UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
9/29/03
Date of Report (Date of earliest event reported)
SAFECO CORPORATION
(Exact name of registrant as specified in Charter)
WASHINGTON 1-6563 91-0742146
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
Safeco Plaza, Seattle, Washington 98185
(Address of principal executive offices) (Zip Code)
(206) 545-5000
(Registrant's telephone number,
including area code)
Item 5. Other Events
The following two press releases were filed today by Safeco Corporation.
FOR RELEASE AT 4:10 p.m. EASTERN TIME
SAFECO INVESTOR RELATIONS CONTACT: Neal Fuller, 206-545-5537
SAFECO MEDIA RELATIONS CONTACT: Paul Hollie, 206-545-3048
SAFECO STRENGTHENS WORKERS COMPENSATION RESERVES;
ANNOUNCES ESTIMATES OF HURRICANE ISABEL LOSSES
SEATTLE -- (Sept. 29, 2003) --Following the completion of a previously
announced review, Safeco (NASDAQ: SAFC) today strengthened reserves for workers
compensation, affecting third-quarter financial results by $0.96 per diluted
share.
Safeco increased loss reserves and allocated loss adjustment expense
reserves by $180 million pretax ($117 million after tax). These reserves relate
directly to settling and defending claims.
Nearly 90 percent of these reserves are associated with claims that
occurred in 2000 or earlier--the vast majority in large commercial insurance
accounts that Safeco has run off its books.
"We're strengthening these reserves because medical inflation isn't
abating--it remains stubbornly high," said Chris Mead, Safeco's chief financial
officer.
"This is coupled with a legal and regulatory environment that makes
market conditions unfavorable in California and several other states," she
added. "Because of this environment, workers compensation claims are tending to
stay open far longer than used to be the case."
In a related charge, Safeco increased unallocated loss adjustment
expense reserves by $25 million pretax ($16 million after tax). These reserves
relate to costs required to handle Safeco's workers compensation claims.
"Workers compensation is a challenge for the entire industry," Mead
said. "Safeco has a conservative reserving philosophy. We don't discount
reserves, and we constantly monitor trends to help ensure we're adequately
reserved."
Also today, Safeco estimated that customer losses associated with
Hurricane Isabel are expected to reach $15 million pretax ($10 million after
tax).
"Including the hurricane, our catastrophe losses are tracking with what
we typically experience in the third quarter," Mead said.
In a separate action, Safeco announced it is focusing on profitably
growing its Property & Casualty business, reducing expenses and putting its Life
& Investments unit up for sale. Details of that announcement are available at
http://www.safeco.com/safeco/news/archive/2003_0929.asp
Safeco's senior management will discuss both announcements with
financial analysts at 10 a.m., Eastern time (7 a.m., Pacific) on Tuesday, Sept.
30. The conference call will be broadcast live on the Internet at
http://www.safeco.com/irwebcast, and archived later in the day for replay at the
same address.
Safeco, in business since 1923, is a Fortune 500 company based in
Seattle that sells insurance and investment products through independent agents,
brokers and financial advisors nationwide. Safeco products help individuals and
small businesses protect what they value and secure their financial future. More
information about Safeco can be found at www.safeco.com
# # #
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FORWARD-LOOKING INFORMATION CONTAINED IN THIS
NEWS RELEASE IS SUBJECT TO RISK AND UNCERTAINTY
Statements, analysis and other information contained in this news release that
relate to anticipated financial performance, business prospects and plans and
similar matters are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Statements in this news release that
are not historical information are forward-looking. The operations, performance
and development of our business are subject to certain risks and uncertainties
that may cause actual results to differ materially from those contained in or
suggested by the forward-looking statements in this news release. The risks and
uncertainties include, but are not limited to:
o Safeco's ability to successfully divest the Life & Investments
operations;
o achievement of Safeco's overall expense reduction goals;
o the ability to obtain rate increases and decline or non-renew
underpriced insurance accounts;
o achievement of premium targets and profitability;
o realization of growth and business retention estimates;
o success in implementing a new business entry model for personal and
commercial lines;
o success in obtaining regulatory approval of price-tiered products and
the use of insurance scores, including credit scores as a component;
o the ability to freely enter and exit lines of business;
o changes in the mix of Safeco's book of business;
o driving patterns;
o the competitive pricing environment, initiatives by competitors and
other changes in competition;
o weather conditions, including the severity and frequency of storms,
hurricanes, snowfalls, hail and winter conditions;
o the occurrence of significant natural disasters, including
earthquakes;
o the occurrence of significant man-made disasters, such as the attack
on September 11, 2001 or war;
o the occurrence of bankruptcies that result in losses under surety
bonds, investment losses or lower investment income;
o the adequacy of loss and benefit reserves for our businesses;
o the ability to run off the Lloyds of London business without incurring
material unexpected charges;
o the availability of, pricing of, and ability to collect reinsurance;
o the ability to price for, exclude and reinsure the risk of loss from
terrorism;
o interpretation of insurance policy provisions by courts, court
decisions regarding coverage and theories of liability, trends in
litigation and changes in claims settlement practices;
o the outcome of any litigation against us;
o legislative and regulatory developments affecting the actions of
insurers, including requirements regarding rates, application and
availability of coverage;
o the effect of current insurance and credit ratings levels on business
production and the effect of negative changes to our ratings;
o inflationary pressures on medical care costs, auto parts and repair,
construction costs and other economic sectors that increase the
severity of claims;
o availability of bank credit facilities;
o use of derivative securities by Safeco Financial Products, Inc.;
o fluctuations in interest rates;
o performance of financial markets; and
o general economic and market conditions.
We assume no obligation to update any forward-looking statements contained in
this news release.
- ----------------------------------------------------------------------------
FOR RELEASE AT 4:05 p.m. EASTERN TIME
SAFECO INVESTOR RELATIONS CONTACT: Neal Fuller, 206-545-5537
SAFECO MEDIA RELATIONS CONTACT: Paul Hollie, 206-545-3048
SAFECO SETS COURSE FOR FUTURE WITH
CLEAR FOCUS ON PROPERTY & CASUALTY INSURANCE
Announces Intent to Sell Life & Investments Unit and Reduce Expenses
SEATTLE--(Sept. 29, 2003)--Aiming to be one of the top-performing
companies in its sector, Safeco (NASDAQ: SAFC) today unveiled a new corporate
structure with a clear focus on delivering Property & Casualty insurance
products. As a result, Safeco intends to sell its Life & Investments business
unit.
Safeco is targeting expense reductions of $75 million by the end of
2004 and putting its energy into selling standardized Property & Casualty
products through a common network of independent distributors supported by a
common sales, service and technology platform.
"Great companies don't stand still," said Mike McGavick, Safeco
chairman and CEO. "We did the hard work in successfully turning our company
around and making Safeco competitive again. That was only the first step.
"We might have been able to cruise along at this level, producing
average results quarter after quarter," he added. "But we aspire to be much
better than average. We aim to be an extraordinary company--among the leaders in
our industry in terms of profit, return to shareholders, premium growth, and
agent and customer satisfaction."
Property & Casualty Focus
"Our new Property & Casualty business model has been delivering
superior results across our three largest lines - auto, homeowners and small
commercial," McGavick said. "The more energy we invest in this model, the
greater the returns."
McGavick stressed that Safeco is taking these actions now to be more
competitive at a time when insurance companies' investment income is depressed
due to historically low interest rates, and to position the company for when the
positive pricing environment in the Property & Casualty sector peaks.
"We're making dramatic changes in our company to remove everything that
stands in our way of unleashing an aggressive competitor in the
property-casualty insurance marketplace," he said.
"Safeco's best course for the future is to have a strong Property &
Casualty focus, delivering nearly all of our products over the same sales and
service platform, and through a common network of independent distributors,"
McGavick added. "We believe this gives Safeco a unique and sustainable market
advantage, lowers our distributors' costs, and provides customers with
competitively priced products and exceptional service."
Sale of Life & Investments
To achieve this clear focus on Property & Casualty (P&C) insurance,
Safeco placed its Life & Investments (L&I) operation for sale. Safeco has
retained Goldman Sachs to assist in the process of seeking a buyer.
"Most of the proceeds of the sale will be returned to shareholders in
the form of a special dividend, a stock repurchase plan, or a combination of the
two," McGavick said. A portion of the proceeds will be used to reduce Safeco's
debt to a level appropriate with the company's new size, and a small amount may
be retained to support ongoing business needs.
L&I offers life insurance, annuities, mutual funds, employee benefits,
group stop-loss medical insurance, and other financial products and services
through independent agents, banks and financial advisors.
In 2002, L&I generated pretax operating earnings of $237.0 million on
revenues of nearly $2.0 billion. L&I total assets were $23.2 billion, and its
Mutual Funds assets under management were $4.0 billion at the end of the second
quarter of 2003.
"This was an extremely difficult decision given the great contributions
of our L&I team and our long history together," McGavick said. "Like P&C, the
Life & Investments team operates a terrific business model of its own. L&I will
benefit from being part of a company focused on life insurance and asset
accumulation."
Expense Reductions
In Safeco's second-quarter earnings release, the company indicated its
expense levels are higher than the best performers in the property-casualty
insurance sector. Work is underway across the company to identify inefficiencies
and redundancies, with a target of reducing expenses by $75 million by the end
of 2004.
"With our new strategic focus and the planned sale of L&I, there are
expense reduction opportunities, especially in our corporate departments," said
McGavick. "We intend to be a company that continuously strives for ways to
reduce cost, be more effective and produce better results for all stakeholders.
A leaner corporate staff allows us to be more competitive."
By the end of next year, Safeco expects to decrease employment by at
least 500 positions (excluding jobs that may be affected by the sale of L&I).
This will be managed through a combination of staff reductions and attrition.
Most of the reductions will occur in the Seattle area.
Safeco anticipates a fourth-quarter restructuring charge associated
with these expense-reduction efforts.
"Organizations that focus on customers--Claim, Sales and Service-- are
largely unaffected by these job reductions," McGavick stressed. "Our customer
base is growing, and we will grow these organizations, as appropriate, to
continue providing outstanding customer service.
"Tackling our expense problem now, during a favorable pricing cycle,
positions us for profitable growth when the insurance market becomes more
competitive," he added. "Every day we put off this work, more efficient
competitors can gain an advantage with lower-priced products. That's why our
current expense gap must be addressed now.
Benefit Changes
The company also is reconfiguring employee and retiree benefit plans to
contain spiraling health care costs and bring the plans more in line with those
of competitors and most major American corporations.
At the same time, Safeco is enhancing employee incentive compensation,
vacation benefits and the company's 401(k) retirement savings plan.
"Despite the difficult nature of some of the changes we're announcing
today, Safeco remains committed to investing in people," McGavick said. "These
benefit changes provide our coworkers with more flexibility and increased
earnings potential."
Conference Call with Safeco Senior Management Team
In a separate news release, Safeco also announced today that it is
strengthening workers compensation reserves by $205 million pretax. Details are
available at http://www.safeco.com/safeco/news/archive/2003_0925_1.asp
Safeco's senior management team will discuss both announcements with
financial analysts at 10 a.m., Eastern time (7 a.m., Pacific) on Tuesday, Sept.
30. The call will be broadcast live on the Internet at
http://www.safeco.com/irwebcast and archived later in the day for replay at the
same address.
About Safeco
Safeco, in business since 1923, is a Fortune 500 company based in
Seattle that sells insurance and investment products through independent agents,
brokers and financial advisors nationwide. Safeco products help individuals and
small businesses protect what they value and secure their financial future. More
information about Safeco can be found at www.safeco.com
####
- -------------------------------------------------------------------------------
FORWARD-LOOKING INFORMATION CONTAINED IN THIS
NEWS RELEASE IS SUBJECT TO RISK AND UNCERTAINTY
Statements, analysis and other information contained in this news release that
relate to anticipated financial performance, business prospects and plans and
similar matters are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Statements in this news release that
are not historical information are forward-looking. The operations, performance
and development of our business are subject to certain risks and uncertainties
that may cause actual results to differ materially from those contained in or
suggested by the forward-looking statements in this news release. The risks and
uncertainties include, but are not limited to:
o Safeco's ability to successfully divest the Life & Investments
operations;
o achievement of Safeco's overall expense reduction goals;
o the ability to obtain rate increases and decline or non-renew
underpriced insurance accounts;
o achievement of premium targets and profitability;
o realization of growth and business retention estimates;
o success in implementing a new business entry model for personal and
commercial lines;
o success in obtaining regulatory approval of price-tiered products and
the use of insurance scores, including credit scores as a component;
o the ability to freely enter and exit lines of business;
o changes in the mix of Safeco's book of business;
o driving patterns;
o the competitive pricing environment, initiatives by competitors and
other changes in competition;
o weather conditions, including the severity and frequency of storms,
hurricanes, snowfalls, hail and winter conditions;
o the occurrence of significant natural disasters, including
earthquakes;
o the occurrence of significant man-made disasters, such as the attack
on September 11, 2001 or war;
o the occurrence of bankruptcies that result in losses under surety
bonds, investment losses or lower investment income;
o the adequacy of loss and benefit reserves for our businesses;
o the ability to run off the Lloyds of London business without incurring
material unexpected charges;
o the availability of, pricing of, and ability to collect reinsurance;
o the ability to price for, exclude and reinsure the risk of loss from
terrorism;
o interpretation of insurance policy provisions by courts, court
decisions regarding coverage and theories of liability, trends in
litigation and changes in claims settlement practices;
o the outcome of any litigation against us;
o legislative and regulatory developments affecting the actions of
insurers, including requirements regarding rates, application and
availability of coverage;
o the effect of current insurance and credit ratings levels on business
production and the effect of negative changes to our ratings;
o inflationary pressures on medical care costs, auto parts and repair,
construction costs and other economic sectors that increase the
severity of claims;
o availability of bank credit facilities;
o use of derivative securities by Safeco Financial Products, Inc.;
o fluctuations in interest rates;
o performance of financial markets; and
o general economic and market conditions.
We assume no obligation to update any forward-looking statements contained in
this news release.
- ------------------------------------------------------------------------------
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAFECO CORPORATION
---------------------------------
Registrant
Date: September 29, 2003
/s/ CHRISTINE B. MEAD
-----------------------------------
Christine B. Mead
Senior Vice President,
Chief Financial Officer and Secretary