A.M. Best Lowers Guardian Life Rating To "A+" - Superior

Business Wire, July 11, 1997

OLDWICK, N.J.--(BUSINESS WIRE)--July 11, 1997--Effective immediately, Guardian Life Insurance Co. and Guardian Insurance & Annuity Co. Inc., both of New York, N.Y., had their Best's Ratings of "A " (Superior) lowered to "A " (Superior).

The action reflects the company's difficulty re-establishing sales momentum and sustaining productivity in its life segment, especially in light of reduced demand for life insurance products. It also acknowledges the competitive pressure faced by the company as it continues to shift its group medical line toward becoming a regional provider of managed care.

The company has developed sound strategic operational plans for each of its primary business units. A.M. Best will continue to monitor these initiatives and believes the company's superior capitalization gives it a high degree of flexibility in reinvigorating its individual life and non-medical group insurance operations while continuing to build a more prominent presence in its equity and pension businesses.

The Superior rating reflects superior capitalization, the high quality of the company's investment portfolio--which leads to and supports exceptional liquidity--and its conservative operating strategy. It also acknowledges the company's diversified product portfolio and earnings sources, which are supported by strong positions the company has attained in its individual life, group insurance and equity-based product segments. Guardian also holds a prominent role in the industry as a reinsurer of life insurance written by other companies.

Guardian has experienced considerable reductions in the number of new policies in each of the past four years. Nevertheless, its focus on the upper-income market enabled it to annually increase first-year premium production modestly in 1994 and 1995. In 1996, however, a 14% reduction in the amount of policies issued resulted in a 14% decline in first-year premium income. Contributing to the decline was a reduction in the dividend scale, which substantially reduced sales in Guardian's brokerage operations. Although the dividend scale has since been increased and sales during the first quarter of 1997 have rebounded somewhat, sales results remain below those achieved in 1995.

While A.M. Best believes new and revised products, together with considerable technological investments aimed toward enhancing service to producers and policyholders, will enable sales to improve, the company still faces competitive pressure in its targeted upscale market. A.M. Best also believes the company will be find it difficult to sustain profitability in its group insurance segment, as ongoing premium revenue reductions in its medical indemnity line will need to be offset by expansion of its managed care, dental, life and disability operations.

Guardian's conservatively managed $11.2 billion investment portfolio is of excellent quality. Government and investment-grade corporate and public utility bonds represented nearly two-thirds of invested assets at the end of 1996. Although the company's holdings of equity securities, at 19% of invested assets, is greater than those of its peers, the portfolio is managed to ensure a highly diversified mix of utility, bank and industrial common and preferred stocks. Its common stock portfolio has provided the company with excellent total returns.

Guardian's excellent liquidity is supported by consistently strong cash flow and $7 billion of investment-grade bonds, cash and short-term investments (67% of invested assets, excluding policy loans).

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source.

CONTACT: Jeffrey Dunsavage

908/439-2200, ext. 5618

dunsavj@ambest.com