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Three analysts and top management from five sector firms examine the Life Insurance sector in this special 43-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info411.htm

TWST: Colin, what’s your expectation for 2002?

Mr. Devine: In looking ahead to 2002, I think life insurers will feel earnings pressures on two fronts. The first is with respect to lower interest rates and the impact that is having on returns from their general account investment portfolios, while the second relates to the effect equity market conditions have had on fees generated by their variable product separate account assets. With regard to the latter, most companies ended 2000 with their separate account assets under management being flat year over year, and we expect that will be the case this year as well, thereby implying three years of flat separate account asset growth. Somewhat offsetting this, the decline in interest rates has allowed some companies to lower crediting rates on older in-force policies such as fixed annuities, which has allowed them to widen spreads. In addition, we have certainly seen a slowing sales environment, particularly for products such as variable annuities. All in all, from our perspective, we think the pack has really started to separate.

TWST: Colin, which two stocks would you highlight today?

Mr. Devine: The two stocks that I still would be buying are Lincoln National (NYSE:LNC) and John Hancock (NYSE:JHF). We rate both a 1M (Buy, Medium Risk) and have price targets of $60 and $45, respectively. In the case of Lincoln, it has been a story of growth and change. Over the last three years since Jon Boscia became CEO, it has posted the fastest earnings growth, revenue growth, and ROE gains in the sector. All three drive share valuation and we see no evidence of any of them slowing down. In addition, as the sector’s leading consolidation candidate, Lincoln’s shares are poised to react very favorably to any further sector consolidation. Added to these factors, at the end of July, Lincoln announced it had reached an agreement with Swiss Re for the sale of its life reinsurance company, Lincoln Re. While Lincoln Re is a fantastic operation, by its nature as a reinsurance company, it introduced an element of volatility into parent Lincoln National’s quarterly earnings, which became a share valuation issue. Remember, this is a sector where investors put a huge premium on making numbers to the penny each quarter. Lincoln will realize an $800 million, or $4.16 per share capital gain from the sale that will bring its pro-forma book value up to almost $30.50. Our $60 price target is essentially 2 times this, which also equates to a very reasonable 14.5 times our 2002E EPS of $4.15. Lincoln also has several other potential catalysts on the horizon, including the potential sale of their discontinued UK life operations and turning net flows positive at their US annuity operations. Wrap that all together with above average EPS growth and the reinsurance sale and we are very confident the stock can deliver a potential 20% return from its current level and get itself up into the $60 range. I also like the 2.5% dividend yield the stock provides right now. In addition, of course, I think everybody has identified Lincoln as a potential consolidation candidate. In terms of takeout numbers, I think it will go for a price in the same range that American General did, or about 3 times book value. At the end of 2Q01, it was in the mid-$26 range, implying a price in the $75-$80 range, depending on what credit you give them for the capital gain off the life reinsurance company.

This special conference issue includes:

1) Life Insurance - In an in-depth (12,600 words) Analyst Roundtable, Alfred M. Capra, Managing Director at Putnam Lovell Securities Inc., Colin Devine, Managing Director at Salomon Smith Barney Inc. and Michelle A. Giordano, Vice President at J.P. Morgan Chase, examine the outlook for the sector including, reinsurance, Estate planning changes and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at twenty sector firms asked market insiders about the ability of management teams to create shareholder value.

3) CEO and Sponsored interviews (average 2,500 words). Top management of five sector firms examine the outlook for their firm and the sector.