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Four analysts and top management from fifteen sector firms examine the Property & Casualty/Insurance Brokers sector in this special 72-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info412.htm

TWST: Cliff, how about you? What distinguishes the approach you take to the group?

Mr. Gallant: Like some of the others, we follow the entire group. We’re focusing at this point on the large cap names, but KBW is rolling out coverage of small caps, putting equal emphasis on both groups. First, we look at the industry as a whole and try to understand what’s going on in terms of the industry fundamentals in the sectors within the non-life group. From there, we look at specific companies, and I like to start with a balance sheet analysis and the quality of reserves. That’s a good starting point for understanding the future earnings power of a company because the reserves, I think, reflect what the real past has been.

TWST: What’s your valuation methodology, Cliff?

Mr. Gallant: In terms of valuation, we use price to book and price to earnings. But I think a component of price to book is understanding how real the book value is, and that’s part of what reserve analysis is supposed to tell us.

TWST: Cliff, Ken points out that the group has underperformed the general market. But how do you see the performance of the P&C, reinsurance and broker stocks compared to life insurance and other groups within the financial services?

Mr. Gallant: Just building on what we’ve been discussing, in terms of the group moving together or not, we’ve come off a two-year period in 1999-2000 where the whole group was down a lot and then came back a lot — moving, I think, in course with each other. In 2001, particularly from a fundamental basis, there’s been a real divergence. Even within subsectors like reinsurance there have been some names that have blown up and there have been some real balance sheet issues, but some other names have reported outstanding results.

TWST: Cliff, you mentioned ACE Limited (NYSE:ACE) and Everest Re (NYSE:RE), and I should have asked you for your rationale behind the recommendations.

Mr. Gallant: Regarding ACE, in the near term it is positioned well for the shape of the pricing cycle turn. I think someone mentioned earlier that international rates are starting to improve, and ACE, with their ACE International operations (acquired from Cigna), their Lloyd’s business, and also with strongly growing reinsurance operations, is fairly well exposed to that international improvement. I would also point out that the quality of those operations is pretty high. When I look at each of ACE’s businesses, they’re just not standard cookie-cutter types of businesses. I think there is some type of value-added, whether it is in the domestic commercial lines, where they have operations connected to their ESIS claims organization, or at Lloyd’s, where they are a major player. So longer term, I think that makes ACE one of the higher quality companies. And I would also say that ACE management is one of the better teams out there. On a valuation basis, ACE is cheaper than several of its peers. I don’t think that the valuation fully reflects what their long-term growth prospects are or the underlying quality of the operations.

This special issue includes:

1) Property & Casualty/Insurance Brokers - In an in-depth (13,300 words) Analyst Roundtable, Jay Cohen, First Vice President at Merrill Lynch, Craig Elkind, Vice President at Credit Suisse Asset Management, Clifford Gallant, Vice President at Keefe, Bruyette & Woods, Inc. and Kenneth Zuckerberg, Vice President at Dresdner Kleinwort Wasserstein, examine the outlook for the sector including, condition of Lloyd's, cyclicality changes and share specific stock recommendations.

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