[Safeco Logo]
Second Quarter News Release and Statistical Supplement (Unaudited)
July 20, 2004
Table of Contents
Page
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Earnings News Release 1-8
Financial Supplement Introduction SS-1
Financial Measures Used by Safeco SS-2
Consolidated Results
Key Metrics SS-6
Consolidated Statements of Income SS-7
Condensed Balance Sheets SS-8
Continuing Operations Income Summary SS-9
Property & Casualty Results
Underwriting Profit and Combined Ratios SS-10
Net Written Premiums SS-11
Net Earned Premiums SS-12
Safeco Personal Insurance (SPI) SS-13
Safeco Business Insurance (SBI) SS-14
Surety, Other and Total SS-15
Statutory Information SS-16
Corporate Supplemental Information
Investment Portfolio - Continuing Operations SS-17
Capitalization SS-18
Discontinued Operations (Life & Investments)
Pretax Operating Earnings and Revenues SS-19
Supplemental Statistics and Assets and Liabilities of
Discontinued Operations SS-20
[Safeco Logo]
FOR RELEASE AT 7:45 a.m., Eastern Time
INVESTOR RELATIONS CONTACT: Neal Fuller, 206-545-5537
MEDIA RELATIONS CONTACT: Paul Hollie, 206-545-3048
SAFECO POSTS STRONG PROFITS
IN ALL MAJOR PROPERTY & CASUALTY SEGMENTS
P&C Business Model and Automated Sales Platform Drive Excellent Results
SEATTLE--(July 20, 2004)--
Highlights
o Second-quarter net income of $247.5 million, or $1.77 per diluted share.
o Underwriting profits exceeded targets in all major Property & Casualty
segments.
o Life & Investments sale on track to close in third quarter.
- ------------------------------------------------------------- ------------------------------- ------------------------------
Summary Financial Results after tax 3 Months Ended 6 Months Ended
(In millions except per-share data) June 30 June 30
2004 2003 2004 2003
- ------------------------------------------------------------- -------------- ---------------- --------------- --------------
Net Income S 247.5 $ 111.9 $ 483.7 $ 201.9
Per Diluted Share of Common Stock S 1.77 $ 0.81 $ 3.45 $ 1.45
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
Income from Continuing Operations S 248.9 $ 67.1 $ 434.5 $ 146.6
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
Net Realized Investment Gains from Continuing Operations S 55.2 $ 10.4 $ 83.0 $ 15.9
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
*Operating Earnings - Continuing Operations S 193.7 $ 56.7 $ 351.5 $ 130.7
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
Income (Loss) from Discontinued Operations S (1.4) $ 44.8 $ 49.2 $ 55.3
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
Net Realized Investment Gains (Losses) from Discontinued
Operations S (31.8) $ 4.3 $ (21.3) $ (33.6)
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
*Operating Earnings - Discontinued Operations S 30.4 $ 40.5 $ 70.5 $ 88.9
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
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*Consolidated Operating Earnings S 224.1 $ 97.2 $ 422.0 $ 219.6
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Weighted Average Shares Outstanding (Diluted) 140.1 139.0 140.1 138.8
- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ----------
* Operating Earnings is Net Income excluding Net Realized Investment Gains
(Losses). Measures used in this news release that are not based on accounting
principles generally accepted in the United States (GAAP) are defined and
reconciled to the most directly comparable GAAP measure in our Form 8-K
available through the SEC and online at
http://www.safeco.com/safeco/investor/pdfs/04Q2_sup.pdf.
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Safeco (NASDAQ: SAFC) today announced strong second-quarter results,
reflecting the company's solid underwriting and the competitive strength of its
automated sales platform. In addition, weather-related catastrophe losses were
relatively light for the second quarter. The company posted net income of $247.5
million - or $1.77 per diluted share. This represents an increase over
second-quarter 2003 net income, which was $111.9 million - or $0.81 per diluted
share.
Safeco's annualized return on equity (ROE) for the quarter was 18.7
percent, up from 10.2 percent in the second quarter of 2003. Consolidated
operating annualized ROE - measured using operating earnings and shareholders'
equity, excluding unrealized gains on bond investments - was 21.9 percent,
compared with 11.8 percent in the same period last year.
"These results demonstrate the effectiveness of operating our three
major insurance lines - auto, homeowners and small commercial - on a single
business platform," said Mike McGavick, Safeco chairman and chief executive
officer. "These are lines of business where Safeco's cultural tradition of
discipline gives us a real advantage."
Continuing Operations
Income from continuing Property & Casualty (P&C) operations was
$248.9 million for the second quarter, up from $67.1 million in the same
quarter last year. Net realized investment gains for the second quarter were
$55.2 million, compared with $10.4 million in the same period of 2003.
Operating earnings for the second quarter were $193.7 million, more
than a threefold increase over the $56.7 million in the prior-year period.
The overall P&C combined ratio was 85.4 in the second quarter, a
significant improvement over the 101.0 posted in the same period last year. This
was driven by improved underwriting results across all major P&C product lines.
Combined ratio is a standard gauge of underwriting performance
measuring the percentage of premium dollars used to pay customers' claims and
expenses. The lower the ratio, the more effective the underwriting. A combined
ratio below 100 indicates the line is operating profitably.
"While we benefited from favorable weather, the underlying results are
better than we expected and exceeded our P&C profit targets across the board,"
McGavick said. "This is especially gratifying given the second quarter is
traditionally our weakest earnings quarter due to catastrophes and severe
weather."
Total revenues from continuing operations in the second quarter were
$1.56 billion, up from $1.34 billion a year ago. Operating revenues, which
exclude net realized investment gains, were $1.47 billion for the quarter, an
11.1 percent increase over second-quarter 2003.
P&C net earned premiums increased 12.4 percent for the quarter to $1.35
billion compared with the same period last year. For the quarter, P&C net
written premiums - a leading indicator of revenues in future quarters -
increased 10.4 percent over second-quarter 2003.
As previously announced, Safeco is on track to close the sale of its
Life & Investments (L&I) business in the third quarter.
Safeco Personal Insurance Performance
Auto, Safeco's largest business line, reported a quarterly underwriting
profit of $61.0 million - a major improvement over the $0.9 million underwriting
loss in the second quarter of 2003.
Auto's combined ratio in the second quarter was 90.5 - significantly
better than the 100.2 combined ratio in the second quarter of 2003. During the
quarter, Auto results benefited from $9.0 million in subrogation reserves, or a
1.4 point impact on the combined ratio.
Net written premiums for Auto continue to grow at a healthy rate,
increasing 16.2 percent in the second quarter, compared with a 17.1 percent
increase in the same period last year.
Second-quarter policies in force (PIF) grew 10.0 percent compared with
a year ago, reflecting new-business growth and stable retention levels.
"Segmentation within our auto product continues to be a key
differentiator for Safeco. With our strong underwriting capability and our
efforts to uncomplicate the sales process, we continue to see the opportunities
for profitable growth," said McGavick.
Safeco's Property insurance line, which includes homeowners, renters
and related coverages, produced an underwriting profit of $79.3 million in the
second quarter, compared with a $6.6 million underwriting loss in the second
quarter of 2003.
The Property combined ratio was 65.1 in the second quarter, compared
with 102.9 in the second quarter of 2003 when Safeco experienced higher
catastrophe losses associated with severe storms that tore through the Midwest
and Southeast. Claims from catastrophe losses were $15.5 million in the second
quarter of 2004, compared with $62.5 million in the same quarter last year. The
catastrophe impact on the Property combined ratio was 6.8 points for
second-quarter 2004 and 27.1 points in 2003.
Safeco's proactive management of the homeowners line has helped improve
profitability. Slightly better-than-expected weather also was a contributor. The
homeowners line benefited from favorable reserve development of $17.0 million,
or a 7.5 point impact on the combined ratio, primarily reflecting
better-than-expected claims frequency and contract changes put into place
beginning in 2002.
"With our homeowners product once again offered across the country,
we've seen a 6.5 percent uptick in new-business policies during the second
quarter in our Property segment," said McGavick.
Net written premiums in Property decreased 1.1 percent in the second
quarter compared with a year ago. PIF declined 8.4 percent, compared with a 9.0
percent decline in the second quarter last year.
Safeco Business Insurance Performance
Safeco Business Insurance (SBI) reported an underwriting profit of
$49.4 million in the second quarter, compared with a $12.1 million underwriting
loss for the same period in 2003.
Combined ratio in the second quarter was 87.9, compared with 103.3 in
the second quarter of 2003. Claims from catastrophe losses were $4.5 million in
the second quarter of 2004, versus $13.9 million in the second quarter of last
year. The catastrophe impact on the combined ratio was 1.1 points in the second
quarter of 2004 and 3.8 points in the same period of 2003.
Net written premiums for SBI Regular - Safeco's core line of products
for small- to medium-sized businesses - increased 8.1 percent for the second
quarter over the same period last year.
The Safeco Now single-platform interface continues to prove easy for
agents to use as evidenced by the 14.3 percent increase in new-business policies
for the businessowner policy (BOP) line over the second quarter of last year.
Commercial auto new-business policies jumped 35.8 percent over second-quarter
2003 levels, and workers compensation new-business policies grew 11.6 percent.
These lines represent 47 percent of SBI Regular's business.
"These results are a testament to sound underwriting and the power of
our automated platform in serving small-business customers," said McGavick.
SBI Regular reported a combined ratio of 89.4, a substantial
improvement over the 104.2 result in the same period last year.
Surety Performance
Surety posted an underwriting profit of $11.5 million in the second
quarter, compared with a $6.8 million underwriting profit in the same quarter of
2003.
Combined ratio for Surety was 75.7 in the second quarter, better than
the 82.2 in the same quarter of 2003. Net written premiums grew 28.6 percent
over the same period last year.
"Surety continues to demonstrate the power of disciplined underwriting,
and the team has capitalized on market conditions, resulting in strong
production," said McGavick.
P&C Other
The P&C Other segment, which includes results from operations that
Safeco has exited or placed in runoff, had an underwriting loss of $10.2 million
in the second quarter, compared with an underwriting loss of $9.7 million in the
same quarter of 2003. The losses reflect reserve strengthening.
Discontinued Life & Investments Operation
Life & Investments (L&I) produced pretax operating earnings of $33.8
million in the second quarter, compared with $60.9 million a year ago. Pretax
operating earnings represent income from discontinued operations, excluding
related income taxes and net realized investment gains and losses. The
second-quarter results for 2004 include $6.2 million of accrued expenses
associated with the sale of the business.
In reporting L&I as a discontinued operation, indirect corporate
overhead expenses are no longer allocated to L&I. Previously allocated expenses
of $3.0 million per quarter in 2003 have been eliminated from the L&I Other
segment and included in the Corporate segment.
The Group product line reported a pretax operating loss of $2.9
million, compared with $24.5 million of pretax operating earnings posted in the
second quarter of last year. The current quarter includes reserve strengthening
of $15.7 million, stemming from recent higher medical claims cost trends.
Income Annuities generated a $1.3 million pretax operating loss for the
quarter, down from $8.4 million in pretax operating earnings in the second
quarter of 2003. This decrease was due mainly to $4.7 million of unfavorable
prepayment adjustments on mortgage-backed securities compared with favorable
adjustments of $3.4 million in the same quarter of last year.
Retirement Services had pretax operating earnings of $3.2 million in
the second quarter, compared with $4.9 million a year earlier. The decline
reflects the impact of reinvestment in securities at lower interest rates,
partially offset by corresponding lower rates on fixed annuities and improved
indexed annuity investment margins.
The Individual line had pretax operating earnings of $4.4 million in
the second quarter of 2004, compared with a pretax operating loss of $0.5
million in the same period last year. The increase is primarily the result of
improved mortality experience.
Net realized investment losses from Discontinued Operations include
$59.0 million in after-tax impairments of securities in connection with the sale
of L&I. Accounting rules require impairment recognition of any unrealized losses
on L&I securities that are not expected to recover in value before the close of
the L&I sale.
Corporate
During the quarter, Safeco repurchased 885,000 shares of its common
stock for a total of $38.0 million. This activity was part of Safeco's
previously announced share repurchase program, under which 1,487,088 shares
remain available for repurchase.
Additional Financial Information Available
Safeco uses both GAAP and non-GAAP financial measures to track the
performance of its operations. The definition of each non-GAAP measure and
reconciliation to the most directly comparable GAAP measure are included in
Safeco's Form 8-K that will be furnished to the U.S. Securities and Exchange
Commission today.
The Form 8-K will include this news release and Safeco's summary
financial results, consolidated statements of income and condensed balance
sheets in the company's second-quarter financial supplement.
Safeco's second-quarter press release, financial supplement and 8-K are
available online at http://www.safeco.com/safeco/investor/pdfs/04Q2_sup.pdf.
Management Reviews Results on Webcast
Safeco's senior management team will discuss the company's
second-quarter performance with analysts today at 11 a.m., Eastern Time (8 a.m.,
Pacific Time). The conference call will be broadcast live on the Internet at
http://www.safeco.com/irwebcast and archived later in the day for replay.
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. 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
Forward-looking information contained in this release is subject to risk and
uncertainty. Information contained in this release that relates to anticipated
financial performance, business prospects and plans, regulatory developments and
similar matters are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Statements in this release that are
not historical information are forward-looking. Our business is subject to
certain risks and uncertainties that may cause actual results to differ
materially from those suggested by the forward-looking statements in this
release. The risks and uncertainties include, but are not limited to:
>> Risks related to the pricing and underwriting of our products, and the
subsequent establishment of reserves, such as:
o Successful implementation of a new-business entry model for
personal and commercial lines
o Ability to appropriately price and reserve for changes in the mix
of our book of business
o Ability to establish pricing for any changes in driving patterns
o Inflationary pressures on medical care costs, auto parts and
repair, construction costs and other economic factors that
increase the severity of claims
o The availability and pricing of our reinsurance, including
coverage for loss from terrorism and our ability to collect from
our reinsurers
o The ability to price for or exclude the risk of loss from
terrorism on our policies
>> Risks related to our P&C insurance strategy, such as:
o Our ability to achieve premium targets and profitability,
including realization of growth and business retention estimates
o Our ability to achieve overall expense goals
o Our ability to run off our London business and other businesses
that we have exited, or intend to exit in the future, without
incurring material unexpected charges
>> Regulatory, judicial and legislative risks, such as:
o Our ability to freely enter and exit lines of business
o Our ability to successfully obtain regulatory approval of rates
and underwriting guidelines, including price-tiered products and
the use of insurance scores that include credit information as a
component
o Interpretation of insurance policy provisions by courts or tax
authorities, 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, taxes and
availability of coverage
>> The competitive pricing environment, initiatives by competitors and
changes in the competition
>> Unusual loss activity, such as:
o Weather conditions, including the severity and frequency of
storms, hurricanes, hail, snowfall and winter conditions
o The occurrence of significant natural disasters, including
earthquakes
o The occurrence of significant man-made disasters, such as the
terrorist attacks on September 11, 2001, or war
o The occurrence of bankruptcies that result in losses on insurance
products or investments
>> Our ability to successfully complete the sale of the L&I businesses
>> Financial and economic conditions, such as:
o Performance of financial markets
o Availability of bank credit facilities
o Fluctuations in interest rates
o General economic conditions
>> Operational risks, such as:
o Damage to our infrastructure resulting in a disruption of our
operations
o Internal or external fraud perpetrated against us
We assume no obligation to update any forward-looking statements contained in
this news release.
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[Safeco Logo]
Financial Supplement
Second Quarter, 2004
On January 1, 2004, we made minor revisions to our Property & Casualty (P&C)
segments, which are more reflective of how these segments are managed. Our
non-voluntary auto and property results, previously in P&C Other, are now
included in SPI Auto and SPI Property. Certain products, previously reported in
Specialty, primarily earthquake, inland marine and dwelling fire, are now
included in Property. Our commercial specialty programs and large commercial
accounts in runoff, previously SBI Runoff, are now included in P&C Other. All
prior periods have been restated to reflect the revised presentation of P&C
segments.
On March 15, 2004, we entered into a definitive agreement to sell our Life &
Investments (L&I) operations. We have presented the results of L&I as a
Discontinued Operation, as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." Prior-period amounts have been restated to
reflect the presentation of L&I as a Discontinued Operation. In reporting L&I as
a Discontinued Operation, indirect corporate overhead expenses are no longer
allocated to L&I. Previously allocated expenses of $3.0 million per quarter in
2003 have been eliminated from the L&I Other segment and included in our
Corporate segment.
This report is for informational purposes only. The financial statements and
financial exhibits included in this supplement are unaudited. These financial
statements and financial exhibits should be read in conjunction with the
financial statements filed with the Securities and Exchange Commission in the
Corporation's quarterly 10-Q and annual 10-K filings.
Neal Fuller
Vice President - Finance
206-545-5537
neaful@safeco.com
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Safeco Corporation
Financial Measures Used by Safeco
(Amounts are in millions or thousands as specified, except ratio and per share
information.)
How We Report Our Results
Property & Casualty (P&C) businesses include the following segments:
Safeco Personal Insurance (SPI)
Auto
Property
Specialty
Safeco Business Insurance (SBI)
SBI Regular
SBI Special Accounts Facility
Surety
P&C Other
Corporate includes all other activities, primarily the financing of our business
activities.
Our discontinued Life & Investments (L&I) operations include the following
segments:
Group
Income Annuities
Retirement Services
Individual
Asset Management
L&I Other
Certain reclassifications have been made to the prior-year amounts to conform to
the current-year presentation.
In addition to financial measures presented in the consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States (GAAP), we also use certain non-GAAP financial measures to
analyze and report our financial results. Management believes that these
non-GAAP measures, when used in conjunction with the consolidated financial
statements, can aid in understanding our financial condition and results of
operations. These non-GAAP measures are not a substitute for GAAP measures, and
where these measures are described we provide tables that reconcile the non-GAAP
measures to the GAAP measures reported in our consolidated financial statements.
Operating Revenues - Continuing Operations
Operating revenues is a non-GAAP financial measure used by management to analyze
the revenues of our P&C and Corporate operations. It excludes net realized
investment gains and losses that can fluctuate significantly and distort a
comparison between periods. The following table provides a reconciliation of
operating revenues from continuing operations to revenues, the most directly
comparable GAAP measure.
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------------
2004 2003 2004 2003
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Total Revenues $ 1,555.8 $ 1,340.0 $ 3,054.1 $ 2,633.5
Net Realized Investment Gains (84.9) (15.7) (127.7) (23.9)
------------------------------------------------------
Operating Revenues - Continuing Operations $ 1,470.9 $ 1,324.3 $ 2,926.4 $ 2,609.6
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Operating Earnings - Continuing Operations
Operating earnings is a non-GAAP financial measure that we use to assess the
profitability of our P&C and Corporate operations. In the determination of
operating earnings from continuing operations, we exclude net realized
investment gains and losses from Income from Continuing Operations. Net realized
investment gains and losses can fluctuate significantly and distort a comparison
between periods. The following table reconciles operating earnings to Income
from Continuing Operations, the most directly comparable GAAP measure.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------
2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------
Income from Continuing Operations $ 248.9 $ 67.1 $ 434.5 $ 146.6
Net Realized Investment Gains, Net of Taxes (55.2) (10.4) (83.0) (15.9)
------------------------------------------------------
Operating Earnings-Continuing Operations $ 193.7 $ 56.7 $ 351.5 $ 130.7
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Consolidated Operating Return on Equity
Operating return on equity is a ratio we calculate using non-GAAP measures. It
is calculated by dividing the annualized consolidated operating earnings (see
calculation below) for the most recent quarter by the average ending
shareholders' equity for the quarter using a simple average of the beginning and
ending balances for the quarter, excluding from equity after-tax unrealized
investment gains and losses on fixed maturities. This ratio provides management
with an additional measure to evaluate Safeco's results excluding the unrealized
changes in the valuation of its fixed maturities portfolio that can fluctuate
between periods. The following table reconciles operating return on equity to
return on equity, the most directly comparable GAAP measure.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------
(Annualized) 2004 2003 2004 2003
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Net Income $ 247.5 $ 111.9 $ 483.7 $ 201.9
Average Shareholders' Equity 5,293.1 4,380.1 5,037.4 4,380.1
Return on Equity Based on Annualized Net Income 18.7% 10.2% 19.2% 9.2%
Income (Loss) from Discontinued Operations, Net of
Taxes $ (1.4) $ 44.8 $ 49.2 $ 55.3
Net Realized Investment (Gains) Losses from
Discontinued Operations, Net of Taxes 31.8 (4.3) 21.3 33.6
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Operating Earnings-Discontinued Operations 30.4 40.5 70.5 88.9
Operating Earnings-Continuing Operations 193.7 56.7 351.5 130.7
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Consolidated Operating Earnings $ 224.1 $ 97.2 $ 422.0 $ 219.6
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Average Shareholders' Equity $ 5,293.1 $ 4,380.1 $ 5,037.4 $ 4,380.1
Average Unrealized Fixed Maturities Investment
Gains, Net of Taxes
Investment Gains, Net of Tax 1,195.6 1,090.3 1,047.8 1,090.3
------------------------------------------------------
Adjusted Average Shareholders' Equity $ 4,097.5 $ 3,289.8 $ 3,989.6 $ 3,289.8
Operating Return on Equity Based on Annualized
Consolidated Operating Earnings 21.9% 11.8% 21.2% 13.4%
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Property & Casualty Net Written Premiums
Net written premiums is a non-GAAP measure representing the amount of premium
charged for policies issued during the period. Premiums are reflected as revenue
in the Consolidated Statements of Income as they are earned over the underlying
policy period. Net written premiums applicable to the unexpired term of a policy
are recorded as unearned premiums on our Consolidated Balance Sheets. Safeco's
management views net written premiums as a measure of business production for
the period under review and as a leading indicator of earned premiums. The
following table reconciles net written premiums to net earned premiums, the most
directly comparable GAAP measure on our Consolidated Statements of Income.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------
2004 2003 2004 2003
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Total Property & Casualty Net Earned Premiums $ 1,351.4 $ 1,201.8 $ 2,691.9 $ 2,364.9
Change in Unearned Premiums 102.6 114.7 137.8 157.4
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Total Property & Casualty Net Written Premiums $ 1,454.0 $ 1,316.5 $ 2,829.7 $ 2,522.3
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Segment Results Measures
We have provided the following table that details by segment the GAAP measure
Income from Continuing Operations before Income Taxes on our Consolidated
Statements of Income. This is the most directly comparable GAAP measure used to
reconcile to Property & Casualty underwriting profit.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------
2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------
Property & Casualty Income before Income Taxes $ 395.1 $ 109.1 $ 679.8 $ 241.4
Corporate Loss before Income Taxes (28.5) (20.8) (53.7) (46.5)
------------------------------------------------------
Income from Continuing Operations before Income Taxes $ 366.6 $ 88.3 $ 626.1 $ 194.9
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Property & Casualty Underwriting Profit and Combined Ratios
Underwriting profit represents the net amount of earned premiums less
underwriting losses and expenses on a pretax basis. Management views
underwriting profit as a critical measure to assess the underwriting
effectiveness of the P&C operations and to evaluate the results of these
business units. The related investment portfolio is managed separately from
these underwriting businesses and, accordingly, net investment income and net
realized investment gains and losses are discussed separately. The following
table reconciles underwriting profit to Income from Continuing Operations before
Income Taxes, the most directly comparable GAAP measure on our Consolidated
Statements of Income. Combined ratios are a standard gauge of underwriting
performance and are calculated as losses and expenses expressed as a percentage
of net earned premiums.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------
2004 2003 2004 2003
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Property & Casualty Income before Income Taxes $ 395.1 $ 109.1 $ 679.8 $ 241.4
Property & Casualty Net Investment Income (115.8) (116.5) (227.5) (229.3)
Property & Casualty Restructuring Charges 0.1 -- 1.4 --
Property & Casualty Net Realized Investment Gains (81.7) (4.9) (120.6) (3.4)
------------------------------------------------------
Total Underwriting Profit (Loss) $ 197.7 $ (12.3) $ 333.1 $ 8.7
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Life & Investments Pretax Operating Earnings - Discontinued Operations
Our Discontinued Life & Investments' results are evaluated based on pretax
operating earnings, a non-GAAP measure, which excludes net realized investment
gains and losses. Management believes the presentation of pretax operating
earnings enhances the understanding of our L&I results of operations by
excluding net realized investment gains and losses, which can fluctuate
significantly and distort a comparison between periods. The following table
reconciles pretax operating earnings to Income (Loss) from Discontinued
Operations, Net of Taxes, the most directly comparable GAAP measure on our
Consolidated Statements of Income.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------
2004 2003 2004 2003
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Income (Loss) from Discontinued Operations, Net of
Taxes $ (1.4) $ 44.8 $ 49.2 $ 55.3
Income taxes on Discontinued Operations (13.7) 22.8 13.2 29.1
Life & Investments Net Realized Investment (Gains)
Losses, pretax 48.9 (6.7) 32.7 51.4
------------------------------------------------------
Pretax Operating Earnings $ 33.8 $ 60.9 $ 95.1 $ 135.8
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Other Information in this Supplement
Frequency, severity and loss cost information is on a newly reported, claims
incurred, basis which may be different from paid.
Catastrophes are events resulting in losses greater than $500,000, involving
multiple claims and policyholders. Safeco has used this definition since 1991.
Certain reclassifications have been made to the prior periods to conform to the
current presentation.
NM = Not Meaningful
Safeco Corporation
Key Metrics
(In Millions Except Per Share Data)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD YTD
2004 2004 2003 2003 2003 2004 2003 Change
----------- ----------- ------------ ------------ ----------- ---------- ---------- ----------
Net Income (Loss) $ 247.5 $ 236.2 $ 166.2 $ (28.9) $ 111.9 $ 483.7 $ 201.9 140%
Net Income (Loss) Per Share 1.77 1.69 1.19 (0.21) 0.81 3.45 1.45 138%
Net Income Return on Equity
(unadjusted) annualized 18.7% 17.9% 13.8% -2.5% 10.2% 19.2% 9.2% 10.0
Net Realized Investment
Gains (Losses), after tax
from Continuing Operations 55.2 27.8 22.2 7.8 10.4 83.0 15.9 422%
Operating Earnings (Loss) from
Continuing Operations 193.7 157.8 116.8 (7.9) 56.7 351.5 130.7 169%
Operating Earnings (Loss) from
Continuing Operations Per Share 1.38 1.13 0.84 (0.06) 0.41 2.51 0.94 167%
Consolidated Operating Return on
Equity (Pre-FAS 115) annualized 21.9% 20.4% 17.2% 4.0% 11.8% 21.2% 13.4% 7.8
Consolidated Operating Return on
Equity (unadjusted) annualized 16.9% 15.0% 12.6% 2.9% 8.9% 16.8% 10.0% 6.8
Operating Revenues from
Continuing Operations $ 1,470.9 $ 1,455.5 $1,402.6 $1,367.7 $ 1,324.3 $2,926.4 $2,609.6 12%
% Chg Prior Year Same Qtr 11.1% 13.2% 9.3% 9.5% 9.6%
Discontinued Ops.-Life & Investments
Pretax Operating Earning $ 33.8 $ 61.3 $ 53.3 $ 44.1 $ 60.9 $ 95.1 $ 135.8 -30%
% Chg Prior Year Same Qt -44.5% -18.2% -19.6% -26.0% 17.1%
Property & Casualty
Combined Ratio 85.4% 89.9% 92.8% 108.6% 101.0% 87.6% 99.6% -12.0
Impact of Catastrophes 2.1% 0.9% 1.6% 1.7% 8.2% 1.5% 4.8% -3.3
Net Written Premiums $ 1,454.0 $ 1,375.7 $1,277.3 $1,314.7 $ 1,316.5 $2,829.7 $2,522.3 12%
% Chg Prior Year Same Qtr 10.4% 14.1% 13.0% 11.2% 11.2%
Net Earned Premiums $ 1,351.4 $ 1,340.5 $1,286.5 $1,250.4 $ 1,201.8 $2,691.9 $2,364.9 14%
% Chg Prior Year Same Qtr 12.4% 15.3% 10.5% 10.1% 7.1%
Book Value Per Share $ 36.36 $ 39.77 $ 36.24 $ 35.61 $ 37.22 $ 36.36 $ 37.22 -2%
% Chg Prior Year Same Qtr -2.3% 20.5% 13.0% 12.1% 28.7%
Book Value Per Share (Pre-FAS 115) $ 30.20 $ 28.65 $ 27.21 $ 25.35 $ 25.72 $ 30.20 $ 25.72 17%
% Chg Prior Year Same Qtr 17.4% 16.2% 11.6% 7.6% 6.2%
Safeco Corporation
Consolidated Statements of Income
(In Millions Except Per Share Data)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ -----------
(Unaudited) (Unaudited)
REVENUES
Property & Casualty Earned Premiums $1,351.4 $ 1,201.8 $2,691.9 $ 2,364.9
Net Investment Income 119.1 119.8 234.1 239.4
Net Realized Investment Gains 84.9 15.7 127.7 23.9
Other 0.4 2.7 0.4 5.3
------------ ------------ ------------ -----------
Total 1,555.8 1,340.0 3,054.1 2,633.5
------------ ------------ ------------ -----------
EXPENSES
Losses and Loss Adjustment Expenses 776.3 846.7 1,602.3 1,635.8
Other Underwriting and Operating Expenses 158.8 164.1 312.9 322.5
Amortization of Deferred Policy Acquisition Costs 222.5 210.0 449.4 414.6
Interest Expense 31.5 30.9 62.0 65.7
Restructuring Charges 0.1 - 1.4 -
------------ ------------ ------------ -----------
Total 1,189.2 1,251.7 2,428.0 2,438.6
------------ ------------ ------------ -----------
Income from Continuing Operations before Income Taxes 366.6 88.3 626.1 194.9
Provision for Income Taxes on:
Income from Continuing Operations before Net Realized Investment Gains 88.0 15.9 146.9 40.3
Net Realized Investment Gains 29.7 5.3 44.7 8.0
------------ ------------ ------------ -----------
Total Income Taxes 117.7 21.2 191.6 48.3
------------ ------------ ------------ -----------
Income from Continuing Operations 248.9 67.1 434.5 146.6
Income (Loss) from Discontinued Operations, Net of Taxes (5.3) 44.8 45.3 55.3
Net Gain on Disposition 3.9 - 3.9 -
------------ ------------ ------------ -----------
Net Income $ 247.5 $ 111.9 $ 483.7 $ 201.9
============ ============ ============ ===========
INCOME PER SHARE OF COMMON STOCK - DILUTED
Income from Continuing Operations $ 1.78 $ 0.49 $ 3.10 $ 1.05
Income (Loss) from Discontinued Operations (0.04) 0.32 0.32 0.40
Net Gain on Disposition 0.03 - 0.03 -
------------ ------------ ------------ -----------
Net Income $ 1.77 $ 0.81 $ 3.45 $ 1.45
============ ============ ============ ===========
INCOME PER SHARE OF COMMON STOCK - BASIC
Income from Continuing Operations $ 1.79 $ 0.49 $ 3.12 $ 1.06
Income (Loss) from Discontinued Operations (0.04) 0.32 0.33 0.40
Net Gain on Disposition 0.03 - 0.03 -
------------ ------------ ------------ -----------
Net Income $ 1.78 $ 0.81 $ 3.48 $ 1.46
============ ============ ============ ===========
Dividends Declared $ 0.185 $ 0.185 $ 0.37 $ 0.37
Average Number of Shares Outstanding During the Period:
Diluted 140.1 139.0 140.1 138.8
Basic 139.1 138.4 139.0 138.3
Safeco Corporation
Condensed Balance Sheets
(In Millions)
June 30 December 31
2004 2003
----------------- -----------------
(Unaudited)
ASSETS
Total Investments * $ 9,536.1 $ 9,344.2
Cash and Cash Equivalents 382.1 319.0
Reinsurance Recoverables 376.8 372.0
Other Assets 3,695.2 3,563.3
Assets of Discontinued Operations 22,313.1 22,548.9
----------------- -----------------
Total Assets $ 36,303.3 $ 36,147.4
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Property & Casualty Loss and Loss Adjustment Expense Reserves $ 5,071.9 $ 5,044.6
Debt ** 1,951.3 1,951.3
Unearned Premiums and Other Liabilities 4,312.6 4,185.5
Liabilities of Discontinued Operations 19,916.1 19,942.7
----------------- -----------------
Total Liabilities 31,251.9 31,124.1
----------------- -----------------
Commitments and Contingencies - -
Preferred Stock, No Par Value
Shares Authorized: 10; Shares Issued and Outstanding: None - -
Common Stock, No Par Value
Shares Authorized: 300; Shares Reserved for Options: 10.4; 11.6
Shares Issued and Outstanding: 138.9; 138.6 1,207.6 1,197.3
Retained Earnings 2,740.8 2,308.7
Accumulated Other Comprehensive Income 1,103.0 1,517.3
----------------- -----------------
Total Shareholders' Equity 5,051.4 5,023.3
----------------- -----------------
Total Liabilities & Shareholders' Equity $ 36,303.3 $ 36,147.4
================= =================
* See Investment Portfolio - Continuing Operations (SS-17) for more detail.
** See Capitalization (SS-18) for more detail.
Safeco Corporation
Continuing Operations Income Summary
(In Millions)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- ----------------------------
2004 2003 2004 2003
------------ ----------- ------------- -------------
(Unaudited) (Unaudited)
Income from Continuing Operations Before Income Taxes
- -----------------------------------------------------
Property & Casualty
P&C Underwriting Profit (Loss) $197.7 $ (12.3) $ 333.1 $ 8.7
P&C Net Investment Income 115.8 116.5 227.5 229.3
Restructuring Charges (0.1) - (1.4) -
------------ ----------- ------------- -------------
Total Property & Casualty 313.4 104.2 559.2 238.0
Corporate (31.7) (31.6) (60.8) (67.0)
------------ ----------- ------------- -------------
Total 281.7 72.6 498.4 171.0
Net Realized Investment Gains 84.9 15.7 127.7 23.9
------------ ----------- ------------- -------------
Total Income from Continuing Operations Before
Income Taxes $366.6 $ 88.3 $ 626.1 $ 194.9
============ =========== ============= =============
Total Provision for Income Taxes $117.7 $ 21.2 $ 191.6 $ 48.3
- -------------------------------- ============ =========== ============= =============
After-Tax Income
- ----------------
Property & Casualty
P&C Underwriting Profit (Loss) $128.6 $ (7.6) $ 221.1 $ 6.2
P&C Net Investment Income 86.4 87.2 167.9 170.0
Restructuring Charges (0.1) - (0.9) -
------------ ----------- ------------- -------------
Total Property & Casualty 214.9 79.6 388.1 176.2
Corporate (21.2) (22.9) (36.6) (45.5)
------------ ----------- ------------- -------------
Total 193.7 56.7 351.5 130.7
Net Realized Investment Gains 55.2 10.4 83.0 15.9
------------ ----------- ------------- -------------
Total Income from Continuing Operations $248.9 $ 67.1 $ 434.5 $ 146.6
============ =========== ============= =============
Safeco Property & Casualty
Underwriting Profit and Combined Ratios
(In Millions)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
Net U/W Profit (Loss) 2004 2004 2003 2003 2003 2004 2003
- ----------------------------------- ------------ ----------- --------- ---------- --------- ------------ ------------
Safeco Personal Insurance
Auto $ 61.0 $ 23.1 $ 23.0 $ 32.2 $ (0.9) $ 84.1 $ (7.5)
Property 79.3 61.4 47.0 40.5 (6.6) 140.7 21.4
Specialty 6.7 6.4 5.0 6.7 10.2 13.1 15.5
------------ ----------- --------- ---------- --------- ------------ ------------
Total SPI 147.0 90.9 75.0 79.4 2.7 237.9 29.4
------------ ----------- --------- ---------- --------- ------------ ------------
Safeco Business Insurance
SBI Regular 31.9 23.8 39.5 (51.3) (11.5) 55.7 (16.8)
SBI Special Accounts Facility 17.5 18.5 11.9 5.8 (0.6) 36.0 5.8
------------ ----------- --------- ---------- --------- ------------ ------------
Total SBI 49.4 42.3 51.4 (45.5) (12.1) 91.7 (11.0)
------------ ----------- --------- ---------- --------- ------------ ------------
Surety 11.5 9.3 8.6 8.5 6.8 20.8 10.5
P&C Other* (10.2) (7.1) (42.2) (149.8) (9.7) (17.3) (20.2)
------------ ----------- --------- ---------- --------- ------------ ------------
Total Property & Casualty $ 197.7 $ 135.4 $ 92.8 $(107.4) $ (12.3) $ 333.1 $ 8.7
============ =========== ========= ========== ========= ============ ============
Net Combined Ratios (GAAP)
- ---------------------------
Safeco Personal Insurance
Auto 90.5% 96.3% 96.2% 94.4% 100.2% 93.3% 100.7%
Property 65.1 73.1 79.8 82.4 102.9 69.1 95.3
Specialty 69.4 70.0 76.7 68.6 50.2 69.7 61.3
------------ ----------- --------- ---------- --------- ------------ ------------
Total SPI 83.5 89.5 91.2 90.4 99.7 86.5 98.1
------------ ----------- --------- ---------- --------- ------------ ------------
Safeco Business Insurance
SBI Regular 89.4 92.1 86.1 118.6 104.2 90.7 103.1
SBI Special Accounts Facility 83.8 84.2 88.3 94.3 100.7 84.0 96.8
------------ ----------- --------- ---------- --------- ------------ ------------
Total SBI 87.9 89.9 86.7 112.2 103.3 88.9 101.5
------------ ----------- --------- ---------- --------- ------------ ------------
Surety 75.7 79.6 79.9 78.8 82.2 77.6 85.1
P&C Other* NM NM NM NM NM NM NM
------------ ----------- --------- ---------- --------- ------------ ------------
Total Property & Casualty 85.4% 89.9% 92.8% 108.6% 101.0% 87.6% 99.6%
============ =========== ========= ========== ========= ============ ============
* P&C Other includes large commercial business accounts, commercial specialty
programs and London operations that are in runoff and certain product lines that
we have exited.
Safeco Property & Casualty
Net Written Premiums
(In Millions)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
------------ ---------- ----------- ----------- ----------- ------------ -----------
Net Written Premiums
- --------------------
Safeco Personal Insurance
Auto $ 655.4 $ 668.9 $ 606.2 $ 610.5 $ 563.8 $ 1,324.3 $1,123.2
Property 252.8 206.6 214.6 246.7 255.6 459.4 463.7
Specialty 28.2 20.8 17.9 22.8 25.8 49.0 44.9
------------ ---------- ----------- ----------- ----------- ------------ -----------
ToPI 936.4 896.3 838.7 880.0 845.2 1,832.7 1,631.8
------------ ---------- ----------- ----------- ----------- ------------ -----------
Safeco Business Insurance
SBI Regular 333.4 312.9 283.0 281.5 308.4 646.3 592.4
SBI Special Accounts Facility 107.6 117.8 110.3 103.7 94.7 225.4 191.8
------------ ---------- ----------- ----------- ----------- ------------ -----------
Total SBI 441.0 430.7 393.3 385.2 403.1 871.7 784.2
------------ ---------- ----------- ----------- ----------- ------------ -----------
Surety 60.3 48.7 46.8 49.9 46.9 109.0 82.1
P&C Other 16.3 - (1.5) (0.4) 21.3 16.3 24.2
------------ ---------- ----------- ----------- ----------- ------------ -----------
Total Property & Casualty $1,454.0 $1,375.7 $ 1,277.3 $ 1,314.7 $ 1,316.5 $ 2,829.7 $2,522.3
============ ========== =========== =========== =========== ============ ===========
Net Written Premiums (Percent Change) Percent Change Over Prior Year Same Quarter Percent Change YTD
- ------------------------------------- ------------------------------------------- ------------------
Safeco Personal Insurance
Auto 16.2% 19.6% 17.5% 15.3% 17.1% 17.9% 17.8%
Property -1.1 -0.7 1.8 -2.8 - -0.9 1.1
Specialty 9.3 8.9 5.9 8.6 6.6 9.1 7.7
------------ ---------- ----------- ----------- ----------- ------------ -----------
Total SPI 10.8 13.9 12.8 9.4 11.0 12.3 12.2
------------ ---------- ----------- ----------- ----------- ------------ -----------
Safeco Business Insurance
SBI Regular 8.1 10.2 9.6 11.0 11.0 9.1 9.0
SBI Special Accounts Facility 13.6 21.3 11.2 17.6 13.4 17.5 18.8
------------ ---------- ----------- ----------- ----------- ------------ -----------
Total SBI 9.4 13.0 10.1 12.7 11.5 11.2 11.2
------------ ---------- ----------- ----------- ----------- ------------ -----------
Surety 28.6 38.4 44.4 29.9 30.8 32.8 30.7
P&C Other NM NM NM NM NM NM NM
------------ ---------- ----------- ----------- ----------- ------------ -----------
Total Property & Casualty 10.4% 14.1% 13.0% 11.2% 11.2% 12.2% 11.0%
============ ========== =========== =========== =========== ============ ===========
Safeco Property & Casualty
Net Earned Premiums
(In Millions)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
---------- ---------- ---------- ----------- ---------- ----------- ------------
Net Earned Premiums
- -------------------
Safeco Personal Insurance
Auto $ 643.5 $ 620.1 $ 599.2 $ 574.1 $ 546.1 $1,263.6 $1,068.2
Property 227.5 228.2 232.9 229.9 230.6 455.7 458.1
Specialty 22.1 21.2 21.5 21.4 20.4 43.3 40.1
---------- ---------- ---------- ----------- ---------- ----------- ----------
Total SPI 893.1 869.5 853.6 825.4 797.1 1,762.6 1,566.4
---------- ---------- ---------- ----------- ---------- ----------- ----------
Safeco Business Insurance
SBI Regular 299.5 302.4 284.0 275.4 272.1 601.9 538.1
SBI Special Accounts Facility 108.0 116.7 102.1 100.6 93.2 224.7 181.1
---------- ---------- ---------- ----------- ---------- ----------- ----------
Total SBI 407.5 419.1 386.1 376.0 365.3 826.6 719.2
---------- ---------- ---------- ----------- ---------- ----------- ----------
Surety 47.6 45.4 43.0 40.0 38.5 93.0 70.6
P&C Other 3.2 6.5 3.8 9.0 0.9 9.7 8.7
---------- ---------- ---------- ----------- ---------- ----------- ----------
Total Property & Casualty $1,351.4 $1,340.5 $1,286.5 $ 1,250.4 $ 1,201.8 $2,691.9 $2,364.9
========= ========== ========== =========== ========== =========== ==========
Net Earned Premiums (Percent Change) Percent Change Over Prior Year Same Quarter Percent Change YTD
- ------------------------------------ ------------------------------------------- ------------------
Safeco Personal Insurance
Auto 17.8% 18.8% 16.0% 17.0% 17.1% 18.3% 16.8%
Property -1.3 0.3 0.8 -0.9 0.9 -0.5 1.6
Specialty 8.3 7.6 7.5 6.5 4.6 8.0 4.4
---------- ---------- ---------- ----------- ---------- ----------- ----------
Total SPI 12.0 13.0 11.2 11.1 11.6 12.5 11.6
---------- ---------- ---------- ----------- ---------- ----------- ----------
Safeco Business Insurance
SBI Regular 10.1 13.7 8.3 7.8 8.2 11.9 8.4
SBI Special Accounts Facility 15.9 32.8 14.5 33.8 50.9 24.1 62.2
---------- ---------- ---------- ----------- ---------- ----------- ----------
Total SBI 11.6 18.4 9.8 13.7 16.7 14.9 18.3
---------- ---------- ---------- ----------- ---------- ----------- ----------
Surety 23.6 41.4 31.5 22.3 23.5 31.7 15.9
P&C Other NM NM NM NM NM NM NM
---------- ---------- ---------- ----------- ---------- ----------- ----------
Total Property & Casualty 12.4% 15.3% 10.5% 10.1% 7.1% 13.8% 6.5%
========== ========== ========== =========== ========== =========== ==========
Safeco Property & Casualty
Safeco Personal Insurance (SPI)
(In Millions Except Ratios)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
---------- ---------- ----------- ----------- ----------- ----------- ----------
AUTO
- ----
Underwriting Profit (Loss) $ 61.0 $ 23.1 $ 23.0 $ 32.2 $ (0.9) $ 84.1 $ (7.5)
Loss and LAE Ratio 68.0% 73.4% 72.5% 72.2% 76.5% 70.6% 77.0%
Expense Ratio 22.5 22.9 23.7 22.2 23.7 22.7 23.7
---------- ---------- ----------- ----------- ----------- ----------- ----------
Combined Ratio 90.5% 96.3% 96.2% 94.4% 100.2% 93.3% 100.7%
========== ========== =========== =========== =========== =========== ==========
Impact of Catastrophes 1.4% 0.1% 0.6% 0.0% 4.1% 0.8% 2.2%
Policies In Force (000's) 1,735.7 1,705.0 1,660.0 1,623.0 1,577.6
% Chg Prior Year Same Qtr 10.0% 10.0% 9.1% 9.0% 9.6%
Loss Trends (12 mos. Rolling)
Frequency -2.4% -0.4% -2.1% -3.3% -3.7%
Severity 4.8 3.6 2.4 3.6 3.1
Total Loss Costs 2.3% 3.2% 0.3% 0.3% -0.7%
Retention 79.8% 79.8% 79.8% 80.2% 81.0%
New Business Policies (000's) 131.0 143.9 139.6 144.4 115.4
% Chg Prior Year Same Qtr 13.5% 33.9% 19.5% 5.3% -0.8%
Net Written Premiums $ 655.4 $ 668.9 $ 606.2 $ 610.5 $ 563.8
% Chg Prior Year Same Qtr 16.2% 19.6% 17.5% 15.3% 17.1%
Net Earned Premiums $ 643.5 $ 620.1 $ 599.2 $ 574.1 $ 546.1
% Chg Prior Year Same Qtr 17.8% 18.8% 16.0% 17.0% 17.1%
PROPERTY
- --------
Underwriting Profit (Loss) $ 79.3 $ 61.4 $ 47.0 $ 40.5 $ (6.6) $ 140.7 $ 21.4
Loss and LAE Ratio 38.1% 45.4% 51.8% 53.9% 74.0% 41.7% 66.2%
Expense Ratio 27.0 27.7 28.0 28.5 28.9 27.4 29.1
---------- ---------- ----------- ----------- ----------- ----------- ----------
Combined Ratio 65.1% 73.1% 79.8% 82.4% 102.9% 69.1% 95.3%
========== ========== =========== =========== =========== =========== ==========
Impact of Catastrophes 6.8% 3.2% 7.7% 5.3% 27.1% 5.0% 15.7%
Impact of Non-Cat Weather 5.4% 4.9% 3.6% 9.0% 8.2% 5.1% 7.2%
Policies In Force (000's) 1,393.1 1,423.2 1,449.0 1,483.6 1,521.4
% Chg Prior Year Same Qtr -8.4% -8.7% -8.9% -9.1% -9.0%
Retention 83.1% 83.2% 83.1% 83.0% 83.0%
New Business Policies (000's) 36.3 30.4 32.6 37.0 34.1
% Chg Prior Year Same Qtr 6.5% 7.4% -2.6% -6.0% -33.7%
Net Written Premiums 252.8 206.6 214.6 246.7 255.6
% Chg Prior Year Same Qtr -1.1% -0.7% 1.8% -2.8% 0.0%
Net Earned Premiums 227.5 228.2 232.9 229.9 230.6
% Chg Prior Year Same Qtr -1.3% 0.3% 0.8% -0.9% 0.9%
SPECIALTY
- ---------
Underwriting Profit $ 6.7 $ 6.4 $ 5.0 $ 6.7 $ 10.2 $ 13.1 $ 15.5
Loss and LAE Ratio 44.0% 45.0% 51.5% 43.4% 23.9% 44.5% 35.0%
Expense Ratio 25.4 25.0 25.2 25.2 26.3 25.2 26.3
---------- ---------- ----------- ----------- ----------- ----------- ----------
Combined Ratio 69.4% 70.0% 76.7% 68.6% 50.2% 69.7% 61.3%
========== ========== =========== =========== =========== =========== ==========
Safeco Property & Casualty
Safeco Business Insurance (SBI)
(In Millions Except Ratios)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
---------- --------- ----------- ---------- ---------- ----------- -----------
SAFECO BUSINESS INSURANCE
- -------------------------
Underwriting Profit (Loss) $ 49.4 $ 42.3 $ 51.4 $ (45.5) $ (12.1) $ 91.7 $ (11.0)
Loss and LAE Ratio 53.2% 55.8% 51.0% 76.1% 64.7% 54.5% 63.0%
Expense Ratio 34.7 34.1 35.7 36.1 38.6 34.4 38.5
---------- --------- ----------- ---------- ---------- ----------- -----------
Combined Ratio (CR) 87.9% 89.9% 86.7% 112.2% 103.3% 88.9% 101.5%
========== ========= =========== ========== ========== =========== ===========
CR excluding reserve adjustment * 87.9% 89.9% 86.7% 96.1% 103.3% 88.9% 101.5%
Impact of Catastrophes 1.1% 0.9% 0.0% 2.4% 3.8% 1.0% 2.4%
SBI REGULAR
Underwriting Profit (Loss) $ 31.9 $ 23.8 $ 39.5 $ (51.3) $ (11.5) $ 55.7 $ (16.8)
Loss and LAE Ratio 55.6% 58.7% 51.0% 81.8% 66.6% 57.1% 65.2%
Expense Ratio 33.8 33.4 35.1 36.8 37.6 33.6 37.9
---------- --------- ----------- ---------- ---------- ----------- -----------
Combined Ratio (CR) 89.4% 92.1% 86.1% 118.6% 104.2% 90.7% 103.1%
========== ========= =========== ========== ========== =========== ===========
CR excluding reserve adjustment * 89.4% 92.1% 86.1% 97.7% 104.2% 90.7% 103.1%
Impact of Catastrophes 1.2% 0.8% 0.1% 1.9% 3.4% 1.0% 2.5%
Policies In Force (000's) 511.5 508.6 510.1 509.9 511.1
% Chg Prior Year Same Qtr 0.1% -1.7% -3.7% -5.1% -6.9%
Retention 79.7% 80.2% 78.4% 77.9% 76.7%
New Business Policies (000's) 30.8 28.9 27.9 30.3 31.1
% Chg Prior Year Same Qtr -1.0% 14.7% 13.4% 23.2% 16.9%
Net Written Premiums 333.4 312.9 283.0 281.5 308.4
% Chg Prior Year Same Qtr 8.1% 10.2% 9.6% 11.0% 11.0%
Net Earned Premiums 299.5 302.4 284.0 275.4 272.1
% Chg Prior Year Same Qtr 10.1% 13.7% 8.3% 7.8% 8.2%
SBI SPECIAL ACCOUNTS FACILITY
- -----------------------------
Underwriting Profit (Loss) $ 17.5 $ 18.5 $ 11.9 $ 5.8 $ (0.6) $ 36.0 $ 5.8
Combined Ratio 83.8% 84.2% 88.3% 94.3% 100.7% 84.0% 96.8%
* Excludes third quarter workers compensation adjustment of $205.0 ($144.9 in
P&C Other, $57.6 in SBI Regular and $2.5 in SBI Special Accounts Facility).
Safeco Property & Casualty
Surety, Other and Total
(In Millions Except Ratios)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
----------- ----------- ------------ ------------ ------------ ----------- ------------
SURETY
- ------
Underwriting Profit $ 11.5 $ 9.3 $ 8.6 $ 8.5 $ 6.8 $ 20.8 $ 10.5
Combined Ratio 75.7% 79.6% 79.9% 78.8% 82.2% 77.6% 85.1%
P&C OTHER *
- -----------
Underwriting Loss $ (10.2) $ (7.1) $ (42.2) $ (149.8) $ (9.7) $ (17.3) $ (20.2)
TOTAL PROPERTY & CASUALTY
- -------------------------
Underwriting Profit (Loss) $ 197.7 $ 135.4 $ 92.8 $ (107.4) $ (12.3) $ 333.1 $ 8.7
Underwriting Profit (Loss)
excluding reserve adjustment ** $ 197.7 $ 135.4 $ 92.8 $ 97.6 $ (12.3) $ 333.1 $ 8.7
Loss and LAE Ratio 57.5% 61.6% 63.2% 80.2% 70.4% 59.5% 69.1%
Expense Ratio 27.9 28.3 29.6 28.4 30.6 28.1 30.5
----------- ----------- ------------ ------------ ------------ ----------- ------------
Combined Ratio (CR) 85.4% 89.9% 92.8% 108.6% 101.0% 87.6% 99.6%
=========== =========== ============ ============ ============ =========== ============
CR excluding reserve adjustment ** 85.4% 89.9% 92.8% 92.2% 101.0% 87.6% 99.6%
Impact of Catastrophes 2.1% 0.9% 1.6% 1.7% 8.2% 1.5% 4.8%
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
----------- ----------- ------------ ------------ ------------ ----------- ------------
Catastrophes
- -------------
SPI - Auto $ 9.0 $ 0.5 $ 3.7 $ (0.1) $ 22.3 $ 9.5 $ 23.2
SPI - Property 15.5 7.4 18.0 12.1 62.5 22.9 71.8
Safeco Business Insurance 4.5 3.7 0.1 8.9 13.9 8.2 17.2
P&C Other - - (1.6) 0.1 0.4 - 0.3
----------- ----------- ------------ ------------ ------------ ----------- ------------
Total $ 29.0 $ 11.6 $ 20.2 $ 21.0 $ 99.1 $ 40.6 $ 112.5
=========== =========== ============ ============ ============ =========== ============
* P&C Other includes large commercial business accounts, commercial specialty
programs and London operations that are in runoff and certain product lines that
we have exited.
** Excludes third quarter workers compensation adjustment of $205.0 ($144.9 in
P&C Other, $57.6 in SBI Regular and $2.5 in SBI Special Accounts Facility).
Safeco Property & Casualty
Statutory Information
(In Millions Except Ratios)
Three Months Ended Six Months Ended
Loss and Loss Adjustment Expense (LAE) Reserves June 30 June 30
- ----------------------------------------------- --------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- ---------------- --------------- ----------------
Loss and LAE Reserves, Beginning of Period $ 4,686.1 $ 4,506.4 $ 4,649.2 $ 4,535.8
Net Losses and LAE Incurred 776.3 846.7 1,602.3 1,635.8
Net Losses and LAE Paid (793.4) (851.0) (1,582.5) (1,669.5)
--------------- ---------------- --------------- ----------------
Loss and LAE Reserves, End of Period $ 4,669.0 $ 4,502.1 $ 4,669.0 $ 4,502.1
=============== ================ =============== ================
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR
2004 2004 2003 2003 2003
---------------- --------------- ---------------- --------------- ----------------
Balance Sheet
- -------------
Total Capital and Surplus $ 3,224.6 * $ 3,028.2 $ 2,789.7 $ 2,562.3 $ 2,626.9
Ratio of Net Premiums Written (Annualized)
to Total Capital and Surplus 1.80 * 1.82 1.83 2.05 2.00
*Estimated
Safeco Corporation
Investment Portfolio - Continuing Operations
(In Millions)
Investment Portfolio (Market Value) 06/30/2004 % 12/31/2003 %
------------ ------------- ----------- ----------
Fixed Maturities - Taxable $ 6,489.9 68.1 % $ 6,002.8 64.2
Fixed Maturities - Nontaxable 2,071.3 21.7 2,156.5 23.1
Equity Securities 964.6 10.1 1,166.2 12.5
------------ ------------- ----------- ----------
Total Fixed Maturities & Equity Securities 9,525.8 99.9 9,325.5 99.8
Mortgage Loans 0.8 0.0 9.8 0.1
Other Invested Assets 9.5 0.1 8.9 0.1
------------ ------------- ----------- ----------
Total Investment Portfolio $ 9,536.1 100.0 % $ 9,344.2 100.0
============ ============= =========== ==========
Rating (Market Value) - Fixed Maturities 06/30/2004 12/31/2003
------------ -----------
AAA 42.7 % 42.2 %
AA 10.5 10.9
A 25.8 23.0
BBB 17.4 19.3
BB or lower 2.3 3.1
Not Rated 1.3 1.5
------------ -----------
Total 100.0 % 100.0 %
============ ===========
Average Rating A+ A+
============ ===========
06/30/2004 03/31/2004 12/31/2003 09/30/2003 06/30/2003
----------- ----------- ---------- ---------- ----------
P&C Pretax Investment Income - Quarter $ 115.8 $ 111.7 $ 110.0 $ 113.7 $ 116.5
Pretax Investment Income - Quarter $ 119.1 $ 115.0 $ 114.4 $ 114.7 $ 119.8
Effective Tax Rate on Investment
Income - Quarter 25.60% 27.12% 25.76% 26.84% 25.28%
Cost or Amortized Cost $ 8,893 $ 8,477 $ 8,421 $ 7,971 $ 7,698
Market $ 9,536 $ 9,473 $ 9,344 $ 8,814 $ 8,755
% Equities (at market) 10.1% 12.0% 12.5% 12.0% 11.9%
% Taxable Bonds (at market) 68.1% 65.1% 64.2% 62.9% 62.4%
% Tax Exempt Bonds (at market) 21.7% 22.6% 23.1% 25.0% 25.2%
% Other 0.1% 0.3% 0.2% 0.1% 0.5%
Market YTM on Bond Portfolio 4.30% 3.42% 3.78% 3.73% 3.65%
Book YTM on Bond Portfolio 5.11% 5.16% 5.27% 5.54% 5.63%
Duration of Bond Portfolio 4.65 4.27 4.39 4.98 4.54
Three Months Ended Six Months Ended
Net Realized Investment Gains (After Tax) June 30 June 30
--------------------------- ------------------------
from Continuing Operations 2004 2003 2004 2003
------------ ------------- ----------- -----------
Gains on Securities Transactions $ 55.9 $ 14.7 $ 86.7 $ 25.9
Impairments on Fixed Maturities (0.7) (5.9) (3.6) (16.5)
Impairments on Equity Securities - (5.1) (0.1) (7.8)
Credit Default Swaps - 6.7 - 12.5
Other - - - 1.8
------------ ------------- ----------- -----------
Net Realized Investment Gains $ 55.2 $ 10.4 $ 83.0 $ 15.9
============ ============= =========== ===========
Safeco Corporation
Capitalization
(In Millions)
06/30/2004 12/31/2003 12/31/2002
---------- ---------- ----------
Short-Term Debt
$500 million back up line of credit (unused) $ - $ - $ -
7.875%, due 3/15/03 - - 303.5
Medium-Term Notes and Other - - 15.9
Long-Term Debt
7.875%, due 4/1/05 (called at par on 4/1/03) - - 200.0
6.875%, due 7/15/07 (non callable) 200.0 200.0 200.0
4.20%, due 2/1/08 (non callable) 200.0 200.0 -
4.875%, due 2/1/10 (non callable) 300.0 300.0 -
7.25%, due 9/15/12 (non callable) 375.0 375.0 375.0
8.072% debentures due 2037 876.3 876.3 876.3
(Callable at 104 in 2007)
--------------- ---------------- -----------------
Total Debt $ 1,951.3 $ 1,951.3 $ 1,970.7
=============== ================ =================
Equity $ 5,051.4 $ 5,023.3 $ 4,431.6
=============== ================ =================
Total Capital (Debt + Equity) $ 7,002.7 $ 6,974.6 $ 6,402.3
=============== ================ =================
Debt to Capital 27.9% 28.0% 30.8%
Adjusted Debt* to Capital 25.4% 25.5% 28.0%
Debt to Equity 38.6% 38.8% 44.5%
Debt to Capital (excluding FAS 115) 31.7% 34.1% 36.9%
Adjusted Debt* to Capital (excluding FAS 115) 28.9% 31.0% 33.6%
Debt to Equity (excluding FAS 115) 46.4% 51.7% 58.5%
* 20% equity credit for 8.072% debentures due 2037.
Discontinued Operations
Life & Investments
Pretax Operating Earnings and Revenues
(In Millions)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
--------------- ---------- ----------- ---------- ----------- ------------ ------------
Pretax Operating Earnings*
- --------------------------
Group $ (2.9) $ 12.2 $ 23.0 $ 12.5 $ 24.5 $ 9.3 $ 53.5
Income Annuities (1.3) 3.7 7.7 (0.9) 8.4 2.4 18.5
Retirement Services 3.2 9.5 4.8 3.3 4.9 12.7 9.9
Individual 4.4 7.4 1.0 3.9 (0.5) 11.8 1.4
Asset Management 1.5 1.6 0.5 1.1 0.1 3.1 0.2
L&I Other** 28.9 26.9 16.3 24.2 23.5 55.8 52.3
--------------- ---------- ----------- ---------- ----------- ------------ ------------
Total Life & Investments $ 33.8 $ 61.3 $ 53.3 $ 44.1 $ 60.9 $ 95.1 $ 135.8
=============== ========== =========== ========== =========== ============ ============
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
--------------------------- ----------- ---------- ----------- ------------ ------------
Operating Revenues
- ------------------
Group $ 124.5 $129.3 $ 132.2 $ 133.9 $ 144.5 $ 253.8 $ 286.8
Income Annuities 120.1 125.4 130.3 121.7 130.8 245.5 262.2
Retirement Services 95.3 97.0 99.1 96.6 96.4 192.3 192.5
Individual 96.0 95.6 95.5 96.3 95.8 191.6 191.7
Asset Management 6.3 7.1 7.0 7.0 6.7 13.4 12.9
L&I Other 57.9 65.3 55.3 52.8 50.7 123.2 106.2
--------------- ---------- ----------- ---------- ----------- ------------ ------------
Total Life & Investments $ 500.1 $519.7 $ 519.4 $ 508.3 $ 524.9 $ 1,019.8 $ 1,052.3
=============== ========== =========== ========== =========== ============ ============
*Earnings before net realized investment gains (losses) and income taxes. This
is a standard industry measurement and is used by management as the key
measurement of Life & Investments segment profit or loss. It is presented as a
supplement to net income as a measure of profitability.
**The L&I Other segment includes $6.2 in 2Q04, $9.3 in 1Q04 and $9.2 in 4Q03 of
expenses associated with the planned sale of the L&I business.
Discontinued Operations
Life & Investments
Supplemental Statistics
(In Millions, Except Ratios and Policy Statistics)
2ND 1ST 4TH 3RD 2ND
QTR QTR QTR QTR QTR YTD YTD
2004 2004 2003 2003 2003 2004 2003
------------- ----------- --------- --------- ---------- ------------ ------------
Group
Earned Premiums $ 123.2 $ 127.9 $130.6 $132.3 $141.6 $ 251.1 $ 282.2
Loss Ratio 72.0% 65.8% 52.5% 63.3% 56.3% 68.8% 56.3%
Income Annuities
Reserves (in billions) $ 6.4 $ 6.4 $ 6.3 $ 6.3 $ 6.4 $ 6.4 $ 6.4
Deposits 18.8 18.1 20.5 29.3 35.8 36.9 64.3
Retirement Services
Reserves
Fixed (in billions) $ 6.6 $ 6.6 $ 6.7 $ 6.6 $ 6.4 $ 6.6 $ 6.4
Variable (in billions) 1.0 1.1 1.0 0.9 0.9 1.0 0.9
------------- ----------- --------- --------- ---------- ------------ ------------
Total Reserves 7.6 7.7 7.7 7.5 7.3 7.6 7.3
Deposits 97.5 90.8 250.0 303.6 328.4 188.3 660.6
Individual
Reserves $ 4.0 $ 4.0 $ 4.0 $ 3.9 $ 3.9 $ 4.0 $ 3.9
Policies Issued:
Term, Universal Life, 6.5 6.3 6.8 5.9 6.5 12.8 12.4
Traditional, Disability (000's)
Policies In Force (000's) 287.5 286.5 285.8 284.0 283.2 287.5 283.2
Asset Management
Assets Under Management
(in billions) $ 3.6 $ 4.0 $ 4.1 $ 4.0 $ 4.0 $ 3.6 $ 4.0
Assets and Liabilities of Discontinued Operations
June 30 December 31
2004 2003
------------ ------------
ASSETS
Total Investments $18,784.9 $19,192.9
Other Assets 1,221.0 1,164.1
Separate Accounts 1,169.4 1,137.4
Securities Lending Collateral 1,137.8 1,054.5
------------ ------------
Total Assets of Discontinued Operations $22,313.1 $22,548.9
------------ ------------
LIABILITIES
Funds Held Under Deposit Contracts $16,562.9 $16,582.4
Life Policy Liabilities 334.7 331.8
Accident and Health Reserves 154.8 139.1
Deferred Income Taxes Payable 229.1 366.7
Other Liabilities 327.4 330.8
Separate Accounts 1,169.4 1,137.4
Securities Lending Payable 1,137.8 1,054.5
------------ ------------
Total Liabilities of Discontinued Operations 19,916.1 19,942.7
------------ ------------
Net Assets of Discontinued Operations $2,397.0 $2,606.2
------------ ------------
Net Assets of Discontinued Operations excluding Accumulated Other Comprehensive Income $1,702.3 $1,682.6