Press Release - DECEMBER 04, 2007

A.M. Best Upgrades and Assigns Ratings to Western Mutual Insurance Group

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 upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and assigned issuer credit ratings (ICR) of "a" to Western Mutual Insurance Group (Western Mutual) (Agoura Hills, CA) and its members. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)

The rating upgrade is based on Western Mutual's improved risk-adjusted capitalization, consistently strong operating performance, extensive local market knowledge and enhanced risk management program.

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, regulatory actions and judicial changes.

Western Mutual has produced strong operating earnings over the previous 10-year period that resulted in significant surplus growth in support of solid premium growth, while enabling underwriting leverage to trend downward. These operating results are primarily attributable to management's extensive re-underwriting and catastrophe containment measures. The ratings also consider Western Mutual's conservative investment risk profile, favorable loss reserve development and strong operating cash flows.

Western Mutual's concentration of business exposes its earnings and surplus 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 a comprehensive reinsurance program.

The FSR has been upgraded to A (Excellent) from A- (Excellent) and ICRs of "a" have been assigned to 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 global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

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