Fitch Places Safeco on Rating Watch Negative Following Acquisition Announcement

Business Wire, April 23, 2008

NEW YORK -- Fitch Ratings has placed its ratings on Safeco Corporation (SAF) on Rating Watch Negative following today's announcement that Liberty Mutual Group (LMG) has offered to purchase all outstanding common shares of SAF for $6.2 billion of cash, or an approximate 51% premium over yesterday's closing stock price (see rating list below).

Fitch's rating action reflects uncertainty about the effect of the transaction's ultimate financing on the capitalization of the combined entity's insurance subsidiaries. Safeco's capital strength was a key factor underlying Fitch's October 2007 decision to upgrade Safeco's ratings one notch. Additionally, the actions reflect concerns about increases in the combined entity's exposure to intangible assets and heightened underwriting leverage.

LMG has announced that it intends to fund the transaction with available cash, initial bridge financing prior to liquidating invested assets, and up to $1.5 billion of additional debt. Fitch notes that it considers current credit market conditions to be challenging.

Fitch will be reviewing the combined entity's 2007 results and capital adequacy under its stochastic economic capital model, Prism, shortly to determine the impact this transaction will have on the organization's capital adequacy. However, a pro-forma analysis indicates a potential one to two notch deterioration in Liberty Mutual's 2006 Prism score of 'A ', which would yield a combined result significantly lower than Safeco's stand-alone 2006 Prism score of 'AAA.'

Fitch's rating action also considers the operational and integration risks associated with transaction. Also, Fitch notes that industry-wide softening premium rates will likely place additional strain on LMG to successfully integrate its recent acquisitions while retaining recent run-rate profitability. Fitch plans to resolve the Rating Watch upon the closing of the transaction which is expected to be completed during the third quarter of 2008.

Fitch has placed the following ratings on Rating Watch Negative:

Safeco Corporation (SAF)

--Issuer Default Rating (IDR) 'A ';

--4.875% senior unsecured notes due 2010 'A';

--7.250% senior unsecured notes due 2012 'A'.

*Safeco Property/Casualty Group (Safeco)

--Insurer financial strength 'AA'.

*Members of the Safeco P/C Group include:

Safeco Insurance Co. of America

General Insurance Co. of America

American States Insurance Co.

American Economy Insurance Co.

Safeco Insurance Co. of Illinois

First National Ins. Co. of America

Safeco National Insurance Co.

American States Preferred Ins. Co.

American State Insurance Company of Texas

American States Lloyds Insurance Company

Insurance Company of Illinois

Safeco Surplus Lines Insurance Co.

Safeco Lloyds Insurance Company

Safeco Insurance Co. of Indiana

Safeco Insurance Co. of Oregon

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.