A.M. Best Completes Second Stage of Research Toward Development of Investment Benchmark for Life/Health Insurers.

OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 16, 1998--Life/health insurers are a step closer to having an effective means of measuring how their investment strategies stack up against those of their peers, according to a report published today by A.M. Best Co.

The report outlines the second phase of an investment benchmarking project being conducted by A.M. Best in conjunction with Summit Research, a St. Louis-based institutional investment consulting firm, and Capital Management Sciences, provider of the BondEdge analytical system. The results show how asset mix, duration and asset quality affected the industry's 1997 investment performance. The portfolio characteristics of the top performers are compared to those of the average within the context of selected liability-based peer groups.

The ongoing project is designed to create investment performance benchmarks that take into account the unique liability structures of life/health insurers.

The study is "an important step toward providing a meaningful basis for evaluating the effectiveness of insurance company investment strategies," said Michael Albanese, vice president of A.M. Best's life/health ratings division. "It can be of particular value to insurance company investment managers, because it provides a view of investment performance within the context of the companies' liability structures."

A.M. Best embarked on this project because it believes the demand for investment performance measures has heated up as the financial service industries have converged. Competition is putting increased pressure on investment managers to add value by enhancing yield, focusing on total return and improving spreads. Appropriate benchmarks have eluded the industry due to a lack of comparable asset and liability data. The current project is designed to overcome that obstacle.

The 1997 total return and income return performance of over 1,000 life insurance company investment portfolios was analyzed within the context of liability-based peer groups to determine the key drivers of performance.

The analytical model has been refined since the project was first introduced last year. A.M. Best, which develops the peer groups based on its comprehensive proprietary liability database, has refined the groups to ensure that they include fewer, more similar companies. The asset data also have been refined, with CMS providing CUSIP-level modeling of all of the life/health industry's 688,000 fixed-income securities.

The A.M. Best research is a work in progress. Enhancements planned

for the coming year include:

-- Use of "live" data, rather than approximations based on Schedule D

filings; -- Incorporation of more detailed liability information; and -- Greater integration of asset-liability management techniques.

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