Fitch Affirms Safeco P/C Group Ratings; Outlook Stable

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Fitch Ratings has affirmed the ‘AA-‘ insurer financial strength rating on the Safeco property/casualty group (Safeco P/C). In addition, Fitch has affirmed ‘A-‘ long-term and senior debt ratings on Safeco Corporation (Safeco) and the ‘BBB+’ rating on Safeco Capital Trust I’s (Safeco Capital) capital securities. The Rating Outlook is Stable.

Fitch’s rating action reflects Safeco P/C’s strong competitive position in key business lines, favorable earnings trends, and solid capitalization. Fitch’s ratings on Safeco and Safeco Capital reflect these factors, as well as Safeco’s good operating earnings-based and cash basis interest coverage.

Partially offsetting these positives is intense competition and cyclical forces in Safeco P/C’s key auto and homeowners’ insurance lines that Fitch believes will challenge the company’s ability to sustain current profitability levels.

Fitch believes that Safeco’s competitive position and recent earnings have benefited from the company’s re-vamped product line, enhanced market segmentation capabilities, and re-underwriting efforts, all of which have been implemented in various steps in recent years. Fitch’s future ratings reviews will concentrate on Safeco’s ability to leverage and build on these successes and on the company’s sustainable operating performance relative to peers.

Fitch also believes that Safeco’s risk profile has declined in recent years due in part to faster growth in its personal lines business, which Fitch views as carrying less reserve risk than in its commercial lines business. Fitch also believes that Safeco lowered its risk profile by emphasizing small- to medium-sized commercial accounts in recent years after largely exiting the large commercial-account market in 2001.

Safeco’s recent earnings trends have been positive, reflecting the company’s automated underwriting strategy and re-underwriting efforts, as well as favorable industrywide trends. Although third quarter 2004 hurricane-related losses will dampen Safeco’s earnings for the year, Fitch believes that the company’s fundamental earnings trends remain positive.

Through the first nine months of 2004, Safeco reported GAAP basis pretax operating earnings of $443 million, compared with $145 million in the prior-year period. The company’s GAAP basis combined ratio through the third quarter 2004 was a strong 92.4%, including 4.8 percentage points for third quarter hurricane-related losses.

Fitch views Safeco’s financial leverage as improving and reasonable for the rating category. Financial leverage measured as debt plus capital securities-to-total capital at Sept. 30, 2004 (X FAS 115) was approximately 25% on an equity-credit adjusted basis. Fitch’s estimate incorporates the affect of two tender offers that Safeco completed in August subsequent to the sale of its life insurance and investment management operations.

Fitch considers Safeco’s cash-basis and operating earnings-basis interest coverage to be sound. Based on Safeco P/C’s ordinary dividend capacity at year-end 2003 and Safeco’s pretax operating earnings through the first nine months of 2004, Fitch estimates the company’s cash-basis interest coverage at 3.9 times (x) and its operating earnings based interest coverage at 7.5x, respectively.

Safeco Corporation

— Long-term rating affirmed at ‘A-‘/Stable;

— 4.20% notes due 2008 affirmed at ‘A-‘/Stable;

— 4.875% notes due 2010 affirmed at ‘A-‘/Stable.

Safeco Capital Trust I

— 8.072% trust preferred securities affirmed at ‘BBB+’/Stable.

Safeco Property/Casualty Group

— Insurer financial strength affirmed at ‘AA-‘/Stable.

Members of the Safeco P/C Group include the following:

Safeco Insurance Co. of America

General Insurance Co. of America

American State Insurance Co.