A.M. Best Affirms Financial Strength and Debt Ratings of State Auto Insurance Companies; Assigns Issuer Credit Rating and Upgrades Rating of Two Meridian Companies

Business Wire, Jan 19, 2005

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) of State Auto Insurance Companies (State Auto) (Columbus, OH) and assigned it an issuer credit rating (ICR) of "aa-". A.M. Best has also affirmed the debt rating of "a-" on the $100 million 6.25% senior unsecured notes issued by State Auto Financial Corporation (NASDAQ: STFC) (Columbus, OH) and its ICR of "a-". Concurrently, A.M. Best has upgraded the financial strength rating to A+ (Superior) from A (Excellent) of Meridian Citizens Mutual Insurance Company (Meridian Citizens) and Meridian Security Insurance Company (Meridian Security) (both of Indianapolis, IN). As of January 1, 2005, Meridian Citizens and Meridian Security were added to the State Auto pool and as such, now carry the pool rating. The outlook for all ratings remains stable.

The ratings reflect State Auto's strong capitalization, generally favorable earnings and excellent regional market franchise. These attributes reflect its long-standing market presence, well-established agency relationships, diversified product offerings and adherence to sound underwriting fundamentals.

Somewhat offsetting these positive rating factors include variability in operating results in recent years, which reflects weather-related losses, rising loss costs and adverse loss reserve development on the Meridian business. In addition, the pool will have debt servicing requirements due to the above mentioned debt issuance, which could put a strain on future earnings. However, State Auto has implemented numerous initiatives to improve earnings, which includes re-underwriting, pricing adjustments and agency management actions. As a result of these actions, firm market conditions and the recent improvement in loss reserve development related to the Meridian business, State Auto's operating results improved significantly in 2003 and 2004.

The financial strength ratings of A+ (Superior) have been affirmed with a stable outlook for State Auto Insurance Companies and its following members:

--State Auto Florida Insurance Company

--Farmers Casualty Insurance Company

--Milbank Insurance Company

--State Auto Property and Casualty Insurance Company

--State Auto Insurance Company of Wisconsin

--State Auto National Insurance Company

--State Automobile Mutual Insurance Company

--State Auto Insurance Company of Ohio

An issuer credit rating of "aa-" has been assigned with a stable outlook to State Auto Insurance Companies.

An issuer credit rating of "a-" has been affirmed with a stable outlook for State Auto Financial Corporation.

The financial strength rating of A (Excellent) has been upgraded to A+ (Superior) with a stable outlook for the following State Auto Insurance Companies' members:

--Meridian Citizens Mutual Insurance Company

--Meridian Security Insurance Company

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

State Auto Financial Corporation--

--"a-" on $100 million 6.25% senior unsecured notes, due 2013

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

For current Best's Ratings, independent data and analysis on more than 3,000 individual property/casualty companies, groups and industry composites, please visit http://www.ambest.com/pc.

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.