S&P Research Update_Fire Insurance Exchange

Revised: 09/22/2006

S&P Research Update: Fire Insurance Exchange

NEW YORK--(BUSINESS WIRE)--Oct. 19, 2004--Credit Rating:A/Stable/--

On Oct. 19, 2004, Standard & Poor's Ratings Services affirmed its 'A' counterparty credit and financial strength ratings on Los Angeles, Calif.-based Farmers Insurance Exchange and its insurance subsidiaries and affiliates (collectively referred to as Farmers). The outlook remains stable.

The ratings reflect Farmers's strong competitive positioning in the U.S. personal property/casualty insurance marketplace; the companies' strategic importance to Farmers Group Inc. (A+/Stable/--), a core unit of Zurich Financial Services (ZFS); and improved operating performance. Partially offsetting these strengths is the group's
below-average capital strength for the current rating structure.

Outlook

Standard & Poor's expects the insurer's direct premium written to grow moderately (about 3%) in 2004 and at a higher rate in 2005. Premium growth is expected to be well-managed and driven by moderate rate increases, increased product sales to its existing customer base, and greater retention of existing customers. A combined loss and expense ratio of 99% or lower is anticipated in 2004 and 2005. Capital strength is expected to improve incrementally as operating performance further improves.

Major Rating Factors

-- Farmers maintains a top-five share of the U.S. personal auto and homeowners insurance market. Through its Foremost insurance subsidiaries, Farmers is also a competitive provider of insurance for manufactured homes and recreational vehicles. Consolidated direct premium written totaled a robust $13.7 billion for full-year 2003 and $7.1 billion for the first six months of 2004.

-- Farmers is viewed as strategically important to Farmers Group Inc., a core unit of Zurich Financial Services.

-- Operating performance is viewed as good and improving based on improved underwriting performance. The combined loss and expense ratio is expected to improve to 99% for full-year 2004 compared with 102.7%
in 2003 and 107% in 2002, driven largely by the improved underwriting performance of its homeowners insurance business. The management fees structure by which Farmers compensates its attorney-in-fact for management services remains largely unchanged.

-- Farmers' capital strength is viewed as somewhat below-average, as demonstrated by a Standard & Poor's capital adequacy ratio of 102.6% at year-end 2003. Although surplus has increased to $3.9 billion as of
June 30, 2004, from $3.7 billion at year-end 2003 and $3.5 billion at year-end 2001, internal and external surplus notes constitute about half of total surplus.

Ratings List

Farmers Insurance Exchange
Counterparty credit rating A/Stable/--
Financial strength rating A/Stable
Surplus notes rating BBB+
Farmer's Exchange Capital
Counterparty credit rating A/Stable/--
Surplus notes rating BBB+
American Federation Insurance Co.
Farmers Insurance Co. Inc.
Farmers Insurance Co. of Arizona
Farmers Insurance Co. of Columbus (OH)
Farmers Insurance Co. of Idaho
Farmers Insurance Co. of OR
Farmers Insurance Co. of WA
Farmers Texas County Mutual Insurance Co.
Fire Insurance Exchange
Foremost Insurance Co. of Grand Rapids, MI
Foremost County Mutual Insurance Co.
Foremost Property & Casualty Insurance Co.
Foremost Signature Insurance Co.
Illinois Farmers Insurance Co.
Mid-Century Insurance Co.
Mid-Century Insurance Co. of Texas
Texas Farmers Insurance Co.
Truck Insurance Exchange
Counterparty credit rating A/Stable/--
Financial strength rating A/Stable

An online information service of the United Farmers Agents Association, Inc.