1
1993 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SAFECO Corporation (SAFECO, or the Corporation) is a Washington
corporation which owns operating subsidiaries in various segments of insurance
and other financially related businesses. The insurance subsidiaries are
engaged in both property and casualty insurance and life and health insurance.
SAFECO Properties and its subsidiaries invest in, develop and manage real
estate properties, primarily regional shopping centers. SAFECO Credit Company
provides loans and equipment financing and leasing to commercial businesses
including affiliated companies. SAFECO also manages the SAFECO family of
mutual funds through its investment management subsidiaries.
CAPITAL RESOURCES AND LIQUIDITY
Insurance premiums, dividends, interest and rental income are the
companies' primary sources of cash. Most insurance premiums are received before
or at the time premium revenues are recognized, while related claims are
incurred and paid in subsequent months or years. Any resulting cash flow is
used primarily to pay shareholder dividends and to expand the investment
portfolio.
Total cash provided by operating activities for the years ended December
31, 1993, 1992 and 1991 was $633.6 million, $664.6 million and $582.0 million,
respectively (see Statement of Cash Flows on page 34). The decrease in
operating cash flow in 1993, compared with 1992, is primarily the result of the
increase in income taxes paid, and the payment relating to the Proposition 103
settlement (see Note 5 on page 48). The increase in operating cash flow in
1992 was primarily due to a higher amount of property and casualty premiums,
resulting from a combination of rate increases and a higher number of policies
in force. Other operating receipts and other operating costs paid decreased in
1993 and 1992, due to the sale of the hospital operations in May of 1992.
Dividends and interest received increased in both 1993 and 1992 due mainly to
the increasing invested asset base of the life and health insurance companies.
The increases in proceeds from maturity of fixed maturities in 1993 and 1992
are due to higher levels of calls of fixed maturities and prepayments of
mortgage-backed securities resulting from lower interest rates.
The real estate and credit subsidiaries have ongoing needs for outside
capital. The real estate subsidiaries borrow from life insurance companies,
banks and savings and loan associations and other lenders. At December 31,
1993, the real estate subsidiaries had notes and mortgages payable to
non-affiliates of $225.1 million, of which amount $62.8 million was due within
one year. It is anticipated that these obligations will be met through a
combination of rollovers and replacement borrowings. The real estate
subsidiaries' debt is significantly lower in 1993 and 1992 due to the sale of
the hospital operations in 1992 and the reduction in related borrowings. The
real estate subsidiaries refinanced approximately $53 million of debt in 1993,
taking advantage of lower interest rates on longer-term borrowings.
SAFECO Credit Company's borrowings are primarily short to medium-term and
are obtained primarily from the issuance of commercial paper and medium-term
notes. SAFECO Credit had unaffiliated borrowings at December 31, 1993 of $427.9
million, of which amount $333.8 million was due within one year. The majority
of this current portion is comprised of short-term commercial paper borrowings.
It is anticipated that a major part of these commercial paper borrowings will
be rolled over in 1994.
A shelf registration providing for the issuance of up to $200 million of
debt securities by SAFECO Corporation and/or SAFECO Credit was declared
effective by the Securities and Exchange Commission in December 1990. SAFECO
Credit has issued $149.9 million of medium-term notes under this registration
of which amount $138.8 million are still outstanding as of December 31, 1993.
These debt securities issued by SAFECO Credit are guaranteed by SAFECO
Corporation. In addition to providing funds to expand SAFECO Credit's loan and
lease portfolio, the issuance of the medium-term notes has reduced SAFECO
Credit's reliance on short-term financing. As of December 31, 1993, SAFECO
Corporation had issued $50 million of medium-term notes under this
registration. No additional notes are to be issued under this shelf
registration.
SAFECO Corporation's $200 million of 10.75% notes are due in September of
1995. It is currently anticipated this obligation will be funded primarily by
the issuance of replacement debt. Proceeds from sales of securities owned by
SAFECO Corporation or dividends from SAFECO's subsidiaries may provide a
portion of the funds needed to retire this debt.
SAFECO is not aware of any recently passed or current recommendations by
regulatory authorities which have or would have, if passed, a material effect
on the Corporation's liquidity, capital resources or results of operations.
The state of Washington adopted new rules in 1993 governing the amount of
dividend payments that can be made by Washington domiciled insurance companies
without prior regulatory approval. These new rules are more restrictive than
the previous rules. However, it is expected they will not restrict SAFECO's
insurance subsidiaries from paying dividends to SAFECO Corporation (parent
company) in amounts similar to those presently being paid and those paid in the
past.
The National Association of Insurance Commissioners (NAIC) has adopted
new risk-based capital (RBC) formulas for both life insurers and property and
casualty insurers. For life insurers, the RBC guidelines became effective
December 31, 1993; the RBC guidelines for property and casualty companies are
effective December 31, 1994. The formulas are used as an early warning tool by
the NAIC and state regulators to identify companies that are under capitalized
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SAFECO CORPORATION
and which merit further regulatory attention or the initiation of regulatory
action. The life insurers' RBC formula establishes capital requirements
relating to amounts of insurance risk, business risk, asset credit risk and
interest rate risk. The property and casualty insurers' RBC formula establishes
capital requirements relating to amounts of underwriting risk, asset risk,
credit risk and off-balance sheet risk. SAFECO's life and property and casualty
companies have more than sufficient capital to meet the RBC requirements.
Similarly, the NAIC's proposed new Model Investment Law, if adopted by
certain states in which SAFECO operates, should not significantly impact SAFECO
as its assets are, and historically have been, conservatively invested.
SUMMARY OF FINANCIAL INFORMATION
The following summarized financial information sets forth the
contributions of each business segment to the consolidated net income of SAFECO
Corporation. The information should be read in conjunction with the related
statements of income on pages 37 through 41 of this report.
Year Ended December 31
(In Thousands Except Per Share Amounts) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Income (Loss), Net of Income Taxes, Before Realized Gain:
Property and Casualty Insurance Companies . . . . . . . . . . . . . . . $217,187* $187,144 $145,421
Life and Health Insurance Companies . . . . . . . . . . . . . . . . . . 76,903 75,600 79,705
Real Estate Companies . . . . . . . . . . . . . . . . . . . . . . . . . 6,136 6,040 5,850
Credit Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,439 6,140 6,396
Asset Management Companies . . . . . . . . . . . . . . . . . . . . . . 4,255 4,261 3,397
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,934) (7,636) (3,852)
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,986 271,549 236,917
-------- -------- --------
Realized Gain (Loss), Net of Income Taxes, from:
Security Investments . . . . . . . . . . . . . . . . . . . . . . . . . 113,506 40,431 23,214
Real Estate Investments . . . . . . . . . . . . . . . . . . . . . . . . 5,409 (686) (553)
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,915 39,745 22,661
-------- -------- --------
Income Before Cumulative Effect of Accounting Changes 425,901 311,294 259,578
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . 2,877 - -
-------- -------- ---------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $428,778 $311,294 $ 259,578
======== ======== =========
Net Income Per Share of Common Stock:
Income Before Realized Gain . . . . . . . . . . . . . . . . . . . . . . $ 4.88 $ 4.33 $ 3.78
Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.89 .63 .36
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . .05 - -
-------- -------- ---------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.82 $ 4.96 $ 4.14
======== ======== =========
*Includes a charge of $40 million ($26 million after tax, $0.41 per share) for
the Proposition 103 settlement.
PROPERTY AND CASUALTY--OPERATIONS
Through independent agents, SAFECO's property and casualty subsidiaries
write personal, commercial and surety lines of insurance including automobile,
homeowners, fire and allied lines, commercial multi-peril, miscellaneous
casualty, surety, fidelity and workers' compensation. Products are sold in
nearly all states and the District of Columbia. SAFECO sold its Canadian
property and casualty operations in June of 1991 (see discussion on page 24).
Approximately 25% of SAFECO's property and casualty premiums are written in
California and approximately 49% of premiums are written in the three west
coast states of California, Washington and Oregon.
Voluntary personal, commercial and surety lines (which excludes assigned
risk, FAIR plans, etc.) comprise approximately 69%, 25% and 4%, respectively,
of the 1993 gross premiums written. The gross premiums written growth set forth
in the table on page 23 of 10.2% in 1993 is comprised of a 10.4% increase for
personal, and increases of 10.3% for commercial and 5.7% for surety lines.
Gross premiums written growth of 5.8% in 1992 was comprised of a 6.0% increase
for personal, and increases of 6.2% for commercial and 0.8% for surety lines.
Excluding Canadian premiums, 1992 gross premiums written increased 10.9% over
1991, with personal up 13.1% and commercial up 7.0%.
The growth in personal lines premiums is the result of both rate
increases and an increase in policies in force.
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1993 ANNUAL REPORT
This increase in policies in force is due, in part, to a number of companies in
the past withdrawing or restricting their writings of personal lines. Vehicles
insured increased 2.2% in 1993; however, the number of vehicles insured
declined slightly in the fourth quarter. Vehicles insured increased 6.2% in
1992. This declining trend in the growth rate has been caused primarily by the
rate increases placed in effect in recent years. As a result, only modest rate
increases are planned for 1994. The number of homes insured increased 8.0% in
1993 and 10.8% in 1992. It is expected that the number of homes insured will
continue to increase in 1994, although at a somewhat slower pace. SAFECO's
commercial lines premiums increased in 1993 and 1992 as a result of both real
growth and some rate increases. Continued growth in commercial premiums written
is expected in 1994. The larger increase in surety premiums in 1993 versus 1992
is primarily due to new commercial accounts acquired and a slightly improved
construction economy resulting in higher contract bond premiums.
Voluntary personal auto, SAFECO's largest single line of business,
produced pre-tax underwriting profits of $37.3 million in 1993 and $5.6 million
in 1992, compared with a loss of $21.6 million in 1991. This improvement is due
to rates increasing faster than loss costs. Average auto rates were increased
6% in 1993 and 8% in 1992 while loss costs were up 4% in 1993 and 4% in 1992.
The severity or cost of settling claims has increased in each of the last three
years and the frequency of accidents increased in 1993 after declining in 1992
and 1991. The reduction in the number of accidents may be the result of the
slower economy and the increasing use of additional auto safety features such
as mounted rear window brake lights and anti-lock brakes. Auto rate increases
planned for 1994 will be less than the 1993 and 1992 increases.
The homeowners line produced pre-tax underwriting losses of $51.7
million, $62.1 million and $59.9 million in 1993, 1992 and 1991, respectively.
These losses reflect an unusually high level of weather-related and
catastrophic events in the last three years. However, there appears to be no
scientific evidence that the recent high level of weather-related catastrophes
indicate changes in long-term weather patterns, so SAFECO still believes this
is a good long-term business. Over time, weather-related catastrophes are
expected to continue their erratic historical patterns. Weather-related
catastrophe losses for homeowners, before reinsurance, totaled $51.8 million,
$90.7 million and $160.2 million in 1993, 1992 and 1991, respectively. After
reinsurance, these amounts totaled $51.5 million, $94.7 million and $86.1
million for the respective three years. The 1993 homeowners claims include
$26.6 million from the Puget Sound area windstorm in January and $7.4 million
from the California wildfires in November. The 1992 homeowners claims include
$31.7 million from hailstorms in Kansas and Texas and
PROPERTY AND CASUALTY OPERATING STATISTICS
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Over Prior Over Prior Over Prior
Amount Year Amount Year Amount Year
-----------------------------------------------------------------------
(In Thousands)
Gross Premiums Written . . . . . . . . . . . . $ 2,134,512 10.2% $1,937,090 5.8% $1,830,199 2.1%
=========== ========== ==========
Net Premiums Written . . . . . . . . . . . . . $ 2,000,165 9.9 $1,820,445 11.7 1,629,710 (3.5)
=========== ========== ==========
Earned Premiums . . . . . . . . . . . . . . . . $ 1,929,714 10.0 $1,754,460 7.2 1,636,660 (1.7)
=========== ========== ==========
Underwriting Profit (Loss) . . . . . . . . . . $ 9,848 $ (72,022) $(141,121)
Net Investment Income . . . . . . . . . . . . . 277,643 (1.1) 280,820 (1.8) 286,073 1.0
Proposition 103 Settlement . . . . . . . . . . (40,000) - -
----------- ---------- ----------
Income before Realized Investment
Gain and Income Taxes . . . . . . . . . . . $ 247,491 $ 208,798 $ 144,952
=========== ========== ==========
1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
Operating Ratios as
a % of Earned Premiums
(GAAP Basis)
------------------------------
Loss Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.21% 63.93% 67.81%
Adjustment Expense Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.78 10.55 10.72
Expense Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.43 28.72 29.33
Dividends to Policyholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07 .91 .76
----- ------ ------
Combined Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.49% 104.11% 108.62%
===== ====== ======
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SAFECO CORPORATION
$22.5 million resulting from an increase in the estimated cost of settling
claims from the October 1991 fire in Oakland, California. The 1991 homeowners
claims include $15.2 million, after reinsurance, from the Oakland fire and
$22.9 million from wind and hailstorms that hit Billings, Montana and Denver,
Colorado in June. SAFECO's total homeowners losses from the Oakland fire,
before reinsurance, were $107.8 million and were $38.2 million after
reinsurance. Homeowners rates were increased 7%, 5% and 3% in 1993, 1992 and
1991, respectively. A significant increase in premiums per policy is expected
in 1994 as a result of planned rate increases and the additional premiums that
are resulting from efforts to increase homeowners insurance to value. This is a
three year effort which was begun in 1993 to review the adequacy of coverage or
policy limits for nearly all homes.
Other personal lines produced underwriting profits of $20.6 million,
$18.1 million and $8.2 million in 1993, 1992 and 1991, respectively. Coverages
in these lines include dwelling fire, inland marine, earthquake, boats and
recreational vehicles. Although premiums from these lines total only 6% of
total property and casualty premiums, the underwriting profits they generate
are an important contributor to SAFECO's overall property and casualty results.
Commercial operations produced pre-tax underwriting losses of $5.5
million, $22.5 million and $58.4 million for 1993, 1992 and 1991, respectively.
Even with a continuation of the competitive commercial insurance market, SAFECO
has experienced modest renewal price increases of 3% to 4% per year for the
past three years. These price increases, together with reduced frequency and
severity in most product lines and lower expenses, are the reasons for this
improving trend. The frequency and severity reductions can be attributed to
continued disciplined risk selection, limited impact of weather-related losses
on SAFECO's commercial property risks and concentration of commercial writings
in states with the most favorable legal and regulatory climates.
The surety line produced pre-tax underwriting profits of $18.2 million,
$3.2 million and $11.1 million for 1993, 1992 and 1991, respectively. The 1992
results were impacted by several contract bond losses. Although the current
outlook is good, income for 1993 was a record, and may be difficult to achieve
again in 1994.
Other insurance product lines (primarily assigned risk and FAIR plans)
produced underwriting losses of $9.0 million, $14.3 million and $20.4 million
in 1993, 1992 and 1991, respectively. The lower losses are due to a reduction
in personal auto non-voluntary losses, due in turn to reduced losses from the
California Assigned Risk Plan and Canadian non-voluntary pool.
On January 17, 1994 a severe earthquake struck Southern California. Based
on claims information available as of the date of this report, SAFECO expects
its losses to exceed $50 million, the threshold at which the Corporation's
reinsurance coverage begins. Under SAFECO's catastrophe reinsurance program,
it is reimbursed for 90% of the losses between $50 million and $200 million. To
date, approximately 6,100 claims have been reported. Because of the extensive
damage to communications and transportation systems in the earthquake area, and
the time it takes to complete accurate surveys and inventories on homes and
businesses damaged in earthquakes, it will be some time before a reasonable
estimate of SAFECO's losses can be made. The loss will be recorded in the first
quarter of 1994.
PROPERTY AND CASUALTY--CANADA
SAFECO sold its Canadian property and casualty operations in June, 1991.
There was no significant gain or loss resulting from this transaction.
Underwriting results had been unsatisfactory, primarily as a result of
stringent and unrealistic auto rate regulation and high loss costs in Ontario.
These poor results and the expectation that they would continue were primary
reasons for the sale. Following is a summary of SAFECO's Canadian financial
data for each of the last three years:
Year Ended December 31
1993 1992 1991
---------- -------- ---------
(In Thousands-Canadian $)
Gross Written Premiums . . . . . . . . . . . . $ - $ 36 $ 82,886
Net Earned Premiums . . . . . . . . . . . . . - 180 44,440
Underwriting Profit
(Loss) . . . . . . . . . . . . . . . . . . 5,280 7,609 (6,352)
Canadian Assets . . . . . . . . . . . . . . . 219,598 275,951 334,797
Although the Canadian underwriting losses SAFECO suffered in years prior
to the sale were significant, they were substantially offset by investment
income from the assets relating to the Canadian unearned premium, loss and
adjustment expense reserves. Therefore, the sale of the Canadian operations
has not had and is not expected to have a significant impact on future
earnings.
The 1993 and 1992 Canadian underwriting profits were the result of
reductions in the estimated cost of settling prior years' claims. Under the
sales agreement SAFECO retained the liabilities for losses incurred prior to
April 1, 1991.
PROPERTY AND CASUALTY--PROPOSITION 103
For discussion relating to California's Proposition 103, see Note 5 on
page 48.
PROPERTY AND CASUALTY--LOSS RESERVES
The liability (reserves) for losses and adjustment expense for the
property and casualty companies was $2,095.2 million at December 31, 1993,
compared with $2,052.3 million at December 31, 1992. The liability is presented
net of amounts recoverable from salvage and subrogation recoveries (see Note 1
on page 43) and gross of amounts recoverable from reinsurance (see Note 4 on
page 47). The amount of reinsurance
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1993 ANNUAL REPORT
recoverables related to the above gross liabilities was $100.1 million at
December 31, 1993 and $89.2 million at December 31, 1992.
Reserves for losses that have been reported to the Corporation and certain
legal expenses are established on the "case basis" method. Claims incurred but
not reported (IBNR) and other adjustment expense are estimated using
statistical procedures. Salvage and subrogation recoveries are accrued using
the "case basis" method for large claims and statistical procedures for smaller
claims.
These reserves aggregate SAFECO's best estimates of the total ultimate
cost of claims that have been incurred but have not yet been paid. The
estimates are based on past claims experience and consider current claims
trends as well as social, legal and economic conditions, including inflation.
The reserves are not discounted.
Loss and loss adjustment expense reserve development is reviewed on a
regular basis to determine that the reserving assumptions and methods are
appropriate. Reserves initially determined are compared to the amounts
ultimately paid. A statistical estimate of the projected amounts necessary to
settle outstanding claims is made regularly and compared to the recorded
reserves.
In order to maintain adequate reserves, SAFECO's objective is to set
reserves which are slightly redundant; that is, the amounts originally recorded
as reserves should be more than the amounts ultimately required to settle
losses. Analysis indicates that SAFECO's reserves are adequate and probably
slightly redundant at December 31, 1993, 1992 and 1991. Operations were
credited $96.9 million, $44.6 million and $24.1 million in 1993, 1992 and 1991,
respectively, as a result of a reduction in the estimated amounts needed to
settle prior years' claims.
SAFECO's property and casualty companies' reserves for losses and
adjustment expense for liability coverages related to environmental, asbestos
and other hazardous toxic claims totaled $113.4 million at December 31, 1993,
compared with $110.5 million at December 31, 1992. These amounts are before the
effect of reinsurance, which is insignificant. These reserves are approximately
5% of total property and casualty reserves for losses and adjustment expense at
both December 31, 1993 and 1992. The reserves include estimates for both
reported and IBNR losses and related legal expenses. In view of the changes in
environmental regulations and legal decisions which affect the development of
loss reserves, the process to estimate loss reserves for these matters results
in imprecise estimates. Quantitative techniques have to be supplemented by
subjective considerations and managerial judgment. In view of these conditions,
trends that have affected development of these liabilities in the past may not
necessarily occur in the future. The reserves carried for these claims at
December 31, 1993 are estimates based on the known facts and current law and
are believed to be adequate. SAFECO's actual loss and adjustment expense
payments for these types of claims totaled $5.9 million, $9.7 million and $6.5
million for 1993, 1992 and 1991, respectively. SAFECO has generally avoided
writing coverages for larger companies with substantial exposure in these
areas.
The property and casualty subsidiaries protect themselves from excessive
losses by reinsuring on treaty and facultative bases. As noted above, the
liability for unpaid losses and adjustment expense is reported gross of
reinsurance recoverables of $100.1 million at December 31, 1993 and $89.2
million at December 31, 1992. Reinsurance costs for catastrophe coverages have
increased in the last few years and are expected to remain higher in the
foreseeable future, given the large amount of catastrophe losses in recent
years. SAFECO's catastrophe property reinsurance program for 1994 covers 90% of
$150 million of single event losses in excess of a $50 million retention. In
the event of a substantial catastrophe, SAFECO would, therefore, retain the
first $50 million of losses, 10% of the next $150 million and all losses in
excess of $200 million. Both the retention level and the aggregate coverage
limit for 1994 are higher than in prior years.
SAFECO's insurance subsidiaries do not enter into retrospective
reinsurance contracts and have not participated in any unusual or nonrecurring
reinsurance transactions such as "swaps" of reserves or portfolio loss
transfers. SAFECO does not use "funding covers" and has not participated in any
surplus relief transactions. None of SAFECO's significant reinsurers are
experiencing financial difficulties. Additional information on reinsurance can
be found in Note 4 on page 47. Reinsurance amounts ceded in 1991 were higher
due to the sale of SAFECO's Canadian operations in 1991.
LIFE AND HEALTH
The life and health companies offer individual and group insurance
products, pension plans and annuity products, marketed through professional
agents in all states and the District of Columbia.
During 1993, all major lines of business contributed to the life and
health companies' earnings before investment transactions and income taxes
("pre-tax income") of $125.3 million, compared with $123.6 million in 1992 and
$124.1 million in 1991.
The group life and health operations contributed $27.7 million to 1993
pre-tax income, compared with income of $26.8 million and $39.7 million in 1992
and 1991, respectively. The major market of the group operation is excess loss
medical insurance, sold to self-insured employers, which accounted for $15.8
million, $16.3 million and $21.0 million of group income in 1993, 1992 and
1991, respectively. Total group premiums decreased 10% during 1993, compared
with a decrease of 3% in 1992 and an increase of 7% in 1991. The premium
declines in 1993 and 1992 are due to SAFECO's nearly completed withdrawal from
the small-case, fully insured market in many states and to greater competition
in the large-case, excess loss market. SAFECO has avoided writing business at
unsatisfactory rates and as a result, experienced the loss of some group
in-force medical business.
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SAFECO CORPORATION
The lower group profits in 1993 and 1992 were primarily the result of increased
industry competition, resulting in lower profit margins for this business. This
trend is expected to continue into 1994.
The Clinton administration's proposal on healthcare reform has also
contributed to the slowdown in the group medical business. The impact on SAFECO
of the effect of the various healthcare reform proposals is uncertain. If
healthcare reform were to pass that did not allow self-funded medical
programs, SAFECO would in all likelihood no longer be in the medical insurance
business. However, in this scenario, SAFECO intends to remain active in the
group insurance arena, offering primarily group life and disability coverage.
While the outcome of healthcare reform is uncertain, SAFECO will continue to
actively market large-case, self-funded medical programs.
Pension operations produced pre-tax income of $16.1 million, $15.8
million and $9.3 million in 1993, 1992 and 1991, respectively. The pension
operations had $3.0 billion of assets on deposit at December 31, 1993, compared
with $2.9 billion at December 31, 1992. New pension deposit growth has slowed
in recent years, especially for fixed rate products, primarily as a result of
the lower interest rate environment. This slowdown in new deposits has in turn
impacted pre-tax income in 1993. However, pension profits still increased in
1993 and 1992 as a result of fewer bond defaults, a larger asset base and
consistent management of interest rate margins stemming from adjustments in
credited interest rates. SAFECO plans to increase its offerings of variable
annuity products to assist it in competing in today's marketplace.
The annuity operations produced pre-tax income of $21.2 million, $20.1
million and $16.0 million in 1993, 1992 and 1991, respectively. Earnings in
1993 and 1992 benefited from higher investment income resulting from fewer bond
defaults and accelerated payments from mortgage-backed securities. Earnings in
1992 also were favorably impacted by the recapture of a block of assumed
reinsurance business and the release of reserves as a result of higher than
anticipated mortality experience. New deposits from single-premium immediate
annuity (SPIA) products were $447 million in 1993, compared with $348 million
in 1992 and $397 million in 1991. SPIA pre-tax income was $17.5 million, $15.7
million and $11.7 million in 1993, 1992 and 1991, respectively. Increased
interest spreads on new issues benefited this book of business in 1993. The
lower earnings in 1991 reflect the write-off of accrued interest on certain
investment grade securities that defaulted. Deferred annuity deposits were $218
million in 1993, compared with $221 million in 1992 and $105 million in 1991.
Total annuity assets amounted to $4.1 billion at December 31, 1993, compared
with $3.4 billion at December 31, 1992.
The individual life operations produced pre-tax income of $2.4 million,
$4.1 million and $9.5 million in 1993, 1992 and 1991, respectively. The lower
earnings in 1993 and 1992 were due to lower investment income, increased claims
costs and a change in the mix of new business written. New writings are
comprised of interest sensitive products such as universal life and variable
universal life products. Term insurance has accounted for over 90% of new
issues of traditional life products during the last two years and now comprises
more than 50% of the total traditional policies in force.
Investment income resulting from the investment of capital and prior
years' earnings of the operating lines of business is a major component of
SAFECO's life and health earnings, contributing pre-tax income of $54.5 million
in 1993, and $54.5 million and $46.1 million in 1992 and 1991, respectively.
The investment income in 1993 was impacted by the lower interest rate
environment. The increase in 1992 over 1991 is primarily due to the investment
income earned on the $75 million cash capital contribution SAFECO Corporation
made to SAFECO Life Insurance Company near the end of 1991.
Many life insurance companies' pension and annuity products have been
impacted by general economic conditions, lower investment returns, rating
downgrades, increased competition and decisions by plan sponsors to diversify
assets and fund management. SAFECO has experienced an increase in the level of
withdrawal of funds from its pension and annuity business (see Statement of
Cash Flows on page 34--Return of Funds Held Under Deposit Contracts), due to
scheduled payouts on distribution-type products and the lower interest rate
environment. However, SAFECO's overall withdrawal experience remains relatively
modest. Of the total of $7.2 billion in deposit contracts at December 31, 1993
approximately 44% are structured settlement immediate annuity products. These
annuities have average expected maturities of over 25 years and cannot be
surrendered by policyholders. Other annuity products, comprising approximately
11% of total deposit contracts, generally have expected maturities of between 8
to 12 years and associated surrender charges graded from 5% in year one to zero
in year six. SAFECO's guaranteed investment contracts (GICs) within its pension
area comprise approximately 4% of total deposit contracts. These contracts have
average maturities of four years and cannot be surrendered except in extremely
unusual circumstances. Other pension products, comprising approximately 38% of
total deposit contracts, have expected maturities of 10 to 15 years. Surrender
charges on these products are typically 9% in year one graded to zero in year
9, and SAFECO retains the option to defer payouts over five years on
approximately one-half of these contracts.
SAFECO's life insurance subsidiaries have not participated as a ceding
company in any assumptive reinsurance transactions. See Note 4 on page 47 for
additional information regarding reinsurance.
REAL ESTATE
SAFECO Properties, Inc. through Winmar Company, Inc., invests in and
manages real estate properties, primarily regional shopping centers, throughout
the United States. SAFECARE Company, Inc. invests in medical real estate,
primarily nursing
26
7
1993 ANNUAL REPORT
homes and convalescent centers.
The real estate subsidiaries produced pre-tax income before investment
transactions of $10.1 million, $8.4 million and $8.5 million in 1993, 1992 and
1991, respectively. In addition, the sale of several mature medical properties
resulted in a pre-tax gain from real estate investments of $8.1 million in
1993. The commercial and medical real estate activities (excluding hospital
operations) resulted in pre-tax income before investment transactions of $10.1
million, $6.4 million and $5.0 million in 1993, 1992 and 1991, respectively.
The increase in 1993 is due primarily to the effect of lower interest rates on
borrowing costs combined with improved operating results for certain of
SAFECO's larger retail shopping centers. However, results in all three years
have been impacted by the slow economy and the overall depressed retail
industry. These conditions have led to the delay of two potential retail
developments which has resulted in the expensing of certain carrying costs,
totaling $3.6 million, $3.7 million and $4.3 million in 1993, 1992 and 1991,
respectively.
SAFECO Properties sold its hospital operating and management company
(SAFECARE Health Services, Inc.) in May of 1992. The $128 million cash sales
price resulted in a gain of approximately $6.4 million, which was substantially
offset by the write-down to estimated realizable value of certain other real
estate holdings. These hospital operations produced pre-tax income of $2.0
million in 1992 and $3.5 million in 1991. Despite improvement in recent years,
SAFECO concluded it should no longer be in the hospital management business, in
order to focus on its core business of commercial real estate. As the hospital
operations are not material to the consolidated financial statements, they have
not been reclassified as discontinued operations.
At December 31, 1993, investment real estate held by SAFECO Properties
totaled $441 million, approximately 3% of consolidated assets. Major retail
shopping centers (including land held for development) and healthcare
facilities comprise approximately 68% of the total. Approximately 51% of these
total holdings are located in the states of Washington and Oregon. Rental
properties included in investment real estate are detailed in Note 13 on page
52.
CREDIT
SAFECO Credit Company, Inc. provides loans and equipment financing and
leasing to commercial businesses, including affiliated companies. Credit
operations produced pre-tax income of $10.2 million in 1993, compared with $9.0
million in 1992 and $9.5 million in 1991. Loan and lease receivables from
non-affiliates grew 11% in 1993 and 16% in 1992. The strong earnings in all
three years are attributable primarily to the continuing increase in
receivables, combined with a decline in the cost of borrowed funds. Favorable
collection experience and low delinquencies, despite the sluggish economy, have
also contributed to the positive results. Continued strong earnings and growth
are expected in the near-term based on relatively low and stable interest
rates.
Approximately 66% of total loan and lease receivables outstanding at
December 31, 1993 are from commercial businesses involved in heavy
construction, transportation and manufacturing. Most of these businesses are
located in the West Coast and Rocky Mountain regions of the United States.
Loans and leases are fully secured by liens on the collateral financed. A
significant portion of SAFECO Credit's business consists of loans to affiliated
companies, limited to 50% or less of total loans and leases outstanding.
ASSET MANAGEMENT
SAFECO Asset Management Company is the investment advisor for the
fourteen SAFECO mutual funds, five variable annuity portfolios and a growing
number of outside pension accounts. These investment management activities
produced pre-tax income of $6.5 million in 1993, $6.5 million in 1992 and $5.2
million in 1991. Assets under management continue to grow and totaled $2.4
billion at December 31, 1993. Continued growth in assets under management, from
existing funds, new funds and from new pension accounts is expected.
INVESTMENT SUMMARY
SAFECO Corporation's consolidated pre-tax investment income increased to
$951.8 million during 1993 from $903.0 million in 1992 and $846.8 million in
1991. Substantially all of this investment income is produced by the investment
portfolios of SAFECO's property and casualty and life and health insurance
subsidiaries. The property and casualty companies' pre-tax investment income
decreased to $277.6 million in 1993 and $280.8 million in 1992 from $286.1
million in 1991, representing decreases of 1% and 2% in 1993 and 1992,
respectively. The slowdown in investment income in 1993 and 1992 is primarily
the result of lower investment yields and reduced cash flow caused by large
catastrophe losses and withdrawal from Canada.
The property and casualty fixed income portfolio, which amounted to $3.2
billion at December 31, 1993, is currently comprised of 74% tax-exempt and 26%
taxable investments. The property and casualty companies are presently
investing new money primarily in tax-exempt bonds and plan to continue to do so
in the foreseeable future. However, SAFECO may shift its investment of new
money between taxables and tax-exempts periodically in the future to maximize
the portfolio's after-tax return in view of the alternative minimum tax. Major
portfolio adjustments are not currently anticipated. The effective tax rate on
investment income for 1993 was 15%, down from 16% and 17% for 1992 and 1991,
respectively, which reflects the higher percentage of tax-exempt securities in
the portfolio. On an after-tax basis, investment income decreased 0.3% in 1993
and increased 0.2% and 3% in 1992 and 1991, respectively.
SAFECO's investment philosophy for the property and casualty portfolio is
to emphasize investment yield, but without sacrificing investment quality.
Equity investments make up 17% of the market value of the total property and
27
8
SAFECO CORPORATION
casualty portfolio. The equity percentage of the portfolio may be increased
gradually in 1994 if investment opportunities become available. The quality of
the property and casualty companies' fixed income portfolio is detailed in the
following table:
Percent at
Rating December 31, 1993
- ------ -----------------
AAA ........................... 44%
AA ............................ 24
A ............................. 25
BBB ........................... 6
BB or lower ................... 1
----
Total ...................... 100%
A second major portfolio is held by the life and health insurance
companies. SAFECO matches the projected cash inflows of this portfolio with the
projected cash outflows of the liabilities of the various product lines within
the life and health operations. Fixed income securities comprise 92% of the
life and health companies' total investments at December 31, 1993. The quality
of the life and health companies' fixed income portfolio is detailed in the
following table:
Percent at
Rating December 31, 1993
- ------ -----------------
AAA .......................... 39%
AA ........................... 7
A ............................ 25
BBB .......................... 27
BB or lower .................. 2
----
Total ..................... 100%
This portfolio contains $152.0 million, at carrying value, of securities
below investment grade quality. This was approximately 2% of the total $7.4
billion life and health fixed income portfolio at December 31, 1993, compared
with 2% at December 31, 1992 and 5% at December 31, 1991. SAFECO's holdings of
below investment grade securities have declined as a result of the priority
placed on improving the quality of the life and health portfolio. The market
value of the below investment grade securities held by the life and health
insurance companies was $152.1 million at December 31, 1993. SAFECO
Corporation's non-life subsidiaries hold the remaining investments in below
investment grade securities. On a consolidated basis, below investment grade
securities with a carrying value of $173.2 million were held at December 31,
1993. This was approximately 1% of the total assets of SAFECO Corporation and
consolidated subsidiaries at December 31, 1993. The market value of
consolidated below investment grade securities was $173.7 million at December
31, 1993. Below investment grade securities generally involve a greater risk
than investment grade securities because of the creditworthiness and solvency
of the issuer, the fact that such securities are often unsecured and
subordinated, the relative youth and liquidity of the secondary trading market
for such securities, and the fact that such securities and the secondary
trading market are more vulnerable to economic and corporate developments.
SAFECO's consolidated investments in mortgage-backed securities
(primarily residential CMOs and pass-throughs) totaled $2.3 billion at December
31, 1993. The corresponding market value of these securities at this date was
$2.4 billion. Approximately 97% of these securities are held in the life and
health insurance portfolio, with the balance held in the property and casualty
insurance portfolio. Approximately 91% of the mortgage-backed securities are
government/agency backed or AAA rated at December 31, 1993. Less than 2% of
SAFECO's mortgage-backed securities are of the riskier, highly volatile type
(e.g., interest only, floaters, etc.). SAFECO has intentionally not invested
significant amounts in the riskier types of mortgage-backed securities.
The excess of market value over cost of the consolidated fixed income and
equity security portfolio was $1.6 billion at December 31, 1993 and $1.2
billion at December 31, 1992. The following is a summary of the consolidated
securities investment portfolio at December 31, 1993:
Amortized Carrying Market
Cost Value Value
- ------------------------------------------------------------------------------------------------------------
(In Thousands)
Property and Casualty:
Fixed Income - taxable ........................... $ 860,064 $ 860,064 $ 987,404
Fixed Income - non-taxable ....................... 2,366,450 2,366,450 2,790,217
Equity Securities ................................ 424,089 775,603 775,603
Life and Health:
Fixed Income - taxable ........................... 7,424,662 7,424,662 8,114,458
Fixed Income - non-taxable ....................... 1,931 1,931 2,245
Equity Securities ................................ 16,380 26,713 26,713
SAFECO Corporation:
Fixed Income - taxable ........................... 51,803 51,803 54,122
Equity Securities ................................ 72,521 102,845 102,845
Miscellaneous ........................................ 16,214 21,157 22,376
Short-Term Investments ............................... 109,047 109,047 109,047
----------- ----------- -----------
Total ....................................... $11,343,161 $11,740,275 $12,985,030
=========== =========== ===========
28
9
1993 ANNUAL REPORT
Consolidated pre-tax realized gains from security investments totaled
$179.5 millon for 1993, compared with $60.6 million and $35.1 million in 1992
and 1991, respectively. The higher level of gains in 1993 and 1992 is due
primarily to falling interest rates producing calls, redemptions and mortgage
pay-downs on debt securities. Consolidated realized gains from security
investments are recorded net of losses on the sale or write-down of
investments. Each investment that has declined in market value below cost is
monitored closely. If the decline is judged to be other than temporary the
security is written down to estimated realizable value. The amount of such
writedowns in 1993, 1992 and 1991 was $15.2 million, $20.6 million and $35.2
million, respectively. Fixed income securities purchased as below investment
grade included in these amounts were $3.0 million, $6.2 million and $12.0
million in 1993, 1992 and 1991, respectively. The remainder of the writedowns
relate primarily to fixed income securities which were investment grade when
purchased and later downgraded.
SAFECO Corporation, the parent company, holds an investment portfolio of
securities that totaled $195.9 million at market value at December 31, 1993,
compared with $140.0 million at December 31, 1992. The majority of these
securities are high quality preferred stocks and U.S. Treasuries.
For a discussion of the Corporation's investment in real estate, which is
made through SAFECO Properties, Inc., see page 26 of this report.
SAFECO Corporation's consolidated investment portfolio also included
$402.1 million of mortgage loan investments at December 31, 1993, approximately
3% of total assets. These loans are held by the life and health companies and
are secured by first mortgage liens on commercial real estate, primarily in the
retail, industrial and office building sectors. The majority of the properties
are located in the western United States, with approximately 60% of the total
in California. Individual loans generally do not exceed $5 million. At December
31, 1993, approximately 3% of the loans were non-performing, compared with
approximately 2% at December 31, 1992. The percentage of non-performing loans
will likely increase in 1994, due primarily to the slow California economy. The
allowance for mortgage loan losses was $7 million at December 31, 1993 and $3
million at December 31, 1992.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," in
1990. SAFECO adopted the Statement in the first quarter of 1993. The transition
obligation (i.e., the accumulated postretirement benefit obligation) of $23.8
million was recorded as a cumulative effect adjustment in the first quarter of
1993 which net of tax resulted in a reduction of net income of $15.7 million.
Additional disclosures relating to this Statement are in Note 11 on page 51.
In 1992 the FASB issued Statement 109, "Accounting for Income Taxes."
SAFECO adopted the Statement in the first quarter of 1993. The cumulative
effect of adopting Statement 109 increased net income by $18.6 million. See
Note 15 on page 52 for additional disclosures relating to this Statement.
The FASB issued Statement 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts," in late 1992. SAFECO adopted
the Statement in the first quarter of 1993. Under Statement 113, balances
affected by reinsurance transactions are reported gross of reinsurance rather
than net in the balance sheet. Adoption had no effect on net income. See Note 4
on page 47 for disclosures relating to reinsurance.
In May, 1993, the FASB issued Statement 114, "Accounting by Creditors for
Impairment of a Loan." This Statement provides guidance on valuing impaired
loans and is effective for 1995. Based on current analysis, the impact of
adopting this Statement on SAFECO's net income and financial condition is not
expected to be significant.
In May of 1993, the FASB also issued Statement 115, "Accounting for
Certain Investments in Debt and Equity Securities," which expands the use of
the fair value accounting for debt and equity securities. Statement 115
requires that debt and equity securities be classified as trading,
available-for-sale or held-to-maturity. Debt securities that the Corporation
has the positive intent and ability to hold to maturity (as narrowly defined by
Statement 115) will be classified as held-to-maturity and will continue to be
reported at amortized cost. Debt securities classified as available-for-sale
will be carried at market value, with changes in unrealized gains and losses
recorded directly to stockholders' equity, net of applicable income taxes.
Trading securities are to be carried at market value with immediate recognition
in income of changes in market value. Statement 115 is effective for 1994 and
SAFECO will adopt it as of January 1, 1994. Adoption of this Statement is not
anticipated to affect net income as SAFECO does not expect to have a trading
portfolio of either debt or equity securities. SAFECO anticipates that less
than 20% of the debt securities portfolio will be classified as
held-to-maturity, with the remainder considered available-for-sale. The
increase in stockholders' equity due to adoption has not been quantified and
will depend on the amount of unrealized gain attributable to the
available-for-sale portfolio and the effect, if any, resulting from revaluation
of certain deferred policy acquisition costs.
DIVIDENDS
The Corporation has paid cash dividends continuously since 1933. Common
stock dividends paid were $1.72 per share in 1993, compared with $1.56 in 1992
and $1.42 in 1991. These dividends are funded with dividends to the Corporation
from its subsidiaries.
The Corporation expects to continue paying dividends in the foreseeable
future. However, payment of future dividends is subject to the Board of
Directors' approval and is dependent upon earnings and the financial condition
of the Corporation.
NUMBER OF STOCKHOLDERS
There were approximately 5,000 common stockholders of record at December
31, 1993.
29
10
SAFECO CORPORATION
ANNUAL REPORT ON FORM 10-K
The Corporation files an Annual Report on Form 10-K with the Securities
and Exchange Commission in compliance with the regulations of the Securities
and Exchange Commission. Form 10-K contains additional information about the
Corporation and its subsidiary companies. Any SAFECO Corporation stockholder
may obtain Form 10-K for the year ended December 31, 1993 without charge, by
making a written request to:
Rod A. Pierson
Senior Vice President, Secretary and Controller
SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185
MANAGEMENT'S REPORT
The management of SAFECO is responsible for the financial statements,
related notes and all other information presented in this annual report. The
financial statements have been prepared in conformity with generally accepted
accounting principles appropriate in the circumstances and include amounts
based on the best estimates and judgments of management.
In order to safeguard assets and to maintain the integrity and
objectivity of data in these financial statements, SAFECO maintains a
comprehensive system of internal accounting controls. These controls are
supported by the careful selection and training of qualified personnel, by the
appropriate division of duties and responsibilities, and by written policies
and procedures throughout the Corporation. In addition, an integral part of the
comprehensive system of internal control is an effective internal audit
department. SAFECO's internal audit department systematically evaluates the
adequacy and effectiveness of internal accounting controls and measures
adherence to established policies and procedures. The management of SAFECO
believes that as of December 31, 1993, its system of internal control is
adequate to accomplish the objectives discussed herein.
The financial statements for the years ended December 31, 1993, 1992 and
1991 have been examined by Ernst & Young, independent auditors. Their audits
were made in accordance with generally accepted auditing standards and included
a review of the system of internal accounting controls to the extent necessary
to express an opinion on the financial statements.
The audit committee of the Board of Directors, comprised solely of
outside directors, meets regularly with the independent auditors, management
and internal auditors to review the scope and results of the audit work
performed. The independent auditors have unrestricted access to the audit
committee, without the presence of management, to discuss the results of their
audit, the adequacy of internal accounting controls and the quality of
financial reporting.
REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS
Board of Directors and
Stockholders of
SAFECO Corporation:
We have audited the financial statements of SAFECO Corporation and its
subsidiaries for the years ended December 31, 1993, 1992 and 1991 (pages 31 to
55 inclusive). These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SAFECO Corporation
and its subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As described in Notes 11 and 15, SAFECO Corporation and its subsidiaries
adopted in 1993 the provisions of Financial Accounting Standards Board (FASB)
Statement 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," and FASB Statement 109, "Accounting for Income Taxes."
Ernst & Young
Seattle, Washington
February 11, 1994
30
11
SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME Year Ended December 31
(In Thousands Except Per Share Amounts) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
REVENUES:
Insurance:
Property and Casualty Earned Premiums . . . . . . . . . . . $1,929,714 $1,754,460 $1,636,660
Life and Health Premiums and Other Revenues . . . . . . . . 305,963 328,516 332,711
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2,235,677 2,082,976 1,969,371
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 78,252 187,172 274,387
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,061 47,896 46,934
Asset Management . . . . . . . . . . . . . . . . . . . . . . . 13,250 13,057 10,794
Net Investment Income (Note 2) . . . . . . . . . . . . . . . . 951,795 903,048 846,767
Realized Investment Gain (Note 2) . . . . . . . . . . . . . . . 187,649 60,589 34,685
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 3,516,684 3,294,738 3,182,938
---------- ---------- ----------
EXPENSES:
Losses, Adjustment Expense and Policyholders' Benefits . . . . 2,026,106 1,980,791 1,901,132
Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . 362,446 343,154 316,881
Proposition 103 Settlement (Note 5) . . . . . . . . . . . . . . 40,000 - -
Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . 226,393 233,971 250,720
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,790 64,097 70,797
Dividends to Policyholders . . . . . . . . . . . . . . . . . . 20,653 15,978 12,418
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,558 289,164 333,174
Amortization of Deferred Policy Acquisition Costs . . . . . . . 368,347 339,200 324,022
Deferral of Policy Acquisition Costs . . . . . . . . . . . . . (389,546) (374,874) (343,520)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2,939,747 2,891,481 2,865,624
---------- ---------- ----------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . 576,937 403,257 317,314
---------- ---------- ----------
Provision (Benefit) for Federal and Canadian Income Taxes (Note 15):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,939 125,815 80,421
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,903) (33,852) (22,685)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 151,036 91,963 57,736
---------- ---------- ----------
Income Before Cumulative Effect of Accounting Changes . . . . . . . 425,901 311,294 259,578
Cumulative Effect of Accounting Changes (Notes 11 and 15):
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . (15,676) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . 18,553 - -
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,778 $ 311,294 $ 259,578
========== ========== ==========
Net Income Per Share of Common Stock:
Income Before Cumulative Effect of Accounting Changes . . . . . $ 6.77 $ 4.96 $ 4.14
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . (.25) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . .30 - -
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.82 $ 4.96 $ 4.14
========== ========== ==========
See Notes to Financial Statements on pages 42 through 55.
31
12
SAFECO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET December 31
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments (Note 2):
Fixed Maturities, at Amortized Cost
(Market value: 1993 - $11,965,731; 1992 - $10,402,554) . . . . . . . $10,720,976 $ 9,558,258
Marketable Equity Securities, at Market Value
(Cost: 1993 - $513,138; 1992 - $530,999) . . . . . . . . . . . . . . 910,252 919,164
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,138 391,108
Real Estate (At cost less accumulated depreciation:
1993 - $94,610; 1992 - $93,152) (Note 3) . . . . . . . . . . . . . . 447,797 393,271
Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,488 50,455
Short-Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . 109,047 164,279
----------- -----------
Total Investments . . . . . . . . . . . . . . . . . . . . . . . 12,640,698 11,476,535
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,833 73,122
Accrued Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . 210,289 201,035
Finance Receivables (Less unearned finance charges and allowance
for doubtful accounts: 1993 - $51,147; 1992 - $47,895) . . . . . . . . . 547,759 495,206
Premiums and Other Service Fees Receivable . . . . . . . . . . . . . . . . 400,873 336,440
Other Notes and Accounts Receivable . . . . . . . . . . . . . . . . . . . . 75,977 71,386
Reinsurance Recoverables (Note 4) . . . . . . . . . . . . . . . . . . . . . 126,240 109,485
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation:
1993 - $127,522; 1992 - $124,143) (Note 3) . . . . . . . . . . . . . 149,618 141,044
Deferred Policy Acquisition Costs . . . . . . . . . . . . . . . . . . . . . 367,303 346,104
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,701 140,752
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,807,291 $13,391,109
=========== ===========
See Notes to Financial Statements on pages 42 through 55.
32
13
SAFECO CORPORATION AND SUBSIDIARIES
December 31
(In Thousands Except Share Amounts) 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,128,372 $ 2,091,098
Unearned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819,385 742,599
Life Policy Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,488 150,165
Funds Held Under Deposit Contracts . . . . . . . . . . . . . . . . . . . . . . . . 7,229,439 6,382,655
Notes and Mortgages Payable (Note 3):
Credit Company Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,930 403,705
10.75% Notes Due 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
Other Notes and Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,505 235,218
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629,891 544,140
Federal and Canadian Income Taxes (Note 15):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,963 30,113
Deferred (Includes tax on unrealized appreciation of marketable
equity securities: 1993 - $138,990; 1992 - $131,976) . . . . . . . . . . . . 117,927 163,269
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,032,900 10,942,962
----------- -----------
Commitments and Contingencies (Note 5)
Preferred Stock, No Par Value:
Shares Authorized: 10,000,000
Shares Issued and Outstanding: None
Common Stock, No Par Value (Notes 7 and 8):
Shares Authorized: 150,000,000
Shares Reserved for Options: 1993 - 2,182,828; 1992 - 2,356,757
Shares Issued and Outstanding: 1993 - 62,931,562; 1992 - 62,815,265 . . . . . . 207,480 200,557
Retained Earnings (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307,322 1,993,350
Unrealized Appreciation of Marketable Equity Securities, Net of Tax . . . . . . . . 262,157 256,189
Unrealized Loss from Foreign Currency Translation, Net of Tax . . . . . . . . . . . (2,568) (1,949)
----------- -----------
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,774,391 2,448,147
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,807,291 $13,391,109
=========== ===========
See Notes to Financial Statements on pages 42 through 55.
33
14
SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS Year Ended December 31
(In Thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Insurance Premiums Received . . . . . . . . . . . . . . . . . . $ 2,205,521 $ 2,073,514 $ 1,922,983
Dividends and Interest Received . . . . . . . . . . . . . . . . 919,890 860,410 824,457
Other Operating Receipts . . . . . . . . . . . . . . . . . . . . 127,828 212,689 298,125
Insurance Claims and Policyholders' Benefits Paid . . . . . . . (1,570,643) (1,495,936) (1,450,771)
Underwriting, Acquisition and Insurance Operating Costs Paid . . (710,460) (653,424) (642,341)
Proposition 103 Settlement . . . . . . . . . . . . . . . . . . . (39,815) - -
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . (59,268) (63,796) (69,926)
Other Operating Costs Paid . . . . . . . . . . . . . . . . . . . (70,296) (155,578) (227,872)
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . (169,144) (113,302) (72,682)
----------- ----------- -----------
Net Cash Provided by Operating Activities . . . . . . . 633,613 664,577 581,973
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of:
Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . (2,843,953) (2,804,215) (2,822,808)
Equities and Other Investments . . . . . . . . . . . . . . . (140,391) (89,393) (171,085)
Investment Real Estate . . . . . . . . . . . . . . . . . . . (46,752) (23,384) (24,494)
Mortgage and Policy Loans . . . . . . . . . . . . . . . . . (69,864) (74,045) (56,473)
Sale of Fixed Maturities . . . . . . . . . . . . . . . . . . . . 845,395 1,093,592 1,510,897
Maturity of Fixed Maturities . . . . . . . . . . . . . . . . . . 1,010,532 754,619 300,885
Sale or Maturity of:
Equities and Other Investments . . . . . . . . . . . . . . . 204,910 100,447 217,415
Investment Real Estate . . . . . . . . . . . . . . . . . . . 27,203 13,167 7,677
Mortgage and Policy Loans . . . . . . . . . . . . . . . . . 47,048 32,717 22,746
Net Decrease (Increase) in Short-Term Investments . . . . . . . 57,878 (41,234) (1,482)
Finance Receivables Originated or Acquired . . . . . . . . . . . (286,758) (258,794) (243,896)
Principal Payments Received on Finance Receivables . . . . . . . 228,772 186,229 158,685
Proceeds from Sale of Hospital Operations . . . . . . . . . . . - 125,115 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,297) (25,789) (23,732)
----------- ----------- -----------
Net Cash Used in Investing Activities . . . . . . . . . (1,013,277) (1,010,968) (1,125,665)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts . . . . . . . . . . . . . 1,001,880 954,813 991,718
Return of Funds Held Under Deposit Contracts . . . . . . . . . . (555,430) (506,090) (389,024)
Proceeds from Notes and Mortgage Borrowings . . . . . . . . . . 131,950 42,850 162,865
Repayment of Notes and Mortgage Borrowings . . . . . . . . . . . (115,883) (82,680) (59,398)
Net Proceeds from (Repayment of) Short-Term Borrowings . . . . . 20,880 52,897 (52,096)
Common Stock Reacquired . . . . . . . . . . . . . . . . . . . . (4,329) (11,897) (5,690)
Dividends Paid to Stockholders . . . . . . . . . . . . . . . . . (108,133) (97,953) (89,092)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,440 7,286 3,297
----------- ----------- -----------
Net Cash Provided by Financing Activities . . . . . . . 374,375 359,226 562,580
----------- ----------- -----------
Net (Decrease) Increase in Cash . . . . . . . . . . . . . . . . . . (5,289) 12,835 18,888
Cash at the Beginning of Year . . . . . . . . . . . . . . . . . . . 73,122 60,287 41,399
----------- ----------- -----------
Cash at the End of Year . . . . . . . . . . . . . . . . . . . . . . $ 67,833 $ 73,122 $ 60,287
=========== =========== ===========
For purposes of reporting cash flows, cash consists of balances on hand and on
deposit in banks and financial institutions.
See Notes to Financial Statements on pages 42 through 55.
34
15
SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS -- RECONCILIATION
OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Year Ended December 31
(In Thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,778 $311,294 $259,578
--------- -------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,649) (60,589) (34,685)
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . 32,113 31,928 35,488
Amortization of Fixed Maturity Investments . . . . . . . . . . . . . . . . . . . (20,910) (17,376) (19,934)
Provision for Losses on Receivables . . . . . . . . . . . . . . . . . . . . . . 4,483 8,881 13,355
Deferred Income Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . (21,903) (33,852) (22,685)
Interest Expense on Deposit Contracts . . . . . . . . . . . . . . . . . . . . . 400,122 375,305 366,833
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . . (2,877) - -
Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 (1,151) (1,145)
Changes in:
Losses and Adjustment Expense Liabilities . . . . . . . . . . . . . . . . . 37,274 30,060 140,107
Life Policy Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,323 3,521 946
Unearned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,786 56,767 1,456
Deferred Policy Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . (21,199) (35,674) (19,498)
Accrued Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . (9,254) (13,491) (322)
Accrued Interest on Accrual Bonds . . . . . . . . . . . . . . . . . . . . . (56,712) (68,509) (60,534)
Other Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,913) (43,455) (16,272)
Accrued Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,850 11,842 8,867
Other Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 37,786 109,076 (69,582)
--------- -------- --------
Total Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,835 353,283 322,395
--------- -------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . $ 633,613 $664,577 $581,973
========= ======== ========
See Notes to Financial Statements on pages 42 through 55.
35
16
SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31
(In Thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
Common Stock (Notes 7 and 8):
Balance at the Beginning of Year . . . . . . . . . . . . . . . $ 200,557 $ 191,300 $ 187,333
Stock Issued for Options and Rights . . . . . . . . . . . . . 4,152 7,968 3,685
Common Stock Reacquired . . . . . . . . . . . . . . . . . . . (223) (713) (427)
Stock Issued for Acquisition of Subsidiary . . . . . . . . . . 2,149 - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 2,002 709
---------- ---------- ----------
Balance at the End of Year . . . . . . . . . . . . . . . . . . 207,480 200,557 191,300
---------- ---------- ----------
Retained Earnings (Note 7):
Balance at the Beginning of Year . . . . . . . . . . . . . . . 1,993,350 1,793,726 1,630,397
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 428,778 311,294 259,578
Dividends Declared . . . . . . . . . . . . . . . . . . . . . . (110,700) (100,486) (90,986)
Common Stock Reacquired . . . . . . . . . . . . . . . . . . . (4,106) (11,184) (5,263)
---------- ---------- ----------
Balance at the End of Year . . . . . . . . . . . . . . . . . . 2,307,322 1,993,350 1,793,726
---------- ---------- ----------
Unrealized Appreciation of Marketable Equity Securities,
Net of Tax:
Balance at the Beginning of Year . . . . . . . . . . . . . . . 256,189 231,224 153,378
Increase in Unrealized Appreciation . . . . . . . . . . . . . 5,968 24,965 77,846
---------- ---------- ----------
Balance at the End of Year . . . . . . . . . . . . . . . . . . 262,157 256,189 231,224
---------- ---------- ----------
Unrealized Gain (Loss) from Foreign Currency Translation,
Net of Tax:
Balance at the Beginning of Year . . . . . . . . . . . . . . . (1,949) 4,884 4,591
Change in Unrealized Gain (Loss) from Foreign
Currency Translation . . . . . . . . . . . . . . . . . . . (619) (6,833) 293
---------- ---------- ----------
Balance at the End of Year . . . . . . . . . . . . . . . . . . (2,568) (1,949) 4,884
---------- ---------- ----------
Stockholders' Equity . . . . . . . . . . . . . . . . . $2,774,391 $2,448,147 $2,221,134
========== ========== ==========
See Notes to Financial Statements on pages 42 through 55.
36
17
PROPERTY AND CASUALTY INSURANCE COMPANIES
SAFECO Insurance Company of America o General Insurance Company of America
First National Insurance Company of America o SAFECO National Insurance Company
o SAFECO Insurance Company of Illinois
SAFECO Lloyds Insurance Company o SAFECO Surplus Lines Insurance Company
o F. B. Beattie and Co., Inc.
STATEMENT OF COMBINED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
Net Premiums Written . . . . . . . . . . . . . . . . . . . . . . $2,000,165 $1,820,445 $1,629,710
(Increase) Decrease in Unearned Premiums . . . . . . . . . . . . (70,451) (65,985) 6,950
---------- ---------- ----------
Earned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . 1,929,714 1,754,460 1,636,660
---------- ---------- ----------
Losses and Expenses:
Losses and Adjustment Expense . . . . . . . . . . . . . . . . 1,350,628 1,306,652 1,285,202
Commissions . . . . . . . . . . . . . . . . . . . . . . . . . 280,357 261,802 236,504
Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . 150,960 136,773 132,530
Taxes Other Than Payroll and Income Taxes . . . . . . . . . . 53,094 48,749 46,299
Dividends to Policyholders . . . . . . . . . . . . . . . . . . 20,653 15,978 12,418
Other Operating Expenses . . . . . . . . . . . . . . . . . . . 72,798 65,806 61,608
Amortization of Deferred Policy Acquisition Costs . . . . . . 341,997 320,339 303,086
Deferral of Policy Acquisition Costs . . . . . . . . . . . . . (350,621) (329,617) (299,866)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,919,866 1,826,482 1,777,781
---------- ---------- ----------
Underwriting Profit (Loss) . . . . . . . . . . . . . . . . . . . 9,848 (72,022) (141,121)
Net Investment Income (Excluding realized gain) . . . . . . . . . 277,643 280,820 286,073
Proposition 103 Settlement . . . . . . . . . . . . . . . . . . . (40,000) - -
---------- ---------- ----------
Income Before Realized Gain and Income Taxes . . . . . . . . . . 247,491 208,798 144,952
Realized Gain from Security Investments Before Income Taxes . . 114,561 54,622 56,981
---------- ---------- ----------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . 362,052 263,420 201,933
Provision for Federal and Canadian Income Taxes (Including tax provision
on realized gain: 1993 - $43,398; 1992 - $18,107; 1991 - $19,200) 73,702 39,761 18,731
---------- ---------- ----------
Income Before Cumulative Effect of Accounting Changes . . . . . . 288,350 223,659 183,202
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . (12,258) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . 7,337 - -
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283,429 $ 223,659 $ 183,202
========== ========== ==========
See Notes to Financial Statements on pages 42 through 55.
37
18
LIFE AND HEALTH INSURANCE COMPANIES
SAFECO Life Insurance Company o SAFECO National Life Insurance Company o First
SAFECO National Life Insurance Company of New York
SAFECO Administrative Services, Inc. o PNMR Securities, Inc.
STATEMENT OF COMBINED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
Premiums and Other Revenue . . . . . . . . . . . . . . . . . . . . . . . $305,963 $328,516 $332,711
Net Investment Income (Excluding realized gain (loss)) . . . . . . . . . 668,158 623,584 557,445
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974,121 952,100 890,156
-------- -------- --------
Benefits and Expenses:
Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 675,478 674,139 615,930
Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,089 80,207 79,877
Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,431 47,279 42,952
Taxes Other Than Payroll and Income Taxes . . . . . . . . . . . . . . 9,003 9,556 9,720
Other Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . 46,389 43,711 40,286
Amortization of Deferred Policy Acquisition Costs . . . . . . . . . . 26,350 18,861 20,936
Deferral of Policy Acquisition Costs . . . . . . . . . . . . . . . . . (38,925) (45,257) (43,654)
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848,815 828,496 766,047
-------- -------- --------
Income Before Realized Gain (Loss) and Income Taxes . . . . . . . . . . . 125,306 123,604 124,109
Realized Gain (Loss) from
Security Investments Before Income Taxes . . . . . . . . . . . . . . . 53,544 3,377 (27,248)
-------- -------- --------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 178,850 126,981 96,861
Provision for Federal Income Taxes (Including tax provision (benefit)
on realized gain (loss): 1993 - $18,344; 1992 - $1,175; 1991 - $(9,256)) 66,747 49,179 35,148
-------- -------- --------
Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . 112,103 77,802 61,713
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . (2,493) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . 9,092 - -
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,702 $ 77,802 $ 61,713
======== ======== ========
See Notes to Financial Statements on pages 42 through 55.
38
19
REAL ESTATE COMPANIES
SAFECO Properties, Inc. o Winmar Company, Inc. o SAFECARE Company, Inc.
STATEMENT OF CONSOLIDATED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
REVENUES:
Commercial Real Estate Revenue . . . . . . . . . . . . . . . . . . . . $64,315 $ 60,864 $ 58,297
Healthcare Facility Revenue . . . . . . . . . . . . . . . . . . . . . - 101,542 198,609
Real Estate Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 5,979 12,350 3,263
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,609 6,490 6,935
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,349 5,926 7,283
------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,252 187,172 274,387
------- -------- --------
EXPENSES:
Commercial Real Estate Operating Expenses . . . . . . . . . . . . . . 22,369 23,310 20,534
Healthcare Facility Operating Expenses . . . . . . . . . . . . . . . . - 91,849 176,087
Real Estate Sales Costs . . . . . . . . . . . . . . . . . . . . . . . 5,750 10,937 1,471
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,553 26,628 35,583
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,486 14,213 18,239
General and Administrative . . . . . . . . . . . . . . . . . . . . . . 11,875 14,251 16,578
------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,033 181,188 268,492
Interest and Other Expenses Capitalized . . . . . . . . . . . . . . . (3,860) (2,405) (2,630)
------- -------- --------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,173 178,783 265,862
------- ------- --------
Income Before Realized Gain (Loss) and Income Taxes . . . . . . . . . . . 10,079 8,389 8,525
Realized Gain (Loss) from
Real Estate Investments Before Income Taxes . . . . . . . . . . . . . 8,126 (6) (460)
------- -------- --------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 18,205 8,383 8,065
Provision for Federal Income Taxes (Including tax provision on
realized gain (loss): 1993 - $2,717; 1992 - $680; 1991 - $93) . . . . 6,660 3,029 2,768
------- -------- --------
Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . 11,545 5,354 5,297
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . (360) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . 3,389 - -
------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,574 $ 5,354 $ 5,297
======= ======== ========
See Notes to Financial Statements on pages 42 through 55.
39
20
SAFECO CREDIT COMPANY, INC.
STATEMENT OF INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
Investment Revenues:
Interest and Finance Charges:
Finance Receivables . . . . . . . . . . . . . . . . . . . . . . . . . $45,151 $43,156 $42,421
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,985 3,431 7,437
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,136 46,587 49,858
Interest on Other Investments . . . . . . . . . . . . . . . . . . . . . . 140 1,480 1,587
-------- -------- --------
Total Investment Revenues . . . . . . . . . . . . . . . . . . . . 49,276 48,067 51,445
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,918 26,646 30,516
-------- -------- --------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . 23,358 21,421 20,929
Provision for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . 4,450 3,420 3,260
-------- -------- --------
Net Investment Income After Provision for Credit Losses . . . . . . . . . 18,908 18,001 17,669
Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,770 3,260 2,926
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,678 21,261 20,595
-------- -------- --------
Operating Expenses:
Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,274 7,483 6,975
General and Administrative . . . . . . . . . . . . . . . . . . . . . . . . 6,214 4,742 4,131
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,488 12,225 11,106
-------- -------- --------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 10,190 9,036 9,489
Provision for Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . 3,751 2,896 3,093
-------- -------- --------
Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . . . 6,439 6,140 6,396
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . . . (360) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . . (42) - -
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,037 $ 6,140 $ 6,396
======== ======== ========
See Notes to Financial Statements on pages 42 through 55.
40
21
ASSET MANAGEMENT COMPANIES
SAFECO Asset Management Company o SAFECO Securities, Inc. o SAFECO Services
Corporation
STATEMENT OF COMBINED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
REVENUES:
Management and Advisory Fees . . . . . . . . . . . . . . . . . . . . . . $10,074 $ 8,867 $ 7,582
Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,877 1,866 1,637
Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299 2,324 1,575
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,250 13,057 10,794
-------- -------- --------
EXPENSES:
Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,199 3,326 2,983
Marketing and Shareholder Communication . . . . . . . . . . . . . . . . 890 649 784
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,622 2,579 1,848
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,711 6,554 5,615
-------- -------- --------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 6,539 6,503 5,179
Provision for Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 2,284 2,242 1,782
-------- -------- --------
Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . . 4,255 4,261 3,397
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . . (204) - -
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . 2 - -
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,053 $ 4,261 $ 3,397
======== ======== ========
See Notes to Financial Statements on pages 42 through 55.
41
22
SAFECO CORPORATION
NOTES TO FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF REPORTING
The financial statements have been prepared in accordance with generally
accepted accounting principles and include SAFECO Corporation and its
subsidiaries and real estate joint ventures (the Corporation, or SAFECO).
All significant intercompany transactions and accounts have been
eliminated in the consolidated financial statements. Certain reclassifications
have been made in the 1992 and 1991 financial statements and footnotes to
conform to current classifications.
SAFECO's property and casualty subsidiaries sold their Canadian
operations in the second quarter of 1991. See page 24 for further information.
SAFECO Properties, Inc. sold its hospital operations subsidiary, SAFECARE
Health Services, Inc. in May of 1992. See page 26 for further information. As
these operations are not material to the consolidated financial statements,
they have not been reclassified as discontinued operations.
ACCOUNTING FOR PREMIUMS
Property and casualty insurance premiums are included in income as earned
on a daily pro rata basis over the term of the respective policies. The
unearned portion is included in the balance sheet as a liability for unearned
premiums, before the effect of reinsurance. The reinsurance amounts related to
the unearned premium reserve were $52,384 and $45,573 at December 31, 1993 and
1992, respectively. See Note 4 for more information.
Life and health insurance premiums are reported as income when collected
for traditional individual life policies and when earned for group and
individual health policies. Funds received under pension deposit contracts,
annuities and universal life policies of $1,001,880, $954,813 and $991,718 in
1993, 1992 and 1991, respectively, are recorded as liabilities rather than
premium income when received. Premiums for universal life products consist of
front-end loads, mortality charges and expense charges assessed against
individual policyholder account balances. These loads and charges are
recognized as income when earned.
INVESTMENTS
Fixed maturity investments (bonds and redeemable preferred stock) which
the Corporation has the ability and intent to hold to maturity are considered
held for investment and carried at amortized cost in the balance sheet. Those
fixed maturity investments which the Corporation intends to sell prior to
maturity are classified as available for sale and carried in the balance sheet
at the lower of aggregate amortized cost or market value. None of the portfolio
is held for trading purposes.
SAFECO Corporation and its insurance subsidiaries carry marketable equity
securities at market value. The aggregate excess of market value over cost is
included in stockholders' equity as unrealized appreciation of marketable
equity securities, net of tax. Non-insurance subsidiaries carry marketable
equity securities at the lower of cost or market.
The Financial Accounting Standards Board (FASB) issued Statement 115,
"Accounting for Certain Investments in Debt and Equity Securities" in May of
1993. See page 43 for a discussion of this new accounting standard.
When the collectibility of income on certain investments is considered
doubtful, they are placed on non-accrual status and thereafter interest income
is recognized only when payment is received. Investments that have declined in
market value below cost and for which the decline is judged to be other than
temporary are written down to estimated realizable values. Writedowns are made
directly on an individual security basis and are included in realized
investment losses in the statement of income.
The cost of security investments sold is determined by the "identified
cost" method.
Mortgage loans are carried at outstanding principal balances, less an
allowance for loan losses. The allowance for mortgage loan losses at December
31, 1993 and 1992 was $7,000 and $3,000, respectively.
Short-term investments are carried at cost, which approximates market
value.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are classified as investment real estate or as
land, buildings and equipment for company use, and are carried at cost less
accumulated depreciation.
Investment real estate that has declined in market value below cost and
for which the decline is judged to be other than temporary is written down to
estimated net realizable value. Estimated values of real estate are obtained
using independent appraisals, outside consultants, internal analysis and
judgment as appropriate under the circumstances. Values are reviewed quarterly.
The writedowns are included in realized investment losses in the statement of
income.
Real estate taxes, interest expense and certain other carrying costs
related to projects under development are capitalized as a cost of such
projects during the development phase and until the project is substantially
completed or until the total carrying value equals estimated net realizable
value. After substantial completion, the carrying costs are charged to expense
when incurred and depreciation is provided. Projects that involve construction
of income-producing property are considered to be substantially complete at the
earlier of attainment of a predetermined occupancy level or one year of
operations. Projects that involve the development of land are considered
substantially complete when planned improvement
42
23
1993 ANNUAL REPORT
activity is concluded or the property is offered for sale.
Interest capitalized relating to the development of real estate was
$3,554, $2,129 and $2,263 for 1993, 1992 and 1991, respectively.
SAFECO provides depreciation on buildings, furniture and automobiles at
various rates based on estimated useful lives using straight-line and
accelerated methods.
DEFERRED POLICY ACQUISITION COSTS
Property and casualty insurance acquisition costs, consisting of
commissions and certain other underwriting expenses, which vary with and are
primarily related to the production of business, are deferred and amortized
over the effective period of the related insurance policies. Investment income
is considered in determining whether a premium deficiency exists.
Life insurance acquisition costs, consisting of commissions and certain
other underwriting expenses, which vary with and are primarily related to the
production of new business, are deferred. Policy acquisition costs for
traditional individual life insurance policies are amortized over the premium
payment period of the related policies using assumptions consistent with those
used in computing policy benefit liabilities. Acquisition costs for annuity
contracts and universal life insurance policies are amortized over the lives of
the contracts or policies in proportion to the present value of estimated
future gross profits. To the extent actual experience differs from assumptions,
and to the extent estimates of future gross profits require revision, the
unamortized balance of deferred policy acquisition costs is adjusted
accordingly.
LOSSES AND ADJUSTMENT EXPENSE
Unpaid losses and adjustment expense represent the estimated liability
for claims reported plus losses incurred but not yet reported and the related
estimated adjustment expense. The liability for losses and related adjustment
expense is determined using "case basis" evaluations and statistical analyses
and represents an estimate of the ultimate net cost of all losses incurred but
not paid through December 31 of each year. Although considerable variability is
inherent in such estimates, management believes that the liability for unpaid
losses and related adjustment expense is adequate. These estimates are
continually reviewed and adjusted as necessary; such adjustments are included
in current operations.
Salvage and subrogation recoverables are accrued using the "case basis"
method for large recoverables and statistical estimates based on historical
experience for smaller recoverables. Recoverable amounts deducted from the
liability for losses and adjustment expense were $134,042 and $135,441 at
December 31, 1993 and 1992, respectively.
The property and casualty companies' liability for unpaid losses and
adjustment expense is presented gross of amounts recoverable from reinsurers of
$100,065 and $89,198 at December 31, 1993 and 1992, respectively. See Note 4
for more information.
LIFE POLICY LIABILITIES
Liabilities for future benefits under traditional individual life
insurance policies have been computed on the net level premium method and
reflect interest, mortality and persistency assumptions based on Company
experience modified to provide for adverse deviation. Interest assumptions
generally range from 8-1/2% graded to 3-1/4%.
Liabilities for universal life insurance policies, deferred annuity
contracts and pension deposit contracts are equal to the accumulated account
value of such policies or contracts as of the valuation date. Liabilities for
structured settlement annuities are based on interest rate assumptions using
market rates at issue, graded downward over 40 years to a range of 6-3/4% to
8-3/4%.
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is based on the weighted average
number of common shares outstanding during each year. Dilution arising from
stock options is insignificant.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," in
1990. SAFECO adopted the Statement in the first quarter of 1993. The transition
obligation (i.e., the accumulated postretirement benefit obligation) of $23,751
was recorded as a cumulative effect adjustment in the first quarter of 1993
which, net of tax, resulted in a reduction of net income of $15,676. Additional
disclosures relating to this Statement are in Note 11.
In 1992, the FASB issued Statement 109, "Accounting for Income Taxes."
SAFECO adopted the Statement in the first quarter of 1993. The cumulative
effect of adopting Statement 109 increased net income by $18,553. See Note 15
for additional disclosures relating to this Statement.
The FASB issued Statement 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts," in late 1992. SAFECO adopted
the Statement in the first quarter of 1993. Under Statement 113, balances
affected by reinsurance transactions are reported gross of reinsurance rather
than net in the balance sheet. Adoption had no effect on net income. See Note 4
for disclosures relating to reinsurance.
In May of 1993, the FASB issued Statement 114, "Accounting by Creditors
for Impairment of a Loan." This Statement provides guidance on valuing impaired
loans and is effective for 1995. Based on current analysis, the impact of
adopting this Statement on SAFECO's net income and financial condition is not
expected to be significant.
In May of 1993, the FASB also issued Statement 115, "Accounting for
Certain Investments in Debt and Equity Securities," which expands the use of
fair value accounting for debt and equity securities. Statement 115 requires
that
43
24
SAFECO CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
debt and equity securities be classified as trading, available-for-sale or
held-to-maturity. Debt securities that the Corporation has the positive intent
and ability to hold to maturity (as narrowly defined by Statement 115) will be
classified as held-to-maturity and will continue to be reported at amortized
cost. Debt securities classified as available-for-sale will be carried at
market value, with changes in unrealized gains and losses recorded directly to
stockholders' equity, net of applicable income taxes. Trading securities are to
be carried at market value with immediate recognition in income of changes in
market value. Statement 115 is effective for 1994 and SAFECO will adopt it as
of January 1, 1994. Adoption of this Statement is not anticipated to affect net
income as SAFECO does not expect to have a trading portfolio of either debt or
equity securities. SAFECO anticipates that less than 20% of the debt securities
portfolio will be classified as held-to-maturity, with the remainder
considered available-for-sale. The increase in stockholders' equity due to
adoption has not been quantified and will depend on the amount of unrealized
gain attributable to the available-for-sale portfolio and the effect, if any,
resulting from revaluation of certain deferred policy acquisition costs.
2. INVESTMENTS
Investment income is comprised of:
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
Interest:
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . $867,022 $818,429 $754,500
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . 40,027 39,817 38,062
Short-term investments . . . . . . . . . . . . . . . . . . . . 8,266 8,365 14,580
Dividends:
Marketable equity securities . . . . . . . . . . . . . . . . . 45,146 42,092 43,172
Redeemable preferred stock . . . . . . . . . . . . . . . . . . 1,540 1,584 1,740
Other investment income . . . . . . . . . . . . . . . . . . . . . 4,830 5,156 5,784
-------- -------- --------
Total investment income . . . . . . . . . . . . . . . . . . . 966,831 915,443 857,838
Investment expenses . . . . . . . . . . . . . . . . . . . . . . . 15,036 12,395 11,071
-------- -------- --------
Net investment income . . . . . . . . . . . . . . . . . . . . $951,795 $903,048 $846,767
======== ======== ========
The carrying value of investments in fixed maturities and mortgage loans
that have not produced income for the last twelve months is less than one
percent of the total of such investments at December 31, 1993.
At December 31, 1993, the aggregate market value of marketable equity
securities was in excess of cost by $397,114, comprised of gross unrealized
gains of $399,515 and gross unrealized losses of $2,401. At December 31, 1992,
the aggregate market value of marketable equity securities was in excess of
cost by $388,165, comprised of gross unrealized gains of $397,801 and gross
unrealized losses of $9,636.
The following analysis summarizes the realized gains and losses, the
changes in unrealized gains and losses and applicable income taxes, on fixed
maturity and marketable equity securities:
1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
Realized gains (losses):
Fixed maturity securities . . . . . . . . . . . . . . . . . . $ 121,907 $ 39,532 $ (7,009)
Marketable equity securities . . . . . . . . . . . . . . . . 57,616 21,063 42,154
Applicable income taxes . . . . . . . . . . . . . . . . . . . (66,017) (20,164) (11,931)
--------- --------- ---------
Net realized gain . . . . . . . . . . . . . . . . . . . . . . $ 113,506 $ 40,431 $ 23,214
========= ========= =========
Increase in unrealized appreciation
of securities:
Fixed maturity securities . . . . . . . . . . . . . . . . . . $ 400,459 $ 42,298 $ 645,982
Marketable equity securities . . . . . . . . . . . . . . . . 8,949 37,826 117,948
Applicable income taxes . . . . . . . . . . . . . . . . . . . (155,617) (27,242) (259,736)
--------- --------- ---------
Net unrealized gain . . . . . . . . . . . . . . . . . . . . $ 253,791 $ 52,882 $ 504,194
========= ========= =========
44
25
1993 ANNUAL REPORT
Realized gains (losses) from real estate are as follows:
1993 1992 1991
- -------------------------------------------------------------------------------------------------------
Realized gains (losses) . . . . . . . . . . . . . . . . . $ 8,126 $ (6) $(460)
Applicable income taxes . . . . . . . . . . . . . . . . . (2,717) (680) (93)
------- ----- -----
Net realized gain (loss) . . . . . . . . . . . . . . . . $ 5,409 $(686) $(553)
======= ===== =====
The amortized cost and estimated market values of investments in fixed
maturities are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
At December 31, 1993:
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies . . . . . . . . . . . . . $ 1,028,324 $ 88,900 $ (395) $ 1,116,829
Obligations of states
and political subdivisions . . . . . 2,539,412 453,726 (1,410) 2,991,728
Debt securities issued
by foreign governments . . . . . . . 389,838 84,316 (157) 473,997
Corporate securities . . . . . . . . . . 4,488,884 471,956 (18,086) 4,942,754
Mortgage-backed securities . . . . . . . 2,262,286 177,872 (13,997) 2,426,161
Other debt securities . . . . . . . . . 12,232 2,072 (42) 14,262
----------- ---------- -------- -----------
Total . . . . . . . . . . . . . . $10,720,976 $1,278,842 $(34,087) $11,965,731
=========== ========== ======== ===========
At December 31, 1992:
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies . . . . . . . . . . . . $ 908,308 $ 40,971 $ (2,558) $ 946,721
Obligations of states and
political subdivisions . . . . . . . 2,170,393 362,589 (2,076) 2,530,906
Debt securities issued
by foreign governments . . . . . . . 390,174 49,119 (2,095) 437,198
Corporate securities . . . . . . . . . . 3,822,460 276,575 (45,117) 4,053,918
Mortgage-backed securities . . . . . . . 2,252,104 183,484 (19,311) 2,416,277
Other debt securities . . . . . . . . . 14,819 2,822 (107) 17,534
----------- ---------- -------- -----------
Total . . . . . . . . . . . . . . $ 9,558,258 $ 915,560 $(71,264) $10,402,554
=========== ========== ======== ===========
Included in the amounts above are certain fixed maturity investments
classified as available for sale and carried in the balance sheet at the lower
of aggregate amortized cost or market value. At December 31, 1993, these
investments had a carrying value of $172,269 and a market value of $227,442. At
December 31, 1992, they had a carrying value of $175,215 and a market value of
$203,653.
The amortized cost and estimated market value of fixed maturities at
December 31, 1993, by contractual maturity, are presented below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties.
Estimated
Amortized Market
Cost Value
- ----------------------------------------------------------------------------------------------------------------------
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,008 $ 89,091
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . 982,464 1,051,253
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . 2,094,596 2,296,927
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,294,622 6,102,299
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,262,286 2,426,161
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,720,976 $11,965,731
=========== ===========
45
26
SAFECO CORPORATION
2. INVESTMENTS (CONTINUED)
The proceeds from sales of investments in fixed maturities and related
gains and losses are as follows:
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
Proceeds from sales . . . . . . . . . . . . . . . . . . . $845,395 $1,093,592 $1,510,897
======== ========== ==========
Gross realized gains on sales . . . . . . . . . . . . . . $ 92,809 $ 59,932 $ 72,308
Gross realized losses on sales . . . . . . . . . . . . . (23,120) (26,361) (45,385)
-------- ---------- ----------
Realized gains on sales . . . . . . . . . . . . . . . . . 69,689 33,571 26,923
Writedowns . . . . . . . . . . . . . . . . . . . . . . . (15,171) (20,571) (35,188)
Other, including gains on calls and redemptions . . . . . 67,389 26,532 1,256
-------- ---------- ----------
Total realized gain (loss) . . . . . . . . . . . . . . . $121,907 $ 39,532 $ (7,009)
======== ========== ==========
3. NOTES AND MORTGAGES PAYABLE
At December 31, 1993, SAFECO Credit has short-term borrowings of
$288,500 through commercial paper and master note agreements and $138,800 of
medium-term notes. The repayment of each of these borrowings is guaranteed by
SAFECO Corporation.
At December 31, 1993, SAFECO Credit Company had available bank lines of
credit totaling $300,000. No amounts were outstanding under these lines of
credit at December 31, 1993. These lines support 90-day borrowings and
day-to-day (quickline) borrowings. SAFECO Credit pays a fee to have these lines
of credit available and does not maintain deposits as compensating balances.
In December 1990, the Securities and Exchange Commission declared
effective a shelf registration of $200,000 of debt securities by SAFECO
Corporation and/or SAFECO Credit. SAFECO Credit has issued $149,850 of
medium-term notes under this shelf registration. The remaining outstanding
notes under this shelf registration have rates ranging from 6.90% to 9.15% and
maturities from January 1994 to December 2001. SAFECO Corporation has issued
$50,000 of medium-term notes under this shelf registration, with rates ranging
from 6.96% to 7.33%, all maturing in 2002 and 2003. No additional notes are to
be issued under this shelf registration.
The real estate companies and SAFECO Credit enter into interest rate
swap agreements to reduce the impact of changes in interest rates on their
floating rate debt. At December 31, 1993, interest rate swap agreements were
outstanding with notional amounts of $56,989, which replace the floating rates
with fixed rates ranging from 4.51% to 9.0%. Maturities of the agreements range
from July 1995 to January 2001. There were no swap terminations during 1993.
The net interest paid of $3,706 under these agreements was recorded as an
adjustment to interest expense as incurred.
Substantially all investment real estate and the home office tower are
pledged as collateral for real estate mortgages and contracts payable.
The total amount, current portions, interest rates and maturities of
notes and mortgages payable at December 31 are as follows:
1993 1992
--------------------------------------------------------------
Total Current Total Current
- -----------------------------------------------------------------------------------------------------------------------
SAFECO Credit borrowings payable
through 2001; 1993 interest rates
from 3.2% to 9.15% . . . . . . . . . . . . . . $427,930 $333,780 $403,705 $278,205
======== ======== ======== ========
Other Notes and Mortgages:
Real estate mortgages and contracts payable in
installments and medium-term notes payable
through 2007; 1993 interest rates from
4.45% to 11.25% . . . . . . . . . . . . . . $238,093 $ 34,982 $167,847 $ 41,141
Unsecured notes and loans payable in
installments through 1996; 1993
interest rates from 5.0% to 9.0% . . . . . 52,412 29,096 67,371 64,055
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . $290,505 $ 64,078 $235,218 $105,196
======== ======== ======== ========
Aggregate annual principal installments payable under these obligations
for each of the five years subsequent to 1993 are as follows: 1994 - $397,858;
1995 - $28,508; 1996 - $62,249; 1997 - $7,626; 1998 - $25,656.
46
27
1993 ANNUAL REPORT
4. REINSURANCE
SAFECO's insurance subsidiaries protect themselves from excessive losses
by reinsuring on treaty and facultative bases. Reinsurance contracts do not
relieve the Corporation from its obligations to policyholders. With respect to
the amounts of reinsurance related to the liabilities for losses, adjustment
expense, life policies liabilities and unearned premiums, a continuing
liability exists, in the event reinsurance companies are unable to meet their
obligations. The Corporation evaluates the financial condition of its
reinsurers to minimize its exposure to losses from reinsurer insolvencies.
SAFECO's insurance subsidiaries have not entered into retrospective
reinsurance contracts and have not participated in any unusual or nonrecurring
reinsurance transactions such as "swaps" of reserves, portfolio loss transfers
or funding covers.
FASB Statement 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," was adopted by SAFECO in the first
quarter of 1993. Balances affected by reinsurance transactions are now reported
gross of reinsurance rather than net in the balance sheet. The adoption of
Statement 113 had no effect on SAFECO's net income. Prior period balance
sheet amounts have been restated for comparability.
The balance sheet caption "Reinsurance Recoverables" is comprised of the
following amounts at December 31:
1993 1992
- ----------------------------------------------------------------------------
Property and Casualty
Reinsurance recoverables on:
Unpaid losses and
adjustment expense . . . . . $100,065 $ 89,198
Paid losses and adjustment
expense . . . . . . . . . . 11,009 14,994
Life and Health
Reinsurance recoverables on:
Unpaid losses and adjustment
expense (policy and
contract claims) . . . . . . 132 404
Paid claims . . . . . . . . . . 1,037 492
Life policy liabilities . . . . . 13,821 11,328
Other reinsurance recoverables
and payables . . . . . . . . . . . . . 176 (6,931)
-------- --------
Reinsurance recoverables . . . . $126,240 $109,485
======== ========
The Unearned Premium liability is presented before the effect of
reinsurance. The reinsurance amounts related to the unearned premium liability
are included with Other Assets in the balance sheet and totaled $52,384 and
$45,573 at December 31, 1993 and 1992, respectively.
The effects of reinsurance are netted against the insurance revenue and
loss amounts in the statement of income. These amounts are as follows:
1993 1992 1991
- --------------------------------------------------------------------------------------------
Property and Casualty
ceded earned premiums . . . . . . . . $127,537 $124,352 $192,792
Life and Health ceded earned premiums . . 9,576 9,192 8,809
-------- -------- --------
Total ceded premiums . . . . . . . . . . $137,113 $133,544 $201,601
======== ======== ========
Property and Casualty ceded losses and
adjustment expense . . . . . . . . . $ 54,996 $ 53,087 $191,170
Life and Health ceded policy benefits . . 7,441 6,463 5,948
-------- -------- --------
Total ceded loss, adjustment expense
and policy benefits . . . . . . . . . $ 62,437 $ 59,550 $197,118
======== ======== ========
Reinsurance premiums ceded on a written basis are approximately equal to
the ceded earned premiums disclosed above. Reinsurance premiums assumed are
insignificant.
5. COMMITMENTS AND CONTINGENCIES
SAFECO leases office space, commercial real estate and certain
equipment under leases which expire at various dates through 2058. These
leases are accounted for as operating leases. Minimum rental commitments for
leases in effect at December 31, 1993 are as follows:
Year Payable Minimum Rentals
- -----------------------------------------------------------------------
1994 . . . . . . . . . . . . . . . . . . . . . . $ 6,742
1995 . . . . . . . . . . . . . . . . . . . . . . 5,546
1996 . . . . . . . . . . . . . . . . . . . . . . 3,395
1997 . . . . . . . . . . . . . . . . . . . . . . 2,221
1998 . . . . . . . . . . . . . . . . . . . . . . 1,908
1999 and thereafter . . . . . . . . . . . . . . . 61,693
-------
Total . . . . . . . . . . . . . . . . . . . . $81,505
=======
See Note 4 for discussion relating to reinsurance.
47
28
SAFECO CORPORATION
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The property and casualty companies have written financial guarantee
insurance covering municipal revenue bond issues, real estate partnership
borrowings and residual values of certain commercial buildings. The majority of
these guarantees were written in the period 1984 through 1987. At December 31,
1993, guarantees totaling $259,401 were outstanding. Substantially all
individual guarantees are supported by collateral (first mortgage liens) in the
underlying properties. At December 31, 1993, the reserve for losses and loss
adjustment expense for this business was $22,120 and the related unearned
premium reserve was $2,242.
At December 31, 1993, SAFECO Properties, Inc. is the guarantor of
$38,500 of outstanding debt financing for a not-for-profit hospital. SAFECO's
property and casualty companies have, in turn, guaranteed the full amount of
this potential obligation of SAFECO Properties and this amount is included in
the guarantee total of $259,401 noted in the paragraph above. The credit risk
exposure is limited to any excess of the outstanding debt over the value of the
collateral.
PROPOSITION 103
In November, 1988, California voters passed Proposition 103, an
initiative that, among other things, required property and casualty insurance
rates to be rolled back to levels 20% below their 1987 levels for the period
November 8, 1988 to November 7, 1989 (Rollback Period). In May 1989 the
California Supreme Court upheld as facially constitutional most, but not all,
of the provisions of Proposition 103. The Supreme Court held that insurance
companies were entitled to have the opportunity to earn a fair and reasonable
return. In addition, companies were to have the right to demonstrate through
rate filings that the insurance rates used during the Rollback Period met
applicable standards and, consequently, did not have to be rolled back.
In June 1989 SAFECO made rate filings that demonstrated its rates met
the applicable standards, should not be required to be reduced during the
Rollback Period and should be approved for use on and after November 8, 1989.
In 1990 the California Commissioner of Insurance approved the use of these
rates for use on and after November 8, 1989. The Department refused, however,
to review these filings for purposes of determining whether SAFECO had a
rollback obligation.
Instead, the Department insisted on calculating rate rollback
obligations based on the financial results of SAFECO for calendar year 1989.
While over time the Department used several different approaches, in October
1991 the Department alleged SAFECO had a rollback obligation of $88.7 million
plus interest.
SAFECO consistently contested the Department's approach concerning the
rollback matter in rate hearings and related litigation from 1989 through
August 1993. By 1993 SAFECO was engaged in appeals of two separate lawsuits
with the Department.
In August 1993, having concluded the courts would not force the
Department to review rate filings in connection with the rollback matter and in
order to end four years of proceedings and avoid future years of such
proceedings, SAFECO agreed to withdraw from the two appeals and to pay $40
million to policyholders who purchased or renewed policies covered by
Proposition 103 during the Rollback Period and who had not otherwise been paid
a rollback refund.
This $40 million settlement, $0.41 per share on an after-tax basis, was
reflected in the financial results for the third quarter and paid in the fourth
quarter of 1993. The settlement payment equates to one hundred eleven dollars
per policy.
6. FAIR VALUE DISCLOSURES
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of FASB Statement 107,
"Disclosures about Fair Value of Financial Instruments." Estimated fair value
amounts have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
developing the estimates of fair value. Accordingly, these estimates are not
necessarily indicative of the amounts that could be realized in a current
market exchange. The use of different market assumptions and/or estimating
methodologies may have a material effect on the estimated fair value amounts.
For cash, short-term investments, accounts receivable, policy loans and
other liabilities, carrying value is a reasonable estimate of fair value.
Fair value information for SAFECO's investments in fixed maturities and
marketable equity securities, which is the same as market value, can be found on
the face of the balance sheet on page 32 and in Note 2. Market value generally
represents quoted market prices for securities traded in the public marketplace
or analytically determined values for securities not publicly traded.
The fair values of mortgage and commercial loans have been estimated by
discounting the projected cash flows using the current rate at which loans
would be made to borrowers with similar credit ratings and for the same
maturities.
48
29
1993 ANNUAL REPORT
Commercial loans are a component of "Finance Receivables" in the balance
sheet. Finance Receivables also include lease receivables, which are exempt
from Statement 107 disclosure requirements.
The fair value of investment contracts (Funds Held Under Deposit
Contracts) with defined maturities is estimated by discounting projected cash
flows using rates that would be offered for similar contracts with the same
remaining maturities. For investment contracts with no defined maturities, fair
value is estimated to be the present surrender value.
The carrying values of the SAFECO Credit and Other Notes and Mortgages
borrowings that have variable interest rates are reasonable estimates of fair
value. For these borrowings that have fixed interest rates, fair value is
estimated by discounting the projected cash flows using the rate at which
similar borrowings could currently be made. The fair value of the 10.75% Notes
Due 1995 is estimated based on quotes from broker-dealers who make markets in
similar securities.
The fair value of interest rate swaps (see Note 3) is the difference
between the present value of SAFECO's future interest obligations at the stated
(fixed) rate and the counterparties' obligations at the floating rates. The
estimated present value of SAFECO's obligations under the swaps exceeded the
counterparties' by $3,000 at December 31, 1993 and by $5,000 at December 31,
1992. The estimated fair value of the property and casualty companies'
financial guaranty business (see Note 5) was approximately $24,000 at both
December 31, 1993 and 1992. These amounts equal the total of the recorded
reserves for losses and loss adjustment expense and unearned premiums at
December 31, 1993 and 1992. Other insurance-related financial instruments are
exempt from Statement 107 disclosure requirements.
Estimated fair values of financial instruments at December 31 are as
follows:
1993 1992
-------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------------------------------------------
Financial assets:
Mortgage loans ................................... $ 402,138 $ 437,000 $ 391,108 $ 405,000
Commercial loans ................................. 368,735 370,000 333,279 342,000
Financial liabilities:
Funds held under deposit contracts ............... 7,229,439 7,531,000 6,382,655 6,429,000
Credit Company borrowings ........................ 427,930 438,000 403,705 410,000
10.75% notes due 1995 ............................ 200,000 220,000 200,000 224,000
Other notes and mortgages ........................ 290,505 297,000 235,218 236,000
7. COMMON STOCK
Changes in common stock outstanding for the last three years are as
follows:
1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
Number of shares outstanding at the beginning of year ........... 62,815,265 62,748,014 62,721,616
Shares reacquired ............................................... (69,872) (233,777) (142,885)
Shares issued for stock options and rights ...................... 152,393 301,028 169,283
Shares issued for acquisition of subsidiary ..................... 33,776 - -
---------- ---------- ----------
Number of shares outstanding at the end of year ................. 62,931,562 62,815,265 62,748,014
========== ========== ==========
49
30
SAFECO CORPORATION
8. STOCK INCENTIVE PLAN
The SAFECO Incentive Plan of 1987 provides for the issuance of up to
2,400,000 shares of SAFECO Corporation common stock. Stock options, stock
appreciation rights, restricted stock rights and performance stock rights are
authorized under the Plan.
Stock options are granted at exercise prices not less than the fair
market value of the stock on the date of grant. The terms and conditions upon
which options become exercisable may vary among grants; however, option rights
expire no later than ten years from the date of grant.
Changes in stock options for the three years ended December 31, 1993 are
as follows:
Outstanding Options
- -------------------------------------------------------------------------
Shares Price per Share
------------------------------
Balance December 31, 1990 . . . . . 1,216,060 $ 8.06 - $38.50
Granted. . . . . . . . . . . . . 127,500 38.00 - 39.38
Exercised. . . . . . . . . . . . (232,284) 8.06 - 35.50
Canceled. . . . . . . . . . . . (6,500) 24.50 - 38.50
--------- ------ ------
Balance December 31, 1991 . . . . . 1,104,776 8.06 - 39.38
Granted. . . . . . . . . . . . . 141,400 46.63 - 56.38
Exercised. . . . . . . . . . . . (293,790) 8.06 - 38.50
Canceled. . . . . . . . . . . . . (23,550) 26.00 - 38.75
--------- ------ ------
Balance December 31, 1992 . . . . . 928,836 14.34 - 56.38
Granted. . . . . . . . . . . . . 137,600 56.50 - 63.50
Exercised. . . . . . . . . . . . (147,705) 14.34 - 39.38
Canceled. . . . . . . . . . . . (4,500) 28.63 - 39.25
--------- ------ ------
Balance December 31, 1993. . . . . . 914,231 $14.50 - $63.50
========= ====== ======
Exercisable at December 31, 1993 440,394 $14.50 - $63.50
========= ====== ======
Stock appreciation rights have been granted in tandem with certain
options. Stock appreciation rights provide stock option holders the right to
receive payment in cash and/or stock equal to the appreciation in value of the
optioned stock from the date of grant, in lieu of exercise of stock options
held. Shares exercised during 1993, 1992 and 1991 include 500, 2,400 and
69,060, respectively, which were surrendered under the Plan to exercise stock
appreciation rights. During 1993, 1992 and 1991, $21, $114, and $406,
respectively, were charged to operations for the compensation element of stock
appreciation rights.
Restricted stock rights provide for the holder to receive a stated number
of share rights if the holder remains in the employ of the Corporation for a
stated number of years. Matured rights are issued in stock and/or paid in cash
at the option of the holder. During 1993, 1992 and 1991, $1,436, $1,383 and
$2,494, respectively, were charged to operations for the compensation element
of restricted stock rights.
Changes in restricted stock rights for the three years ended December 31,
1993 are as follows:
Share Rights
- -------------------------------------------------------
Balance December 31, 1990 . . . . 63,430
Awarded . . . . . . . . . . . 23,250
Matured . . . . . . . . . . . (22,900)
Canceled . . . . . . . . . . (893)
-------
Balance December 31, 1991 . . . . 62,887
Awarded . . . . . . . . . . . 18,450
Matured . . . . . . . . . . . (24,550)
Canceled . . . . . . . . . . (2,245)
-------
Balance December 31, 1992 . . . . 54,542
Awarded . . . . . . . . . . . 16,100
Matured . . . . . . . . . . . (25,511)
Canceled . . . . . . . . . . (713)
-------
Balance December 31, 1993 . . . . 44,418
=======
There were 1,224,179 shares of common stock reserved for future options
and rights at December 31, 1993. No performance stock rights have been awarded.
9. STATUTORY INFORMATION
The insurance subsidiaries are required to file annual statements with
state regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities (statutory basis). Statutory net income differs
from net income reported in accordance with generally accepted accounting
principles primarily because policy acquisition costs are expensed when
incurred, life insurance reserves are based on different assumptions and income
tax expense reflects only taxes paid or currently payable.
Statutory net income and equity are as follows:
Statutory Net Income 1993 1992 1991
- -----------------------------------------------------------------------------------------
Property and Casualty . . . . . . . . . . $283,605 $206,729 $172,683
Life and Health . . . . . . . . . . . . . 19,141 30,629 45,155
December 31
Statutory Stockholder's Equity 1993 1992
- -------------------------------------------------------------------------
Property and Casualty . . . . . . . . . . $1,557,360 $1,421,374
Life and Health . . . . . . . . . . . . . 382,878 365,124
50
31
1993 ANNUAL REPORT
10. DIVIDEND RESTRICTIONS
The insurance subsidiaries are restricted by certain states as to the
amount of dividends they may pay to their parent without regulatory consent. In
addition, dividend payments by certain other subsidiaries are limited by
agreements with lenders which have provided financing for those subsidiaries.
The amount of subsidiary retained earnings available for the payment of
dividends to SAFECO Corporation without prior regulatory or lender approval
approximated $337,053 at December 31, 1993.
11. EMPLOYEE BENEFIT PLANS
The Corporation administers defined contribution, defined benefit and
profit sharing bonus plans covering substantially all employees. The defined
contribution plans include profit sharing retirement plans and a savings plan.
Benefits are earned under the defined benefit plan for each year of service
after 1988, based on the employee's compensation level plus a stipulated rate
of return on the benefit balance. It is the Corporation's policy to fund the
defined benefit plan on a current basis to the full extent deductible under
federal income tax regulations. Included in the amounts below are $4,987,
$5,181 and $4,727 of contributions to the defined benefit plan for 1993, 1992
and 1991, respectively. These contributions approximate the accrual expense for
each year.
The cost of all plans charged to income is as follows:
1993 1992 1991
- ----------------------------------------------------------------------------
Property and Casualty . . . . $42,623 $35,102 $24,835
Life and Health . . . . . . . 8,592 7,150 5,162
Real Estate . . . . . . . . . 1,807 2,154 2,585
All Others . . . . . . . . . 2,166 1,541 1,048
------- ------- -------
Total . . . . . . . . . $55,188 $45,947 $33,630
======= ======= =======
In addition, SAFECO provides certain healthcare and life insurance
benefits ("other postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if they
reach retirement age while working for the Corporation. The costs of these
benefits is shared by SAFECO and the retiree.
Effective January 1, 1993, SAFECO adopted FASB Statement 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Under Statement
106, the Corporation now accrues for other postretirement benefits during the
years that employees provide services. Prior to adoption of Statement 106 other
postretirement benefits were accounted for on the pay-as-you-go (cash) basis.
The transition obligation (i.e., the accumulated postretirement benefit
obligation) of $23,751 was recorded as a cumulative effect adjustment in the
first quarter of 1993 which net of tax resulted in a reduction of net income of
$15,676.
Components of the net periodic other postretirement benefit cost for the
year ended December 31, 1993 are as follows:
- -----------------------------------------------------------------------
Service cost - benefits earned during the period . . . . . . . . $ 880
Interest cost on accumulated postretirement benefit obligation . 1,861
Actual return on plan assets . . . . . . . . . . . . . . . . . . 24
Net amortization and deferral . . . . . . . . . . . . . . . . . (24)
------
Net periodic postretirement benefit cost . . . . . . . . . $2,741
======
Under the cash basis of accounting for these other postretirement
benefits, the expense was $690 and $714, for 1992 and 1991, respectively.
The following table summarizes the funded status of the plan:
December 31, January 1,
1993 1993
- -----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees . . . . . . . . . . . . . . . . . . . . $10,115 $10,138
Fully eligible active plan participants. . . . . 4,646 5,129
Other active plan participants . . . . . . . . . 9,972 8,484
------- --------
Total APBO . . . . . . . . . . . . . . . . . . 24,733 23,751
Less plan assets at fair value . . . . . . . . . . . . 420 -
------- -------
Funded status. . . . . . . . . . . . . . . . . . . . . 24,313 23,751
Unrecognized gain . . . . . . . . . . . . . . . . . . 1,056 -
------- -------
Accrued postretirement benefit cost
recorded in the balance sheet . . . . . . . . . . . $25,369 $23,751
======= =======
Actuarial assumptions used to determine 1993 costs and benefit
obligations at January 1, 1993 include a discount rate of 8% and a healthcare
cost trend rate of 13% for 1994, declining by one percent per year to 7% and
remaining at that level thereafter. The accumulated postretirement benefit
obligation at December 31, 1993 was determined using a discount rate of 7-1/2%
and a healthcare cost trend rate of 12% for 1995, declining by one percent per
year to 7% and remaining at that level thereafter. A one percentage point
increase in the assumed healthcare cost trend rate for each year would increase
the accumulated other postretirement benefit obligation as of December 31, 1993
by $3,185 and the annual net periodic other postretirement benefit cost for the
year then ended by $425.
51
32
SAFECO CORPORATION
12. RENT CHARGED TO OPERATIONS
The amount of rent charged to operations is as follows:
1993 1992 1991
- ----------------------------------------------------------------------------
Property and Casualty. . . . . . . . . $5,823 $5,916 $4,989
Real Estate . . . . . . . . . . . . . 1,257 1,446 1,639
All Others . . . . . . . . . . . . . . 1,225 1,202 1,156
------ ------ ------
Total . . . . . . . . . . . . . $8,305 $8,564 $7,784
====== ====== ======
13. REAL ESTATE COMPANIES' LEASED PROPERTIES
The real estate companies receive rental income, principally from
shopping centers, under leases which expire at various dates through 2047.
These leases are accounted for as operating leases. Minimum future rentals from
leases in effect at December 31, 1993 are as follows:
Year Receivable Amount
- ------------------------------------------
1994 . . . . . . . . . . . . . $ 35,478
1995 . . . . . . . . . . . . . 32,702
1996 . . . . . . . . . . . . . 29,926
1997 . . . . . . . . . . . . . 27,205
1998 . . . . . . . . . . . . . 24,406
1999 and thereafter . . . . . 140,419
--------
Total . . . . . . . . . $290,136
========
These amounts do not include contingent rentals that are based on a
percentage of sales in excess of stipulated minimums or increases in the
Consumer Price Index. Contingent rentals included in revenue were $4,976,
$5,693 and $5,910 in 1993, 1992 and 1991, respectively.
The real estate companies' investment in rental property and related
accumulated depreciation is as follows:
December 31
1993 1992
- ----------------------------------------------------------------------
Shopping centers . . . . . . . . . $286,891 $229,973
Healthcare facilities . . . . . . 18,110 25,923
Other . . . . . . . . . . . . . . 41,958 51,287
-------- --------
346,959 307,183
Less accumulated depreciation . . 87,083 86,403
-------- --------
Total . . . . . . . . . . . $259,876 $220,780
======== ========
14. SUBSEQUENT EVENT
On January 17, 1994 a severe earthquake struck Southern California.
Based on claims information available as of the date of this report, SAFECO
expects its losses to exceed $50 million, the threshold at which the
Corporation's reinsurance coverage begins. Under SAFECO's catastrophe
reinsurance program, it is reimbursed for 90% of the losses between $50 million
and $200 million. To date, approximately 6,100 claims have been reported.
Because of the extensive damage to communications and transportation systems in
the earthquake area, and the time it takes to complete accurate surveys and
inventories on homes and businesses damaged in earthquakes, it will be some
time before a reasonable estimate of SAFECO's losses can be made. The loss will
be recorded in the first quarter of 1994.
15. INCOME TAXES
As of January 1, 1993, SAFECO adopted the liability method of accounting
for income taxes pursuant to FASB Statement 109, "Accounting for Income Taxes."
This accounting change was implemented through a cumulative effect adjustment
which reduced the net deferred tax liability (and increased net income in the
first quarter of 1993) by $18,553. Prior year financial statements and related
disclosures which follow the guidelines provided in APB 11 were not restated.
Differences between income tax computed by applying the U.S. Federal
income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income before income
taxes and the consolidated provision for Federal and Canadian income taxes are
as follows:
1993 1992 1991
- -----------------------------------------------------------------------------
Computed "expected" tax expense . . . . . $201,928 $137,107 $107,887
Tax-exempt municipal bond income . . . . (55,139) (47,906) (43,276)
Dividends received deduction . . . . . . (11,031) (9,908) (10,200)
Proration adjustment . . . . . . . . . . 5,137 3,593 2,400
"Fresh start" adjustment for discounting
of losses and adjustment expense -
1986 Tax Reform Act . . . . . . . . . . - - (3,080)
Federal tax rate change . . . . . . . . . 4,151 - -
Other . . . . . . . . . . . . . . . . . . 5,990 9,077 4,005
-------- -------- --------
Consolidated provision for Federal
and Canadian income taxes . . . . . . $151,036 $ 91,963 $ 57,736
======== ======== ========
52
33
1993 ANNUAL REPORT
The tax effects of temporary differences which give rise to the deferred
tax assets and deferred tax liabilities at December 31, 1993 and January 1,
1993, the date of adoption of Statements 109 and 106, are as follows:
December 31, January 1,
1993 1993
- -----------------------------------------------------------------------------------------
Deferred tax assets:
Discounted loss and adjustment expense reserves . . . $121,406 $116,334
Unearned premium reserve. . . . . . . . . . . . . . . 52,993 46,688
Adjustment to life policy liabilities . . . . . . . . 7,838 -
Capitalization of policy acquisition
costs - 1990 Tax Act . . . . . . . . . . . . . . . 14,105 9,370
Postretirement benefits . . . . . . . . . . . . . . . 8,879 8,075
Realized capital gains. . . . . . . . . . . . . . . . 7,406 14,526
Other . . . . . . . . . . . . . . . . . . . . . . . . 30,500 30,710
-------- --------
Total deferred tax assets . . . . . . . . . . . 243,127 225,703
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs . . . . . . . . . . 128,556 117,675
Bond discount accrual . . . . . . . . . . . . . . . . 16,673 20,699
Accelerated depreciation. . . . . . . . . . . . . . . 42,314 36,754
Adjustment to life policy liabilities . . . . . . . . - 23,653
Real estate development expenses capitalized . . . . 13,173 12,539
Unrealized appreciation of marketable
equity securities . . . . . . . . . . . . . . . . 138,990 131,976
Other . . . . . . . . . . . . . . . . . . . . . . . . 21,348 19,587
-------- --------
Total deferred tax liabilities . . . . . . . . . 361,054 362,883
-------- --------
Net deferred tax liability . . . . . . . . . . . $117,927 $137,180
======== ========
The deferred tax benefit of $21,903 for 1993 represents the decrease in
the net deferred tax liability of $19,253 excluding an increase of $2,980
related to unrealized appreciation of marketable equity securities and a
decrease of $330 related to the unrealized gain from foreign currency
translation which are reported in stockholders' equity.
Under APB 11 deferred tax expense (benefit) resulted from timing
differences in the recognition of revenue and expense for tax and financial
statement purposes. For 1992 and 1991, the sources of these differences and the
tax effect of each were as follows:
1992 1991
- -----------------------------------------------------------------------------------------
Discounted loss and adjustment expense reserves . . . . . $ (9,045) $ (8,886)
Bond discount accrual . . . . . . . . . . . . . . . . . . 4,536 2,794
Deferred policy acquisition costs . . . . . . . . . . . . 12,130 6,629
Unearned premium reserve. . . . . . . . . . . . . . . . . (10,590) (5,630)
Salvage and subrogation reserves. . . . . . . . . . . . . 1,318 (567)
Adjustment to life policy liabilities . . . . . . . . . . (27,393) (4,720)
Capitalization of policy acquisition
costs - 1990 Tax Act . . . . . . . . . . . . . . . . (4,162) (4,202)
Accelerated depreciation. . . . . . . . . . . . . . . . . 1,813 674
Real estate development expense capitalized . . . . . . . (2,515) 764
Realized capital gains. . . . . . . . . . . . . . . . . . (6,468) (12,991)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,524 3,450
-------- --------
Deferred tax benefit . . . . . . . . . . . . . . $(33,852) $(22,685)
======== ========
53
34
SAFECO CORPORATION
16. SEGMENT DATA
Under- Capital
Investment Realized writing Identifiable Expen-
Revenues Income Gain (Loss) Profit (Loss) Net Income* Assets ditures
- -----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
1993
Property and Casualty:
Personal. . . . . . . . . . $1,400,705 $ 6,252 $ 294,597
Commercial and Surety . . . 529,009 3,596 213,898
---------- ---------
Total. . . . . . . . . 1,929,714 $277,643 $114,561 $ 9,848 $283,429** 5,014,606 $26,320
---------- -------- -------- ========= -----------
Life and Health:
Financial Services. . . . . 44,156 390,550 61,486 5,052,710
Employee Benefits . . . . . 261,807 277,608 (7,942) 3,555,151
---------- -------- -------- -----------
Total . . . . . . . . 305,963 668,158 53,544 118,702 8,607,861 486
---------- -------- -------- -----------
Real Estate. . . . . . . . . . 78,252 8,126 14,574 517,411 47,363
Other and Eliminations . . . . 63,311 5,994 11,418 12,073 667,413 69
---------- -------- -------- -------- ----------- -------
Consolidated Totals. . $2,377,240 $951,795 $187,649 $428,778 $14,807,291 $74,238
========== ======== ======== ======== =========== =======
1992
Property and Casualty:
Personal . . . . . . . . . $1,258,893 $ (37,712) $ 265,987
Commercial and Surety . . . 495,567 (34,310) 172,509
---------- ---------
Total . . . . . . . . 1,754,460 $280,820 $ 54,622 $ (72,022) $223,659 4,745,518 $22,273
---------- -------- -------- ========= -----------
Life and Health:
Financial Services. . . . . 40,511 344,970 11,281 4,257,512
Employee Benefits . . . . . 288,005 278,614 (7,904) 3,356,978
---------- -------- -------- -----------
Total . . . . . . . . 328,516 623,584 3,377 77,802 7,614,490 214
---------- -------- -------- -----------
Real Estate. . . . . . . . . . 187,172 (6) 5,354 463,872 23,771
Other and Eliminations . . . . 60,953 (1,356) 2,596 4,479 567,229 553
---------- -------- -------- -------- ----------- -------
Consolidated Totals. . $2,331,101 $903,048 $ 60,589 $311,294 $13,391,109 $46,811
========== ======== ======== ======== =========== =======
1991
Property and Casualty:
Personal. . . . . . . . . . $1,161,879 $ (80,052) $ 232,270
Commercial and Surety . . . 474,781 (61,069) 160,995
---------- ---------
Total. . . . . . . . . 1,636,660 $286,073 $ 56,981 $(141,121) $183,202 4,433,058 $20,664
---------- -------- -------- ========= -----------
Life and Health:
Financial Services. . . . . 36,135 303,560 5,839 3,643,790
Employee Benefits . . . . . 296,576 253,885 (33,087) 3,038,523
---------- -------- -------- -----------
Total. . . . . . . . . 332,711 557,445 (27,248) 61,713 6,682,313 752
---------- -------- ------- -----------
Real Estate. . . . . . . . . . 274,387 (460) 5,297 583,156 24,755
Other and Eliminations . . . . 57,728 3,249 5,412 9,366 415,417 226
---------- -------- -------- -------- ----------- -------
Consolidated Totals . . $2,301,486 $846,767 $ 34,685 $259,578 $12,113,944 $46,397
========== ======== ======== ======== =========== =======
Property and casualty companies' investments are available for payments of
claims and benefits for all product lines within the segments; therefore, such
investments and the related investment income and realized gains have not been
identified with specific segments. In the life and health companies, a major
portion of investment income, realized gains and assets is specially
identifiable within an industry segment. The remainder of these amounts has
been allocated in proportion to the mean policy reserves and liabilities
identified with each segment.
*1993 Net Income amounts include cumulative effect of accounting changes (FASB
Statements 106 and 109).
**1993 Property and Casualty Net Income includes a charge of $40,000 ($26,000
after tax) for the Proposition 103 settlement.
54
35
1993 ANNUAL REPORT
17. INTERIM FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter Annual
- --------------------------------------------------------------------------------------------
(In Thousands)
Revenues:
1993 . . . . . . . . . . . . . $837,296 $874,989 $897,015 $907,384 $3,516,684
1992 . . . . . . . . . . . . . 833,917 827,551 808,119 825,151 3,294,738
1991 . . . . . . . . . . . . . 796,671 771,683 784,542 830,042 3,182,938
Income Before Realized Gain:*
1993 . . . . . . . . . . . . . $ 55,304 $ 93,168 $ 61,593 $ 96,921 $ 306,986
1992 . . . . . . . . . . . . . 78,689 30,386 71,239 91,235 271,549
1991 . . . . . . . . . . . . . 54,166 50,932 64,857 66,962 236,917
Realized Gain:*
1993 . . . . . . . . . . . . . $ 17,200 $ 36,183 $ 32,197 $ 33,335 $ 118,915
1992 . . . . . . . . . . . . . 6,340 11,760 8,910 12,735 39,745
1991 . . . . . . . . . . . . . 1,142 264 3,453 17,802 22,661
Net Income:**
1993 . . . . . . . . . . . . . $ 75,381 $129,351 $ 93,790 $130,256 $ 428,778
1992 . . . . . . . . . . . . . 85,029 42,146 80,149 103,970 311,294
1991 . . . . . . . . . . . . . 55,308 51,196 68,310 84,764 259,578
(Per Share)
Income Before Realized Gain:*
1993 . . . . . . . . . . . . . $ .88 $ 1.48 $ .98 $ 1.54 $ 4.88
1992 . . . . . . . . . . . . . 1.25 .48 1.14 1.46 4.33
1991 . . . . . . . . . . . . . .86 .82 1.03 1.07 3.78
Realized Gain:*
1993 . . . . . . . . . . . . . $ .27 $ .58 $ .51 $ .53 $ 1.89
1992 . . . . . . . . . . . . . .10 .19 .14 .20 .63
1991 . . . . . . . . . . . . . .02 - .06 .28 .36
Net Income:**
1993 . . . . . . . . . . . . . $ 1.20 $ 2.06 $ 1.49 $ 2.07 $ 6.82
1992 . . . . . . . . . . . . . 1.35 .67 1.28 1.66 4.96
1991 . . . . . . . . . . . . . .88 .82 1.09 1.35 4.14
Dividends Paid:
1993 . . . . . . . . . . . . . $ .41 $ .41 $ .45 $ .45 $ 1.72
1992 . . . . . . . . . . . . . .37 .37 .41 .41 1.56
1991 . . . . . . . . . . . . . .34 .34 .37 .37 1.42
Market Price Range:***
1993 - High. . . . . . . . . . $ 66-1/2 $ 66-1/8 $ 65-1/4 $ 65-3/8 $ 66-1/2
- Low . . . . . . . . . . 56-7/8 54-7/8 58-1/4 54 54
1992 - High. . . . . . . . . . 49-7/8 51-3/4 54-1/4 59-1/8 59-1/8
- Low . . . . . . . . . . 45 42-3/8 48-1/2 52-1/8 42-3/8
*Amounts are net of income tax.
**Includes cumulative effect of adoption of FASB Statements 106 and 109.
Both of these new accounting standards were adopted in the first quarter
of 1993. The combined effect on net income was an increase of $2,877 or
$0.05 per share.
***SAFECO Corporation common stock is traded on the NASDAQ.
55
36
SAFECO CORPORATION
SUMMARY OF GROWTH
(In Thousands Except Per Share Amounts) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
SUMMARY OF CONTINUING OPERATIONS
Income (Loss), Net of Income Taxes, Before Realized Gain:
Property and Casualty . . . . . . . . . . . . . . . . . . . . . . . . . $ 217,187 $ 187,144 $ 145,421
Life and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,903 75,600 79,705
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,136 6,040 5,850
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,439 6,140 6,396
Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,255 4,261 3,397
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,934) (7,636) (3,852)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,986 271,549 236,917
Realized Gain, Net of Income Taxes . . . . . . . . . . . . . . . . . . . 118,915 39,745 22,661
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . 2,877 - -
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,778 $ 311,294 $ 259,578
========== ========== ==========
STATISTICS PER SHARE OF COMMON STOCK*
Primary Net Income from Continuing Operations:
Income Before Realized Gain . . . . . . . . . . . . . . . . . . . . . $ 4.88 $ 4.33 $ 3.78
Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.89 .63 .36
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . .05 - -
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.82 4.96 4.14
Average Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 62,879 62,792 62,739
Fully Diluted Net Income from Continuing Operations:
Income Before Realized Gain . . . . . . . . . . . . . . . . . . . . . . 4.85 4.29 3.75
Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.88 .63 .35
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . .05 - -
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.78 4.92 4.10
Average Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 63,233 63,239 63,255
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.72 1.56 1.42
Market Price:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 1/2 59 1/8 48 3/4
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 42 3/8 31 1/4
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 57 1/4 48 3/4
Stockholders' Equity:
Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.09 38.97 35.40
With Securities at Market Value, Net of Tax . . . . . . . . . . . . . . 56.94 47.84 43.83
REVENUES FROM CONTINUING OPERATIONS
(EXCLUDING REALIZED GAINS)
Insurance:
Property and Casualty . . . . . . . . . . . . . . . . . . . . . . . . . $2,134,512 $1,937,090 $1,830,199
Life and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305,963 328,516 332,711
Net Investment Income (Excluding realized gain or loss):
Property and Casualty . . . . . . . . . . . . . . . . . . . . . . . . . 277,643 280,820 286,073
Life and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668,158 623,584 557,445
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,994 (1,356) 3,249
Real Estate (Excluding realized gain or loss) . . . . . . . . . . . . . . 78,252 187,172 274,387
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,046 51,327 54,371
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,250 13,057 10,794
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,537,818 $3,420,210 $3,349,229
========== ========== ==========
*Per share amounts are adjusted for stock dividends and stock splits.
56
37
1993 ANNUAL REPORT
1990 1989 1988 1987 1986 1985 1984 1983
- ------------------------------------------------------------------------------------------------------------------------
$ 183,666 $ 188,928 $ 191,443 $ 175,093 $ 99,098 $ 52,342 $ 47,742 $ 79,513
77,626 70,911 44,714 33,944 48,511 48,141 52,460 21,319
6,139 669 (8,142) (7,420) 2,756 1,554 3,483 5,038
4,476 4,009 3,509 2,420 3,305 3,956 3,664 3,852
3,016 2,545 2,021 1,493 615 125 (306) (448)
(3,177) (3,346) 1,304 4,772 3,633 10,581 13,966 13,753
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
271,746 263,716 234,849 210,302 157,918 116,699 121,009 123,027
6,663 36,501 33,786 42,708 66,037 46,220 6,844 5,906
- - - - - - - -
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 278,409 $ 300,217 $ 268,635 $ 253,010 $ 223,955 $ 162,919 $ 127,853 $ 128,933
========== ========== ========== ========== ========== ========== ========== ==========
$ 4.31 $ 4.17 $ 3.59 $ 3.12 $ 2.34 $ 1.62 $ 1.63 $ 1.64
.10 .58 .51 .63 .98 .65 .09 .08
- - - - - - - -
4.41 4.75 4.10 3.75 3.32 2.27 1.72 1.72
63,119 63,192 65,450 67,465 67,402 71,928 74,462 74,883
4.29 4.14 3.58 3.09 2.32 1.61 1.62 1.63
.10 .57 .51 .63 .97 .64 .09 .08
- - - - - - - -
4.39 4.71 4.09 3.72 3.29 2.25 1.71 1.71
63,466 63,722 65,756 67,984 68,056 72,604 74,944 75,260
1.28 1.14 1.02 .90 1/2 .82 1/2 .77 1/2 .70 .60
42 1/8 39 1/4 29 1/2 38 31 7/8 23 1/4 17 1/2 15
25 3/8 23 1/4 23 24 5/8 22 3/4 15 1/2 13 3/8 11 3/8
32 7/8 35 5/8 23 5/8 27 3/4 26 1/2 23 1/4 16 1/2 13 3/4
31.50 29.27 24.87 21.39 19.68 16.44 14.40 13.88
33.14 33.15 27.08 22.87 25.22 19.50 14.66 13.55
$1,792,836 $1,696,940 $1,627,861 $1,545,922 $1,479,533 $1,246,206 $1,031,156 $ 925,979
311,961 274,275 264,974 240,423 232,667 243,374 228,443 197,406
283,248 263,415 220,496 179,837 151,959 127,668 112,397 105,449
476,177 391,876 296,233 233,837 189,363 144,586 103,108 75,992
5,348 14,670 20,245 22,573 20,833 18,373 15,977 15,856
254,718 246,216 223,190 195,900 216,082 208,527 176,188 156,585
45,193 38,665 34,290 30,767 30,414 30,039 31,352 27,902
9,009 8,322 7,166 6,708 4,087 2,489 1,745 14,617
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$3,178,490 $2,934,379 $2,694,455 $2,455,967 $2,324,938 $2,021,262 $1,700,366 $1,519,786
========== ========== ========== ========== ========== ========== ========== ==========
57
38
SAFECO CORPORATION
SUMMARY OF GROWTH (CONTINUED)
(In Thousands Except Ratios) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
PREMIUMS BY MAJOR CLASSES OF
PROPERTY AND CASUALTY INSURANCE
Personal Auto . . . . . . . . . . . . . . . . . . . . . . . . . $ 977,105 $ 907,016 $ 805,826
Homeowners . . . . . . . . . . . . . . . . . . . . . . . . . . 362,419 310,841 271,531
Other Personal . . . . . . . . . . . . . . . . . . . . . . . . 126,353 109,063 92,628
--------- --------- ---------
Total Personal . . . . . . . . . . . . . . . . . . . . . 1,465,877 1,326,920 1,169,985
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . 544,162 491,942 450,744
Surety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,245 79,714 79,077
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,228 38,478 47,507
Total Canada . . . . . . . . . . . . . . . . . . . . . . . . . - 36 82,886
--------- ---------- ----------
Gross Premiums Written . . . . . . . . . . . . . . . . . . . . 2,134,512 1,937,090 1,830,199
Ceded Reinsurance Premiums . . . . . . . . . . . . . . . . . . 134,347 116,645 200,489
---------- ---------- ----------
Net Premiums Written . . . . . . . . . . . . . . . . . . . . . $2,000,165 $1,820,445 $1,629,710
========== ========== ==========
OPERATING RATIOS OF PROPERTY AND CASUALTY INSURANCE
Ratios to Earned Premiums (GAAP Basis):
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.21% 63.93% 67.81%
Adjustment Expense . . . . . . . . . . . . . . . . . . . . . 9.78 10.55 10.72
Underwriting Expenses . . . . . . . . . . . . . . . . . . . 28.43 28.72 29.33
Dividends to Policyholders . . . . . . . . . . . . . . . . . 1.07 .91 .76
--------- --------- ----------
Combined Losses and Expenses . . . . . . . . . . . . . . . . 99.49% 104.11% 108.62%
========= ========= ==========
Premiums Written to Policyholders' Surplus . . . . . . . . . . 1.3:1 1.3:1 1.4:1
PRE-TAX INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE REALIZED GAIN
Property and Casualty:
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . $ 9,848 $(72,022) $(141,121)
Investment . . . . . . . . . . . . . . . . . . . . . . . . . 277,643 280,820 286,073
Proposition 103 Settlement . . . . . . . . . . . . . . . . . (40,000) - -
Life and Health . . . . . . . . . . . . . . . . . . . . . . . . 125,306 123,604 124,109
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 10,079 8,389 8,525
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,190 9,036 9,489
Asset Management . . . . . . . . . . . . . . . . . . . . . . . 6,539 6,503 5,179
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,317) (13,662) (9,625)
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $389,288 $342,668 $282,629
======== ======== ========
STOCKHOLDERS' EQUITY
Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . $2,774,391 $2,448,147 $2,221,134
With Securities at Market, Net of Tax . . . . . . . . . . . . . 3,583,482 3,005,382 2,750,453
LONG-TERM DEBT FROM CONTINUING OPERATIONS . . . . . . . . . . . 600,209 504,638 523,557
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 14,807,291 13,391,109 12,113,944
58
39
1993 ANNUAL REPORT
1990 1989 1988 1987 1986 1985 1984 1983
- -------------------------------------------------------------------------------------------------------------------------------
$ 717,584 $ 644,765 $ 595,969 $ 549,267 $ 519,473 $ 452,476 $ 399,322 $ 370,296
239,550 222,539 219,042 214,102 207,097 199,739 193,800 191,270
82,642 74,060 71,115 68,086 64,646 59,996 47,995 46,094
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,039,776 941,364 886,126 831,455 791,216 712,211 641,117 607,660
464,328 480,633 483,918 463,823 448,872 328,942 202,761 156,438
75,927 77,195 69,817 62,472 60,594 49,435 40,590 34,159
39,128 38,885 35,163 31,949 26,968 20,131 16,570 16,051
173,677 158,863 152,837 156,223 151,883 135,487 130,118 111,671
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,792,836 1,696,940 1,627,861 1,545,922 1,479,533 1,246,206 1,031,156 925,979
104,804 101,428 109,921 108,177 108,751 72,628 50,096 38,403
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,688,032 $1,595,512 $1,517,940 $1,437,745 $1,370,782 $1,173,578 $ 981,060 $ 887,576
========== ========== ========== ========== ========== ========== ========== ==========
65.50% 63.13% 58.05% 56.58% 61.88% 66.43% 65.98% 59.02%
11.67 9.99 11.94 13.84 13.25 12.12 10.54 9.94
29.24 29.31 29.38 30.25 30.25 31.44 33.28 33.67
.75 .88 .97 .72 .65 .56 .42 .45
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
107.16% 103.31% 100.34% 101.39% 106.03% 110.55% 110.22% 103.08%
========== ========== ========== ========== ========== ========== ========== ==========
1.6:1 1.5:1 1.8:1 2.1:1 2.2:1 2.4:1 2.4:1 1.8:1
$ (119,173) $ (52,243) $ (5,084) $ (19,698) $ (77,568) $ (115,975) $ (96,363) $ (26,875)
283,248 263,415 220,496 179,837 151,959 127,668 112,397 105,449
- - - - - - - -
118,486 106,906 67,967 56,316 76,704 76,109 58,560 29,777
9,123 884 (12,494) (10,805) 6,020 2,110 7,707 8,670
6,815 6,031 5,050 3,341 4,637 4,501 4,077 4,872
4,586 3,881 3,081 2,518 1,178 244 (566) (810)
(8,799) (8,793) (2,371) (304) (2,672) 9,053 15,009 14,896
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 294,286 $ 320,081 $ 276,645 $ 211,205 $ 160,258 $ 103,710 $ 100,821 $ 135,979
========== ========== ========== ========== ========== ========== ========== ==========
$1,975,699 $1,850,728 $1,570,383 $1,435,418 $1,328,215 $1,105,684 $1,068,607 $1,036,327
2,078,670 2,096,028 1,709,729 1,535,092 1,701,853 1,311,762 1,088,084 1,012,035
451,328 512,859 540,996 539,825 538,081 489,402 347,351 264,273
10,683,462 9,415,865 7,869,181 6,738,785 5,876,072 4,766,332 3,861,804 3,396,684
59