Farmers Insurance Exchange ‘A’ Rating Affirmed

October 5, 2006

Standard & Poor’s Rating Services said affirmed its ‘A’ counterparty credit and financial strength ratings on Los Angeles-based Farmers Insurance Exchange and its operating subsidiaries and affiliates (collectively referred to as Farmers). Standard & Poor’s also affirmed its ‘A+’ counterparty credit rating on holding company Farmers Group Inc. The outlook on these entities is stable.

“The ratings on Farmers reflect its strong competitive positioning in the U.S. personal property/casualty insurance marketplace; the group’s strategic importance to Farmers Group Inc., a core unit of Zurich Financial Services; and strong operating performance,” said S&P’s credit analyst Michael Gross. “Partially offsetting these strengths are the group’s below average capital strength for the rating structure, and some concentration of business in Texas and California-two states prone to natural catastrophes.”

The group’s premium growth is expected to be well managed and driven by increased product sales to its existing customer base and greater retention of its existing customer base in 2006 and 2007. S&P expects low single-digit growth in direct premium written during this time period. Standard & Poor’s expects Farmers to produce a satisfactory combined loss and expense ratio of 98 percent or less in 2006 and 2007 due to strong underwriting performance, a competitive expense structure, and adequate reinsurance protection.

The rating on Farmers is based on its standalone financial fundamentals as well as the financial flexibility afforded it by Zurich Financial Services and affiliates. Despite the strength of Farmers’ standalone competitive positioning and operating performance, a positive outlook is unlikely in the near to medium-term due to below average quantity and quality of capital for the current rating structure, S&P said.

Source: S&P

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