Fitch Affirms American Family's IFS at 'AA-'; CP at 'F1'.

CHICAGO -- Fitch Ratings has affirmed the 'AA-' insurer financial strength (IFS) rating of the American Family Insurance Group (American Family) (see rating list below). Fitch has also affirmed the 'F1' commercial paper (CP) rating of American Family's consumer finance

The affirmations reflect American Family's strong capitalization, excellent market position and brand name, and adequate catastrophe reinsurance protection. 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.

In 2006, capitalization improved slightly even though underwriting results were weak as the company posted a statutory combined ratio of 110.6%, due primarily to record catastrophe losses of $1.1 billion. This was in contrast to American Family's surplus increase of over $700 million in 2005 due to improved underwriting, increased pricing segmentation, investment gains, and below normal catastrophe losses of $391 million. This significant capital strengthening in non-catastrophe years helps support the company's catastrophe risk.

Fitch expects a certain amount of earnings volatility given American Family's catastrophe exposure and use of reinsurance primarily as a means to protect surplus and not manage earnings. Fitch anticipates a return to a combined ratio around the high 90s in 2007 and 2008 with normalized catastrophe levels and a soft auto market.

The 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. However, the company has slowly been expanding to states outside of the Midwest in an effort to reduce this risk.

Fitch believes American Family's key near-term challenges include growing its premium base and avoiding adverse selection from higher risk policyholders that are drawn to the company due to competitors' more sophisticated underwriting models and thus, higher rates. However, Fitch believes the company's development of new pricing models and increased use of credit risk segmentation and pricing points should help retain and attract new profitable business.

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.

The CP rating of AFFS reflects the strength of American Family as well as the explicit guarantee of the debt by the parent operating company, American Family Mutual Insurance Company.

The following ratings have been affirmed by Fitch, with a Stable 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.

--Insurer financial strength (IFS) 'AA-'.

American Family Financial Services, Inc.

--Commercial paper 'F1'.

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.