A.M. Best Affirms Ratings of Harleysville.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of "a-" of Harleysville Insurance (Harleysville) (Harleysville, PA) and its property/casualty members. A.M. Best has also affirmed the ICR of "bbb-", the debt rating of "bbb-" on the senior note and the indicative ratings of "bbb-" senior debt, "bb+" subordinated debt, "bb" trust preferred securities and "bb" preferred stock that are part of the universal shelf registration of Harleysville Group Inc. (HGIC) [NASDAQ: HGIC] (Harleysville, PA). Concurrently, A.M. Best has affirmed the FSR of B++ (Very Good) and the ICR of "bbb+" of Harleysville Life Insurance Company (Lansdale, PA). The outlook for all ratings is stable. (See link below for a detailed list of ratings.)

The ratings reflect Harleysville's strong risk-adjusted capitalization, stable balance sheet, improved operating performance, solid regional market franchise, as well as the future benefits to be derived from management's material corrective actions over the past several years. These positive attributes are largely derived from the group's quality management team, focus on underwriting discipline, prudent management of catastrophe exposures, well established agency relationships, strong name recognition and stable market presence. The affirmation of the ratings also acknowledges the benefits that have been noted to date and will continue to be derived from Harleysville's pro-active re-underwriting and pricing initiatives, strengthening of its loss reserves, improvements in its claim operations and investments in technology to support underwriting effectiveness and make it easier for agents to do business with Harleysville.

Despite these attributes, Harleysville's operating performance, while substantially improved, has lagged the industry over the past few years principally due to a higher expense ratio. Although Harleysville has initiated substantive actions to lower costs and enhance operating efficiencies, its expense ratio remains high. Furthermore, management will be challenged by the current competitive market conditions in the group's small and middle markets.

Harleysville is afforded financial flexibility through its publicly-traded holding company, HGIC, which has access to the capital markets. HGIC maintains moderate financial leverage with a debt-to-total capital ratio of 14.8% at September 30, 2006, which is enhanced by excellent cash coverage of its holding company obligations.

The ratings of Harleysville Life reflect its integral position within the Harleysville group, its adequate risk-adjusted capitalization and its diversified product portfolio with focus on providing life insurance and related employee benefits products and services to the group's core business markets. Furthermore, the ratings also consider the financial commitment of its parent, Harleysville Mutual Insurance Company (Harleysville, PA).

For a complete list of Harleysville Group's FSR, ICRs and debt ratings, please visit www.ambest.com/press/121408harleysville.pdf.

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.