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TWST: Let’s start with a general overview of the life insurance area and the property-casualty area that you cover.

Mr. Lewis: The life insurance group overall is very well positioned to continue to outperform the S&P 500 over the next six to 12 months, in my view. Historically, two key drivers of the life insurance group’s valuations have been the direction of interest rates and the life insurance group’s relative earnings growth. Both of these factors favor life insurance stock investing today. Over the past several business cycles when the Fed was cutting interest rates, this group performed very positively, as investors view life insurers somewhat as bond proxies, whose values will rise in a declining interest rate environment due to the large bond holdings within their portfolio. Second, very key is the group’s relative earnings growth. The life insurance sector includes companies that have very stable and predictable double-digit earnings growth, despite economic cycles. One exception, however, is the variable annuity writers. They are somewhat more tied to the values of the equity markets because they charge fees reflective of the average balance of those separate account values held on their balance sheet. Therefore, as equity values decline, fee growth slows, pressuring earnings. Focusing on the earnings performance of the life insurance sector, excluding the variable annuity writers, we believe the group will continue to report very solid double-digit earnings growth trends. As the insurance sector’s earnings growth becomes more favorable on a relative basis, we expect investor attention will build in the group over the next three to six months. Our top pick for 2001 is UNUMProvident (NYSE:UNM), which is very much a turnaround story. It is showing some improved sales and earnings growth trends that we expect will re ignite investor attention to this leading disability writer. We expect UNUMProvident to trade at 37 within the next six to 12 months, generating over a 30% return.

TWST: What do you see as the overall growth strategies mix and where might the hot spots be?

Mr. Lewis: In the life insurance industry, the fastest growing area over the past few years has been the variable annuity line as well as other asset accumulation products. Given the volatile equity markets today, we would anticipate that the variable annuity earnings growth rates of the companies we follow will clearly slow in 2001, until the equity markets turn around and people feel a little more comfortable investing directly into the market. However, we do believe that the variable life insurance business will be one of the fastest growing areas as policyholders can utilize these products on a longer-term basis providing death benefits in addition to a savings vehicle for future retirement. Those companies will likely benefit from the equity market valuation improvements relative to a fixed return that might be received in other life insurance products. There continues to be a significant need for disability insurance coverage as there is 5 times the likelihood that an individual between 35 years of age and 65 years of age will become disabled for some period of time, rather than die. Many financial planners are encouraging individuals in this age group to buy a disability product before they actually buy a death benefit or a life insurance type product. This would clearly benefit the leader in the industry, UNUMProvident.