The decline in capital in part reflects a beginning of theyear privatization of the life insurance subsidiaries which was previouslyreflected in Fitch's ratings. The decline also reflects deterioration ininvestment performance and high level of weather related losses that havefurther pressured statutory capitalization. Additionally, Fitch recentlyconducted updated stress tests against Nationwide's investment portfolios whichindicate a reasonable likelihood of some additional, yet moderate, capitalpressure due to future expected impairments and realized investment losses. The Negative Rating Outlook reflects the possibility of further deterioration inNationwide's investment portfolio beyond that captured by Fitch's stresstesting. Nationwide Mutual and NFS, its life holding company, currently carry avery large combined unrealized investment loss position that is approximatelythree times greater than Fitch's stress test-based expected future investmentlosses. The unrealized loss position resides primarily in three investmentcategories: non-government-agency mortgage-backed securities, commercialmortgages, and corporate bonds. Nationwide's property and casualty operations have underperformed the industryaggregate as well as personal lines peers, reporting a combined ratio of 107.2%in 2008.

Given the company's concentration of business in the mid-westernstates, both the homeowners and commercial lines of business suffereddisproportionate losses relative to historical trends. The combined ratio in thefirst quarter of 2009 declined to 102.6%, but greater improvement is necessaryin order to better align with peer companies in the personal lines marketsegment. Nationwide reported underwriting losses of $1 billion in 2008 and $21million during the first quarter of 2009. Within NWL and NWLA, which encompass Nationwide's life insurance and assetaccumulation businesses within NFS, Fitch anticipates moderate downward pressureon capital over the next year, driven primarily by losses on invested assets.The life entities continue to show a solid stand- alone capital position, butstress testing also shows some vulnerability under more adverse scenarios. Fitch anticipates that NFS will continue to experience pressure on operatingearnings in 2009, driven by lower investment income and lower asset-based feeincome. Further, variable annuity writers such as NWL and NWLA continue to beunder considerable pressure as the decline in equity market values over the pastyear has required additional general account reserves to cover guaranteesattached to the variable annuities the companies have sold. While Fitchacknowledges that the organization has economic hedging programs in place toreduce its exposure to these policy guarantees, some exposure remains.

Fitch has downgraded the following, and the Outlook remains Negative: Nationwide Mutual Insurance Co. --Issuer Default Rating (IDR) to 'A-' from 'A' --8.25% surplus notes due Dec. 1, 2031 to 'BBB+' from 'A-'; --7.875% surplus notes due April 1, 2033 to 'BBB+' from 'A-'; --6.60% surplus notes due April 15, 2034 to 'BBB+' from 'A-' Nationwide Mutual Insurance Co Nationwide Mutual Fire Insurance Co Scottsdale Insurance Co Farmland Mutual Insurance Co. Colonial County Mutual Insurance Company Nationwide Assurance Company Nationwide General Insurance Company Nationwide Lloyds Nationwide Property & Casualty Insurance Company Titan Indemnity Company Titan Insurance Company Victoria Automobile Insurance Company Victoria Fire & Casualty Insurance Company Victoria Select Insurance Company Victoria Specialty insurance Company Scottsdale Indemnity Company Scottsdale Surplus Lines Insurance Company Western heritage Insurance Company Allied Property & Casualty Insurance Company AMCO Insurance Company Depositors Insurance Company Nationwide Affinity Company --IFS to 'A' from 'A+' Nationwide Financial Services Inc. --IDR to 'BBB+' from 'A-'; --Senior notes $300 million; 6.25%; due Nov.

15, 2011 to 'BBB' from 'BBB+'; --Senior notes $300 million; 5.90%; due July 1, 2012 to 'BBB' from 'BBB+'; --Senior notes $200 million; 5.625%; due Feb. 13, 2015 to 'BBB' from 'BBB+'; --Senior notes $200 million; 5.10%; due Oct. 1, 2015 to 'BBB' from 'BBB+'; --Trust preferred $100 million; 7.899%; due March 1, 2037 to 'BBB-' from 'BBB'; Nationwide Life Insurance Co. --IFS to 'A' from 'A+'; --Short-term IDR affirmed at 'F1'; --Short-term IFS affirmed at 'F1'; --Commercial paper affirmed at 'F1' Nationwide Life Insurance Co of America --IFS to 'A' from 'A+'. Nationwide Life Global Funding I --Program Rating to 'A' from 'A+'.