A.M. Best Assigns Debt Rating to Surplus Notes & Affirms Financial Strength Rating of Farmers Insurance Group

Business Wire, August 16, 2004

OLDWICK, N.J. -- A.M. Best Co. has assigned a debt rating of "bbb " to $100 million 6.125% surplus notes, due 2014, issued by Farmers Insurance Exchange. The proceeds from the notes will be used for general corporate purposes. Concurrently, A.M. Best has affirmed the financial strength rating of A (Excellent) of Farmers Insurance Group (Farmers) (both of Los Angeles, CA). The outlook on all ratings is stable.

The rating of Farmers reflects its market leadership position, prudent risk-management efforts, its strategic importance to Zurich Financial Services (Zurich) (Switzerland), the ultimate parent of Farmers Group, Inc. , the insurance group's attorney-in-fact, as well as the financial flexibility Farmers Group, Inc. provides. Offsetting these strengths is Farmers' diminished capitalization, high underwriting leverage and unfavorable operating performance of the last few years. Based on Farmers' improved underwriting experience in 2003, its continued strategic importance to Zurich and the recent strengthening of its risk-adjusted capitalization, the outlook remains stable.

Farmers is the third-largest property/casualty insurer in the United States, with a particularly strong market position in the West and Southwest regions. The rating applies to 15 pool members, led by Farmers Insurance Exchange, and three reinsured affiliates. Zurich is one of the top five insurers in the world with $56 billion in gross premiums. Although Farmers is not owned by Zurich, but is managed by Farmers Group, Inc., Farmers accounts for approximately 25% of Zurich's worldwide premiums and is a dominant personal lines insurer with strong brand name recognition and the ability to provide the overall organization with cross-marketing opportunities and best practices expertise. Farmers' affiliation with Zurich has facilitated its expansion into the eastern United States over the past three years, improved its insurance product density and enhanced its strategy of providing a diverse mix of financial products and services.

A.M. Best anticipates that Farmers will report significantly improved operating trends over the near term, barring the occurrence of greater than normal catastrophe losses. Farmers has taken substantive actions to enhance its underwriting performance through both aggressive pricing actions and strengthened underwriting controls. These measures resulted in improved personal auto and homeowners' underwriting margins into 2002 and 2003. The group's commercial lines margins should improve substantially going forward from the highly depressed levels seen over the last five years due to improved pricing and more focused risk segmentation.

The following debt rating has been assigned with a stable outlook:

Farmers Insurance Exchange--

--"bbb " on $100 million 6.125% surplus notes, due 2014

The financial strength rating of A (Excellent) has been affirmed with a stable outlook for Farmers Insurance Group and its following members:

--Farmers Insurance Exchange

--Mid-Century Insurance Company

--Truck Insurance Exchange

--Fire Insurance Exchange

--Farmers Insurance Company of Oregon

--Farmers Insurance Company of Washington

--Civic Property and Casualty Company

--Exact Property and Casualty Company

--Farmers Insurance of Columbus, Inc.

--Neighborhood Spirit Property and Casualty Company

--Texas Farmers Insurance Company

--Farmers Insurance Company of Idaho

--Farmers Insurance Company, Inc.

--Farmers New Century Insurance Company

--Illinois Farmers Insurance Company

--Farmers Insurance Company of Arizona

--Farmers Texas County Mutual Insurance Company

--Mid-Century Insurance Company of Texas

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