives		360.0		360.0		280.3		280.3

The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to

estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates, in many cases, could not be realized in immediate settlement of the instrument.

ASC Topic 825 excludes certain financial instruments, including insurance contracts, and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following valuation methods and assumptions were used by the Company in estimating the fair value of the following financial instruments which are not carried at fair value on the Consolidated Balance Sheets, and therefore not categorized in the fair value hierarchy:

Limited partnerships/corporations: The fair value for these investments, primarily private equity fund of funds and hedge funds, is estimated based on the Net Asset Value (“NAV”) as provided by the investee.

Mortgage loans on real estate: The fair values for mortgage loans on real estate are estimated using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations.

Loan - Dutch State obligation: The fair value of the Dutch State loan obligation is estimated utilizing discounted cash flows from the Dutch Strip Yield Curve.

Policy loans: The fair value of policy loans is equal to the carrying, or cash surrender, value of the loans. Policy loans are fully collateralized by the account value of the associated insurance contracts.

Investment contract liabilities (included in Future policy benefits and claims reserves):

With a fixed maturity: Fair value is estimated by discounting cash flows, including associated expenses for maintaining the contracts, at rates, which are market risk-free rates augmented by credit spreads on current Company credit default swaps. The augmentation is present to account for non-performance risk. A margin for non-financial risks associated with the contracts is also included.

Without a fixed maturity: Fair value is estimated as the mean present value of stochastically modeled cash flows associated with the contract liabilities relevant to both the contract holder and to the Company. Here, the stochastic valuation scenario set is consistent with current market parameters, and discount is taken using stochastically evolving short risk-free rates in the scenarios augmented by credit spreads on current Company debt. The augmentation in the discount is present to account for non-performance risk. Margins for non-financial risks associated with the contract liabilities are also included.

Notes receivable from affiliates: Estimated fair value of the Company's notes receivable from affiliates is based upon discounted future cash flows using a discount rate approximating the current market rate.

Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized capital gains (losses). In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company's management of interest rate, price, and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.

Mortgage Loans on Real Estate

The Company's mortgage loans on real estate are summarized as follows at December 31, 2011 and 2010.


		2011			2010
Total commercial mortgage loans	$	2,374.8		$	1,844.1
		(1.3	)		(1.3	)
Total net commercial mortgage loans	$	2,373.5		$	1,842.8

As of December 31, 2011, all commercial mortgage loans are held-for-investment. The Company diversifies its commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. The Company manages risk when originating commercial mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate. Subsequently, the Company continuously evaluates all mortgage loans based on relevant current information including an appraisal of loan-specific credit quality, property characteristics and market trends. Loan performance is monitored on a loan-specific basis through the review of submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review ensures properties are performing at a consistent and acceptable level to secure the debt.

The Company has established a collective valuation allowance for probable incurred, but not specifically identified, losses related to factors inherent in the lending process. The collective valuation allowance is determined based on historical loss rates as adjusted by current economic information for all loans that are not determined to have an individually-assessed loss.

The changes in the collective valuation allowance were as follows for the years ended December 31, 2011 and 2010.


	2011			2010
Collective valuation allowance for losses, beginning of year	$	1.3	$		2.0
Addition to / (release of) allowance for losses		—			(0.7	)
Collective valuation allowance for losses, end of year	$	1.3	$		1.3

The commercial mortgage loan portfolio is the recorded investment, prior to collective valuation allowances, by the indicated loan-to-value ratio and debt service coverage ratio, as reflected in the following tables at December 31, 2011 and 2010.


	2011 ⁽¹⁾		2010 ⁽¹⁾
Loan-to-Value Ratio:
0% - 50%	$552.4		$	536.4
50% - 60%		771.5		564.6
60% - 70%		908.2		610.1
70% - 80%		125.2		113.9
80% - 90%		17.5		19.1
Total Commercial Mortgage Loans	$	2,374.8	$	1,844.1
⁽¹⁾Balances do not include allowance for mortgage loan credit losses.


Debt Service Coverage Ratio:		2011	⁽¹⁾		2010	⁽¹⁾
Greater than 1.5x	$	1,600.1		$	1,270.0
1.25x - 1.5x		408.1			182.1
1.0x - 1.25x		286.7			191.8
Less than 1.0x		79.9			137.4
Mortgages secured by loans on land or construction loans		—			62.8
Total Commercial Mortgage Loans	$	2,374.8		$	1,844.1
(1) Balances do not include allowance for mortgage loan credit losses.

The Company believes it has a high quality mortgage loan portfolio with substantially all of commercial mortgages classified as performing. The Company defines delinquent commercial mortgage loans consistent with industry practice as 60 days past due. There were no impairments taken on the mortgage loan portfolio for the year ended December 31, 2011. As of December 31, 2010 and 2009, there was a $1.0 and $10.3 impairment taken on the mortgage loan portfolio, respectively. As of December 31, 2011, all mortgage loans in the Company's portfolio were current with respect to principal and interest. The Company's policy is to recognize interest income until a loan becomes 90 days delinquent or foreclosure proceedings are commenced, at which point interest accrual is discontinued. Interest accrual is not resumed until past due payments are brought current.

Due to challenges that the economy presents to the commercial mortgage market, effective with the third quarter of 2009, the Company recorded an allowance for probable incurred, but not specifically identified, losses related to factors inherent in the lending process. At December 31, 2011 and 2010, the Company had a $1.3 allowance for mortgage loan credit losses.

All commercial mortgages are evaluated for the purpose of quantifying the level of risk. Those loans with higher risk are placed on a watch list and are closely monitored for collateral deficiency or other credit events that may lead to a potential loss of principal or interest. 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.

The carrying values and unpaid principal balances (prior to any charge-off) of impaired commercial mortgage loans were as follows for the years ended December 31, 2011 and 2010.


	2011		2010
Impaired loans without valuation allowances	$	5.8	$	9.5

Unpaid principal balance of impaired loans	$	7.3	$	12.0

The following is information regarding impaired loans, restructured loans, loans 90 days or more past due and loans in the process of foreclosure for the years ended December 31, 2011, 2010, and 2009.


	2011		2010			2009
Impaired loans, average investment during the period	$	7.7	$	15.3	$		10.5
Interest income recognized on impaired loans,on an accrual basis		0.6		0.9			0.6
Interest income recognized on impaired loans, on a cash basis		0.6		1.0			0.4
Loans in foreclosure, at amortized cost		—		—			5.8

For the years ended December 31, 2011 and 2010, there were no Restructured loans, Interest income recognized on restructured loans, Loans 90 days or more past due, interest no longer accruing, at amortized cost, Loans in foreclosure, at amortized cost, and Unpaid principal balance of loans 90 days or more past due, interest no longer accruing.

Troubled Debt Restructuring

The Company has high quality, well performing portfolios of commercial mortgage loans and private placements. Under certain circumstances, modifications to these contracts are granted. Each modification is evaluated as to whether a troubled debt restructuring has occurred. A modification is a troubled debt restructure when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include: reduction of the face amount or maturity amount of the debt as originally stated, reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates and/or reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. A valuation allowance may have been recorded prior to the quarter when the loan is modified in a troubled debt restructuring. Accordingly, the carrying value (net of the specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. For the year ended December 31, 2011, the Company had one private placement troubled debt restructuring with a pre-modification and post-modification carrying value of $13.0 and $12.9, respectively.

During the twelve months ended December 31, 2011, the Company had no loans modified in a troubled debt restructuring with a subsequent payment default.

Derivative Financial Instruments

See the Business, Basis of Presentation and Significant Accounting Policies note to these Consolidated Financial Statements for disclosure regarding the Company's purpose for entering into derivatives and the policies on valuation and classification of derivatives. The Company enters into the following derivatives:

Interest rate caps: Interest rate caps are used to manage the interest rate risk in the Company's fixed maturity portfolio. Interest rate caps are purchased contracts that are used by the Company to hedge annuity products against rising interest rates.

Interest rate swaps: Interest rate swaps are used to manage the interest rate risk in the Company's fixed maturity portfolio, as well as the Company's liabilities. Interest rate swaps represent contracts that require the exchange of cash flows at regular interim periods, typically monthly or quarterly.

Foreign exchange swaps: Foreign exchange swaps are used to reduce the risk of a change in the value, yield, or cash flow with respect to invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows for U.S. dollar cash flows at regular interim periods, typically quarterly or semi-annually.

Credit default swaps: Credit default swaps are used to reduce the credit loss exposure with respect to certain assets that the Company owns, or to assume credit exposure on certain assets that the Company does not own. Payments are made to or received from the counterparty at specified intervals and amounts for the purchase or sale of credit protection. In the event of a default on the underlying credit exposure, the Company will either receive an additional payment (purchased credit protection) or will be required to make an additional payment (sold credit protection) equal to par minus recovery value of the swap contract.

Forwards: Certain forwards are acquired to hedge certain CMO assets held by the Company against movements in interest rates, particularly mortgage rates. On the settlement date, the Company will either receive a payment (interest rate drops on purchased forwards or interest rate rises on sold forwards) or will be required to make a payment (interest rate rises on purchased forwards or interest rate drops on sold forwards).

Futures: Futures contracts are used to hedge against a decrease in certain equity indices. Such decreases may result in a decrease in variable annuity account values, which would increase the possibility of the Company incurring an expense for

guaranteed benefits in excess of account values. The futures income would serve to offset these effects. Futures contracts are also used to hedge against an increase in certain equity indices. Such increases may result in increased payments to contract holders of fixed indexed annuity contracts, and the futures income would serve to offset this increased expense.

Swaptions: Swaptions are used to manage interest rate risk in the Company's collateralized mortgage obligations portfolio. Swaptions are contracts that give the Company the option to enter into an interest rate swap at a specific future date.

Managed Custody Guarantees: The Company issued certain credited rate guarantees on externally managed variable bond funds that represent stand alone derivatives. The market value is partially determined by, among other things, levels of or changes in interest rates, prepayment rates, and credit ratings/spreads.

Embedded derivatives: The Company invests in certain fixed maturity instruments and has issued certain annuity products, that contain embedded derivatives whose fair value is at least partially determined by levels of or changes in domestic and/or foreign interest rates (short term or long-term), exchange rates, prepayment rates, equity markets, or credit ratings/spreads. Embedded derivatives within fixed maturities are included with the host contract on the Consolidated Balance Sheets, and changes in fair value are recorded in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

Embedded derivatives within annuity products are included in Future policy benefits and claims reserves on the Consolidated Balance Sheets, and changes in the fair value of the embedded derivatives are recorded in Other net realized capital gains (losses) in the Consolidated Statements of Operations.

The notional amounts and fair values of derivatives were as follows as of December 31, 2011 and 2010.


	2011			2010
					Liability					Liability
	Notional Asset Fair				Fair	Notional		Asset Fair		Fair
	Amount	Value			Value	Amount		Value		Value
Derivatives: Qualifying for hedge accounting
Cash flow hedges:
Interest rate contracts	1,000.0	$	173.9	$	—	7.2	$	0.6	$	—
Foreign exchange contracts	—		—		—	7.2		—		0.1
Derivatives: Non-Qualifying for hedge accounting
Interest rate contracts	17,555.1		269.4		306.4	16,553.6		171.9		227.1
Foreign exchange contracts	213.4		0.7		32.4	233.0		0.7		38.4
Equity contracts	—		—		—	3.7		—		—
Credit contracts	548.4		2.6		21.2	641.4		6.7		14.7
Managed custody guarantees	N/A		—		1.0	N/A		—		3.0
Embedded derivatives:
Within fixed maturity investments	N/A		59.2		—	N/A		54.3		—
Within annuity products	N/A		—		236.3	N/A		—		5.6
Total		$	505.8	$	597.3		$	234.2	$	288.9
N/A - Not applicable.

Net realized gains (losses) on derivatives were as follows for the years ended December 31, 2011, 2010, and 2009.


	2011			2010			2009
Derivatives Qualifying for hedge accounting⁽¹⁾
Cash flow hedges:
Interest rate contracts	$	—		$	—		$	—
Fair value hedges:
Interest rate contracts		—			—			—
Derivatives: Non-Qualifying for hedge accounting⁽¹⁾
Interest rate contracts		(58.3	)		(61.4	)		(101.4	)
Foreign exchange contracts		(0.7	)		7.4			(23.3	)
Equity contracts		(0.5	)		0.5			(49.0	)
Credit contracts		(4.8	)		8.9			(16.5	)
Managed custody guarantees		1.1			4.1			34.0
Embedded derivatives:
Within fixed maturity investments		4.9			8.0			(77.4	)
Within annuity products		(217.2	)		5.2			185.4
Total	$	(275.5	)	$	(27.3	)	$	(48.2	)

⁽¹⁾Changes in value for effective fair value hedges are recorded in Net realized capital gains (losses). Changes in fair value upon disposal for effective cash flow hedges are recorded in Net realized capital gains (losses) in the Consolidated Statements of Operations.

Credit Default Swaps

The Company has entered into various credit default swaps. When credit default swaps are sold, the Company assumes credit exposure to certain assets that it does not own. Credit default swaps may also be purchased to reduce credit exposure in the Company's portfolio. Credit default swaps involve a transfer of credit risk from one party to another in exchange for periodic payments. These instruments are typically written for a maturity period of five years and do not contain recourse provisions, which would enable the seller to recover from third parties. The Company has International Swaps and Derivatives Association, Inc. (“ISDA”) agreements with each counterparty with which it conducts business and tracks the collateral positions for each counterparty. To the extent cash collateral is received, it is included in Payables under securities loan agreement, including collateral held, on the Consolidated Balance Sheets and is reinvested in short-term investments. Collateral held is used in accordance with the Credit Support Annex (“CSA”) to satisfy any obligations. Investment grade bonds owned by the Company are the source of noncash collateral posted, which is reported in Securities pledged on the Consolidated Balance Sheets. In the event of a default on the underlying credit exposure, the Company will either receive an additional payment (purchased credit protection) or will be required to make an additional payment (sold credit protection) equal to par minus recovery value of the swap contract. At December 31, 2011, the fair value of credit default swaps of $2.6 and $21.2 was included in Derivatives and Other liabilities, respectively, on the Consolidated Balance Sheets. At December 31, 2010, the fair value of credit default swaps of $6.7 and $14.7 was included in Derivatives and Other liabilities, respectively, on the Consolidated Balance Sheets. As of December 31, 2011 and 2010, the maximum potential future exposure to the Company on the sale of credit protection under credit default swaps was $518.3 and $625.6, respectively.

4. Deferred Policy Acquisition Costs and Value of Business Acquired

Beginning in the first quarter of 2011, the Company implemented a reversion to the mean technique of estimating its short-term equity market return assumptions. This change in estimate was applied prospectively in first quarter 2011. The reversion to the mean technique is a common industry practice in which DAC and VOBA unlocking for short-term equity returns only occurs if equity market performance falls outside established parameters.


Activity within DAC was as follows for the years ended December 31, 2011, 2010, and 2009.

	2011			2010			2009
Balance at January 1	$	307.6		$	355.7		$	529.8
Deferrals of commissions and expenses		79.8			74.7			71.4
Amortization:
Amortization		(71.5	)		(40.5	)		(18.0	)
Interest accrued at 5% to 7%		31.9			29.9			25.8
Net amortization included in Consolidated Statements of
Operations		(39.6	)		(10.6	)		7.8
Change in unrealized capital gains (losses) on available-for-sale
securities		(12.9	)		(112.2	)		(253.3	)
Balance at December 31	$	334.9		$	307.6		$	355.7

Activity within VOBA was as follows for the years ended December 31, 2011, 2010, and 2009.

	2011				2010		2009
Balance at January 1	$	864.2		$	981.2		$	1,492.1
Deferrals of commissions and expenses		8.5			17.6			5.7
Amortization:
Amortization		(125.1	)		(16.0	)		(133.4	)
Interest accrued at 5% to 7%		70.5			67.8			66.7
Net amortization included in Consolidated Statements of
Operations		(54.6	)		51.8			(66.7	)
Change in unrealized capital gains (losses) on available-for-sale
securities		(224.5	)		(186.4	)		(449.9	)
Balance at December 31	$	593.6		$	864.2		$	981.2

The estimated amount of VOBA amortization expense, net of interest, is $37.9, $54.6, $53.6, $52.8, and $51.8, for the years 2012, 2013, 2014, 2015, and 2016, respectively. Actual amortization incurred during these years may vary as assumptions are modified to incorporate actual results.

5. Capital Contributions, Dividends and Statutory Information

ILIAC's ability to pay dividends to its parent is subject to the prior approval of insurance regulatory authorities of the State of Connecticut for payment of any dividend, which, when combined with other dividends paid within the preceding twelve months, exceeds the greater of (1) ten percent (10.0%) of ILIAC's earned statutory surplus at the prior year end or (2) ILIAC's prior year statutory net gain from operations. Connecticut law also prohibits a Connecticut insurer from declaring or paying a dividend except out of its earned surplus unless prior insurance regulatory approval is obtained.

During the year ended December 31, 2011, ILIAC did not pay any dividends on its common stock to its Parent. During the year ended December 31, 2010, ILIAC paid a $203.0 dividend on its common stock to its Parent. During the year ended December 31, 2009, ILIAC did not pay any dividends on its common stock to its Parent. On December 22, 2011 and October 30, 2010, IFA paid a $65.0 and $60.0, respectively, dividend to ILIAC, its parent, which was eliminated in consolidation.

During the year ended December 31, 2011, ILIAC received capital contributions of $201.0 in the aggregate from its Parent. During the year ended December 31, 2010, ILIAC did not receive any capital contributions from is Parent. On November 12, 2008, ING issued to the Dutch State non-voting Tier 1 securities for a total consideration of EUR 10 billion. On February 24, 2009, $2.2 billion was contributed to direct and indirect insurance company subsidiaries of ING AIH, of which $365.0 was contributed to the Company. The contribution was comprised of the proceeds from the investment by the Dutch State and the redistribution of currently existing capital within ING.

The State of Connecticut Insurance Department (the “Department”) recognizes as net income and capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from accounting principles generally accepted in the United States. Statutory net income (loss) was $194.4, $66.0, and $271.6, for the years ended December 31, 2011, 2010, and 2009, respectively. Statutory capital and surplus was $1.9 billion and $1.7 billion as of December 31, 2011 and 2010, respectively. As specifically prescribed by statutory accounting practices, statutory surplus as of December 31, 2010 included the impact of the $150.0 capital contribution received by ILIAC from its Parent on February 18, 2011.

Effective for December 31, 2009, the Company adopted Actuarial Guideline 43, Variable Annuity Commissioners Annuity Reserve Valuation Method ("AG43"). The NAIC replaced the existing formula-based reserve standard methodology (AG34, Death Benefits and AG39, Living Benefits) with a stochastic principles-based methodology (AG43) for determining reserves for all individual variable annuity contracts with and without guaranteed benefits and all group annuity contracts with guarantees issued on or after January 1, 1981. Variable payout annuity contracts are also subject to AG43. There is no cumulative effect of adopting AG43. Reserves calculated using AG43 were higher than reserves calculated under AG34 and AG39 by $69.1 at December 31, 2010. Where the application of AG43 produces higher reserves than the Company had otherwise established under AG43 and AG39, the Company may request a grade-in period, not to exceed three years, from the domiciliary commissioner. The grading shall be done only on reserves on the contracts in-force as of the current year. The reserves under the old basis and the new basis shall be compared each year with two-thirds of the difference subtracted from the reserve under the new basis at December 31, 2009 and one-third of the difference subtracted from the new basis at December 31, 2010 and the remaining third recorded in 2011. The Company did elect the grade-in provision. The reserves at December 31, 2011 reflect the full impact of adoption of AG43.

Effective December 31, 2009, the Company adopted SSAP No. 10R, Income Taxes, for its statutory basis of accounting. This statement requires the Company to calculate admitted deferred tax assets based upon what is expected to reverse within one year with a cap on the admitted portion of the deferred tax asset of 10% of capital and surplus for its most recently filed statement. If the Company's risk-based capital (“RBC”) levels, after reflecting the above limitation, exceeds 250% of the authorized control level, the statement increases the limitation on admitted deferred tax assets from what is expected to reverse in one year to what is expected to reverse over the next three years and increases the cap on the admitted portion of the deferred tax asset from 10% of capital and surplus for its most recently filed statement to 15%. Other revisions in the statement include requiring the Company to reduce the gross deferred tax asset by a statutory valuation allowance adjustment if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some portion of or all of the gross deferred tax assets will not be realized. To temper this positive RBC impact, and as a temporary measure at December 31, 2009 only, a 5% pre-tax RBC charge was required to be applied to the additional admitted deferred tax assets generated by SSAP 10R. The adoption for 2009 had a December 31, 2009 sunset; however, during 2010, the 2009 adoption, including the 5% pre-tax RBC charge, was extended through December 31, 2011. The effects on the Company's statutory financial statements of adopting this change in accounting principle were increases to total assets and capital and surplus of $86.7 and $68.9 as of December 31, 2011 and 2010, respectively. This adoption had no impact on total liabilities or net income.

6. Additional Insurance Benefits and Minimum Guarantees

The Company calculates an additional liability for certain GMDBs and other minimum guarantees in order to recognize the expected value of these benefits in excess of the projected account balance over the accumulation period based on total expected assessments.

The Company regularly evaluates estimates used to adjust the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised.

As of December 31, 2011, the account value for the separate account contracts with guaranteed minimum benefits was $7.9 billion. The additional liability recognized related to minimum guarantees was $5.4. As of December 31, 2010, the account value for the separate account contracts with guaranteed minimum benefits was $6.1 billion. The additional liability recognized related to minimum guarantees was $4.4.

The aggregate fair value of equity securities, including mutual funds, supporting separate accounts with additional insurance benefits and minimum investment return guarantees as of December 31, 2011 and 2010, was $7.9 billion and $6.1 billion, respectively.

7. Income Taxes

Income tax expense (benefit) consisted of the following for the years ended December 31, 2011, 2010, and 2009.


	2011			2010		2009
Current tax expense (benefit):
Federal	$	60.3		$	73.2	$	27.5
State		—			—		(0.9	)
Total current tax expense		60.3			73.2		26.6
Deferred tax expense (benefit):
Federal		(65.3	)		35.8		5.6
Total deferred tax expense (benefit)		(65.3	)		35.8		5.6
Total income tax expense	$	(5.0	)	$	109.0	$	32.2

Income taxes were different from the amount computed by applying the federal income tax rate to income before income taxes for the following reasons for the years ended December 31, 2011, 2010, and 2009.


	2011			2010			2009
Income before income taxes	$	315.3		$	486.9		$	353.6
Tax rate		35.0	%		35.0	%		35.0	%
Income tax expense at federal statutory rate		110.4			170.4			123.8
Tax effect of:
Dividend received deduction		(37.0	)		(23.3	)		(2.6	)
Tax valuation allowance		(87.0	)		(13.7	)		(92.2	)
State audit settlement		—			—			(1.2	)
IRS audit settlement		3.7			(26.8	)		(0.1	)
State tax expense		—			0.6			0.1
Other		4.9			1.8			4.4
Income tax expense	$	(5.0	)	$	109.0		$	32.2

Temporary Differences

The tax effects of temporary differences that give rise to Deferred tax assets and Deferred tax liabilities at December 31, 2011 and 2010, are presented below.


		2011			2010
Deferred tax assets:
Insurance reserves	$	269.6		$	187.1
Investments		89.2			112.5
Postemployment benefits		97.1			83.7
Compensation		22.9			45.9
Other		22.5			22.1
Total gross assets before valuation allowance		501.3			451.3
Less: valuation allowance		(11.1	)		(120.1	)
Assets, net of valuation allowance		490.2			331.2
Deferred tax liabilities:
Net unrealized gain		(357.5	)		(106.8	)
Value of business acquired		(360.9	)		(377.0	)
Deferred policy acquisition costs		(127.0	)		(117.1	)
Total gross liabilities		(845.4	)		(600.9	)
Net deferred income tax liability	$	(355.2	)	$	(269.7	)

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. At December 31, 2011, the Company did not have a tax valuation allowance related to realized and unrealized capital losses. At December 31, 2010, the Company had a tax valuation allowance of $109.0 related to realized and unrealized capital losses. As of December 31, 2011 and 2010, the Company had full tax valuation allowances of $11.1 related to foreign tax credits, the benefit of which is uncertain. The change in net unrealized capital gains (losses) includes an increase (decrease) in the tax valuation allowance of $(22.0), $(68.7), and $(38.3) for the years ended December 31, 2011, 2010, and 2009, respectively.

Tax Sharing Agreement

The Company had a payable to ING AIH of $1.3 and $49.3 for federal income taxes as of December 31, 2011 and 2010, respectively, for federal income taxes under the intercompany tax sharing agreement.

The results of the Company's operations are included in the consolidated tax return of ING AIH. Generally, the Company's consolidated financial statements recognize the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods pursuant to the provisions of Income Taxes (ASC 740) as if the Company were a separate taxpayer rather than a member of ING AIH's consolidated income tax return group with the exception of any net operating loss carryforwards and capital loss carryforwards, which are recorded pursuant to the tax sharing agreement. The Company's tax sharing agreement with ING AIH states that for each taxable year during which the Company is included in a consolidated federal income tax return with ING AIH will pay to the Company an amount equal to the tax benefit of the Company's net operating loss carryforwards and capital loss carryforwards generated in such year, without regard to whether such net operating loss carryforwards and capital loss carryforwards are actually utilized in the reduction of the consolidated federal income tax liability for any consolidated taxable year.

Unrecognized Tax Benefits

Reconciliations of the change in the unrecognized income tax benefits for the years ended December 31, 2011 and 2010 are as follows:


	2011			2010
Balance at beginning of period	$	23.0		$	12.8
Additions for tax positions related to prior years		4.5			36.2
Reductions for tax positions related to prior years		(4.5	)		(25.8	)
Reductions for settlements with taxing authorities		(23.0	)		(0.2	)
Balance at end of period	$	—		$	23.0

The Company had no unrecognized tax benefits as of December 31, 2011 and 2010, which would affect the Company's effective tax rate if recognized.

Interest and Penalties

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in Current income taxes and Income tax expense on the Consolidated Balance Sheets and the Consolidated Statements of Operations, respectively. The Company had no accrued interest as of December 31, 2011 and 2010. The decrease during the tax period ended December 31, 2011 is primarily related to the settlement of the 2009 federal audit.

Tax Regulatory Matters

In March 2011, the Internal Revenue Service (“IRS”) completed its examination of the Company's returns through tax year 2009. In the provision for the year ended December 31, 2011, the Company reflected an increase in the tax expense based on the results of the IRS examination and monitoring the activities of the IRS with respect to certain issues with other taxpayers and the merits of the Company's position.

The Company is currently under audit by the IRS for tax years 2010 through 2012, and it is expected that the examination of tax year 2010 will be finalized within the next twelve months. The Company and the IRS have agreed to participate in the Compliance Assurance Program (“CAP”) for the tax years 2010 through 2012.

8. Benefit Plans

Defined Benefit Plan

ING North America Insurance Corporation (“ING North America”) sponsors the ING Americas Retirement Plan (the “Retirement Plan”), effective as of December 31, 2001. Substantially all employees of ING North America and its affiliates (excluding certain employees) are eligible to participate, including the Company's employees other than Company agents. The Retirement Plan was amended and restated effective January 1, 2008. The Retirement Plan was also amended on July 1, 2008, related to the admission of the employees from the acquisition of CitiStreet LLC (“CitiStreet”) by Lion, and ING North America filed a request for a determination letter on the qualified status of the Retirement Plan, but has not yet received a favorable determination letter. Additionally, effective January 1, 2009, the Retirement Plan was amended to provide that anyone hired or rehired by the Company on or after January 1, 2009, would not be eligible to participate in the Retirement Plan.

Beginning January 1, 2012, the Retirement Plan will use a cash balance pension formula instead of a final average pay (“FAP”) formula, allowing all eligible employees to participate in the Retirement Plan. Participants will earn an annual credit equal to 4% of eligible pay. Interest is credited monthly based on a 30-year U.S. Treasury securities bond rate published by the Internal Revenue Service in the preceding August of each year. The accrued vested cash balance benefit is portable; participants can

take it when they leave the Company's employ. For participants in the Retirement Plan as of December 31, 2011, there will be a two-year transition period from the Retirement Plan's current FAP formula to the cash balance pension formula. Due to ASC Topic 715 requirements, the accounting impact of the change in the Retirement Plan was recognized upon Board approval November 10, 2011. This change had no material impact on the Consolidated Financial Statements.

The Retirement Plan is a tax-qualified defined benefit plan, the benefits of which are guaranteed (within certain specified legal limits) by the Pension Benefit Guaranty Corporation (“PBGC”). As of January 1, 2002, each participant in the Retirement Plan earns a benefit under a FAP formula. Subsequent to December 31, 2001, ING North America is responsible for all Retirement Plan liabilities. The costs allocated to the Company for its employees' participation in the Retirement Plan were $24.6, $27.2, and $22.3 for the years ended December 31, 2011, 2010, and 2009, respectively, and are included in Operating expenses in the Consolidated Statements of Operations.

Defined Contribution Plan

ING North America sponsors the ING Americas Savings Plan and ESOP (the “Savings Plan”). Substantially all employees of ING North America and its affiliates (excluding certain employees, including but not limited to Career Agents) are eligible to participate, including the Company's employees other than Company agents. Career Agents are certain, full-time insurance salespeople who have entered into a career agent agreement with the Company and certain other individuals who meet specified eligibility criteria. The Savings Plan is a tax-qualified defined contribution retirement plan, which includes an employee stock ownership plan (“ESOP”) component. The Savings Plan was amended and restated effective January 1, 2008 and subsequently amended on July 1, 2008, with respect to the admission of employees from the acquisition of CitiStreet by Lion. The Savings Plan was most recently amended effective January 1, 2011 to permit Roth 401(k) contributions to be made to the Plan. ING North America filed a request for a determination letter on the qualified status of the Plan and received a favorable determination letter dated May 19, 2009. Savings Plan benefits are not guaranteed by the PBGC. The Savings Plan allows eligible participants to defer into the Savings Plan a specified percentage of eligible compensation on a pre-tax basis. ING North America matches such pre-tax contributions, up to a maximum of 6.0% of eligible compensation. Matching contributions are subject to a 4-year graded vesting schedule (although certain specified participants are subject to a 5-year graded vesting schedule). All contributions made to the Savings Plan are subject to certain limits imposed by applicable law. The cost allocated to the Company for the Savings Plan were $9.8, $10.7, and $8.9, for the years ended December 31, 2011, 2010, and 2009, respectively, and are included in Operating expenses in the Consolidated Statements of Operations.

Non-Qualified Retirement Plans

Through December 31, 2001, the Company, in conjunction with ING North America, offered certain eligible employees (other than Career Agents) a Supplemental Executive Retirement Plan and an Excess Plan (collectively, the “SERPs”). Benefit accruals under Aetna Financial Services SERPs ceased, effective as of December 31, 2001 and participants begin accruing benefits under ING North America SERPs. Benefits under the SERPs are determined based on an eligible employee's years of service and average annual compensation for the highest five years during the last ten years of employment.

Effective December 31, 2011, the Supplemental Executive Retirement Plan was amended to coordinate with the amendment of the Retirement Plan from its current final average pay formula to a cash balance formula.

The Company, in conjunction with ING North America, sponsors the Pension Plan for Certain Producers of ING Life Insurance and Annuity Company (formerly the Pension Plan for Certain Producers of Aetna Life Insurance and Annuity Company) (the “Agents Non-Qualified Plan”). This plan covers certain full-time insurance salespeople who have entered into a career agent agreement with the Company and certain other individuals who meet the eligibility criteria specified in the plan (“Career Agents”). The Agents Non-Qualified Plan was terminated effective January 1, 2002. In connection with the termination, all benefit accruals ceased and all accrued benefits were frozen.

The SERPs and Agents Non-Qualified Plan, are non-qualified defined benefit pension plans, which means all the SERPs benefits are payable from the general assets of the Company and Agents Non-Qualified Plan benefits are payable from the general assets of the Company and ING North America. These non-qualified defined benefit pension plans are not guaranteed by the PBGC.

Obligations and Funded Status

The following table summarizes the benefit obligations, fair value of plan assets, and funded status, for the SERPs and Agents Non-Qualified Plan, for the years ended December 31, 2011 and 2010.


	2011				2010
Change in Projected Benefit Obligation:
Projected benefit obligation, January 1		$	96.8		$	90.2
Interest cost			5.0			5.1
Benefits paid			(8.4	)		(10.1	)
Actuarial gain on obligation			18.4			11.6
Plan adjustments			(8.8	)		—
Curtailments or settlements			(4.3	)		—
Projected benefit obligation, December 31		$	98.7		$	96.8
Fair Value of Plan Assets:
Fair value of plan assets, December 31		$	—		$	—

Amounts recognized in the Consolidated Balance Sheets consist of:

	2011				2010
Accrued benefit cost		$	(98.7	)	$	(96.8	)
Accumulated other comprehensive income			(8.5	)		0.1
Net amount recognized	$	(107.2		)	$	(96.7	)

Assumptions

The weighted-average assumptions used in the measurement of the December 31, 2011 and 2010 benefit obligation for the SERPs and Agents Non-Qualified Plan, were as follows:


	2011			2010
Discount rate at end of period		4.75	%		5.50	%
Rate of compensation increase		3.00	%		3.00	%

In determining the discount rate assumption, the Company utilizes current market information provided by its plan actuaries, including a discounted cash flow analysis of the Company's pension obligation and general movements in the current market environment. The discount rate modeling process involves selecting a portfolio of high quality, noncallable bonds that will match the cash flows of the Retirement Plan. Based upon all available information, it was determined that 4.75% was the appropriate discount rate as of December 31, 2011, to calculate the Company's accrued benefit liability.


The weighted-average assumptions used in calculating the net pension cost were as follows:

	2011		2010		2009
Discount rate	5.50	%	6.00	%	6.00	%
Rate of increase in compensation levels	3.00	%	3.00	%	1.50	%

Since the benefit plans of the Company are unfunded, an assumption for return on plan assets is not required.

Net Periodic Benefit Costs

Net periodic benefit costs for the SERPs and Agents Non-Qualified Plan, for the years ended December 31, 2011, 2010, and 2009, were as follows:


	2011		2010		2009
Interest cost	$	5.0	$	5.1	$	5.3
Net actuarial loss recognized in the year		16.0		11.5		3.3
Unrecognized past service cost recognized in the year		—		0.1		0.1
The effect of any curtailment or settlement		2.2		—		0.1
Net periodic benefit cost	$	23.2	$	16.7	$	8.8

Cash Flows

In 2012, the employer is expected to contribute $8.8 to the SERPs and Agents Non-Qualified Plan. Future expected benefit payments related to the SERPs, and Agents Non-Qualified Plan, for the years ended December 31, 2012 through 2016, and thereafter through 2021, are estimated to be $8.8, $7.9, $6.9, $5.7, $5.3 and $26.5, respectively.

Stock Option and Share Plans

Through 2010, ING sponsored the ING Group Long-Term Equity Ownership Plan (“leo”), which provides employees of the Company who are selected by the ING Executive Board with options and/or performance shares. The terms applicable to an award under leo are set out in an award agreement, which is signed by the participant when he or she accepts the award.

Options granted under leo are nonqualified options on ING shares in the form of American Depository Receipts (“ADRs”). Leo options have a ten (10) year term and vest three years from the grant date. Options awarded under leo may vest earlier in the event of the participant's death, permanent disability or retirement. Retirement for purposes of leo means a participant terminates service after attaining age 55 and completing 5 years of service. Early vesting in all or a portion of a grant of options may also occur in the event the participant is terminated due to redundancy or business divestiture. Unvested options are generally subject to forfeiture when a participant voluntarily terminates employment or is terminated for cause (as defined in leo). Upon vesting, participants generally have up to seven years in which to exercise their vested options. A shorter exercise period applies in the event of termination due to redundancy, business divestiture, voluntary termination or termination for cause. An option gives the recipient the right to purchase an ING share in the form of ADRs at a price equal to the fair market value of one ING share on the date of grant. On exercise, participant's have three options (i) retain the shares and remit a check for applicable taxes due on exercise, (ii) request the administrator to remit a cash payment for the value of the options being exercised, less applicable taxes, or (iii) retain some of the shares and have the administrator liquidate sufficient shares to satisfy the participant's tax obligation. The amount is converted from Euros to U.S. dollars based on the daily average exchange rate between the Euro and the U.S. dollar, as determined by ING.

Awards of performance shares may also be made under leo. Performance shares are a contingent grant of ING stock, and, on vesting, the participant has the right to receive a cash amount equal to the closing price per ING share on the Euronext

Amsterdam Stock Market on the vesting date times the number of vested Plan shares. Performance shares generally vest three years from the date of grant, with the amount payable based on ING's share price on the vesting date. Payments made to participants on vesting are based on the performance targets established in connection with leo and payments can range from 0% to 200% of target. Performance is based on ING's total shareholder return relative to a peer group as determined at the end of the vesting period. To vest, a participant must be actively employed on the vesting date, although immediate vesting will occur in the event of the participant's death, disability or retirement. If a participant is terminated due to redundancy or business divestiture, vesting will occur but in only a portion of the award. Unvested shares are generally subject to forfeiture when an employee voluntarily terminates employment or is terminated for cause (as defined in leo). Upon vesting, participants have three options (i) retain the shares and remit a check for applicable taxes due on exercise, (ii) request the administrator to remit a cash payment for the value of the shares, less applicable taxes, or (iii) retain some of the shares and have the administrator liquidate sufficient shares to satisfy the participant's tax obligation. The amount is converted from Euros to U.S. dollars based on the daily average exchange rate between the Euro and the U.S. dollar, as determined by ING.

Commencing in 2011, ING introduced a new long-term equity and deferred bonus plan, the Long-Term Sustainable Performance Plan (“LSPP”). The terms applicable to an award under the LSPP will be set out in a grant agreement which is signed by the participant when he or she accepts the award. The LSPP will provide employees of the Company who are selected by the ING Executive Board with performance shares and will also require deferral of discretionary incentive bonus awards in excess of EUR 100,000. The performance shares awarded under the LSPP will be a contingent grant of ING ADR units and on settlement, the participant will have the right to either receive ING ADR units in kind or a cash amount equal to the closing price per ING share on the Euronext Amsterdam Stock Market on the settlement date times the number of vested ADR units, subject to achievement during the vesting period of performance targets based on return of equity and employee engagement. The excess bonus amount will be held in deferred ING ADR units or in a deferred cash account, or some combination thereof, depending on the total amount of the incentive bonus award, generally subject to vesting in three equal tranches over the three year period commencing on the date of incentive bonus payment. Unlike the leo plan, no options on ING shares in the form of ADRs will be granted under the LSPP. To vest in performance shares, deferred shares or deferred cash, an employee must generally be actively employed on the settlement date, although immediate full and partial vesting in the event of normal age or early retirement, death or disability, or termination due to redundancy or business divestiture will occur, similar to the vesting treatment in the leo plan.

The Company was allocated from ING compensation expense for the leo options, leo performance shares and LSPP of $5.1, $3.4, and $3.7 for the years ended December 31, 2011, 2010, and 2009, respectively, primarily related to leo.

The Company recognized tax benefits of $0.8, $0.7, and $0.1 in 2011, 2010, and 2009, respectively, and $0.3 , $0.1, and $0.1, respectively, are related to leo.

In addition, the Company, in conjunction with ING North America, sponsors the following benefit plans:

The ING 401(k) Plan for ILIAC Agents, which allows participants to defer a specified percentage of eligible compensation on a pre-tax basis. Effective January 1, 2006, the Company match equals 60% of a participant's pre-tax deferral contribution, with a maximum of 6% of the participant's eligible pay. A request for a determination letter on the qualified status of the ING 401(k) Plan for ILIAC Agents was filed with the IRS on January 1, 2008. A favorable determination letter was received dated January 5, 2011.
The Producers' Incentive Savings Plan, which allows participants to defer up to a specified portion of their eligible compensation on a pre-tax basis. The Company matches such pre-tax contributions at specified amounts.
The Producers' Deferred Compensation Plan, which allows participants to defer up to a specified portion of their eligible compensation on a pre-tax basis.
Certain health care and life insurance benefits for retired employees and their eligible dependents. The post retirement health care plan is contributory, with retiree contribution levels adjusted annually and the Company subsidizes a portion of the monthly per-participant premium. Beginning August 1, 2009, the Company moved from self-insuring these costs and began to use a private-fee-for-service Medicare Advantage program for post-Medicare eligible retired participants. In addition, effective October 1, 2009, the Company no longer subsidizes medical premium costs for early retirees. This change does not impact any participant currently retired and receiving coverage under the plan or any employee who is eligible for coverage under the plan and whose employment ended before October 1, 2009. The

Company continues to offer access to medical coverage until retirees become eligible for Medicare. The life insurance plan provides a flat amount of noncontributory coverage and optional contributory coverage.

The ING Americas Supplemental Executive Retirement Plan, which is a non-qualified defined benefit restoration pension plan.
The ING Americas Deferred Compensation Savings Plan, which is a deferred compensation plan that includes a 401(k) excess component.

The benefit charges allocated to the Company related to these plans for the years ended December 31, 2011, 2010, and 2009, were $9.9, $11.9, and $12.1, respectively.

9. Related Party Transactions

Operating Agreements

ILIAC has certain agreements whereby it generates revenues and expenses with affiliated entities, as follows:

Investment Advisory agreement with ING Investment Management LLC (“IIM”), an affiliate, in which IIM provides asset management, administrative, and accounting services for ILIAC's general account. ILIAC incurs a fee, which is paid quarterly, based on the value of the assets under management. For the years ended December 31, 2011, 2010, and 2009, expenses were incurred in the amounts of $22.8, $23.7, and $35.9, respectively.
Services agreement with ING North America for administrative, management, financial, and information technology services, dated January 1, 2001 and amended effective January 1, 2002. For the years ended December 31, 2011, 2010, and 2009, expenses were incurred in the amounts of $180.6, $209.7, and $140.2, respectively.
Services agreement between ILIAC and its U.S. insurance company affiliates dated January 1, 2001, and amended effective January 1, 2002 and December 31, 2007. For the years ended December 31, 2011, 2010, and 2009, net expenses related to the agreement were incurred in the amount of $29.8, $53.3, and $26.3, respectively.
Service agreement with ING Institutional Plan Services, LLC (“IIPS”) effective November 30, 2008 pursuant to which IIPS provides recordkeeper services to certain benefit plan clients of ILIAC. For the years ended December 31, 2011, 2010, and 2009, ILIAC's net earnings related to the agreement were in the amount of $8.4, $2.2, and $7.8, respectively.
Intercompany agreement with IIM pursuant to which IIM agreed, effective January 1, 2010, to pay the Company, on a monthly basis, a portion of the revenues IIM earns as investment adviser to certain U.S. registered investment companies that are investment options under certain of the Company's variable insurance products. For the years ended December 31, 2011 and 2010, revenue under the IIM intercompany agreement was $24.7 and $24.1, respectively.

Management and service contracts and all cost sharing arrangements with other affiliated companies are allocated in accordance with the Company's expense and cost allocation methods. Revenues and expenses recorded as a result of transactions and agreements with affiliates may not be the same as those incurred if the Company was not a wholly-owned subsidiary of its Parent.

DSL has certain agreements whereby it generates revenues and expenses with affiliated entities, as follows:

Underwriting and distribution agreements with ING USA Annuity and Life Insurance Company (“ING USA”) and ReliaStar Life Insurance Company of New York (“RLNY”), affiliated companies, whereby DSL serves as the principal underwriter for variable insurance products. In addition, DSL is authorized to enter into agreements with broker-dealers to distribute the variable insurance products and appoint representatives of the broker-dealers as agents.
For the years ended December 31, 2011, 2010, and 2009, commissions were collected in the amount of $218.3, $220.0, and $275.3. Such commissions are, in turn, paid to broker-dealers.
Intercompany agreements with each of ING USA, IIPS, ReliaStar Life Insurance Company and Security Life of Denver Insurance Company (individually, the “Contracting Party”) pursuant to which DSL agreed, effective January 1, 2010, to pay the Contracting Party, on a monthly basis, a portion of the revenues DSL earns as investment adviser to certain U.S. registered investment companies that are either investment option under certain variable insurance products of the Contracting Party or are purchased for certain customers of the Contacting Party. For the year ended

December 31, 2011 and 2010, expenses were incurred under these intercompany agreements in the aggregate amount of $207.9 and $204.5, respectively.

Prior to January 1, 2010, DSL was a party to a service agreement with ING USA pursuant to which ING USA provided DSL with managerial and supervisory services in exchange for a fee. This service agreement was terminated as of January 1, 2010. For the year ended December 31, 2009, expenses were incurred under this service agreement in the amount of $123.2.
Service agreement with RLNY whereby DSL receives managerial and supervisory services and incurs a fee. For the years ended December 31, 2011, 2010, and 2009, expenses were incurred under this service agreement in the amount of $3.2, $3.3, and $1.2, respectively.
Administrative and advisory services agreements with ING Investment LLC and IIM, affiliated companies, in which DSL receives certain services for a fee. The fee for these services is calculated as a percentage of average assets of ING Investors Trust. For the years ended December 31, 2011, 2010, and 2009, expenses were incurred in the amounts of $23.3, $19.8, and $12.5, respectively.

Investment Advisory and Other Fees

Effective January 1, 2007, ILIAC's investment advisory agreement to serve as investment advisor to certain variable funds offered in Company products (collectively, the “Company Funds”), was assigned to DSL. ILIAC is also compensated by the separate accounts for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance and annuity contracts, the separate accounts pay ILIAC daily fees that, on an annual basis are, depending on the product, up to 3.4% of their average daily net assets. The total amount of compensation and fees received by the Company from the Company Funds and separate accounts totaled $103.2, $246.1, and $212.3, (excludes fees paid to ING Investment Management Co.) in 2011, 2010, and 2009, respectively.

DSL has been retained by ING Investors Trust (“IIT”), an affiliate, pursuant to a management agreement to provide advisory, management, administrative and other services to IIT. Under the management agreement, DSL provides or arranges for the provision of all services necessary for the ordinary operations of IIT. DSL earns a monthly fee based on a percentage of average daily net assets of IIT. DSL has entered into an administrative services subcontract with ING Fund Services, LLC, an affiliate, pursuant to which ING Fund Services, LLC, provides certain management, administrative and other services to IIT and is compensated a portion of the fees received by DSL under the management agreement. In addition to being the investment advisor of the Trust, DSL is the investment advisor of ING Partners, Inc. (the “Fund”), an affiliate. DSL and the Fund have an investment advisory agreement, whereby DSL has overall responsibility to provide portfolio management services for the Fund. The Fund pays DSL a monthly fee, net of sub advisory fees, which is based on a percentage of average daily net assets. For the years ended December 31, 2011, 2010, and 2009, revenue received by DSL under these agreements (exclusive of fees paid to affiliates) was $323.2, $314.3, and $270.0, respectively. At December 31, 2011 and 2010, DSL had $22.9 and $25.1, respectively, receivable from IIT under the management agreement.

Financing Agreements

Reciprocal Loan Agreement

The Company maintains a reciprocal loan agreement with ING AIH, an affiliate, to facilitate the handling of unanticipated short-term cash requirements that arise in the ordinary course of business. Under this agreement, which became effective in June 2001 and expires on April 1, 2016, either party can borrow from the other up to 3.0% of the Company's statutory admitted assets as of the preceding December 31. Interest on any Company 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, the Company incurred an immaterial amount of interest expense for the years ended December 31, 2011, 2010, and 2001, and earned interest income of $1.3, $0.9, and $1.0, for the years ended December 31, 2011, 2010, and 2009, respectively. Interest expense and income are included in Interest expense and Net investment income, respectively, on the Consolidated Statements of Operations. As of December 31, 2011 and 2010, the Company had an outstanding receivable of $648.0 and $304.1, respectively, with ING AIH under the reciprocal loan agreement.

Note with Affiliate

On December 29, 2004, ING USA issued a surplus note in the principal amount of $175.0 (the “Note”) scheduled to mature on December 29, 2034, to ILIAC, in an offering that was exempt from the registration requirements of the Securities Act of 1933. ILIAC's $175.0 Note bears interest at a rate of 6.26% per year. Interest is scheduled to be paid semi-annually in arrears on June 29 and December 29 of each year, commencing on June 29, 2005. Interest income was $11.1 for each of the years ended December 31, 2011, 2010, and 2009.

Illiquid Assets Back-Up Facility

In the first quarter of 2009, ING reached an agreement, for itself and on behalf of certain ING affiliates including the Company, with the Dutch State on the Illiquid Assets Back-Up Facility (the “Back-Up Facility”) covering 80% of ING's Alt-A RMBS. Under the terms of the Back-Up Facility, a full credit risk transfer to the Dutch State was realized on 80% of ING's Alt-A RMBS owned by ING Bank, FSB and ING affiliates within ING U.S. insurance with a book value of $36.0 billion, including book value of $802.5 of the Alt-A RMBS portfolio owned by the Company (with respect to the Company's portfolio, the “Designated Securities Portfolio”) (the “ING-Dutch State Transaction”). As a result of the risk transfer, the Dutch State participates in 80% of any results of the ING Alt-A RMBS portfolio. The risk transfer to the Dutch State took place at a discount of approximately 10% of par value. In addition, under the Back-Up Facility, other fees were paid both by the Company and the Dutch State. Each ING company participating in the ING-Dutch State Transaction, including the Company remains the legal owner of 100% of its Alt-A RMBS portfolio and will remain exposed to 20% of any results on the portfolio. The ING-Dutch State Transaction closed on March 31, 2009, with the affiliate participation conveyance and risk transfer to the Dutch State described in the succeeding paragraph taking effect as of January 26, 2009.

In order to implement that portion of the ING-Dutch State Transaction related to the Company's Designated Securities Portfolio, the Company entered into a participation agreement with its affiliates, ING Support Holding B.V. (“ING Support Holding”) and ING pursuant to which the Company conveyed to ING Support Holding an 80% participation interest in its Designated Securities Portfolio and will pay a periodic transaction fee, and received, as consideration for the participation, an assignment by ING Support Holding of its right to receive payments from the Dutch State under the Illiquid Assets Back-Up Facility related to the Company's Designated Securities Portfolio among, ING, ING Support Holding and the Dutch State (the “Company Back-Up Facility”). Under the Company Back-Up Facility, the Dutch State is obligated to pay certain periodic fees and make certain periodic payments with respect to the Company's Designated Securities Portfolio, and ING Support Holding is obligated to pay a periodic guarantee fee and make periodic payments to the Dutch State equal to the distributions made with respect to the 80% participation interest in the Company's Designated Securities Portfolio. The Dutch State payment obligation to the Company under the Company Back-Up Facility is accounted for as a loan receivable for U.S. GAAP and is reported in Loan - Dutch State obligation on the Consolidated Balance Sheets.

Upon the closing of the transaction on March 31, 2009, the Company recognized a gain of $206.2, which was reported in Net realized capital losses on the Consolidated Statements of Operations.

In a second transaction, known as the Step 1 Cash Transfer, a portion of the Company's Alt-A RMBS which had a book value of $4.2 was sold for cash to an affiliate, Lion II Custom Investments LLC (“Lion II”). Immediately thereafter, Lion II sold to ING Direct Bancorp the purchased securities (the “Step 2 Cash Transfer”). Contemporaneous with the Step 2 Cash Transfer, ING Direct Bancorp included such purchased securities as part of its Alt-A RMBS portfolio sale to the Dutch State. The Step 1 Cash Transfer closed on March 31, 2009, and the Company recognized a gain of $0.3 contemporaneous with the closing of the ING-Dutch State Transaction, which was reported in Net realized capital losses on the Consolidated Statements of Operations.

As part of the final restructuring plan submitted to the EC in connection with its review of the Dutch state aid to ING (the “Restructuring Plan”), ING has agreed to make additional payments to the Dutch State corresponding to an adjustment of fees for the Back-Up Facility. Under this new agreement, the terms of the ING-Dutch State Transaction which closed on March 31, 2009, including the transfer price of the Alt-A RMBS securities, remain unaltered and the additional payments are not borne by the Company or any other ING U.S. subsidiaries.

Property and Equipment Sale

During the second quarter of 2009, ING's U.S. life insurance companies, including the Company, sold a portion of its property and equipment in a sale/leaseback transaction to an affiliate, ING North America. The fixed assets involved in the sale were capitalized assets generally depreciated over the expected useful lives and software in development. Since the assets were being depreciated using expected useful lives, the current net book value reasonably approximated the current fair value of the assets being transferred. The fixed assets sold to ING North America by the Company totaled $17.4.

Transfer of Registered Representatives

On January 1, 2011, IFA transferred a group of registered representatives and their related customer accounts to its broker-dealer affiliate, ING Financial Partners, Inc. and received $5.0 as consideration for the transfer. Effective January 1, 2011, IFA operates exclusively as a wholesale broker-dealer.

10. Financing Agreements

Windsor Property Loan

On June 16, 2007, the State of Connecticut acting by the Department of Economic and Community Development (“DECD”) loaned ILIAC $9.9 (the “DECD Loan”) in connection with the development of the corporate office facility located at One Orange Way, Windsor, Connecticut that serves as the principal executive offices of the Company (the “Windsor Property”). The loan has a term of twenty years and bears an annual interest rate of 1.00%. As long as no defaults have occurred under the loan, no payments of principal or interest are due for the initial ten years of the loan. For the second ten years of the DECD Loan term, ILIAC is obligated to make monthly payments of principal and interest.

The DECD Loan provided for loan forgiveness during the first five years of the term at varying amounts up to $5.0 if ILIAC and its affiliates met certain employment thresholds at the Windsor Property during that period. On December 1, 2008, the DECD determined that the Company had met the employment thresholds for loan forgiveness and, accordingly, forgave $5.0 of the DECD Loan to ILIAC in accordance with the terms of the DECD Loan. The DECD Loan provides additional loan forgiveness at varying amounts up to $4.9 if ILIAC and its ING affiliates meet certain employment thresholds at the Windsor Property during years five through ten of the loan. ILIAC's obligations under the DECD Loan are secured by an unlimited recourse guaranty from its affiliate, ING North America Insurance Corporation.

At both December 31, 2011 and 2010, the amount of the loan outstanding was $4.9, which was reflected in Long-term debt on the Consolidated Balance Sheets.

Also see Financing Agreements in the Related Party Transactions note to these Consolidated Financial Statements.

11. Reinsurance

At December 31, 2011, the Company had reinsurance treaties with 6 unaffiliated reinsurers covering a significant portion of the mortality risks and guaranteed death benefits under its variable contracts. At December 31, 2011, the Company did not have any outstanding cessions under any reinsurance treaties with affiliated reinsurers. The Company remains liable to the extent its reinsurers do not meet their obligations under the reinsurance agreements.

On October 1, 1998, the Company disposed of its individual life insurance business under an indemnity reinsurance arrangement with a subsidiary of Lincoln for $1.0 billion in cash. Under the agreement, the Lincoln subsidiary contractually assumed from the Company certain policyholder liabilities and obligations, although the Company remains obligated to contract owners. The Lincoln subsidiary established a trust to secure its obligations to the Company under the reinsurance transaction.

The Company assumed $25.0 of premium revenue from Aetna Life, for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company is also responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $10.3 and $11.5 were maintained for this contract as of December 31, 2011 and 2010, respectively.

Reinsurance ceded in force for life mortality risks were $16.2 billion and $17.4 billion at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, net receivables were comprised of the following:


		2011			2010
Claims recoverable from reinsurers	$	2,276.3		$	2,356.0
Reinsured amounts due to reinsurers		(0.3	)		0.4
Other		0.3			(0.5	)
Total	$	2,276.3		$	2,355.9

Premiums were reduced by the following amounts for reinsurance ceded for the years ended December 31, 2011, 2010, and 2009.


			2011			2010				2009
Premiums:
Direct premiums			$	34.0		$	67.6		$		35.2
Reinsurance assumed				0.1			—				0.1
Reinsurance ceded				(0.2	)		(0.3	)			(0.3	)
		Net premiums	$	33.9		$	67.3		$		35.0

12	.	Commitments and Contingent Liabilities

Leases

All of the Company's expenses for leased and subleased office properties are paid for by an affiliate and allocated back to the Company, as all remaining operating leases were executed by ING North America Insurance Corporation as of December 31, 2008, which resulted in the Company no longer being party to any operating leases. For the years ended December 31, 2011, 2010, and 2009, rent expense for leases was $5.0, $4.0, and $5.1, respectively.

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.

As of December 31, 2011 and 2010, the Company had off-balance sheet commitments to purchase investments equal to their fair value of $536.4 and $336.3, respectively.

Collateral

Under the terms of the Company's Over-The-Counter Derivative ISDA Agreements (“ISDA Agreements”), the Company may receive from, or deliver to, counterparties, collateral to assure that all terms of the ISDA Agreements will be met with regard to the CSA. The terms of the CSA call for the Company to pay interest on any cash received equal to the Federal Funds rate. As of December 31, 2011 and 2010, the Company held $110.0 and $4.7, of cash collateral, respectively, which was included in Payables under securities loan agreement, including collateral held, on the Consolidated Balance Sheets. In addition, as of December 31, 2011 and 2010, the Company delivered collateral of $77.9 and $93.8, respectively, in fixed maturities pledged under derivatives contracts, which was included in Securities pledged on the Consolidated Balance Sheets.

Litigation

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

Regulatory Matters

As with many financial services companies, the Company and its affiliates periodically receive informal and formal requests for information from various state and federal governmental agencies and self-regulatory organizations in connection with examinations, inquiries, investigations and audits of the products and practices of the Company or the financial services industry. These currently include an inquiry regarding the Company's policy for correcting errors made in processing trades for ERISA plans or plan participants. Some of these investigations, examinations, audits and inquiries could result in regulatory action against the Company. The potential outcome of the investigations, examinations, audits, inquiries and any such regulatory action is difficult to predict but could subject the Company to adverse consequences, including, but not limited to, additional payments to plans or participants, disgorgement, settlement payments, penalties, fines, and other financial liability and changes to the Company's policies and procedures, the financial impact of which cannot be estimated at this time, but management does not believe will have a material adverse effect on the Company's financial position or results of operations. It is the practice of the Company and its affiliates to cooperate fully in these matters.

13. Accumulated Other Comprehensive Income (Loss)

Shareholder's equity included the following components of AOCI as of December 31, 2011, 2010, and 2009.


		2011			2010			2009
Fixed maturities, net of OTTI	$	1,518.7		$	933.8		$	133.4
Equity securities, available-for-sale		13.1			21.0			12.8
Derivatives		173.7			0.5			—
DAC/VOBA and sales inducement adjustment on available-for-sale
securities		(603.6	)		(362.4	)		(67.1	)
Premium deficiency reserve adjustment		(64.8	)		(61.0	)		—
Other investments		—			0.1			—
Unrealized capital gains (losses), before tax		1,037.1			532.0			79.1
Deferred income tax asset/liability		(302.3	)		(149.3	)		(71.5	)
Unrealized capital gains (losses), after tax		734.8			382.7			7.6
Pension and other post-employment benefits liability, net of tax		12.7			7.8			8.7
AOCI	$	747.5		$	390.5		$	16.3

Changes in AOCI, net of DAC, VOBA, and tax, related to changes in unrealized capital gains (losses) on securities, including securities pledged, were as follows for the years ended December 31, 2011, 2010, and 2009.


		2011			2010			2009
Fixed maturities	$	563.6		$	813.1		$	1,734.4
Equity securities, available-for-sale		(7.9	)		8.2			20.2
Derivatives		173.2			0.5			—
DAC/VOBA and sales inducement adjustment on available-for-sale
securities		(241.2	)		(295.3	)		(705.7	)
Premium deficiency reserve adjustment		(3.8	)		(61.0	)		—
Other investments		(0.1	)		0.1			0.3
Change in unrealized gains/losses on securities, before tax		483.8			465.6			1,049.2
Deferred income tax asset/liability		(145.5	)		(82.2	)		(298.7	)
Change in unrealized gains/losses on securities, after tax		338.3			383.4			750.5

Change in OTTI, before tax		21.3			(12.7	)		(46.7	)
Deferred income tax asset/liability		(7.5	)		4.4			16.3
Change in OTTI, after tax		13.8			(8.3	)		(30.4	)

Pension and other post-employment benefit liability, before tax		7.6			(1.4	)		12.5
Deferred income tax asset/liability		(2.7	)		0.5			(3.8	)
Pension and other post-employment benefit liability, after tax		4.9			(0.9	)		8.7

Net change in AOCI, after tax	$	357.0		$	374.2		$	728.8

Changes in unrealized capital gains/losses on securities, including securities pledged and noncredit impairments, as recognized in AOCI, reported net of DAC, VOBA, and income taxes, were as follows for the years ended December 31, 2011, 2010, and 2009.


		2011		2010		2009
Net unrealized capital holding gains/losses arising during the
period⁽¹⁾	$	408.8	$	335.6	$	697.8
Less: reclassification adjustment for gains (losses) and other items
included in Net income (loss)⁽²⁾		78.7		29.2		16.0
Change in deferred tax asset valuation allowance		22.0		68.7		38.3
Net change in unrealized capital gains/losses on securities	$	352.1	$	375.1	$	720.1

⁽¹⁾Pretax unrealized capital holding gains/losses arising during the year were $625.1, $495.7, and $1,026.2, for the years ended December 31, 2011, 2010, and 2009, respectively.

⁽²⁾Pretax reclassification adjustments for gains (losses) and other items included in Net income (loss) were $120.0, $42.8, and $23.7, for the years ended December 31, 2011, 2010, and 2009, respectively.

The reclassification adjustments for gains (losses) and other items included in Net income (loss) in the above table are generally determined by FIFO methodology.


				VARIABLE ANNUITY ACCOUNT C
				PART C - OTHER INFORMATION

Item 24.	Financial Statements and Exhibits
(a)	Financial Statements:
(1		)	Incorporated by reference in Part A:
			Condensed Financial Information
(2		)	Incorporated by reference in Part B:
			Financial Statements of Variable Annuity Account C:
			-	Report of Independent Registered Public Accounting Firm
			-	Statements of Assets and Liabilities as of December 31, 2011
			-	Statements of Operations for the year ended December 31, 2011
			-	Statements of Changes in Net Assets for the years ended December 31, 2011
				and 2010
			-	Notes to Financial Statements
(3		)	Included in Part B:
			Consolidated Financial Statements of ING Life Insurance and Annuity Company:
			-	Report of Independent Registered Public Accounting Firm
			-	Consolidated Balance Sheets as of December 31, 2011 and 2010
			-	Consolidated Statements of Operations for the years ended December 31,
				2011, 2010, and 2009
			-	Consolidated Statements of Comprehensive Income for the years ended
				December 31, 2011, 2010, and 2009
			-	Consolidated Statements of Changes in Shareholder’s Equity for the years
				ended December 31, 2011, 2010, and 2009
			-	Consolidated Statements of Cash Flows for the years ended December 31,
				2011, 2010, and 2009
			-	Notes to Consolidated Financial Statements

(b)	Exhibits
	(1	)		Resolution establishing Variable Annuity Account C · Incorporated by reference to
				Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No.
				033-75986), as filed on April 22, 1996.
	(2	)		Not applicable
	(3.1	)		Standard Form of Broker-Dealer Agreement · Incorporated by reference to Post-
				Effective Amendment No. 32 to Registration Statement on Form N-4 (File No. 033-
				81216), as filed on April 11, 2006.
	(3.2	)		Underwriting Agreement dated November 17, 2006 between ING Life Insurance
				and Annuity Company and ING Financial Advisers, LLC · Incorporated by
				reference to Post-Effective Amendment No. 34 to Registration Statement on Form
				N-4 (File No. 033-75996), as filed on December 20, 2006.
	(3.3	)		Intercompany Agreement dated December 22, 2010 (effective January 1, 2010)
				between Directed Services LLC and ING Life Insurance and Annuity Company ·
				Incorporated by reference to Post-Effective Amendment No. 1 to Registration
				Statement on Form N-4 (File No. 333-167680), as filed on February 11, 2011.


(3.4	)	Intercompany Agreement dated December 22, 2010 (effective January 1, 2010)
		between ING Investment Management LLC and ING Life Insurance and Annuity
		Company · Incorporated by reference to Post-Effective Amendment No. 1 to
		Registration Statement on Form N-4 (File No. 333-167680), as filed on February 11,
		2011.
(4.1	)	Variable Annuity Contract (G-CDA(12/99)) · Incorporated by reference to Post-
		Effective Amendment No. 19 to Registration Statement on Form N-4 (File No. 333-
		01107), as filed on February 16, 2000.
(4.2	)	Variable Annuity Contract Certificate (C-CDA(12/99)) · Incorporated by reference
		to Post-Effective Amendment No. 19 to Registration Statement on Form N-4 (File
		No. 333-01107), as filed on February 16, 2000.
(4.3	)	Variable Annuity Contract G-CDA-10 · Incorporated by reference to Post-Effective
		Amendment No. 16 to Registration Statement on Form N-4 (File No. 333-109860),
		as filed on September 17, 2010.
(4.4	)	Variable Annuity Contract Certificate C-CDA-10 · Incorporated by reference to
		Post-Effective Amendment No. 16 to Registration Statement on Form N-4 (File No.
		333-109860), as filed on September 17, 2010.
(4.5	)	Endorsement E-MMINCENTIVE-08 Contract G-CDA (12/99) and Certificate C-
		CDA (12/99) · Incorporated by reference to Post-Effective Amendment No. 3 to
		Registration Statement on Form N-4 (File No. 333-153730), as filed on April 13,
		2009.
(4.6	)	Endorsement EEGTRRA-HEG(01) to Contracts GST-CDA-HO,
		GLIT-CDA-HO, GIT-CDA-HO, GSD-CDA-HO, GLID-CDA-HO,
		GID-CDA-HO, G-CDA-HD, G-CDA-HF, G-CDA-IA(RP),
		G-CDA-IB(AORP), G-CDA-IB(ORP), G-CDA-IB(ATORP),
		G-CDA-IB(TORP), G-CDA-96(TORP), G-CDA-96(ORP),
		G-CDA(12/99), A001RP95, A0Z0RV95, IA-CDA-IA, I-CDA-HD and
		I-CDA-98(ORP) and Contract Certificates GTCC-HO, GDCC-HO,
		GTCC-HD, GDCC-HD, GTCC-HF, GDCC-HF, GTCC-IA(RP),
		GTCC-IB(AORP), GTCC-IB(AORP), GTCC-IB(ATORP),
		GTCC-96(TORP), GTCC-96(ORP), C-CDA(12/99), A007RC95 and A027RV95 ·
		Incorporated by reference to Post-Effective Amendment No. 22 to Registration
		Statement on Form N-4 (File No. 033-81216), as filed on February 15, 2002.
(4.7	)	Endorsement E-LOANA(01/02) to Contracts GST-CDA-HO,
		GLIT-CDA-HO, GIT-CDA-HO, G-CDA-HD, G-CDA-HF,
G-CDA-IA(RP), G-CDA-96(TORP), G-CDA-96(ORP), G-CDA(12/99),
		A001RP95, A020RV95, IA-CDA-IA, I-CDA-HD and I-CDA-98(ORP) and
		Contract Certificates GTCC-HO, GTCC-HD, GTCC-HF, GTCC-IA(RP), GTCC-
96(TORP), GTCC-96(ORP), C-CDA(12/99), A007RC95 and A027RV95 ·
		Incorporated by reference to Post-Effective Amendment No. 37 to Registration
Statement on Form N-4 (File No. 333-01107), as filed on April 14, 2004.


(4.8	)	Roth Endorsement – E-R403B-05 · 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.
(4.9	)	Endorsement E-403bR-09 to Contract G-CDA(12/99) and Certificate
		C-CDA(12/99) · 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.
(4.10	)	Endorsement E-403bTERM-08 to Contract G-CDA(12/99) and Certificate
		C-CDA(12/99) · 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.
(5	)	Not applicable
(6.1	)	Restated Certificate of Incorporation (amended and restated as of October 1, 2007)
		of ING Life Insurance and Annuity Company · Incorporated by reference to ING
		Life Insurance and Annuity Company annual report on Form 10-K (File No. 033-
		23376), as filed on March 31, 2008.
(6.2	)	Amended and Restated By-Laws of ING Life Insurance and Annuity Company,
		effective October 1, 2007 · Incorporated by reference to ING Life Insurance and
		Annuity Company annual report on Form 10-K (File No. 033-23376), as filed on
		March 31, 2008.
(7	)	Not applicable
(8.1	)	Participation Agreement dated as of November 28, 2001 among Portfolio Partners,
		Inc. (renamed ING Partners, Inc. effective May 1, 2002), Aetna Life Insurance and
		Annuity Company (renamed ING Life Insurance and Annuity Company effective
		May 1, 2002) and Aetna Investment Services, LLC and amended on March 5, 2002,
		May 1, 2003, November 1, 2004, April 29, 2005, August 31, 2005, December 7,
		2005 and April 28, 2006 · Incorporated by reference to Post-Effective Amendment
		No. 30 to Registration Statement on Form N-4 (File No. 033-75962), as filed on
		April 8, 2002, and by reference to Post-Effective Amendment No. 28 (File No. 033-
		75988), as filed on April 10, 2003, and by reference to Post-Effective Amendment
		No. 20 to Registration Statement on Form N-1A (File No. 333-32575), as filed on
		April 1, 2005, and by reference to Post-Effective Amendment No. 32 (File No. 033-
		81216), as filed on April 11, 2006, and by reference to Initial Registration (File No.
		333-134760), as filed on June 6, 2006.


(8.2	)	Shareholder Servicing Agreement (Service Class Shares) dated as of November 27,
		2001 between Portfolio Partners, Inc. (renamed ING Partners, Inc. effective May 1,
2002) and Aetna Life Insurance and Annuity Company (renamed ING Life
		Insurance and Annuity Company effective May 1, 2002) and amended on March 5,
		2002, May 1, 2003, November 1, 2004, April 29, 2005, December 7, 2005 and April
		28, 2006 · Incorporated by reference to Post-Effective Amendment No. 30 to
		Registration Statement on Form N-4 (File No. 033-75962), as filed on April 8, 2002,
		and by reference to Post-Effective Amendment No. 30 (File No. 033-75962), as
		filed on April 8, 2002, and by reference to Post-Effective Amendment No.28 (File
		No. 033-75988), as filed on April 10, 2003, and by reference to Post-Effective
		Amendment No. 32 (File No. 033-81216), as filed on April 11, 2006, and by
		reference to Initial Registration Statement (File No. 333-134760), as filed on June 6,
		2006.
(8.3	)	Rule 22c-2 Agreement dated no later than April 16, 2007 is effective October 16,
2007 between ING Funds Services, LLC, ING Life Insurance and Annuity
		Company, ING National Trust, ING USA Annuity and Life Insurance Company,
		ReliaStar Life Insurance Company, ReliaStar Life Insurance Company of New
		York, Security Life of Denver Insurance Company and Systematized Benefits
		Administrators Inc. · Incorporated by reference to Post-Effective Amendment No.
		50 to Registration Statement on Form N-4 (File No. 033-75962), as filed on June 15,
		2007.
(9	)	Opinion and Consent of Counsel
(10	)	Consent of Independent Registered Public Accounting Firm
(11	)	Not applicable
(12	)	Not applicable
(13	)	Powers of Attorney · Incorporated by reference to Post-Effective Amendment No. 6
		to Registration Statement on Form N-4 (File No. 333-153730), as filed on April 10,
		2012.


Name	Principal Business Address	Positions and Offices with Depositor

Alain M. Karaoglan	230 Park Avenue	Director
	New York, NY 10169
Rodney O. Martin	230 Park Avenue	Director
	New York, NY 10169
Michael S. Smith	1475 Dunwoody Drive	Director
	West Chester, PA 19380
Ewout L. Steenbergen	230 Park Avenue	Director, Executive Vice President and
	New York, NY 10169	Chief Financial Officer
Boyd G. Combs	5780 Powers Ferry Road, N.W.	Senior Vice President, Tax
	Atlanta, GA 30327-4390
Ralph Ferraro	One Orange Way	Senior Vice President
	Windsor, CT 06095-4774
Mark B. Kaye	One Orange Way	Senior Vice President
	Windsor, CT 06095-4774
Patrick D. Lusk	1475 Dunwoody Drive	Senior Vice President
	West Chester, PA 19380
Richard T. Mason	One Orange Way	Senior Vice President
	Windsor, CT 06095-4774
Gilbert E. Mathis	5780 Powers Ferry Road, N.W.	Senior Vice President
	Atlanta, GA 30327-4390
David S. Pendergrass	5780 Powers Ferry Road, N.W.	Senior Vice President and Treasurer
	Atlanta, GA 30327-4390
Steven T. Pierson	5780 Powers Ferry Road, N.W.	Senior Vice President and Chief
	Atlanta, GA 30327-4390	Accounting Officer
Carol Stern	4550 North Park Avenue	Vice President and Chief Compliance
	Chevy Chase, MD 20815	Officer
Megan A. Huddleston	One Orange Way	Secretary
	Windsor, CT 06095-4774

Item 27. Number of Contract Owners

As of November 30, 2012, there were 649,194 individuals holding interests in variable annuity

contracts funded through Variable Annuity Account C of ING Life Insurance and Annuity

Company.

Item 28. Indemnification

Section 33-779 of the Connecticut General Statutes (“CGS”) provides that a corporation may

provide indemnification of or advance expenses to a director, officer, employee or agent only as

permitted by Sections 33-770 to 33-778, inclusive, of the CGS. Reference is hereby made to

Section 33-771(e) of the CGS regarding indemnification of directors and Section 33-776(d) of

CGS regarding indemnification of officers, employees and agents of Connecticut corporations.

These statutes provide in general that Connecticut corporations incorporated prior to January 1,

1997 shall, except to the extent that their certificate of incorporation expressly provides

otherwise, indemnify their directors, officers, employees and agents against “liability” (defined

as the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed

with respect to an employee benefit plan, or reasonable expenses incurred with respect to a

proceeding) when (1) a determination is made pursuant to Section 33-775 that the party seeking

indemnification has met the standard of conduct set forth in Section 33-771 or (2) a court has

determined that indemnification is appropriate pursuant to Section 33-774. Under Section 33-

775, the determination of and the authorization for indemnification are made (a) by two or more

disinterested directors, as defined in Section 33-770(2); (b) by special legal counsel; (c) by the

shareholders; or (d) in the case of indemnification of an officer, agent or employee of the

corporation, by the general counsel of the corporation or such other officer(s) as the board of

directors may specify. Also, Section 33-772 with Section 33-776 provide that a corporation shall

indemnify an individual who was wholly successful on the merits or otherwise against

reasonable expenses incurred by him in connection with a proceeding to which he was a party

because he is or was a director, officer, employee, or agent of the corporation. Pursuant to

Section 33-771(d), in the case of a proceeding by or in the right of the corporation or with

respect to conduct for which the director, officer, agent or employee was adjudged liable on the

basis that he received a financial benefit to which he was not entitled, indemnification is limited

to reasonable expenses incurred in connection with the proceeding against the corporation to

which the individual was named a party.

A corporation may procure indemnification insurance on behalf of an individual who is or was a

director of the corporation. Consistent with the laws of the State of Connecticut, ING U.S., Inc.

maintains Professional Liability and fidelity bond insurance policies issued by an international

insurer. The policies cover ING U.S., Inc. and any company in which ING U.S. Inc. has a

controlling financial interest of 50% or more. These policies include either or both the principal

underwriter, the depositor and any/all assets under the care, custody and control of ING U.S.,

Inc. and/or its subsidiaries. The policies provide for the following types of coverage: errors and

omissions/professional liability, employment practices liability and fidelity/crime (a.k.a.

“Financial Institutional Bond”).


Section 20 of the ING Financial Advisers, LLC Limited Liability Company Agreement executed
as of November 28, 2000 provides that ING Financial Advisers, LLC will indemnify certain
persons against any loss, damage, claim or expenses (including legal fees) incurred by such
person if he is made a party or is threatened to be made a party to a suit or proceeding because he
was a member, officer, director, employee or agent of ING Financial Advisers, LLC, as long as
he acted in good faith on behalf of ING Financial Advisers, LLC and in a manner reasonably
believed to be within the scope of his authority. An additional condition requires that no person
shall be entitled to indemnity if his loss, damage, claim or expense was incurred by reason of his
gross negligence or willful misconduct. This indemnity provision is authorized by and is
consistent with Title 8, Section 145 of the General Corporation Law of the State of Delaware.

Item 29. Principal Underwriter

(a)	In addition to serving as the principal underwriter for the Registrant, ING Financial
	Advisers, LLC acts as the principal underwriter for Variable Life Account B of ING Life
	Insurance and Annuity Company (ILIAC), Variable Annuity Account C of ILIAC,
	Variable Annuity Account I of ILIAC and Variable Annuity Account G of ILIAC (separate
	accounts of ILIAC registered as unit investment trusts under the 1940 Act). ING Financial
	Advisers, LLC is also the principal underwriter for (i) Separate Account N of ReliaStar
	Life Insurance Company (RLIC) (a separate account of RLIC registered as a unit
	investment trust under the 1940 Act.), (ii) ReliaStar Select Variable Account of ReliaStar
	Life Insurance Company (a separate account of RLIC registered as a unit investment trust
	under the 1940 Act), (iii) MFS ReliaStar Variable Account (a separate account of RLIC
	registered as a unit investment trust under the 1940 Act), (iv) Northstar Variable Account
	(a separate account of RLIC registered as a unit investment trust under the 1940 Act) (v)
	ReliaStar Life Insurance Company of New York Variable Annuity Funds A, B and C (a
	management investment company registered under the 1940 Act), (vi) ReliaStar Life
	Insurance Company of New York Variable Annuity Funds D, E, F, G, H and I (a
	management investment company registered under the 1940 Act), (vii) ReliaStar Life
	Insurance Company of New York Variable Annuity Funds M, P and Q (a management
	investment company registered under the1940 Act), and (viii) ReliaStar Life Insurance
	Company of New York Variable Annuity Funds M and P (a management investment
	company registered under the1940 Act).

(b)	The following are the directors and officers of the Principal Underwriter:


Name	Principal Business Address	Positions and Offices with Underwriter

Kristin H. Hultgren	One Orange Way	Chief Financial Officer
	Windsor, CT 06095-4774

Brian Wilson	One Orange Way	Assistant Chief Financial Officer
	Windsor, CT 06095-4774

Boyd G. Combs	5780 Powers Ferry Road, N.W.	Senior Vice President, Tax
	Atlanta, GA 30327-4390

M. Bishop Bastien	1474 Stone Point Drive, Suite 129	Vice President
	Roseville, CA 95661

Nancy B. Boccella	One Orange Way	Vice President
	Windsor, CT 06095-4774

Dianne C. Bogoian	One Orange Way	Vice President
	Windsor, CT 06095-4774

Anthony V. Camp, Jr.	One Orange Way	Vice President
	Windsor, CT 06095-4774

Mary K. Carey-Reid	One Orange Way	Vice President
	Windsor, CT 06095-4774

Nancy D. Clifford	One Orange Way	Vice President
	Windsor, CT 06095-4774

Christopher Cokinis	909 Locust Street	Vice President
	Des Moines, IA 50309

William P. Elmslie	One Orange Way	Vice President
	Windsor, CT 06095-4774

Joseph J. Elmy	5780 Powers Ferry Road, N.W.	Vice President, Tax
	Atlanta, GA 30327-4390

Bernard P. Heffernon	10740 Nall Avenue, Suite 120	Vice President
	Overland Park, KS 66211

Christina Hurley	One Orange Way	Vice President
	Windsor, CT 06095-4774

Mark E. Jackowitz	22 Century Hill Drive, Suite 101	Vice President
	Latham, NY 12110

David A. Kelsey	One Orange Way	Vice President
	Windsor, CT 06095-4774

Barbara J. Kesterson	909 Locust Street	Vice President
	Des Moines, IA 50309

George D. Lessner, Jr.	15455 North Dallas Parkway	Vice President
	Suite 1250
	Addison, TX 75001


Name	Principal Business Address	Positions and Offices with Underwriter

Katherine E. Lewis	10700 West Research Drive	Vice President
	Suite 190
	Milwaukee, WI 53226

David J. Linney	2900 North Loop West, Suite 180	Vice President
	Houston, TX 77092

Frederick C. Litow	5780 Powers Ferry Road, N.W.	Vice President
	Atlanta, GA 30327-4390

Richard T. Mason	One Orange Way	Vice President
	Windsor, CT 06095-4774

Brian J. Murphy	One Orange Way	Vice President
	Windsor, CT 06095-4774

David S. Pendergrass	5780 Powers Ferry Road, N.W.	Vice President and Treasurer
	Atlanta, GA 30327-4390

Ethel Pippin	One Orange Way	Vice President
	Windsor, CT 06095-4774

Michael J. Pise	One Orange Way	Vice President
	Windsor, CT 06095-4774

Spencer T. Shell	5780 Powers Ferry Road, N.W.	Vice President and Assistant Treasurer
	Atlanta, GA 30327-4390

Frank W. Snodgrass	9020 Overlook Blvd.	Vice President
	Brentwood, TN 37027

Christina M. Starks	2000 21^stAvenue NW	Vice President
	Minot, North Dakota 58703

Terran Titus	One Orange Way	Vice President
	Windsor, CT 06095-4774

S. Bradford Vaughan, Jr.	520 Pike Street, Suite 2510	Vice President
	Seattle, WA 98101

Judeen T. Wrinn	One Orange Way	Vice President
	Windsor, CT 06095-4774

Nancy S. Stillman	One Orange Way	Assistant Vice President
	Windsor, CT 06095-4774

Megan A. Huddleston	One Orange Way	Secretary
	Windsor, CT 06095-4774

Tina M. Nelson	20 Washington Avenue South	Assistant Secretary
	Minneapolis, MN 55401

Melissa A. O’Donnell	20 Washington Avenue South	Assistant Secretary
	Minneapolis, MN 55401

Jennifer M. Ogren	20 Washington Avenue South	Assistant Secretary
	Minneapolis, MN 55401

The Company hereby represents that with respect to plans established pursuant to Section 403(b)

of the Internal Revenue Code of 1986, as amended, that are subject to the Employee Retirement

Income Security Act of 1974, as amended (“ERISA”), it is relying on and complies with the

terms of the SEC Staff’s No-Action Letter dated August 30, 2012, with respect to participant

acknowledgement of and language concerning withdrawal restrictions applicable to such plans.

See ING Life Insurance and Annuity Company; S.E.C. No-Action Letter, 2012 WL 3862169,

August 30, 2012.

Except in relation to 403(b) plans subject to ERISA, the Company hereby represents that it is

relying on and complies with the provisions of Paragraphs (1) through (4) of the SEC Staff’s No-

Action Letter dated November 28, 1988, with respect to language concerning withdrawal

restrictions applicable to plans established pursuant to Section 403(b) of the Internal Revenue

Code of 1986, as amended. See American Council of Life Insurance; S.E.C. No-Action Letter,

1988 WL 1235221, November 28, 1988.

Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted

to directors, officers and controlling persons of the Registrant pursuant to the foregoing

provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and

Exchange Commission such indemnification is against public policy as expressed in the Act and

is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities

(other than the payment by the Registrant of expenses incurred or paid by a director, officer or

controlling person of the Registrant in the successful defense of any action, suit or proceeding) is

asserted by such director, officer or controlling person in connection with the securities being

registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by

controlling precedent, submit to a court of appropriate jurisdiction the question of whether such

indemnification by it is against public policy as expressed in the Act and will be governed by the

final adjudication of such issue.

ING Life Insurance and Annuity Company represents that the fees and charges deducted under

the contracts covered by this registration statement, in the aggregate, are reasonable in relation to

the services rendered, the expenses expected to be incurred, and the risks assumed by the

insurance company.


As filed with the Securities and Exchange		Registration No. 333-153730
Commission on December 20, 2012		Registration No. 811-02513

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4


Post-Effective Amendment No. 7 To
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Variable Annuity Account C of
ING Life Insurance and Annuity Company
One Orange Way, Windsor, Connecticut 06095-4774
Depositor’s Telephone Number, including Area Code: (860) 580-2824
J. Neil McMurdie, Senior Counsel
ING US Legal Services
One Orange Way, C2N, Windsor, Connecticut 06095-4774
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:
X	immediately upon filing pursuant to paragraph (b) of Rule 485
	on ________________ pursuant to paragraph (b) of Rule 485
If appropriate, check the following box:
	this post-effective amendment designates a new effective date for a previously
	filed post-effective amendment.
Title of Securities Being Registered: Group Deferred Variable Annuity Contracts


ING Life Insurance and Annuity Company
and its
Variable Annuity Account C

ING EDUCATOR’S DIRECT


Supplement dated December 20, 2012 to the
Statement of Additional Information, dated April 30, 2012


The following information updates and amends certain information contained in the current Statement of Additional
Information. Please read it carefully and keep it with your Statement of Additional Information for future reference.


IMPORTANT INFORMATION REGARDING THE COMPANY’S FINANCIAL STATEMENTS

The consolidated financial statements of ING Life Insurance and Annuity Company included in the Statement of
Additional Information dated April 30, 2012 are deleted and replaced with the attached consolidated financial
statements.




Insurance products, annuities and retirement plan funding issued by (third party administrative services may also be provided
by) ING Life Insurance and Annuity Company. *Securities are distributed by ING Financial Advisers, LLC (member SIPC), One*
*Orange Way, Windsor, CT 06095. Securities may also be distributed through other broker-dealers with which ING Financial*
*Advisers, LLC has selling agreements.*


X.153730-12	1	December 2012


ING Life Insurance and Annuity Company and Subsidiaries
(A wholly-owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Statements of Cash Flows
(In millions)
		Years Ended December 31,
		2011			2010			2009
Cash Flows from Financing Activities:
Deposits received for investment contracts	$	3,115.4		$	2,022.2		$	2,069.6
Maturities and withdrawals from investment contracts		(2,403.6	)		(2,309.7	)		(2,123.6	)
Short-term loans to affiliates		(343.9	)		(16.9	)		(300.2	)
Short-term repayments of repurchase agreements, net		(214.7	)		214.6			(615.2	)
Dividends to parent		—			(203.0	)		—
Contribution of capital from parent		201.0			—			365.0
Net cash provided by (used in) financing activities		354.2			(292.8	)		(604.4	)
Net increase (decrease) in cash and cash equivalents		(13.9	)		(12.3	)		39.8
Cash and cash equivalents, beginning of period		231.0			243.3			203.5
Cash and cash equivalents, end of period	$	217.1		$	231.0		$	243.3
Supplemental cash flow information:
Income taxes paid, net	$	108.4		$	0.6		$	13.7
Interest paid	$	0.3			—		$	4.8
Non-cash transfer Loan-Dutch State obligation	$	—		$	—		$	798.9


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




10


ING Life Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Lion Connecticut Holdings Inc.)

Consolidated Statements of Comprehensive Income
(In millions)

	Years Ended December 31,
		2011		2010			2009
Net income (loss)	$	320.3		$	377.9		$	321.4
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities		483.8			465.6			1,049.2
Other-than-temporary impairments		21.3			(12.7	)		(46.7	)
Pension and other post-employment benefit liability		7.6			(1.4	)		12.5
Other comprehensive income (loss), before tax		512.7			451.5			1,015.0
Income tax benefit (expense) related to items of other
comprehensive income (loss)		(155.7	)		(77.3	)		(286.2	)
Other comprehensive income (loss), after tax		357.0			374.2			728.8

Comprehensive income (loss)	$	677.3		$	752.1		$	1,050.2


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




7


Item 25. Directors and Officers of the Depositor*

Name	Principal Business Address	Positions and Offices with Depositor

Patrick G. Flynn	Amstelveenseweg 500	Director and Chairman
	1081 KL Amsterdam
	The Netherlands
Mary (Maliz) E. Beams	One Orange Way	Director and President
	Windsor, CT 06095-4774
Donald W. Britton	20 Washington Avenue South	Director
	Minneapolis, Minnesota 55401


(c) Compensation to Principal Underwriter during last fiscal year:

(1)		(2	)	(3	)	(4	)		(5	)

Name of		Net Underwriting		Compensation
Principal		Discounts and		on Redemption		Brokerage
Underwriter		Commissions		or Annuitization		Commissions			Compensation*

ING Financial								$	56,593,822.08
Advisers, LLC

*	Reflects compensation paid to ING Financial Advisers, LLC attributable to regulatory and
	operating expenses associated with the distribution of all registered variable annuity
	products issued by Variable Annuity Account C of ING Life Insurance and Annuity
	Company during 2011.


	registration statement are never more than sixteen months old for as long as payments
	under the variable annuity contracts may be accepted;

(b)	to include as part of any application to purchase a contract offered by a prospectus
	which is part of this registration statement on Form N-4, a space that an applicant can
	check to request a Statement of Additional Information; and

(c)	to deliver any Statement of Additional Information and any financial statements
	required to be made available under this Form N-4 promptly upon written or oral
	request.


VARIABLE ANNUITY ACCOUNT C OF
ING LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)

By:	ING LIFE INSURANCE AND ANNUITY
	COMPANY
	(Depositor)

By:	Mary (Maliz) E. Beams*
	Mary (Maliz) E. Beams
	President
	(principal executive officer)


Signature	Title		Date

Mary (Maliz) E. Beams*	Director and President		)
Mary (Maliz) E. Beams	(principal executive officer)		)
			)
Patrick G. Flynn*	Director and Chairman		) December
Patrick G. Flynn		)	20, 2012
			)
Donald W. Britton*	Director		)
Donald W. Britton			)
			)
Alain M. Karaoglan*	Director		)
Alain M. Karaoglan			)
			)
Rodney O. Martin*	Director		)
Rodney O. Martin			)
			)
Michael S. Smith*	Director		)
Michael S. Smith			)
			)
Ewout L. Steenbergen*	Director, Executive Vice President and Chief Financial		)
Ewout L. Steenbergen	Officer		)
			)


Steven T. Pierson*	Senior Vice President and Chief Accounting Officer	)
Steven T. Pierson		)

By: /s/J. Neil McMurdie
J. Neil McMurdie
*Attorney-in-Fact


Exhibit No.		Exhibit
24(b)(9)		Opinion and Consent of Counsel
24(b)(10)		Consent of Independent Registered Public Accounting Firm