-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gy07HeoaLaTNB6MfFp/wGxX9dkkZSYnSF10H+Js5rTMxVf3TB8Tau/Ur2jOX7SWQ bzI1DIIvX4jfPrI1G3ysqA== 0000867579-02-000191.txt : 20020723 0000867579-02-000191.hdr.sgml : 20020723 20020723172524 ACCESSION NUMBER: 0000867579-02-000191 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020722 ITEM INFORMATION: Other events FILED AS OF DATE: 20020723 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFECO CORP CENTRAL INDEX KEY: 0000086104 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 910742146 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06563 FILM NUMBER: 02709098 BUSINESS ADDRESS: STREET 1: 4333 BROOKLYN AVE NE STREET 2: SAFECO PLAZA CITY: SEATTLE STATE: WA ZIP: 98185 BUSINESS PHONE: 2065455000 MAIL ADDRESS: STREET 1: 4333 BROOKLYN AVE NE CITY: SEATTLE STATE: WA ZIP: 98185 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL AMERICA CORP DATE OF NAME CHANGE: 19680529 8-K 1 en0411.txt 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 07/22/02 Date of Report (Date of earliest event reported) SAFECO CORPORATION (Exact name of registrant as specified in Charter) WASHINGTON 1-6563 91-0742146 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) SAFECO Plaza, Seattle, Washington 98185 (Address of principal executive officers) (Zip Code) (206) 545-5000 (Registrant's telephone number, including area code) Item 5. Other Events SAFECO Executes on Core Operating Fundamentals; Reports Earnings of $0.37 per Share Second Quarter Highlights - Posted income before charges of $0.37 per share, ahead of consensus analyst estimates. - Achieved solid performance company-wide. - Launched new products and services to drive growth in core lines of business. Summary Financial Results (In millions except per-share data) 3 Months Ended 6 Months Ended June 30 June 30 2002 2001 2002 2001 Net Income (Loss) $105.2 $(14.4) $168.8 $(897.2) Income (Loss) Before Charges * $46.8 $(33.4) $94.6 $(21.4) Per Share of Common Stock Net Income (Loss) $0.82 $(0.11) $1.32 $(7.02) Income (Loss) Before Charges * $0.37 $(0.26) $0.74 $(0.17) * Summary of Financial Results follows SEATTLE, July 22 --SAFECO (Nasdaq: SAFC) today reported second-quarter income before charges and gains of $46.8 million, or $0.37 per diluted share. This compares with a loss of $33.4 million, or $0.26 per share, in the second quarter of last year. Net income, including realized gains, for the quarter was $105.2 million, or $0.82 per share, compared with a net loss of $14.4 million, or $0.11 per share, for the same period last year. During the second quarter, SAFECO incurred a $3.6 million net charge as part of a previously announced restructuring. "We are very pleased with our performance this quarter. We keep doing what we said we'd do, and what's most exciting is that it's showing up in the numbers," said Mike McGavick, SAFECO president and chief executive officer. McGavick reiterated that he "remains comfortable" with financial analysts' range of estimates of SAFECO's performance for the full year. Currently, published estimates of SAFECO's performance for the year range between $1.50 and $1.80 per diluted share, with the consensus, according to Thomson Financial First Call, of $1.67 per share. Net written premiums for SAFECO's Property and Casualty products increased 3.3 percent in the second quarter compared with the same period in 2001. This increase was primarily the result of higher sales of SAFECO's automobile product. "We are seeing the positive results of our new business entry model, improved product offering and our new commission structure," stated McGavick. SAFECO Life & Investments had strong fixed annuity deposits of $350 million in the second quarter and continued outstanding performance across Group excess-loss medical product lines. Realized gains from investments totaled $62.0 million after taxes in the quarter, up from $18.4 million for the same period of last year. SAFECO's losses due to WorldCom were $43.2 million after taxes. Those losses were more than offset by gains resulting from a change in the Property and Casualty investment strategy initiated during the second quarter to shorten duration and reduce equity holdings. SAFECO Personal Insurance Performance Personal Auto, SAFECO's largest product line, reported underwriting losses of $7.3 million -- an improvement over the $37.7 million underwriting loss recorded in second quarter 2001. - --------------------------------------------- ------------ --------------------- Auto Combined Ratio The lower the percentage, the better the performance. - ------------------------------------------------------------------ ------------- Excluding Excluding Catastrophes & Total Catastrophes Weather - ----------------------- --------------------- -------------------- ------------- Q299 101.3% 100.4% 100.7% Q399 105.9% 105.5% 104.0% Q499 108.9% 108.7% 108.3% Q100 109.3% 108.1% 107.7% Q200 105.6% 104.0% 102.2% Q300 103.8% 103.1% 101.7% Q400 109.8% 109.4% 109.2% Q101 106.5% 106.3% 106.0% Q201 108.7% 101.7% 100.2% Q301 99.3% 100.4% 99.1% Q401 104.0% 103.4% 103.0% Q102 104.5% 104.1% 103.7% Q202 101.6% 100.2% 99.1% - ----------------------- --------------------- -------------------- -------------
Combined ratio for Auto improved to 101.6 in the quarter, compared with 104.5 in the first quarter of this year, and 108.7 in the second quarter of 2001. Combined ratio is a standard gauge of underwriting performance measuring the percentage of premium dollars used to pay customers' claims and expenses. The lower the ratio, the more effective the underwriting. To allow investors to track the underlying performance of its major insurance lines and better understand seasonal variability, SAFECO reports combined ratios three ways -- total combined ratio; combined ratio excluding catastrophes (events generating multiple customer claims totaling more than $500,000); and combined ratio excluding catastrophes and non-catastrophe weather. Net written Auto premiums increased 12.6 percent in the quarter compared with the same period last year. Policies in force are flat compared with the second quarter of 2001, and are up 1.8 percent from last quarter. SAFECO introduced its new Auto product during the quarter. It improves the way the company underwrites and prices this line of insurance to better segment business and match the right policy price to the corresponding level of risk. The new Auto product makes SAFECO more competitive in its core market-preferred drivers -- while also making auto insurance available to 95 percent of all drivers that its agents see. Currently offered in 13 states, the new auto product will be available in 40 states by year-end. "We're still early in the rollout, yet we're pleased by the results," McGavick said, noting that in markets where the product has been available for much of the quarter, new business writings are up approximately 50 percent over last quarter. "This is an encouraging response from our agency partners," McGavick added. Homeowners recorded underwriting losses of $36.9 million, an improvement compared with $95.6 million in underwriting losses for the second quarter 2001. - --------------------------------------------- -------------------- ------------- Homeowners Combined Ratio The lower the percentage, the better the performance. - ------------------------------------------------------------------ ------------- Excluding Excluding Catastrophes & Total Catastrophes Weather - ----------------------- --------------------- -------------------- ------------- Q299 109.0% 99.7% 82.8% Q399 113.0% 106.6% 91.1% Q499 94.7% 92.6% 85.5% Q100 107.9% 100.0% 90.5% Q200 121.1% 104.1% 86.0% Q300 116.9% 106.6% 91.2% Q400 118.0% 106.2% 93.7% Q101 118.2% 108.6% 98.2% Q201 151.7% 112.2% 89.9% Q301 123.4% 111.6% 92.2% Q401 117.8% 100.5% 92.6% Q102 110.0% 101.3% 93.7% Q202 119.5% 97.7% 86.5% - ----------------------- --------------------- -------------------- -------------
Combined ratio for Homeowners was 119.5 for the quarter. Traditionally during the second quarter, volatile weather has a strong, negative effect on Homeowners combined ratios industry-wide. However, thanks to milder weather and continued rate action, this quarter's combined ratio marks significant improvement over 151.7 in the second quarter of 2001 when the Homeowners line was hit hard by Midwest hailstorms. Homeowners combined ratio for first quarter 2002 was 110.0. SAFECO's total catastrophe losses for the quarter were $65 million or 5.8 points on the combined ratio. This includes $15 million resulting from the Arizona and Colorado wildfires. The majority of these were Homeowners losses. Net written premiums in Homeowners increased 7 percent compared with the same quarter of 2001, while policies in force decreased 8.9 percent. These trends are in line with SAFECO's plans for the Homeowners product. SAFECO launched a new tiered pricing structure for its Homeowners product in the second quarter. This new approach -- which matches rates more closely to risk -- currently is in use in five states, and is expected to be in place in approximately 30 states by year-end. In addition, SAFECO announced a temporary moratorium on issuing new Homeowners policies in eight additional states, bringing the total to 10, where the company has been unable to secure sufficient rates to cover the cost of providing insurance. This is consistent with the decision announced last July to decrease the amount of Homeowners insurance written in states where SAFECO can't be profitable because of market or regulatory conditions. "The industry has only made money one year in the last decade," McGavick said referring to the Homeowners line. "We intend to remain a player in the Homeowners market, but -- like we've said before -- we will take decisive action in order to earn a fair return." SAFECO Business Insurance Performance SAFECO Business Insurance reported underwriting losses of $41.2 million, an improvement over the $80.2 million in underwriting losses for the second quarter of 2001. - --------------------------------------------- -------------------- ------------- Business Insurance Combined Ratio The lower the percentage, the better the performance. - ------------------------------------------------------------------ ------------- Excluding Excluding Catastrophes & Total Catastrophes Weather - ----------------------- --------------------- -------------------- ------------- Q299 116.0% 112.8% 108.9% Q399 122.0% 120.5% 116.7% Q499 121.2% 120.2% 118.9% Q100 115.6% 113.6% 110.9% Q200 113.8% 111.4% 107.2% Q300 116.5% 115.3% 112.7% Q400 112.3% 111.6% 108.7% Q101 116.7% 113.7% 111.0% Q201 119.2% 115.3% 111.5% Q301 122.1% 115.5% 111.0% Q401 110.9% 112.6% 110.0% Q102 115.7% 114.1% 112.7% Q202 111.1% 107.2% 105.2% - ----------------------- --------------------- -------------------- ------------- Including reserve strengthening, total combined ratio was 160.7 in 3Q01 - --------------------------------------------------------------------------------
Combined ratio for the quarter was 111.1, an improvement over 115.7 in the first quarter of the year and 119.2 in the second quarter of 2001. Overall net written premiums in SAFECO Business Insurance declined 7.9 percent in the second quarter compared to the same period in 2001, and policies in force declined 10.7 percent. These reductions are associated with SAFECO's previously announced plans to focus on small- and medium-sized accounts and minimize exposure to larger accounts. SAFECO Business Insurance recently introduced a suite of technology services to give agents more tools to generate sales of new policies. "We're continuing our investment in technology by automating back-office functions and making SAFECO easier to do business with, freeing up agents to sell our products and make more money," McGavick said. "Tracking with the plan we put in place last year, we continue to see healthy new business growth in small- to medium-sized commercial accounts," McGavick said. "We're being much more selective in the few large-commercial accounts we write." Surety Performance Surety recorded a quarterly underwriting profit of $5.7 million, up from $4.6 million during the same period last year. Surety generated a profitable combined ratio of 81.5 in the second quarter, compared with 89.5 in the first quarter and 79.7 during the same period last year. Life & Investments Performance SAFECO Life & Investments generated pretax profit of $52.0 million, off slightly from its performance of $57.5 million in the second quarter of 2001. - ----------------------------------------------------------------------------------------------------------------- Life & Investments Performance 2nd 1st 4th 3rd 2nd Pretax Profit (In millions) QTR QTR QTR QTR QTR 2002 2002 2001 2001 2001 ---------------------------------------------------------------- INDIVIDUAL LIFE $7.5 $ 6.7 $1.7 $4.7 $9.6 RETIREMENT SERVICES 4.0 8.1 6.0 4.3 1.9 INCOME ANNUITIES 7.3 8.8 14.9 10.3 12.2 GROUP 14.1 10.2 4.5 3.3 12.1 ASSET MANAGEMENT 1.7 2.3 2.6 1.6 1.9 CORPORATE & OTHER 17.4 23.0 17.2 18.8 19.8 ---------------------------------------------------------------- Total $ 52.0 $ 59.1 $ 46.9 $ 43.0 $57.5 ================================================================ - -----------------------------------------------------------------------------------------------------------------
For the second quarter, the Group line of excess-loss insurance reported pretax earnings of $14.1 million, compared with $12.1 million for the same period last year. "We have shown consistent growth and performance in our Group business," McGavick stated. Individual Life generated pretax income of $7.5 million, compared with $9.6 million in the same period last year. During the quarter, Individual Life launched an online sales tool to enable agents to sell term life policies in less than 15 minutes. Income Annuities recorded a quarterly profit of $7.3 million, down from $12.2 million in the same quarter last year. Among the reasons for the variance are decreased investment income from changes in pay downs of mortgage securities and lower mortality gains. Retirement Services generated pretax earnings of $4.0 million, compared with $1.9 million last year. It also expanded its product offering by teaming with ShareBuilder to provide a 401(k) plan with many of the features of a Web-based, self-directed brokerage account. Asset Management posted pretax profit of $1.7 million, down from $1.9 million in the second quarter of 2001. "Life & Investments continues to fire on all cylinders," McGavick said. "It's profitable quarter after quarter, and it consistently delivers innovative new products to market." Webcast and additional information available SAFECO's senior management team will discuss the company's second-quarter performance with analysts today at 11 a.m. Eastern Time (8 a.m. Pacific Time). The conference call will be broadcast live on the Internet at http://www.safeco.com/irwebcast and archived later in the day for replay. Detailed information about combined ratios for each Property and Casualty line - -- as well as SAFECO's first-quarter balance sheet, income statement and supplementary financial information -- is available at http://www.safeco.com/safeco/news/archive/2002_0422.asp as links to this news release. SAFECO, in business since 1923, is a Fortune 500 company based in Seattle that sells insurance and related financial products through more than 17,000 independent agents and financial advisors. More information about SAFECO is available online at www.safeco.com SAFECO CORPORATION AND SUBSIDIARIES Summary of Financial Results (In Millions Except Per Share Amounts) Three Months Ended Six Months Ended June 30 June 30 2002 2001 2002 2001 (Unaudited) (Unaudited) Revenues Property & Casualty Earned Premiums $1,122.0 $1,120.4 $2,221.5 $2,236.9 Net Investment Income 115.3 113.3 230.5 229.5 Life & Investments 460.7 446.9 921.8 909.9 Corporate 4.9 6.3 11.1 10.1 Realized Gain 95.4 28.8 126.0 62.2 -------- -------- -------- -------- Total Revenues $1,798.3 $1,715.7 $3,510.9 $3,448.6 ======== ======== ======== ======== Income (Loss) (All amounts net of tax) Income (Loss) Before Charges $46.8 $(33.4) $94.6 $(21.4) Write-off of Goodwill -- -- -- (916.9) Restructuring Charges (3.6) -- (7.9) -- Realized Gain from Investments 62.0 18.4 82.1 40.4 -------- -------- ------- -------- Income (Loss) from Continuing Operations 105.2 (15.0) 168.8 (897.9) Income from Discontinued Credit Operations -- 0.6 -- 2.8 -------- -------- ------- -------- Income (Loss) before Cumulative Effect of Change in Accounting Principle 105.2 (14.4) 168.8 (895.1) Cumulative Effect of Change in Accounting Principle - FAS 133 -- -- -- (2.1) -------- ------- ------- -------- Net Income (Loss) $105.2 $(14.4) $168.8 $(897.2) ======== ======= ======= ======== Per Share of Common Stock: Income (Loss) Before Charges $0.37 $(0.26) $0.74 $(0.17) Write-off of Goodwill -- -- -- (7.17) Restructuring Charges (0.03) -- (0.06) -- Realized Gain from Investments 0.48 0.15 0.64 0.32 -------- ------- ------- ------- Income (Loss) from Continuing Operations 0.82 (0.11) 1.32 (7.02) Income from Discontinued Credit Operations -- -- -- 0.02 -------- ------- ------- ------- Income (Loss) before Cumulative Effect of Change in Accounting Principle 0.82 (0.11) 1.32 (7.00) Cumulative Effect of Change in Accounting Principle - FAS 133 -- -- -- (0.02) -------- ------- ------- ------- Net Income (Loss) $0.82 $(0.11) $1.32 $(7.02) ======== ======= ======= ======= Dividends Paid to Common Shareholders $0.18 $0.19 $0.37 $0.56 Common Shares Used for Calculating Income (Loss) Per Share 128.1 127.7 128.1 127.7 SAFECO CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In Millions) June 30 December 31 2002 2001 (Unaudited) ASSETS Investments Fixed Maturities Available-for-Sale, at Fair Value (Cost or amortized cost: $21,746.3; $20,677.1) $22,669.0 $21,444.1 Marketable Equity Securities, at Fair Value (Cost: $821.1; $940.5) 1,228.3 1,596.4 Mortgage Loans 918.2 924.2 Real Estate 10.3 47.7 Policy Loans 88.9 91.0 Other Investment Assets 91.1 98.2 Short-Term Investments 287.7 672.9 ---------- --------- Total Investments 25,293.5 24,874.5 Cash 126.1 269.3 Accrued Investment Income 333.2 323.8 Premiums and Service Fees Receivable 1,051.1 973.0 Other Notes and Accounts Receivable 217.5 163.4 Deferred Income Tax Recoverable 348.2 319.0 Reinsurance Recoverables 544.4 523.2 Deferred Policy Acquisition Costs 644.2 626.8 Land, Buildings and Equipment for Company Use 534.4 552.0 Goodwill and Intangibles 142.4 149.4 Other Assets 120.3 110.0 Securities Lending Collateral 2,120.4 1,636.2 Separate Account Assets 1,059.1 1,208.1 ---------- ---------- TOTAL ASSETS $32,534.8 $31,728.7 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Losses and Loss Adjustment Expenses $5,177.0 $5,118.4 Life Policy Liabilities 332.2 327.1 Unearned Premiums 1,835.6 1,782.2 Funds Held Under Deposit Contracts 15,173.4 14,624.2 Debt: Commercial Paper 296.7 299.0 7.875% Medium-Term Notes Due 2003 310.7 323.0 7.875% Notes Due 2005 200.0 200.0 6.875% Notes Due 2007 200.0 200.0 Other 65.6 74.6 Other Liabilities 1,179.3 1,423.0 Current Income Taxes 46.7 34.9 Securities Lending Payable 2,120.4 1,636.2 Separate Account Liabilities 1,059.1 1,208.1 --------- -------- Total Liabilities 27,996.7 27,250.7 --------- -------- Capital Securities 843.6 843.4 --------- -------- Preferred Stock, No Par Value Shares Authorized: 10 Shares Issued and Outstanding: None -- -- Common Stock, No Par Value Shares Authorized: 300 Shares Reserved for Options: 7.2; 6.4 Shares Issued and Outstanding: 127.8; 127.7 846.4 841.9 Retained Earnings 1,994.7 1,875.9 Accumulated Other Comprehensive Income, Net of Tax 853.4 916.8 ---------- -------- Total Shareholders' Equity 3,694.5 3,634.6 ---------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $32,534.8 $31,728.7 ========== ========= Forward-looking information is subject to risk and uncertainty Statements made in this report that relate to anticipated financial performance, business prospects and plans, regulatory developments and similar matters are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements in this report that are not historical information are forward-looking. The operations, performance and development of our business are subject to certain risks and uncertainties which may cause actual results to differ materially from those contained in or suggested by the forward-looking statements in this report. The risks and uncertainties include, but are not limited to: -- the ability to obtain rate increases and decline or non-renew underpriced insurance accounts; -- achievement of premium targets and profitability; -- realization of growth and business retention estimates; -- achievement of decrease in large-commercial premium volume; -- achievement of expense savings from consolidation of commercial operations; -- achievement of overall expense reduction goals; -- success in implementing a new business entry model for personal and commercial lines; -- success in obtaining regulatory approval of price-tiered products and the use of insurance scores; -- the ability to freely enter and exit lines of business; -- changes in the mix of SAFECO's property and casualty book of business; -- driving patterns; -- the competitive pricing environment, initiatives by competitors and other changes in competition; -- weather conditions, including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions; -- the occurrence of significant natural disasters, including earthquakes; -- the occurrence of significant man-made disasters, such as the attack on September 11, 2001; -- the occurrence of bankruptcies that result in losses under surety bonds; -- the adequacy of loss reserves; -- the availability of, pricing of, and ability to collect reinsurance; -- the ability to manage exposure to the Lloyd's of London underwriting market; -- the ability to exclude and to reinsure the risk of loss from terrorism; -- interpretation of insurance policy provisions by courts, court decisions regarding coverage and theories of liability, trends in litigation and changes in claims settlement practices; -- the outcome of any litigation against SAFECO; -- legislative and regulatory developments affecting the actions of insurers, including requirements regarding rates and availability of coverage; -- changes in tax laws and regulations that affect the favorable taxation of certain life insurance products or that decrease the usefulness of life insurance products for estate planning purposes; -- negative changes to SAFECO's ratings by rating agencies; -- the effect of current insurance and credit ratings levels on business production; -- inflationary pressures on medical care costs, auto parts and repair, construction costs and other economic sectors that increase the severity of claims; -- availability of bank credit facilities; -- the profitability of the use of derivative securities by SAFECO Financial Products; -- fluctuations in interest rates; -- performance of financial markets; and -- general economic and market conditions. Because insurance rates in some jurisdictions are subject to regulatory review and approval, the achievement of rate increases may occur in amounts and on a time schedule different than planned, which may affect the efforts to restore earnings in the property and casualty lines. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SAFECO CORPORATION Dated: July 23, 2002 By: /s/ CHRISTINE B. MEAD ------------------------- Christine B. Mead Senior Vice President, Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----