A.M. Best Rates SAFECO Senior Debt; Affirms Financial Strength.

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--March 22, 2000

A.M. Best Co. has assigned an "a+" rating to the 7.875% senior unsecured debt due March 2003 issued by SAFECO Corp. and its other senior debt securities filed under the shelf registration statement.

In addition, the company's existing debt ratings and the A+ (Superior) financial strength ratings of the 12 members of SAFECO's property/casualty insurance pool have been affirmed. The A+ financial strength ratings of SAFECO Life Insurance Co. and First SAFECO National Life Insurance Company of New York remain unchanged by this action.

The sale of $300 million of three-year senior notes represents a partial draw down on the $800 million shelf registration filed last month by SAFECO with the Securities and Exchange Commission. The organization will primarily use the proceeds to repay short-term debt obligations (commercial paper) of its finance subsidiary, SAFECO Credit Company Inc. The refinancing does not materially change SAFECO's total borrowings (debt plus preferred stock) and its debt-to-capital ratio also remains unaffected. SAFECO's financial leverage is not expected to increase significantly, if at all, over the near- to medium-term. A.M. Best expects management to continue to retire debt related to the American States Financial Corp. acquisition while issuing commercial paper and/or medium-term notes at a similar pace to support the growth of SAFECO's credit operations.

The ratings are based on SAFECO's strong franchise in the domestic property/casualty market -- where it is one of the 15 largest property/casualty groups in the United States based on net premiums written -- and strong historical operating results as well as conservative underwriting and reserving philosophies. The 1997 acquisition of American States -- a leading writer in the small-account commercial lines property/casualty market -- further enhances the organization's competitive standing and broadens its market presence, while providing geographic and product diversification as well as additional scale.

Relative to most of its peers, SAFECO's current operating profile better positions it to withstand the competitive pressures of the soft underwriting cycle that has persisted in the property/casualty market. The organization's focus on personal lines and smaller commercial business provides greater pricing flexibility compared to large commercial accounts and has a lower exposure to asbestos and environmental losses. The personal lines business has a risk of catastrophe losses from severe earthquakes in certain regions of the United States such as California, the Pacific Northwest and New Madrid. However, this exposure (net probable maximum loss to surplus) is within A.M. Best's guidelines for the current ratings assigned to the organization.

While A.M. Best views the acquisition of American States as a long-term strategic benefit to SAFECO, the transaction -- primarily financed by capital securities and debt -- significantly increased financial leverage and goodwill. In addition, profitability among SAFECO's core property/casualty operations deteriorated in fiscal year 1999 partially due to reserve strengthening at American States. From a debt perspective, the reserve strengthening did not materially affect the organization's overall results because of its minor impact on SAFECO's fixed charge coverage ratio and financial leverage. In order to re-establish its operating profitability, SAFECO's management has instituted substantial rate increases in 2000 that are expected to continue through 2001 for American States business. To a limited extent, SAFECO also plans to increase pricing within its large commercial accounts. A.M. Best expects the profitability of the organization's commercial lines business to gradually improve over the next few years due to rate firming, as well as SAFECO's strong franchise position and commitment to disciplined underwriting.

SAFECO's life/health insurance operations have well-established positions in the tax-sheltered annuity 403(b), structured settlement and individual non-qualified annuity markets, conservative management practices, strong risk-adjusted capitalization and the strength and support provided by SAFECO Corp. The additional distribution capabilities and expense efficiencies resulting from the acquisition of American States Life has made significant contributions to the life companies' strong operating performance. In addition, sales penetration (the percentage of agents actively selling proprietary life/health products) within SAFECO Corp.'s core independent agent channel nearly doubled in 1999, reflecting the success of the company's efforts to expand its distribution platform.

SAFECO Credit is expected to increase its future borrowings to fund growth. A.M. Best anticipates a reduction in growth rates in both loan originations and finance receivables from their historical levels due to the present competitive lending environment. Although the high financial leverage at SAFECO Credit is typical for finance subsidiaries, the credit operations significantly increase the leverage ratios of the consolidated entity. Excluding the credit operations, SAFECO maintains a moderate level of financial leverage that is well supported by its debt service capabilities. The credit subsidiary has weak net interest margins relative to its peers; however, its leverage position is somewhat offset by strong asset quality and low credit losses reported during recessionary periods, as well as its effective asset/liability management. These factors enhance the credit profile of SAFECO's lending operations.

SAFECO Corp., through its subsidiaries, has operations in property/casualty insurance, life/health insurance, insurance brokerage and asset management as well as commercial equipment financing and leasing. The organization, headquartered in Seattle, reported assets of $30.6 billion and stockholders' equity of $4.3 billion as of Dec. 31, 1999.

The following new debt security rating was assigned: - SAFECO Corp. -- senior debt rating of "a+".

The following shelf rating was assigned: - SAFECO Corp. -- senior debt rating of "a+".

The following existing debt ratings were affirmed: - SAFECO Corp. -- senior debt rating of "a+". - SAFECO Capital Trust I -- preferred stock rating of "a+".

The A+ financial strength ratings of the following members of SAFECO's property/casualty insurance pool were affirmed: - American Economy Insurance Co - American States Insurance Co. - American States Insurance Company of Texas - American States Lloyds Insurance Co. - American States Preferred Insurance Co. - General Insurance Company of America - SAFECO Insurance Company of America - First National Insurance Company of America - SAFECO Insurance Company of Illinois - SAFECO Lloyds Insurance Co. - SAFECO National Insurance Co. - SAFECO Surplus Lines Insurance Co.

Recently, the A+ financial strength ratings of SAFECO's life insurance subsidiaries SAFECO Life Insurance Co. and First SAFECO National Life Insurance Company of New York were affirmed and the rating of American States Life Insurance Co. was upgraded to A+.

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.