S&P’s Assigns SAFECO’s $775M Shelf Preliminary Ratings

January 7, 2003

Standard & Poor’s Ratings Services said that it assigned its preliminary ‘BBB+’ senior debt, ‘BBB’ subordinated debt, and ‘BBB-‘ preferred stock ratings to Seattle-based SAFECO Corp.’s (SAFECO) $775 million universal shelf registration based on SAFECO’s strong business position as the 13th largest property/casualty writer in the U.S., improved strategic focus with the entrance of a new management team in 2001, strong consolidated capital adequacy, and improved investment strategy.

The shelf, which was filed on Dec. 31, 2002, replaces a previous one filed by SAFECO in May 2002.

“Partially offsetting the positive rating factors are the poor operating performance of SAFECO’s property/casualty operations and marginal interest coverage at the holding company level since its acquisition of American States Financial Corp. in 1997,” noted S&P’s credit analyst Laline Carvalho. “However, significant restructuring and re-underwriting actions taken by management over the past 18-24 months have contributed to a marked improvement in SAFECO’s operating results in 2002.”

S&Ps expects any drawdowns on the shelf to have no material impact on financial leverage. SAFECO’s financial leverage has improved in recent years, with total debt to total capital at 19 percent as of Sept. 30, 2002, compared with 29.2 percent at year-end 2000. In addition, total debt plus preferreds to total capital remained reasonable for the rating level at 33 percent as of Sept. 30, 2002.

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