S&P Reports SAFECO Corp. and P/C Subsidiaries Ratings Affirmed; Outlook Stable

March 17, 2004

Standard & Poor’s has affirmed its ‘BBB+’ long-term counterparty credit rating on Seattle-based SAFECO Corp. and its ‘A+’ counterparty credit and financial strength ratings on the members of the SAFECO Insurance Co. Intercompany Pool (collectively referred to as SAFECO). The outlook is stable.

The affirmation follows the holding company’s announcement of plans to sell its life companies and investment operations. The ratings reflect improved strategic focus, the strong business position of the property/casualty pool, strong capital adequacy, and improved operating performance and investment strategy. At the holding company, interest coverage and financial leverage in 2004 are expected to be 3x-4x and 33 percent, respectively, both of which are in line with the ratings.

Partially offsetting these positive factors are group’s exposure to catastrophe losses from severe earthquakes in California, the Pacific Northwest, and New Madrid. In addition, there are uncertainties associated with group’s ability to produce sustainable earnings after disposition of its life and investment business lines.

Although Standard & Poor’s believes the effect of corrective actions will enable SAFECO’s operating results to continue improving, the group faces execution risk to produce sustainable earnings, especially in light of disposition of its noncore lines of business – life and investments – which historically were a reliable source of income. SAFECO’s operating performance is expected to continue to improve over the next two years. Capital adequacy is expected to be about 160 percent at year-end 2003 and increase to about 170 percent over the medium term.

In 2004, financial leverage is expected to remain at or less than current levels, while interest coverage is expected to be 3x-4x. With the significant part of SAFECO’s restructuring completed, Standard & Poor’s believes the group is well positioned to benefit from the significant corrective actions and hardening property/casualty market.

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