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1 March 4, 2008 Summary: Nationwide Mutual Insurance Co. Intercompany Pool Primary Credit Analyst: Neil Stein, New York (1) ; Secondary Credit Analysts: Steven Ader, New York (1) ; Julie Herman, New York (1) ; Table Of Contents Rationale Outlook Members Of Nationwide Mutual Insurance Co. Intercompany Pool 1 Standard & Poor's. All rights reserved. No reprint or dissemination without S&P?s permission. See Terms of Use/Disclaimer on the last page

2 Summary: Nationwide Mutual Insurance Co. Intercompany Pool Credit Rating: Local Currency A+/Stable/-- Rationale The insurer financial strength ratings on Nationwide Mutual Insurance Co. (NMIC) and its related entities (collectively, Nationwide) reflect the company's very strong franchise in the personal property/casualty (P/C) insurance industry bolstered by the successful implementation of a multiple distribution channel strategy. The company's strong ERM program is also a strength to the rating. Partially offsetting these strengths are an improving, though unfavorable, expense structure relative to peers; exposure to adverse asbestos reserve developments; and exposure to catastrophic losses. Ranked as the fourth-largest writer of personal lines P/C insurance in the U.S., Nationwide has a very strong franchise in that industry. Total consolidated (or managed) operating revenue--including the Scottsdale group of companies (Scottsdale; see Competitive Position section) and Nationwide Indemnity Co. (Indemnity), a wholly owned subsidiary of NMIC--was $17.0 billion in 2006, which compares favorably with $16.2 billion and $14.7 billion in 2005 and 2004, respectively. Through Sept. 30, 2007, Nationwide's collective core property/casualty insurance operations (referred to as PCIO) wrote $10.6 billion of direct premiums written (DPW), an increase of 1.7% from the same period in Nationwide has maintained modest growth in premium volume, despite the softening pricing cycle, through the successful expansion of its distribution channels, as the company has continued to add exclusive and independent agents in key geographic markets. The company continues to improve its pricing sophistication with respect to risk segmentation by refining its rating plans, thus helping to maintain its competitive advantage. Nationwide's competitive position is bolstered by its long track record of successfully managing its multiple distribution channels of exclusive agencies and independent agents, as well as THI Holdings Inc. (THI, which writes Nationwide's nonstandard auto business, acquired in August 2003) and Nationwide Agribusiness (which writes primarily farm products). The exclusive channel is by far the largest distribution channel, writing $9.8 billion in DPW in calendar-year 2006 and constituting 72% of PCIO's total DPW for that period. However, Nationwide's competitive profile is enhanced by the independent agent and other businesses, constituting 28% of PCIO's total production. Through a multiple distribution channel strategy, management has pursued expansion by increasing its distribution reach in key local markets. Further, the company has made efforts to increase distribution effectiveness with a focus on agency performance, sales leadership, and sales support. Standard & Poor's Ratings Services believes that management has been successful in implementing its multiple distribution channel strategy, and this is demonstrated by the company's strong positive organic growth (Nationwide net operating revenue growth from core operations was 7.6% in 2006). Standard & Poor's views Nationwide's overall ERM program as strong. The company has identified all of its risks and has developed control programs to systematically limit them. In addition, it regularly evaluates risk/reward Standard & Poor s RatingsDirect March 4,

3 Summary: Nationwide Mutual Insurance Co. Intercompany Pool trade-offs of its businesses and uses that information to improve its risk-adjusted returns over time. Investment risk control is excellent within Nationwide, with strong risk oversight, monitoring tools, and management processes. Operational risk control is strong, as the company has developed a comprehensive risk classification structure that organizes all operational risks and identifies contributing factors, presenting event and potential consequences. As Nationwide continues to develop both quantitative and process-related aspects of its ERM program, we will consider Nationwide as a candidate for an excellent ERM assessment. However, we would want to see several years of good execution of the installed risk management programs before any movement in this opinion. Nationwide's expense structure, as measured through an expense ratio of 28.8%, 30.6%, and 32.7% in 2004, 2005, and 2006, respectively, is well above that of similar peers and dampens operating performance and capital generation. If neglected, over the long term, this expense structure will damage Nationwide's competitive advantage. Recognizing this, management has implemented an expense initiative with the dual purpose of investing in its infrastructure and brand to generate savings while at the same time identifying and eliminating redundant expenses. Although Standard & Poor's recognizes that Nationwide's expense reduction strategies have enabled the company to make significant progress in addressing its uncompetitive expense structure, the rating incorporates the expectation that Nationwide's expense structure will largely improve over the next two to three years. Nationwide is exposed to adverse development from asbestos and environmental (A&E) reserves, which are housed with Indemnity. Adverse development and additional strengthening of $226 million was reported through third-quarter 2007, while adverse development of $207 million, $725 million, and $645 million were reported at Indemnity in 2006, 2005, and 2004, respectively. These amounts compare with Nationwide's statutory capital base of $14.0 billion as of Sept. 30, We expect Nationwide to continue to experience volatility in its A&E reserves, although to a lesser extent due to encouraging industry trends and improved reserving practices at the company. Although Nationwide has taken material steps in reducing its exposure to natural catastrophes, as a large personal lines writer it remains susceptible to them as demonstrated by $834 million of net pretax losses from hurricanes in Outlook The stable outlook incorporates the expectation that the continued implementation of operating expense initiatives will enable Nationwide's earnings performance to remain strong. An annualized 100-basis-point (bp) improvement in the expense ratio, combined with the continued long-term investments in infrastructure and brand, will enable Nationwide to navigate highly competitive market conditions with positive organic growth and strong profitability. The combined ratio and ROR are expected to be less than 97% and more than 8%, respectively. Capitalization will remain consistent at the strong to very strong level because of retained earnings being offset by modest growth. Although recognizing the inherent volatility borne from Nationwide's material catastrophe exposure, the rating incorporates that Nationwide's strong ERM processes will enable the company to manage this and other sources of earnings and capital volatility to a greater extent than many of its peers. If Nationwide is unsuccessful in meeting the previously mentioned expectations, particularly the willingness and effectiveness in addressing its uncompetitive expense structure, Standard & Poor's will consider revising the outlook to negative. Conversely, if Nationwide were to materially exceed our expectations, particularly on addressing its expense disadvantage relative to its peer group, the outlook could be revised to positive. 3

4 Summary: Nationwide Mutual Insurance Co. Intercompany Pool Members Of Nationwide Mutual Insurance Co. Intercompany Pool Nationwide Mutual Insurance Co., Nationwide Mutual Fire Insurance Co., Nationwide General Insurance Co., Nationwide Property & Casualty Insurance Co., Nationwide Assurance Co., Farmland Mutual Insurance Co., Nationwide Agribusiness Insurance Co., Nationwide Insurance Co. of America, and Calfarm Insurance Co. Standard & Poor s RatingsDirect March 4,

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