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TWST: Will you set the stage for us by telling us about the size of the non-life industry and the sectors that should be included under the non-life umbrella?

Mr. Cohen: Non-life insurance, which many people refer to as property and casualty insurance, includes a lot of different lines of business, both personal insurance and commercial insurance. Essentially, it’s companies that are taking either property risk or third party risk, such as liability insurance or workers’ comp insurance, rather than mortality risk or health risk. The size of the market is fairly substantial. Premiums written in 1999 were 287 billion, and that is actually split fairly evenly between commercial lines and personal lines. The largest single line of insurance is auto insurance. That includes both property and liability coverage, but auto insurance represents about 40% of the total premiums of the industry. So it’s a very important line of business. The other thing I would say is that the industry is not particularly concentrated. There are just over 1,000 non-life insurance organizations in the US, and in most lines of business there is very little price leadership. So it’s fairly fragmented and not very concentrated; it encompasses a lot of different lines of business, ranging from auto insurance to medical malpractice insurance to workers’ compensation to homeowners. So it encompasses a lot of different types of risks.

TWST: Certainly, there is no shortage of investment opportunity in the non-life sector. What do you see as the three most important factors that potential investors ought to focus on in this sector, adding to what you’ve already told us, and will you suggest some companies that have strength in those factors?

Mr. Cohen: There are three things that we look for. First, we want a company that operates in a segment of the business that is at least stable, if not getting better. So for us that means mainly commercial lines, and also reinsurance right now, which has been under a great strain but appears to be improving, and should improve more going forward. So we’re focusing on a sector that is stable or getting better. Second, we would like to see a good balance sheet from the insurance companies. The balance sheet is the plant, property and equipment for an insurance company. And that’s what allows them to write business. In addition, if there is a cyclical upswing in rates, or I should say that if the cyclical upswing in rates continues, companies that have holes in their balance sheet will have to fill those holes. And that takes away from earnings, meaning loss reserves specifically. So if reserves prove to be inadequate, those rate increases you’re achieving will have to get pushed back into the balance sheet, and investors won’t see that in the bottom line. So balance sheet is important. We would also like to see growth opportunities beyond just a cyclical one, a company that has real organic or secular growth opportunities. So who fits into that model? We like ACE Limited (NYSE:ACL), which is a Bermuda-based company. Another company that I would point to is Hartford Financial Services (NYSE:HIG). Hartford is a diversified company. In fact, just over half of its earnings comes from its life insurance business. It has a cyclical aspect. It has a sizable commercial lines business, yet its life business is really a growth business. Certainly the long-term demographics favor a company that writes annuities and savings-related products. In addition, the company has a wider distribution net than many others, and they’re a low-cost producer.