Fitch Ratings Downgrades American Family’s IFS Rating to ‘AA-‘

Fitch Ratings has downgraded to ‘AA-‘ from ‘AA’ the insurer financial strength (IFS) rating of the American Family Insurance Group (American Family), which consists of American Family Mutual Insurance Company (AFMIC), the lead company of the group, and its three property/casualty subsidiaries, American Standard Insurance Company of Wisconsin, American Family Insurance Company, and American Standard Insurance Company of Ohio. The Rating Outlook is Stable.

Fitch has also downgraded to ‘F1’ from ‘F1+’ its commercial paper rating of American Family Financial Services (AFFS). The rating actions reflect a deterioration in American Family’s capitalization over the last several years, both on an absolute basis, and relative to an increased amount of business written, that has shifted the company’s profile to be more consistent with ‘AA-‘ rated peer companies. American Family’s very strong IFS rating continues to be supported by the group’s excellent market position and brand name, improved underwriting results in 2002 and 2003, and increased catastrophe reinsurance protection up to $1 billion.

American Family has experienced a 24 percent drop in policyholders’ surplus (PHS) since year-end 1999 of $3.1 billion to $2.4 billion as of September 30, 2003 (rebounded from $2.1 billion at year-end 2002), primarily driven by operating losses in 2000 and 2001 and investment losses in 2002. Over the same period, net premium written (NPW) has grown from $3.6 billion in 1999 to $4.9 billion in 2002 and is expected to be over $5.5 billion for full year 2003. As a result, operating leverage has doubled from a NPW/PHS ratio of 1.14 times (x) in 1999 to 2.34x in 2002. Fitch expects this ratio to remain between 2.0x-2.5x for 2003 and 2004.

American Family has a solid brand name and exceptional franchise value in their target market, as the company seeks to have one of the leading market positions in the states they operate. Within their target market of 17 states, predominately in the Midwest, the company was the second largest private passenger automobile writer and the third largest homeowner’s writer in 2002.

Partially offsetting American Family’s favorable market position is a limited amount of geographic diversification, with the top 5 states (Wisconsin, Missouri, Minnesota, Illinois, and Colorado) accounting for over two-thirds of premiums written.

Underwriting results have improved in 2002 and through the first nine months of 2003 as the company posted improved combined ratios of 101.5 percent and 101.7 percent, respectively, on the strength of price increases and a more normal level of catastrophe losses. This follows higher combined ratios in 2001 and 2000 of 114.4 percent and 109.5 percent, respectively, due primarily to high catastrophe claims from an increased amount of Midwest storm activity. Fitch expects the company’s combined ratios to be at or around 100 percent in 2003 and 2004.

The commercial paper rating of AFFS, a subsidiary primarily engaged in the business of making consumer loans and providing lines of credit, reflects the strength of American Family as well as the explicit guarantee of the debt by AFMIC.Entity/Issue/Type Action Rating/Outlook American Family Mutual Insurance Co. –Insurer financial strength Downgrade ‘AA-‘/Stable. American Standard Insurance Co. of WI –Insurer financial strength Downgrade ‘AA-‘/Stable. American Family Insurance Co. –Insurer financial strength Downgrade ‘AA-‘/Stable. American Standard Insurance Co. of OH –Insurer financial strength Downgrade ‘AA-‘/Stable. American Family Financial Services, Inc. –Commercial Paper Downgrade ‘F1’.