8-K 1 en0558.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 04/28/03 Date of Report (Date of earliest event reported) Safeco Corporation (Exact name of registrant as specified in Charter) WASHINGTON 1-6563 91-0742146 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) Safeco Plaza, Seattle, Washington 98185 (Address of principal executive offices) (Zip Code) (206) 545-5000 Registrant's telephone number, including area code) TABLE OF CONTENTS Item 9 Regulation FD Disclosure Signature Item 9. Regulation FD Disclosure The following earnings release and financial supplement were furnished today by Safeco Corporation. [Safeco Corporation logo omitted] First Quarter News Release and Statistical Supplement (Unaudited) April 28, 2003 Table of Contents Change from Page Prior Quarter Earnings News Release 1-9 Financial Supplement Introduction New SS-1 Financial Measures Used by Safeco New SS-2 Consolidated Results Key Metrics New SS-6 Summary of Financial Results SS-7 Consolidated Statements of Income SS-8 Consolidated Balance Sheets SS-9 Income Summary SS-10 Property & Casualty Results Combined Ratios and Statutory Information Reformatted SS-12 Underwriting Profit Reformatted SS-13 Net Written Premiums Reformatted SS-14 Net Earned Premiums New SS-15 Personal Auto Reformatted SS-16 Homeowners & Specialty Reformatted SS-17 Safeco Business Insurance (SBI) Reformatted SS-18 Surety, Other and Total Reformatted SS-19 Life & Investments Results Pretax Operating Earnings and Revenues Reformatted SS-20 Supplemental Statistics SS-21 Corporate Supplemental Detail Capitalization New SS-22 Investment Portfolios - Consolidated New SS-23 Investment Portfolios - Property Casualty Companies New SS-24 Investment Portfolios - Life Insurance Companies New SS-25 .
[Safeco logo omitted] FOR RELEASE AT 7:45 a.m., Eastern Time INVESTOR RELATIONS CONTACT: Neal Fuller, 206-545-5537 MEDIA RELATIONS CONTACT: Paul Hollie, 206-545-3048 SAFECO REPORTS STEADY EARNINGS GROWTH; POSTS FIRST UNDERWRITING PROFIT IN FOUR YEARS SEATTLE--(April 28, 2003)-- First-Quarter Highlights o Net income increased to $90.0 million and operating earnings* increased to $122.4 million. o Property & Casualty posted quarterly underwriting profit of $21.0 million. o Life & Investments generated record pretax operating earnings of $71.8 million. ---------------------------------------------------------------- ------------------------------------- Financial Results After Tax Three Months Ended (In millions except per-share data) March 31 2003 2002 ---------------------------------------------------------------- ----------------- ------------------- Net Income $ 90.0 $ 63.6 Per Share of Common Stock $ 0.65 $ 0.50 ---------------------------------------------------------------- ---- ------------ --- --------------- Net Realized Investment Gains (Losses) $ (32.4) $ 20.1 ---------------------------------------------------------------- ---- ------------ --- --------------- Operating Earnings* $ 122.4 $ 43.5 ---------------------------------------------------------------- ---- ------------ --- --------------- Average Shares Outstanding 138.7 128.1 ---------------------------------------------------------------- ---- ------------ --- --------------- * Operating Earnings is Net Income excluding Net Realized Investment Gains (Losses). Measures used in this news release that are not based on accounting principles generally accepted in the United States (GAAP) are defined and reconciled to the most directly comparable GAAP measure in our Form 8-K available through the SEC and online at http://www.safeco.com/safeco/investor/pdfs/03q1_sup.pdf. ------------------------------------------------------------------------------------------------------
Safeco (NASDAQ:SAFC) today reported first-quarter net income of $90.0 million, or $0.65 per diluted share. This marks a significant improvement over the same period in 2002, when Safeco generated net income of $63.6 million, or $0.50 per share. Excluding the effects of net realized investment gains and losses, Safeco produced operating earnings of $122.4 million--considerably stronger than the first quarter of 2002 when the company generated $43.5 million in operating earnings. "We had a good quarter. The underlying results for each business unit were better than expected," said Mike McGavick, Safeco chairman and chief executive officer. "Added to this, mild weather and the unexpectedly strong performance of our stop-loss medical line turned it into a great quarter," he said. Safeco recorded after-tax impairments of $54.7 million in the first quarter, primarily related to Life & Investments' holdings in the airline and franchise sectors. This resulted in an after-tax net realized investment loss of $32.4 million, compared with a $20.1 million gain in the first quarter of 2002. "The performance of our investment portfolio doesn't appear out of the ordinary in comparison with other significant holders of bonds, which most life insurance operations are," McGavick said. Return on equity, based on annualized net income was 8.9 percent in the first quarter. Operating return on equity, measured using annualized operating earnings and excluding FAS115 unrealized gains, was 15.2 percent. Total revenues in the quarter increased to $1.762 billion, up 2.9 percent from $1.713 billion for the same period in 2002. Operating revenues--excluding net realized investment gains (losses)--grew 7.7 percent. "Our core lines are showing continued, steady progress," McGavick noted. "We're successfully growing our business and our profits at the same time." Safeco's Property & Casualty units generated $21.0 million in underwriting profits in the first quarter, a significant improvement over the $91.3 million underwriting loss for the same period in 2002. "It's gratifying to turn in our first underwriting profit in more than four years," McGavick said. "We're definitely making solid progress toward our goal of consistently generating an underwriting profit. "Looking forward, however, second quarter is when we typically experience our largest storm losses. We're less than a month into the quarter, and we've already been hit by a Texas hailstorm with losses of about $30 million," he added. "While we expect to show continued improvement in our core results, we know today we're not going to benefit from another lucky break in the weather." Net earned premiums for all Property & Casualty operations increased 5.8 percent compared with the first quarter a year ago; and net written premiums increased 10.9 percent. Property & Casualty investment income declined to $82.7 million after tax, compared with $88.7 million for the first quarter a year ago. The lower results reflect a continued decline in interest rates and the repositioning of the Property & Casualty investment portfolio in 2002 to reduce the average duration of holdings. Safeco Personal Insurance Performance Personal Auto, Safeco's largest product line, generated a modest pretax underwriting loss of $1.5 million, better than the $20.3 million underwriting loss in the first quarter of 2002. Auto produced a combined ratio in the quarter of 100.3--an improvement over both 104.5 in the first quarter of 2002 and 102.0 in the fourth quarter. Combined ratio is a standard gauge of underwriting performance measuring the percentage of premium dollars used for customer claims and expenses. The lower the ratio, the more effective the underwriting. Net written Auto premiums increased 18.3 percent in the first quarter compared with the same period of 2002. Policies in force increased 9.6 percent compared with the first quarter of 2002, and the number of total Auto customers continued above 1.5 million for the second consecutive quarter. "We're very pleased with the performance of this line," McGavick said. "Adding to the good news, we just received approval to sell our new Auto product in California and Washington--our two largest markets. This should help drive profitable growth throughout the year." Safeco's Homeowners line produced a pretax underwriting profit of $19.5 million in the first quarter, marking the third consecutive profitable quarter for this product. By comparison, Homeowners generated an $18.2 million underwriting loss for the first quarter of 2002. "The Homeowners team is doing an excellent job managing this line for profitability," McGavick said. "Still, if we had typical weather in the first quarter, the line would have been unprofitable in the quarter." Homeowners reported $21.1 million in weather and catastrophe losses, down from $29.8 million in the first quarter of 2002. Combined ratio improved to 89.7, better than both the 110.0 in the first quarter of 2002 and 93.5 in the fourth quarter. Net written premium in Homeowners increased 3.3 percent compared with the first quarter of last year. Policies in force decreased 8.3 percent compared with the same period of 2002. Both trends are consistent with Safeco's plans to return this line to appropriate levels of profitability. "As an industry, we have a ways to go before declaring that Homeowners insurance is earning a respectable return for shareholders," McGavick noted. "During the past few quarters, Homeowners results industry-wide have benefited from light weather and catastrophe losses." Safeco Business Insurance Performance Safeco Business Insurance reported a quarterly pretax underwriting loss of $5.2 million, markedly better than the $59.1 million underwriting loss for the same period in 2002. Combined ratio improved to 101.5, compared to 115.7 for the first quarter of 2002 and 104.9 for the fourth quarter. Total weather and catastrophe losses in the quarter were $10.1 million, compared with $11.3 million in losses in the same period last year. SBI Regular--Safeco's core line of products for small- to medium-sized businesses--reported a combined ratio 102.0 in quarter, better than the 109.2 in the first quarter of 2002 but off from 97.0 in the fourth quarter when the line benefited from favorable catastrophe reserve development. Losses from the commercial business Safeco is running off its books declined to $6.3 million during the first quarter. "Clearly, the rate and underwriting actions we've taken are showing up in these results," McGavick said, "and the runoff book has an increasingly small impact." Net written premium for Safeco Business Insurance grew 4.0 percent in the first quarter compared with the same period in 2002. Net written premiums for SBI Regular increased 7.0 percent year over year. New business for SBI Regular increased 13.7 percent in the quarter, while policies in force decreased 7.4 percent. "Business insurance sales were slow at the start of the quarter," McGavick said, "yet we saw healthy growth in March as more and more agents began using our online automated underwriting model." Surety Performance Surety generated a pretax underwriting profit of $3.7 million, up from $3.1 million in the first quarter of 2002. Combined ratio for Surety was 88.6 in the quarter, compared with 89.5 in the first quarter of 2002 and 81.4 in the fourth quarter. "Once again, Surety turned in another solid performance," McGavick said. Life & Investments Performance Safeco Life & Investments produced record pretax operating earnings of $71.8 million--21.5 percent higher than the $59.1 million posted in the first quarter of 2002. This marks the third consecutive quarter Life & Investments has set a new record for operating earnings. Most of the gains are attributable to the performance of the Group line of stop-loss medical insurance. Group produced pretax operating earnings of $29.0 million in the first quarter of 2002, up from $10.2 million during the same period last year. Earned premiums increased from $85.9 million in the first quarter of 2002 to $140.6 million this year, reflecting the acquisition of a large book of business from Swiss Re in mid-2002. Group's positive performance in the quarter is attributable to an exceptionally low loss ratio of 56.0 percent, compared with 60.0 percent in the first quarter of 2002. Loss ratio measures claims expense as a percentage of total premiums--the lower the ratio, the stronger the performance. In conjunction with low medical claims costs, Group experienced favorable reserve development of $10.5 million. "Some of the nation's largest healthcare operations are reporting that hospital and doctor visits were well below their projections for the quarter," McGavick said. "We believe this contributed to the unusually low loss ratio." Income Annuities generated $10.1 million in pretax operating earnings in the quarter, up from $8.8 million in the first quarter of 2002. Income Annuities results included favorable pre-payment adjustments on mortgage-backed securities of $3.7 million compared to unfavorable adjustments of $0.7 million a year ago. The Retirement Services line produced $5.0 million pretax operating earnings in the first quarter, compared with $8.0 million during the same quarter of 2002. The change is largely the result of lower operating income from variable annuities, reflecting the decline in performance of equity markets during the quarter. Individual Life generated pretax operating earnings of $1.9 million, off from $6.7 million during the same period in 2002. This is largely the result of higher claims during the quarter. The Asset Management line reported pretax operating earnings of $0.1 million, down from $2.3 million in first quarter 2002. This reflects lower fees due to equity market values as well as a net outflow of funds. Assets under management decreased from $4.9 billion at the end of the first quarter of 2002 to $3.7 billion. Additional financial information available Safeco uses both GAAP and non-GAAP financial measures to track the performance of its insurance and investments operations. The definition of each non-GAAP measure, and a reconciliation to the most directly comparable GAAP measure, are included in Safeco's Form 8-K that will be furnished to the U.S. Securities & Exchange Commission today. The Form 8-K also will include this news release, Safeco's summary financial results, consolidated statements of income, consolidated balance sheet, and the company's first-quarter financial supplement. All of the information listed above also is available on Safeco's Website at http://www.safeco.com/safeco/investor/pdfs/03q1_sup.pdf Management reviews results on Webcast Safeco's senior management team will discuss the company's first-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. About Safeco Safeco, in business since 1923, is a Fortune 500 company based in Seattle that sells insurance and related financial products through independent agents and financial advisors nationwide. # # # ------------------------------------------------------------------------------- FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE IS SUBJECT TO RISK AND UNCERTAINTY Statements, analysis and other information contained in this news release that relate to anticipated financial performance, business prospects and plans and similar matters are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements in this news release that are not historical information are forward-looking. The operations, performance and development of our business are subject to certain risks and uncertainties that may cause actual results to differ materially from those contained in or suggested by the forward-looking statements in this news release. The risks and uncertainties include, but are not limited to: o the ability to obtain rate increases and decline or non-renew underpriced insurance accounts; o achievement of premium targets and profitability; o realization of growth and business retention estimates; o achievement of overall expense goals; o success in implementing a new business entry model for personal and commercial lines; o success in obtaining regulatory approval of price-tiered products and the use of insurance scores, including credit scores as a component; o the ability to freely enter and exit lines of business; o changes in the mix of Safeco's book of business; o driving patterns; o the competitive pricing environment, initiatives by competitors and other changes in competition; o weather conditions, including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions; o the occurrence of significant natural disasters, including earthquakes; o the occurrence of significant man-made disasters, such as the attack on September 11, 2001 or war; o the occurrence of bankruptcies that result in losses under surety bonds, investment losses or lower investment income; o the adequacy of loss and benefit reserves for the Property & Casualty and Life & Investments businesses; o the ability to run off the Lloyds of London business without incurring material unexpected charges; o the availability of, pricing of, and ability to collect reinsurance; o the ability to price for, exclude and reinsure the risk of loss from terrorism; o interpretation of insurance policy provisions by courts, court decisions regarding coverage and theories of liability, trends in litigation and changes in claims settlement practices; o the outcome of any litigation against us; o legislative and regulatory developments affecting the actions of insurers, including requirements regarding rates and availability of coverage; o 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; o the effect of current insurance and credit ratings levels on business production and the effect of negative changes to our ratings; o inflationary pressures on medical care costs, auto parts and repair, construction costs and other economic sectors that increase the severity of claims; o availability of bank credit facilities; o the profitability of the use of derivative securities by Safeco Financial Products, Inc. (SFP); o fluctuations in interest rates; o performance of financial markets; and o general economic and market conditions. We assume no obligation to update any forward-looking statements contained in this news release. -------------------------------------------------------------------------------- Combined Ratio Graphs Since the second quarter of 2001, Safeco has used graphs to report combined ratios for key Property & Casualty lines. These graphs were intended to help investors better understand the effect of weather and catastrophe losses on underwriting performance by displaying combined ratios three ways: o Total combined ratio; o Combined ratio, excluding catastrophe losses (which Safeco defines as single events that generate multiple claims and total customer losses in excess of $500,000); and o Combined ratio, excluding catastrophe and non-catastrophe weather losses. Starting this quarter, Safeco has revised its financial supplement to report total combined ratios, loss ratios and expense ratios for key lines. In addition, Safeco will provide information about the effects of weather and catastrophe losses where significant. This information allows investors to track underwriting performance using the same metrics Safeco management uses to track performance. Since Safeco now is reporting this information in the financial supplement, it will discontinue publishing the following combined ratio graphs after this quarter. Auto Insurance Combined Ratio The lower the percentage, the better the performance. [GRAPH OMITTED} Excluding Excluding Catastrophes Total Catastrophes & Weather 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% Q302 101.2% 101.3% 100.5% Q402 102.0% 101.7% 101.3% Q103 100.3% 100.1% 99.8% -------------------------------------------------------------------------------- --------------------------------------------- -------------------- ------------- Homeowners Insurance Combined Ratio The lower the percentage, the better the performance. [graph omitted} Excluding Excluding Catastrophes Total Catastrophes & Weather 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% Q302 97.1% 100.5% 89.1% Q402 93.5% 91.6% 85.4% Q103 89.7% 85.4% 78.6% -------------------------------------------------------------------------------- --------------------------------------------- -------------------- ------------- Business Insurance Combined Ratio The lower the percentage, the better the performance. [graph omitted] Excluding Excluding Catastrophes Total Catastrophes & Weather 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 160.7% 154.1% 149.6% Q401 110.9% 112.6% 110.0% Q102 115.7% 114.1% 112.7% Q202 111.1% 107.2% 105.2% Q302 106.6% 107.8% 105.3% Q402 104.9% 106.0% 104.1% Q103 101.5% 100.6% 98.7% ----------------------- --------------------- -------------------- ------------- Financial Supplement First Quarter, 2003 This report is for informational purposes only. The financial statements and financial exhibits included in this supplement are unaudited. These financial statements and financial exhibits should be read in conjunction with the financial statements filed with the SEC in the Corporation's quarterly 10-Q and annual 10-K filings. Neal Fuller Vice President - Finance 206-545-5537 neaful@safeco.com Safeco Corporation Financial Measures Used by Safeco Amounts are in millions or thousands as specified, except ratio and per share information. Property & Casualty businesses include the following segments: Personal Lines Personal Auto Homeowners Specialty Safeco Business Insurance SBI - Regular SBI - Special Accounts Facility (SAF) SBI - Run-off Surety P&C Other Life & Investments businesses include the following segments: Group Income Annuities Retirement Services Individual Asset Management L & I Other Corporate includes all other activities, primarily the financing of our business activities. In addition to financial measures presented in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP), we also use certain non-GAAP financial measures to analyze and report our financial results. Management believes that these non-GAAP measures, when used in conjunction with the consolidated financial statements, can aid in understanding our financial condition and results of operations. These non-GAAP measures are not a substitute for GAAP measures, and where these measures are described we provide tables that reconcile the non-GAAP measures to the GAAP measures reported in our consolidated financial statements. Operating Revenues Operating revenues is a non-GAAP financial measure used by management to analyze the revenues derived directly from our Property & Casualty, Life & Investments and Corporate operations. It excludes net realized investment gains and losses that can fluctuate significantly and distort a comparison between periods. The following table provides a reconciliation of operating revenues to revenues, the most directly comparable GAAP measure. THREE MONTHS ENDED MARCH 31 2003 2002 --------------------------------------------------------------------------------------------------------- Total Revenues $ 1,762.3 $ 1,712.6 Net Realized Investment (Gains) Losses 49.9 (30.6) ------------------------ Operating Revenues $ 1,812.2 $ 1,682.0 ---------------------------------------------------------------------------------------------------------
Operating Earnings Operating earnings is a non-GAAP financial measure that we use to assess the profitability of our consolidated business. In the determination of operating earnings, we exclude net realized investment gains and losses from net income. Net realized investment gains and losses can fluctuate significantly and distort a comparison between periods. The following table reconciles operating earnings to net income, the most directly comparable GAAP measure. THREE MONTHS ENDED MARCH 31 2003 2002 --------------------------------------------------------------------------------------------------------- Net Income $ 90.0 $ 63.6 Net Realized Investment (Gains) Losses, Net of Taxes 32.4 (20.1) ------------------------ Operating Earnings $ 122.4 $ 43.5 ---------------------------------------------------------------------------------------------------------
Operating Return on Equity Operating return on equity is a ratio we calculate using non-GAAP measures. It is calculated by dividing the annualized operating earnings for the most recent quarter by the average ending shareholders' equity for the previous five quarters, excluding from equity after-tax unrealized investment gains and losses on fixed maturities. This ratio provides management with an additional measure to evaluate Safeco's results excluding the unrealized changes in the valuation of its fixed maturities portfolio that can fluctuate between periods. The following table reconciles operating return on equity to return on equity, the most directly comparable GAAP measure. THREE MONTHS ENDED MARCH 31 ANNUALIZED* 2003 2002 --------------------------------------------------------------------------------------------------------- Net Income for the three months ended March 31 $ 90.0 $ 63.6 Average Shareholders' Equity 4,047.0 3,692.5 Return on Equity Based on Annualized Net Income 8.9% 6.9% Operating Earnings for the three months ended March 31 $ 122.4 $ 43.5 Average Shareholders' Equity 4,047.0 3,692.5 Average Unrealized Fixed Maturities Investment Gains, Net of Tax 831.2 456.0 ------------------------ Adjusted Average Shareholders' Equity 3,215.8 3,236.5 Operating Return on Equity Based on Annualized Operating Earnings 15.2% 5.4% --------------------------------------------------------------------------------------------------------- *Net Income and Operating Earnings have been annualized for purposes of this calculation only. The results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. Annualized amounts for 2002 are not reflective of the actual amounts for the year ended December 31, 2002. --------------------------------------------------------------------------------
Property & Casualty Net Written Premium Net written premium is a non-GAAP measure representing the amount of premium charged for policies issued during the period. Premiums are reflected as revenue in the Consolidated Statements of Income as they are earned over the underlying policy period. Net written premiums applicable to the unexpired term of a policy are recorded as unearned premium on our Consolidated Balance Sheets. Safeco's management views net written premium as a measure of business production trends for the period under review and as a leading indicator of earned premium. The following table reconciles net written premium to net earned premium, the most directly comparable GAAP measure on our Consolidated Statements of Income. THREE MONTHS ENDED MARCH 31 2003 2002 --------------------------------------------------------------------------------------------------------- Total Property & Casualty Net Earned Premium $ 1,163.1 $ 1,099.5 Change in Unearned Premium Liability 42.7 (11.9) ------------------------ Total Property & Casualty Net Written Premium $ 1,205.8 $ 1,087.6 ---------------------------------------------------------------------------------------------------------
Segment Profit (Loss) Measures We have provided the following table that details the GAAP measure Income Before Income Taxes and Distributions on Capital Securities on our Consolidated Statements of Income. This is the most directly comparable GAAP measure used to reconcile to Property & Casualty underwriting profit (loss) and Life & Investments pretax operating earnings. THREE MONTHS ENDED MARCH 31 2003 2002 --------------------------------------------------------------------------------------------------------- Property & Casualty $ 132.3 $ 59.8 Life & Investments 13.7 47.8 Corporate (5.3) (14.0) ------------------------ Income Before Income Taxes and Distributions on Capital Securities $ 140.7 $ 93.6 ---------------------------------------------------------------------------------------------------------
Property & Casualty Underwriting Profit (Loss) Underwriting profit (loss) represents the net amount of earned premium less underwriting losses and expenses on a pretax basis. Management views underwriting profit (loss) as a critical measure to assess the underwriting effectiveness of the Property & Casualty operations and to evaluate the results of these business units. The related investment portfolio is managed separately from these underwriting businesses and, accordingly, net investment income and net realized investment gains and losses are discussed separately. The following table reconciles underwriting profit (loss) to Income before Income Taxes and Distributions on Capital Securities, the most directly comparable GAAP measure on our Consolidated Statements of Income. THREE MONTHS ENDED MARCH 31 2003 2002 --------------------------------------------------------------------------------------------------------- Property & Casualty Income before Income Taxes and Distributions on Capital Securities $ 132.3 $ 59.8 Property & Casualty Net Investment Income (112.8) (115.2) Property & Casualty Restructuring Charges -- 6.6 Property & Casualty Net Realized Investment (Gains) Losses 1.5 (42.5) ------------------------ Total Underwriting Profit (Loss) $ 21.0 $ (91.3) ---------------------------------------------------------------------------------------------------------
Life & Investments Pretax Operating Earnings Life & Investments' results are evaluated based on pretax operating earnings, a non-GAAP measure, which excludes net realized investment gains and losses. Management believes the presentation of pretax operating earnings enhances the understanding of our Life & Investments results of operations by excluding net realized investment gains and losses, which can fluctuate significantly and distort a comparison between periods. The following table reconciles pretax operating earnings to Income before Income Taxes and Distributions on Capital Securities, the most directly comparable GAAP measure on our Consolidated Statements of Income. THREE MONTHS ENDED MARCH 31 2003 2002 --------------------------------------------------------------------------------------------------------- Life & Investments Income before Income Taxes and Distributions on $ 13.7 $ 47.8 Capital Securities Net Realized Investment Losses 58.1 11.3 ------------------------- Pretax Operating Earnings $ 71.8 $ 59.1 ---------------------------------------------------------------------------------------------------------
Other Information in this Supplement Frequency, severity and loss cost information is on a newly reported, claims incurred, basis which may be different from paid. Catastrophes are events resulting in losses greater than $500,000, involving multiple claims and policyholders. Safeco has used this definition since 1991. Certain reclassifications have been made to the prior periods to conform to the current presentation. NM = Not Meaningful Safeco Corporation Key Metrics (In Millions Except Per Share Data) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 Chg ---------- ---------- ----------- ---------- ---------- ----------- ---------- --------- Net Income $ 90.0 $ 57.1 $ 75.2 $105.2 $ 63.6 $ 90.0 $ 63.6 42% Net Income Per Share 0.65 0.42 0.59 0.82 0.50 0.65 0.50 31% Realized Gains (Losses) (32.4) (36.4) 7.8 62.0 20.1 (32.4) 20.1 NM Operating Earnings 122.4 93.5 67.4 43.2 43.5 122.4 43.5 181% Operating Earnings Per Share 0.88 0.71 0.53 0.34 0.34 0.88 0.34 159% Operating Return on Equity (Pre-FAS 115) annualized 15.2% 11.8% 8.7% 5.4% 5.4% 15.2% 5.4% 181% Operating Return on Equity (unadjusted) annualized 12.1% 9.7% 7.2% 4.7% 4.7% 12.1% 4.7% 157% Operating Revenue $1,812.2 $1,815.6 $1,782.1 $1,702.9 $1,682.0 $1,812.2 $1,682.0 8% % Chg Prior Year Same Qtr 7.7% 7.2% 5.5% 0.9% -1.0% Life & Investments Pre-Tax Operating Earnings 71.8 66.3 59.6 52.0 59.1 71.8 59.1 22% % Chg Prior Year Same Qtr 21.5% 41.3% 38.6% -9.6% 17.8% Property & Casualty Combined Ratio 98.2% 101.6% 104.0% 107.5% 108.3% 98.2% 108.3% (10.1) Impact of Catastrophes 1.1% 0.2% -0.9% 5.8% 2.5% 1.1% 2.5% (1.4) Net Premiums Written $1,205.8 $1,130.0 $1,182.7 $1,184.4 $1,087.6 $1,205.8 $1,087.6 11% % Chg Prior Year Same Qtr 10.9% 7.4% 6.1% 3.3% -3.3% Net Premiums Earned 1,163.0 1,164.6 1,135.2 1,122.0 1,099.5 1,163.0 1,099.5 6% % Chg Prior Year Same Qtr 5.8% 4.2% 1.5% 0.1% -1.5% Book Value Per Share 33.00 32.07 31.77 28.91 27.30 33.00 27.30 21% % Chg Prior Year Same Qtr 20.9% 12.7% 7.8% -0.1% -10.1% BV Per Share (ex-FAS 115) 24.66 24.39 23.55 24.22 24.98 24.66 24.98 -1% % Chg Prior Year Same Qtr -1.3% -1.1% -4.1% -8.2% -6.5% Safeco Corporation Summary of Financial Results (In Millions) Three Months Ended March 31 --------------------------------------------------------- 2003 2002 -------------------------- --------------------------- (Unaudited) REVENUES Property & Casualty: Earned Premiums $ 1,163.1 $ 1,099.5 Net Investment Income 112.8 115.2 Life & Investments 527.4 461.2 Corporate 8.9 6.1 Net Realized Investment Gains (Losses) (49.9) 30.6 -------------------------- --------------------------- Total 1,762.3 1,712.6 -------------------------- --------------------------- Income before Net Realized Investment Gains (Losses), Income Taxes and Distributions on Capital Securities Property & Casualty: Underwriting Profits (Losses) 21.0 (91.3) Net Investment Income 112.8 115.2 Restructuring Charges - (6.6) -------------------------- --------------------------- Total Property & Casualty 133.8 17.3 Life & Investments 71.8 59.1 Corporate (15.0) (13.4) -------------------------- ------------------------- Total 190.6 63.0 Net Realized Investment Gains (Losses) before Taxes (49.9) 30.6 -------------------------- ------------------------- Income before Income Taxes and Distributions on Capital Securities 140.7 93.6 Provision (Benefit) for Income Taxes on Income before Net Realized Investment Gains (Losses) and Distributions on Capital Securities 57.0 8.3 Net Realized Investment Gains (Losses) (17.5) 10.5 -------------------------- ------------------------- Total 39.5 18.8 -------------------------- ------------------------- Income before Distributions on Capital Securities 101.2 74.8 Distributions on Capital Securities, Net of Taxes (11.2) (11.2) -------------------------- ------------------------- Net Income $ 90.0 $ 63.6 -------------------------- ------------------------- Safeco Corporation Consolidated Statements of Income (In Millions Except Per Share Data) Three Months Ended March 31 ------------------------------------------------------- 2003 2002 ------------------------------------------------------- (Unaudited) REVENUES Property & Casualty Earned Premiums $ 1,163.1 $ 1,099.5 Life & Investments Premiums and Other Revenues 223.9 165.1 Net Investment Income 422.5 414.7 Net Realized Investment Gains (Losses) (49.9) 30.6 Other 2.7 2.7 ------------------------------------------------------ Total 1,762.3 1,712.6 ------------------------------------------------------- EXPENSES Losses, Loss Adjustment Expenses and Policy Benefits 1,132.1 1,159.6 Other Underwriting and Operating Expenses 252.5 223.4 Amortization of Deferred Policy Acquisition Costs 216.2 209.5 Interest Expense 17.1 16.0 Intangibles Amortization 3.7 3.9 Restructuring Charges - 6.6 ------------------------------------------------------- Total 1,621.6 1,619.0 ------------------------------------------------------- Income before Income Taxes and Distributions on Capital Securities 140.7 93.6 Provision for Income Taxes 39.5 18.8 ------------------------------------------------------- Income before Distributions on Capital Securities 101.2 74.8 Distributions on Capital Securities, Net of Taxes (11.2) (11.2) ------------------------------------------------------- Net Income $ 90.0 $ 63.6 ------------------------------------------------------- INCOME PER SHARE OF COMMON STOCK ------------------------------------------------------- Net Income Per Share of Common Stock - Diluted & Basic $ 0.65 $ 0.50 ------------------------------------------------------- Dividends Declared $ 0.185 $ 0.185 Average Number of Shares Outstanding During the Period: Diluted 138.7 128.1 Basic 138.3 127.8 Safeco Corporation Consolidated Balance Sheets (In Millions) March 31 December 31 2003 2002 ------------------------ ------------------------ (Unaudited) ASSETS Investments Available-for-Sale Securities: Fixed Maturities, at Fair Value (Cost or amortized cost: $22,743.6; $22,646.1) $ 24,514.7 $ 24,278.0 Marketable Equity Securities, at Fair Value (Cost: $784.5; $777.2) 1,043.8 1,082.5 Mortgage Loans 930.8 925.9 Other Invested Assets 159.6 173.8 Short-Term Investments 603.1 311.0 ---------------------- ------------------------ Total Investments 27,252.0 26,771.2 Cash and Cash Equivalents 215.3 188.5 Accrued Investment Income 348.1 336.3 Premiums and Service Fees Receivable 1,066.8 1,047.1 Other Notes and Accounts Receivable 223.4 162.3 Current Income Taxes Recoverable 3.9 26.2 Deferred Income Taxes 79.4 124.6 Reinsurance Recoverables 553.8 578.8 Deferred Policy Acquisition Costs 639.1 626.3 Land, Buildings and Equipment for Company Use 477.9 488.7 (At cost less accumulated depreciation: $296.4; $319.7) Intangibles and Goodwill 186.6 190.0 Other Assets 270.6 259.8 Securities Lending Collateral 3,278.4 2,957.0 Separate Account Assets 850.8 899.2 ------------------------ --------------------- Total Assets $ 35,446.1 $ 34,656.0 ------------------------ --------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Property & Casualty Loss and Loss Adjustment Expense Reserves $ 4,914.2 $ 4,998.5 Accident & Health Reserves 157.2 170.0 Life Policy Liabilities 343.8 339.9 Unearned Premiums 1,893.2 1,847.5 Funds Held Under Deposit Contracts 15,889.4 15,655.4 Debt 1,311.8 1,123.8 Other Liabilities 1,401.4 1,389.3 Securities Lending Payable 3,278.4 2,957.0 Separate Account Liabilities 850.8 899.2 ------------------------ --------------------- Total Liabilities 30,040.2 29,380.6 ------------------------ --------------------- Commitments and Contingencies - - Corporation-Obligated, Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Corporation (Capital Securities) 843.9 843.8 ------------------------ --------------------- 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: 11.9; 12.0 Shares Issued and Outstanding: 138.3; 138.2 1,180.5 1,178.1 Retained Earnings 2,136.5 2,072.2 Accumulated Other Comprehensive Income, Net of Taxes 1,245.0 1,181.3 ------------------------ --------------------- Total Shareholders' Equity 4,562.0 4,431.6 ------------------------ --------------------- Total Liabilites & Shareholders' Equity $ 35,446.1 $ 34,656.0 ------------------------ --------------------- Safeco Corporation Income Summary (In Thousands) Three Months Ended March 31 2003 2002 --------------- --------------- Pretax Net Income (Loss): P & C Underwriting $ 20,983 $ (91,344) P & C Investment Income 112,842 115,202 Restructuring Charges - (6,566) --------------- --------------- Total P & C 133,825 17,292 Life & Investments 71,824 59,099 Corporate (15,056) (13,379) Distributions on Capital Securities (17,264) (17,264) --------------- --------------- Income Before Net Realized Investment Gains (Losses) 173,329 45,748 Net Realized Investment Gains (Losses) (49,871) 30,624 --------------- --------------- Total $ 123,458 $ 76,372 =============== =============== Income Tax Expense (Benefit): P & C Underwriting $ 7,122 $ (31,000) P & C Investment Income 30,058 26,500 Restructuring Charges - (2,300) --------------- --------------- Total P & C 37,180 (6,800) Life & Investments 25,151 19,900 Corporate (5,340) (4,794) Distributions on Capital Securities (6,042) (6,042) --------------- --------------- Income Before Net Realized Investment Gains (Losses) 50,949 2,264 Net Realized Investment Gains (Losses) (17,522) 10,500 --------------- --------------- Total $ 33,427 $ 12,764 =============== =============== Safeco Corporation Income Summary (In Thousands except Per Share Amounts) Three Months Ended March 31 2003 2002 ----------------- ------------------- After-tax Income (Loss): P & C Underwriting $ 13,861 $ (60,344) P & C Investment Income 82,784 88,702 Restructuring Charges - (4,266) ----------------- ------------------- Total P & C 96,645 24,092 Life & Investments 46,673 39,199 Corporate (9,716) (8,585) Distributions on Capital Securities (11,222) (11,222) ----------------- ------------------- Income Before Net Realized Investment Gains (Losses) 122,380 43,484 Net Realized Investment Gains (Losses) (32,349) 20,124 ----------------- ------------------- Total $ 90,031 $ 63,608 ================= =================== Average Shares Outstanding 138,675 128,108 Book Value Per Share $ 33.00 $ 27.30 Book Value Per Share (ex-FAS 115) $ 24.66 $ 24.98 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ---------- ---------- ---------- ----------- ------------- ---------- ---------- Net Combined Ratios (GAAP): Personal: Voluntary Auto 100.3% 102.0% 101.2% 101.6% 104.5% 100.3% 104.5% Homeowners 89.7% 93.5% 97.1% 119.5% 110.0% 89.7% 110.0% Specialty 76.9% 83.8% 81.2% 94.0% 84.0% 76.9% 84.0% ----------- -------- ----------- ----------- ------------- ---------- ---------- Total Personal 96.2% 98.7% 98.8% 105.8% 104.4% 96.2% 104.4% ----------- -------- ----------- ------------ ------------- ---------- ---------- Safeco Business Insurance: SBI Regular 102.0% 97.0% 104.7% 109.9% 109.2% 102.0% 109.2% Special Accounts Facility 92.7% 91.6% 94.8% 102.9% 83.6% 92.7% 83.6% SBI - Run-off 315.4% 507.0% 163.6% 125.3% 154.9% 315.4% 154.9% ----------- --------- ---------- ------------ ------------- ---------- ---------- Total SBI 101.5% 104.9% 106.6% 111.1% 115.7% 101.5% 115.7% ----------- --------- ----------- ------------ -------------- ---------- ---------- Surety 88.6% 81.4% 91.8% 81.5% 89.5% 88.6% 89.5% P&C Other NM NM NM NM NM NM NM ----------- ---------- ------------ ------------ -------------- --------- ---------- Total All Lines 98.2% 101.6% 104.0% 107.5% 108.3% 98.2% 108.3% =========== ========== ============ ============ ============== ========== ========== P&C Statutory Information (In Millions except Ratios) Loss and Expense Ratios (Statutory): Losses and Loss Adj. Expense to Premiums Earned 67.8% 69.5% 70.8% 77.3% 77.7% 67.8% 77.7% Other Underwriting Expenses to Net Premiums Written 29.2% 32.1% 30.9% 30.9% 31.8% 29.2% 31.8% ----------- --------- ---------- ---------- ------------ ---------- ---------- Total Loss and Expense 97.0% 101.6% 101.7% 108.2% 109.5% 97.0% 109.5% Dividends to Policyholders to Premiums Earned 0.0% 0.0% -0.6% 0.0% 0.0% 0.0% 0.0% ----------- --------- ----------- ----------- ------------ --------- ---------- Combined Ratio 97.0% 101.6% 101.1% 108.2% 109.5% 97.0% 109.5% =============== ========= =========== =========== ============ ========== ========== Balance Sheet - Statutory P&C Companies Only*: Loss Reserves $ 3,700 $ 3,733 $ 3,793 $ 3,836 $ 3,792 Loss Adj Expense Reserves 806 803 792 807 831 ------------- ----------- ----------- ------------ ---------- Total Loss Reserves $ 4,506 $ 4,536 $ 4,585 $ 4,643 $ 4,623 ============= =========== =========== ============ ========== Unearned Premium Reserves $ 1,845 $ 1,805 $ 1,839 $ 1,792 $ 1,729 Reserves for Dividends to Policyholders 7 8 10 17 19 Net Admitted Assets 9,970 9,797 9,482 9,623 9,508 Total Capital and Surplus 2,571 2,511 2,166 2,163 2,331 Ratio of Net Premiums Written to Total Capital and Surplus 1.89 1.83 2.12 2.06 1.83 *Certain 2003 amounts used are estimated and subject to change. Such changes are not expected to be material. Safeco Property and Casualty Underwriting Profit (In Thousands) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ----------- ------------ ----------- ------------ ----------- ------------ ----------- Net U/W Profit (Loss): ------------------------------ Personal: Voluntary Auto $ (1,504) $(10,600) $ (6,186) $ (7,341) $(20,272) $ (1,504) $(20,272) Homeowners 19,501 12,399 5,501 (36,879) (18,244) 19,501 (18,244) Specialty 11,493 8,221 9,626 3,033 8,024 11,493 8,024 ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total Personal 29,490 10,020 8,941 (41,187) (30,492) 29,490 (30,492) ----------- ------------ ----------- ------------ ----------- ------------ ----------- Safeco Business Insurance: SBI Regular (5,287) 7,878 (11,972) (24,997) (22,600) (5,287) (22,600) Special Accounts Facility 6,412 7,518 3,895 (1,779) 8,190 6,412 8,190 SBI - Run-off (6,311) (33,019) (15,368) (14,411) (44,727) (6,311) (44,727) ----------- ------------------------- ------------------------- ------------ ----------- Total SBI (5,186) (17,623) (23,445) (41,187) (59,137) (5,186) (59,137) ----------- ------------------------- ------------------------- ------------ ----------- Surety 3,669 6,076 2,688 5,750 3,129 3,669 3,129 P&C Other* (6,990) (17,264) (33,514) (7,569) (4,844) (6,990) (4,844) ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total All Lines $ 20,983 $(18,791) $(45,330) $(84,193) $(91,344) $ 20,983 $(91,344) =========== ============ =========== ============ =========== ============ =========== *P&C Other includes our discontinued assumed reinsurance business, our involuntary assigned risk and other state-mandated personal lines business, our Lloyds of London operations which are in runoff and certain discontinued product lines. Safeco Property and Casualty Net Written Premiums (In Thousands) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ------------ ------------ ------------ ------------ ------------- ------------ ------------ Net Written Premiums: Personal: Voluntary Auto $ 565,972 $ 523,033 $ 536,309 $ 487,891 $ 478,458 $ 565,972 $ 478,458 Homeowners 172,220 175,245 212,096 213,607 166,700 172,220 166,700 Specialty 46,543 44,228 54,433 58,061 45,950 46,543 45,950 ------------ ------------ ------------ ------------ ------------- ------------ ------------ Total Personal 784,735 742,506 802,838 759,559 691,108 784,735 691,108 ------------ ------------ ------------ ------------ ------------- ------------ ------------ Safeco Business Insurance SBI Regular 284,027 258,106 253,552 277,950 265,631 284,027 265,631 Special Accts Facility* 97,088 99,221 88,203 83,527 77,956 97,088 77,956 SBI - Run-off 1,814 (3,747) (2,193) 6,566 24,455 1,814 24,455 ------------ ------------ ------------ ------------ ------------- ------------ ------------ 382,929 353,580 339,562 368,043 368,042 382,929 368,042 ------------ ------------ ------------ ------------ ------------- ------------ ------------ Surety 35,125 32,384 38,491 35,882 26,872 35,125 26,872 P&C Other 2,989 1,559 1,789 20,889 1,530 2,989 1,530 ------------ ------------ ------------ ------------ ------------- ------------ ------------ Total All Lines $1,205,778 $1,130,029 $1,182,680 $1,184,373 $1,087,552 $1,205,778 $1,087,552 ============ ============ ============ ============ ============= ============ ============ Net Written Premiums (Percent Change): Percent Change Over Prior Year Same Quarter Percent Change YTD Personal: Voluntary Auto 18.3% 14.4% 17.6% 12.6% 6.7% 18.3% 6.7% Homeowners 3.3% -1.7% 5.4% 7.0% 1.7% 3.3% 1.7% Specialty 1.3% -4.3% 1.9% 2.6% -4.3% 1.3% -4.3% ---------- ------------ ------------ ------------ ------------- ------------ ------------ Total Personal 13.6% 9.0% 12.9% 10.2% 4.7% 13.6% 4.7% ------------ ------------ ------------ ------------ ------------- ------------ ------------ Safeco Business Insurance SBI Regular 7.0% 17.2% 7.0% 6.9% -0.2% 7.0% -0.2% Special Accts Facility* 24.8% 187.1% 165.2% 167.7% 123.3% 24.8% 123.3% SBI - Run-off NM NM NM NM NM NM NM ---------- ------------ ------------ ------------ ------------- ------------ ------------ Total SBI 4.0% 4.2% -8.0% -7.9% -15.1% 4.0% -15.1% ------------ ------------ ------------ ------------ ------------- ------------ ------------ Surety 30.7% 7.4% 16.1% -9.8% -5.4% 30.7% -5.4% P&C Other 95.4% 25.4% -13.0% NM -8.4% 95.4% -8.4% ----------- ------------ ------------ ------------ ------------- ------------ ------------ Total All Lines 10.9% 7.4% 6.1% 3.3% -3.3% 10.9% -3.3% ============ ============ ============ ============ ============= ============ ============ *As each existing old Safeco Commercial policy comes up for renewal (reported in Run-off), a decision is made by Special Accounts Facility to renew or not renew. If it is renewed it becomes part of Special Accounts Facility, otherwise results associated with the discontinued account remain in Run-off. In addition, this number is impacted by the acquisition of the ACE lender-placed property business of $80 million in premiums in 4Q 2001. Surety premiums reflect a change from a 50% quota share reinsurance treaty to an excess of loss treaty in February 2001. Safeco Property and Casualty Net Earned Premiums (In Thousands) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net Earned Premiums: Personal: Voluntary Auto $ 528,512 $ 523,043 $ 497,332 $ 472,497 $ 454,247 $ 528,512 $ 454,247 Homeowners 189,431 192,112 192,620 189,273 183,361 189,431 183,361 Specialty 49,807 50,813 51,072 51,199 50,029 49,807 50,029 ----------- ------------ ------------ ------------ ------------ ------------ ------------ Total Personal 767,750 765,968 741,024 712,969 687,637 767,750 687,637 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Safeco Business Insurance SBI Regular 266,016 262,262 255,467 251,461 244,914 266,016 244,914 Special Accts Facility* 87,905 89,189 75,200 61,766 49,892 87,905 49,892 SBI - Run-off 2,930 8,110 24,176 56,881 81,659 2,930 81,659 ----------- ------------ ------------ ------------ ------------ ------------ ------------ Total SBI 356,851 359,561 354,843 370,108 376,465 356,851 376,465 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Surety 32,142 32,673 32,721 31,114 29,808 32,142 29,808 P&C Other 6,305 6,370 6,573 7,907 5,543 6,305 5,543 ----------- ------------ ------------ ------------ ------------ ------------ ------------ Total All Lines $1,163,048 $1,164,572 $1,135,161 $1,122,098 $1,099,453 $1,163,048 $1,099,453 ============ ============ ============ ============ ============ ============ ============ Net Earned Premiums (Percent Change): Percent Change Over Prior Year Same Quarter Percent Change YTD Personal: Voluntary Auto 16.3% 14.9% 11.4% 7.8% 6.3% 16.3% 6.3% Homeowners 3.3% 2.8% 3.1% 2.5% 0.7% 3.3% 0.7% Specialty -0.4% -0.6% 0.3% 1.5% 1.9% -0.4% 1.9% ----------- ------------ ------------ ------------ ------------ ------------ ------------ Total Personal 11.6% 10.5% 8.3% 5.9% 4.4% 11.6% 4.4% ------------ ------------ ------------ ------------ ------------ ------------ ------------ Safeco Business Insurance SBI Regular 8.6% 7.0% 0.5% -3.9% -9.9% 8.6% -9.9% Special Accts Facility* 76.2% 252.6% 247.2% 193.9% 164.4% 76.2% 164.4% SBI - Run-off -96.4% -92.6% -79.3% -54.4% -38.3% -96.4% -38.3% ----------- ------------ ------------ ------------ ------------ ------------ ------------ Total SBI -5.2% -7.7% -11.5% -11.5% -13.4% -5.2% -13.4% ------------ ------------ ------------ ------------ ------------ ------------ ------------ Surety 7.8% 16.9% 21.3% 37.0% 66.4% 7.8% 66.4% P&C Other 13.7% -5.5% 8.1% 30.7% 4.5% 13.7% 4.5% ----------- ------------ ------------ ------------ ------------ ------------ ------------ Total All Lines 5.8% 4.2% 1.5% 0.1% -1.5% 5.8% -1.5% ============ ============ ============ ============ ============ ============ ============ *As each existing old Safeco Commercial policy comes up for renewal (reported in Run-off), a decision is made by Special Accounts Facility to renew or not renew. If it is renewed it becomes part of Special Accounts Facility, otherwise results associated with the discontinued account remain in Run-off. Surety premiums reflect a change from a 50% quota share reinsurance treaty to an excess of loss treaty in February 2001. Safeco Property and Casualty Personal Auto (Thousands except Ratios) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ----------- ----------- ----------- ----------- ------------ ----------- ----------- Personal Auto Underwriting Profit (Loss) $ (1,504) $ (10,600) $ (6,186) $ (7,341) $ (20,272) $ (1,504) $ (20,272) Loss and LAE Ratio 76.8% 78.5% 78.2% 78.2% 80.2% 76.8% 80.2% Expense Ratio 23.5% 23.5% 23.0% 23.4% 24.3% 23.5% 24.3% ---------- ----------- ----------- ----------- ------------ ------------------------ Combined Ratio 100.3% 102.0% 101.2% 101.6% 104.5% 100.3% 104.5% =========== =========== =========== =========== ============ ======================== Impact of Catastrophes 0.2% 0.3% -0.1% 1.4% 0.4% 0.2% 0.4% Impact of Non-Cat Weather 0.3% 0.4% 0.8% 1.1% 0.4% 0.3% 0.4% Policies In Force (000's) 1,558.6 1,529.9 1,498.4 1,447.6 1,421.2 % Chg Prior Year Same Qtr 9.6% 8.0% 4.7% 0.1% -2.9% Retention 81.0% 81.2% 80.5% 80.0% 80.0% New Business Policies (000's) 107.4 117.1 137.2 116.2 95.7 % Chg Prior Year Same Qtr 12.2% 42.7% 85.2% 89.9% 70.0% Loss Trends (12 mo. rolling) Frequency -6.5% -7.3% -5.3% -4.8% -1.7% Severity 5.1% 7.2% 4.9% 3.8% 1.1% Total Loss Costs -1.7% -0.6% -0.7% -1.2% -0.7% Net Written Premium $ 565,972 $ 523,033 $ 536,309 $ 487,891 $ 478,458 % Chg Prior Year Same Qtr 18.3% 14.4% 17.6% 12.6% 6.7% Net Earned Premium $ 528,512 $ 523,043 $ 497,332 $ 472,497 $ 454,247 % Chg Prior Year Same Qtr 16.3% 14.9% 11.4% 7.8% 6.3% Frequency, severity and loss cost information is on a twelve month rolling newly reported claims incurred basis which may be different than paid. Safeco Property and Casualty Homeowners & Specialty (Thousands except Ratios) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ----------- ----------- ----------- ------------ ----------- ------------ ------------ Homeowners Underwriting Profit (Loss) $19,501 $12,399 $ 5,501 $ (36,879) $ (18,244) $19,501 $ (18,244) Loss and LAE Ratio 60.9% 61.4% 68.9% 91.5% 81.9% 60.9% 81.9% Expense Ratio 28.8% 32.1% 28.2% 28.0% 28.1% 28.8% 28.1% ---------- ----------- ----------- ------------ ----------- ------------ ------------ Combined Ratio 89.7% 93.5% 97.1% 119.5% 110.0% 89.7% 110.0% =========== =========== =========== ============ =========== ============ ============ Impact of Catastrophes 4.3% 1.9% -3.4% 21.8% 8.7% 4.3% 8.7% Impact of Non-Cat Weather 6.8% 6.2% 11.4% 11.2% 7.6% 6.8% 7.6% Policies In Force (000's) 1,263.0 1,290.5 1,324.1 1,349.3 1,378.0 % Chg Prior Year Same Qtr -8.3% -8.2% -8.2% -8.9% -8.9% Retention 82.8% 82.5% 82.4% 81.7% 82.2% New Business Policies (000's) 22.9 27.0 32.5 41.9 31.5 % Chg Prior Year Same Qtr -27.4% -11.6% -8.6% 15.0% -4.7% Net Written Premium $ 172,220 $ 175,245 $ 212,096 $ 213,607 $ 166,700 % Chg Prior Year Same Qtr 3.3% -1.7% 5.4% 7.0% 1.7% Net Earned Premium $ 189,431 $ 192,112 $ 192,620 $ 189,273 $ 183,361 % Chg Prior Year Same Qtr 3.3% 2.8% 3.1% 2.5% 0.7% Specialty Underwriting Profit (Loss) $11,493 $ 8,221 $ 9,626 $ 3,033 $ 8,024 $11,493 $ 8,024 Loss and LAE Ratio 46.3% 52.3% 50.0% 63.1% 52.4% 46.3% 52.4% Expense Ratio 30.6% 31.5% 31.2% 30.9% 31.6% 30.6% 31.6% ---------- ----------- ----------- ------------ ----------- ------------ ------------ Combined Ratio 76.9% 83.8% 81.2% 94.0% 84.0% 76.9% 84.0% =========== =========== =========== ============ =========== ============ ============ Safeco Property and Casualty Safeco Business Insurance (SBI) (Thousands except Ratios) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Safeco Business Insurance Underwriting Profit (Loss) $ (5,186) $ (17,623) $ (23,445) $ (41,187) $ (59,137) $ (5,186) $ (59,137) Loss and LAE Ratio 62.8% 66.4% 67.0% 74.4% 79.0% 62.8% 79.0% Expense Ratio 38.7% 38.5% 39.6% 36.7% 36.7% 38.7% 36.7% ---------- ------------------------ ----------- ----------- ----------- ----------- Combined Ratio 101.5% 104.9% 106.6% 111.1% 115.7% 101.5% 115.7% =========== ======================== =========== =========== =========== =========== Impact of Catastrophes 0.9% -1.1% -1.2% 3.9% 1.6% 0.9% 1.6% Impact of Non-Cat Weather 1.9% 1.9% 2.5% 2.0% 1.4% 1.9% 1.4% SBI Regular Underwriting Profit (Loss) $ (5,287) $ 7,878 $ (11,972) $ (24,997) $ (22,600) $ (5,287) $ (22,600) Loss and LAE Ratio 63.8% 60.1% 66.5% 73.2% 76.0% 63.8% 76.0% Expense Ratio 38.2% 36.9% 38.2% 36.7% 33.2% 38.2% 33.2% ---------- ----------- ----------- ----------- ----------- ----------- ----------- Combined Ratio 102.0% 97.0% 104.7% 109.9% 109.2% 102.0% 109.2% =========== =========== =========== =========== =========== =========== =========== Impact of Catastrophes 1.7% -1.7% -1.1% 4.8% 2.9% 1.7% 2.9% Impact of Non-Cat Weather 1.7% 0.4% 1.6% 1.9% 1.7% 1.7% 1.7% Policies In Force (000's) 517.2 529.7 537.1 549.0 558.6 % Chg Prior Year Same Qtr -7.4% -8.9% -8.8% -9.0% -9.5% Retention 76.1% 76.0% 75.8% 75.2% 76.0% New Business Policies (000's) 25.2 24.6 24.6 26.6 22.2 % Chg Prior Year Same Qtr 13.7% 15.3% 22.5% 12.0% -3.6% Net Written Premium $ 284,027 $ 258,106 $ 253,552 $ 277,950 $ 265,631 % Chg Prior Year Same Qtr 7.0% 17.2% 7.0% 6.9% -0.2% Net Earned Premium $ 266,016 $ 262,262 $ 255,467 $ 251,461 $ 244,914 % Chg Prior Year Same Qtr 8.6% 7.0% 0.5% -3.9% -9.9% Special Accounts Facility Underwriting Profit (Loss) $ 6,412 $ 7,518 $ 3,895 $ (1,779) $ 8,190 $ 6,412 $ 8,190 Combined Ratio 92.7% 91.6% 94.8% 102.9% 83.6% 92.7% 83.6% SBI - Run-off Underwriting Profit (Loss) $ (6,311) $ (33,019) $ (15,368) $ (14,411) $ (44,727) $ (6,311) $ (44,727) Safeco Property and Casualty Surety, Other and Total (Thousands except Ratios) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 ----------- ----------- ------------ ----------- ----------- ----------- ----------- Surety Underwriting Profit $ 3,669 $ 6,076 $ 2,688 $ 5,750 $ 3,129 $ 3,669 $ 3,129 Combined Ratio 88.6% 81.4% 91.8% 81.5% 89.5% 88.6% 89.5% P&C Other* Underwriting Profit (Loss) $ (6,990) $(17,264) $(33,514) $ (7,569) $ (4,844) $ (6,990) $ (4,844) Total Property & Casualty Underwriting Profit (Loss) $20,983 $(18,791) $(45,330) $(84,193) $(91,344) $20,983 $ (91,344) Loss and LAE Ratio 67.9% 70.6% 72.1% 77.5% 77.6% 67.9% 77.6% Expense Ratio 30.3% 31.0% 31.9% 30.0% 30.7% 30.3% 30.7% ----------- ----------- ------------ ----------- ----------- ----------- ----------- Combined Ratio 98.2% 101.6% 104.0% 107.5% 108.3% 98.2% 108.3% =========== =========== ============ =========== =========== =========== =========== Impact of Catastrophes 1.1% 0.2% -0.9% 5.8% 2.5% 1.1% 2.5% Impact of Non-Cat Weather 1.9% 1.9% 3.2% 3.1% 1.9% 1.9% 1.9% * P&C Other includes our dicontinued assumed reinsurance business, our involuntary-assigned risk and other state-mandated personal lines business, our Lloyds of London operations which are in runoff and certain discontinued product lines. Catastrophes and Non-Catastrophe Weather: Catastrophes $13,321 $2,932 ($9,917) $64,832 $27,542 $13,321 $27,542 Auto 876 1,428 (581) 6,484 1,805 876 1,805 Home 8,198 3,654 (6,638) 41,328 15,913 8,198 15,913 Business Insurance 3,165 (3,781) (4,157) 14,436 6,115 3,165 6,115 P&C Other 1,082 1,631 1,459 2,584 3,709 1,082 3,709 Non-Catastrophe Weather 22,504 22,179 36,302 35,441 21,190 22,504 21,190 Auto 1,420 2,299 4,348 5,260 1,499 1,420 1,499 Home 12,928 11,980 22,049 21,190 13,909 12,928 13,909 Business Insurance 6,888 6,515 8,725 7,304 5,143 6,888 5,143 P&C Other 1,268 1,385 1,180 1,687 639 1,268 639 Safeco Life & Investments Pretax Operating Earnings* (In Thousands) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD % 2003 2002 2002 2002 2002 2003 2002 Chg ------ ------- ----- ------ ------ ------ ----- ------- Group $29,047 $22,528 $22,407 $14,077 $10,220 $29,047 $10,220 184.2% Income Annuities 10,074 13,933 11,499 7,292 8,789 10,074 8,789 14.6% Retirement Services 5,003 8,171 1,426 3,997 8,041 5,003 8,041 -37.8% Individual 1,895 3,913 3,472 7,459 6,703 1,895 6,703 -71.7% Asset Management 73 171 935 1,725 2,330 73 2,330 -96.9% L&I Other 25,732 17,578 19,856 17,404 23,016 25,732 23,016 11.8% ----------- -------- ------ ------ ------ ------ ------ -------- Pretax Operating Income $71,824 $66,294 $59,595 $51,954 $59,099 $71,824 $59,099 21.5% =========== ======== ======= ======= ======= ======= ======= ======= Safeco Life & Investments Operating Revenues (In Thousands) 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD % 2003 2002 2002 2002 2002 2003 2002 Chg ---------- --------- -------- ------- --------- ------- --------- -------- Group $142,323 $149,800 $149,351 $90,833 $87,413 $142,323 $87,413 62.8% Income Annuities 131,428 136,518 134,012 128,935 129,679 131,428 129,679 1.3% Retirement Services 96,070 95,289 96,326 94,688 93,090 96,070 93,090 3.2% Individual 95,874 96,799 96,212 93,246 93,417 95,874 93,417 2.6% Asset Management 6,201 6,800 6,983 7,977 8,218 6,201 8,218 -24.5% L&I Other 55,491 47,527 47,508 45,027 49,312 55,491 49,312 12.5% ---------- --------- -------- ------- -------- -------- --------- -------- Operating Revenues $527,387 $532,733 $530,392 $460,706 $461,129 $527,387 $461,129 14.4% ========== ========= ======== ======== ======== ======== ======== ======== *Earnings before realized gains (losses) and income taxes. This is a standard industry measurement and is used by management as the key measurement of Life and Investments segment profit or loss. Its is presented as a supplement to net income as a measure of profitability. Safeco Life & Investments Supplemental Statistics 1ST 4TH 3RD 2ND 1ST QTR QTR QTR QTR QTR YTD YTD 2003 2002 2002 2002 2002 2003 2002 Chg ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------- Group Earned Premiums (000's) $140,578 $145,700 $147,300 $ 89,000 $ 85,900 $140,578 $ 85,900 64% Loss Ratio 56% 59% 58% 60% 60% 56% 60% (4) Income Annuities Reserves (in billions) $ 6.3 $ 6.3 $ 6.3 $ 6.3 $ 6.3 $ 6.3 $ 6.3 0% Deposits (000's) 28,481 37,185 34,140 20,651 15,106 28,481 15,106 89% Retirement Services Reserves Fixed (in billions) $ 6.1 $ 5.9 $ 5.8 $ 5.6 $ 5.3 $ 6.1 $ 5.3 15% Variable (in billions) 0.8 0.8 0.8 1.0 1.1 0.8 1.1 -27% ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------- Total Reserves 6.9 6.7 6.6 6.6 6.4 6.9 6.4 8% Deposits (000's) 332,235 338,042 271,358 391,260 356,694 332,235 356,694 -7% Individual Reserves $ 3,804 $ 3,755 $ 3,708 $ 3,624 $ 3,595 $ 3,804 $ 3,595 6% Policies Issued: Term, Universal Life, 5,885 6,341 5,191 5,379 5,302 5,885 5,302 11% Traditional, Disability Policies In Force 281,674 280,018 278,633 278,780 278,989 281,674 278,989 1% Asset Management Assets Under Management (in billions) $ 3.7 $ 3.9 $ 3.7 $ 4.4 $ 4.9 $ 3.7 $ 4.9 -24% Safeco Corporation Capitalization (in Millions) 03/31/2003 12/31/2002 12/31/2001 Short-term Debt: $500 million back up line of credit (unused) $ - $ - $ - Commercial Paper - - 299.0 7.875%, due 3/15/03 - 303.5 323.0 Medium-Term Notes and Other 21.0 29.7 74.6 Long-Term Debt: 7.875%, due 4/1/05 (callable at par on 4/1/03) 200.0 (1) 200.0 200.0 6.875%, due 7/15/07 (non callable) 200.0 200.0 200.0 4.20%, due 2/1/08 (non callable) 200.0 - - 4.875%, due 2/1/10 (non callable) 300.0 - - 7.25%, due 9/15/12 (non callable) 390.8 390.6 - ------------------ ------------------- ------------------- Total Debt $ 1,311.8 $ 1,123.8 $ 1,096.6 ================== =================== =================== Capital Trust Securities (callable at 104 in 2007) $ 843.9 $ 843.8 $ 843.4 ================== =================== =================== Common Equity $ 4,562.0 $ 4,431.6 $ 3,634.6 ================== =================== =================== Total Capital (Debt + Capital Securities + Equity) $ 6,717.7 $ 6,399.2 $ 5,574.6 ================== =================== =================== Debt to Capital 19.5% (2) 17.6% 19.7% Debt and Capital Securities to Capital 32.1% (2) 30.7% 34.8% Debt and Adj. Cap Securities* to Capital 29.6% (2) 28.1% 31.8% Debt to Equity 28.8% (2) 25.4% 30.2% Earnings to Fixed Charge Ratio** 1.4 1.3 Negative Interest Coverage Ratio** 8.9 5.0 Negative Operating Earnings to Fixed Charge Ratio** 5.4 3.1 Negative *20% equity credit (1) Called and repaid at par on 4/1/03 (2) After call and repayment of $200 million of 7.875% debt on 4/1/03 ratios are: Debt to Capital 17.1% Debt and Capital Securities to Capital 30.0% Debt and Adj. Cap. Securities to Capital 27.4% Debt to Equity 24.4% ** The Earnings to Fixed Charge Ratio includes net realized investment gains (losses), interest on deposit contracts and distributions on capital securities. The Interest Coverage Ratio excludes net realized investment gains (losses), interest on deposit contracts and distributions on capital securities. The Operating Earnings to Fixed Charge Ratio excludes net realized investment gains (losses) and interest on deposit contracts. Safeco Corporation Investment Portfolios - Consolidated (in Millions) Investment Portfolio (Market Value): 03/31/2003 % 12/31/2002 % --------------- ---------- ------------------- ---------- Fixed Maturities - Taxable $ 22,393.5 82.2% $ 22,169.2 82.8% Fixed Maturities - Non-taxable 2,121.2 7.8% 2,108.8 7.9% Equity Securities 1,043.8 3.8% 1,082.5 4.0% --------------- ---------- ------------------- ---------- Total Fixed Maturities & Equity Securities 25,558.5 93.8% 25,360.5 94.7% Mortgage Loans 930.8 3.4% 925.9 3.5% Other Invested Assets 159.6 0.6% 173.8 0.6% Short-Term Investments 603.1 2.2% 311.0 1.2% --------------- ---------- ------------------- ---------- Total Consolidated Investment Portfolio $ 27,252.0 100.0% $ 26,771.2 100.0% --------------- ---------- ------------------- ---------- --------------- ---------- ------------------- ---------- Rating (Market Value): 03/31/2003 12/31/2002 ---------------- ---------------- AAA 36% 37% AA 7% 7% A 24% 24% BBB 27% 25% BB or lower 5% 5% Not Rated 1% 2% ----------------- ----------------- Total 100% 100% ----------------- ----------------- ----------------- ----------------- Components of Net Realized Investment Gains & Losses After Taxes (in millions): 1ST 1ST QTR QTR 2003 2002 ------------------ ----------------- Realized Gains (Losses) on Security Transactions $ 18.3 $ 30.8 Impairments on Fixed Income Securities (51.6) (6.7) Impairments on Equity Securities (3.1) - Credit Default Swap Mark to Market 5.8 (0.3) Other (1.8) (3.7) ------------------- ----------------- Realized Investment Gains (Losses) $ (32.4) $ 20.1 ------------------- ----------------- ------------------- ----------------- Safeco Corporation Investment Portfolios - Property & Casualty (in Millions) Investment Portfolio (Market Value): 03/31/2003 % 12/31/2002 % -------------- -------------- -------------- -------------- Fixed Maturities - Taxable $ 5,252.8 59.2% $ 5,383.0 61.2% Fixed Maturities - Non-taxable 2,120.4 23.9% 2,108.8 23.9% Equity Securities 909.4 10.2% 947.9 10.8% -------------- -------------- -------------- -------------- Total Fixed Maturities & Equity Securities 8,282.6 93.3% 8,439.7 95.9% Mortgage Loans 49.0 0.5% 50.5 0.6% Other Invested Assets 15.2 0.2% 15.6 0.2% Short-Term Investments 529.8 6.0% 292.9 3.3% ------------- -------------- -------------- -------------- Total P&C Investment Portfolio $ 8,876.6 100.0% $ 8,798.7 100.0% ============== ============== ============== ============== Rating (Market Value): 03/31/2003 12/31/2002 -------------- -------------- AAA 42% 45% AA 12% 11% A 23% 22% BBB 19% 17% BB or lower 3% 3% Not Rated 1% 2% ------------- -------------- Total 100% 100% -------------- -------------- Average Rating A+ AA -------------- -------------- 03/31/2003 12/31/2002 09/30/2002 06/30/2002 03/31/2002 Pre-Tax Investment Income $ 112.8 $ 115.0 $ 114.5 $ 115.3 $ 115.2 Effective Tax Rate on P&C Investment Income - Quarter 26.64% 25.94% 26.57% 24.04% 23.00% Cost $ 8,145 $ 8,131 $ 7,903 $ 7,707 $ 7,448 Market 8,877 8,799 8,627 8,416 8,361 % Equities (at market) 10.2% 10.8% 10.5% 12.8% 18.3% % Taxable Bonds (at market) 59.2% 61.2% 60.3% 59.5% 46.0% % Tax Exempt Bonds (at market) 23.9% 23.9% 23.4% 23.9% 33.0% % Short Term and Other 6.7% 4.1% 5.8% 3.9% 2.7% Market YTM on Bond Portfolio 4.10% 4.17% 4.33% 5.09% 5.69% Book YTM on Bond Portfolio 6.02% 5.99% 6.19% 6.30% 6.24% Duration of Bond Portfolio 5.23 5.26 4.91 5.70 6.95 Safeco Corporation Investment Portfolios - Life Insurance Companies (in Millions) Investment Portfolio (Market Value): 03/31/2003 % 12/31/2002 % -------------- ------------- -------------- ------------- Fixed Maturities - Taxable $ 17,080.3 92.4% $ 16,657.6 92.5% Fixed Maturities - Non-taxable 0.8 0.0% 0.8 0.0% Equity Securities 111.8 0.6% 113.8 0.6% -------------- ------------- -------------- ------------- Total Fixed Maturities & Equity Securities 17,192.9 93.0% 16,772.2 93.1% Mortgage Loans 954.7 5.2% 948.6 5.3% Other Invested Assets 109.9 0.6% 118.1 0.7% Short-Term Investments 232.2 1.2% 165.8 0.9% ------------- ------------- -------------- ------------- Total Life & Investments Investment Portfolio $ 18,489.7 100.0% $ 18,004.7 100.0% ============== ============= ============== ============= Rating (Market Value): 03/31/2003 12/31/2002 -------------- -------------- AAA 33% 34% AA 5% 5% A 24% 25% BBB 31% 29% BB or lower 6% 5% Not Rated 1% 2% ------------- -------------- Total 100% 100% -------------- -------------- Average Rating A A+ -------------- -------------- 03/31/2003 12/31/2002 09/30/2002 06/30/2002 03/31/2002 Cost $ 17,259 $ 16,885 $ 16,704 $ 16,417 $ 16,064 Market 18,489 18,005 17,797 17,019 16,265 % Equities (at market) 0.6% 0.6% 0.6% 0.7% 0.4% % Taxable Bonds (at market) 92.4% 92.5% 92.1% 91.7% 92.3% % Short Term and Other 7.0% 6.9% 7.3% 7.6% 7.3% Market YTM on Bond Portfolio 5.50% 5.70% 5.80% - - Book YTM on Bond Portfolio 6.99% 7.18% 7.17% 7.41% 7.40% Duration of Bond Portfolio 6.81 6.81 6.94 6.75 6.94
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Safeco Corporation Registrant Dated: April 28, 2003 /s/ Richard M. Levy ------------------- Richard M. Levy Vice President, Controller And Chief Accounting Officer