Safeco Insurance Intercompany Ratings Affirmed, Outlook Positive

June 1, 2006

Standard & Poor’s Ratings Services said today it affirmed its “A+” counterparty credit and financial strength ratings on the Safeco Intercompany Pool members. S&P also affirmed its “BBB+” counterparty credit and senior debt ratings and “A-2” commercial paper ratings on parent Safeco Corp. The outlook is positive, it said.

“The ratings on the Safeco Intercompany Pool members and its parent reflect the group’s sustained strong competitive positioning in the U.S. property/casualty marketplace, and improved operating performance in recent years,” explained Standard & Poor’s Credit Analyst Michael Gross. As of year-end 2005, Safeco was the 17th-largest property/casualty insurer in the United States, based on annual direct premium written. The group’s consolidated full-year 2005 GAAP pretax operating earnings for ongoing operations were a healthy $925 million versus $692 million the prior year, and $289 million for the first three months of 2006. As of March 31, 2005, long-term debt to capital totaled a satisfactory 26 percent.

As competitive pressures increase and rates potentially soften for the remainder of 2006, Safeco is expected to improve its expense ratio in 2006 and 2007 and to maintain underwriting profitability, S&P said. Net premium growth is expected to remain modest at low single-digit levels for full-year 2006. Capital adequacy is expected to remain very strong and consolidated financial leverage is expected to remain at current levels, while interest coverage is expected to be at least 8x.

The ratings could be raised within approximately 12 months should management continue to generate strong earnings and exercise strong underwriting discipline with a new senior management team in a softer pricing environment. The outlook could be revised to stable if greater expense efficiency proves an elusive goal, if operating fundamentals unexpectedly deteriorate, or should the strategic plans or their execution by the new CEO Paula Rosput Reynolds, and pending new Chief Financial Officer Ross Kari prove incompatible with a higher rating level.

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at All ratings affected by this rating action can be found on Standard & Poor’s public Web site at; under Credit Ratings in the left navigation bar, select “Find a Rating,” then “Credit Ratings Search.”

Source: S&P

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