S& Raises Farmers Home Mutual Ins. Co. Rtg to 'BBpi'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard &Poor's

Feb. 8, 2000--Standard &Poor's today raised its financial strength rating on Farmers Home Mutual Insurance Co. to double-'Bpi' from single-'Bpi'.

Farmers Home Mutual Insurance Co. is based in Minneapolis, Minnesota and licensed in 10 states. Its major lines of business are homeowners' insurance, fire and allied lines, and commercial multiperil. The company, which markets its products primarily through independent general agents, commenced operations in 1898. About 75% of its business lies in its major states of operation -- California, Minnesota, Washington, and Utah.

The rating examines the 1998 consolidated results of Farmers Home Group, a mid-size insurance group with surplus of $26.4 million, of which Farmers Home Mutual Insurance Co., Western Home Insurance Co. (Western Home), Pioneer Insurance Co. (MN) (Pioneer), and Gopher State Mutual Insurance Co. (Gopher State) are members.

In 1998, Farmers Home Mutual Insurance Co. participated in an interaffiliate stop loss reinsurance contract with the three other members of the group. In the winter of 1998, Gopher State experienced unprecedented storm losses in Minnesota.

Effective Jan. 1, 1999, all companies, with the exception of Gopher State, entered into an interaffiliate pooling agreement. Gopher State was merged into Farmers Home Mutual Insurance Co. on Dec. 1, 1999.

     Major Rating Factors:

--   Although operating performance has improved, with the group's
     operating ratio improving to 108.5% for 1998 from the 1997 result
     of 123.5%, it nevertheless remains weak, with the time-weighted
     return on revenue from 1994-1998 at negative 8.0%. Further, the
     Farmers Home Group has displayed volatile returns with, for
     example, return on assets ranging from negative 11.1% to positive
     2.9% since 1994, a limiting factor.

--   Operating results were adversely affected by the 1994 Northridge,
     California earthquake. Effective Jan. 1, 1999, the company
     eliminated California earthquake exposure from its book of
     business through a 100% quota share reinsurance program and has
     discontinued writing this coverage on a direct basis.

--   Capitalization remains good, as indicated by a Standard &Poor's
     capital adequacy ratio of 124.7%. The group's surplus, which
     stood at $26.4 million at year-end 1998, has experienced a
     negative compound annual growth rate of 7.7% since 1991.

--   The group's two-year development of reserves with respect to
     policyholder surplus has been more volatile than that of higher
     rated companies, ranging from a ratio of negative 8.8% to
     positive 19.6% in the last five years.

--   The group is moderately geographically concentrated. At year-end
     1998, 34.3% of net premiums written were in the Minnesota, which
     recorded historic wind and hail storm losses in 1998.

'Pi' ratings, denoted with a 'pi' subscript, are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. 'Pi' ratings are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.

Ratings with a 'pi' subscript generally are not modified with 'plus' or 'minus' designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard &Poor's said.---CreditWire