A.M. Best Special Report: FABS Issuance Increases; Investors Request Early Maturity Of Extendible Securities.

OLDWICK, N.J. -- Funding agreement-backed securities (FABS) issuance by U.S. life insurers increased significantly during the first half of 2007 as insurers took advantage of wider credit spreads and a steeper yield curve. Although conditions generally were more favorable during the first half of the year, the advent of the subprime crisis and the subsequent liquidity squeeze during the third quarter has caused significant widening of short-term credit spreads. As a result, the majority of investors holding extendible FABS have provided notice to insurers that the securities will not be retained and, therefore, will mature next year. The early maturity of extendible FABS may result in a negative financial impact on U.S. life insurers.

A.M. Best notes, however, that the 12 month notice period is a mitigating factor.

Other key findings of the report include:

* Overall FABS issuance totaled $21.8 billion, an increase of 27% from the same period in 2006.

* Issuance of longer dated notes has increased--47% of new issuance is being financed for five years or more.

* SEC-registered FABS issuance totaled $4.9 billion, up slightly from the same period in 2006.

* Two new non-registered FABS programs were launched in the first six months of 2007.

* The early maturity of extendible FABS may result in a negative financial impact for U.S. life insurers; however, A.M. Best notes that the 12 month notice period is a mitigating factor.

* Extendible FABS market is estimated to have reached nearly $30 billion in outstanding issuance.

For more information on trends and developments in the FABS market (both registered and non-registered) and registered non-FABS programs of U.S. life insurers, and A.M. Best's debt ratings of FABS programs, see www.ambest.com.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.