A.M. Best Affirms Nationwide’s FSRs, Assigns Initial Debt Ratings

June 26, 2001

A.M. Best Co. affirmed the A+ (Superior) financial strength ratings (FSR) of the primary property/casualty operations of the Nationwide Group, Columbus, Ohio, as well as its affiliated life insurance companies.

In addition, A.M. Best assigned the following debt ratings: “a” senior debt rating to Nationwide Financial Services Inc.; “a” surplus note rating to Nationwide Mutual Insurance Company; and “a-” ratings on the trust preferred securities issued by Nationwide Financial Services Capital Trust and Capital Trust II and AMB-1 commercial paper rating to Nationwide Life Insurance Company.

The property/casualty FSR applies to the four pool members led by Nationwide Mutual Insurance Company, 15 reinsured affiliates and is based on the consolidation with two separately rated property/casualty subsidiaries. Despite the affirmation, a negative outlook has been placed on the property/casualty group’s rating. The property/casualty FSR is supported by Nationwide’s strong capitalization, the value of the Nationwide franchise and market leadership within the property/casualty industry.

According to A.M. Best, rating factors are derived from Nationwide’s overall market knowledge, customer loyalty and efficient cost structure. Finally, the rating takes into account the diversified earnings stream provided through affiliated companies that include NFS. A.M. Best also stated that the negative outlook on the property/casualty FSR relates to A.M. Best’s concern regarding Nationwide’s operating performance relative to its “Superior”-rated peers, due to increased loss cost trends, intensely competitive personal automobile market conditions and susceptibility to significant weather-related events, as well as the implementation risk associated with strategic initiatives.

Nonetheless, Nationwide Group’s capitalization remains supportive of its current ratings. A.M. Best believes the payment of interest from policyholder’s surplus on the surplus notes as stipulated in the documentation at Nationwide Mutual Insurance Company will continue to be replenished from earnings. Financial leverage at Nationwide Financial Services is conservative at under 15 percent–as measured by debt to adjusted capital–with 100 percent equity credit given to its preferred securities and fixed coverage ratio in the low double digit area.

Nationwide’s life operations remain a core business for the group, and have historically provided a significant and stable source of earnings, mitigating the more volatile performance of the property/casualty operations and providing diversification to the organization.

The partial public ownership of Nationwide also enhances the group’s financial flexibility, allowing easier access to the capital markets for a variety of purposes. The financial strength rating on the life subsidiaries recognizes the leading positions in the qualified and non-qualified retirement savings market, the diverse array of products and extensive and effective distribution channels. Supported by its strong earnings base, NFS has exhibited solid GAAP capitalization.

Further, the explicit support of its mutual parent, as demonstrated in the Gartmore acquisition, puts NFS in a favorable position relative to its peers.

Nationwide has built a dominant position in the personal lines property/casualty market and a growing presence in the life/retirement savings fields and ranks as the fourth largest domestic property/casualty insurance company and among the top three annuity writers in the U.S.

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