S&P’s Rates Two SAFECO Senior Note Issuances ‘BBB+’

January 31, 2003

Standard & Poor’s Ratings Services said that it assigned its ‘BBB+’ senior debt ratings to SAFECO Corp.’s (SAFECO) recently issued $200 million 4.20 percent senior notes due 2008 and $300 million 4.875 percent senior notes due 1010 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. Partially offsetting these 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.

“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,” said Standard & Poor’s credit analyst Laline Carvalho. The group reported a statutory combined ratio of 104.7 percent for the full year compared with 120.2 percent in 2001. S&P’s expects the group to continue to show underwriting improvements in 2003.

The debt issuance is a drawdown on SAFECO’s $775 million universal shelf, which was filed on Dec. 31, 2002. S&P’s expects SAFECO’s financial leverage to remain unchanged as a result of this transaction, as proceeds from the issuance are expected to be used to repay $300 million of medium-term notes maturing in March 2003 as well as to call at par up to $200 million of SAFECO’s medium-term notes maturing in April 2005. At year-end 2002, SAFECO’s total debt plus preferreds to total capital was 31 percent, which is within range expected for the rating.

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