A.M. Best Affirms Financial Strength Ratings of State Farm Group; Upgrades Rating of State Farm Indemnity Company.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings (FSR) of State Farm Group (State Farm) (Bloomington, IL) and its property/casualty members and life affiliates. A.M. Best has also upgraded the FSR of State Farm's subsidiary, State Farm Indemnity Company (State Farm Indemnity) (Bloomington, IL). The outlook for all ratings is stable. (See below for a detailed list of the ratings.)

The ratings reflect State Farm's superior capitalization, improved operating performance, strength of brand and market presence as the largest property/casualty writer in the United States. State Farm maintains a significant capital base with a correspondingly modest underwriting leverage position despite surplus volatility over the last five years. In response to generally unfavorable operating results, management implemented numerous strategic initiatives to improve results, including a renewed focus on underwriting profitability, managed growth objectives and improved rate adequacy. As a result of these initiatives and favorable market conditions, State Farm's operating performance has significantly improved in recent years. State Farm also benefits from its mutual ownership structure, which affords significantly less pressure in terms of operating returns compared to its publicly traded peers.

State Farm's market presence is the result of its tremendous brand name recognition, cost-efficient exclusive agents, strong customer loyalty and diversified financial service capabilities. With State Farm's ability to provide quality claims handling, bundling of products and services, as well as cost reducing incentives to long-term valued customers, it has created a considerable competitive advantage. During the past several years, management implemented numerous loss mitigation initiatives, which included the capitalizing of dedicated property companies in three of its highest catastrophe prone states. By isolating its California, Florida and Texas property business, State Farm has increased its flexibility to mitigate and manage its exposure to frequent and severe weather-related losses.

Partially offsetting these positive rating factors are State Farm's volatile operating performance trends and above average investment leverage attributable to its sizeable common stock portfolio. Although State Farm can withstand lower operating returns longer than its peers, given its mutual structure, results in 2001 and 2002 were particularly poor with significant underwriting losses posted across all major lines of business. These results were driven by exposure to ongoing weather-related events, rising loss costs in both personal automobile and homeowners' lines of business, as well as State Farm's previous top-line growth strategy. The underwriting experience and unfavorable equity market conditions contributed to surplus volatility. State Farm's common stock portfolio is well diversified and represents less than 40% of its overall invested assets. However, common stock holdings as a percentage of surplus are high at nearly 75%.

A.M. Best also recognizes the core role of the State Farm life affiliates, which provide a full array of ordinary life insurance and annuity products through State Farm Group's exclusive independent agency field force, strong brand name recognition, superior risk-adjusted capitalization on a stand-alone basis and its historically consistent overall statutory earnings. Modestly offsetting these strengths is the life affiliates' challenge to further penetrate State Farm Group's vast property/casualty customer base with its life insurance products.

The FSRs of A++ (Superior) have been affirmed for the State Farm Group and its following property/casualty members and life affiliates:

--State Farm Mutual Automobile Insurance Company

--State Farm County Mutual Insurance Company of Texas

--State Farm Life and Accident Assurance Company

--State Farm Life Insurance Company

The FSR of A+ (Superior) has been affirmed for State Farm Fire and Casualty Company, a property/casualty member of the State Farm Group.

The FSR of B++ (Very Good) has been affirmed for State Farm General Insurance Company, a property/casualty member of the State Farm Group.

The FSRs of B+ (Very Good) have been affirmed for the following property/casualty members of the State Farm Group:

--State Farm Florida Insurance Company

--State Farm Lloyds

The FSR has been upgraded to A- (Excellent) from B++ (Very Good) for State Farm Indemnity Company, a property/casualty member of the State Farm Group.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.