Matthew Coyle, a credit analyst at the New York-based S&P, said the notes' rating reflects Nationwide's strong franchise in the personal property-casualty insurance sector and improving underwriting results.

But on the other hand, Mr. Coyle added, these strengths are partially offset by the company's weakened capital position, caused by its above-average exposure to equities as well as the potential for adverse development of asbestos reserves.

Currently, Columbus, Ohio-based Nationwide has an "A-plus" financial strength rating with a "negative" outlook from S&P.

"On March 17, 2003, Standard & Poor's affirmed its ratings on Nationwide, but revised the outlook to 'negative,'" Mr. Coyle noted. The revision reflected the deterioration in Nationwide's capital adequacy throughout 2002 and earlier this year, he said.

Mr. Coyle added the continued weakness in U.S. equity markets was the major reason behind the capital decline, because Nationwide has historically had a higher-than-average exposure to equities.

S&P also noted that further rating actions for Nationwide would be decided by the company's ability to restore its capital adequacy.

"If the company can successfully restore the capital adequacy of the organization while simultaneously improving underwriting results, the ratings would be affirmed and the outlook would be revised to 'stable,'" Mr. Coyle stated.

"Conversely, the inability to improve both underwriting results and/or the capital adequacy of the organization could result in a downgrade of the company."

Moody's Investors Service, which currently has an "Aa3" rating for Nationwide and its leading intercompany pool members, offered a similar analysis for the company's outlook.

The New York-based rating agency said its "A2" surplus notes rating reflects the company's strong market position in personal insurance lines, as well as the company's still-strong balance sheet, its conservative capital structure and its improving operating results.

But, Moody's pointed out, these strengths are offset by the company's high exposure to equity markets, continuing exposure to environmental and asbestos claims, and exposure to natural catastrophes.

The rating agency also observed that levels of statutory surplus at the company fell by some $1.9 billion over the past three years. "The concern with this decline in surplus is tempered by the fact that the group's economic capital position is enhanced by items excluded under statutory accounting principles," Moody's stated.

"Nonetheless, the company's high exposure to equity market volatility could potentially limit its operating and financial flexibility as it increases the company's vulnerability to catastrophes," it said.

Nationwide Mutual Group is one of the largest p-c insurers in the United States. Last year, the company's ongoing p-c operations posted a net income of $389 million.