Press Release - FEBRUARY 16, 2007

A.M. Best Affirms Rating of Western Mutual Insurance Group; Revises Outlook to Positive

Kenneth Tappen
(908) 439-2200, ext. 5248

Richard Attanasio
(908) 439-2200, ext. 5432
Public Relations
Jim Peavy
(908) 439-2200, ext. 5644

Rachelle Morrow
(908) 439-2200, ext. 5378


A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) of Western Mutual Insurance Group (Western Mutual) (Agoura Hills, CA) and its members. The outlook for the rating has been revised to positive from stable. (See below for a detailed list of the ratings.)

The rating reflects Western Mutual's excellent capitalization, strong operating performance and extensive local market knowledge. Partially offsetting these positive rating factors are Western Mutual's business concentration as a predominantly California property writer, which exposes its earnings and surplus to volatility from catastrophe events, as well as its significant dependence on reinsurance to reduce its gross earthquake exposure. The rating outlook has been revised based on Western Mutual's improved risk-adjusted capitalization and enhanced risk management program.

Western Mutual has produced strong operating earnings over the previous five-year period that resulted in significant surplus growth, which supported its solid premium growth while enabling underwriting leverage to trend slightly downward. These operating results are primarily attributable to management's extensive re-underwriting and catastrophe containment measures. The rating also considers Western Mutual's conservative investment risk profile, favorable loss reserve development in recent years and strong operating cash flows. Furthermore, the rating recognizes numerous technological advances implemented by management to improve overall efficiency and customer service.

Western Mutual's concentration of business exposes its earnings to setbacks from catastrophes, primarily a severe earthquake event. Gross catastrophe leverage for a 250-year earthquake is high as depicted in a probable maximum loss analysis. However, management has reduced its net catastrophe leverage to a moderate level through its catastrophe mitigation strategies and reinsurance coverage.

The FSR of A- (Excellent) has been affirmed for Western Mutual Insurance Group and its following members:

- Western Mutual Insurance Company

- Residence Mutual Insurance Company

- Arizona Home Insurance Company

For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors.

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