2008-12-19 23:45:01 -

Fitch Ratings has affirmed the 'AA-' Insurer Financial Strength (IFS) rating of the American Family Insurance Group (American Family) (see rating list below). The Rating Outlook was revised to Negative from Stable. The outlook revision reflects American Family's trend of unfavorable performance which is tied in part to three consecutive years of significant catastrophe losses, as well as a decline in the company's capital position due to poorer profitability and deterioration in value of equity and fixed income investments in 2008.
For the nine months ending Sept. 30, 2008, American Family posted a statutory combined ratio of 117.6%. Statutory capitalization decreased by roughly $650 million due to over $1 billion of storm losses as well as nearly $300

million of pretax unrealized losses stemming from the company's equity portfolio.
American Family's ratings historically reflected the company's strong capitalization on a risk adjusted basis as measured by Fitch's Prism economic capital model, with very low financial leverage and moderate operating leverage, excellent market position and franchise value.
Partially offsetting these positives are the effects of American Family's limited amount of geographic diversification versus peers and the effects of heightened competitive conditions in the company's key lines. The company's top five states (Wisconsin, Missouri, Minnesota, Illinois, and Colorado) account for over 60% of premiums written. This concentration results in a heightened sensitivity to competitive conditions and high catastrophe exposure to Midwest storm activity.
Further erosion of capital from large underwriting losses or further investment volatility would lead Fitch to downgrade American Family's ratings. Fitch anticipates a return to a combined ratio in the low 100s in 2009, and less earnings volatility from catastrophe losses going forward tied to likely changes in the company's reinsurance program.
American Family Life Insurance Co.'s (AFLIC) rating reflects its status as a strategic insurer within the American Family group of companies, as Fitch believes AFLIC's traditional life insurance products are complementary to American Family's exclusive agent distribution system.
Fitch has affirmed the following ratings with a Negative Outlook:
American Family Mutual Insurance Co.
American Standard Insurance Co. of Wisconsin
American Family Insurance Co.
American Standard Insurance Co. of Ohio
American Family Life Insurance Co.
--IFS at 'AA-'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


Fitch Ratings

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Brian C. Schneider, CPA, CPCU, 312-606-2321 (Chicago)

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