EX-99.1 2 en0719ex.txt EX-99.1 [Safeco Logo] Second Quarter News Release and Statistical Supplement (Unaudited) July 20, 2004 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 Consolidated Statements of Income SS-7 Condensed Balance Sheets SS-8 Continuing Operations Income Summary SS-9 Property & Casualty Results Underwriting Profit and Combined Ratios SS-10 Net Written Premiums SS-11 Net Earned Premiums SS-12 Safeco Personal Insurance (SPI) SS-13 Safeco Business Insurance (SBI) SS-14 Surety, Other and Total SS-15 Statutory Information SS-16 Corporate Supplemental Information Investment Portfolio - Continuing Operations SS-17 Capitalization SS-18 Discontinued Operations (Life & Investments) Pretax Operating Earnings and Revenues SS-19 Supplemental Statistics and Assets and Liabilities of Discontinued Operations SS-20 [Safeco Logo] FOR RELEASE AT 7:45 a.m., Eastern Time INVESTOR RELATIONS CONTACT: Neal Fuller, 206-545-5537 MEDIA RELATIONS CONTACT: Paul Hollie, 206-545-3048 SAFECO POSTS STRONG PROFITS IN ALL MAJOR PROPERTY & CASUALTY SEGMENTS P&C Business Model and Automated Sales Platform Drive Excellent Results SEATTLE--(July 20, 2004)-- Highlights o Second-quarter net income of $247.5 million, or $1.77 per diluted share. o Underwriting profits exceeded targets in all major Property & Casualty segments. o Life & Investments sale on track to close in third quarter. ------------------------------------------------------------- ------------------------------- ------------------------------ Summary Financial Results after tax 3 Months Ended 6 Months Ended (In millions except per-share data) June 30 June 30 2004 2003 2004 2003 ------------------------------------------------------------- -------------- ---------------- --------------- -------------- Net Income S 247.5 $ 111.9 $ 483.7 $ 201.9 Per Diluted Share of Common Stock S 1.77 $ 0.81 $ 3.45 $ 1.45 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- Income from Continuing Operations S 248.9 $ 67.1 $ 434.5 $ 146.6 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- Net Realized Investment Gains from Continuing Operations S 55.2 $ 10.4 $ 83.0 $ 15.9 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- *Operating Earnings - Continuing Operations S 193.7 $ 56.7 $ 351.5 $ 130.7 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- Income (Loss) from Discontinued Operations S (1.4) $ 44.8 $ 49.2 $ 55.3 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- Net Realized Investment Gains (Losses) from Discontinued Operations S (31.8) $ 4.3 $ (21.3) $ (33.6) ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- *Operating Earnings - Discontinued Operations S 30.4 $ 40.5 $ 70.5 $ 88.9 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- *Consolidated Operating Earnings S 224.1 $ 97.2 $ 422.0 $ 219.6 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- Weighted Average Shares Outstanding (Diluted) 140.1 139.0 140.1 138.8 ------------------------------------------------------------- - ------------ --- ------------ --- ----------- --- ---------- * Operating Earnings is Net Income excluding Net Realized Investment Gains (Losses). Measures used in this news release that are not based on accounting principles generally accepted in the United States (GAAP) are defined and reconciled to the most directly comparable GAAP measure in our Form 8-K available through the SEC and online at http://www.safeco.com/safeco/investor/pdfs/04Q2_sup.pdf. ----------------------------------------------------------------------------------------------------------------------------
Safeco (NASDAQ: SAFC) today announced strong second-quarter results, reflecting the company's solid underwriting and the competitive strength of its automated sales platform. In addition, weather-related catastrophe losses were relatively light for the second quarter. The company posted net income of $247.5 million - or $1.77 per diluted share. This represents an increase over second-quarter 2003 net income, which was $111.9 million - or $0.81 per diluted share. Safeco's annualized return on equity (ROE) for the quarter was 18.7 percent, up from 10.2 percent in the second quarter of 2003. Consolidated operating annualized ROE - measured using operating earnings and shareholders' equity, excluding unrealized gains on bond investments - was 21.9 percent, compared with 11.8 percent in the same period last year. "These results demonstrate the effectiveness of operating our three major insurance lines - auto, homeowners and small commercial - on a single business platform," said Mike McGavick, Safeco chairman and chief executive officer. "These are lines of business where Safeco's cultural tradition of discipline gives us a real advantage." Continuing Operations Income from continuing Property & Casualty (P&C) operations was $248.9 million for the second quarter, up from $67.1 million in the same quarter last year. Net realized investment gains for the second quarter were $55.2 million, compared with $10.4 million in the same period of 2003. Operating earnings for the second quarter were $193.7 million, more than a threefold increase over the $56.7 million in the prior-year period. The overall P&C combined ratio was 85.4 in the second quarter, a significant improvement over the 101.0 posted in the same period last year. This was driven by improved underwriting results across all major P&C product lines. Combined ratio is a standard gauge of underwriting performance measuring the percentage of premium dollars used to pay customers' claims and expenses. The lower the ratio, the more effective the underwriting. A combined ratio below 100 indicates the line is operating profitably. "While we benefited from favorable weather, the underlying results are better than we expected and exceeded our P&C profit targets across the board," McGavick said. "This is especially gratifying given the second quarter is traditionally our weakest earnings quarter due to catastrophes and severe weather." Total revenues from continuing operations in the second quarter were $1.56 billion, up from $1.34 billion a year ago. Operating revenues, which exclude net realized investment gains, were $1.47 billion for the quarter, an 11.1 percent increase over second-quarter 2003. P&C net earned premiums increased 12.4 percent for the quarter to $1.35 billion compared with the same period last year. For the quarter, P&C net written premiums - a leading indicator of revenues in future quarters - increased 10.4 percent over second-quarter 2003. As previously announced, Safeco is on track to close the sale of its Life & Investments (L&I) business in the third quarter. Safeco Personal Insurance Performance Auto, Safeco's largest business line, reported a quarterly underwriting profit of $61.0 million - a major improvement over the $0.9 million underwriting loss in the second quarter of 2003. Auto's combined ratio in the second quarter was 90.5 - significantly better than the 100.2 combined ratio in the second quarter of 2003. During the quarter, Auto results benefited from $9.0 million in subrogation reserves, or a 1.4 point impact on the combined ratio. Net written premiums for Auto continue to grow at a healthy rate, increasing 16.2 percent in the second quarter, compared with a 17.1 percent increase in the same period last year. Second-quarter policies in force (PIF) grew 10.0 percent compared with a year ago, reflecting new-business growth and stable retention levels. "Segmentation within our auto product continues to be a key differentiator for Safeco. With our strong underwriting capability and our efforts to uncomplicate the sales process, we continue to see the opportunities for profitable growth," said McGavick. Safeco's Property insurance line, which includes homeowners, renters and related coverages, produced an underwriting profit of $79.3 million in the second quarter, compared with a $6.6 million underwriting loss in the second quarter of 2003. The Property combined ratio was 65.1 in the second quarter, compared with 102.9 in the second quarter of 2003 when Safeco experienced higher catastrophe losses associated with severe storms that tore through the Midwest and Southeast. Claims from catastrophe losses were $15.5 million in the second quarter of 2004, compared with $62.5 million in the same quarter last year. The catastrophe impact on the Property combined ratio was 6.8 points for second-quarter 2004 and 27.1 points in 2003. Safeco's proactive management of the homeowners line has helped improve profitability. Slightly better-than-expected weather also was a contributor. The homeowners line benefited from favorable reserve development of $17.0 million, or a 7.5 point impact on the combined ratio, primarily reflecting better-than-expected claims frequency and contract changes put into place beginning in 2002. "With our homeowners product once again offered across the country, we've seen a 6.5 percent uptick in new-business policies during the second quarter in our Property segment," said McGavick. Net written premiums in Property decreased 1.1 percent in the second quarter compared with a year ago. PIF declined 8.4 percent, compared with a 9.0 percent decline in the second quarter last year. Safeco Business Insurance Performance Safeco Business Insurance (SBI) reported an underwriting profit of $49.4 million in the second quarter, compared with a $12.1 million underwriting loss for the same period in 2003. Combined ratio in the second quarter was 87.9, compared with 103.3 in the second quarter of 2003. Claims from catastrophe losses were $4.5 million in the second quarter of 2004, versus $13.9 million in the second quarter of last year. The catastrophe impact on the combined ratio was 1.1 points in the second quarter of 2004 and 3.8 points in the same period of 2003. Net written premiums for SBI Regular - Safeco's core line of products for small- to medium-sized businesses - increased 8.1 percent for the second quarter over the same period last year. The Safeco Now single-platform interface continues to prove easy for agents to use as evidenced by the 14.3 percent increase in new-business policies for the businessowner policy (BOP) line over the second quarter of last year. Commercial auto new-business policies jumped 35.8 percent over second-quarter 2003 levels, and workers compensation new-business policies grew 11.6 percent. These lines represent 47 percent of SBI Regular's business. "These results are a testament to sound underwriting and the power of our automated platform in serving small-business customers," said McGavick. SBI Regular reported a combined ratio of 89.4, a substantial improvement over the 104.2 result in the same period last year. Surety Performance Surety posted an underwriting profit of $11.5 million in the second quarter, compared with a $6.8 million underwriting profit in the same quarter of 2003. Combined ratio for Surety was 75.7 in the second quarter, better than the 82.2 in the same quarter of 2003. Net written premiums grew 28.6 percent over the same period last year. "Surety continues to demonstrate the power of disciplined underwriting, and the team has capitalized on market conditions, resulting in strong production," said McGavick. P&C Other The P&C Other segment, which includes results from operations that Safeco has exited or placed in runoff, had an underwriting loss of $10.2 million in the second quarter, compared with an underwriting loss of $9.7 million in the same quarter of 2003. The losses reflect reserve strengthening. Discontinued Life & Investments Operation Life & Investments (L&I) produced pretax operating earnings of $33.8 million in the second quarter, compared with $60.9 million a year ago. Pretax operating earnings represent income from discontinued operations, excluding related income taxes and net realized investment gains and losses. The second-quarter results for 2004 include $6.2 million of accrued expenses associated with the sale of the business. In reporting L&I as a discontinued operation, indirect corporate overhead expenses are no longer allocated to L&I. Previously allocated expenses of $3.0 million per quarter in 2003 have been eliminated from the L&I Other segment and included in the Corporate segment. The Group product line reported a pretax operating loss of $2.9 million, compared with $24.5 million of pretax operating earnings posted in the second quarter of last year. The current quarter includes reserve strengthening of $15.7 million, stemming from recent higher medical claims cost trends. Income Annuities generated a $1.3 million pretax operating loss for the quarter, down from $8.4 million in pretax operating earnings in the second quarter of 2003. This decrease was due mainly to $4.7 million of unfavorable prepayment adjustments on mortgage-backed securities compared with favorable adjustments of $3.4 million in the same quarter of last year. Retirement Services had pretax operating earnings of $3.2 million in the second quarter, compared with $4.9 million a year earlier. The decline reflects the impact of reinvestment in securities at lower interest rates, partially offset by corresponding lower rates on fixed annuities and improved indexed annuity investment margins. The Individual line had pretax operating earnings of $4.4 million in the second quarter of 2004, compared with a pretax operating loss of $0.5 million in the same period last year. The increase is primarily the result of improved mortality experience. Net realized investment losses from Discontinued Operations include $59.0 million in after-tax impairments of securities in connection with the sale of L&I. Accounting rules require impairment recognition of any unrealized losses on L&I securities that are not expected to recover in value before the close of the L&I sale. Corporate During the quarter, Safeco repurchased 885,000 shares of its common stock for a total of $38.0 million. This activity was part of Safeco's previously announced share repurchase program, under which 1,487,088 shares remain available for repurchase. Additional Financial Information Available Safeco uses both GAAP and non-GAAP financial measures to track the performance of its operations. The definition of each non-GAAP measure and reconciliation to the most directly comparable GAAP measure are included in Safeco's Form 8-K that will be furnished to the U.S. Securities and Exchange Commission today. The Form 8-K will include this news release and Safeco's summary financial results, consolidated statements of income and condensed balance sheets in the company's second-quarter financial supplement. Safeco's second-quarter press release, financial supplement and 8-K are available online at http://www.safeco.com/safeco/investor/pdfs/04Q2_sup.pdf. Management Reviews Results on Webcast Safeco's senior management team will discuss the company's second-quarter performance with analysts today at 11 a.m., Eastern Time (8 a.m., Pacific Time). The conference call will be broadcast live on the Internet at http://www.safeco.com/irwebcast and archived later in the day for replay. Safeco, in business since 1923, is a Fortune 500 company based in Seattle that sells insurance and investment products through independent agents, brokers and financial advisors nationwide. More information about Safeco can be found at www.safeco.com. ### ------------------------------------------------------------------------------- Forward-looking information contained in this news release is subject to risk and uncertainty Forward-looking information contained in this release is subject to risk and uncertainty. Information contained in this release that relates to anticipated financial performance, business prospects and plans, regulatory developments and similar matters are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements in this release that are not historical information are forward-looking. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this release. The risks and uncertainties include, but are not limited to: >> Risks related to the pricing and underwriting of our products, and the subsequent establishment of reserves, such as: o Successful implementation of a new-business entry model for personal and commercial lines o Ability to appropriately price and reserve for changes in the mix of our book of business o Ability to establish pricing for any changes in driving patterns o Inflationary pressures on medical care costs, auto parts and repair, construction costs and other economic factors that increase the severity of claims o The availability and pricing of our reinsurance, including coverage for loss from terrorism and our ability to collect from our reinsurers o The ability to price for or exclude the risk of loss from terrorism on our policies >> Risks related to our P&C insurance strategy, such as: o Our ability to achieve premium targets and profitability, including realization of growth and business retention estimates o Our ability to achieve overall expense goals o Our ability to run off our London business and other businesses that we have exited, or intend to exit in the future, without incurring material unexpected charges >> Regulatory, judicial and legislative risks, such as: o Our ability to freely enter and exit lines of business o Our ability to successfully obtain regulatory approval of rates and underwriting guidelines, including price-tiered products and the use of insurance scores that include credit information as a component o Interpretation of insurance policy provisions by courts or tax authorities, court decisions regarding coverage and theories of liability, trends in litigation and changes in claims settlement practices o The outcome of any litigation against us o Legislative and regulatory developments affecting the actions of insurers, including requirements regarding rates, taxes and availability of coverage >> The competitive pricing environment, initiatives by competitors and changes in the competition >> Unusual loss activity, such as: o Weather conditions, including the severity and frequency of storms, hurricanes, hail, snowfall and winter conditions o The occurrence of significant natural disasters, including earthquakes o The occurrence of significant man-made disasters, such as the terrorist attacks on September 11, 2001, or war o The occurrence of bankruptcies that result in losses on insurance products or investments >> Our ability to successfully complete the sale of the L&I businesses >> Financial and economic conditions, such as: o Performance of financial markets o Availability of bank credit facilities o Fluctuations in interest rates o General economic conditions >> Operational risks, such as: o Damage to our infrastructure resulting in a disruption of our operations o Internal or external fraud perpetrated against us We assume no obligation to update any forward-looking statements contained in this news release. ------------------------------------------------------------------------------- [Safeco Logo] Financial Supplement Second Quarter, 2004 On January 1, 2004, we made minor revisions to our Property & Casualty (P&C) segments, which are more reflective of how these segments are managed. Our non-voluntary auto and property results, previously in P&C Other, are now included in SPI Auto and SPI Property. Certain products, previously reported in Specialty, primarily earthquake, inland marine and dwelling fire, are now included in Property. Our commercial specialty programs and large commercial accounts in runoff, previously SBI Runoff, are now included in P&C Other. All prior periods have been restated to reflect the revised presentation of P&C segments. On March 15, 2004, we entered into a definitive agreement to sell our Life & Investments (L&I) operations. We have presented the results of L&I as a Discontinued Operation, as required by Financial Accounting Standards Board Statement of Financial Accounting Standards 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Prior-period amounts have been restated to reflect the presentation of L&I as a Discontinued Operation. In reporting L&I as a Discontinued Operation, indirect corporate overhead expenses are no longer allocated to L&I. Previously allocated expenses of $3.0 million per quarter in 2003 have been eliminated from the L&I Other segment and included in our Corporate segment. This report is for informational purposes only. The financial statements and financial exhibits included in this supplement are unaudited. These financial statements and financial exhibits should be read in conjunction with the financial statements filed with the Securities and Exchange Commission in the Corporation's quarterly 10-Q and annual 10-K filings. Neal Fuller Vice President - Finance 206-545-5537 neaful@safeco.com ------------------------------------------------------------------------------- Safeco Corporation Financial Measures Used by Safeco (Amounts are in millions or thousands as specified, except ratio and per share information.) How We Report Our Results Property & Casualty (P&C) businesses include the following segments: Safeco Personal Insurance (SPI) Auto Property Specialty Safeco Business Insurance (SBI) SBI Regular SBI Special Accounts Facility Surety P&C Other Corporate includes all other activities, primarily the financing of our business activities. Our discontinued Life & Investments (L&I) operations include the following segments: Group Income Annuities Retirement Services Individual Asset Management L&I Other Certain reclassifications have been made to the prior-year amounts to conform to the current-year presentation. In addition to financial measures presented in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP), we also use certain non-GAAP financial measures to analyze and report our financial results. Management believes that these non-GAAP measures, when used in conjunction with the consolidated financial statements, can aid in understanding our financial condition and results of operations. These non-GAAP measures are not a substitute for GAAP measures, and where these measures are described we provide tables that reconcile the non-GAAP measures to the GAAP measures reported in our consolidated financial statements. Operating Revenues - Continuing Operations Operating revenues is a non-GAAP financial measure used by management to analyze the revenues of our P&C and Corporate operations. It excludes net realized investment gains and losses that can fluctuate significantly and distort a comparison between periods. The following table provides a reconciliation of operating revenues from continuing operations to revenues, the most directly comparable GAAP measure. Three Months Ended Six Months Ended June 30 June 30 ----------------------------------------------------- 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Total Revenues $ 1,555.8 $ 1,340.0 $ 3,054.1 $ 2,633.5 Net Realized Investment Gains (84.9) (15.7) (127.7) (23.9) ------------------------------------------------------ Operating Revenues - Continuing Operations $ 1,470.9 $ 1,324.3 $ 2,926.4 $ 2,609.6 -----------------------------------------------------------------------------------------------------------
Operating Earnings - Continuing Operations Operating earnings is a non-GAAP financial measure that we use to assess the profitability of our P&C and Corporate operations. In the determination of operating earnings from continuing operations, we exclude net realized investment gains and losses from Income from Continuing Operations. Net realized investment gains and losses can fluctuate significantly and distort a comparison between periods. The following table reconciles operating earnings to Income from Continuing Operations, the most directly comparable GAAP measure. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Income from Continuing Operations $ 248.9 $ 67.1 $ 434.5 $ 146.6 Net Realized Investment Gains, Net of Taxes (55.2) (10.4) (83.0) (15.9) ------------------------------------------------------ Operating Earnings-Continuing Operations $ 193.7 $ 56.7 $ 351.5 $ 130.7 -----------------------------------------------------------------------------------------------------------
Consolidated Operating Return on Equity Operating return on equity is a ratio we calculate using non-GAAP measures. It is calculated by dividing the annualized consolidated operating earnings (see calculation below) for the most recent quarter by the average ending shareholders' equity for the quarter using a simple average of the beginning and ending balances for the quarter, excluding from equity after-tax unrealized investment gains and losses on fixed maturities. This ratio provides management with an additional measure to evaluate Safeco's results excluding the unrealized changes in the valuation of its fixed maturities portfolio that can fluctuate between periods. The following table reconciles operating return on equity to return on equity, the most directly comparable GAAP measure. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ (Annualized) 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Net Income $ 247.5 $ 111.9 $ 483.7 $ 201.9 Average Shareholders' Equity 5,293.1 4,380.1 5,037.4 4,380.1 Return on Equity Based on Annualized Net Income 18.7% 10.2% 19.2% 9.2% Income (Loss) from Discontinued Operations, Net of Taxes $ (1.4) $ 44.8 $ 49.2 $ 55.3 Net Realized Investment (Gains) Losses from Discontinued Operations, Net of Taxes 31.8 (4.3) 21.3 33.6 ------------------------------------------------------ Operating Earnings-Discontinued Operations 30.4 40.5 70.5 88.9 Operating Earnings-Continuing Operations 193.7 56.7 351.5 130.7 ------------------------------------------------------ Consolidated Operating Earnings $ 224.1 $ 97.2 $ 422.0 $ 219.6 ------------------------------------------------------ Average Shareholders' Equity $ 5,293.1 $ 4,380.1 $ 5,037.4 $ 4,380.1 Average Unrealized Fixed Maturities Investment Gains, Net of Taxes Investment Gains, Net of Tax 1,195.6 1,090.3 1,047.8 1,090.3 ------------------------------------------------------ Adjusted Average Shareholders' Equity $ 4,097.5 $ 3,289.8 $ 3,989.6 $ 3,289.8 Operating Return on Equity Based on Annualized Consolidated Operating Earnings 21.9% 11.8% 21.2% 13.4% -----------------------------------------------------------------------------------------------------------
Property & Casualty Net Written Premiums Net written premiums is a non-GAAP measure representing the amount of premium charged for policies issued during the period. Premiums are reflected as revenue in the Consolidated Statements of Income as they are earned over the underlying policy period. Net written premiums applicable to the unexpired term of a policy are recorded as unearned premiums on our Consolidated Balance Sheets. Safeco's management views net written premiums as a measure of business production for the period under review and as a leading indicator of earned premiums. The following table reconciles net written premiums to net earned premiums, the most directly comparable GAAP measure on our Consolidated Statements of Income. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Total Property & Casualty Net Earned Premiums $ 1,351.4 $ 1,201.8 $ 2,691.9 $ 2,364.9 Change in Unearned Premiums 102.6 114.7 137.8 157.4 ------------------------------------------------------ Total Property & Casualty Net Written Premiums $ 1,454.0 $ 1,316.5 $ 2,829.7 $ 2,522.3 -----------------------------------------------------------------------------------------------------------
Segment Results Measures We have provided the following table that details by segment the GAAP measure Income from Continuing Operations before Income Taxes on our Consolidated Statements of Income. This is the most directly comparable GAAP measure used to reconcile to Property & Casualty underwriting profit. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Property & Casualty Income before Income Taxes $ 395.1 $ 109.1 $ 679.8 $ 241.4 Corporate Loss before Income Taxes (28.5) (20.8) (53.7) (46.5) ------------------------------------------------------ Income from Continuing Operations before Income Taxes $ 366.6 $ 88.3 $ 626.1 $ 194.9 -----------------------------------------------------------------------------------------------------------
Property & Casualty Underwriting Profit and Combined Ratios Underwriting profit represents the net amount of earned premiums less underwriting losses and expenses on a pretax basis. Management views underwriting profit as a critical measure to assess the underwriting effectiveness of the P&C operations and to evaluate the results of these business units. The related investment portfolio is managed separately from these underwriting businesses and, accordingly, net investment income and net realized investment gains and losses are discussed separately. The following table reconciles underwriting profit to Income from Continuing Operations before Income Taxes, the most directly comparable GAAP measure on our Consolidated Statements of Income. Combined ratios are a standard gauge of underwriting performance and are calculated as losses and expenses expressed as a percentage of net earned premiums. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Property & Casualty Income before Income Taxes $ 395.1 $ 109.1 $ 679.8 $ 241.4 Property & Casualty Net Investment Income (115.8) (116.5) (227.5) (229.3) Property & Casualty Restructuring Charges 0.1 -- 1.4 -- Property & Casualty Net Realized Investment Gains (81.7) (4.9) (120.6) (3.4) ------------------------------------------------------ Total Underwriting Profit (Loss) $ 197.7 $ (12.3) $ 333.1 $ 8.7 -----------------------------------------------------------------------------------------------------------
Life & Investments Pretax Operating Earnings - Discontinued Operations Our Discontinued Life & Investments' results are evaluated based on pretax operating earnings, a non-GAAP measure, which excludes net realized investment gains and losses. Management believes the presentation of pretax operating earnings enhances the understanding of our L&I results of operations by excluding net realized investment gains and losses, which can fluctuate significantly and distort a comparison between periods. The following table reconciles pretax operating earnings to Income (Loss) from Discontinued Operations, Net of Taxes, the most directly comparable GAAP measure on our Consolidated Statements of Income. Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------ 2004 2003 2004 2003 ----------------------------------------------------------------------------------------------------------- Income (Loss) from Discontinued Operations, Net of Taxes $ (1.4) $ 44.8 $ 49.2 $ 55.3 Income taxes on Discontinued Operations (13.7) 22.8 13.2 29.1 Life & Investments Net Realized Investment (Gains) Losses, pretax 48.9 (6.7) 32.7 51.4 ------------------------------------------------------ Pretax Operating Earnings $ 33.8 $ 60.9 $ 95.1 $ 135.8 -----------------------------------------------------------------------------------------------------------
Other Information in this Supplement Frequency, severity and loss cost information is on a newly reported, claims incurred, basis which may be different from paid. Catastrophes are events resulting in losses greater than $500,000, involving multiple claims and policyholders. Safeco has used this definition since 1991. Certain reclassifications have been made to the prior periods to conform to the current presentation. NM = Not Meaningful Safeco Corporation Key Metrics (In Millions Except Per Share Data) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD YTD 2004 2004 2003 2003 2003 2004 2003 Change ----------- ----------- ------------ ------------ ----------- ---------- ---------- ---------- Net Income (Loss) $ 247.5 $ 236.2 $ 166.2 $ (28.9) $ 111.9 $ 483.7 $ 201.9 140% Net Income (Loss) Per Share 1.77 1.69 1.19 (0.21) 0.81 3.45 1.45 138% Net Income Return on Equity (unadjusted) annualized 18.7% 17.9% 13.8% -2.5% 10.2% 19.2% 9.2% 10.0 Net Realized Investment Gains (Losses), after tax from Continuing Operations 55.2 27.8 22.2 7.8 10.4 83.0 15.9 422% Operating Earnings (Loss) from Continuing Operations 193.7 157.8 116.8 (7.9) 56.7 351.5 130.7 169% Operating Earnings (Loss) from Continuing Operations Per Share 1.38 1.13 0.84 (0.06) 0.41 2.51 0.94 167% Consolidated Operating Return on Equity (Pre-FAS 115) annualized 21.9% 20.4% 17.2% 4.0% 11.8% 21.2% 13.4% 7.8 Consolidated Operating Return on Equity (unadjusted) annualized 16.9% 15.0% 12.6% 2.9% 8.9% 16.8% 10.0% 6.8 Operating Revenues from Continuing Operations $ 1,470.9 $ 1,455.5 $1,402.6 $1,367.7 $ 1,324.3 $2,926.4 $2,609.6 12% % Chg Prior Year Same Qtr 11.1% 13.2% 9.3% 9.5% 9.6% Discontinued Ops.-Life & Investments Pretax Operating Earning $ 33.8 $ 61.3 $ 53.3 $ 44.1 $ 60.9 $ 95.1 $ 135.8 -30% % Chg Prior Year Same Qt -44.5% -18.2% -19.6% -26.0% 17.1% Property & Casualty Combined Ratio 85.4% 89.9% 92.8% 108.6% 101.0% 87.6% 99.6% -12.0 Impact of Catastrophes 2.1% 0.9% 1.6% 1.7% 8.2% 1.5% 4.8% -3.3 Net Written Premiums $ 1,454.0 $ 1,375.7 $1,277.3 $1,314.7 $ 1,316.5 $2,829.7 $2,522.3 12% % Chg Prior Year Same Qtr 10.4% 14.1% 13.0% 11.2% 11.2% Net Earned Premiums $ 1,351.4 $ 1,340.5 $1,286.5 $1,250.4 $ 1,201.8 $2,691.9 $2,364.9 14% % Chg Prior Year Same Qtr 12.4% 15.3% 10.5% 10.1% 7.1% Book Value Per Share $ 36.36 $ 39.77 $ 36.24 $ 35.61 $ 37.22 $ 36.36 $ 37.22 -2% % Chg Prior Year Same Qtr -2.3% 20.5% 13.0% 12.1% 28.7% Book Value Per Share (Pre-FAS 115) $ 30.20 $ 28.65 $ 27.21 $ 25.35 $ 25.72 $ 30.20 $ 25.72 17% % Chg Prior Year Same Qtr 17.4% 16.2% 11.6% 7.6% 6.2% Safeco Corporation Consolidated Statements of Income (In Millions Except Per Share Data) Three Months Ended Six Months Ended June 30 June 30 -------------------------- ------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ----------- (Unaudited) (Unaudited) REVENUES Property & Casualty Earned Premiums $1,351.4 $ 1,201.8 $2,691.9 $ 2,364.9 Net Investment Income 119.1 119.8 234.1 239.4 Net Realized Investment Gains 84.9 15.7 127.7 23.9 Other 0.4 2.7 0.4 5.3 ------------ ------------ ------------ ----------- Total 1,555.8 1,340.0 3,054.1 2,633.5 ------------ ------------ ------------ ----------- EXPENSES Losses and Loss Adjustment Expenses 776.3 846.7 1,602.3 1,635.8 Other Underwriting and Operating Expenses 158.8 164.1 312.9 322.5 Amortization of Deferred Policy Acquisition Costs 222.5 210.0 449.4 414.6 Interest Expense 31.5 30.9 62.0 65.7 Restructuring Charges 0.1 - 1.4 - ------------ ------------ ------------ ----------- Total 1,189.2 1,251.7 2,428.0 2,438.6 ------------ ------------ ------------ ----------- Income from Continuing Operations before Income Taxes 366.6 88.3 626.1 194.9 Provision for Income Taxes on: Income from Continuing Operations before Net Realized Investment Gains 88.0 15.9 146.9 40.3 Net Realized Investment Gains 29.7 5.3 44.7 8.0 ------------ ------------ ------------ ----------- Total Income Taxes 117.7 21.2 191.6 48.3 ------------ ------------ ------------ ----------- Income from Continuing Operations 248.9 67.1 434.5 146.6 Income (Loss) from Discontinued Operations, Net of Taxes (5.3) 44.8 45.3 55.3 Net Gain on Disposition 3.9 - 3.9 - ------------ ------------ ------------ ----------- Net Income $ 247.5 $ 111.9 $ 483.7 $ 201.9 ============ ============ ============ =========== INCOME PER SHARE OF COMMON STOCK - DILUTED Income from Continuing Operations $ 1.78 $ 0.49 $ 3.10 $ 1.05 Income (Loss) from Discontinued Operations (0.04) 0.32 0.32 0.40 Net Gain on Disposition 0.03 - 0.03 - ------------ ------------ ------------ ----------- Net Income $ 1.77 $ 0.81 $ 3.45 $ 1.45 ============ ============ ============ =========== INCOME PER SHARE OF COMMON STOCK - BASIC Income from Continuing Operations $ 1.79 $ 0.49 $ 3.12 $ 1.06 Income (Loss) from Discontinued Operations (0.04) 0.32 0.33 0.40 Net Gain on Disposition 0.03 - 0.03 - ------------ ------------ ------------ ----------- Net Income $ 1.78 $ 0.81 $ 3.48 $ 1.46 ============ ============ ============ =========== Dividends Declared $ 0.185 $ 0.185 $ 0.37 $ 0.37 Average Number of Shares Outstanding During the Period: Diluted 140.1 139.0 140.1 138.8 Basic 139.1 138.4 139.0 138.3 Safeco Corporation Condensed Balance Sheets (In Millions) June 30 December 31 2004 2003 ----------------- ----------------- (Unaudited) ASSETS Total Investments * $ 9,536.1 $ 9,344.2 Cash and Cash Equivalents 382.1 319.0 Reinsurance Recoverables 376.8 372.0 Other Assets 3,695.2 3,563.3 Assets of Discontinued Operations 22,313.1 22,548.9 ----------------- ----------------- Total Assets $ 36,303.3 $ 36,147.4 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Property & Casualty Loss and Loss Adjustment Expense Reserves $ 5,071.9 $ 5,044.6 Debt ** 1,951.3 1,951.3 Unearned Premiums and Other Liabilities 4,312.6 4,185.5 Liabilities of Discontinued Operations 19,916.1 19,942.7 ----------------- ----------------- Total Liabilities 31,251.9 31,124.1 ----------------- ----------------- Commitments and Contingencies - - Preferred Stock, No Par Value Shares Authorized: 10; Shares Issued and Outstanding: None - - Common Stock, No Par Value Shares Authorized: 300; Shares Reserved for Options: 10.4; 11.6 Shares Issued and Outstanding: 138.9; 138.6 1,207.6 1,197.3 Retained Earnings 2,740.8 2,308.7 Accumulated Other Comprehensive Income 1,103.0 1,517.3 ----------------- ----------------- Total Shareholders' Equity 5,051.4 5,023.3 ----------------- ----------------- Total Liabilities & Shareholders' Equity $ 36,303.3 $ 36,147.4 ================= ================= * See Investment Portfolio - Continuing Operations (SS-17) for more detail. ** See Capitalization (SS-18) for more detail. Safeco Corporation Continuing Operations Income Summary (In Millions) Three Months Ended Six Months Ended June 30 June 30 ------------------------- ---------------------------- 2004 2003 2004 2003 ------------ ----------- ------------- ------------- (Unaudited) (Unaudited) Income from Continuing Operations Before Income Taxes ----------------------------------------------------- Property & Casualty P&C Underwriting Profit (Loss) $197.7 $ (12.3) $ 333.1 $ 8.7 P&C Net Investment Income 115.8 116.5 227.5 229.3 Restructuring Charges (0.1) - (1.4) - ------------ ----------- ------------- ------------- Total Property & Casualty 313.4 104.2 559.2 238.0 Corporate (31.7) (31.6) (60.8) (67.0) ------------ ----------- ------------- ------------- Total 281.7 72.6 498.4 171.0 Net Realized Investment Gains 84.9 15.7 127.7 23.9 ------------ ----------- ------------- ------------- Total Income from Continuing Operations Before Income Taxes $366.6 $ 88.3 $ 626.1 $ 194.9 ============ =========== ============= ============= Total Provision for Income Taxes $117.7 $ 21.2 $ 191.6 $ 48.3 -------------------------------- ============ =========== ============= ============= After-Tax Income ---------------- Property & Casualty P&C Underwriting Profit (Loss) $128.6 $ (7.6) $ 221.1 $ 6.2 P&C Net Investment Income 86.4 87.2 167.9 170.0 Restructuring Charges (0.1) - (0.9) - ------------ ----------- ------------- ------------- Total Property & Casualty 214.9 79.6 388.1 176.2 Corporate (21.2) (22.9) (36.6) (45.5) ------------ ----------- ------------- ------------- Total 193.7 56.7 351.5 130.7 Net Realized Investment Gains 55.2 10.4 83.0 15.9 ------------ ----------- ------------- ------------- Total Income from Continuing Operations $248.9 $ 67.1 $ 434.5 $ 146.6 ============ =========== ============= ============= Safeco Property & Casualty Underwriting Profit and Combined Ratios (In Millions) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD Net U/W Profit (Loss) 2004 2004 2003 2003 2003 2004 2003 ----------------------------------- ------------ ----------- --------- ---------- --------- ------------ ------------ Safeco Personal Insurance Auto $ 61.0 $ 23.1 $ 23.0 $ 32.2 $ (0.9) $ 84.1 $ (7.5) Property 79.3 61.4 47.0 40.5 (6.6) 140.7 21.4 Specialty 6.7 6.4 5.0 6.7 10.2 13.1 15.5 ------------ ----------- --------- ---------- --------- ------------ ------------ Total SPI 147.0 90.9 75.0 79.4 2.7 237.9 29.4 ------------ ----------- --------- ---------- --------- ------------ ------------ Safeco Business Insurance SBI Regular 31.9 23.8 39.5 (51.3) (11.5) 55.7 (16.8) SBI Special Accounts Facility 17.5 18.5 11.9 5.8 (0.6) 36.0 5.8 ------------ ----------- --------- ---------- --------- ------------ ------------ Total SBI 49.4 42.3 51.4 (45.5) (12.1) 91.7 (11.0) ------------ ----------- --------- ---------- --------- ------------ ------------ Surety 11.5 9.3 8.6 8.5 6.8 20.8 10.5 P&C Other* (10.2) (7.1) (42.2) (149.8) (9.7) (17.3) (20.2) ------------ ----------- --------- ---------- --------- ------------ ------------ Total Property & Casualty $ 197.7 $ 135.4 $ 92.8 $(107.4) $ (12.3) $ 333.1 $ 8.7 ============ =========== ========= ========== ========= ============ ============ Net Combined Ratios (GAAP) --------------------------- Safeco Personal Insurance Auto 90.5% 96.3% 96.2% 94.4% 100.2% 93.3% 100.7% Property 65.1 73.1 79.8 82.4 102.9 69.1 95.3 Specialty 69.4 70.0 76.7 68.6 50.2 69.7 61.3 ------------ ----------- --------- ---------- --------- ------------ ------------ Total SPI 83.5 89.5 91.2 90.4 99.7 86.5 98.1 ------------ ----------- --------- ---------- --------- ------------ ------------ Safeco Business Insurance SBI Regular 89.4 92.1 86.1 118.6 104.2 90.7 103.1 SBI Special Accounts Facility 83.8 84.2 88.3 94.3 100.7 84.0 96.8 ------------ ----------- --------- ---------- --------- ------------ ------------ Total SBI 87.9 89.9 86.7 112.2 103.3 88.9 101.5 ------------ ----------- --------- ---------- --------- ------------ ------------ Surety 75.7 79.6 79.9 78.8 82.2 77.6 85.1 P&C Other* NM NM NM NM NM NM NM ------------ ----------- --------- ---------- --------- ------------ ------------ Total Property & Casualty 85.4% 89.9% 92.8% 108.6% 101.0% 87.6% 99.6% ============ =========== ========= ========== ========= ============ ============ * P&C Other includes large commercial business accounts, commercial specialty programs and London operations that are in runoff and certain product lines that we have exited. Safeco Property & Casualty Net Written Premiums (In Millions) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Net Written Premiums -------------------- Safeco Personal Insurance Auto $ 655.4 $ 668.9 $ 606.2 $ 610.5 $ 563.8 $ 1,324.3 $1,123.2 Property 252.8 206.6 214.6 246.7 255.6 459.4 463.7 Specialty 28.2 20.8 17.9 22.8 25.8 49.0 44.9 ------------ ---------- ----------- ----------- ----------- ------------ ----------- ToPI 936.4 896.3 838.7 880.0 845.2 1,832.7 1,631.8 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Safeco Business Insurance SBI Regular 333.4 312.9 283.0 281.5 308.4 646.3 592.4 SBI Special Accounts Facility 107.6 117.8 110.3 103.7 94.7 225.4 191.8 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Total SBI 441.0 430.7 393.3 385.2 403.1 871.7 784.2 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Surety 60.3 48.7 46.8 49.9 46.9 109.0 82.1 P&C Other 16.3 - (1.5) (0.4) 21.3 16.3 24.2 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Total Property & Casualty $1,454.0 $1,375.7 $ 1,277.3 $ 1,314.7 $ 1,316.5 $ 2,829.7 $2,522.3 ============ ========== =========== =========== =========== ============ =========== Net Written Premiums (Percent Change) Percent Change Over Prior Year Same Quarter Percent Change YTD ------------------------------------- ------------------------------------------- ------------------ Safeco Personal Insurance Auto 16.2% 19.6% 17.5% 15.3% 17.1% 17.9% 17.8% Property -1.1 -0.7 1.8 -2.8 - -0.9 1.1 Specialty 9.3 8.9 5.9 8.6 6.6 9.1 7.7 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Total SPI 10.8 13.9 12.8 9.4 11.0 12.3 12.2 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Safeco Business Insurance SBI Regular 8.1 10.2 9.6 11.0 11.0 9.1 9.0 SBI Special Accounts Facility 13.6 21.3 11.2 17.6 13.4 17.5 18.8 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Total SBI 9.4 13.0 10.1 12.7 11.5 11.2 11.2 ------------ ---------- ----------- ----------- ----------- ------------ ----------- Surety 28.6 38.4 44.4 29.9 30.8 32.8 30.7 P&C Other NM NM NM NM NM NM NM ------------ ---------- ----------- ----------- ----------- ------------ ----------- Total Property & Casualty 10.4% 14.1% 13.0% 11.2% 11.2% 12.2% 11.0% ============ ========== =========== =========== =========== ============ =========== Safeco Property & Casualty Net Earned Premiums (In Millions) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ---------- ---------- ---------- ----------- ---------- ----------- ------------ Net Earned Premiums ------------------- Safeco Personal Insurance Auto $ 643.5 $ 620.1 $ 599.2 $ 574.1 $ 546.1 $1,263.6 $1,068.2 Property 227.5 228.2 232.9 229.9 230.6 455.7 458.1 Specialty 22.1 21.2 21.5 21.4 20.4 43.3 40.1 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Total SPI 893.1 869.5 853.6 825.4 797.1 1,762.6 1,566.4 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Safeco Business Insurance SBI Regular 299.5 302.4 284.0 275.4 272.1 601.9 538.1 SBI Special Accounts Facility 108.0 116.7 102.1 100.6 93.2 224.7 181.1 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Total SBI 407.5 419.1 386.1 376.0 365.3 826.6 719.2 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Surety 47.6 45.4 43.0 40.0 38.5 93.0 70.6 P&C Other 3.2 6.5 3.8 9.0 0.9 9.7 8.7 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Total Property & Casualty $1,351.4 $1,340.5 $1,286.5 $ 1,250.4 $ 1,201.8 $2,691.9 $2,364.9 ========= ========== ========== =========== ========== =========== ========== Net Earned Premiums (Percent Change) Percent Change Over Prior Year Same Quarter Percent Change YTD ------------------------------------ ------------------------------------------- ------------------ Safeco Personal Insurance Auto 17.8% 18.8% 16.0% 17.0% 17.1% 18.3% 16.8% Property -1.3 0.3 0.8 -0.9 0.9 -0.5 1.6 Specialty 8.3 7.6 7.5 6.5 4.6 8.0 4.4 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Total SPI 12.0 13.0 11.2 11.1 11.6 12.5 11.6 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Safeco Business Insurance SBI Regular 10.1 13.7 8.3 7.8 8.2 11.9 8.4 SBI Special Accounts Facility 15.9 32.8 14.5 33.8 50.9 24.1 62.2 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Total SBI 11.6 18.4 9.8 13.7 16.7 14.9 18.3 ---------- ---------- ---------- ----------- ---------- ----------- ---------- Surety 23.6 41.4 31.5 22.3 23.5 31.7 15.9 P&C Other NM NM NM NM NM NM NM ---------- ---------- ---------- ----------- ---------- ----------- ---------- Total Property & Casualty 12.4% 15.3% 10.5% 10.1% 7.1% 13.8% 6.5% ========== ========== ========== =========== ========== =========== ========== Safeco Property & Casualty Safeco Personal Insurance (SPI) (In Millions Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ---------- ---------- ----------- ----------- ----------- ----------- ---------- AUTO ---- Underwriting Profit (Loss) $ 61.0 $ 23.1 $ 23.0 $ 32.2 $ (0.9) $ 84.1 $ (7.5) Loss and LAE Ratio 68.0% 73.4% 72.5% 72.2% 76.5% 70.6% 77.0% Expense Ratio 22.5 22.9 23.7 22.2 23.7 22.7 23.7 ---------- ---------- ----------- ----------- ----------- ----------- ---------- Combined Ratio 90.5% 96.3% 96.2% 94.4% 100.2% 93.3% 100.7% ========== ========== =========== =========== =========== =========== ========== Impact of Catastrophes 1.4% 0.1% 0.6% 0.0% 4.1% 0.8% 2.2% Policies In Force (000's) 1,735.7 1,705.0 1,660.0 1,623.0 1,577.6 % Chg Prior Year Same Qtr 10.0% 10.0% 9.1% 9.0% 9.6% Loss Trends (12 mos. Rolling) Frequency -2.4% -0.4% -2.1% -3.3% -3.7% Severity 4.8 3.6 2.4 3.6 3.1 Total Loss Costs 2.3% 3.2% 0.3% 0.3% -0.7% Retention 79.8% 79.8% 79.8% 80.2% 81.0% New Business Policies (000's) 131.0 143.9 139.6 144.4 115.4 % Chg Prior Year Same Qtr 13.5% 33.9% 19.5% 5.3% -0.8% Net Written Premiums $ 655.4 $ 668.9 $ 606.2 $ 610.5 $ 563.8 % Chg Prior Year Same Qtr 16.2% 19.6% 17.5% 15.3% 17.1% Net Earned Premiums $ 643.5 $ 620.1 $ 599.2 $ 574.1 $ 546.1 % Chg Prior Year Same Qtr 17.8% 18.8% 16.0% 17.0% 17.1% PROPERTY -------- Underwriting Profit (Loss) $ 79.3 $ 61.4 $ 47.0 $ 40.5 $ (6.6) $ 140.7 $ 21.4 Loss and LAE Ratio 38.1% 45.4% 51.8% 53.9% 74.0% 41.7% 66.2% Expense Ratio 27.0 27.7 28.0 28.5 28.9 27.4 29.1 ---------- ---------- ----------- ----------- ----------- ----------- ---------- Combined Ratio 65.1% 73.1% 79.8% 82.4% 102.9% 69.1% 95.3% ========== ========== =========== =========== =========== =========== ========== Impact of Catastrophes 6.8% 3.2% 7.7% 5.3% 27.1% 5.0% 15.7% Impact of Non-Cat Weather 5.4% 4.9% 3.6% 9.0% 8.2% 5.1% 7.2% Policies In Force (000's) 1,393.1 1,423.2 1,449.0 1,483.6 1,521.4 % Chg Prior Year Same Qtr -8.4% -8.7% -8.9% -9.1% -9.0% Retention 83.1% 83.2% 83.1% 83.0% 83.0% New Business Policies (000's) 36.3 30.4 32.6 37.0 34.1 % Chg Prior Year Same Qtr 6.5% 7.4% -2.6% -6.0% -33.7% Net Written Premiums 252.8 206.6 214.6 246.7 255.6 % Chg Prior Year Same Qtr -1.1% -0.7% 1.8% -2.8% 0.0% Net Earned Premiums 227.5 228.2 232.9 229.9 230.6 % Chg Prior Year Same Qtr -1.3% 0.3% 0.8% -0.9% 0.9% SPECIALTY --------- Underwriting Profit $ 6.7 $ 6.4 $ 5.0 $ 6.7 $ 10.2 $ 13.1 $ 15.5 Loss and LAE Ratio 44.0% 45.0% 51.5% 43.4% 23.9% 44.5% 35.0% Expense Ratio 25.4 25.0 25.2 25.2 26.3 25.2 26.3 ---------- ---------- ----------- ----------- ----------- ----------- ---------- Combined Ratio 69.4% 70.0% 76.7% 68.6% 50.2% 69.7% 61.3% ========== ========== =========== =========== =========== =========== ========== Safeco Property & Casualty Safeco Business Insurance (SBI) (In Millions Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ---------- --------- ----------- ---------- ---------- ----------- ----------- SAFECO BUSINESS INSURANCE ------------------------- Underwriting Profit (Loss) $ 49.4 $ 42.3 $ 51.4 $ (45.5) $ (12.1) $ 91.7 $ (11.0) Loss and LAE Ratio 53.2% 55.8% 51.0% 76.1% 64.7% 54.5% 63.0% Expense Ratio 34.7 34.1 35.7 36.1 38.6 34.4 38.5 ---------- --------- ----------- ---------- ---------- ----------- ----------- Combined Ratio (CR) 87.9% 89.9% 86.7% 112.2% 103.3% 88.9% 101.5% ========== ========= =========== ========== ========== =========== =========== CR excluding reserve adjustment * 87.9% 89.9% 86.7% 96.1% 103.3% 88.9% 101.5% Impact of Catastrophes 1.1% 0.9% 0.0% 2.4% 3.8% 1.0% 2.4% SBI REGULAR Underwriting Profit (Loss) $ 31.9 $ 23.8 $ 39.5 $ (51.3) $ (11.5) $ 55.7 $ (16.8) Loss and LAE Ratio 55.6% 58.7% 51.0% 81.8% 66.6% 57.1% 65.2% Expense Ratio 33.8 33.4 35.1 36.8 37.6 33.6 37.9 ---------- --------- ----------- ---------- ---------- ----------- ----------- Combined Ratio (CR) 89.4% 92.1% 86.1% 118.6% 104.2% 90.7% 103.1% ========== ========= =========== ========== ========== =========== =========== CR excluding reserve adjustment * 89.4% 92.1% 86.1% 97.7% 104.2% 90.7% 103.1% Impact of Catastrophes 1.2% 0.8% 0.1% 1.9% 3.4% 1.0% 2.5% Policies In Force (000's) 511.5 508.6 510.1 509.9 511.1 % Chg Prior Year Same Qtr 0.1% -1.7% -3.7% -5.1% -6.9% Retention 79.7% 80.2% 78.4% 77.9% 76.7% New Business Policies (000's) 30.8 28.9 27.9 30.3 31.1 % Chg Prior Year Same Qtr -1.0% 14.7% 13.4% 23.2% 16.9% Net Written Premiums 333.4 312.9 283.0 281.5 308.4 % Chg Prior Year Same Qtr 8.1% 10.2% 9.6% 11.0% 11.0% Net Earned Premiums 299.5 302.4 284.0 275.4 272.1 % Chg Prior Year Same Qtr 10.1% 13.7% 8.3% 7.8% 8.2% SBI SPECIAL ACCOUNTS FACILITY ----------------------------- Underwriting Profit (Loss) $ 17.5 $ 18.5 $ 11.9 $ 5.8 $ (0.6) $ 36.0 $ 5.8 Combined Ratio 83.8% 84.2% 88.3% 94.3% 100.7% 84.0% 96.8% * Excludes third quarter workers compensation adjustment of $205.0 ($144.9 in P&C Other, $57.6 in SBI Regular and $2.5 in SBI Special Accounts Facility). Safeco Property & Casualty Surety, Other and Total (In Millions Except Ratios) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ----------- ----------- ------------ ------------ ------------ ----------- ------------ SURETY ------ Underwriting Profit $ 11.5 $ 9.3 $ 8.6 $ 8.5 $ 6.8 $ 20.8 $ 10.5 Combined Ratio 75.7% 79.6% 79.9% 78.8% 82.2% 77.6% 85.1% P&C OTHER * ----------- Underwriting Loss $ (10.2) $ (7.1) $ (42.2) $ (149.8) $ (9.7) $ (17.3) $ (20.2) TOTAL PROPERTY & CASUALTY ------------------------- Underwriting Profit (Loss) $ 197.7 $ 135.4 $ 92.8 $ (107.4) $ (12.3) $ 333.1 $ 8.7 Underwriting Profit (Loss) excluding reserve adjustment ** $ 197.7 $ 135.4 $ 92.8 $ 97.6 $ (12.3) $ 333.1 $ 8.7 Loss and LAE Ratio 57.5% 61.6% 63.2% 80.2% 70.4% 59.5% 69.1% Expense Ratio 27.9 28.3 29.6 28.4 30.6 28.1 30.5 ----------- ----------- ------------ ------------ ------------ ----------- ------------ Combined Ratio (CR) 85.4% 89.9% 92.8% 108.6% 101.0% 87.6% 99.6% =========== =========== ============ ============ ============ =========== ============ CR excluding reserve adjustment ** 85.4% 89.9% 92.8% 92.2% 101.0% 87.6% 99.6% Impact of Catastrophes 2.1% 0.9% 1.6% 1.7% 8.2% 1.5% 4.8% 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ----------- ----------- ------------ ------------ ------------ ----------- ------------ Catastrophes ------------- SPI - Auto $ 9.0 $ 0.5 $ 3.7 $ (0.1) $ 22.3 $ 9.5 $ 23.2 SPI - Property 15.5 7.4 18.0 12.1 62.5 22.9 71.8 Safeco Business Insurance 4.5 3.7 0.1 8.9 13.9 8.2 17.2 P&C Other - - (1.6) 0.1 0.4 - 0.3 ----------- ----------- ------------ ------------ ------------ ----------- ------------ Total $ 29.0 $ 11.6 $ 20.2 $ 21.0 $ 99.1 $ 40.6 $ 112.5 =========== =========== ============ ============ ============ =========== ============ * P&C Other includes large commercial business accounts, commercial specialty programs and London operations that are in runoff and certain product lines that we have exited. ** Excludes third quarter workers compensation adjustment of $205.0 ($144.9 in P&C Other, $57.6 in SBI Regular and $2.5 in SBI Special Accounts Facility). Safeco Property & Casualty Statutory Information (In Millions Except Ratios) Three Months Ended Six Months Ended Loss and Loss Adjustment Expense (LAE) Reserves June 30 June 30 ----------------------------------------------- --------------------------------- --------------------------------- 2004 2003 2004 2003 --------------- ---------------- --------------- ---------------- Loss and LAE Reserves, Beginning of Period $ 4,686.1 $ 4,506.4 $ 4,649.2 $ 4,535.8 Net Losses and LAE Incurred 776.3 846.7 1,602.3 1,635.8 Net Losses and LAE Paid (793.4) (851.0) (1,582.5) (1,669.5) --------------- ---------------- --------------- ---------------- Loss and LAE Reserves, End of Period $ 4,669.0 $ 4,502.1 $ 4,669.0 $ 4,502.1 =============== ================ =============== ================ 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR 2004 2004 2003 2003 2003 ---------------- --------------- ---------------- --------------- ---------------- Balance Sheet ------------- Total Capital and Surplus $ 3,224.6 * $ 3,028.2 $ 2,789.7 $ 2,562.3 $ 2,626.9 Ratio of Net Premiums Written (Annualized) to Total Capital and Surplus 1.80 * 1.82 1.83 2.05 2.00 *Estimated Safeco Corporation Investment Portfolio - Continuing Operations (In Millions) Investment Portfolio (Market Value) 06/30/2004 % 12/31/2003 % ------------ ------------- ----------- ---------- Fixed Maturities - Taxable $ 6,489.9 68.1 % $ 6,002.8 64.2 Fixed Maturities - Nontaxable 2,071.3 21.7 2,156.5 23.1 Equity Securities 964.6 10.1 1,166.2 12.5 ------------ ------------- ----------- ---------- Total Fixed Maturities & Equity Securities 9,525.8 99.9 9,325.5 99.8 Mortgage Loans 0.8 0.0 9.8 0.1 Other Invested Assets 9.5 0.1 8.9 0.1 ------------ ------------- ----------- ---------- Total Investment Portfolio $ 9,536.1 100.0 % $ 9,344.2 100.0 ============ ============= =========== ========== Rating (Market Value) - Fixed Maturities 06/30/2004 12/31/2003 ------------ ----------- AAA 42.7 % 42.2 % AA 10.5 10.9 A 25.8 23.0 BBB 17.4 19.3 BB or lower 2.3 3.1 Not Rated 1.3 1.5 ------------ ----------- Total 100.0 % 100.0 % ============ =========== Average Rating A+ A+ ============ =========== 06/30/2004 03/31/2004 12/31/2003 09/30/2003 06/30/2003 ----------- ----------- ---------- ---------- ---------- P&C Pretax Investment Income - Quarter $ 115.8 $ 111.7 $ 110.0 $ 113.7 $ 116.5 Pretax Investment Income - Quarter $ 119.1 $ 115.0 $ 114.4 $ 114.7 $ 119.8 Effective Tax Rate on Investment Income - Quarter 25.60% 27.12% 25.76% 26.84% 25.28% Cost or Amortized Cost $ 8,893 $ 8,477 $ 8,421 $ 7,971 $ 7,698 Market $ 9,536 $ 9,473 $ 9,344 $ 8,814 $ 8,755 % Equities (at market) 10.1% 12.0% 12.5% 12.0% 11.9% % Taxable Bonds (at market) 68.1% 65.1% 64.2% 62.9% 62.4% % Tax Exempt Bonds (at market) 21.7% 22.6% 23.1% 25.0% 25.2% % Other 0.1% 0.3% 0.2% 0.1% 0.5% Market YTM on Bond Portfolio 4.30% 3.42% 3.78% 3.73% 3.65% Book YTM on Bond Portfolio 5.11% 5.16% 5.27% 5.54% 5.63% Duration of Bond Portfolio 4.65 4.27 4.39 4.98 4.54 Three Months Ended Six Months Ended Net Realized Investment Gains (After Tax) June 30 June 30 --------------------------- ------------------------ from Continuing Operations 2004 2003 2004 2003 ------------ ------------- ----------- ----------- Gains on Securities Transactions $ 55.9 $ 14.7 $ 86.7 $ 25.9 Impairments on Fixed Maturities (0.7) (5.9) (3.6) (16.5) Impairments on Equity Securities - (5.1) (0.1) (7.8) Credit Default Swaps - 6.7 - 12.5 Other - - - 1.8 ------------ ------------- ----------- ----------- Net Realized Investment Gains $ 55.2 $ 10.4 $ 83.0 $ 15.9 ============ ============= =========== =========== Safeco Corporation Capitalization (In Millions) 06/30/2004 12/31/2003 12/31/2002 ---------- ---------- ---------- Short-Term Debt $500 million back up line of credit (unused) $ - $ - $ - 7.875%, due 3/15/03 - - 303.5 Medium-Term Notes and Other - - 15.9 Long-Term Debt 7.875%, due 4/1/05 (called at par on 4/1/03) - - 200.0 6.875%, due 7/15/07 (non callable) 200.0 200.0 200.0 4.20%, due 2/1/08 (non callable) 200.0 200.0 - 4.875%, due 2/1/10 (non callable) 300.0 300.0 - 7.25%, due 9/15/12 (non callable) 375.0 375.0 375.0 8.072% debentures due 2037 876.3 876.3 876.3 (Callable at 104 in 2007) --------------- ---------------- ----------------- Total Debt $ 1,951.3 $ 1,951.3 $ 1,970.7 =============== ================ ================= Equity $ 5,051.4 $ 5,023.3 $ 4,431.6 =============== ================ ================= Total Capital (Debt + Equity) $ 7,002.7 $ 6,974.6 $ 6,402.3 =============== ================ ================= Debt to Capital 27.9% 28.0% 30.8% Adjusted Debt* to Capital 25.4% 25.5% 28.0% Debt to Equity 38.6% 38.8% 44.5% Debt to Capital (excluding FAS 115) 31.7% 34.1% 36.9% Adjusted Debt* to Capital (excluding FAS 115) 28.9% 31.0% 33.6% Debt to Equity (excluding FAS 115) 46.4% 51.7% 58.5% * 20% equity credit for 8.072% debentures due 2037. Discontinued Operations Life & Investments Pretax Operating Earnings and Revenues (In Millions) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 --------------- ---------- ----------- ---------- ----------- ------------ ------------ Pretax Operating Earnings* -------------------------- Group $ (2.9) $ 12.2 $ 23.0 $ 12.5 $ 24.5 $ 9.3 $ 53.5 Income Annuities (1.3) 3.7 7.7 (0.9) 8.4 2.4 18.5 Retirement Services 3.2 9.5 4.8 3.3 4.9 12.7 9.9 Individual 4.4 7.4 1.0 3.9 (0.5) 11.8 1.4 Asset Management 1.5 1.6 0.5 1.1 0.1 3.1 0.2 L&I Other** 28.9 26.9 16.3 24.2 23.5 55.8 52.3 --------------- ---------- ----------- ---------- ----------- ------------ ------------ Total Life & Investments $ 33.8 $ 61.3 $ 53.3 $ 44.1 $ 60.9 $ 95.1 $ 135.8 =============== ========== =========== ========== =========== ============ ============ 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 --------------------------- ----------- ---------- ----------- ------------ ------------ Operating Revenues ------------------ Group $ 124.5 $129.3 $ 132.2 $ 133.9 $ 144.5 $ 253.8 $ 286.8 Income Annuities 120.1 125.4 130.3 121.7 130.8 245.5 262.2 Retirement Services 95.3 97.0 99.1 96.6 96.4 192.3 192.5 Individual 96.0 95.6 95.5 96.3 95.8 191.6 191.7 Asset Management 6.3 7.1 7.0 7.0 6.7 13.4 12.9 L&I Other 57.9 65.3 55.3 52.8 50.7 123.2 106.2 --------------- ---------- ----------- ---------- ----------- ------------ ------------ Total Life & Investments $ 500.1 $519.7 $ 519.4 $ 508.3 $ 524.9 $ 1,019.8 $ 1,052.3 =============== ========== =========== ========== =========== ============ ============ *Earnings before net realized investment gains (losses) and income taxes. This is a standard industry measurement and is used by management as the key measurement of Life & Investments segment profit or loss. It is presented as a supplement to net income as a measure of profitability. **The L&I Other segment includes $6.2 in 2Q04, $9.3 in 1Q04 and $9.2 in 4Q03 of expenses associated with the planned sale of the L&I business. Discontinued Operations Life & Investments Supplemental Statistics (In Millions, Except Ratios and Policy Statistics) 2ND 1ST 4TH 3RD 2ND QTR QTR QTR QTR QTR YTD YTD 2004 2004 2003 2003 2003 2004 2003 ------------- ----------- --------- --------- ---------- ------------ ------------ Group Earned Premiums $ 123.2 $ 127.9 $130.6 $132.3 $141.6 $ 251.1 $ 282.2 Loss Ratio 72.0% 65.8% 52.5% 63.3% 56.3% 68.8% 56.3% Income Annuities Reserves (in billions) $ 6.4 $ 6.4 $ 6.3 $ 6.3 $ 6.4 $ 6.4 $ 6.4 Deposits 18.8 18.1 20.5 29.3 35.8 36.9 64.3 Retirement Services Reserves Fixed (in billions) $ 6.6 $ 6.6 $ 6.7 $ 6.6 $ 6.4 $ 6.6 $ 6.4 Variable (in billions) 1.0 1.1 1.0 0.9 0.9 1.0 0.9 ------------- ----------- --------- --------- ---------- ------------ ------------ Total Reserves 7.6 7.7 7.7 7.5 7.3 7.6 7.3 Deposits 97.5 90.8 250.0 303.6 328.4 188.3 660.6 Individual Reserves $ 4.0 $ 4.0 $ 4.0 $ 3.9 $ 3.9 $ 4.0 $ 3.9 Policies Issued: Term, Universal Life, 6.5 6.3 6.8 5.9 6.5 12.8 12.4 Traditional, Disability (000's) Policies In Force (000's) 287.5 286.5 285.8 284.0 283.2 287.5 283.2 Asset Management Assets Under Management (in billions) $ 3.6 $ 4.0 $ 4.1 $ 4.0 $ 4.0 $ 3.6 $ 4.0 Assets and Liabilities of Discontinued Operations June 30 December 31 2004 2003 ------------ ------------ ASSETS Total Investments $18,784.9 $19,192.9 Other Assets 1,221.0 1,164.1 Separate Accounts 1,169.4 1,137.4 Securities Lending Collateral 1,137.8 1,054.5 ------------ ------------ Total Assets of Discontinued Operations $22,313.1 $22,548.9 ------------ ------------ LIABILITIES Funds Held Under Deposit Contracts $16,562.9 $16,582.4 Life Policy Liabilities 334.7 331.8 Accident and Health Reserves 154.8 139.1 Deferred Income Taxes Payable 229.1 366.7 Other Liabilities 327.4 330.8 Separate Accounts 1,169.4 1,137.4 Securities Lending Payable 1,137.8 1,054.5 ------------ ------------ Total Liabilities of Discontinued Operations 19,916.1 19,942.7 ------------ ------------ Net Assets of Discontinued Operations $2,397.0 $2,606.2 ------------ ------------ Net Assets of Discontinued Operations excluding Accumulated Other Comprehensive Income $1,702.3 $1,682.6