S&P Announces: SAFECO Life Ratings Removed From CreditWatch and Lowered to ‘BBB+’; Outlook Stable

S&P Announces: SAFECO Life Ratings Removed From CreditWatch and Lowered to ‘BBB+’; Outlook Stable

Business Editors

NEW YORK–(BUSINESS WIRE)–March 16, 2004

On March 16, 2004, Standard & Poor’s Ratings Services removed from CreditWatch its long-term counterparty credit and financial strength ratings on SAFECO Life Insurance Co. and its wholly owned subsidiaries, SAFECO National Life Insurance Co. and First SAFECO National Life Insurance Co. NY, and lowered them to ‘BBB+’ from ‘A-‘. At the same time, Standard & Poor’s withdrew its ‘A-1’ short-term counterparty credit and financial strength ratings on SAFECO Life Insurance Co. The outlook is stable.

The ratings on the three life companies (collectively referred to as SAFECO Life) were lowered to reflect the removal of the notch of support for being part of SAFECO Corp. (SAFECO). This follows SAFECO’s announcement on March 15, 2004, of its agreement to sell SAFECO Life to a group of investors.

The ratings are based on the companies’ stand-alone characteristics, good risk-adjusted capitalization, improved operating performance, very strong liquidity, and good market positions, primarily in the asset-accumulation business segments, including a leadership position in group excess medical stop loss. Offsetting these strengths are the competitive nature of the companies’ selected business segments and their high exposure to interest rate risk.

Outlook

SAFECO Life’s GAAP earnings adequacy ratio in 2003 and 2004 is expected to fall below the 198% recorded in 2002. However, Standard & Poor’s believes it will remain in the ‘A’ range because of improved results in SAFECO Life’s medical stop loss business and good spread management, though the company could be challenged by low interest rates and one-time expenses in 2004 associated with the sale from SAFECO Corp. Assets under management are expected to increase 5%-8% based on new annuity sales following a 5% increase in 2003. Capitalization is expected to improve to 115%-125% (‘BBB’ level) for year-end 2004.

Major Rating Factors

— SAFECO Life maintains a good risk-adjusted capital position,

with a capital adequacy ratio, as measured by Standard &

Poor’s model, of about 105% at year-end 2003. Capitalization

deteriorated in 2002 as a result of investment write-offs,

which offset strong pretax statutory earnings. SAFECO Life’s

capital adequacy ratio improved in 2003 as a result of

increased earnings, strong performance in group and investment

income, and no dividend payment requirement to SAFECO Corp.

— SAFECO Life’s business position is good because of its

established market positions in the excess medical stop loss

insurance, bank-distributed annuity, and qualified retirement

market segments. Asset growth of 5% in 2003 reflected the

company’s strong business position in group medical stop loss

and reduced growth of annuities in the fourth quarter of 2003

following the announcement of the sale of the company on Sept.

29, 2003.

— SAFECO Life’s GAAP earnings adequacy ratio was 196% at

year-end 2002, which is strong. GAAP pretax ROR increased to

16% in 2003 from 8% in 2001 in the group line of business,

while the company’s overall ROA improved to 98 basis points.

— Standard & Poor’s believes the credit quality of SAFECO Life’s

investment portfolio is very high, as demonstrated by its

holdings of investment-grade, fixed-income securities. The

company’s fixed-income portfolio, which accounts for about 88%

of invested assets, consists primarily of corporate bonds and

MBS. The company’s MBS–combined with the company’s

interest-sensitive liability structure–contain a level of

interest rate risk, specifically in a volatile interest rate

environment.

— SAFECO Life’s liquidity is very strong, with a liquidity

ratio, as measured by Standard & Poor’s model, of more than

251% at year-end 2002. SAFECO Life’s high-quality investment

portfolio and the nonsurrenderable nature of its liabilities

support the company’s liquidity. The company’s liquidity is

likely to be measured marginally lower in 2003 at about 230%,

with the asset mix unchanged while more of the company’s

annuities lost benefit of protection from expiring surrender

charges.

Ratings List

TO FROM

SAFECO Life Insurance Co.

Counterparty credit rating BBB+/Stable/– A-/Watch Dev/A-1

Financial strength rating BBB+/Stable/– A-/Watch Dev/A-1

SAFECO National Life Insurance Co.

First SAFECO National Life

Insurance Co. NY

Counterparty credit rating BBB+/Stable/– A-/Watch Dev/–

Financial strength rating BBB+/Stable A-/Watch Dev

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search.

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