S&PCORRECT: Farmers Insurance Exchange And Units Ratings Affirmed; Outlook Remains Negative

(Editor's note: The original version of this article, which was published earlier today, contained an incorrect rating for Farmers Group Inc. A corrected version follows. ) 
 
NEW YORK Oct. 10, 2005--Standard & Poor's Ratings Services said today that it affirmed its 'A' counterparty credit and financial strength ratings on 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 remains negative. 
 
"The ratings on Farmers reflects its strong competitive positioning in the U.S. personal property/casualty (P/C) insurance marketplace; the group's strategic importance to Farmers Group Inc., a core unit of Zurich Financial Services; and strong operating performance," noted Standard & Poor's credit analyst Michael Gross. Partially offsetting these strengths are the group's somewhat below average capital strength for the current rating structure, and some concentration of business in Texas and California–-two states prone to natural catastrophes. 
 
Standard & Poor's expects direct premium written to grow moderately at about 3%-5% in 2005 and 2006. Premium growth is expected to be well-managed and driven by increased product sales to its existing customer base, greater retention of its existing customer base, and select price increases. Despite an active 2005 hurricane season, Standard & Poor's expects Farmers to produce a satisfactory combined loss and expense ratio of 98% or less in 2005 due to strong underwriting performance, a competitive expense structure and adequate reinsurance protection. A 98%-99% combined ratio is expected for 2006. With regards to capital, Standard & Poor's expects Farmers to increase statutory surplus by about $400 million in 2005 resulting in a Standard & Poor's capital adequacy ratio of about 115%. Incremental improvement is expected in 2006. 
 
"The 'A' rating on Farmers is based on its own standalone financial fundamentals as well as the financial flexibility afforded it by Zurich Financial Services and affiliates," added Mr. Gross. "The negative outlook reflects Zurich Financial Services' exposure to the U.S. commercial P/C sector." If the 2005 U.S. commercial lines results do not meet Standard & Poor's expectations, the ratings on Zurich Financial Services, including the ratings on strategically important Farmers, are likely to be lowered. Improved operational performance in the group could ultimately lead to a stable outlook. 
 
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.