TASA MÍNIMA ACEPTABLE DE RENDIMIENTO (TMAR) – COSTO DE OPORTUNIDAD

The provision for income taxes from continuing operations is comprised of the following:

2010 2009 2008

Current $ 34,090 $ (21,088) $ 8,024

Deferred 38,425 62,521 75,467

Total income tax provision from continuing operations $ 72,515 $ 41,433 $ 83,491

Year ended December 31,

The following table presents a reconciliation between the statutory federal income tax rate and the Company’s effective federal income tax rate from continuing operations for the years ended December 31, 2010, 2009 and 2008:

2010 2009 2008

Statutory federal income tax rate 35.0% 35.0% 35.0%

Income tax effect of:

Investment income not subject to federal tax (2.2%) (4.9%) (1.4%)

Tax credits (2.9%) (4.9%) (2.5%)

State income taxes, net of federal benefit 0.7% (2.8%) 1.1%

Provision for policyholders' share of earnings

on participating business 0.3% 0.3% (13.2%)

Prior period adjustment (0.5%) (0.6%) (2.2%)

Income tax contingency provisions (3.9%) 0.9% 1.0%

Other, net (0.3%) 2.0% (2.2%)

Effective federal income tax rate from

continuing operations 26.2% 25.0% 15.6%

Year ended December 31,

Included above in the provision for policyholder’s share of earnings on participating business for the year ended December 31, 2008 is the income tax effect of the $207,785 decrease in undistributed earnings on participating business as discussed in Note 4.

A reconciliation of unrecognized tax benefits for the years ended December 31, 2010, 2009 and 2008 is as follows:

2010 2009 2008

Balance, beginning of year $ 81,390 $ 60,079 $ 61,286

Additions to tax positions in the current year 6,939 24,843 6,600 Reductions to tax positions in the current year - (2,670) (1,935) Additions to tax positions in the prior year 142 - 17,349 Reductions to tax positions in the prior year (47,922) (862) (23,221) Reductions to tax positions from statutes expiring (5,253) - -

Settlements (40) - -

Balance, end of year $ 35,256 $ 81,390 $ 60,079

Year ended December 31,

Included in the unrecognized tax benefits of $35,256 at December 31, 2010 was $2,937 of tax benefits that, if recognized, would increase the annual effective tax rate. Also included in the balance at December 31, 2010 is $32,319 of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting,

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Consolidated Financial Statements Years Ended December 31, 2010, 2009 and 2008

(Dollars in Thousands)

other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective rate but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company anticipates additional increases in its unrecognized tax benefits of $12,000 to $14,000 in the next twelve months, due to changes in the composition of the consolidated group. The Company does not anticipate that this increase in its unrecognized tax benefit will impact the effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in current income tax expense. The Company recognized approximately ($13,403) $2,430 and $6,916 in interest and penalties related to the uncertain tax positions during the years ended December 31, 2010, 2009 and 2008, respectively. The Company had approximately $1,575 and $14,978 accrued for the payment of interest and penalties at December 31, 2010 and 2009, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years 2005 and prior. Tax year 2006 is subject to a limited scope federal examination by the Internal Revenue Service (the “I.R.S.”) in regards to an immaterial matter. Tax years 2007, 2008 and 2009 are open to federal examination by the I.R.S. The Company does not expect significant increases or decreases to unrecognized tax benefits relating to federal, state or local audits.

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. The tax effect of temporary differences, which give rise to the deferred tax assets and liabilities as of December 31, 2010 and 2009, are as follows:

Deferred Deferred Deferred Deferred tax asset tax liability tax asset tax liability Policyholder reserves $ - $ 200,110 $ - $ 246,807 Deferred acquisition costs 26,976 - - 44,551 Investment assets - 169,852 141,330 - Policyholder dividends 18,706 - 19,861 - Net operating loss carryforward 193,828 - 212,633 - Pension plan accrued benefit liability 59,178 - 55,399 - Goodwill - 24,126 - 21,172 Experience rated refunds 19,335 - 87,397 - Other 18,267 - - 21,649 Total deferred taxes $ 336,290 $ 394,088 $ 516,620 $ 334,179

December 31,

2010 2009

Amounts presented for investment assets above include ($145,517) and $58,348 related to the net unrealized losses (gains) on the Company’s fixed maturity and equity investments, which are classified as available-for-sale at December 31, 2010 and 2009, respectively.

The Company, together with certain of its subsidiaries, and Lifeco U.S. have entered into an income tax allocation agreement whereby Lifeco U.S. files a consolidated federal income tax return. Under the agreement, these companies are responsible for and will receive the benefits of any income tax liability or benefit computed on a separate tax return basis.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

Notes to Consolidated Financial Statements Years Ended December 31, 2010, 2009 and 2008

(Dollars in Thousands)

The Company has federal net operating loss carry forwards generated by a subsidiary that files an income tax return separate from the Lifeco U.S. consolidated federal income tax return. As of December 31, 2010, the subsidiary had net operating loss carry forwards expiring as follows:

Year Amount 2020 $ 149,162 2021 113,002 2022 136,796 2023 81,693 Total $ 480,653

During 2010, the Company generated $36,039 of Guaranteed Federal Low Income Housing tax credit carryforwards. The credits will expire in 2030.

Included in due from parent and affiliates at December 31, 2010 and 2009 is $199,884 and $166,991, respectively, of income taxes receivable from Lifeco U.S. related to the consolidated income tax return filed by the Company and certain subsidiaries. Included in the consolidated balance sheets at December 31, 2010 and 2009 is $10,311 and $34,905 of income taxes receivable in other assets related to the separate federal income tax returns filed by certain subsidiaries, state income tax returns and unrecognized tax benefits.