8-K 1 en0589.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 7/28/03 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) Item 9. Regulation FD Disclosure The following earnings release and financial supplement were furnished to the Securities and Exchange Commission today by Safeco Corporation. (SAFECO LOGO) Second Quarter News Release and Statistical Supplement (Unaudited) July 28, 2003 Table of Contents Page Earnings News Release 1-8 Financial Supplement Introduction SS-1 Financial Measures Used by Safeco SS-2 Consolidated Results Key Metrics 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 Underwriting Profit and Combined Ratios SS-11 Net Written Premiums SS-12 Net Earned Premiums SS-13 Personal Auto SS-14 Homeowners and Specialty SS-15 Safeco Business Insurance (SBI) SS-16 Surety, Other and Total SS-17 Statutory Information SS-18 Life & Investments Results Pretax Operating Earnings and Revenues SS-19 Supplemental Statistics SS-20 Corporate Supplemental Detail Capitalization SS-21 Investment Portfolios - Consolidated SS-22 Investment Portfolios - Property & Casualty SS-23 Investment Portfolios - Life & Investments SS-24
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 Profitable performance by Safeco's Auto and Group insurance lines drives 2nd Quarter results SEATTLE--(July 28, 2003)-- Second-Quarter Highlights o Posted net income of $111.9 million, or $0.81 per diluted share. o Operating earnings* more than doubled despite significant customer claims for tornado and hailstorm damage. o Auto insurance generated a $3.3 million underwriting profit. o Group stop-loss medical insurance produced pretax operating earnings of $24.5 million. ----------------------------------------------- -------------------------- ------------------------------ Summary Financial Results after tax 3 Months Ended 6 Months Ended (In millions except per-share data) June 30 June 30 2003 2002 2003 2002 ----------------------------------------------- ----------- -------------- ----------------- ------------ Net Income $ 111.9 $ 105.2 $ 201.9 $ 168.8 Per Diluted Share of Common Stock $ 0.81 $ 0.82 $ 1.45 $ 1.32 ----------------------------------------------- -- -------- ------ ------- ------- --------- --- -------- Net Realized Investment Gains (Losses) $ 14.7 $ 62.0 $ (17.7) $ 82.1 ----------------------------------------------- -- -------- ------ ------- ------- --------- --- -------- Operating Earnings* $ 97.2 $ 43.2 $ 219.6 $ 86.7 ----------------------------------------------- -- -------- ------ ------- ------- --------- --- -------- Average Shares Outstanding 139.0 128.1 138.8 128.1 ----------------------------------------------- -- -------- ------ ------- ------- --------- --- --------
* 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/03q2_sup.pdf --------------------------------------------------------------------------- Profitable performance of its Auto and Group stop-loss medical insurance lines drove Safeco's (NASDAQ: SAFC) second-quarter results as the company reported net income of $111.9 million, or $0.81 per diluted share. This compares with net income of $105.2 million, or $0.82 per share, in the second quarter of last year. Operating earnings more than doubled, climbing to $97.2 million in the quarter compared with $43.2 million for the same period last year. Operating earnings is a non-GAAP measure that reflects the performance of Safeco's business lines since it excludes the effects of net realized investment gains and losses. "We continue to be pleased with our progress," said Mike McGavick, Safeco chairman and CEO. "Considering the magnitude of claims from devastating tornadoes and hailstorms, our results show just how much progress we've made. "Our Auto insurance line produced its first profitable quarter in almost two years," he added. "And our stop-loss medical line continues to exceed our expectations." As previously announced, Safeco's insurance customers were hit hard by catastrophic storms in the second quarter. Claims from catastrophe losses reached $99.1 million pretax, including $60.5 million in Homeowners, $22.3 million in Auto, $14.3 million in business insurance and $2.0 million for all other lines. This compares with a total of $64.8 million in catastrophe losses for the second quarter of last year. Safeco's return on equity for the first half of the year, based on annualized net income, was 9.2 percent. Operating return on equity, measured using annualized operating earnings and excluding unrealized gains, was 13.4 percent for the first six months of 2003. The company realized net investment gains of $14.7 million after tax in the quarter, down from $62.0 million for the same period last year. Safeco recorded $30.3 million after tax for impaired investments during the second quarter. These impairments were more than offset by gains on securities transactions. Overall revenues increased to $1.9 billion, up 4.0 percent compared to the second quarter of last year. Operating revenues--excluding net realized investment gains--grew 8.6 percent. "We've addressed most of the fundamental issues previously facing Safeco," McGavick noted. "The one nagging challenge that remains is bringing our expenses in line with our best competitors'. As we begin developing 2004 business plans, I'm asking everyone in the company to become even more expense-conscious. We should constantly ask ourselves, `If this were my money, would I spend it this way?'" Net earned premiums for all Property & Casualty operations increased 7.1 percent compared with the second quarter of 2002. Net written premiums, a leading indicator of revenues in future quarters, increased 11.2 percent. Safeco Personal Insurance Performance Personal Auto, Safeco's largest product line, generated a pretax underwriting profit of $3.3 million, its first profitable performance since the third quarter of 2001. This compares with a loss of $7.3 million in the second quarter of 2002. The line produced a combined ratio of 99.4, an improvement over both 100.3 in the first quarter of this year and 101.6 in the second quarter of last year. Combined ratio is a standard gauge of underwriting performance measuring the percentage of premium dollars used for customer claims and expenses. A combined ratio below 100 indicates that the line is operating profitably. "It's good to see Auto turn a profit again," McGavick noted. "While it's too soon to say this is a trend, the signs are pointing in the right direction. "Our goal is for Auto to consistently generate combined ratios in the mid-90s," he added. "We would have hit that target this quarter if not for the significant amount of storm damage to vehicles. We're also seeing robust growth in the number of policies sold to the best drivers as well as improved retention." Net written Auto premiums increased 17.0 percent compared with the second quarter of 2002. Total number of policies increased 9.6 percent compared with a year ago. Safeco's Homeowners line reported a quarterly pretax underwriting loss of $13.4 million, compared with a loss of $36.9 million for the same period last year. Combined ratio was 107.0, better than the 119.5 generated in the second quarter last year, but not as strong as the profitable 89.7 in the first quarter of this year. "Although the line lost money because of significant catastrophes in the quarter, the underlying fundamentals of our Homeowners line continue to improve," McGavick said. Safeco is seeing a change in the way customers use Homeowners insurance to protect their property. Three years ago, nearly half of Safeco's Homeowners customers purchased policies with a $250 deductible, resulting in numerous small claims for maintenance-related issues. Today, 94 percent of customers have deductibles of $500 or more. "While Homeowners is improving, we're still not getting adequate rate in every market," McGavick noted. "We have moratoriums on selling new Homeowners policies in seven states, most recently California. "We continue rolling out our new Homeowners product, which is now available in 31 states," he added. "In this quarter's results, we saw early indications that the product more accurately matches rate to the risk we take on." Net written premiums in Homeowners increased 0.8 percent compared to the second quarter of last year. The number of policies decreased 9.1 percent compared with the same period of 2002. Contributing to the overall performance of Safeco Personal Insurance was a $14.8 million pretax underwriting profit in Specialty Lines, up $11.8 million compared with the second quarter last year. This is the result of increased rates, lower losses and the favorable settlement of prior-quarter claims. Safeco Business Insurance Performance Safeco Business Insurance reported a pretax underwriting loss of $21.5 million in the second quarter, an improvement over a $41.2 million loss in the same period last year. Combined ratio was 106.0, better than the 111.1 in the second quarter of 2002, but not as strong as the 101.5 reported in the first quarter of this year. SBI Regular--Safeco's core line of products for small- to medium-sized businesses--reported a combined ratio of 104.2 in the quarter. While the performance is better than the 109.9 in the second quarter of last year, it's off from 102.0 in the first quarter of 2003 because of weather and catastrophe claims. Expenses in Safeco's commercial insurance lines remain high as a result of several factors, including an increase in agent bonus commission costs during the second quarter and costs associated with automation. In the first quarter, Safeco rolled out an automated system for selling Business Owners Policies--a comprehensive package of insurance products tailored for small businesses. This contributed to a 35.7 percent increase in new accounts in the first half of this year compared with the same period last year. Second quarter product-development efforts focused on adding commercial automobile insurance to this automated system. The new feature was launched last week and is expected to take four months to roll out nationwide. Workers' compensation insurance will be added to the automated platform in the fall, followed by commercial multi-peril insurance next year. "We expect this system to drive profitable growth, and our costs will decline as we get further along in the rollout," McGavick noted. "That said, we're not satisfied with expenses in this line." Net written premiums for Safeco Business Insurance increased 9.4 percent in the second quarter compared with the same period in 2002. Net written premiums for SBI Regular increased 11.0 percent compared to the second quarter of 2002. Despite growth of 16.9 percent in the number of SBI Regular new business policies issued during the quarter, total policies in force decreased 6.9 percent compared to a year ago. Surety Performance Surety generated a pretax underwriting profit of $6.8 million in the quarter, up from $5.8 million in the same period last year. Combined ratio for Surety was a profitable 82.2, compared with 81.5 in the second quarter of 2002 and 88.6 in the first quarter of this year. "Higher rates, combined with an increase in new accounts, continue to generate profitable growth in our Surety line," McGavick said. Life & Investments Performance Safeco Life & Investments generated pretax operating earnings of $57.9 million, up 11.3 percent from $52.0 million in the second quarter of 2002. "Given continuing inflation in medical costs, and the fact that low interest rates are squeezing margins on our investment products, we continue to believe that this level of performance will be difficult to maintain," McGavick said. "Although our Individual Life product line failed to turn an operating profit this quarter, overall we're pleased with another solid performance from Life & Investments," he added. The Group product line again led performance in the second quarter, generating pretax operating earnings of $24.5 million, up from $14.1 million in the same period last year. Group's main product is stop-loss medical insurance sold to employers with self-funded benefit plans. This product insures employee benefit plans against potential large medical claims. Group's earned premiums increased to $141.6 million from $89.0 million in the second quarter of 2002, reflecting the acquisition of a large book of business from Swiss Re in mid-2002. Group's profitable results in the quarter are attributable to an exceptionally low loss ratio of 56.3 percent, compared with 59.8 percent in the second quarter of 2002. Loss ratio measures claims costs as a percentage of total premiums--the lower the ratio, the stronger the performance. Income Annuities generated $8.4 million in pretax operating earnings in the quarter, up from $7.3 million in the second quarter of 2002. Income Annuities results included favorable pre-payment adjustments on mortgage-backed securities of $3.4 million compared to unfavorable adjustments of $0.3 million a year ago. The results also reflect declining investment income due to lower interest rates and bond defaults in previous quarters. The Retirement Services line produced $4.9 million in pretax operating earnings, compared with $4.0 million during the second quarter of 2002. This is partially attributable to increased sales of fixed annuities, providing a larger base of assets to generate investment income. Individual Life reported a quarterly pretax operating loss of $0.5 million compared with pretax operating earnings of $7.5 million for the second quarter of 2002. This change is the result of several factors--increased life insurance claims, lower margins on life insurance products that are sensitive to interest rates, and higher expenses. "We're looking closely at these factors and taking actions to get results back on track," McGavick noted. The Asset Management line reported pretax operating earnings of $0.1 million, down from $1.7 million in second quarter 2002. This is a result of a drop in fee income, which is based on assets under management, as well as higher expenses. Total assets under management increased to $4.0 billion from $3.7 billion at the end of the first quarter, yet still off from $4.4 billion at the end of second quarter 2002. 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 will include this news release, Safeco's summary financial results, consolidated statements of income, consolidated balance sheets, and the company's second-quarter financial supplement. All of this information is available on Safeco's Website at http://www.safeco.com/safeco/investor/pdfs/03q2_sup.pdf Management reviews results on Webcast Safeco's senior management team will discuss the company's second-quarter performance with analysts today at 11 a.m., Eastern Time (8 a.m., Pacific Time). The conference call will be broadcast live on the Internet at http://www.safeco.com/irwebcast and archived later in the day for replay. About Safeco Safeco, in business since 1923, is a Fortune 500 company based in Seattle that sells insurance and investment products through independent agents, brokers and financial advisors nationwide. Safeco products help individuals and small businesses protect what they value and secure their financial future. More information about Safeco can be found at www.safeco.com # # # ------------------------------------------------------------------------------ Forward-looking information contained in this news release is subject to risk and uncertainty Statements, analysis and other information contained in this news release that relate to anticipated financial performance, business prospects and plans and similar matters are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements in this news release that are not historical information are forward-looking. The operations, performance and development of our business are subject to certain risks and uncertainties that may cause actual results to differ materially from those contained in or suggested by the forward-looking statements in this news release. The risks and uncertainties include, but are not limited to: o 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, application 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 use of derivative securities by Safeco Financial Products, Inc.; o fluctuations in interest rates; o performance of financial markets; and o general economic and market conditions. We assume no obligation to update any forward-looking statements contained in this news release. ------------------------------------------------------------------------------- (Safeco Logo) Financial Supplement Second 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 Runoff 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 & Investment 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 Six Months Ended June 30 June 30 ------------------------------------------------------ 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Total Revenues $1,871.0 $1,798.3 $3,633.3 $3,510.9 Net Realized Investment (Gains) Losses (22.3) (95.4) 27.6 (126.0) ------------------------------------------------------ Operating Revenues $1,848.7 $ 1,702.9 $3,660.9 $3,384.9 -----------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30 June 30 ------------------------------------------------------ 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Net Income $ 111.9 $ 105.2 $ 201.9 $ 168.8 Net Realized Investment (Gains) Losses, (14.7) (62.0) 17.7 (82.1) Net of Taxes ------------------------------------------------------ Operating Earnings $ 97.2 $ 43.2 $ 219.6 $ 86.7 -----------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30 June 30 ------------------------------------------------------ (Annualized) 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Net Income $ 111.9 $ 105.2 $ 201.9 $ 168.8 Average Shareholders' Equity 4,380.1 3,655.8 4,380.1 3,655.8 Return on Equity Based on Annualized Net Income 10.2% 11.5% 9.2% 9.2% Operating Earnings $ 97.2 $ 43.2 $ 219.6 $ 86.7 Average Shareholders' Equity 4,380.1 3,655.8 4,380.1 3,655.8 Average Unrealized Fixed Maturities 1,090.3 478.8 1,090.3 478.8 Investment Gains, Net of Tax ------------------------------------------------------ Adjusted Average Shareholders' Equity 3,289.8 3,177.0 3,289.8 3,177.0 Operating Return on Equity Based on Annualized Operating Earnings 11.8% 5.4% 13.4% 5.5% -----------------------------------------------------------------------------------------------------------
*Net Income and Operating Earnings have been annualized for purposes of this calculation only. The results for the six months ended June 30, 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 Six Months Ended June 30 June 30 ------------------------------------------------------ 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Total Property & Casualty Net Earned Premium $1,201.8 $1,122.0 $2,364.9 $2,221.5 Change in Unearned Premium Liability 114.7 62.4 157.4 50.5 ------------------------------------------------------ Total Property & Casualty Net Written Premium $1,316.5 $ 1,184.4 $2,522.3 $ 2,272.0 -----------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30 June 30 ------------------------------------------------------ 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Property & Casualty $ 109.1 $ 214.6 $ 241.4 $ 274.4 Life & Investments 64.6 (23.6) 78.3 24.2 Corporate (0.6) (30.8) (5.9) (44.8) ------------------------------------------------------ Income Before Income Taxes and Distributions on Capital Securities $ 173.1 $ 160.2 $ 313.8 $ 253.8 -----------------------------------------------------------------------------------------------------------
Property & Casualty Underwriting Profit (Loss) and Combined Ratio 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. Combined ratio is a standard gauge of underwriting performance and is calculated as losses and expenses expressed as a percentage of earned premiums. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Property & Casualty Income before Income Taxes and Distributions on Capital Securities $ 109.1 $ 214.6 $ 241.4 $ 274.4 Property & Casualty Net Investment Income (116.5) (115.3) (229.3) (230.5) Property & Casualty Restructuring Charges -- 5.5 -- 12.1 Property & Casualty Net Realized Investment (Gains) Losses (4.9) (189.0) (3.4) (231.5) ------------------------------------------------------ Total Underwriting Profit (Loss) $ (12.3) $ (84.2) $ 8.7 $ (175.5) -----------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30 June 30 ------------------------------------------------------ 2003 2002 2003 2002 ----------------------------------------------------------------------------------------------------------- Life & Investments Income before Income Taxes and Distributions on Capital Securities $ 64.6 $ (23.6) $ 78.3 $ 24.2 Net Realized Investment (Gains) Losses (6.7) 75.6 51.4 86.9 ------------------------------------------------------ Pretax Operating Earnings $ 57.9 $ 52.0 $ 129.7 $ 111.1 -----------------------------------------------------------------------------------------------------------
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) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 Chg ----------- ----------- ----------- ----------- ----------- ----------- ----------- -------- Net Income $ 111.9 $ 90.0 $ 57.1 $ 75.2 $ 105.2 $ 201.9 $ 168.8 20% Net Income Per Diluted Share 0.81 0.65 0.42 0.59 0.82 1.45 1.32 10% Net Realized Investment Gains (Losses) 14.7 (32.4) (36.4) 7.8 62.0 (17.7) 82.1 NM Operating Earnings 97.2 122.4 93.5 67.4 43.2 219.6 86.7 153% Operating Earnings Per Share 0.70 0.88 0.71 0.53 0.34 1.58 0.68 132% Operating Return on Equity (Pre-FAS 115) annualized 11.8% 15.2% 11.8% 8.7% 5.4% 13.4% 5.5% 144% Operating Return on Equity (unadjusted) annualized 8.9% 12.1% 9.7% 7.2% 4.7% 10.0% 4.7% 113% Operating Revenue $ 1,848.7 $ 1,812.2 $ 1,815.6 $ 1,782.1 $ 1,702.9 $ 3,660.9 $ 3,384.9 8% % Chg Prior Year Same Qtr 8.6% 7.7% 7.2% 5.5% 0.9% Life & Investments Pretax Operating Earnings $ 57.9 $ 71.8 $ 66.3 $ 59.6 $ 52.0 $ 129.7 $ 111.1 17% % Chg Prior Year Same Qtr 11.3% 21.5% 41.3% 38.6% -9.6% Property & Casualty Combined Ratio 101.0% 98.2% 101.6% 104.0% 107.5% 99.6% 107.9% (8.3) Impact of Catastrophes 8.2% 1.1% 0.2% -0.9% 5.8% 4.8% 4.2% 0.6 Net Premiums Written $ 1,316.5 $ 1,205.8 $ 1,130.0 $ 1,182.7 $ 1,184.4 $ 2,522.3 $ 2,272.0 11% % Chg Prior Year Same Qtr 11.2% 10.9% 7.4% 6.1% 3.3% Net Premiums Earned $ 1,201.8 $ 1,163.1 $ 1,164.6 $ 1,135.2 $ 1,122.0 $ 2,364.9 $2,221.5 6% % Chg Prior Year Same Qtr 7.1% 5.8% 4.2% 1.5% 0.1% Book Value Per Share $ 37.22 $ 33.00 $ 32.07 $ 31.77 $ 28.91 $ 37.22 $ 28.91 29% % Chg Prior Year Same Qtr 28.7% 20.9% 12.7% 7.8% -0.1% BV Per Share (ex-FAS 115) $ 25.72 $ 24.66 $ 24.39 $ 23.55 $ 24.22 $ 25.72 $ 24.22 6% % Chg Prior Year Same Qtr 6.2% -1.3% -0.7% -3.4% -7.5% Safeco Corporation Summary of Financial Results (In Millions) Three Months Ended Six Months Ended June 30 June 30 ------------------- ----------------- 2003 2002 2003 2002 ------------------- ------------------ (Unaudited) (Unaudited) REVENUES Property & Casualty Earned Premiums $1,201.8 $1,122.0 $2,364.9 $2,221.5 Net Investment Income 116.5 115.3 229.3 230.5 Life & Investments 524.9 460.7 1,052.3 921.8 Corporate 5.5 4.9 14.4 11.1 Net Realized Investment Gains (Losses) 22.3 95.4 (27.6) 126.0 ------- ------- ------- ------- Total 1,871.0 1,798.3 3,633.3 3,510.9 ------- ------- ------- ------- Income before Net Realized Investment Gains (Losses), Income Taxes and Distributions on Capital Securities Property & Casualty Underwriting Profits (Losses) (12.3) (84.2) 8.7 (175.5) Net Investment Income 116.5 115.3 229.3 230.5 Restructuring Charges - (5.5) - (12.1) ------- ------- ------- ------- Total Property & Casualty 104.2 25.6 238.0 42.9 Life & Investments 57.9 52.0 129.7 111.1 Corporate (11.3) (12.8) (26.3) (26.2) ------- ------- ------- ------- Total 150.8 64.8 341.4 127.8 Net Realized Investment Gains (Losses) before Taxes 22.3 95.4 (27.6) 126.0 ------- ------- ------- ------- Income before Income Taxes and Distributions on Capital Securities 173.1 160.2 313.8 253.8 Provision (Benefit) for Income Taxes on Income before Net Realized Investment Gains (Losses) and Distributions on Capital Securities 42.4 10.4 99.4 18.7 Net Realized Investment Gains (Losses) 7.6 33.4 (9.9) 43.9 ------- ------- ------- ------- Total 50.0 43.8 89.5 62.6 ------- ------- ------- ------- Income before Distributions on Capital Securities 123.1 116.4 224.3 191.2 Distributions on Capital Securities, Net of Taxes (11.2) (11.2) (22.4) (22.4) ------- ------- ------- ------- Net Income $ 111.9 $ 105.2 $ 201.9 $ 168.8 ======= ======= ======= ======= Safeco Corporation Consolidated Statements of Income (In Millions Except Per Share Data) Three Months Ended Six Months Ended June 30 June 30 --------------------- ----------------------- 2003 2002 2003 2002 --------------------- ----------------------- (Unaudited) (Unaudited) REVENUES Property & Casualty Earned Premiums $ 1,201.8 $ 1,122.0 $ 2,364.9 $ 2,221.5 Life & Investments Premiums and Other Revenues 221.1 166.1 445.0 331.2 Net Investment Income 423.1 412.8 845.6 827.5 Net Realized Investment Gains (Losses) 22.3 95.4 (27.6) 126.0 Other 2.7 2.0 5.4 4.7 -------- --------- --------- -------- Total 1,871.0 1,798.3 3,633.3 3,510.9 -------- --------- --------- -------- EXPENSES Losses, Loss Adjustment Expenses and Policy Benefits 1,188.0 1,181.4 2,320.1 2,341.0 Other Underwriting and Operating Expenses 269.8 215.6 522.3 439.0 Amortization of Deferred Policy Acquisition Costs 222.7 212.4 438.9 421.9 Interest Expense 13.2 16.4 30.3 32.4 Intangibles Amortization 4.2 6.8 7.9 10.7 Restructuring Charges - 5.5 - 12.1 -------- --------- --------- -------- Total 1,697.9 1,638.1 3,319.5 3,257.1 -------- --------- --------- -------- Income before Income Taxes and Distributions on Capital Securities 173.1 160.2 313.8 253.8 Provision for Income Taxes 50.0 43.8 89.5 62.6 -------- --------- --------- -------- Income before Distributions on Capital Securities 123.1 116.4 224.3 191.2 Distributions on Capital Securities, Net of Taxes (11.2) (11.2) (22.4) (22.4) -------- --------- --------- -------- Net Income $ 111.9 $ 105.2 $ 201.9 $ 168.8 ======== ========= ========= ======== INCOME PER SHARE OF COMMON STOCK Net Income Per Share of Common Stock - Diluted $ 0.81 $ 0.82 $ 1.45 $ 1.32 ======== ========= ========= ======== Net Income Per Share of Common Stock - Basic $ 0.81 $ 0.82 $ 1.46 $ 1.32 ======== ========= ========= ======== Dividends Declared $ 0.185 $ 0.185 $ 0.370 $ 0.370 Average Number of Shares Outstanding During the Period: Diluted 139.0 128.1 138.8 128.1 Basic 138.4 127.8 138.3 127.8 Safeco Corporation Consolidated Balance Sheets (In Millions) June 30 December 31 2003 2002 --------------- --------------- (Unaudited) ASSETS Investments Available-for-Sale Securities Fixed Maturities, at Fair Value (Cost or amortized cost: $23,190.5; $22,646.1) $ 25,639.3 $ 24,278.0 Marketable Equity Securities, at Fair Value (Cost: $767.5; $777.2) 1,167.3 1,082.5 Mortgage Loans 942.8 925.9 Other Invested Assets 184.9 173.8 Short-Term Investments 434.1 311.0 --------------- --------------- Total Investments 28,368.4 26,771.2 Cash and Cash Equivalents 199.2 188.5 Accrued Investment Income 333.8 336.3 Premiums and Service Fees Receivable 1,081.6 1,047.1 Other Notes and Accounts Receivable 239.1 162.3 Current Income Taxes Recoverable 39.1 26.2 Deferred Income Taxes Recoverable - 124.6 Reinsurance Recoverables 568.1 578.8 Deferred Policy Acquisition Costs 622.8 626.3 Land, Buildings and Equipment for Company Use 472.4 488.7 (At cost less accumulated depreciation: $319.4; $319.7) Intangibles and Goodwill 190.1 190.0 Other Assets 284.1 259.8 Securities Lending Collateral 3,199.2 2,957.0 Separate Account Assets 995.4 899.2 --------------- --------------- Total Assets $ 36,593.3 $ 34,656.0 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Property & Casualty Loss and Loss Adjustment Expense Reserves $ 4,916.0 $ 4,998.5 Accident and Health Reserves 155.7 170.0 Life Policy Liabilities 323.6 339.9 Unearned Premiums 2,008.4 1,847.5 Funds Held Under Deposit Contracts 16,198.7 15,655.4 Debt 1,124.6 1,123.8 Deferred Income Taxes 235.3 - Other Liabilities 1,438.1 1,389.3 Securities Lending Payable 3,199.2 2,957.0 Separate Account Liabilities 995.4 899.2 --------------- --------------- Total Liabilities 30,595.0 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) 844.0 843.8 --------------- --------------- 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: 11.7; 12.0 Shares Issued and Outstanding: 138.5; 138.2 1,182.9 1,178.1 Retained Earnings 2,222.6 2,072.2 Accumulated Other Comprehensive Income, Net of Taxes Unrealized Gains and Losses on Available-for-Sale Securities and Derivative Financial Instruments 1,824.8 1,241.2 Unrealized Foreign Currency Translation Adjustments (10.5) (15.7) Deferred Policy Acquisition Costs Valuation Allowance (56.7) (35.4) Minimum Pension Liability Adjustment (8.8) (8.8) --------------- --------------- Total Accumulated Other Comprehensive Income 1,748.8 1,181.3 --------------- --------------- Total Shareholders' Equity 5,154.3 4,431.6 --------------- --------------- Total Liabilites & Shareholders' Equity $ 36,593.3 $ 34,656.0 ============== =============== Safeco Corporation Income Summary (In Thousands Except Per Share Amounts) Three Months Ended Six Months Ended June 30 June 30 ------------------- ------------------ 2003 2002 2003 2002 ------------------- ------------------ (Unaudited) (Unaudited) Pretax Net Income (Loss) P&C Underwriting $ (12,249) $ (84,193) $ 8,734 $ (175,537) P&C Investment Income 116,438 115,267 229,280 230,469 Restructuring Charges - (5,537) - (12,103) --------- ---------- ------- ----------- Total P&C 104,189 25,537 238,014 42,829 Life & Investments 57,901 51,954 129,725 111,053 Corporate (11,327) (12,809) (26,383) (26,188) Distributions on Capital Securities (17,264) (17,264) (34,528) (34,528) --------- ---------- ------- ----------- Income before Net Realized Investment Gains (Losses) 133,499 47,418 306,828 93,166 Net Realized Investment Gains (Losses) 22,316 95,393 (27,555) 126,017 --------- ---------- ------- ----------- Total $155,815 $142,811 $279,273 $219,183 ======== ========== ======== ========== Income Tax Expense (Benefit) P&C Underwriting (4,603) (28,830) $ 2,519 $ (59,830) P&C Investment Income 29,196 27,705 59,254 54,205 Restructuring Charges - (1,936) - (4,236) --------- ---------- ------- ----------- Total P&C 24,593 (3,061) 61,773 (9,861) Life & Investments 19,401 18,062 44,552 37,962 Corporate (1,676) (4,684) (7,014) (9,478) Distributions on Capital Securities (6,043) (6,043) (12,085) (12,085) --------- ---------- ------- ----------- Income before Net Realized Investment Gains (Losses) 36,275 4,274 87,226 6,538 Net Realized Investment Gains (Losses) 7,672 33,379 (9,850) 43,879 --------- ---------- ------- ----------- Total $ 43,947 $ 37,653 $ 77,376 $ 50,417 ======== ========== ======== ========== After-tax Income (Loss) P&C Underwriting $ (7,646) $ (55,363) $ 6,215 $ (115,707) P&C Investment Income 87,242 87,562 170,026 176,264 Restructuring Charges - (3,601) - (7,867) --------- ---------- ------- ---------- Total P&C 79,596 28,598 176,241 52,690 Life & Investments 38,500 33,892 85,173 73,091 Corporate (9,651) (8,125) (19,369) (16,710) Distributions on Capital Securities (11,221) (11,221) (22,443) (22,443) --------- ---------- ------- ----------- Income before Net Realized Investment Gains (Losses) 97,224 43,144 219,602 86,628 Net Realized Investment Gains (Losses) 14,644 62,014 (17,705) 82,138 --------- ---------- ------- ----------- Total $111,868 105,158 $201,897 $168,766 ======== ========== ======== ========== Average Shares Outstanding - Diluted 139,042 128,147 138,832 128,128 Average Shares Outstanding - Basic 138,417 127,809 138,339 127,790 Book Value Per Share $ 37.22 $ 28.91 $ 37.22 $ 28.91 Book Value Per Share (ex-FAS 115) $ 25.72 $ 24.22 $ 25.72 $ 24.22 Safeco Property & Casualty Underwriting Profit and Combined Ratios (In Thousands) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ----------- ------------ ----------- ------------ ----------- ------------ ----------- Net U/W Profit (Loss) ------------------------------ Safeco Personal Insurance Personal Auto $ 3,332 $ (1,504) $ (10,600) $ (6,186) $ (7,341) $ 1,828 $ (27,613) Homeowners (13,448) 19,501 12,399 5,501 (36,879) 6,053 (55,123) Specialty 14,803 11,493 8,221 9,626 3,033 26,296 11,057 ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total SPI 4,687 29,490 10,020 8,941 (41,187) 34,177 (71,679) ----------- ------------ ----------- ------------ ----------- ------------ ----------- Safeco Business Insurance SBI Regular (11,531) (5,287) 7,878 (11,972) (24,997) (16,818) (47,597) Special Accounts Facility (632) 6,412 7,518 3,895 (1,779) 5,780 6,411 SBI Runoff (9,394) (6,311) (33,019) (15,368) (14,411) (15,705) (59,138) ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total SBI (21,557) (5,186) (17,623) (23,445) (41,187) (26,743) (100,324) ----------- ------------ ----------- ------------ ----------- ------------ ----------- Surety 6,836 3,669 6,076 2,688 5,750 10,505 8,879 P&C Other* (2,215) (6,990) (17,264) (33,514) (7,569) (9,205) (12,413) ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total All Lines $ (12,249) $ 20,983 $ (18,791) $ (45,330) $ (84,193) $ 8,734 $ (175,537) ============ ============ =========== ============ =========== ============ =========== 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ----------- ------------ ----------- ------------ ----------- ------------ ----------- Net Combined Ratios (GAAP) Safeco Personal Insurance Personal Auto 99.4% 100.3% 102.0% 101.2% 101.6% 99.8% 103.0% Homeowners 107.0% 89.7% 93.5% 97.1% 119.5% 98.4% 114.8% Specialty 70.7% 76.9% 83.8% 81.2% 94.0% 73.8% 89.1% ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total SPI 99.4% 96.2% 98.7% 98.8% 105.8% 97.8% 105.1% ----------- ------------ ----------- ------------ ----------- ------------ ----------- Safeco Business Insurance SBI Regular 104.2% 102.0% 97.0% 104.7% 109.9% 103.1% 109.6% Special Accounts Facility 100.7% 92.7% 91.6% 94.8% 102.9% 96.8% 94.2% SBI Runoff NM NM NM NM NM NM NM ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total SBI 106.0% 101.5% 104.9% 106.6% 111.1% 103.7% 113.4% ----------- ------------ ----------- ------------ ----------- ------------ ----------- Surety 82.2% 88.6% 81.4% 91.8% 81.5% 85.1% 85.4% P&C Other* NM NM NM NM NM NM NM ----------- ------------ ----------- ------------ ----------- ------------ ----------- Total All Lines 101.0% 98.2% 101.6% 104.0% 107.5% 99.6% 107.9% =========== ============ =========== =========== =========== ============ =========== * 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 & Casualty Net Written Premiums (In Thousands) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ------------ ------------ ------------ ------------ ------------- ------------ ------------- Net Written Premiums Safeco Personal Insurance Personal Auto $ 570,911 $ 565,972 $ 523,033 $ 536,309 $ 487,891 $1,136,883 $966,349 Homeowners 215,334 172,220 175,245 212,096 213,607 387,554 380,307 Specialty 57,147 46,543 44,228 54,433 58,061 103,690 104,011 ------------ ------------ ------------ ------------ ------------- ------------ --------- Total SPI 843,392 784,735 742,506 802,838 759,559 1,628,127 1,450,667 ------------ ------------ ------------ ------------ ------------- ------------ ---------- Safeco Business Insurance SBI Regular 308,396 284,027 258,106 253,552 277,950 592,423 543,581 Special Accts Facility* 94,744 97,088 99,221 88,203 83,527 191,832 161,483 SBI Runoff (576) 1,814 (3,747) (2,193) 6,566 1,238 31,021 ------------ ------------ ------------ ------------ ------------- ------------ ---------- Total SBI 402,564 382,929 353,580 339,562 368,043 785,493 736,085 ------------ ------------ ------------ ------------ ------------- ------------ ---------- Surety 46,932 35,125 32,384 38,491 35,882 82,057 62,754 P&C Other 23,592 2,989 1,559 1,789 20,889 26,581 22,419 ------------ ------------ ------------ ------------ ------------- ------------ ---------- Total All Lines $1,316,480 $1,205,778 $1,130,029 $1,182,680 $1,184,373 $2,522,258 $2,271,925 =========== ============ ============ ============ ============= =========== ============ Net Written Premiums (Percent Change) Percent Change Over Prior Year Same Quarter Percent Change YTD Safeco Personal Insurance Personal Auto 17.0% 18.3% 14.4% 17.6% 12.6% 17.6% 9.6% Homeowners 0.8% 3.3% -1.7% 5.4% 7.0% 1.9% 4.6% Specialty -1.6% 1.3% -4.3% 1.9% 2.6% -0.3% -0.6% ------------ ------------ ------------ ------------ ------------- ------------ --------- Total SPI 11.0% 13.6% 9.0% 12.9% 10.2% 12.2% 7.5% ------------ ------------ ------------ ------------ ------------- ------------ ---------- Safeco Business Insurance SBI Regular 11.0% 7.0% 17.2% 7.0% 6.9% 9.0% 3.3% Special Accts Facility* 13.4% 24.8% 187.1% 165.2% 167.7% 18.8% 144.2% SBI Runoff NM NM NM NM NM NM NM ------------ ------------ ------------ ------------ ------------- ------------ --------- Total SBI 9.4% 4.0% 4.2% -8.0% -7.9% 6.7% -11.7% ------------ ------------ ------------ ------------ ------------- ------------ --------- Surety 30.8% 30.7% 7.4% 16.1% -9.8% 30.8% -8.0% P&C Other 12.9% 95.4% -2.1% -22.7% 16.6% 18.6% 12.6% ------------ ------------ ------------ ------------ ------------- ------------ ---------- Total All Lines 11.2% 10.9% 7.4% 6.1% 3.3% 11.0% 0.0% ============ ============ ============ ============ ============= ============ ========== *As each existing old Safeco Commercial policy comes up for renewal (reported in Runoff), 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 Runoff. 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 reflected a change from a 50% quota share reinsurance treaty to an excess of loss treaty in February 2001. Safeco Property & Casualty Net Earned Premiums (In Thousands) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ------------ ------------ ------------ ------------ ------------ ------------ -------------- Net Earned Premiums Safeco Personal Insurance Personal Auto $552,860 $ 528,512 $ 523,043 $ 497,332 $472,497 $1,081,372 $ 926,744 Homeowners 192,128 189,431 192,112 192,620 189,273 381,559 372,634 Specialty 50,527 49,807 50,813 51,072 51,199 100,334 101,228 ------------ ------------ ------------ ------------ ------------ ------------ -------------- Total SPI 795,515 767,750 765,968 741,024 712,969 1,563,265 1,400,606 ------------ ------------ ------------ ------------ ------------ ------------ -------------- Safeco Business Insurance SBI Regular 272,133 266,016 262,262 255,467 251,461 538,149 496,375 Special Accts Facility* 93,226 87,905 89,189 75,200 61,766 181,131 111,658 SBI Runoff (4,928) 2,930 8,110 24,176 56,881 (1,998) 138,540 ------------ ------------ ------------ ------------ ------------ ------------ -------------- Total SBI 360,431 356,851 359,561 354,843 370,108 717,282 746,573 ------------ ------------ ------------ ------------ ------------ ------------ -------------- Surety 38,418 32,142 32,673 32,721 31,114 70,560 60,922 P&C Other 7,447 6,305 6,370 6,573 7,907 13,752 13,450 ------------ ------------ ------------ ------------ ------------ ------------ -------------- Total All Lines $ 1,201,811 $1,163,048 $1,164,572 $1,135,161 $1,122,098 $2,364,859 $ 2,221,551 ============ ============ ============ =========== ============ ============ ============= Net Earned Premiums (Percent Change) Percent Change Over Prior Year Same Quarter Percent Change YTD Safeco Personal Insurance Personal Auto 17.0% 16.3% 14.9% 11.4% 7.8% 16.7% 7.1% Homeowners 1.5% 3.3% 2.8% 3.1% 2.5% 2.4% 1.6% Specialty -1.3% -0.4% -0.6% 0.3% 1.5% -0.9% 1.7% ------------ ------------ ------------ ------------ ------------ ------------ -------------- Total SPI 11.6% 11.6% 10.5% 8.3% 5.9% 11.6% 5.2% ------------ ------------ ------------ ------------ ------------ ------------ -------------- Safeco Business Insurance SBI Regular 8.2% 8.6% 7.0% 0.5% -3.9% 8.4% -7.0% Special Accts Facility* 50.9% 76.2% 152.7% 146.6% 93.1% 62.2% 79.5% SBI Runoff NM NM NM NM NM NM NM ------------ ------------ ------------ ------------ ------------ ------------ -------------- Total SBI -2.6% -5.2% -4.5% -12.5% -13.3% -3.9% -12.5% ------------ ------------ ------------ ------------ ------------ ------------ -------------- Surety 23.5% 7.8% 16.9% 21.3% 37.0% 15.8% 50.0% P&C Other -5.8% 13.7% -67.5% NM NM 2.2% 18.5% ------------ ------------ ------------ ------------ ------------ ------------ -------------- Total All Lines 7.1% 5.8% 4.2% 1.5% 0.1% 6.5% -0.7% ============ ============ ============ ============ ============ ============ ============== *As each existing old Safeco Commercial policy comes up for renewal (reported in Runoff), 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 Runoff. 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 reflected a change from a 50% quota share reinsurance treaty to an excess of loss treaty in February 2001. Safeco Property & Casualty Personal Auto (In Thousands Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ----------- ----------- ----------- ----------- ------------ ----------- ----------- Personal Auto Underwriting Profit (Loss) $ 3,332 $ (1,504) $(10,600) $(6,186) $ (7,341) $ 1,828 $(27,613) Loss and LAE Ratio 76.0% 76.8% 78.5% 78.2% 78.2% 76.4% 79.1% Expense Ratio 23.4% 23.5% 23.5% 23.0% 23.4% 23.4% 23.9% ----------- ----------- ----------- ----------- ------------ ----------- ----------- Combined Ratio 99.4% 100.3% 102.0% 101.2% 101.6% 99.8% 103.0% =========== =========== =========== =========== ============ =========== =========== Impact of Catastrophes 4.0% 0.2% 0.3% -0.1% 1.4% 2.1% 0.9% Impact of Non-Cat Weather 1.4% 0.3% 0.4% 0.8% 1.1% 0.8% 0.7% Policies In Force (000's) 1,586.1 1,558.6 1,529.9 1,498.4 1,447.6 % Chg Prior Year Same Qtr 9.6% 9.6% 8.0% 4.7% 0.1% Retention 80.1% 81.0% 81.2% 80.5% 80.0% New Business Policies (000's) 115.6 107.4 117.1 137.2 116.2 % Chg Prior Year Same Qtr -0.5% 12.2% 42.7% 85.2% 89.9% Loss Trends (12 mo. rolling) Frequency -3.7% -6.5% -7.3% -5.3% -4.8% Severity 3.2% 5.1% 7.2% 4.9% 3.8% Total Loss Costs -0.6% -1.7% -0.6% -0.7% -1.2% Net Written Premiums $ 570,911 $565,972 $523,033 $536,309 $487,891 % Chg Prior Year Same Qtr 17.0% 18.3% 14.4% 17.6% 12.6% Net Earned Premiums $552,860 $528,512 $523,043 $497,332 $472,497 % Chg Prior Year Same Qtr 17.0% 16.3% 14.9% 11.4% 7.8% Frequency, severity and loss cost information is on a twelve month rolling newly reported claims incurred basis which may be different from paid. Safeco Property & Casualty Homeowners and Specialty (In Thousands Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ----------- ----------- ----------- ------------ ----------- ------------ ------------- Homeowners Underwriting Profit (Loss) $ (13,448) $19,501 $12,399 $ 5,501 $ (36,879) $ 6,053 $ (55,123) Loss and LAE Ratio 78.5% 60.9% 61.4% 68.9% 91.5% 69.7% 86.8% Expense Ratio 28.5% 28.8% 32.1% 28.2% 28.0% 28.7% 28.0% ----------- ----------- ----------- ------------ ----------- ------------ ------------- Combined Ratio 107.0% 89.7% 93.5% 97.1% 119.5% 98.4% 114.8% =========== =========== =========== ============ =========== ============ ============= Impact of Catastrophes 31.5% 4.3% 1.9% -3.4% 21.8% 18.0% 15.4% Impact of Non-Cat Weather 9.1% 6.8% 6.2% 11.4% 11.2% 8.0% 9.4% Policies In Force (000's) 1,232.8 1,263.0 1,290.5 1,324.1 1,349.3 % Chg Prior Year Same Qtr -9.1% -8.3% -8.2% -8.2% -8.9% Retention 82.8% 82.8% 82.5% 82.4% 81.7% New Business Policies (000's) 28.6 22.9 27.0 32.5 41.9 % Chg Prior Year Same Qtr -31.9% -27.4% -11.6% -8.6% 15.0% Net Written Premiums $ 215,334 $ 172,220 $ 175,245 $ 212,096 $ 213,607 % Chg Prior Year Same Qtr 0.8% 3.3% -1.7% 5.4% 7.0% Net Earned Premiums $ 192,128 $ 189,431 $ 192,112 $ 192,620 $ 189,273 % Chg Prior Year Same Qtr 1.5% 3.3% 2.8% 3.1% 2.5% Specialty Underwriting Profit $14,803 $11,493 $ 8,221 $ 9,626 $ 3,033 $26,296 $11,056 Loss and LAE Ratio 40.1% 46.3% 52.3% 50.0% 63.1% 43.2% 57.8% Expense Ratio 30.6% 30.6% 31.5% 31.2% 30.9% 30.6% 31.3% ----------- ----------- ----------- ------------ ----------- ------------ ----------- Combined Ratio 70.7% 76.9% 83.8% 81.2% 94.0% 73.8% 89.1% =========== =========== =========== =========== =========== ============ =========== Safeco Property & Casualty Safeco Business Insurance (SBI) (In Thousands Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Safeco Business Insurance Underwriting Loss $ (21,557) $ (5,186) $(17,623) $(23,445) $ (41,187) $(26,743) $(100,324) Loss and LAE Ratio 66.1% 62.8% 66.4% 67.0% 74.4% 64.4% 76.7% Expense Ratio 39.9% 38.7% 38.5% 39.6% 36.7% 39.3% 36.7% ----------- ----------- ----------- ----------- ----------- ----------- ----------- Combined Ratio 106.0% 101.5% 104.9% 106.6% 111.1% 103.7% 113.4% =========== =========== =========== =========== =========== =========== =========== Impact of Catastrophes 4.0% 0.9% -1.1% -1.2% 3.9% 2.4% 2.8% Impact of Non-Cat Weather 2.1% 1.9% 1.9% 2.5% 2.0% 2.0% 1.6% SBI Regular Underwriting Profit (Loss) $(11,531) $(5,287) $ 7,878 $ (11,972) $(24,997) $ (16,818) $(47,597) Loss and LAE Ratio 66.6% 63.8% 60.1% 66.5% 73.2% 65.2% 74.6% Expense Ratio 37.6% 38.2% 36.9% 38.2% 36.7% 37.9% 35.0% ----------- ----------- ----------- ----------- ----------- ----------- ----------- Combined Ratio 104.2% 102.0% 97.0% 104.7% 109.9% 103.1% 109.6% =========== =========== =========== =========== =========== =========== =========== Impact of Catastrophes 3.4% 1.7% -1.7% -1.1% 4.8% 2.5% 3.9% Impact of Non-Cat Weather 2.2% 1.7% 0.4% 1.6% 1.9% 2.0% 1.8% Policies In Force (000's) 511.1 517.2 529.7 537.1 549.0 % Chg Prior Year Same Qtr -6.9% -7.4% -8.9% -8.8% -9.0% Retention 76.7% 76.1% 76.0% 75.8% 75.2% New Business Policies (000's) 31.1 25.2 24.6 24.6 26.6 % Chg Prior Year Same Qtr 16.9% 13.7% 15.3% 22.5% 12.0% Net Written Premiums $308,396 $284,027 $258,106 $253,552 $277,950 % Chg Prior Year Same Qtr 11.0% 7.0% 17.2% 7.0% 6.9% Net Earned Premiums $272,133 $266,016 $262,262 $255,467 $ 251,461 % Chg Prior Year Same Qtr 8.2% 8.6% 7.0% 0.5% -3.9% Special Accounts Facility Underwriting Profit (Loss) $ (632) $ 6,412 $ 7,518 $ 3,895 $ (1,779) $ 5,780 $ 6,411 Combined Ratio 100.7% 92.7% 91.6% 94.8% 102.9% 96.8% 94.2% SBI Runoff Underwriting Loss $ (9,394) $ (6,311) $(33,019) $(15,368) $(14,411) $ (15,705) $(59,138) Safeco Property & Casualty Surety, Other and Total (In Thousands Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 ------------ ----------- ----------- ----------- ----------- ----------- ------------- Surety Underwriting Profit $ 6,836 $ 3,669 $ 6,076 $ 2,688 $ 5,750 $ 10,505 $ 8,879 Combined Ratio 82.2% 88.6% 81.4% 91.8% 81.5% 85.1% 85.4% P&C Other* Underwriting Loss $ (2,215) $(6,990) $ (17,264) $ (33,514) $ (7,569) $ (9,205) $ (12,413) Total Property & Casualty Underwriting Profit (Loss) $ (12,249) $ 20,983 $ (18,791) $ (45,330) $ (84,193) $8,734 $ (175,537) Loss and LAE Ratio 70.4% 67.9% 70.6% 72.1% 77.5% 69.1% 77.5% Expense Ratio 30.6% 30.3% 31.0% 31.9% 30.0% 30.5% 30.4% ------------ ----------- ----------- ----------- ----------- ----------- ------------- Combined Ratio 101.0% 98.2% 101.6% 104.0% 107.5% 99.6% 107.9% =========== =========== =========== =========== =========== =========== =========== Impact of Catastrophes 8.2% 1.1% 0.2% -0.9% 5.8% 4.8% 4.2% Impact of Non-Cat Weather 2.8% 1.9% 1.9% 3.2% 3.1% 2.4% 2.5% * 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. Catastrophes and Non-Catastrophe Weather Catastrophes $99,128 $13,321 $2,932 ($9,917) $64,832 $112,449 $92,371 Personal Auto 22,277 876 1,428 (581) 6,484 23,153 8,288 Homeowners 60,523 8,198 3,654 (6,638) 41,328 68,721 57,241 Safeco Business Insurance 14,274 3,165 (3,781) (4,157) 14,436 17,439 20,548 P&C Other 2,054 1,082 1,631 1,459 2,584 3,136 6,294 Non-Catastrophe Weather 33,955 22,504 22,179 36,302 35,441 56,459 56,730 Personal Auto 7,511 1,420 2,299 4,348 5,260 8,931 6,738 Homeowners 17,544 12,928 11,980 22,049 21,190 30,472 35,190 Safeco Business Insurance 7,635 6,888 6,515 8,725 7,304 14,523 12,477 P&C Other 1,265 1,268 1,385 1,180 1,687 2,533 2,325 Safeco Property & Casualty Statutory Information (In Thousands Except Ratios) Three Months Ended Six Months Ended Statutory: June 30 June 30 ------------------------ ------------------------- 2003 2002 2003 2002 ------------------------ ------------------------- Net Premiums Written $ 1,316,480 $ 1,184,373 $ 2,522,258 $ 2,271,925 Change in Unearned Premium* (114,669) (62,275) (157,399) (50,374) ----------- ------------ ------------ ------------ Net Premiums Earned 1,201,811 1,122,098 2,364,859 2,221,551 ----------- ------------ ------------ ------------ Net Losses Incurred 694,840 732,344 1,326,789 1,449,829 Loss Expense Incurred 151,816 130,989 308,954 266,993 Other U/W Expense Incurred 378,873 356,883 733,788 702,743 ----------- ------------ ------------ ------------ Total Losses and Expense 1,225,529 1,220,216 2,369,531 2,419,565 ----------- ------------ ------------ ------------ Underwriting Loss (23,718) (98,118) (4,672) (198,014) Investment Results Net Investment Income Earned 116,454 115,881 229,355 231,410 Net Realized Capital Gain 3,629 190,787 3,418 235,426 ----------- ------------ ------------ ------------ Net Gain from Investments 120,083 306,668 232,773 466,836 Other Income 1,601 1,055 3,200 2,253 ----------- ------------ ------------ ------------ Net Income before Dividends to Policyholders 97,966 209,605 231,301 271,075 Dividends to Policyholders 760 95 1,282 510 ----------- ------------ ------------ ------------ Net Income before Income Taxes 97,206 209,510 230,019 270,565 Income Tax Expense 44,430 45,737 54,836 39,566 ----------- ------------ ------------ ------------ Net Income $ 52,776 $ 163,773 $ 175,183 $ 230,999 =========== ============ ============ ============ 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2003 2003 2002 2002 2002 2003 2002 --------------------------------------------------------------------------------------------- Loss and Expense Ratios (Statutory) Losses and Loss Adj. Expense to Premiums Earned 70.4% 67.8% 69.5% 70.8% 77.0% 69.2% 77.3% Other Underwriting Expenses to Net Premiums Written 28.8% 29.2% 32.1% 30.9% 30.1% 29.1% 30.9% --------------------------------------------------------------------------------------------- Total Loss and Expense 99.2% 97.0% 101.6% 101.7% 107.1% 98.3% 108.2% Dividends to Policyholders to Premiums Earned 0.1% 0.0% 0.0% -0.6% 0.0% 0.1% 0.0% --------------------------------------------------------------------------------------------- Combined Ratio 99.3% 97.0% 101.6% 101.1% 107.1% 98.4% 108.2% ============================================================================================= Balance Sheet - Statutory P&C Companies Only** Loss Reserves $ 3,711 $ 3,700 $ 3,733 $ 3,793 $ 3,836 Loss Adj Expense Reserves 791 806 803 792 807 --------------------------------------------------------------- Total Loss Reserves $ 4,502 $ 4,506 $ 4,536 $ 4,585 $ 4,643 =============================================================== Unearned Premium Reserves $ 1,957 $ 1,845 $ 1,805 $ 1,839 $ 1,792 Reserves for Dividends to Policyholders 7 7 8 10 17 Net Admitted Assets 10,226 9,970 9,797 9,482 9,623 Total Capital and Surplus 2,600 2,571 2,511 2,166 2,163 Ratio of Net Premiums Written (Annualized) 1.94 1.89 1.83 2.12 2.06 to Total Capital and Surplus * Also reflects changes in accrued retrospective premiums. ** Certain 2003 amounts used are estimated and subject to change. Such changes are not expected to be material. Safeco Life & Investments Pretax Operating Earnings* (In Thousands) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD % 2003 2003 2002 2002 2002 2003 2002 Chg ------- -=------ -------- -------- ------- --------- -------- ------ Group $24,516 $29,047 $22,528 $22,407 $14,077 $ 53,563 $24,297 120.5% Income Annuities 8,356 10,074 13,933 11,499 7,292 18,430 16,081 14.6% Retirement Services 4,883 5,003 8,171 1,426 3,997 9,886 12,038 -17.9% Individual (507) 1,895 3,913 3,472 7,459 1,388 14,162 -90.2% Asset Management 166 73 171 935 1,725 239 4,055 -94.1% L&I Other 20,487 25,732 17,578 19,856 17,404 46,219 40,420 14.3% -------- ------- ------- ------- ------- --------- -------- ----- Pretax Operating Income $57,901 $71,824 $66,294 $59,595 $51,954 $ 129,725 $111,053 16.8% ======== ======= ======= ======= ======= ========= ======== ===== Safeco Life & Investments Operating Revenues (In Thousands) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD % 2003 2003 2002 2002 2002 2003 2002 Chg -------- -=------ -------- -------- ------- --------- -------- ------ Group $144,451 $142,323 $149,800 $149,351 $90,833 $ 286,774 $178,246 60.9% Income Annuities 130,742 131,428 136,518 134,012 128,935 262,170 258,614 1.4% Retirement Services 96,395 96,070 95,289 96,326 94,688 192,465 187,778 2.5% Individual 95,862 95,874 96,799 96,212 93,246 191,736 186,663 2.7% Asset Management 6,704 6,201 6,800 6,983 7,977 12,905 16,195 -20.3% L&I Other 50,773 55,491 47,527 47,508 45,027 106,264 94,339 12.6% -------- -------- -------- -------- -------- ----------- -------- ------ Operating Revenues $524,927 $527,387 $532,733 $530,392 $460,706 $ 1,052,314 $921,835 14.2% ======== -======= ======== ======== ======== =========== ======== ====== *Earnings before net realized investment gains (losses) and income taxes. This is a standard industry measurement and is used by management as the key measurement of Life & Investments segment profit or loss. It is presented as a supplement to net income as a measure of profitability. Safeco Life & Investments Supplemental Statistics 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD % 2003 2003 2002 2002 2002 2003 2002 Chg ------------ ---------- ----------- ----------- ----------- ----------- ----------- ------ Group Earned Premiums (000's) $ 141,623 $ 140,578 $ 145,717 $ 147,302 $ 89,027 $ 282,201 $ 174,941 61.3% Loss Ratio 56.3% 56.2% 59.2% 58.4% 59.8% 56.3% 59.8% 3.5 Income Annuities Reserves (in billions) $ 6.4 $ 6.3 $ 6.3 $ 6.3 $ 6.3 $ 6.4 $ 6.3 1.6% Deposits (000's) 35,750 28,481 37,185 34,140 20,651 64,231 35,757 79.6% Retirement Services Reserves Fixed (in billions) $ 6.4 $ 6.1 $ 5.9 $ 5.8 $ 5.6 $ 6.4 $ 5.6 14.3% Variable (in billions) 0.9 0.8 0.8 0.8 1.0 0.9 1.0 -10.0% ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------- Total Reserves 7.3 6.9 6.7 6.6 6.6 7.3 6.6 10.6% Deposits (000's) 328,427 332,235 338,042 271,358 391,260 660,662 747,954 -11.7% Individual Reserves $ 3,862 $ 3,804 $ 3,755 $ 3,708 $ 3,624 $ 3,862 $ 3,624 6.6% Policies Issued: Term, Universal Life, 6,536 5,885 6,341 5,191 5,379 12,421 10,681 16.3% Traditional, Disability Policies In Force 283,159 281,674 280,018 278,633 278,780 283,159 278,780 1.6% Asset Management Assets Under Management (in billions) $ 4.0 $ 3.7 $ 3.9 $ 3.7 $ 4.4 $ 4.0 $ 4.4 -9.1% Safeco Corporation Capitalization (In Millions) 06/30/2003 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 23.2 29.7 74.6 Long-Term Debt 7.875%, due 4/1/05 (callable at par on 4/1/03) - 200.0 200.0 6.875%, due 7/15/07 (non callable) 198.2 200.0 200.0 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) 403.2 390.6 - ------------------ ------------------- ------------------- Total Debt $ 1,124.6 $ 1,123.8 $ 1,096.6 =================== =================== =================== Capital Securities (callable at 104 in 2007) $ 844.0 $ 843.8 $ 843.4 =================== =================== =================== Common Equity $ 5,154.3 $ 4,431.6 $ 3,634.6 =================== =================== =================== Total Capital (Debt + Capital Securities + Equity) $ 7,122.9 $ 6,399.2 $ 5,574.6 =================== =================== =================== Debt to Capital 15.8% 17.6% 19.7% Debt and Capital Securities to Capital 27.6% 30.7% 34.8% Debt and Adj. Cap Securities* to Capital 25.3% 28.1% 31.8% Debt to Equity 21.8% 25.4% 30.2% Earnings to Fixed Charges Ratio** 1.5 1.3 Negative Interest Coverage Ratio** 8.3 5.0 Negative Operating Earnings to Fixed Charges Ratio** 5.0 3.1 Negative *20% equity credit ** The Earnings to Fixed Charges 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 Charges Ratio excludes net realized investment gains (losses) and interest on deposit contracts. Safeco Corporation Investment Portfolios - Consolidated (In Millions) Investment Portfolio (Market Value) 06/30/2003 % 12/31/2002 % ------------------- --------- ------------------- --------- Fixed Maturities - Taxable $ 23,427.8 82.6 % $ 22,169.2 82.8 % Fixed Maturities - Nontaxable 2,211.5 7.8 2,108.8 7.9 Equity Securities 1,167.3 4.1 1,082.5 4.0 ------------------- --------- ------------------- --------- Total Fixed Maturities & Equity Securities 26,806.6 94.5 25,360.5 94.7 Mortgage Loans 942.8 3.3 925.9 3.5 Other Invested Assets 184.9 0.7 173.8 0.6 Short-Term Investments 434.1 1.5 311.0 1.2 ------------------- --------- ------------------- --------- Total Consolidated Investment Portfolio $ 28,368.4 100.0 % $ 26,771.2 100.0 % =================== ========= =================== ========== Rating (Market Value) 06/30/2003 12/31/2002 ------------------- ------------------- AAA 35 % 37 % AA 7 7 A 24 24 BBB 28 25 BB or lower 5 5 Not Rated 1 2 ------------------- ------------------- Total 100 % 100 % ==================== =================== Average Rating A A ------------------- ------------------- Components of Net Realized Investment Gains (Losses) after Tax (in millions): 2nd 2nd QTR QTR 2003 2002 ------------------- ------------------- Gains on Securities Transactions $ 29.9 $ 138.5 Impairments on Fixed Maturities (24.8) (58.4) Impairments on Equity Securities (5.5) (9.2) Credit Default Swap Mark to Market 6.7 (10.3) Other 8.4 1.4 ------------------- ------------------- Net Realized Investment Gains $ 14.7 $ 62.0 =================== =================== Safeco Corporation Investment Portfolios - Property & Casualty (In Millions) Investment Portfolio (Market Value) 06/30/2003 % 12/31/2002 % ------------- -------------- -------------- ------------- Fixed Maturities - Taxable $ 5,377.8 59.7 % $ 5,383.0 61.2 % Fixed Maturities - Nontaxable 2,203.6 24.5 2,108.8 23.9 Equity Securities 1,017.0 11.3 947.9 10.8 ------------- -------------- -------------- ------------- Total Fixed Maturities & Equity Securities 8,598.4 95.5 8,439.7 95.9 Mortgage Loans 48.8 0.5 50.5 0.6 Other Invested Assets 15.6 0.2 15.6 0.2 Short-Term Investments 344.7 3.8 292.9 3.3 Total Property & Casualty ------------- -------------- -------------- ------------- Investment Portfolio $ 9,007.5 100.0 % $ 8,798.7 100.0 % ============= ============== ============== ============= Rating (Market Value) 06/30/2003 12/31/2002 ------------- -------------- AAA 41 % 45 % AA 12 11 A 25 22 BBB 18 17 BB or lower 3 3 Not Rated 1 2 ------------- -------------- Total 100 % 100 % ============= ============== Average Rating A+ AA ------------- -------------- 06/30/2003 03/31/2003 12/31/2002 09/30/2002 06/30/2002 ----------- ---------- ---------- ---------- ----------- Pretax Investment Income - Quarter $ 116.5 $ 112.8 $ 115.0 $ 114.5 $ 115.3 Effective Tax Rate on P&C Investment Income - Quarter 25.07% 26.64% 25.94% 26.57% 24.04% Cost or Amortized Cost $ 8,003 $ 8,145 $ 8,131 $ 7,903 $ 7,707 Market 9,008 8,877 8,799 8,627 8,416 % Equities (at market) 11.3% 10.2% 10.8% 10.5% 12.8% % Taxable Bonds (at market) 59.7% 59.2% 61.2% 60.3% 59.5% % Tax Exempt Bonds (at market) 24.5% 23.9% 23.9% 23.4% 23.9% % Short Term and Other 4.5% 6.7% 4.1% 5.8% 3.9% Market YTM on Bond Portfolio 3.71% 4.10% 4.17% 4.33% 5.09% Book YTM on Bond Portfolio 5.66% 6.02% 5.99% 6.19% 6.30% Duration of Bond Portfolio 4.57 5.23 5.26 4.91 5.70 Safeco Corporation Investment Portfolios - Life & Investments (In Millions) Investment Portfolio (Market Value) 06/30/2003 % 12/31/2002 % ------------- ------------- ------------- ------------ Fixed Maturities - Taxable $ 17,961.9 93.0 % $ 16,657.6 92.5 % Fixed Maturities - Nontaxable 7.9 0.0 0.8 0.0 Equity Securities 123.4 0.6 113.8 0.6 ------------- ------------- ------------- ------------ Total Fixed Maturities & Equity Securities 18,093.2 93.6 16,772.2 93.1 Mortgage Loans 966.5 5.0 948.6 5.3 Other Invested Assets 119.8 0.6 118.1 0.7 Short-Term Investments 145.2 0.8 165.8 0.9 ------------- ------------- ------------- ------------ Total Life & Investments Investment Portfolio $ 19,324.7 100.0 % $ 18,004.7 100.0 % ============= ============= ============ ============= Rating (Market Value) 06/30/2003 12/31/2002 ------------- ------------- AAA 33 % 34 % AA 4 5 A 24 25 BBB 32 29 BB or lower 6 5 Not Rated 1 2 ------------- ------------- Total 100 % 100 % ============= ============ Average Rating A A+ ------------- ------------- 06/30/2003 03/31/2003 12/31/2002 09/30/2002 06/30/2002 ----------- ---------- ---------- ---------- ---------- Cost or Amortized Cost $ 17,527 $ 17,259 $ 16,885 $ 16,704 $ 16,417 Market 19,325 18,489 18,005 17,797 17,019 % Equities (at market) 0.6% 0.6% 0.6% 0.6% 0.7% % Taxable Bonds (at market) 93.0% 92.4% 92.5% 92.1% 91.7% % Short Term and Other 6.4% 7.0% 6.9% 7.3% 7.6% Market YTM on Bond Portfolio 4.97% 5.50% 5.70% 5.80% 6.48% Book YTM on Bond Portfolio 6.73% 6.99% 7.18% 7.17% 7.41% Duration of Bond Portfolio 6.97 6.81 6.81 6.94 6.75
Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SAFECO CORPORATION --------------------------------- Registrant Dated: July 28, 2003 /s/ CHRISTINE B. MEAD --------------------------------- Christine B. Mead Senior Vice President, Chief Financial Officer and Secretary