A.M. Best Affirms Financial Strength Rating of Phoenix Life Insurance Company and Key Subsidiaries and Changes Outlook to Negative; Downgrades Long-Term Debt Ratings.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of Phoenix Life Insurance Company (Phoenix Life) (Greenbush, NY) and its affiliates, PHL Variable Insurance Company, Phoenix Life and Annuity Company and AGL Life Assurance Company, all of which represent the core insurance operations of The Phoenix Companies, Inc. (Phoenix) (Hartford, CT) (NYSE: PNX). The rating outlook has been revised to negative from stable.

Concurrently, A.M. Best has downgraded the long-term debt ratings to "bbb+" from "a-" on Phoenix Life's $175 million surplus notes and to "bbb" from "bbb+" on Phoenix's $300 million 30-year senior unsecured notes. A.M. Best has assigned a subordinated debt rating of "bbb-" to Phoenix's $150 million unsecured convertible notes due February 2008. The outlook for all debt ratings is negative.

These actions reflect A.M. Best's concerns regarding the continued decline in Phoenix's statutory capital, on both an absolute and risk-adjusted basis, as well as its relatively flat GAAP equity, elevated intangibles to equity ratio and subpar--albeit improving--operating returns over the last several years. More specifically, A.M. Best has observed that the levels of statutory capital of many life insurance groups have generally increased since year-end 2002, while Phoenix's capital position has diminished modestly. In addition, A.M. Best believes that the company will be challenged to grow sales and maintain persistency given the competitiveness of Phoenix's target market as well as the strength and extensive resources of its competitors.

Since 2001, Phoenix has experienced substantial strategic, cultural and structural changes that will persist in the near term as the company restructures and rebuilds its business, distribution and operating profile, particularly within its asset management segment. Although Phoenix continues to refine its strategic focus facilitating a positive earnings trend in its life and annuity segment, the group's overall levels of earnings and capitalization remain well below those of similarly rated companies. A.M. Best believes that the company faces significant challenges in rationalizing its asset management business, which entails reducing the level of significant fund outflows and achieving solid long-term returns, both of which are critical to the success of Phoenix's asset management segment.

The current ratings reflect Phoenix's solid position in the high net worth individual life marketplace, improving operating fundamentals within its life insurance and annuity segment, strong product risk management disciplines and reduced exposure to high-risk assets. In recent years, the company has made progress in reducing expenses, outsourcing non strategic business functions, decreasing its exposure to venture capital investments, repositioning the annuity business, selling its retail distribution and focusing its strategy as a manufacturer of products meeting the wealth management needs of the high net worth marketplace.

Phoenix's future earnings and cash flows are anchored by its sizable closed block, which amounts to approximately 40% of its policyholder liabilities. The earnings from its life and annuity segment adequately support the company's financial leverage, which was about 25% at June 30, 2004. A.M. Best does not expect Phoenix's debt-to-capital ratio to increase materially in the near to medium term.

Additionally, A.M. Best has lowered the financial strength rating to A- (Excellent) from A (Excellent) of American Phoenix Life and Reassurance Company (Hartford, CT) to reflect the entity's non-core status and the run-off nature of its operations.

For a list of A.M. Best's debt ratings, please visit http://www.ambest.com/debt.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.