Home State County Mutual’s ‘Bpi’ Affirmed

January 17, 2003

Standard & Poor’s Ratings Services affirmed its “Bpi” counterparty credit and financial strength ratings on Home State County Mutual Insurance Co., which has its headquarters in Waco, Texas

An S&P’s analyst said the company suffers from weak capitalization, lack of geographic diversity, marginal operating performance, and an elevated level of agent balances relative to surplus, which are at a four-year high of 172.5 percent in 2001. All of these factors influenced the ratings action.

The company was organized as a county mutual under Chapter 17 of the Texas Insurance Code with its affairs under the management of Home State Agency Inc. The company acts primarily as a fronting operation having ceded more than 86 percent of its direct business in each of the past five years. The mutual company writes mainly private passenger and commercial auto in its only licensed state of Texas and produces business through managing general agents. It was founded in 1948 and is a member of Home State Insurance Group Inc., a small insurance group with 2001 surplus of less than $25 million. Insurance affiliates include Equity Insurance Co. which was added to the group in September 2001.

As the lead company of Home State Insurance Group Inc., the company is rated on a standalone basis.

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