[January 24, 2013]

A.M. Best Affirms Ratings of COUNTRY Financial PC Insurance Group Members and COUNTRY Financial Life Group Members

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa-" of COUNTRY Financial PC Insurance Group members (Bloomington, IL) (PC Group) and COUNTRY Life Insurance Company and its reinsured subsidiary, COUNTRY Investors Life Assurance Company (both domiciled in Bloomington, IL and collectively known as COUNTRY Financial Life Group). The outlook for the ratings of the PC Group is negative, while the outlook for the ratings of the life/health group is stable.

In addition, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-" of Cotton States Life Insurance Company (Cotton States Life) (Alpharetta, GA). The outlook for these ratings is stable. (See below for a detailed listing of the PC Group members.)

Concurrently, A.M. Best has withdrawn the FSR of A+ (Superior) and ICRs of "aa-" of Cotton States Mutual Insurance Company (Cotton States) and its wholly owned subsidiary, Shield Insurance Company (Shield). Cotton States and Shield were members of the PC Group. The withdrawal of these ratings is due to the merger of Cotton States into COUNTRY Mutual Insurance Company (COUNTRY Mutual) and Shield into COUNTRY Preferred Insurance Company (COUNTRY Preferred). The effective date for these mergers was December 31, 2012, with COUNTRY Mutual and COUNTRY Preferred being the surviving entities.

The ratings for the PC Group reflect its supportive risk-adjusted capitalization, strong business profile in Illinois, its product line and geographic diversification and the concrete steps being taken to reduce catastrophic loss exposure and improve earnings. This includes instituting significant rate increases primarily on homeowners and farmowners' lines, tightening property underwriting, increasing deductibles, cancelling or non-renewing unprofitable or higher risk accounts, consolidating operations and other expense saving initiatives. The PC Group members operate under intercompany quota share and pooling reinsurance arrangements.

These concerns are partially mitigated by the unfavorable operating performance the PC Group has demonstrated over the last five years primarily driven by its significant underwriting losses. Earnings have been adversely impacted by more frequentand severe weather related events over this period, including losses from hurricanes, wind and hail storms, winter blizzards and tornadoes as well as the 2011 Japan and New Zealand earthquakes. In addition, investment returns have been diminished by persistently low interest rates and fluctuations in realized and unrealized capital gains and losses due to the weak economy and volatile equity markets. As a result, profitability ratios are weak and on average, fall below the private passenger standard auto and homeowners' composite. Extraordinary claims in 2012 from hail storms that passed through St. Louis and Southern Illinois in April, the summer drought in the Midwest and Superstorm Sandy in the Northeast in October also will have a detrimental impact on earnings, which are expected to fall below A.M. Best's expectations.

The ratings for the PC Group may be downgraded if operating performance continues to fall below A.M. Best's expectations or if risk-adjusted capitalization and/or its business profile weakens. The ratings may be stabilized by a favorable earnings trend that leads to capital appreciation.

The ratings for COUNTRY Financial Life Group acknowledge the consolidated strength of these two life companies. The ratings recognize COUNTRY Financial Life Group's strong risk-adjusted and absolute capitalization, positive trend of ordinary life premium growth, trend of operating gains in recent years and its stable business profile in which less than 30% of total reserves are in interest-sensitive products.

These factors are partially mitigated by spread compression in COUNTRY Financial Life Group's blocks of interest sensitive business with high guaranteed rates, elevated exposure to commercial mortgages, lower rates of return relative to its peer groups and exposure to geographic concentration risk, in which over 60% of direct premiums originate from Illinois.

Cotton States Life's ratings reflects its majority ownership by COUNTRY Financial Life Group, a risk-adjusted capitalization that supports its insurance and business risks, its recent trend of operating gains, the good overall credit quality of its investment portfolio and minimal interest-sensitive reserves.

Diminishing these strengths are Cotton States Life's declining premiums, its high portion of commercial mortgage-backed securities and residential mortgage-backed securities holdings as relative to its statutory capital and surplus and its exposure to geographic concentration risk as the company generates about half of the direct premiums from Georgia.

COUNTRY Financial Life Group and Cotton States Life are well positioned for their ratings. Factors that could lead to negative rating actions are an erosion of risk-adjusted capitalization due to spread compression and operating losses, an increase in other than temporary impairments, any change of business profile, which leads to a large increase in interest sensitive reserves and/or losses from their ancillary lines of business.

The FSR of A+ (Superior) and ICRs of "aa-" have been affirmed for the following COUNTRY Financial PC Insurance Group members:

• COUNTRY Mutual Insurance Company
• Middlesex Mutual Assurance Company
• Holyoke Mutual Insurance Company in Salem
• COUNTRY Casualty Insurance Company
• COUNTRY Preferred Insurance Company
• Modern Service Insurance Company

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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