Fitch Affirms American Family's IFS and CP Ratings.

CHICAGO -- Fitch Ratings has affirmed the 'AA-' insurer financial strength (IFS) rating of the American Family Insurance Group (American Family) (see rating list below). Fitch has also affirmed the 'F1' commercial paper (CP) rating of consumer finance subsidiary, American Family Financial Services, Inc. (AFFS). The Rating Outlook is Stable.

The ratings reflect American Family's strong capitalization and very good operating performance, excellent market position and brand name, and adequate catastrophe reinsurance protection. Partially offsetting these positives are the effects of American Family's limited amount of geographic diversification versus peers and the effects of heightened competitive conditions in the company's key lines.

In 2005, capitalization continued to improve and underwriting results were strong as the company increased policyholder surplus by over $700 million versus last year and posted a statutory combined ratio of 92.6%, due primarily to improved underwriting, increased segmentation, expense control, investment gains, and lower-than-expected catastrophe losses. Fitch anticipates a return to a combined ratio around the mid-high 90s in 2006 and 2007 with normalized catastrophe levels and a soft auto market.

American Family has a solid brand name and exceptional franchise value in its target market, as the company seeks to have one of the leading market positions in the states in which it operates. Within its target market of 17 states, predominately in the Midwest, the company was the second-largest private passenger automobile writer and the third-largest homeowners' writer in 2004.

The top five states (Wisconsin, Missouri, Minnesota, Illinois, and Colorado) account for over half of premiums written. This concentration results in a heightened sensitivity to competitive conditions and high catastrophe exposure to Midwest storm activity. American Family has plans to begin writing business in a new state, Washington, in 2006, which Fitch believes will continue to help reduce its Midwest concentration, partially offset by integration risk and new earthquake exposure.

Fitch believes American Family's key near-term challenges include growing its premium base and avoiding adverse selection from higher risk policyholders that are drawn to the company due to competitors' more sophisticated underwriting models and thus, higher rates. However, Fitch believes the company's development of new pricing models and increased use of credit risk segmentation and pricing points should help retain and attract new profitable business.

AFLIC's rating reflects its strategic purpose within the American Family group of companies, as Fitch believes AFLIC's traditional life insurance products are complementary to American Family's exclusive agent distribution system.

The commercial paper rating of AFFS, a consumer finance subsidiary, reflects the strength of American Family as well as the explicit guarantee of the debt by AFMIC.

The following ratings are affirmed by Fitch, with a Stable Outlook:

American Family Mutual Insurance Co.

-- IFS 'AA-';

American Standard Insurance Co. of WI

-- IFS 'AA-';

American Family Insurance Co.

-- IFS 'AA-';

American Standard Insurance Co. of OH

-- IFS 'AA-';

American Family Life Insurance Co.

-- IFS 'AA-'.

American Family Financial Services, Inc.

-- CP 'F1'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.