-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AsSpZzusnqwX8l9H/0HTB5N53vwoPsB5YtY9jz/32/uJLUocJ4iMMZ0yAsHEp61e BtmaxiUYalECvnqI/jcjYQ== 0000891020-94-000039.txt : 19940322 0000891020-94-000039.hdr.sgml : 19940322 ACCESSION NUMBER: 0000891020-94-000039 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFECO CORP CENTRAL INDEX KEY: 0000086104 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 910742146 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-06563 FILM NUMBER: 94517061 BUSINESS ADDRESS: STREET 1: SAFECO PLZ CITY: SEATTLE STATE: WA ZIP: 98185 BUSINESS PHONE: 2065455000 MAIL ADDRESS: STREET 1: SAFECO PLAZA CITY: SEATTLE STATE: WA ZIP: 98185 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL AMERICA CORP DATE OF NAME CHANGE: 19680529 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1993. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the transition period from ____________________ to _____________________. Commission File Number 1-6563 SAFECO CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 91-0742146 ---------- ---------- (State of Incorporation) (I.R.S. Employer I.D. No.)
SAFECO PLAZA, SEATTLE, WASHINGTON - 98185 ----------------------------------------- (Address of principal executive offices) (Zip Code) 206-545-5000 ------------ (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, No Par Value (62,943,607 shares were outstanding at January 31, 1994) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X . NO . ----- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. Aggregate market value of voting stock held by non-affiliates of registrant as of January 31, 1994: $3,714,000,000 Documents Incorporated by Reference Parts of This Form Document: Into Which Incorporated: Portions of the Parts I and II 1993 Annual Report to Stockholders Portions of the Part III Definitive Proxy Statement to be Filed Within 120 days after December 31, 1993.
2 PART I ITEM 1. BUSINESS SAFECO Corporation (SAFECO, or the Corporation) is a Washington Corporation which directly or indirectly owns the stock of operating subsidiaries engaged in various phases of the insurance business and other operating subsidiaries engaged in other financially-related lines of business. The Corporation also manages the SAFECO family of mutual funds. The home offices of the Corporation and its principal subsidiaries are in Seattle, Washington and Redmond, Washington. The Corporation and its subsidiaries had 7,360 employees at December 31, 1993. The insurance subsidiaries are engaged in two principal lines: property and casualty insurance, and life and health insurance. Both are subject to regulation and supervision in every jurisdiction in which they do business. The nature and extent of such regulation varies, but generally has its source in statutes which delegate regulatory, supervisory and administrative powers to state insurance commissioners. Such regulation, supervision and administration relate, among other things, to the standards of solvency which must be met and maintained; the licensing of insurers and their agents; the nature of limitation on investments; deposits of securities for the benefit of policyholders; approval of policy forms and premium rates; periodic examination of the affairs of insurance companies; annual and other reports required to be filed on the financial condition of insurers or for other purposes; the amount of dividends which may be distributed to a parent corporation; requirements regarding reserves for unearned premiums and losses and other matters. Regulation requires that property and casualty rates be adequate but not excessive nor unfairly discriminatory. See page 21 in the Annual Report to Stockholders, hereby incorporated by reference (Exhibit 13), for more information on certain regulatory matters. In 1988, California voters narrowly passed Proposition 103, an initiative which significantly affects the property and casualty insurance business in that state. See Note 5 on page 48 in the 1993 Annual Report to Stockholders for more details. All areas of the insurance business are highly competitive due to the marketing structure and the large number of stock and mutual insurance companies and other entities competing. These factors prevent any one insurance company or group of insurers from dominating the market. Property and Casualty Operations -------------------------------- Subsidiaries engaged in the property and casualty insurance business, which insure commercial, personal and surety lines, are SAFECO Insurance Company of America, General Insurance Company of America, First National Insurance Company of America, SAFECO National Insurance Company, SAFECO Insurance Company of Illinois, SAFECO Lloyds Insurance Company, SAFECO Surplus Lines Insurance Company, F. B. Beattie & Co., Inc., COMAV Managers, Inc., and Whitehall Insurance Brokers, Inc. Coverages include automobile, homeowners, fire and allied lines, commercial multi-peril, miscellaneous casualty, fidelity and workers' compensation. Their products are primarily sold through independent insurance agents in nearly all states and the District of Columbia. SAFECO sold its Canadian property and casualty operations in June of 1991. See page 24 in the 1993 Annual Report to Stockholders for more information. - 1 - 3 PART I ITEM 1. BUSINESS (Continued) The following table shows consolidated property and casualty gross premiums written for SAFECO's ten largest states (amounts in thousands):
1993 1992 1991 ---------------- ---------------- ---------------- % of % of % of State Amount Total Amount Total Amount Total ----- ------ ----- ------ ----- ------ ----- California $ 531,779 25% $ 479,003 25% $ 437,282 24% Washington 351,231 16% 314,566 16% 268,998 15% Oregon 144,534 7% 133,586 7% 122,371 7% Texas 134,183 6% 107,208 6% 88,932 5% Illinois 81,892 4% 74,382 4% 66,435 3% Georgia 65,852 3% 59,925 3% 54,137 3% Missouri 64,763 3% 59,883 3% 54,006 3% Tennessee 54,207 3% 52,796 3% 48,952 3% Idaho 47,867 2% 43,536 2% 38,885 2% Connecticut 47,737 2% 43,929 2% 39,667 2% ---------- --- ---------- --- ---------- --- 1,524,045 71% 1,368,814 71% 1,219,665 67% All Others 610,467 29% 568,276 29% 610,534 33% ---------- --- ---------- --- ---------- --- TOTAL $2,134,512 100% $1,937,090 100% $1,830,199 100% ========== === ========== === ========== ===
Voluntary personal, commercial and surety lines (which excludes assigned risk, FAIR plans, etc.) comprise approximately 69%, 25% and 4%, respectively, of 1993 gross premiums written. Gross premiums written growth of 10.2% in 1993 is comprised of a 10.4% increase for personal and increases of 10.3% for commercial and 5.7% for surety lines. Gross premiums written growth of 5.8% in 1992 was comprised of a 6.0% increase for personal, and increases of 6.2% for commercial and 0.8% for surety lines. Excluding Canadian premiums, 1992 gross premiums written increased 10.9% over 1991, with personal up 13.1% and commercial up 7.0%. The growth in personal lines is the result of both rate increases and an increase in policies in force. This increase in policies in force is due, in part, to a number of companies in the past withdrawing or restricting their writings of personal lines. Vehicles insured increased 2.2% in 1993; however, the number of vehicles insured declined slightly in the fourth quarter. Vehicles insured increased 6.2% in 1992. This declining trend in the growth rate has been caused primarily by the rate increases placed in effect in recent years. As a result, only modest rate increases are planned for 1994. The number of homes insured increased 8.0% in 1993 and 10.8% in 1992. It is expected that the number of homes insured will continue to increase in 1994, although at a somewhat slower pace. SAFECO's commercial lines premiums increased in 1993 and 1992 as a result of both real growth and some rate increases. Continued growth in commercial premiums written is expected in 1994. The larger increase in surety premiums in 1993 versus 1992 is primarily due to new commercial accounts acquired and a slightly improved construction economy. Additional financial information about SAFECO's business segments is set forth in Note 16 on page 54 of the 1993 Annual Report to Stockholders. - 2 - 4 PART I ITEM 1. BUSINESS (Continued) The consolidated financial statements include the estimated liability (reserves) for unpaid losses and loss adjustment expense of SAFECO's property and casualty insurance subsidiaries. The liability is presented net of amounts recoverable from salvage and subrogation recoveries and gross of amounts recoverable from reinsurance. Reserves for losses that have been reported to SAFECO and certain legal expenses are established on a "case basis" method. Claims incurred but not reported (IBNR) and other adjustment expense are estimated using statistical procedures. Salvage and subrogation recoveries are accrued using the "case basis" method for large claims and statistical procedures for smaller claims. These reserves aggregate SAFECO's best estimates of the total ultimate cost of claims that have been incurred but have not yet been paid. The estimates are based on past claims experience and consider current claims trends as well as social, legal and economic conditions, including inflation. The reserves are not discounted. Loss and loss adjustment expense reserve development is reviewed on a regular basis to determine that the reserving assumptions and methods are appropriate. Reserves initially determined are compared to the amounts ultimately paid. A statistical estimate of the projected amounts necessary to settle outstanding claims is made regularly and compared to the recorded reserves. The table on page 4 provides an analysis of changes in losses and adjustment expense reserves for 1993, 1992 and 1991 (net of reinsurance amounts). Changes in the reserves are reflected in the income statement for the year when the changes are made. Operations were credited $96.9 million, $44.6 million and $24.1 million in 1993, 1992, and 1991, respectively, as a result of a reduction in the estimated amounts needed to settle prior years' claims. - 3 - 5 PART I ITEM 1. BUSINESS (Continued) Analysis of Changes in Losses and Adjustment Expense Reserves - (Net of reinsurance amounts):
1993 1992 1991 ---------- ---------- ---------- (In Thousands) Losses and adjustment expense reserves at beginning of year . . $1,963,136 $1,865,319 $1,791,461 ---------- ---------- ---------- Incurred losses and adjustment expense for claims occurring in the current year . . . . . . . 1,447,565 1,351,234 1,309,259 Decrease in estimated losses and adjustment expense for claims occurring in prior years . . . . . (96,937) (44,582) (24,057) ---------- ---------- ---------- Total incurred losses and adjustment expense . . . . . . . . 1,350,628 1,306,652 1,285,202 ---------- ---------- ---------- Losses and adjustment expense payments for claims occurring during: Current year . . . . . . 719,756 659,960 608,317 Prior years . . . . . . . . . . . 598,886 548,875 603,027 ---------- ---------- ---------- Total losses and adjustment expense payments . . . . . . . . . 1,318,642 1,208,835 1,211,344 ---------- ---------- ---------- Losses and adjustment expense reserves at end of year . . . . . $1,995,122 $1,963,136 $1,865,319 ========== ========== ==========
Reconciliation of Liability for Losses and Adjustment Expense Reserves (per property and casualty balance sheet):
(In Thousands) Losses and adjustment expense reserves at end of year . . . . . $1,995,122 $1,963,136 $1,865,319 Reinsurance recoverables on unpaid losses at end of year . . . 100,065 89,198 152,029 ---------- ---------- ---------- Losses and adjustment expense reserves, gross of reinsurance recoverables, at end of year . . . $2,095,187 $2,052,334 $2,017,348 ========== ========== ==========
The table on page 5 presents the development of the losses and adjustment expense reserves for 1983 through 1993. The top lines of the table show the estimated liability for unpaid losses and adjustment expense at December 31 for each of the indicated years, both gross and net of related reinsurance amounts. The upper portion of the table shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. The next section shows the re-estimated amount of the previously recorded liability based on experience as of each succeeding year. The estimate is increased or decreased as more information becomes known about individual claims and as changes in conditions and claim trends become apparent. - 4 - 6 PART I ITEM 1. BUSINESS (Continued) Analysis of Losses and Adjustment Expense Reserve Development
Year Ended December 31, ------------------------------------------------------------------------------- 1983 1984 1985 1986 1987 1988 -------- -------- -------- ---------- ---------- ---------- Liability for unpaid losses and adjustment expense: Gross of reinsurance........ $588,917 $647,656 $841,300 $1,095,163 $1,328,495 $1,523,554 Reinsurance................. 7,567 18,266 39,910 54,881 78,975 97,003 -------- -------- -------- ---------- ---------- ---------- Net $581,350 $629,390 $801,390 $1,040,282 $1,249,520 $1,426,551 ======== ======== ======== ========== ========== ==========
Year Ended December 31, ------------------------------------------------------------------ 1989 1990 1991 1992 1993 ---------- ---------- ---------- ---------- ---------- Liability for unpaid losses and adjustment expense: Gross of reinsurance ....... $1,702,458 $1,872,144 $2,017,348 $2,052,334 $2,095,187 Reinsurance................. 75,279 80,683 152,029 89,198 100,065 ---------- ---------- ---------- ---------- ---------- Net $1,627,179 $1,791,461 $1,865,319 $1,963,136 $1,995,122 ========== ========== ========== ========== ==========
Year Ended December 31, ------------------------------------------------------------------------------ 1983 1984 1985 1986 1987 1988 -------- -------- -------- ---------- ---------- ---------- Net paid (cumulative) as of: 1 Yr Later.................. $282,856 $274,748 $320,606 $ 382,274 $ 419,522 $ 443,056 2 Yrs Later.................. 411,443 427,283 526,276 610,331 677,053 725,684 3 Yrs Later.................. 497,009 544,725 664,680 771,278 848,174 902,480 4 Yrs Later.................. 563,150 624,475 758,202 875,910 936,447 1,010,271 5 Yrs Later.................. 608,491 677,612 820,514 945,436 1,033,741 1,083,462 6 Yrs Later.................. 638,686 717,637 837,182 991,806 1,082,759 7 Yrs Later.................. 661,075 746,826 895,193 1,029,619 8 Yrs Later.................. 675,394 765,662 922,963 9 Yrs Later.................. 690,290 787,597 10 Yrs Later.................. 710,492
Year Ended December 31 ---------------------------------------------------- 1989 1990 1991 1992 ---------- ---------- -------- -------- Net paid (cumulative) as of: 1 Yr Later.................. $ 540,198 $ 603,027 $548,875 $598,886 2 Yrs Later.................. 849,568 914,456 905,725 3 Yrs Later.................. 1,035,024 1,109,436 4 Yrs Later.................. 1,149,505 5 Yrs Later..................
Year Ended December 31 ---------------------------------------------------------------------------- 1983 1984 1985 1986 1987 1988 -------- -------- ---------- ---------- ----------- ---------- Net liability re-estimated as of: 1 Yr Later.................. $602,807 $681,465 $ 888,650 $1,094,095 $1,253,870 $1,397,704 2 Yrs Later.................. 637,666 747,037 946,871 1,118,222 1,258,193 1,368,128 3 Yrs Later.................. 670,317 784,297 961,356 1,121,243 1,258,017 1,355,793 4 Yrs Later.................. 696,877 800,150 969,202 1,140,282 1,264,839 1,338,568 5 Yrs Later.................. 715,462 810,458 989,095 1,149,075 1,266,261 1,360,496 6 Yrs Later.................. 722,250 825,823 1,005,888 1,168,725 1,299,601 7 Yrs Later.................. 737,526 847,874 1,031,969 1,210,457 8 Yrs Later.................. 755,032 875,820 1,075,759 9 Yrs Later.................. 782,969 919,446 10 Yrs Later.................. 826,864
Year Ended December 31 -------------------------------------------------- 1989 1990 1991 1992 ---------- ---------- ---------- ---------- Net liability re-estimated as of: 1 Yr Later.................. $1,621,873 $1,767,404 $1,820,737 $1,866,199 2 Yrs Later.................. 1,593,554 1,705,835 1,732,844 3 Yrs Later.................. 1,541,434 1,666,124 4 Yrs Later.................. 1,544,767
Year Ended December 31 ----------------------------------------------------------------------------- 1983 1984 1985 1986 1987 1988 ---------- ----------- ----------- ----------- --------- ------- Net redundancy (deficiency) cumulative as of: 1 Yr Later.................. $ (21,457) $ (52,075) $ (87,260) $ (53,813) $ (4,350) $28,847 2 Yrs Later.................. (56,316) (117,647) (145,481) (77,940) (8,673) 58,423 3 Yrs Later.................. (88,967) (154,907) (159,966) (80,961) (8,497) 70,758 4 Yrs Later.................. (115,527) (170,760) (167,812) (100,000) (15,319) 87,983 5 Yrs Later.................. (134,112) (181,068) (187,705) (108,793) (16,741) 66,055 6 Yrs Later.................. (140,900) (196,433) (204,498) (128,443) (50,081) 7 Yrs Later.................. (156,176) (218,484) (230,579) (170,175) 8 Yrs Later.................. (173,682) (246,430) (274,369) 9 Yrs Later.................. (201,619) (290,056) 10 Yrs Later.................. (245,514)
Year Ended December 31 ----------------------------------------------------- 1989 1990 1991 1992 ---------- -------- -------- ------- Net redundancy (deficiency) cumulative as of: 1 Yr Later................... $ 5,306 $ 24,057 $ 44,582 $96,937 2 Yrs Later.................. 33,625 85,626 132,475 3 Yrs Later.................. 85,745 125,337 4 Yrs Later.................. 82,412
- 5 - 7 PART I ITEM 1. BUSINESS (Continued) The lower section of the table on Page 5 shows the cumulative redundancy (deficiency) developed with respect to the previously recorded liability as of the end of each succeeding year. For example, the 1983 reserve of $581.4 million developed a $21.5 million deficiency after one year which grew over ten years to a deficiency of $245.5 million. The reserve development deficiencies indicated for the years 1983 through 1987 were due to the emergence of liabilities for pollution, asbestos and other hazardous toxic claims and related legal expenses and adverse development from the automobile liability and workers' compensation lines due to significant medical inflation and trends in the civil justice system. In this same period, loss adjustment expenses were increasing rapidly, reflecting higher legal costs and increased litigation. As the trends noted above became apparent, the Corporation aggressively increased reserves to address these deficiencies. For 1988 and subsequent years, SAFECO's reserve development has been favorable. This trend reflects the aggressive reserving undertaken in prior years to correct deficiencies which is no longer necessary, favorable legislation in the workers' compensation area, and moderation of medical costs and inflation. The impact of reinsurance on the development information presented on Page 5 is not significant. Reserve development gross of reinsurance for the previous three years is as follows (in thousands):
1990 1991 1992 ---------- ---------- ---------- Gross reserves $1,872,144 $2,017,348 $2,052,334 ========== ========== ========== Cumulative development net of reinsurance $ 125,337 $ 132,475 $ 96,937 Cumulative development of reinsurance ceded 158 (3,868) (1,124) ---------- --------- --------- Cumulative development gross of reinsurance $ 125,495 $ 128,607 $ 95,813 ========== ========== =========
In order to maintain adequate reserves, SAFECO'S objective is to set reserves which are slightly redundant; that is, the amounts originally recorded as reserves should be more than the amounts ultimately required to settle losses. Analysis indicates that SAFECO's reserves are adequate and probably slightly redundant at December 31, 1993, 1992 and 1991. Operations were credited $96.9 million, $44.6 million and $24.1 million in 1993, 1992 and 1991, respectively, as a result of a reduction in the estimated amounts needed to settle prior years' claims. In evaluating the information contained in the reserve development table on Page 5, it should be noted that each amount includes the effects of all changes in amounts for prior periods. For example, the amount of the redundancy shown for the December 31, 1992 reserves that relate to losses incurred in 1983 will be included in the cumulative redundancy or deficiency amount for the years 1983 through 1991. This - 6 - 8 PART I ITEM 1. BUSINESS (Continued) table does not present accident or policy year development data, which some readers may be more accustomed to analyzing. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table. SAFECO's property and casualty companies' reserves for losses and adjustment expense for liability coverages related to environmental, asbestos and other hazardous toxic claims totaled $113.4 million at December 31, 1993, compared with $110.5 million at December 31, 1992. These amounts are before the effect of reinsurance, which is insignificant. These reserves are approximately 5% of total property and casualty reserves for losses and adjustment expense at both December 31, 1993 and 1992. The reserves include estimates for both reported and IBNR losses and related legal expenses. The components of these reserves at December 31, 1993 are as follows (in thousands):
Loss Adjustment Loss Expense Total ------- ---------- -------- Case . . . . . . . . $41,550 $11,360 $ 52,910 IBNR . . . . . . . . 29,000 31,500 60,500 ------- ------- -------- Total . . . . . . . . $70,550 $42,860 $113,410 ======= ======= ========
In view of the changes in environmental regulations and legal decisions which affect the development of loss reserves, the process to estimate loss reserves for these matters results in imprecise estimates. Quantitative techniques have to be supplemented by subjective considerations and managerial judgment. In view of these conditions, trends that have affected development of these liabilities in the past may not necessarily occur in the future. The reserves carried for these claims at December 31, 1993 are estimates based on the known facts and current law and are believed to be adequate. SAFECO's actual loss and adjustment expense payments for these types of claims totaled $6.5 million, $9.7 million and $5.9 million for 1993, 1992 and 1991, respectively. SAFECO has generally avoided writing coverages for larger companies with substantial exposure in these areas. The property and casualty insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). The difference between the liability at December 31, 1993 for losses and adjustment expense reported in the consolidated financial statements in accordance with generally accepted accounting principles (GAAP) of $2,095,187,000 and $1,995,122,000 reported in the annual statement filed with state regulatory authorities relates to reinsurance recoverables. Under FASB Statement 113 the GAAP-basis liability for losses and adjustment expense is reported gross of amounts recoverable from reinsurance. Statutory-basis financial statements show the liability net of reinsurance. - 7 - 9 PART I ITEM 1. BUSINESS (Continued) SAFECO's property and casualty subsidiaries protect themselves from excessive losses by reinsuring on treaty and facultative bases. Reinsurance recoverables relating to unpaid losses and adjustment expense were $100.1 million at December 31, 1993 and $89.2 million at December 31, 1992. Reinsurance costs for catastrophe coverages have increased in the last few years and are expected to remain higher in the foreseeable future, given the large amount of catastrophe losses in recent years. SAFECO's catastrophe property reinsurance program for 1994 covers 90% of $150 million of single event losses in excess of a $50 million retention. In the event of a substantial catastrophe, SAFECO would, therefore, retain the first $50 million of losses, 10% of the next $150 million and all losses in excess of $200 million. Both the retention level and the aggregate coverage limit for 1994 are higher than in prior years. SAFECO's insurance subsidiaries have not entered into retrospective reinsurance contracts and have not participated in any unusual or nonrecurring reinsurance transactions such as "swaps" of reserves or portfolio loss transfers. SAFECO does not use "funding covers" and has not participated in any surplus relief transactions. None of SAFECO's significant reinsurers are experiencing financial difficulties. Additional information on reinsurance can be found in Note 4 on page 47 in the Annual Report to Stockholders. Reinsurance amounts ceded in 1991 were higher due to the sale of SAFECO's Canadian operations in 1991. On January 17, 1994 a severe earthquake struck southern California. Based on claims information available as of the date of this report SAFECO expects its losses to be approximately $60 million, after reinsurance. The losses will be recorded in the first quarter of 1994. This estimate is based on an expectation of approximately 8,000 claims, resulting in gross losses ranging from $150 million to $175 million before reinsurance. As noted above, SAFECO's 1994 catastrophe reinsurance program covers 90% of single event losses between $50 million and $200 million. Because of the size of this loss, SAFECO will pay approximately $18 million of additional premiums to reinstate its 1994 catastrophe reinsurance program for the remainder of 1994. This additional expense will also be recorded in the first quarter of 1994. In Note 14 on Page 52 in the 1993 Annual Report to Stockholders, SAFECO initially estimated that its losses due to this quake would exceed $50 million, the threshold at which the Corporation's reinsurance coverage begins. This initial estimate was based on claims information available through February 11, 1994, the date of the 1993 Annual Report to Stockholders. In 1992, approximately 2,400 active insurance companies competed for $228 billion in property and casualty insurance premiums in the United States. The SAFECO group of property and casualty companies ranked 27th among significant groups of such companies, based on net premiums written. - 8 - 10 PART I ITEM 1. BUSINESS (Continued) Life and Health Operations Subsidiaries engaged in the life and health insurance business are SAFECO Life Insurance Company, SAFECO National Life Insurance Company, First SAFECO National Life Insurance Company of New York and SAFECO Administrative Services, Inc. These companies offer individual and group insurance products, pension plans and annuity products. SAFECO Life's major market in the group operations is excess loss medical insurance, sold to self-insured employers. Products are marketed through professional agents in all states and the District of Columbia. SAFECO Life Insurance Company reinsures portions of its individual and group life, accident and health insurance through commercial reinsurance treaties, thus providing protection against large risks and catastrophe situations. In the life and health insurance field, SAFECO Life Insurance Company competes against some of the largest corporations in the United States. On the basis of 1992 statutory premiums, SAFECO Life Insurance Company ranked 38th among life insurance companies doing business in the United States. Many life insurance companies' pension and annuity products have been impacted by general economic conditions, lower investment returns, rating downgrades, increased competition and decisions by plan sponsors to diversify assets and fund management. SAFECO Life Insurance Company has experienced an increase in the level of withdrawal of funds from its pension and annuity business (see Statement of Cash Flows on page 34 of the 1993 Annual Report to Stockholders -- Return of Funds Held Under Deposit Contracts), due to scheduled payouts on distribution-type products and the lower interest rate environment. However, SAFECO Life Insurance Company's overall withdrawal experience remains relatively modest. The table on page 10 sets forth a summary of the components of "Funds Held Under Deposit Contracts" at December 31, 1993 and describes the applicable surrender charges and surrender experience. - 9 - 11 DETAIL OF SAFECO LIFE INSURANCE COMPANIES' FUNDS HELD UNDER DEPOSIT CONTRACTS
Range of Credited or Assumed Interest Outstanding at Rates at Approximate December 31, 1993 December 31, Surrender Product (In Thousands) Expected Maturities 1993 Surrender Charges Experience ------- ----------------- ------------------- --------------- ----------------- ---------- Universal Individual Life $ 191,700 Approximately 5.50% to 7.90% Varies by issue age, 7% per annum 15-20 Years sex, and duration from $1 to $58 per Annuities: $1,000 of insurance Structured Settlement Immediate 3,196,007 25 Years & Over 4.0% to 12.4% Cannot surrender Cannot surrender Non-Qualified Deferred 788,902 Approximately 3.8% to 9.0% Typically 5% in Year 5.5% per annum 8-12 Years 1 graded to 0% in Year 6 Other 7,478 Approximately 7.25% to 8.25% None 5% per annum 7-10 Years Pension: Guaranteed Investment Contacts 297,313 Typically 4 Years 4.85% to 10.05% Cannot surrender Less than 1% except in extremely per annum unusual circumstances Other Qualified Annuities 2,748,039 Approximately 4.75% to 7.23% Typically 9% in Year 1 7% per annum 10-15 Years graded to 0% in year 9. SAFECO has the option to defer payout over 20 quarters for one-half of these contracts. In addition, approximately $400 million of these deposits have a market value adjustment provision. ---------- TOTAL $7,229,439 ==========
- 10 - 12 PART I ITEM 1. BUSINESS (Continued) Investments ----------- A description of SAFECO's investment portfolio begins on Page 27 of the Annual Report to Stockholders. SAFECO's consolidated investments in mortgage-backed securities (primarily residential collateralized mortgage obligations, or CMOs, and pass-throughs) totaled $2.3 billion at December 31, 1993. The corresponding market value of these securities at this date was $2.4 billion. Approximately 97% of these securities are held in the life and health insurance portfolio, with the balance held in the property and casualty insurance portfolio. Approximately 91% of the mortgage- backed securities are government/agency backed or AAA rated at December 31, 1993. Less than 2% of SAFECO's mortgage-backed securities are of the riskier, highly volatile type (e.g., interest only, floaters, etc.). SAFECO has intentionally not invested significant amounts in the riskier types of mortgage-backed securities. The following two tables detail SAFECO's consolidated holdings of mortgage-backed securities. SAFECO Consolidated Holdings of Mortgage-Backed Securities at December 31, 1993 (dollar amounts in millions):
GAAP Carrying Value GAAP Market Value ------------------- ------------------- Amount % Amount % -------- ------ -------- ------ Residential CMOs: Planned Amortization Class (PAC) and Targeted Amortization Class (TAC) (Fixed Coupon) $ 574.3 25.4% $ 595.7 24.6% Sequential Pay (SEQ) 808.3 35.7 862.0 35.5 Accrual Coupon (Z-Tranche) 489.7 21.6 553.8 22.8 Companions/Supports 18.6 0.8 19.3 0.8 Principal Only 10.4 0.5 10.3 0.4 Inverse Floaters 8.0 0.4 9.1 0.4 Interest Only 2.0 0.1 1.1 - -------- ----- -------- ----- Subtotal 1,911.3 84.5 2,051.3 84.5 -------- ----- -------- ----- Residential Mortgage-Backed Pass-Throughs (Non-CMOs): Government/Agency Backed - all Fixed Coupon 124.9 5.5 139.2 5.8 Private Issuer-Fixed Coupon 80.4 3.6 85.5 3.5 Private Issuer-Floating 0.4 - 0.4 - -------- ----- -------- ----- Subtotal 205.7 9.1 225.1 9.3 -------- ----- -------- ----- Securitized Commercial Real Estate (Non-agency): Pass-Throughs 85.0 3.8 87.2 3.6 CMOs 60.3 2.6 62.6 2.6 -------- ----- -------- ----- Subtotal 145.3 6.4 149.8 6.2 -------- ----- -------- ----- Asset-Backed Securities (Non-Real Estate) - - - - -------- ----- -------- ----- Total Mortgaged-Backed Securities $2,262.3 100.0% $2,426.2 100.0% ======== ===== ======== =====
- 11 - 13 PART I ITEM 1. BUSINESS (Continued) The quality distribution of SAFECO's mortgage-backed security portfolio as of December 31, 1993 as a percentage of GAAP carrying value is as follows:
Quality Percent ------------------------ ------- Government/Agency Backed 58% AAA 33 AA 6 A 1 BBB 1 BB or lower 1 --- 100% ===
The following table presents pretax investment income yields for SAFECO's property and casualty and life and health insurance subsidiaries (calculations based on GAAP amortized cost):
1993 1992 1991 ------ ------ ------ (In Thousands) Property and Casualty 7.6% 8.2% 8.9% Life and Health 8.8% 9.3% 9.7%
The declines in the investment income yields in 1993 and 1992 for both portfolios are primarily due to the lower interest rate environment. The property and casualty decreases also reflect the higher percentage of tax- exempt securities in this portfolio. Other Operations ---------------- The other subsidiaries of the Corporation, which are engaged in lines of business other than insurance, have been acquired or organized since 1966 in the course of a program of diversification. These include SAFECO Properties, Inc. and its subsidiaries (including Winmar Company, Inc. and SAFECARE Company, Inc.), SAFECO Credit Company, Inc., SAFECO Securities, Inc., SAFECO Services Corporation, SAFECO Asset Management Company, PNMR Securities, Inc. and Talbot Agency, Inc. Winmar Company, Inc., acquired in 1967, invests in and operates real estate properties, primarily regional shopping centers, in or near Burlington, Seattle, Vancouver and Silverdale, Washington; Cleveland and Columbus, Ohio; Louisville, Kentucky; West Valley City, Utah; Palm Springs, California; Boise, Idaho; Medford, Albany, Progress, Jantzen Beach and Portland, Oregon; Milwaukee, Wisconsin; San Antonio, Texas; and Flagstaff, Arizona. Winmar also offers real estate services, including property management, design and construction management and tenant leasing services. See Item 2 - Properties, for additional information. SAFECARE Company, Inc., organized in 1968, owns and leases four healthcare facilities (including convalescent centers and psychiatric hospitals) and three medical office buildings to third parties. See Item 2 - Properties, for additional information. - 12 - 14 PART I ITEM 1. BUSINESS (Continued) SAFECO Properties, Inc. sold its hospital operating and management company (SAFECARE Health Services, Inc.) in May of 1992. See page 27 of the 1993 Annual Report to Stockholders for more information. SAFECO Credit Company, Inc., organized in 1969, provides loans and equipment financing and leasing to commercial businesses. A significant portion of the business of SAFECO Credit Company, Inc. consists of loans to other members of the SAFECO group. These loans are limited to 50% or less of the total loans outstanding. SAFECO Securities, Inc., organized in 1967, is the principal underwriter for the SAFECO Common Stock Trust, SAFECO Bond Trust, SAFECO Tax-Exempt Bond Trust and the SAFECO Money Market Trust, each of which is a publicly- held mutual fund trust having four, three, five and two investment portfolios, respectively (four trusts total, with 14 "retail" portfolios available). SAFECO Services Corporation, organized in 1972, is the transfer agent for the SAFECO Mutual Funds. SAFECO Asset Management Company, acquired by the Corporation in 1973, serves as the investment advisor to the SAFECO Mutual Funds and various institutional accounts of unrelated organizations. PNMR Securities, Inc., organized in 1986, is the principal underwriter for the SAFECO Resource Series Trust mutual fund, which has five separate investment portfolios, and distributes variable-return contracts issued by SAFECO Life Insurance Company. In addition, PNMR acts as a broker-dealer, making shares of unaffiliated mutual funds available to the public through its registered representatives. Talbot Agency, Inc., acquired by the Corporation in 1993, is a full service insurance agency located in Albuquerque, New Mexico and is the sole distributor of SAFECO life deferred annuity products to customers of financial institutions. ITEM 2. PROPERTIES Following is a brief description of the materially important properties owned and leased by SAFECO and its subsidiaries. SAFECO's property and casualty group leases from General America Corporation (wholly-owned subsidiary of SAFECO Corporation), its home office building complex located in Seattle, Washington. This complex totals 574,000 gross square feet. A small portion of this is rented to non-SAFECO professional tenants. A 700-car parking garage is connected to the complex. SAFECO's life and health insurance companies lease their home office building complex, located in Redmond, Washington, from General America Corporation. This complex totals 232,000 gross square feet. Other buildings owned and occupied by the Companies include a service facility in Redmond, Washington, as well as regional and branch offices in Atlanta, GA; Fountain Valley, CA; Cincinnati, OH; Denver, CO; Portland, OR; St. Louis, MO; and Redmond and Spokane, WA, comprising 949,000 gross square feet. All owned buildings are of modern construction, including air conditioning. All other branch and service offices utilize leased premises comprising 350,000 gross square feet, generally for periods of five years or less. - 13 - 15 PART I ITEM 2. PROPERTIES (Continued) Winmar Company, Inc. is engaged in the investment in and management of a wide variety of real estate projects, primarily regional shopping centers, located throughout the United States. Some of the projects are owned by subsidiaries of Winmar and in conjunction with other investors, and others are leased under long-term leases. The following is a summary of the property leased to others. All construction is of steel or steel and concrete.
Rentable Area Description (Sq. Ft.) Acreage ----------- --------- ------- Cleveland Heights, Ohio: Shopping Center 966,000 67 --------- --- Progress, Oregon: Shopping Center 849,000 73 Land and free-standing retail stores 19,000 8 --------- --- Total 868,000 81 --------- --- Milwaukee, Wisconsin: Shopping Center 778,000 60 --------- --- Louisville, Kentucky: Shopping Center 501,000 70 --------- --- West Valley City, Utah: Shopping Center 605,000 59 Free-standing retail stores 36,000 3 --------- --- Total 641,000 62 --------- --- Burlington, Washington: Shopping Center 407,000 71 --------- --- Silverdale, Washington: Shopping Center 399,000 53 Office building and cinema 60,000 4 --------- --- Total 459,000 57 --------- --- Other 1,157,000 319 --------- --- TOTAL RENTABLE AREA 5,777,000 787 ========= ===
Winmar also owns or leases pursuant to long-term ground leases 1,619 acres of undeveloped land, primarily in Washington, Oregon and Texas. SAFECARE Company, Inc. leases heathcare facilities to qualified operators. SAFECARE Company's inpatient medical facilities contain approximately 300 beds. SAFECARE also owns three medical office buildings totaling 46,000 square feet. ITEM 3. LEGAL PROCEEDINGS The insurance and other subsidiaries of the Corporation, because of the nature of their business, are subject to certain legal actions filed or threatened, all in the ordinary course of business. - 14 - 16 PART I ITEM 3. LEGAL PROCEEDINGS (Continued) The property and casualty insurance subsidiaries of the Corporation are parties to fewer than 50 lawsuits for liability coverages related to environmental claims, for which adequate reserves have been established. The loss and adjustment expense with respect to any such lawsuit, or all lawsuits related to a single incident combined, is not expected to exceed $15 million. See Page 7 of Item 1 for more information regarding the liability of such subsidiaries for environmental claims. For information concerning the settlement of proceedings arising under California's Proposition 103 by certain property and casualty subsidiaries of the Corporation, see Note 5 on page 48 in the 1993 Annual Report to Stockholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1993. EXECUTIVE OFFICERS OF THE REGISTRANT As of March 16, 1994 these are the names, ages and positions of the executive officers of the Registrant as required by Item 10. No family relationships exist. Roger H. Eigsti 51 Chairman since May, 1993. President and Chief Executive Officer since January, 1992. President and Chief Operating Officer from May, 1989 to December, 1991. Executive Vice President and Chief Financial Officer from 1985 to May, 1989. Director since 1988. Boh A. Dickey 49 Director since August, 1993. Executive Vice President since January, 1992. Chief Financial Officer since May, 1989. Senior Vice President from May, 1989 to December, 1991. Secretary from 1985 to November, 1991. Vice President and Controller from 1982 to May, 1989. Richard W. Hubbard 64 Senior Vice President since May, 1989. Treasurer since 1985. Vice President from 1985 to May, 1989. President of SAFECO Asset Management Company since 1984. Dan D. McLean 61 President of SAFECO Property and Casualty Insurance Companies since January, 1993. Senior Vice President of SAFECO Property and Casualty Insurance Companies from 1984 to December, 1992 and Chief Operating Officer of such companies from February, 1992 to December, 1992. He is not an officer of the Registrant. Rodney A. Pierson 46 Senior Vice President since February, 1994. Secretary since November, 1991. Controller since May, 1990. Vice President from May, 1990 to January, 1994. Vice President of SAFECO Property and Casualty Insurance Companies from 1987 to May, 1990. Controller of SAFECO Property and Casualty Insurance Companies from 1984 to May, 1990.
- 15 - 17 PART I EXECUTIVE OFFICERS OF THE REGISTRANT (Continued) James W. Ruddy 44 Senior Vice President since November, 1992. General Counsel since May, 1989. Vice President from May, 1989 to November, 1992. Associate General Counsel from 1985 to May, 1989. Richard E. Zunker 55 President of SAFECO Life and Health Insurance Companies since 1985. He is not an officer of the Registrant.
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. Pages 29 and 55 of the 1993 Annual Report to Stockholders are hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA Pages 56 through 59 of the 1993 Annual Report to Stockholders are hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pages 21 through 29 of the 1993 Annual Report to Stockholders are hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 31 through 55 of the 1993 Annual Report to Stockholders are hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III The definitive proxy statement to be filed within 120 days after December 31, 1993, excluding the Annual Report of the Compensation Committee on Executive Compensation appearing on Pages 8 through 15, is hereby incorporated by reference to fulfill the requirements of Item 10, "Directors and Officers" (except for that portion of Item 10 relating to executive officers which appears in Part I above), and to fulfill the requirements of Item 11, "Executive Compensation," Item 12, "Security Ownership of Certain Beneficial Owners and Management," and Item 13, "Certain Relationships and Related Transactions." - 16 - 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) FINANCIAL STATEMENTS AND EXHIBITS F-1 Consent of Independent Auditors SAFECO Corporation and Subsidiaries: Financial Statements (pages 31 through 55 of the 1993 Annual Report to Stockholders, containing the following statements, are hereby incorporated by reference): Consolidated Balance Sheet, December 31, 1993 and 1992. Statement of Consolidated Income for the Three Years Ended December 31, 1993. Statement of Consolidated Cash Flows for the Three Years Ended December 31, 1993. Notes to Financial Statements for the Three Years Ended December 31, 1993. SAFECO Corporation and Subsidiaries Supplemental Consolidating Information: F-2 Balance Sheet, December 31, 1993. F-3 Statement of Income for the Year Ended December 31, 1993. F-4 Statement of Cash Flows for the Year Ended December 31, 1993. Schedules: F-5 Schedule I - Summary of Investments - Other Than Investments in Related Parties, December 31, 1993. Schedule III - Condensed Financial Information of the Registrant (Parent Company Only). F-6 Balance Sheet, December 31, 1993 and 1992. F-7 Statement of Income for the Three Years Ended December 31, 1993. Statement of Changes in Stockholders' Equity for the Three Years Ended December 31, 1993. (See page 36 of the 1993 Annual Report to Stockholders which is hereby incorporated by reference.) F-8 Statement of Cash Flows for the Three Years Ended December 31, 1993. F-9 Schedule V - Supplementary Insurance Information for the Years Ended December 31, 1993, 1992 and 1991. F-10 Schedule VI - Reinsurance for the Years Ended December 31, 1993, 1992 and 1991. - 17 - 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (Continued) F-11 Schedule IX - Short-term Borrowings, December 31, 1993, 1992 and 1991. F-12 Schedule X - Supplemental Information Concerning Property/Casualty Insurance Operations for the Years Ended December 31, 1993, 1992 and 1991. The following Article 7 schedules are omitted because the information is provided elsewhere in the Annual Report (Form 10-K) or because of the absence of conditions under which they are required: Schedules II, IV, VII and VIII Exhibits: F-13 Exhibit Index F-14 Exhibit 3 - Bylaws (as last amended August 4, 1993). - Restated Articles of Incorporation (as amended May 4, 1988) filed as Exhibit 3 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. Exhibit 4 - First Supplemental Indenture among the Registrant, SAFECO Credit Company, Inc. and Morgan Guaranty Trust Company of New York dated as of March 20, 1992 and filed as Exhibit 4.3 to Registrant's Current Report on Form 8-K on March 20, 1992. - Indenture among the Registrant, SAFECO Credit Company, Inc. and Morgan Guaranty Trust Company of New York dated as of December 19, 1990 and filed as Exhibit 4.1 to the Registration Statement (No. 33-36669) filed jointly by the Registrant and SAFECO Credit Company, Inc. on September 4, 1990. - Indenture between the Registrant and Morgan Guaranty Trust Company of New York dated as of September 12, 1985 and filed as Exhibit 4b to the Registration Statement (No. 2- 99988) filed by the Registrant on August 30, 1985. - 18 - 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (Continued) Exhibit 10 - The following management contracts and compensatory plan arrangements: - Executive Severance Agreements with Roger Eigsti and Boh A. Dickey, each filed as Exhibit 10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985; Executive Severance Agreement with R. W. Hubbard filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986; and Executive Severance Agreement with R. E. Zunker dated May 1, 1985 and filed as Exhibit 10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. - SAFECO Incentive Plan of 1987 filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and Supplement thereto filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. - SAFECO Stock Option Plan filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984 and Appendix thereto filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. F-15 Exhibit 11 - Computation of Income Per Share F-16 Exhibit 12 - Computation of Ratios F-17 Exhibit 21 - Subsidiaries of the Registrant F-18 Exhibit 28 - (P) Information from Reports Furnished to State Insurance Regulatory Authorities (paper-filed only, under Form SE) Exhibit 13 - 1993 Annual Report to Stockholders (pages 21 to 59, inclusive) (b) EXHIBITS AND REPORTS ON FORM 8-K Form 8-K was not required to be filed for any event during the quarter ended December 31, 1993. - 19 - 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on this 16th day of March, 1994. SAFECO CORPORATION By ROGER H. EIGSTI ------------------------------------------- Roger H. Eigsti, Chairman, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- ROGER H. EIGSTI - ---------------------------------- Chairman, March 16, 1994 Roger H. Eigsti Chief Executive Officer and President BOH A. DICKEY - ---------------------------------- Executive Vice President, March 16, 1994 Boh A. Dickey Chief Financial Officer and Director ROD A. PIERSON - ---------------------------------- Senior Vice President, March 16, 1994 Rod A. Pierson Secretary, Controller and Chief Accounting Officer ROBERT S. CLINE - ---------------------------------- Director March 16, 1994 Robert S. Cline JOHN W. ELLIS - ---------------------------------- Director March 16, 1994 John W. Ellis WILLIAM P. GERBERDING - ---------------------------------- Director March 16, 1994 William P. Gerberding DONALD G. GRAHAM, JR. - ---------------------------------- Director March 16, 1994 Donald G. Graham, Jr.
22
Name Title Date ---- ----- ---- JOSHUA GREEN III - ---------------------------------- Director March 16, 1994 Joshua Green III HAROLD W. HAYNES - ---------------------------------- Director March 16, 1994 Harold W. Haynes CALVERT KNUDSEN - ---------------------------------- Director March 16, 1994 Calvert Knudsen WILLIAM G. REED, JR. - ---------------------------------- Director March 16, 1994 William G. Reed, Jr. TONI REMBE - ---------------------------------- Director March 16, 1994 Toni Rembe JUDITH M. RUNSTAD - ---------------------------------- Director March 16, 1994 Judith M. Runstad HENRY T. SEGERSTROM - ---------------------------------- Director March 16, 1994 Henry T. Segerstrom PAUL W. SKINNER - ---------------------------------- Director March 16, 1994 Paul W. Skinner - ---------------------------------- Director George H. Weyerhaeuser
23 F-1 CONSENT OF INDEPENDENT AUDITORS SAFECO Corporation: We consent to the incorporation by reference in this Annual Report (Form 10-K) of SAFECO Corporation of our report dated February 11, 1994, included in the 1993 Annual Report to Shareholders of SAFECO Corporation. Our audits also included the financial statement schedules of SAFECO Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 2-58654 and 33-14381) of SAFECO Corporation of our report dated February 11, 1994, with respect to the consolidated financial statements and schedules of SAFECO Corporation included and/or incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1993. ERNST & YOUNG Seattle, Washington March 16, 1994 24 F-2 SAFECO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING INFORMATION BALANCE SHEET, DECEMBER 31, 1993 (In Thousands)
Other Property & Life & Real and Casualty Health Estate Eliminations Consolidated ---------- ---------- -------- ------------ ------------ ASSETS Investments: Fixed Maturities, at Amortized Cost . $3,226,514 $7,426,593 $ - $ 67,869 $10,720,976 Marketable Equity Securities, at Market Value . . . . . . . . . . . 775,603 26,713 - 107,936 910,252 Mortgage Loans . . . . . . . . . . . . 3,151 487,090 - (88,103) 402,138 Real Estate (At cost less accumulated depreciation) . . . . . - 7,492 444,431 (4,126) 447,797 Policy Loans . . . . . . . . . . . . . - 50,488 - - 50,488 Short-Term Investments . . . . . . . . 90,605 77,866 228 (59,652) 109,047 ---------- ---------- -------- --------- ----------- Total Investments . . . . . . . . . 4,095,873 8,076,242 444,659 23,924 12,640,698 Cash . . . . . . . . . . . . . . . . . 28,834 19,858 494 18,647 67,833 Accrued Investment Income . . . . . . . . 79,101 128,232 - 2,956 210,289 Finance Receivables (Less unearned finance charges and allowance for doubtful accounts) . . . . . . . . . . - - - 547,759 547,759 Premiums and Other Service Fees Receivable . . . . . . . . . . . 375,392 13,257 8,904 3,320 400,873 Other Notes and Accounts Receivable . . . 7,945 14,736 55,351 (2,055) 75,977 Reinsurance Recoverables . . . . . . . . 111,074 15,166 - - 126,240 Land, Buildings and Equipment for Company Use (At cost less accumulated depreciation) . . . . . . 120,495 692 1,558 26,873 149,618 Deferred Policy Acquisition Costs . . . . 133,103 234,200 - - 367,303 Other Assets . . . . . . . . . . . . . . 62,789 105,478 6,445 45,989 220,701 ---------- ---------- -------- --------- ----------- TOTAL . . . . . . . . . . . . . . . $5,014,606 $8,607,861 $517,411 $ 667,413 $14,807,291 ========== ========== ======== ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Losses and Adjustment Expense . . . . . . $2,095,187 $ 33,185 $ - $ - $ 2,128,372 Unearned Premiums . . . . . . . . . . . . 809,427 9,958 - - 819,385 Life Policy Liabilities . . . . . . . . . - 151,488 - - 151,488 Funds Held Under Deposit Contracts . . . - 7,229,439 - - 7,229,439 Notes and Mortgages Payable: Credit Company Borrowings . . . . . . - - - 427,930 427,930 10.75% Notes Due 1995 . . . . . . . . - - - 200,000 200,000 Other Notes and Mortgages: Affiliates . . . . . . . . . . . . - - 131,816 (131,816) - Other . . . . . . . . . . . . . . . - - 225,077 65,428 290,505 Other Liabilities . . . . . . . . . . . . 301,099 253,042 26,169 49,581 629,891 Federal and Canadian Income Taxes: Current . . . . . . . . . . . . . . . 19,477 15,961 2,496 29 37,963 Deferred . . . . . . . . . . . . . . . 15,630 51,575 25,921 24,801 117,927 ---------- ---------- -------- --------- ----------- Total Liabilities . . . . . . . . . 3,240,820 7,744,648 411,479 635,953 12,032,900 ---------- ---------- -------- --------- ----------- Common Stock . . . . . . . . . . . . . . 12,526 6,006 1 188,947 207,480 Additional Paid-In Capital . . . . . . . 63,557 92,806 42,123 (198,486) - Retained Earnings . . . . . . . . . . . . 1,468,196 757,573 63,808 17,745 2,307,322 Unrealized Appreciation of Marketable Equity Securities, Net of Tax . . . . 232,075 6,828 - 23,254 262,157 Unrealized Loss from Foreign Currency Translation, Net of Tax . . . . . . . (2,568) - - - (2,568) ---------- ---------- -------- --------- ----------- Stockholders' Equity . . . . . . . 1,773,786 863,213 105,932 31,460 2,774,391 ---------- ---------- -------- --------- ----------- TOTAL . . . . . . . . . . . . . . . $5,014,606 $8,607,861 $517,411 $ 667,413 $14,807,291 ========== ========== ======== ========= ===========
25 F-3 SAFECO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING INFORMATION STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 (In Thousands)
Other Property & Life & Real and Casualty Health Estate Eliminations Consolidated ---------- --------- --------- ------------ ------------ REVENUES: Insurance: Property and Casualty Earned Premiums . . . . . . . . . $1,929,714 $ - $ - $ - $1,929,714 Life and Health Premiums and Other Revenues . . . . . . - 305,963 - - 305,963 ---------- --------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . 1,929,714 305,963 - - 2,235,677 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . - - 78,252 - 78,252 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . - - - 50,061 50,061 Asset Management . . . . . . . . . . . . . . . . . . . . . - - - 13,250 13,250 Net Investment Income . . . . . . . . . . . . . . . . . . . 277,643 668,158 - 5,994 951,795 Realized Investment Gain . . . . . . . . . . . . . . . . . 114,561 53,544 8,126 11,418 187,649 ---------- --------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . 2,321,918 1,027,665 86,378 80,723 3,516,684 ---------- --------- -------- -------- ---------- EXPENSES: Losses, Adjustment Expense and Policyholders' Benefits . . 1,350,628 675,478 - - 2,026,106 Commissions . . . . . . . . . . . . . . . . . . . . . . . . 280,357 82,089 - - 362,446 Proposition 103 Settlement . . . . . . . . . . . . . . . . 40,000 - - - 40,000 Personnel Costs . . . . . . . . . . . . . . . . . . . . . . 150,960 48,431 15,529 11,473 226,393 Interest . . . . . . . . . . . . . . . . . . . . . . . . . - - 18,175 40,615 58,790 Dividends to Policyholders . . . . . . . . . . . . . . . . 20,653 - - - 20,653 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,892 55,392 34,469 10,805 226,558 Amortization of Deferred Policy Acquisition Costs . . . . . 341,997 26,350 - - 368,347 Deferral of Policy Acquisition Costs . . . . . . . . . . . (350,621) (38,925) - - (389,546) ---------- --------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . 1,959,866 848,815 68,173 62,893 2,939,747 ---------- --------- -------- -------- ---------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . 362,052 178,850 18,205 17,830 576,937 ---------- --------- -------- -------- ---------- Provision (Benefit) for Federal and Canadian Income Taxes: Current . . . . . . . . . . . . . . . . . . . . . . . . . . 76,356 92,880 4,915 (1,212) 172,939 Deferred . . . . . . . . . . . . . . . . . . . . . . . . . (2,654) (26,133) 1,745 5,139 (21,903) ---------- --------- -------- -------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . 73,702 66,747 6,660 3,927 151,036 ---------- --------- -------- -------- ---------- Income Before Cumulative Effect of Accounting Changes . . . . . 288,350 112,103 11,545 13,903 425,901 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . (12,258) (2,493) (360) (565) (15,676) Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . 7,337 9,092 3,389 (1,265) 18,553 ---------- --------- -------- -------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283,429 $ 118,702 $ 14,574 $ 12,073 $ 428,778 ========== ========= ======== ======== ==========
26 F-4 SAFECO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING INFORMATION STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1993 (In Thousands)
Real Property & Life & Estate Other and Casualty Health Companies Eliminations Consolidated ----------- ---------- --------- ------------ ------------ OPERATING ACTIVITIES: Insurance Premiums Received . . . . . . . . . . . . . . $ 1,941,266 $ 264,255 $ -- $ -- $2,205,521 Dividends and Interest Received . . . . . . . . . . . . 277,309 590,374 4,721 47,486 919,890 Other Operating Receipts . . . . . . . . . . . . . . . . -- 26,408 77,585 23,835 127,828 Insurance Claims and Policyholders' Benefits Paid . . . (1,315,510) (255,133) -- -- (1,570,643) Underwriting, Acquisition and Insurance Operating Costs Paid . . . . . . . . . . . . . . . . . . . . . (532,760) (180,606) -- 2,906 (710,460) Proposition 103 Settlement . . . . . . . . . . . . . . . (39,815) -- -- -- (39,815) Interest Paid . . . . . . . . . . . . . . . . . . . . . -- -- (19,233) (40,035) (59,268) Other Operating Costs Paid . . . . . . . . . . . . . . . -- -- (47,450) (22,846) (70,296) Income Taxes Paid . . . . . . . . . . . . . . . . . . . (80,823) (95,363) (1,013) 8,055 (169,144) ---------- --------- --------- --------- ----------- Net Cash Provided by Operating Activities . . . . . 249,667 349,935 14,610 19,401 633,613 ---------- --------- --------- --------- ----------- INVESTING ACTIVITIES: Purchase of: Fixed Maturities . . . . . . . . . . . . . . . . . . (720,750) (2,106,558) -- (16,645) (2,843,953) Equities and Other Investments . . . . . . . . . . . (103,303) (185) -- (36,903) (140,391) Investment Real Estate . . . . . . . . . . . . . . . -- -- (46,752) -- (46,752) Mortgage and Policy Loans . . . . . . . . . . . . . -- (62,157) (7,707) -- (69,864) Sale of Fixed Maturities . . . . . . . . . . . . . . . . 126,345 675,044 -- 44,006 845,395 Maturity of Fixed Maturities . . . . . . . . . . . . . . 365,295 644,532 -- 705 1,010,532 Sale or Maturity of: Equities and Other Investments . . . . . . . . . . . 170,896 6,323 -- 27,691 204,910 Investment Real Estate . . . . . . . . . . . . . . . -- 116 27,087 -- 27,203 Mortgage and Policy Loans . . . . . . . . . . . . . 947 45,431 2,994 (2,324) 47,048 Net Decrease (Increase) in Short-Term Investments . . . 54,877 9,522 301 (6,822) 57,878 Finance Receivables Originated or Acquired . . . . . . . -- -- -- (286,758) (286,758) Principal Payments Received on Finance Receivables . . . -- -- -- 228,772 228,772 Other . . . . . . . . . . . . . . . . . . . . . . . . . (24,043) (1,650) (607) (20,997) (47,297) ---------- --------- --------- ---------- ----------- Net Cash Used in Investing Activities . . . . . . . (129,736) (789,582) (24,684) (69,275) (1,013,277) ---------- --------- --------- ---------- ----------- FINANCING ACTIVITIES: Funds Received Under Deposit Contracts . . . . . . . . . -- 1,001,880 -- -- 1,001,880 Return of Funds Held Under Deposit Contracts . . . . . . -- (555,430) -- -- (555,430) Proceeds from Notes and Mortgage Borrowings . . . . . . -- -- 111,500 20,450 131,950 Repayment of Notes and Mortgage Borrowings . . . . . . . -- -- (92,439) (23,444) (115,883) Net Proceeds from (Repayment of) Short-Term Borrowings . -- -- (7,925) 28,805 20,880 Common Stock Reacquired . . . . . . . . . . . . . . . . -- -- -- (4,329) (4,329) Dividends Paid to Stockholders . . . . . . . . . . . . . (134,000) (4,560) (1,336) 31,763 (108,133) Other . . . . . . . . . . . . . . . . . . . . . . . . . 675 -- (317) 3,082 3,440 ---------- --------- --------- --------- ----------- Net Cash Provided by (Used in) Financing Activities . (133,325) 441,890 9,483 56,327 374,375 ---------- --------- --------- --------- ----------- Net (Decrease) Increase in Cash . . . . . . . . . . . . . . . (13,394) 2,243 (591) 6,453 (5,289) Cash at Beginning of Year . . . . . . . . . . . . . . . . . . 42,228 17,615 1,085 12,194 73,122 ---------- --------- --------- --------- ----------- Cash at End of Year . . . . . . . . . . . . . . . . . . . . . $ 28,834 $ 19,858 $ 494 $ 18,647 $ 67,833 ========== ========= ========= ========= ===========
27 F-5 Schedule I SAFECO CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1993 (In Thousands)
Column A Column B Column C Column D - -------- ---------- ---------- --------- Amount at Which Shown in the Market Balance Type of Investment Cost Value Sheet - ------------------ ---------- ----------- --------- Fixed Maturities: Bonds: United States Government and Government Agencies and Authorities . . . . . . . . . . . . . . . $ 1,153,369 $ 1,256,994 $ 1,153,369 States, Municipalities and Political Subdivisions . . . . . . . . . . . . . . . . . . . . . 2,539,412 2,991,728 2,539,412 Foreign Governments . . . . . . . . . . . . . . . . . . . 389,838 473,997 389,838 Public Utilities . . . . . . . . . . . . . . . . . . . . . 1,768,791 1,979,504 1,768,791 Convertibles and Bonds with Warrants Attached . . . . . . . . . . . . . . . . 32,618 35,954 32,618 All Other Corporate Bonds . . . . . . . . . . . . . . . . 4,824,716 5,213,292 4,824,716 Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . 12,232 14,262 12,232 ----------- ----------- ----------- Total Fixed Maturities (1) . . . . . . . . . . . 10,720,976 $11,965,731 10,720,976 ----------- =========== ----------- Equity Securities: Common Stocks: Public Utilities . . . . . . . . . . . . . . . . . . . . . 59,321 $ 94,474 94,474 Banks, Trust and Insurance Companies . . . . . . . . . . . 24,378 81,013 81,013 Industrial, Miscellaneous and All Other . . . . . . . . . 230,318 466,799 466,799 Non-Redeemable Preferred Stocks . . . . . . . . . . . . . . . 199,121 267,966 267,966 ----------- ----------- ----------- Total Equity Securities . . . . . . . . . . . . 513,138 $ 910,252 910,252 ----------- =========== ----------- Other: Mortgage Loans on Real Estate (1) . . . . . . . . . . . . . . 402,138 402,138 Real Estate (Net of depreciation) (1) . . . . . . . . . . . . 447,797 447,797 Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . 50,488 50,488 Short-Term Investments . . . . . . . . . . . . . . . . . . . . 109,047 109,047 ----------- ----------- Total Other . . . . . . . . . . . . . . . . . . 1,009,470 1,009,470 ----------- ----------- Total Investments . . . . . . . . . . . . . $12,243,584 $12,640,698 =========== ===========
(1) The carrying value of investments in fixed maturities, mortgage loans and real estate that have not produced income for the last twelve months is less than one percent of the total of such investments at December 31, 1993. 28 F-6 Schedule III SAFECO CORPORATION (Parent Company Only) Balance Sheet (In Thousands Except Share Amounts)
December 31 ASSETS ------------------------ 1993 1992 ---------- ---------- Investments: Stock of Subsidiaries - At Cost Plus Equity in Undistributed Earnings Since Acquisition (Includes unrealized appreciation of marketable equity securities, net of tax, held by subsidiaries) . . . . . . . . . . . . . . . . . . . . . . . . . . $2,867,013 $2,555,924 Marketable Equity Securities, at Market Value (Cost: 1993 - $72,521; 1992 - $57,009) . . . . . . . . . . . . . . . . . . . . 102,845 86,183 Fixed Maturities at Amortized Cost (Market Value: 1993 - $54,122; 1992 - $53,776) . . . . . . . . . . . . . . . . . . . . 51,803 54,221 Short-Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,945 - Note Receivable from SAFECO Credit Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,000 Other Investments - At Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 943 1,518 ---------- ---------- Total Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,061,549 2,701,846 Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939 250 Dividend Receivable from Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 Accounts Receivable from Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,870 27,570 Federal Income Taxes Recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,506 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,435 3,013 ---------- ---------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,072,793 $2,736,185 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts and Interest Payable - Other . . . . . . . . . . . . . . . . . . . . . . $ 6,507 $ 6,657 - Affiliate . . . . . . . . . . . . . . . . . . . . - 1,300 Federal Income Tax: Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,317 - Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,256 11,476 Dividends Payable to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 28,322 25,755 10.75% Notes Due 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000 Medium-Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 42,850 ---------- ---------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,402 288,038 ---------- ---------- Stockholders' Equity: Preferred Stock, No Par Value: Shares Authorized: 10,000,000 Shares Issued and Outstanding: None Common Stock, No Par Value: Shares Authorized: 150,000,000 Shares Reserved for Options: 1993 - 2,128,828; 1992 - 2,356,757 Shares Issued and Outstanding: 1993 - 62,931,562; 1992 - 62,815,265 . . . . . . . . . . . . . . . . . . 207,480 200,557 Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307,322 1,993,350 Unrealized Appreciation of Marketable Equity Securities, Net of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,157 256,189 Unrealized Loss from Foreign Currency Translation, Net of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . (2,568) (1,949) ---------- ---------- Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 2,774,391 2,448,147 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . $3,072,793 $2,736,185 ========== ==========
29 F-7 Schedule III SAFECO CORPORATION (Parent Company Only) STATEMENT OF INCOME (In Thousands)
Year Ended December 31 --------------------------------------- 1993 1992 1991 -------- -------- -------- REVENUES: Dividends Received from Non-Affiliates . . . . . . . . . . . . . . . . $ 10,480 $ 6,182 $ 10,679 Interest Earned - Affiliate . . . . . . . . . . . . . . . . . . . . . 859 678 792 - Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,016 1,619 1,321 Equity in Loss of Unconsolidated Affiliate . . . . . . . . . . . . . . (574) (555) (218) Realized Gain from Security Investments . . . . . . . . . . . . . . . 11,958 2,539 7,984 -------- -------- -------- Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 26,739 10,463 20,558 -------- -------- -------- EXPENSES: Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,792 22,756 21,500 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 864 559 -------- -------- -------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 25,268 23,620 22,059 -------- -------- -------- Income (Loss) Before Income Taxes . . . . . . . . . . . . . . . . . . . . . 1,471 (13,157) (1,501) Federal Income Tax Benefit (Includes provision on realized gain: 1993 - $4,518; 1992 - $863; 1991 - $2,715) . . . . . . . . . . . . . . 1,864 5,855 3,023 -------- -------- -------- Income (Loss) Before Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . 3,335 (7,302) 1,522 Cumulative Effect of Accounting Change for Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . (687) - - -------- -------- -------- Income (Loss) Before Equity in Earnings of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,648 (7,302) 1,522 Equity in Earnings of Subsidiaries (Includes dividends accrued and received) . . . . . . . . . . . . . . 426,130 318,596 258,056 -------- -------- -------- Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . $428,778 $311,294 $259,578 ======== ======== ======== DIVIDENDS ACCRUED AND RECEIVED FROM SUBSIDIARIES (Cash): SAFECO Insurance Company of America . . . . . . . . . . . . . . . . . $ 69,000 $ 60,500 $ 37,500 General Insurance Company of America . . . . . . . . . . . . . . . . . 48,500 43,000 37,000 First National Insurance Company of America . . . . . . . . . . . . . 8,500 5,500 2,000 SAFECO National Insurance Company . . . . . . . . . . . . . . . . . . 3,000 8,000 4,000 SAFECO of Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 6,000 3,000 SAFECO Life Insurance Company . . . . . . . . . . . . . . . . . . . . 4,000 4,000 2,000 SAFECO Administrative Services, Inc. . . . . . . . . . . . . . . . . . 560 800 564 SAFECO Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,336 1,320 1,440 SAFECO Credit Company, Inc. . . . . . . . . . . . . . . . . . . . . . 1,532 1,596 1,116 SAFECO Asset Management Company . . . . . . . . . . . . . . . . . . . 2,000 - - -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $143,428 $130,716 $ 88,620 ======== ======== ========
30 F-8 Schedule III SAFECO CORPORATION (Parent Company Only) STATEMENT OF CASH FLOWS (In Thousands)
Year Ended December 31 --------------------------------------- 1993 1992 1991 --------- --------- --------- OPERATING ACTIVITIES: Dividends and Interest Received - Affiliates . . . . . . . . . . . . . . . . $ 144,288 $ 130,930 $ 103,412 - Other . . . . . . . . . . . . . . . . . . 10,739 7,018 12,347 Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,064) (22,653) (21,500) Other Operating Costs Paid . . . . . . . . . . . . . . . . . . . . . . . . . (404) (458) (568) Income Taxes Received . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,432 600 7,704 --------- --------- --------- Net Cash Provided By Operating Activities . . . . . . . . . . . . . . . 136,991 115,437 101,395 --------- --------- --------- INVESTING ACTIVITIES: Purchase of: Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,883) (42,106) (4,187) Equities and Other Investments . . . . . . . . . . . . . . . . . . . . . (32,902) - (7,039) Sale of Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . 15,665 532 3,528 Maturity of Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . 705 917 1,046 Sale of Equities and Other Investments . . . . . . . . . . . . . . . . . . . 27,692 3,586 54,552 Net (Increase) Decrease in Short-Term Investments . . . . . . . . . . . . . (13,245) (20,265) 400 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,878) 5,273 --------- --------- --------- Net Cash (Used In) Provided By Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . (14,968) (59,214) 53,573 --------- --------- --------- FINANCING ACTIVITIES: Proceeds from Medium-Term Note Borrowings . . . . . . . . . . . . . . . . . 7,150 42,850 - Capital Contributions to Affiliates . . . . . . . . . . . . . . . . . . . . (19,175) - (75,000) Return of Capital Distribution . . . . . . . . . . . . . . . . . . . . . . . - 1,000 13,000 Common Stock Reacquired . . . . . . . . . . . . . . . . . . . . . . . . . . (4,329) (11,897) (5,690) Dividends Paid to Stockholders . . . . . . . . . . . . . . . . . . . . . . . (108,133) (97,953) (89,092) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,153 7,969 3,725 --------- --------- --------- Net Cash Used In Financing Activities . . . . . . . . . . . . . . . . . (120,334) (58,031) (153,057) --------- --------- --------- Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . . . . . . . . 1,689 (1,808) 1,911 Cash at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . 250 2,058 147 --------- --------- --------- Cash at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,939 $ 250 $ 2,058 ========= ========= =========
31 F-9 Schedule V Page 1 SAFECO CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands) Caption> Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Reserve Other for Policy Future Claims and Policy Benefits Benefits, Payable Premiums Deferred Losses, (Funds and Policy Claims Held Under Service Acquisition and Loss Unearned Deposit Fee Segment Costs Expenses(2) Premiums(2) Contracts) Revenues - ------- ----------- ----------- ----------- ----------- -------- 1993 Property and Casualty: Personal . . . . . . . . $ 97,104 $1,088,269 $ 515,820 $1,400,705 Commercial and Surety . 35,999 1,006,918 293,607 529,009 --------- ---------- --------- ---------- Total . . . . . . . . 133,103 2,095,187 809,427 1,929,714 --------- ---------- --------- ---------- Life and Health: Financial Services . . . 137,479 109,272 7,246 $4,184,024 44,156 Employee Benefits . . . 96,721 75,401 2,712 3,045,415 261,807 --------- ---------- --------- ---------- ---------- Total . . . . . . . . 234,200 184,673 9,958 7,229,439 305,963 --------- ---------- --------- ---------- ---------- Real Estate . . . . . . . . . . - - - - - Other Companies and Eliminations . . . . . - - - - - --------- ---------- --------- ---------- ---------- Consolidated Totals . $ 367,303 $2,279,860 $ 819,385 $7,229,439 $2,235,677 ========= ========== ========= ========== ========== 1992 Property and Casualty: Personal . . . . . . . . $ 91,072 $1,065,890 $ 468,785 $1,258,893 Commercial and Surety . 33,407 986,444 263,381 495,567 --------- ---------- --------- ---------- Total . . . . . . . . 124,479 2,052,334 732,166 1,754,460 --------- ---------- --------- ---------- Life and Health: Financial Services . . . 124,459 110,312 7,017 $3,480,758 40,511 Employee Benefits . . . 97,166 78,617 3,416 2,901,897 288,005 --------- ---------- --------- ---------- ---------- Total . . . . . . . . 221,625 188,929 10,433 6,382,655 328,516 --------- ---------- --------- ---------- ---------- Real Estate . . . . . . . . . . - - - - - Other Companies and Eliminations . . . . . - - - - - --------- ---------- --------- ---------- ---------- Consolidated Totals . $ 346,104 $2,241,263 $ 742,599 $6,382,655 $2,082,976 ========= ========== ========= ========== ==========
Column G Column H Column I Column J Column K -------- -------- -------- -------- -------- Other Amortiza- Operating Benefits, tion of Costs Claims, Deferred (Including Net Losses and Policy Dividends Net Investment Adjustment Acquisition to Policy- Premiums Segment Income(1) Expense Costs holders) Written - ------- ---------- ----------- ----------- --------- -------- 1993 Property and Casualty: Personal . . . . . . . . $1,018,241 $ 260,094 $146,388 $1,446,534 Commercial and Surety . 332,387 81,903 120,853 553,631 ---------- --------- -------- ---------- Total . . . . . . . . $ 277,643 1,350,628 341,997 267,241 $2,000,165 --------- ---------- --------- -------- ========== Life and Health: Financial Services . . . 390,550 319,202 7,395 53,057 Employee Benefits . . . 277,608 356,276 18,955 93,930 --------- ---------- -------- -------- Total . . . . . . . . 668,158 675,478 26,350 146,987 --------- ---------- -------- -------- Real Estate . . . . . . . . . . - - - 68,173 Other Companies and Eliminations . . . . . 5,994 - - 62,893 --------- ---------- --------- --------- Consolidated Totals . $ 951,795 $2,026,106 $ 368,347 $ 545,294 ========= ========== ========= ========= 1992 Property and Casualty: Personal . . . . . . . . $ 960,590 $ 239,284 $ 96,731 $1,314,448 Commercial and Surety . 346,062 81,055 102,760 505,997 ---------- --------- --------- ---------- Total . . . . . . . . $ 280,820 1,306,652 320,339 199,491 $1,820,445 --------- ---------- --------- --------- ========== Life and Health: Financial Services . . . 344,970 283,787 4,940 42,848 Employee Benefits . . . 278,614 390,352 13,921 92,648 --------- ---------- --------- --------- Total . . . . . . . . 623,584 674,139 18,861 135,496 --------- ---------- --------- --------- Real Estate . . . . . . . . . . - - - 178,783 Other Companies and Eliminations . . . . . (1,356) - - 57,720 --------- ---------- --------- --------- Consolidated Totals . $ 903,048 $1,980,791 $ 339,200 $ 571,490 ========= ========== ========= =========
32 F-9 Schedule V Page 2 SAFECO CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Reserve Other for Policy Future Claims and Policy Benefits Benefits, Payable Premiums Deferred Losses, (Funds and Policy Claims Held Under Service Acquisition and Loss Unearned Deposit Fee Segment Costs Expenses(2) Premiums(2) Contracts) Revenues - ------- ----------- ----------- ----------- ---------- ---------- 1991 Property and Casualty: Personal . . . . . . . . $ 81,555 $1,060,210 $ 418,912 $1,161,879 Commercial and Surety . 33,646 957,139 254,976 474,781 --------- ---------- --------- ---------- Total . . . . . . . . 115,201 2,017,349 673,888 1,636,660 --------- ---------- --------- ---------- Life and Health: Financial Services . . . 105,467 111,825 6,221 $2,894,559 36,135 Employee Benefits . . . 89,762 78,509 5,723 2,644,313 296,576 --------- ---------- --------- ---------- ---------- Total . . . . . . . . 195,229 190,334 11,944 5,538,872 332,711 --------- ---------- --------- ---------- ---------- Real Estate . . . . . . . . - - - - - Other Companies and Eliminations . . . . - - - - - --------- ---------- --------- ---------- ---------- Consolidated Totals . $ 310,430 $2,207,683 $ 685,832 $5,538,872 $1,969,371 ========= ========== ========= ========== ==========
Column A Column G Column H Column I Column J Column K - -------- -------- -------- -------- -------- -------- Other Amortiza- Operating Benefits, tion of Costs Claims, Deferred (Including Net Losses and Policy Dividends Net Investment Adjustment Acquisition to Policy- Premiums Segment Income(1) Expense Costs holders) Written - ------- ---------- ---------- ----------- ---------- ---------- 1991 Property and Casualty: Personal . . . . . . . . $ 929,453 $ 223,712 $ 88,765 $1,156,104 Commercial and Surety . 355,749 79,374 100,728 473,606 ---------- --------- --------- ---------- Total . . . . . . . . $ 286,073 1,285,202 303,086 189,493 $1,629,710 --------- ---------- --------- --------- ========== Life and Health: Financial Services . . . 303,560 245,400 6,776 37,827 Employee Benefits . . . 253,885 370,530 14,160 91,354 --------- ---------- --------- --------- Total . . . . . . . . 557,445 615,930 20,936 129,181 --------- ---------- --------- --------- Real Estate . . . . . . . . - - - 265,862 Other Companies and Eliminations . . . . 3,249 - - 55,934 --------- ---------- --------- --------- Consolidated Totals . $ 846,767 $1,901,132 $ 324,022 $ 640,470 ========= ========== ========= =========
(1) Property and casualty insurance companies' investments are available for payment of claims and benefits for all product lines within the segments; therefore, such investments and the related investment income have not been identified with specific segments. In the life and health companies, a major portion of investment income and assets is specifically identifiable within an industry segment. The remainder of these amounts has been allocated in proportion to the mean policy reserves and liabilities identified with each segment. (2) 1992 and 1991 amounts restated for FAS113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," adopted by SAFECO in the first quarter of 1993. 33 F-10 Schedule VI SAFECO CORPORATION AND SUBSIDIARIES REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
Column A Column B Column C Column D Column E Column F -------- ----------- ----------- -------- ----------- ---------- Percentage Ceded Assumed of Amount Gross to Other from Other Net Assumed Amount Companies Companies Amount to Net ----------- ----------- --------- ----------- ---------- Year Ended December 31, 1993 - ----------------- Life Insurance In-Force at December 31, 1993 . . . . . . . . $28,009,316 $(1,302,251) $ - $26,707,065 0.0% =========== =========== ======== =========== ==== Earned Premiums: Life Insurance . . . . . . . . . . . $ 104,755 $ (4,465) $ - $ 100,290 0.0 Accident and Health Insurance . . . . . . . . . 210,240 (5,111) 544 205,673 0.3 Property and Casualty Insurance . . . . . . . . 2,034,268 (127,537) 22,983 1,929,714 1.2 ----------- ----------- -------- ----------- Total Premiums . . . . . . . $ 2,349,263 $ (137,113) $ 23,527 $ 2,235,677 1.1% =========== =========== ======== =========== ====
Year Ended December 31, 1992 - ----------------- Life Insurance In-Force at December 31, 1992 . . . . . . . . $27,416,558 $(1,301,956) $ - $26,114,602 0.0% =========== =========== ======== =========== ==== Earned Premiums: Life Insurance . . . . . . . . . . . $ 106,049 $ (3,796) $ 10 $ 102,263 0.0 Accident and Health Insurance . . . . . . . . . 229,723 (5,396) 1,926 226,253 0.9 Property and Casualty Insurance . . . . . . . . 1,854,442 (124,352) 24,370 1,754,460 1.4 ----------- ----------- -------- ----------- Total Premiums . . . . . . . $ 2,190,214 $ (133,544) $ 26,306 $ 2,082,976 1.3% =========== =========== ======== =========== ====
Year Ended December 31, 1991 - ----------------- Life Insurance In-Force at December 31, 1991 . . . . . . . $26,157,015 $(1,124,561) $ 6,850 $25,039,304 0.0% =========== =========== ======== =========== ==== Earned Premiums: Life Insurance . . . . . . . . . . . $ 101,722 $ (3,986) $ 16 $ 97,752 0.0 Accident and Health Insurance . . . . . . . . . 236,547 (4,823) 3,235 234,959 1.4 Property and Casualty Insurance . . . . . . . . 1,801,485 (192,792) 27,967 1,636,660 1.7 ----------- ----------- -------- ----------- Total Premiums . . . . . . . $ 2,139,754 $ (201,601) $ 31,218 $ 1,969,371 1.6% =========== =========== ======== =========== ====
34 F-11 Schedule IX SAFECO CORPORATION AND SUBSIDIARIES SHORT-TERM BORROWINGS DECEMBER 31, 1993, 1992 AND 1991 (In Thousands) A summary of short-term borrowings (excluding borrowings from affiliates) is as follows:
Commercial Master Quickline Paper Notes --------- ---------- -------- Year Ended December 31, 1993: Outstanding at December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . $ -- $253,500 $35,000 Average interest rate at December 31, 1993 . . . . . . . . . . . . . . . . . --% 3.3% 3.4% Average daily outstanding balance during year ended December 31, 1993 . . . . $ -- $223,397 $37,278 Average interest rate during year ended December 31, 1993 . . . . . . . . . . --% 3.3% 3.2% Highest outstanding balance at any month end during year ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . $ -- $253,500 $40,000 Year Ended December 31, 1992: Outstanding a December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . $ -- $220,500 $40,000 Average interest rate at December 31, 1992 . . . . . . . . . . . . . . . . . --% 3.6% 3.6% Average daily outstanding balance during year ended December 31, 1992 . . . . $ -- $185,166 $40,000 Average interest rate during year ended December 31, 1992 . . . . . . . . . . --% 3.8% 3.8% Highest outstanding balance at any month end during year ended December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . $ -- $220,500 $40,000 Year Ended December 31, 1991: Outstanding at December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . $ -- $171,000 $40,000 Average interest rate at December 31, 1991 . . . . . . . . . . . . . . . . . --% 4.9% 4.2% Average daily outstanding balance during year ended December 31, 1991 . . . . $ 124 $208,807 $39,915 Average interest rate during year ended December 31, 1991 . . . . . . . . . . 7.4% 6.1% 5.9% Highest outstanding balance at any month end during year ended December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . $ -- $225,500 $40,000
35 F-12 Schedule X SAFECO CORPORATION SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
Column A Column B Column C Column D Column E Column F Column G - -------- -------- -------- -------- -------- -------- --------- Reserve For Unpaid Deferred Losses Discount, Affiliation Policy and Loss if any, Net With Acquisition Adjustment Deducted In Unearned Earned Investment Registrant Costs Expense(1) Column C Premiums(1) Premiums Income - ----------- ----------- ----------- ----------- ----------- -------- ---------- Consolidated Property and Casualty Subsidiaries: 1993 $133,103 $2,095,187 $ - $809,427 $1,929,714 $277,643 1992 $124,479 $2,052,334 $ - $732,166 $1,754,460 $280,820 1991 $115,201 $2,017,349 $ - $673,888 $1,636,660 $286,073
Column A Column H Column I Column J Column K - -------- -------- -------- -------- ---------- Losses and Loss Adjustment Expenses Incurred Related To Amortization Paid ------------------- of Deferred Losses Affiliation (a) (b) Policy and Loss Net With Current Prior Acquisition Adjustment Premiums Registrant Year Years Costs Expense Written - ----------- ------- ----- ------------ ---------- ---------- Consolidated Property and Casualty Subsidiaries: 1993 $1,447,565 $(96,937) $341,997 $1,318,642 $2,000,165 1992 $1,351,234 $(44,582) $320,339 $1,208,835 $1,820,445 1991 $1,309,259 $(24,057) $303,086 $1,211,344 $1,629,710
(1) 1992 and 1991 amounts restated for FAS113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," adopted by SAFECO in the first quarter of 1993. 36 F-13 SAFECO CORPORATION AND SUBSIDIARIES EXHIBIT INDEX* F-14 Exhibit 3 -- Bylaws (as last amended August 4, 1993). -- Restated Articles of Incorporation (as amended May 4, 1988) filed as Exhibit 3 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, are incorporated herein by this reference. Exhibit 4 -- The following documents are incorporated herein by this reference: the First Supplemental Indenture among the Registrant, SAFECO Credit Company, Inc. and Morgan Guaranty Trust Company of New York dated as of March 20, 1992 and filed as Exhibit 4.3 to Registrant's Current Report on Form 8-K on March 20, 1992; Indenture among the Registrant, SAFECO Credit Company, Inc. and Morgan Guaranty Trust Company of New York dated as of December 19, 1990 and filed as Exhibit 4.1 to the Registration Statement (No. 33-36669) filed jointly by the Registrant and SAFECO Credit Company, Inc. on September 4, 1990; and the Indenture between the Registrant and Morgan Guaranty Trust Company of New York dated as of September 12, 1985 and filed as Exhibit 4b to the Registration Statement (No. 2-99988) filed by the Registrant on August 30, 1985. Exhibit 10 -- The following documents are incorporated herein by this reference: the Executive Severance Agreements with Roger Eigsti and Boh A. Dickey, each dated May 23, 1984, and filed as Exhibit 10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985; the Executive Severance Agreement with R.W. Hubbard dated May 23, 1984 and filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986; and the Executive Severance Agreement with R.E. Zunker dated May 1, 1985 and filed as Exhibit 10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. -- Prospectus dated November 10, 1989 for the SAFECO Incentive Plan of 1987 (as amended January 31, 1990), filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and the Supplement to such Prospectus dated November 7, 1990 filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, the Prospectus dated February 1, 1985 for the SAFECO Stock Option Plan filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984 and the Appendix dated January 26, 1987 to such Prospectus filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, are incorporated herein by this reference.
37 F-13 SAFECO CORPORATION AND SUBSIDIARIES (Continued) EXHIBIT INDEX* F-15 Exhibit 11 - Computation of Income Per Share F-16 Exhibit 12 - Computation of Ratios F-17 Exhibit 21 - Subsidiaries of the Registrant F-18 Exhibit 28 - (P) Information from Reports Furnished to State Insurance Regulatory Agencies (paper-filed only, under Form SE) Exhibit 13 - 1993 Annual Report to Stockholders (pages 21 to 59, inclusive)
* Copies of Exhibits are available without charge by making a written request to: Rod A. Pierson Senior Vice President, Secretary and Controller SAFECO Corporation SAFECO Plaza Seattle, WA 98185 EX-3 2 EXHIBIT 3 1 F-14 Exhibit 3 BYLAWS OF SAFECO CORPORATION (As last amended effective August 4, 1993) ARTICLE I STOCKHOLDERS' MEETINGS 1. ANNUAL MEETING. (a) The annual meeting of the stockholders of the corporation for the election of directors to succeed those whose terms expire, and for the transaction of such other business as may properly come before the meeting, shall be held at 11:00 o'clock in the morning on the first Wednesday in May or, if such day is a legal holiday, then on the following business day or on such other day as may be designated by the Chairman, the President, or the Board of Directors ("Board"). The meeting shall be held at the registered office of the corporation, or at such other place as may be designated by the Chairman, the President, or the Board. (b) For business to be properly brought before the annual meeting in accordance with these Bylaws, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board or (iii) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before the annual meeting by a stockholder, the stockholder must file a written notice of intention to bring such business ("Business Notice") with the Secretary of the corporation not less than 60 days nor more than 90 days before the date of the stockholders' meeting at which such business will be brought; provided, however, that, in the event that less than 70 days' notice or initial prior public disclosure of the date of the meeting is given or made to stockholders, such Business Notice shall be timely if received not later than 10 days after the day on which such notice of the date of the meeting was mailed or such initial public disclosure of the date of the meeting was made, whichever first occurs. The Business Notice shall state the name, address, telephone number and class and number of shares of capital stock owned by the stockholder who intends to bring such business before the meeting; and, as to each matter the stockholder proposes to bring before the annual meeting, a brief description of the business desired to be brought before 2 the annual meeting, the reasons for conducting such business at the annual meeting and any material interest of the stockholder in such business. (c) No business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 1; provided, however, that nothing in this Section 1 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedure and, if the chairman should so determine, the chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called only by the Board, the Chairman or the President. Such special meetings may be for any purpose or purposes, which shall be described in the notice of such special meeting, and shall be held either at such place and time as the Board may prescribe or, if called by the Chairman or President, at the registered office of the corporation at such time as the Chairman or President may prescribe. 3. NOTICE OF MEETING. (a) Written notice of each annual and special stockholders' meeting shall be given to all stockholders of record entitled to vote at such meeting no fewer than ten nor more than sixty days before the meeting date, except that notice of a stockholders' meeting to act on an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale of assets other than in the regular course of business or the dissolution of the corporation shall be given no fewer than twenty nor more than sixty days before the meeting date. If such written notice is placed in the United States mail, first-class postage prepaid, and correctly addressed to the stockholder's address shown in the corporation's current record of stockholders, then the notice is effective when mailed. (b) Notice of any stockholders' meeting may be waived in writing by any stockholder at any time, either before or after the meeting. 4. ORGANIZATION OF MEETING - QUORUM. A stockholders' meeting, duly called, can be organized for the transaction of business whenever a quorum is present. The presence, in person or by proxy, of the holders of a majority of the voting power of all stockholders shall constitute a quorum; and the stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 2 3 5. ADJOURNED MEETINGS. An adjournment or adjournments of any stockholders' meeting may be taken to such time and place as those present may determine, without new notice being given, whether by reason of the failure of a quorum to attend or otherwise; but any meeting at which directors are to be elected shall be adjourned only from day to day until such directors are elected, and in the case of any such meeting which is adjourned because of the failure of a quorum to attend, those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. 6. VOTING AT MEETINGS. Each holder of common stock shall at all times and for all purposes be entitled to one vote for each share of common stock then of record in the holder's name on the books of the corporation. Every stockholder shall have the right to vote either in person or by proxy. All voting at stockholders' meetings shall be viva voce, unless any qualified voter shall demand a vote by ballot. In the case of voting by ballot, each ballot shall state the name of the stockholder voting, the number of shares owned by the stockholder, and, in addition, if such vote be cast by proxy it shall also state the name of the proxy. ARTICLE II BOARD OF DIRECTORS 1. NUMBER AND QUALIFICATIONS. The business and affairs of the corporation shall be managed under the direction of a board of from twelve (12) to eighteen (18) directors, as set from time to time by resolution of the Executive Committee, which directors need not be stockholders of the corporation. 2. ELECTION - TERM OF OFFICE. The directors shall be divided into three classes, designated Class 1, Class 2, and Class 3. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire board of directors. At each annual meeting of stockholders successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which the director's term 3 4 expires and until the director's successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. In the event of a failure to hold an election of directors at any annual stockholders' meeting, election of directors may be held at a special meeting of the stockholders called for that purpose; provided, that notice thereof be given all stockholders entitled to vote at such meeting at least thirty (30) days prior to the date set for such special meeting. 3. VACANCIES. Any vacancy on the Board that results from an increase in the number of directors may be filled by a majority of the directors then in office, and any other vacancy occurring on the Board may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of such director's predecessor. 4. NOMINATIONS OF DIRECTORS. (a) The Board or at its direction a committee of the Board shall nominate individuals for election as directors at the annual meeting of stockholders and at any special meeting of stockholders called for the purpose of electing directors. Nominations may also be made by any stockholder entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 4. (b) A nomination for election as director, other than nominations made by or at the direction of the Board, may be made only if a written notice of intention to nominate ("Nomination Notice") has been received by the secretary to the Board not less than 60 days nor more than 90 days before the date of the stockholders' meeting at which such election will occur; provided, however, that, in the event that less than 70 days' notice or initial prior public disclosure of the date of the meeting is given or made to stockholders, such Nomination Notice shall be timely if received not later than 10 days after the day on which such notice of the date of the meeting was mailed or such initial public disclosure of the date of the meeting was made, whichever first occurs. The Nomination Notice shall state the name, address, telephone number and class and number of shares of capital stock owned by the stockholder who intends to make a nomination; the name, age, address and telephone number of each nominee; a description of each nominee's business experience for the past five years; a statement whether the nominee has ever been prosecuted for any crime or been a party to any proceeding in which it was alleged the nominee or any affiliate of the nominee violated any law or regulation and, if so, a complete description of such prosecution or proceeding; and any other information relating to each nominee that is required to be disclosed in solicitations for proxies for election of Directors pursuant to 4 5 Rule 14A under the Securities Exchange Act of 1934, as amended. The corporation may require any proposed nominee to furnish such additional information as may reasonably be required to determine the eligibility of such proposed nominee. In order to be considered valid the Nomination Notice must be accompanied by the written consent of each nominee to be nominated and a statement of each nominee's intention to serve as a director if elected. (c) No person shall be eligible for election as a director unless nominated in accordance with the procedures set forth in this Section 4. The chairman of the stockholders' meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure and, if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. 5. ANNUAL MEETING. The first meeting of each newly elected Board shall be known as the annual meeting thereof. 6. REGULAR MEETINGS. Regular meetings of the Board shall be held quarterly, on the first Wednesday in February, May, August and November of each year, at such time and place as the Chairman, the President, the Executive Committee, or the Board may designate. 7. SPECIAL MEETINGS. Special meetings of the Board may be held at any place at any time when called by the Chairman or the President, or when called by the Secretary or an Assistant Secretary on request of three (3) directors, or when called by any director during a national emergency of the kind that would make emergency bylaws operative for domestic insurers under the provisions of Sections 48.07.160 through 48.07.200 of the Revised Code of Washington. 8. NOTICE OF MEETINGS. No notice of the annual meeting of the Board shall be required. Notice of the time and place of quarterly or special meetings of the Board shall be given by the secretary to the Board, or by the person calling the meeting, by mail, private carrier or personal delivery; telegraph or teletype; telephone, wire or wireless equipment which transmits a facsimile of the notice; or by personal communication over the telephone, or otherwise, at least two (2) days prior to the day upon which the meeting is to be held; provided, that no notice of any meeting need be given to any director if it is waived in writing, whether before or after such meeting is held, or if the director is present at such meeting; and any meeting of the Board shall be a legal meeting without any notice thereof having been given if all of the directors are either present or waive notice thereof. 9. QUORUM. A majority of the members of the Board shall be necessary to constitute a quorum for the transaction of business, but a lesser number may adjourn any meeting from time to time and 5 6 the same may be held without further notice. When a quorum is present at any meeting, a majority vote of the members in attendance thereat shall decide any question brought before the meeting. ARTICLE III EXECUTIVE COMMITTEE 1. MEMBERSHIP. The Executive Committee shall consist of the chief executive officer and not less than four (4) other directors of the corporation appointed by the Board. The chief executive officer shall preside at meetings of the Committee, unless the Board designates some other member of the Committee to preside. Each member of the Committee shall continue as a member of the Committee at the pleasure of the Board. 2. POWERS AND DUTIES. (a) Other than those powers specifically denied to a committee of a board of directors under Washington law, the Executive Committee may exercise all the powers of the Board in the management of the business of the corporation when the Board is not is session. All such actions of the Committee shall be reported to the Board at its meeting next succeeding such action, and shall be subject to revision or alteration by the Board; provided, that no rights of third parties shall be affected by any such revision or alteration. (b) The Executive Committee shall determine the corporation's policy regarding charitable contributions, and shall review and make recommendations to the Board as appropriate on fundamental matters, including election of directors, appointment of officers of the corporation and its principal subsidiaries, capital allocation among the corporation's operations, issuance and repurchase or redemption of securities, dividends to shareholders, formation of subsidiaries, and material acquisitions or dispositions of subsidiaries or assets. 3. RULES OF PROCEDURE. The Executive Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. Special meetings of the Committee may be called at any time by the chairman of the Committee, the President or any two members. At all meetings of the Committee, the presence of a majority of the members shall be necessary to constitute a quorum, and the affirmative vote of a majority of the quorum shall be necessary and sufficient for the adoption of any resolution. 6 7 ARTICLE IV FINANCE COMMITTEE 1. MEMBERSHIP. The Finance Committee shall consist of not less than five (5) members appointed by the Board, one of whom shall be designated chairman by the Board. Each member of the Committee shall continue as a member of the Committee at the pleasure of the Board. 2. POWERS AND DUTIES. The Finance Committee shall have general supervision of the finances and investments of the corporation. It shall designate or approve the designation of depositories for the funds of the corporation; it shall have authority to buy and sell securities and to make loans of such character as is permitted by law; and it may direct any action necessary to collect amounts due the corporation. All actions of the Committee shall be recorded in minutes of its meetings and reported to the Board. Such actions shall be subject to revision or alteration by the Board; provided, that no rights of third parties shall be affected by any such revision or alteration. 3. RULES OF PROCEDURE. The Finance Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. Special meetings of the Committee may be called at any time by the chairman of the Committee or by any two members. At all meetings, the presence of a majority of the members shall be necessary to constitute a quorum, and the affirmative vote of a majority of the quorum shall be necessary and sufficient for the adoption of any resolution. 7 8 ARTICLE V AUDIT COMMITTEE 1. MEMBERSHIP. The Audit Committee shall consist of not less than three (3) members appointed by the Board, none of whom shall be an employee of the corporation or any of its subsidiaries. Each member of the Committee shall continue as a member of the Committee at the pleasure of the Board. 2. POWERS AND DUTIES. (a) The Audit Committee shall: (1) Recommend the independent public accountants for selection as auditors by the Board; (2) Review the scope and, upon completion, the results of the audit with the corporation's independent public accountants; (3) Review management letters received from the independent public accountants in connection with audits; (4) Review the corporation's internal accounting controls; (5) Review the planning and results of internal audit examinations; (6) Review with management any accounting changes affecting the corporation or its affiliates; (7) Meet in alternative and separate executive sessions with the independent public accountants and management; (8) Review the scope of and fees for consulting services provided by the independent public accountants; and (9) Review any interested party conflict-of-interest situation brought to its attention. (b) All actions of the Committee shall be recorded in minutes of its meetings and reported to the Board. 3. RULES OF PROCEDURE. The Audit Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. Special meetings of the Committee may be called at any time by the chairman of the Committee or by any two members. At all meetings, the presence of a majority of the members shall be necessary to constitute a quorum, and the affirmative vote of a majority of the quorum shall be necessary and sufficient for the adoption of any resolution. 8 9 ARTICLE VI NOMINATING COMMITTEE 1. MEMBERSHIP. The Nominating Committee shall consist of not less than three (3) members appointed by the Board, not more than one of whom shall be an employee of the corporation or any of its subsidiaries. Each member of the Committee shall continue as a member of the Committee at the pleasure of the Board. 2. POWERS AND DUTIES. (a) The Nominating Committee shall: (1) Review qualifications of candidates for board membership from whatever source received; (2) Recommend to the Executive Committee the slate of director candidates to be proposed for election by shareholders at the annual meeting; (3) Recommend to the Executive Committee candidates to fill director vacancies which occur between annual meetings of shareholders; (4) Recommend to the Board criteria regarding personal qualifications for nomination as director, including experience, skills, affiliations and characteristics; (5) Recommend to the Board criteria regarding the composition of the Board, including total size and number of employee- directors; (6) Recommend to the Board criteria relating to tenure as a director, including retirement age and continuation of a director in an honorary or similar capacity; and (7) Recommend to the Board the fees to be paid to directors, including retainer, meeting and committee meeting fees, and any additional fees to be paid to a director for particular service, e.g., to the chairman of the Board or chairman of any committee. The Committee shall not recommend that any such fees be paid to any director who is also an employee of the corporation or its subsidiaries. (b) All actions of the Committee shall be recorded in minutes of its meetings and reported to the Board. 3. RULES OF PROCEDURE. The Nominating Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. Special meetings of the Committee may be called at any time by the chairman of the 9 10 Committee or by any two members. At all meetings, the presence of a majority of the members shall be necessary to constitute a quorum, and the affirmative vote of a majority of the quorum shall be necessary and sufficient for the adoption of any resolution. ARTICLE VII COMPENSATION COMMITTEE 1. MEMBERSHIP. The Compensation Committee shall consist of not less than three (3) members appointed by the Board, none of whom shall be an employee of the corporation or any of its subsidiaries. Each member of the Committee shall continue as a member of the Committee at the pleasure of the Board. 2. POWERS AND DUTIES. (a) The Compensation Committee shall: (1) Review and approve in advance salary increases for officers of the corporation and employees of its subsidiaries where the proposed salary exceeds an amount set from time-to-time by the Board; (2) Report to the Board remuneration information concerning the chief executive officer and through the chief executive officer make such information available as to any employee to any director upon request; (3) Review and recommend to the Board any additional employee benefit program of a substantial nature and material changes to existing programs; (4) Review and approve in advance changes required by law to be made to existing employee benefit programs and non-material changes to existing programs; and (5) Administer the corporation's stock option program. (b) All actions of the Committee shall be recorded in minutes of its meetings and reported to the Board. 3. RULES OF PROCEDURE. The Compensation Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. Special meetings of the Committee may be called at any time by the chairman of the Committee or by any two members. At all meetings, the presence of a majority of the members shall be necessary to constitute a quorum, and the affirmative vote of a majority of the quorum shall be necessary and sufficient for the adoption of any resolution. 10 11 ARTICLE VIII OTHER COMMITTEES The Board shall have authority to establish by resolution such other committees as the Board may from time to time deem necessary or advisable. The membership, duties and authority of such committees shall be as the Board may from time to time establish. ARTICLE IX OFFICERS 1. OFFICERS ENUMERATED - APPOINTMENT. The officers of the corporation shall be a Chairman, President, one or more Vice Presidents, one or more Assistant Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, all of whom shall be appointed by the Board at the annual meeting thereof, to hold office for the term of one year and until their successors are appointed and qualified. 2. QUALIFICATIONS. None of the officers of the corporation, except the Chairman and President, needs be a director. Any two or more corporate offices may be combined in one person. 3. CHAIRMAN AND PRESIDENT. The chairman and president shall preside at all meetings of the stockholders and directors, shall be the chief executive officer of the corporation, and, subject to the Board of Directors and Executive Committee, shall have general supervisory power and ultimate authority over and responsibility for the business and affairs of the corporation. 4. VICE PRESIDENTS. In the absence or disability of the Chairman and President, one of the Vice Presidents, in the order determined by seniority of responsibility and then order of their appointment, shall act as Chairman and President until such time as the Board acts to appoint an individual or individuals to the offices of Chairman and President. One or more of the vice presidents may be designated by the Board as executive vice president, senior vice president or such other title as the Board deems appropriate for the position and duties. 5. SECRETARY. The Secretary shall be the custodian of the records, books of account, and seal of the corporation, and, in general, shall perform all duties usually incident to the office of 11 12 Secretary, and make such reports and perform such other duties as may from time to time be requested of or assigned by the Board, the Executive Committee or the chief executive officer of the corporation. 6. ASSISTANT SECRETARIES. The Assistant Secretaries shall perform such duties as may be assigned to them by the Secretary, the President, the Executive Committee, or the Board. 7. TREASURER. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the corporation. The Treasurer shall deposit all such funds in the name of the corporation in such depositories or invest them in such investments as may be designated or approved by the Finance Committee or the Board, and shall authorize disbursement of the funds of the corporation in payment of just demands against the corporation, or as may be ordered by the Board, the Executive Committee, or the Finance Committee on securing proper vouchers for such disbursements. The Treasurer shall render to the Board from time to time as may be required an account of all transactions as Treasurer, and shall perform such other duties as may from time to time be assigned by the Board, the Executive Committee, the Finance Committee, or the chief executive officer of the corporation. 8. ASSISTANT TREASURERS. The Assistant Treasurers shall perform such duties as may be assigned to them by the Treasurer, the President, the Finance Committee, the Executive Committee, or the Board. 9. OTHER OFFICERS AND AGENTS. The Board may appoint such other officers and agents as it shall deem necessary to exercise such powers and perform such duties as shall be determined from time to time by the Board. 10. REMOVAL. Any officer of the corporation may be removed by the affirmative vote of a majority of the whole Board; such removal, however, shall be without prejudice to the contract rights of the person so removed. ARTICLE X CORPORATION PROXIES Unless otherwise ordered by the Board, any and all shares of stock owned or held by the corporation in any other corporation shall be represented and voted at any meeting of the shareholders of such other corporation by any one of the following officers of the corporation in the following order who may attend such meeting; i.e., the President, a Vice President, or the Treasurer, and such 12 13 representation by any one of the officers above named shall be deemed and considered a representation in person by the corporation at such meeting. Any one of the officers above named may execute a proxy appointing any other person as attorney and proxy to represent the corporation at such shareholders' meeting and to vote upon all stock of such corporation owned or held by the corporation with all power and authority in the premises that any of the officers above named would possess if personally present. The Board by resolution may from time to time confer like powers upon any other person or persons. ARTICLE XI STOCK 1. CERTIFICATES OF STOCK. Certificates of stock of the corporation shall be issued in such form in accordance with the corporation law of the State of Washington as may be approved by the Board, and may be signed by the President, or any Vice President, and the Secretary or any Assistant Secretary. 2. TRANSFERS. Shares of stock may be transferred by delivery of the certificates therefore accompanied either by an assignment in writing on the back of the certificate or by a written power of attorney to sell, assign and transfer the same by the record holder of the certificate; but no transfer shall be valid except as between the parties thereto until such transfer shall have been made on the books of the corporation. Except as specifically provided in these Bylaws, no shares of stock shall be transferred on the books of the corporation until the outstanding certificate therefore has been surrendered to the corporation. 3. STOCKHOLDERS OF RECORD. The corporation shall be entitled to treat the holder of record on the books of the corporation of any share or shares of stock as the holder in fact thereof for all purposes, including the payment of dividends on such stock and the right to vote on such stock. 4. LOSS OR DESTRUCTION OF CERTIFICATES. In the case of loss or destruction of any certificates of stock, another may be issued in its place upon proof of such loss or destruction, and upon the giving of a satisfactory bond or indemnity to the corporation. A new certificate may be issued without requiring any bond when in the judgment of the Treasurer it is proper to do so. 5. CLOSING OF TRANSFER BOOKS. The Board may close the books of the corporation against transfers of stock of the corporation for such period as the directors may from time to time determine, in anticipation of stockholders' meetings, or the payment of any 13 14 dividend or distribution, or any change or conversion or exchange of shares of the corporation. 6. REGULATIONS. The Board shall have the power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, conversion and registration of certificates for shares of the stock of the corporation not inconsistent with these Bylaws, the Articles of Incorporation, or the laws of the State of Washington. ARTICLE XII INDEMNIFICATION 1. DIRECTORS. To the full extent permitted by the Washington Business Corporation Act, the corporation shall indemnify any person who was or is a party to any proceeding (whether brought by or in the right of the corporation or otherwise) by reason of the fact that he or she is or was a director of the corporation, or, while a director of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan, against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by him or her in connection with such proceeding. 2. OFFICERS AND CERTAIN OTHER PERSONS. The corporation shall extend such indemnification as is provided to directors under paragraph 1 of this Article to any person, not a director of the corporation, who is or was an officer of the corporation or is or was serving at the request of the corporation as a director, officer, partner, trustee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan. In addition, the Board may, by resolution, extend such further indemnification to an officer or such other person as may to it seem fair and reasonable in view of all relevant circumstances. 3. OTHER EMPLOYEES AND AGENTS. The Board may, by resolution, elect to treat any employee or agent of the corporation as an "officer" of the corporation for the purpose of extending the indemnification provided in paragraph 2 of this Article. 4. DEFINITIONS. For purposes of this Article IX, the terms "director," "corporation," "expenses," "party" and "proceeding" have those meanings assigned to them in Section 23B.08.500 of the Revised Code of Washington. 14 15 5. NOT EXCLUSIVE -- CONTINUING. The indemnification provided by this Article shall not be deemed exclusive of other rights to which the director, officer, employee or agent may be entitled as a matter of law or by contract, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE XIII SEAL The seal of this corporation shall consist of a flat-faced, circular die with the words, SAFECO CORPORATION and with the words and figures "Corporate Seal, 1929" in the center surrounding the trademarked chevron and stylized "S." ARTICLE XIV COPIES OF RESOLUTIONS Any person dealing with the corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the stockholders, the Board, and any committees of or established by the Board, when certified by the President, a Vice President, Secretary, or an Assistant Secretary. ARTICLE XV AMENDMENT OF BYLAWS 1. BY THE STOCKHOLDERS. These Bylaws may be amended, altered or repealed at any meeting of the stockholders, if notice of the proposed alteration or amendment is contained in the notice of the meeting. 2. BY THE BOARD OF DIRECTORS. These Bylaws may be amended, altered or repealed by the affirmative vote of a majority of the whole Board of Directors at any regular meeting of the Board, or at any special meeting if notice of the proposed alteration or 15 16 amendment is contained in the notice of such special meeting; provided, however, that the Board of Directors shall not amend, alter or repeal any Bylaw in such a manner as to affect in any way the qualification, classification, or term of office of the directors. Any action of the Board of Directors, with respect to the amendment, alteration or repeal of these Bylaws is hereby made expressly subject to change or repeal by the stockholders. 16 EX-11 3 EXHIBIT 11 1 F-15 Exhibit 11 SAFECO CORPORATION AND SUBSIDIARIES COMPUTATION OF INCOME PER SHARE (In Thousands, Except Per Share Amounts)
Year Ended December 31 --------------------------------------------- 1993 1992 1991 --------- --------- --------- PRIMARY INCOME PER SHARE OF COMMON STOCK: 1. Average number of common shares outstanding 62,879 62,792 62,739 ========= ========= ========= 2. Additional common shares assumed issued under the treasury stock method 354 447 516 ========= ========= ========= 3. Net Income $ 428,778 $ 311,294 $ 259,578 ========= ========= ========= 4. Primary Net Income per share of common stock (L.3 / L.1) $ 6.82 $ 4.96 $ 4.14 ========= ========= =========
EX-12 4 EXHIBIT 12 1 F-16 Exhibit 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES SAFECO CORPORATION AND CONSOLIDATED SUBSIDIARIES (In Thousands, Except Ratios)
Year Ended December 31 ------------------------------------------------------------ 1993 1992 1991 1990 1989 -------- -------- -------- -------- --------- Fixed Charges: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 58,790 $ 64,097 $ 70,797 $ 68,512 $ 75,054 Interest Capitalized . . . . . . . . . . . . . . . . . . 1,381 154 30 2,040 2,481 Interest Portion of Rental Expense . . . . . . . . . . . 2,768 2,855 2,595 2,280 2,525 Amortization of Deferred Debt Expense . . . . . . . . . . 613 655 572 436 630 -------- -------- -------- -------- -------- Total Fixed Charges . . . . . . . . . . . . . . . . . $ 63,552 $ 67,761 $ 73,994 $ 73,268 $ 80,690 ======== ======== ======== ======== ======== Earnings: Income From Continuing Operations Before Income Taxes . . . . . . . . . . . . . . . . . $576,937 $403,257 $317,314 $303,982 $375,352 Total Fixed Charges Above . . . . . . . . . . . . . . . . 63,552 67,761 73,994 73,268 80,690 Less Interest Capitalized . . . . . . . . . . . . . . . . (1,381) (154) (30) (2,040) (2,481) Less Undistributed (Income) Loss from Unconsolidated Subsidiary . . . . . . . . . . . . 574 555 218 35 (10) -------- -------- -------- -------- -------- Total Earnings . . . . . . . . . . . . . . . . . . . $639,682 $471,419 $391,496 $375,245 $453,551 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges . . . . . . . . . . . . 10.1 7.0 5.3 5.1 5.6 ======== ======== ======== ======== ========
SAFECO CREDIT
Year Ended December 31 ----------------------------------------------------------- 1993 1992 1991 1990 1989 --------- --------- --------- --------- -------- Fixed Charges: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 25,918 $ 26,646 $ 30,516 $ 27,057 $ 22,434 Interest Portion of Rental Expense . . . . . . . . . . . 100 102 160 76 55 Amortization of Deferred Debt Expense . . . . . . . . . . 38 52 24 8 71 -------- -------- -------- -------- -------- Total Fixed Charges . . . . . . . . . . . . . . . . . $ 26,056 $ 26,800 $ 30,700 $ 27,141 $ 22,560 ======== ======== ======== ======== ======== Earnings: Income Before Income Taxes . . . . . . . . . . . . . . . $ 10,190 $ 9,036 $ 9,489 $ 6,815 $ 6,031 Total Fixed Charges Above . . . . . . . . . . . . . . . . 26,056 26,800 30,700 27,141 22,560 -------- -------- -------- -------- -------- Total Earnings . . . . . . . . . . . . . . . . . . . $ 36,246 $ 35,836 $ 40,189 $ 33,956 $ 28,591 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges . . . . . . . . . . . . 1.4 1.3 1.3 1.3 1.3 ========= ======== ======== ======== ========
EX-13 5 EXHIBIT 13 1 1993 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFECO Corporation (SAFECO, or the Corporation) is a Washington corporation which owns operating subsidiaries in various segments of insurance and other financially related businesses. The insurance subsidiaries are engaged in both property and casualty insurance and life and health insurance. SAFECO Properties and its subsidiaries invest in, develop and manage real estate properties, primarily regional shopping centers. SAFECO Credit Company provides loans and equipment financing and leasing to commercial businesses including affiliated companies. SAFECO also manages the SAFECO family of mutual funds through its investment management subsidiaries. CAPITAL RESOURCES AND LIQUIDITY Insurance premiums, dividends, interest and rental income are the companies' primary sources of cash. Most insurance premiums are received before or at the time premium revenues are recognized, while related claims are incurred and paid in subsequent months or years. Any resulting cash flow is used primarily to pay shareholder dividends and to expand the investment portfolio. Total cash provided by operating activities for the years ended December 31, 1993, 1992 and 1991 was $633.6 million, $664.6 million and $582.0 million, respectively (see Statement of Cash Flows on page 34). The decrease in operating cash flow in 1993, compared with 1992, is primarily the result of the increase in income taxes paid, and the payment relating to the Proposition 103 settlement (see Note 5 on page 48). The increase in operating cash flow in 1992 was primarily due to a higher amount of property and casualty premiums, resulting from a combination of rate increases and a higher number of policies in force. Other operating receipts and other operating costs paid decreased in 1993 and 1992, due to the sale of the hospital operations in May of 1992. Dividends and interest received increased in both 1993 and 1992 due mainly to the increasing invested asset base of the life and health insurance companies. The increases in proceeds from maturity of fixed maturities in 1993 and 1992 are due to higher levels of calls of fixed maturities and prepayments of mortgage-backed securities resulting from lower interest rates. The real estate and credit subsidiaries have ongoing needs for outside capital. The real estate subsidiaries borrow from life insurance companies, banks and savings and loan associations and other lenders. At December 31, 1993, the real estate subsidiaries had notes and mortgages payable to non-affiliates of $225.1 million, of which amount $62.8 million was due within one year. It is anticipated that these obligations will be met through a combination of rollovers and replacement borrowings. The real estate subsidiaries' debt is significantly lower in 1993 and 1992 due to the sale of the hospital operations in 1992 and the reduction in related borrowings. The real estate subsidiaries refinanced approximately $53 million of debt in 1993, taking advantage of lower interest rates on longer-term borrowings. SAFECO Credit Company's borrowings are primarily short to medium-term and are obtained primarily from the issuance of commercial paper and medium-term notes. SAFECO Credit had unaffiliated borrowings at December 31, 1993 of $427.9 million, of which amount $333.8 million was due within one year. The majority of this current portion is comprised of short-term commercial paper borrowings. It is anticipated that a major part of these commercial paper borrowings will be rolled over in 1994. A shelf registration providing for the issuance of up to $200 million of debt securities by SAFECO Corporation and/or SAFECO Credit was declared effective by the Securities and Exchange Commission in December 1990. SAFECO Credit has issued $149.9 million of medium-term notes under this registration of which amount $138.8 million are still outstanding as of December 31, 1993. These debt securities issued by SAFECO Credit are guaranteed by SAFECO Corporation. In addition to providing funds to expand SAFECO Credit's loan and lease portfolio, the issuance of the medium-term notes has reduced SAFECO Credit's reliance on short-term financing. As of December 31, 1993, SAFECO Corporation had issued $50 million of medium-term notes under this registration. No additional notes are to be issued under this shelf registration. SAFECO Corporation's $200 million of 10.75% notes are due in September of 1995. It is currently anticipated this obligation will be funded primarily by the issuance of replacement debt. Proceeds from sales of securities owned by SAFECO Corporation or dividends from SAFECO's subsidiaries may provide a portion of the funds needed to retire this debt. SAFECO is not aware of any recently passed or current recommendations by regulatory authorities which have or would have, if passed, a material effect on the Corporation's liquidity, capital resources or results of operations. The state of Washington adopted new rules in 1993 governing the amount of dividend payments that can be made by Washington domiciled insurance companies without prior regulatory approval. These new rules are more restrictive than the previous rules. However, it is expected they will not restrict SAFECO's insurance subsidiaries from paying dividends to SAFECO Corporation (parent company) in amounts similar to those presently being paid and those paid in the past. The National Association of Insurance Commissioners (NAIC) has adopted new risk-based capital (RBC) formulas for both life insurers and property and casualty insurers. For life insurers, the RBC guidelines became effective December 31, 1993; the RBC guidelines for property and casualty companies are effective December 31, 1994. The formulas are used as an early warning tool by the NAIC and state regulators to identify companies that are under capitalized 21 2 SAFECO CORPORATION and which merit further regulatory attention or the initiation of regulatory action. The life insurers' RBC formula establishes capital requirements relating to amounts of insurance risk, business risk, asset credit risk and interest rate risk. The property and casualty insurers' RBC formula establishes capital requirements relating to amounts of underwriting risk, asset risk, credit risk and off-balance sheet risk. SAFECO's life and property and casualty companies have more than sufficient capital to meet the RBC requirements. Similarly, the NAIC's proposed new Model Investment Law, if adopted by certain states in which SAFECO operates, should not significantly impact SAFECO as its assets are, and historically have been, conservatively invested. SUMMARY OF FINANCIAL INFORMATION The following summarized financial information sets forth the contributions of each business segment to the consolidated net income of SAFECO Corporation. The information should be read in conjunction with the related statements of income on pages 37 through 41 of this report.
Year Ended December 31 (In Thousands Except Per Share Amounts) 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- Income (Loss), Net of Income Taxes, Before Realized Gain: Property and Casualty Insurance Companies . . . . . . . . . . . . . . . $217,187* $187,144 $145,421 Life and Health Insurance Companies . . . . . . . . . . . . . . . . . . 76,903 75,600 79,705 Real Estate Companies . . . . . . . . . . . . . . . . . . . . . . . . . 6,136 6,040 5,850 Credit Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,439 6,140 6,396 Asset Management Companies . . . . . . . . . . . . . . . . . . . . . . 4,255 4,261 3,397 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,934) (7,636) (3,852) -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,986 271,549 236,917 -------- -------- -------- Realized Gain (Loss), Net of Income Taxes, from: Security Investments . . . . . . . . . . . . . . . . . . . . . . . . . 113,506 40,431 23,214 Real Estate Investments . . . . . . . . . . . . . . . . . . . . . . . . 5,409 (686) (553) -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,915 39,745 22,661 -------- -------- -------- Income Before Cumulative Effect of Accounting Changes 425,901 311,294 259,578 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . 2,877 - - -------- -------- --------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $428,778 $311,294 $ 259,578 ======== ======== ========= Net Income Per Share of Common Stock: Income Before Realized Gain . . . . . . . . . . . . . . . . . . . . . . $ 4.88 $ 4.33 $ 3.78 Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.89 .63 .36 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . .05 - - -------- -------- --------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.82 $ 4.96 $ 4.14 ======== ======== =========
*Includes a charge of $40 million ($26 million after tax, $0.41 per share) for the Proposition 103 settlement. PROPERTY AND CASUALTY--OPERATIONS Through independent agents, SAFECO's property and casualty subsidiaries write personal, commercial and surety lines of insurance including automobile, homeowners, fire and allied lines, commercial multi-peril, miscellaneous casualty, surety, fidelity and workers' compensation. Products are sold in nearly all states and the District of Columbia. SAFECO sold its Canadian property and casualty operations in June of 1991 (see discussion on page 24). Approximately 25% of SAFECO's property and casualty premiums are written in California and approximately 49% of premiums are written in the three west coast states of California, Washington and Oregon. Voluntary personal, commercial and surety lines (which excludes assigned risk, FAIR plans, etc.) comprise approximately 69%, 25% and 4%, respectively, of the 1993 gross premiums written. The gross premiums written growth set forth in the table on page 23 of 10.2% in 1993 is comprised of a 10.4% increase for personal, and increases of 10.3% for commercial and 5.7% for surety lines. Gross premiums written growth of 5.8% in 1992 was comprised of a 6.0% increase for personal, and increases of 6.2% for commercial and 0.8% for surety lines. Excluding Canadian premiums, 1992 gross premiums written increased 10.9% over 1991, with personal up 13.1% and commercial up 7.0%. The growth in personal lines premiums is the result of both rate increases and an increase in policies in force. 22 3 1993 ANNUAL REPORT This increase in policies in force is due, in part, to a number of companies in the past withdrawing or restricting their writings of personal lines. Vehicles insured increased 2.2% in 1993; however, the number of vehicles insured declined slightly in the fourth quarter. Vehicles insured increased 6.2% in 1992. This declining trend in the growth rate has been caused primarily by the rate increases placed in effect in recent years. As a result, only modest rate increases are planned for 1994. The number of homes insured increased 8.0% in 1993 and 10.8% in 1992. It is expected that the number of homes insured will continue to increase in 1994, although at a somewhat slower pace. SAFECO's commercial lines premiums increased in 1993 and 1992 as a result of both real growth and some rate increases. Continued growth in commercial premiums written is expected in 1994. The larger increase in surety premiums in 1993 versus 1992 is primarily due to new commercial accounts acquired and a slightly improved construction economy resulting in higher contract bond premiums. Voluntary personal auto, SAFECO's largest single line of business, produced pre-tax underwriting profits of $37.3 million in 1993 and $5.6 million in 1992, compared with a loss of $21.6 million in 1991. This improvement is due to rates increasing faster than loss costs. Average auto rates were increased 6% in 1993 and 8% in 1992 while loss costs were up 4% in 1993 and 4% in 1992. The severity or cost of settling claims has increased in each of the last three years and the frequency of accidents increased in 1993 after declining in 1992 and 1991. The reduction in the number of accidents may be the result of the slower economy and the increasing use of additional auto safety features such as mounted rear window brake lights and anti-lock brakes. Auto rate increases planned for 1994 will be less than the 1993 and 1992 increases. The homeowners line produced pre-tax underwriting losses of $51.7 million, $62.1 million and $59.9 million in 1993, 1992 and 1991, respectively. These losses reflect an unusually high level of weather-related and catastrophic events in the last three years. However, there appears to be no scientific evidence that the recent high level of weather-related catastrophes indicate changes in long-term weather patterns, so SAFECO still believes this is a good long-term business. Over time, weather-related catastrophes are expected to continue their erratic historical patterns. Weather-related catastrophe losses for homeowners, before reinsurance, totaled $51.8 million, $90.7 million and $160.2 million in 1993, 1992 and 1991, respectively. After reinsurance, these amounts totaled $51.5 million, $94.7 million and $86.1 million for the respective three years. The 1993 homeowners claims include $26.6 million from the Puget Sound area windstorm in January and $7.4 million from the California wildfires in November. The 1992 homeowners claims include $31.7 million from hailstorms in Kansas and Texas and PROPERTY AND CASUALTY OPERATING STATISTICS
1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------- Percentage Percentage Percentage Increase Increase Increase (Decrease) (Decrease) (Decrease) Over Prior Over Prior Over Prior Amount Year Amount Year Amount Year ----------------------------------------------------------------------- (In Thousands) Gross Premiums Written . . . . . . . . . . . . $ 2,134,512 10.2% $1,937,090 5.8% $1,830,199 2.1% =========== ========== ========== Net Premiums Written . . . . . . . . . . . . . $ 2,000,165 9.9 $1,820,445 11.7 1,629,710 (3.5) =========== ========== ========== Earned Premiums . . . . . . . . . . . . . . . . $ 1,929,714 10.0 $1,754,460 7.2 1,636,660 (1.7) =========== ========== ========== Underwriting Profit (Loss) . . . . . . . . . . $ 9,848 $ (72,022) $(141,121) Net Investment Income . . . . . . . . . . . . . 277,643 (1.1) 280,820 (1.8) 286,073 1.0 Proposition 103 Settlement . . . . . . . . . . (40,000) - - ----------- ---------- ---------- Income before Realized Investment Gain and Income Taxes . . . . . . . . . . . $ 247,491 $ 208,798 $ 144,952 =========== ========== ==========
1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- Operating Ratios as a % of Earned Premiums (GAAP Basis) ------------------------------ Loss Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.21% 63.93% 67.81% Adjustment Expense Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.78 10.55 10.72 Expense Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.43 28.72 29.33 Dividends to Policyholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07 .91 .76 ----- ------ ------ Combined Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.49% 104.11% 108.62% ===== ====== ======
23 4 SAFECO CORPORATION $22.5 million resulting from an increase in the estimated cost of settling claims from the October 1991 fire in Oakland, California. The 1991 homeowners claims include $15.2 million, after reinsurance, from the Oakland fire and $22.9 million from wind and hailstorms that hit Billings, Montana and Denver, Colorado in June. SAFECO's total homeowners losses from the Oakland fire, before reinsurance, were $107.8 million and were $38.2 million after reinsurance. Homeowners rates were increased 7%, 5% and 3% in 1993, 1992 and 1991, respectively. A significant increase in premiums per policy is expected in 1994 as a result of planned rate increases and the additional premiums that are resulting from efforts to increase homeowners insurance to value. This is a three year effort which was begun in 1993 to review the adequacy of coverage or policy limits for nearly all homes. Other personal lines produced underwriting profits of $20.6 million, $18.1 million and $8.2 million in 1993, 1992 and 1991, respectively. Coverages in these lines include dwelling fire, inland marine, earthquake, boats and recreational vehicles. Although premiums from these lines total only 6% of total property and casualty premiums, the underwriting profits they generate are an important contributor to SAFECO's overall property and casualty results. Commercial operations produced pre-tax underwriting losses of $5.5 million, $22.5 million and $58.4 million for 1993, 1992 and 1991, respectively. Even with a continuation of the competitive commercial insurance market, SAFECO has experienced modest renewal price increases of 3% to 4% per year for the past three years. These price increases, together with reduced frequency and severity in most product lines and lower expenses, are the reasons for this improving trend. The frequency and severity reductions can be attributed to continued disciplined risk selection, limited impact of weather-related losses on SAFECO's commercial property risks and concentration of commercial writings in states with the most favorable legal and regulatory climates. The surety line produced pre-tax underwriting profits of $18.2 million, $3.2 million and $11.1 million for 1993, 1992 and 1991, respectively. The 1992 results were impacted by several contract bond losses. Although the current outlook is good, income for 1993 was a record, and may be difficult to achieve again in 1994. Other insurance product lines (primarily assigned risk and FAIR plans) produced underwriting losses of $9.0 million, $14.3 million and $20.4 million in 1993, 1992 and 1991, respectively. The lower losses are due to a reduction in personal auto non-voluntary losses, due in turn to reduced losses from the California Assigned Risk Plan and Canadian non-voluntary pool. On January 17, 1994 a severe earthquake struck Southern California. Based on claims information available as of the date of this report, SAFECO expects its losses to exceed $50 million, the threshold at which the Corporation's reinsurance coverage begins. Under SAFECO's catastrophe reinsurance program, it is reimbursed for 90% of the losses between $50 million and $200 million. To date, approximately 6,100 claims have been reported. Because of the extensive damage to communications and transportation systems in the earthquake area, and the time it takes to complete accurate surveys and inventories on homes and businesses damaged in earthquakes, it will be some time before a reasonable estimate of SAFECO's losses can be made. The loss will be recorded in the first quarter of 1994. PROPERTY AND CASUALTY--CANADA SAFECO sold its Canadian property and casualty operations in June, 1991. There was no significant gain or loss resulting from this transaction. Underwriting results had been unsatisfactory, primarily as a result of stringent and unrealistic auto rate regulation and high loss costs in Ontario. These poor results and the expectation that they would continue were primary reasons for the sale. Following is a summary of SAFECO's Canadian financial data for each of the last three years:
Year Ended December 31 1993 1992 1991 ---------- -------- --------- (In Thousands-Canadian $) Gross Written Premiums . . . . . . . . . . . . $ - $ 36 $ 82,886 Net Earned Premiums . . . . . . . . . . . . . - 180 44,440 Underwriting Profit (Loss) . . . . . . . . . . . . . . . . . . 5,280 7,609 (6,352) Canadian Assets . . . . . . . . . . . . . . . 219,598 275,951 334,797
Although the Canadian underwriting losses SAFECO suffered in years prior to the sale were significant, they were substantially offset by investment income from the assets relating to the Canadian unearned premium, loss and adjustment expense reserves. Therefore, the sale of the Canadian operations has not had and is not expected to have a significant impact on future earnings. The 1993 and 1992 Canadian underwriting profits were the result of reductions in the estimated cost of settling prior years' claims. Under the sales agreement SAFECO retained the liabilities for losses incurred prior to April 1, 1991. PROPERTY AND CASUALTY--PROPOSITION 103 For discussion relating to California's Proposition 103, see Note 5 on page 48. PROPERTY AND CASUALTY--LOSS RESERVES The liability (reserves) for losses and adjustment expense for the property and casualty companies was $2,095.2 million at December 31, 1993, compared with $2,052.3 million at December 31, 1992. The liability is presented net of amounts recoverable from salvage and subrogation recoveries (see Note 1 on page 43) and gross of amounts recoverable from reinsurance (see Note 4 on page 47). The amount of reinsurance 24 5 1993 ANNUAL REPORT recoverables related to the above gross liabilities was $100.1 million at December 31, 1993 and $89.2 million at December 31, 1992. Reserves for losses that have been reported to the Corporation and certain legal expenses are established on the "case basis" method. Claims incurred but not reported (IBNR) and other adjustment expense are estimated using statistical procedures. Salvage and subrogation recoveries are accrued using the "case basis" method for large claims and statistical procedures for smaller claims. These reserves aggregate SAFECO's best estimates of the total ultimate cost of claims that have been incurred but have not yet been paid. The estimates are based on past claims experience and consider current claims trends as well as social, legal and economic conditions, including inflation. The reserves are not discounted. Loss and loss adjustment expense reserve development is reviewed on a regular basis to determine that the reserving assumptions and methods are appropriate. Reserves initially determined are compared to the amounts ultimately paid. A statistical estimate of the projected amounts necessary to settle outstanding claims is made regularly and compared to the recorded reserves. In order to maintain adequate reserves, SAFECO's objective is to set reserves which are slightly redundant; that is, the amounts originally recorded as reserves should be more than the amounts ultimately required to settle losses. Analysis indicates that SAFECO's reserves are adequate and probably slightly redundant at December 31, 1993, 1992 and 1991. Operations were credited $96.9 million, $44.6 million and $24.1 million in 1993, 1992 and 1991, respectively, as a result of a reduction in the estimated amounts needed to settle prior years' claims. SAFECO's property and casualty companies' reserves for losses and adjustment expense for liability coverages related to environmental, asbestos and other hazardous toxic claims totaled $113.4 million at December 31, 1993, compared with $110.5 million at December 31, 1992. These amounts are before the effect of reinsurance, which is insignificant. These reserves are approximately 5% of total property and casualty reserves for losses and adjustment expense at both December 31, 1993 and 1992. The reserves include estimates for both reported and IBNR losses and related legal expenses. In view of the changes in environmental regulations and legal decisions which affect the development of loss reserves, the process to estimate loss reserves for these matters results in imprecise estimates. Quantitative techniques have to be supplemented by subjective considerations and managerial judgment. In view of these conditions, trends that have affected development of these liabilities in the past may not necessarily occur in the future. The reserves carried for these claims at December 31, 1993 are estimates based on the known facts and current law and are believed to be adequate. SAFECO's actual loss and adjustment expense payments for these types of claims totaled $5.9 million, $9.7 million and $6.5 million for 1993, 1992 and 1991, respectively. SAFECO has generally avoided writing coverages for larger companies with substantial exposure in these areas. The property and casualty subsidiaries protect themselves from excessive losses by reinsuring on treaty and facultative bases. As noted above, the liability for unpaid losses and adjustment expense is reported gross of reinsurance recoverables of $100.1 million at December 31, 1993 and $89.2 million at December 31, 1992. Reinsurance costs for catastrophe coverages have increased in the last few years and are expected to remain higher in the foreseeable future, given the large amount of catastrophe losses in recent years. SAFECO's catastrophe property reinsurance program for 1994 covers 90% of $150 million of single event losses in excess of a $50 million retention. In the event of a substantial catastrophe, SAFECO would, therefore, retain the first $50 million of losses, 10% of the next $150 million and all losses in excess of $200 million. Both the retention level and the aggregate coverage limit for 1994 are higher than in prior years. SAFECO's insurance subsidiaries do not enter into retrospective reinsurance contracts and have not participated in any unusual or nonrecurring reinsurance transactions such as "swaps" of reserves or portfolio loss transfers. SAFECO does not use "funding covers" and has not participated in any surplus relief transactions. None of SAFECO's significant reinsurers are experiencing financial difficulties. Additional information on reinsurance can be found in Note 4 on page 47. Reinsurance amounts ceded in 1991 were higher due to the sale of SAFECO's Canadian operations in 1991. LIFE AND HEALTH The life and health companies offer individual and group insurance products, pension plans and annuity products, marketed through professional agents in all states and the District of Columbia. During 1993, all major lines of business contributed to the life and health companies' earnings before investment transactions and income taxes ("pre-tax income") of $125.3 million, compared with $123.6 million in 1992 and $124.1 million in 1991. The group life and health operations contributed $27.7 million to 1993 pre-tax income, compared with income of $26.8 million and $39.7 million in 1992 and 1991, respectively. The major market of the group operation is excess loss medical insurance, sold to self-insured employers, which accounted for $15.8 million, $16.3 million and $21.0 million of group income in 1993, 1992 and 1991, respectively. Total group premiums decreased 10% during 1993, compared with a decrease of 3% in 1992 and an increase of 7% in 1991. The premium declines in 1993 and 1992 are due to SAFECO's nearly completed withdrawal from the small-case, fully insured market in many states and to greater competition in the large-case, excess loss market. SAFECO has avoided writing business at unsatisfactory rates and as a result, experienced the loss of some group in-force medical business. 25 6 SAFECO CORPORATION The lower group profits in 1993 and 1992 were primarily the result of increased industry competition, resulting in lower profit margins for this business. This trend is expected to continue into 1994. The Clinton administration's proposal on healthcare reform has also contributed to the slowdown in the group medical business. The impact on SAFECO of the effect of the various healthcare reform proposals is uncertain. If healthcare reform were to pass that did not allow self-funded medical programs, SAFECO would in all likelihood no longer be in the medical insurance business. However, in this scenario, SAFECO intends to remain active in the group insurance arena, offering primarily group life and disability coverage. While the outcome of healthcare reform is uncertain, SAFECO will continue to actively market large-case, self-funded medical programs. Pension operations produced pre-tax income of $16.1 million, $15.8 million and $9.3 million in 1993, 1992 and 1991, respectively. The pension operations had $3.0 billion of assets on deposit at December 31, 1993, compared with $2.9 billion at December 31, 1992. New pension deposit growth has slowed in recent years, especially for fixed rate products, primarily as a result of the lower interest rate environment. This slowdown in new deposits has in turn impacted pre-tax income in 1993. However, pension profits still increased in 1993 and 1992 as a result of fewer bond defaults, a larger asset base and consistent management of interest rate margins stemming from adjustments in credited interest rates. SAFECO plans to increase its offerings of variable annuity products to assist it in competing in today's marketplace. The annuity operations produced pre-tax income of $21.2 million, $20.1 million and $16.0 million in 1993, 1992 and 1991, respectively. Earnings in 1993 and 1992 benefited from higher investment income resulting from fewer bond defaults and accelerated payments from mortgage-backed securities. Earnings in 1992 also were favorably impacted by the recapture of a block of assumed reinsurance business and the release of reserves as a result of higher than anticipated mortality experience. New deposits from single-premium immediate annuity (SPIA) products were $447 million in 1993, compared with $348 million in 1992 and $397 million in 1991. SPIA pre-tax income was $17.5 million, $15.7 million and $11.7 million in 1993, 1992 and 1991, respectively. Increased interest spreads on new issues benefited this book of business in 1993. The lower earnings in 1991 reflect the write-off of accrued interest on certain investment grade securities that defaulted. Deferred annuity deposits were $218 million in 1993, compared with $221 million in 1992 and $105 million in 1991. Total annuity assets amounted to $4.1 billion at December 31, 1993, compared with $3.4 billion at December 31, 1992. The individual life operations produced pre-tax income of $2.4 million, $4.1 million and $9.5 million in 1993, 1992 and 1991, respectively. The lower earnings in 1993 and 1992 were due to lower investment income, increased claims costs and a change in the mix of new business written. New writings are comprised of interest sensitive products such as universal life and variable universal life products. Term insurance has accounted for over 90% of new issues of traditional life products during the last two years and now comprises more than 50% of the total traditional policies in force. Investment income resulting from the investment of capital and prior years' earnings of the operating lines of business is a major component of SAFECO's life and health earnings, contributing pre-tax income of $54.5 million in 1993, and $54.5 million and $46.1 million in 1992 and 1991, respectively. The investment income in 1993 was impacted by the lower interest rate environment. The increase in 1992 over 1991 is primarily due to the investment income earned on the $75 million cash capital contribution SAFECO Corporation made to SAFECO Life Insurance Company near the end of 1991. Many life insurance companies' pension and annuity products have been impacted by general economic conditions, lower investment returns, rating downgrades, increased competition and decisions by plan sponsors to diversify assets and fund management. SAFECO has experienced an increase in the level of withdrawal of funds from its pension and annuity business (see Statement of Cash Flows on page 34--Return of Funds Held Under Deposit Contracts), due to scheduled payouts on distribution-type products and the lower interest rate environment. However, SAFECO's overall withdrawal experience remains relatively modest. Of the total of $7.2 billion in deposit contracts at December 31, 1993 approximately 44% are structured settlement immediate annuity products. These annuities have average expected maturities of over 25 years and cannot be surrendered by policyholders. Other annuity products, comprising approximately 11% of total deposit contracts, generally have expected maturities of between 8 to 12 years and associated surrender charges graded from 5% in year one to zero in year six. SAFECO's guaranteed investment contracts (GICs) within its pension area comprise approximately 4% of total deposit contracts. These contracts have average maturities of four years and cannot be surrendered except in extremely unusual circumstances. Other pension products, comprising approximately 38% of total deposit contracts, have expected maturities of 10 to 15 years. Surrender charges on these products are typically 9% in year one graded to zero in year 9, and SAFECO retains the option to defer payouts over five years on approximately one-half of these contracts. SAFECO's life insurance subsidiaries have not participated as a ceding company in any assumptive reinsurance transactions. See Note 4 on page 47 for additional information regarding reinsurance. REAL ESTATE SAFECO Properties, Inc. through Winmar Company, Inc., invests in and manages real estate properties, primarily regional shopping centers, throughout the United States. SAFECARE Company, Inc. invests in medical real estate, primarily nursing 26 7 1993 ANNUAL REPORT homes and convalescent centers. The real estate subsidiaries produced pre-tax income before investment transactions of $10.1 million, $8.4 million and $8.5 million in 1993, 1992 and 1991, respectively. In addition, the sale of several mature medical properties resulted in a pre-tax gain from real estate investments of $8.1 million in 1993. The commercial and medical real estate activities (excluding hospital operations) resulted in pre-tax income before investment transactions of $10.1 million, $6.4 million and $5.0 million in 1993, 1992 and 1991, respectively. The increase in 1993 is due primarily to the effect of lower interest rates on borrowing costs combined with improved operating results for certain of SAFECO's larger retail shopping centers. However, results in all three years have been impacted by the slow economy and the overall depressed retail industry. These conditions have led to the delay of two potential retail developments which has resulted in the expensing of certain carrying costs, totaling $3.6 million, $3.7 million and $4.3 million in 1993, 1992 and 1991, respectively. SAFECO Properties sold its hospital operating and management company (SAFECARE Health Services, Inc.) in May of 1992. The $128 million cash sales price resulted in a gain of approximately $6.4 million, which was substantially offset by the write-down to estimated realizable value of certain other real estate holdings. These hospital operations produced pre-tax income of $2.0 million in 1992 and $3.5 million in 1991. Despite improvement in recent years, SAFECO concluded it should no longer be in the hospital management business, in order to focus on its core business of commercial real estate. As the hospital operations are not material to the consolidated financial statements, they have not been reclassified as discontinued operations. At December 31, 1993, investment real estate held by SAFECO Properties totaled $441 million, approximately 3% of consolidated assets. Major retail shopping centers (including land held for development) and healthcare facilities comprise approximately 68% of the total. Approximately 51% of these total holdings are located in the states of Washington and Oregon. Rental properties included in investment real estate are detailed in Note 13 on page 52. CREDIT SAFECO Credit Company, Inc. provides loans and equipment financing and leasing to commercial businesses, including affiliated companies. Credit operations produced pre-tax income of $10.2 million in 1993, compared with $9.0 million in 1992 and $9.5 million in 1991. Loan and lease receivables from non-affiliates grew 11% in 1993 and 16% in 1992. The strong earnings in all three years are attributable primarily to the continuing increase in receivables, combined with a decline in the cost of borrowed funds. Favorable collection experience and low delinquencies, despite the sluggish economy, have also contributed to the positive results. Continued strong earnings and growth are expected in the near-term based on relatively low and stable interest rates. Approximately 66% of total loan and lease receivables outstanding at December 31, 1993 are from commercial businesses involved in heavy construction, transportation and manufacturing. Most of these businesses are located in the West Coast and Rocky Mountain regions of the United States. Loans and leases are fully secured by liens on the collateral financed. A significant portion of SAFECO Credit's business consists of loans to affiliated companies, limited to 50% or less of total loans and leases outstanding. ASSET MANAGEMENT SAFECO Asset Management Company is the investment advisor for the fourteen SAFECO mutual funds, five variable annuity portfolios and a growing number of outside pension accounts. These investment management activities produced pre-tax income of $6.5 million in 1993, $6.5 million in 1992 and $5.2 million in 1991. Assets under management continue to grow and totaled $2.4 billion at December 31, 1993. Continued growth in assets under management, from existing funds, new funds and from new pension accounts is expected. INVESTMENT SUMMARY SAFECO Corporation's consolidated pre-tax investment income increased to $951.8 million during 1993 from $903.0 million in 1992 and $846.8 million in 1991. Substantially all of this investment income is produced by the investment portfolios of SAFECO's property and casualty and life and health insurance subsidiaries. The property and casualty companies' pre-tax investment income decreased to $277.6 million in 1993 and $280.8 million in 1992 from $286.1 million in 1991, representing decreases of 1% and 2% in 1993 and 1992, respectively. The slowdown in investment income in 1993 and 1992 is primarily the result of lower investment yields and reduced cash flow caused by large catastrophe losses and withdrawal from Canada. The property and casualty fixed income portfolio, which amounted to $3.2 billion at December 31, 1993, is currently comprised of 74% tax-exempt and 26% taxable investments. The property and casualty companies are presently investing new money primarily in tax-exempt bonds and plan to continue to do so in the foreseeable future. However, SAFECO may shift its investment of new money between taxables and tax-exempts periodically in the future to maximize the portfolio's after-tax return in view of the alternative minimum tax. Major portfolio adjustments are not currently anticipated. The effective tax rate on investment income for 1993 was 15%, down from 16% and 17% for 1992 and 1991, respectively, which reflects the higher percentage of tax-exempt securities in the portfolio. On an after-tax basis, investment income decreased 0.3% in 1993 and increased 0.2% and 3% in 1992 and 1991, respectively. SAFECO's investment philosophy for the property and casualty portfolio is to emphasize investment yield, but without sacrificing investment quality. Equity investments make up 17% of the market value of the total property and 27 8 SAFECO CORPORATION casualty portfolio. The equity percentage of the portfolio may be increased gradually in 1994 if investment opportunities become available. The quality of the property and casualty companies' fixed income portfolio is detailed in the following table:
Percent at Rating December 31, 1993 - ------ ----------------- AAA ........................... 44% AA ............................ 24 A ............................. 25 BBB ........................... 6 BB or lower ................... 1 ---- Total ...................... 100%
A second major portfolio is held by the life and health insurance companies. SAFECO matches the projected cash inflows of this portfolio with the projected cash outflows of the liabilities of the various product lines within the life and health operations. Fixed income securities comprise 92% of the life and health companies' total investments at December 31, 1993. The quality of the life and health companies' fixed income portfolio is detailed in the following table:
Percent at Rating December 31, 1993 - ------ ----------------- AAA .......................... 39% AA ........................... 7 A ............................ 25 BBB .......................... 27 BB or lower .................. 2 ---- Total ..................... 100%
This portfolio contains $152.0 million, at carrying value, of securities below investment grade quality. This was approximately 2% of the total $7.4 billion life and health fixed income portfolio at December 31, 1993, compared with 2% at December 31, 1992 and 5% at December 31, 1991. SAFECO's holdings of below investment grade securities have declined as a result of the priority placed on improving the quality of the life and health portfolio. The market value of the below investment grade securities held by the life and health insurance companies was $152.1 million at December 31, 1993. SAFECO Corporation's non-life subsidiaries hold the remaining investments in below investment grade securities. On a consolidated basis, below investment grade securities with a carrying value of $173.2 million were held at December 31, 1993. This was approximately 1% of the total assets of SAFECO Corporation and consolidated subsidiaries at December 31, 1993. The market value of consolidated below investment grade securities was $173.7 million at December 31, 1993. Below investment grade securities generally involve a greater risk than investment grade securities because of the creditworthiness and solvency of the issuer, the fact that such securities are often unsecured and subordinated, the relative youth and liquidity of the secondary trading market for such securities, and the fact that such securities and the secondary trading market are more vulnerable to economic and corporate developments. SAFECO's consolidated investments in mortgage-backed securities (primarily residential CMOs and pass-throughs) totaled $2.3 billion at December 31, 1993. The corresponding market value of these securities at this date was $2.4 billion. Approximately 97% of these securities are held in the life and health insurance portfolio, with the balance held in the property and casualty insurance portfolio. Approximately 91% of the mortgage-backed securities are government/agency backed or AAA rated at December 31, 1993. Less than 2% of SAFECO's mortgage-backed securities are of the riskier, highly volatile type (e.g., interest only, floaters, etc.). SAFECO has intentionally not invested significant amounts in the riskier types of mortgage-backed securities. The excess of market value over cost of the consolidated fixed income and equity security portfolio was $1.6 billion at December 31, 1993 and $1.2 billion at December 31, 1992. The following is a summary of the consolidated securities investment portfolio at December 31, 1993:
Amortized Carrying Market Cost Value Value - ------------------------------------------------------------------------------------------------------------ (In Thousands) Property and Casualty: Fixed Income - taxable ........................... $ 860,064 $ 860,064 $ 987,404 Fixed Income - non-taxable ....................... 2,366,450 2,366,450 2,790,217 Equity Securities ................................ 424,089 775,603 775,603 Life and Health: Fixed Income - taxable ........................... 7,424,662 7,424,662 8,114,458 Fixed Income - non-taxable ....................... 1,931 1,931 2,245 Equity Securities ................................ 16,380 26,713 26,713 SAFECO Corporation: Fixed Income - taxable ........................... 51,803 51,803 54,122 Equity Securities ................................ 72,521 102,845 102,845 Miscellaneous ........................................ 16,214 21,157 22,376 Short-Term Investments ............................... 109,047 109,047 109,047 ----------- ----------- ----------- Total ....................................... $11,343,161 $11,740,275 $12,985,030 =========== =========== ===========
28 9 1993 ANNUAL REPORT Consolidated pre-tax realized gains from security investments totaled $179.5 millon for 1993, compared with $60.6 million and $35.1 million in 1992 and 1991, respectively. The higher level of gains in 1993 and 1992 is due primarily to falling interest rates producing calls, redemptions and mortgage pay-downs on debt securities. Consolidated realized gains from security investments are recorded net of losses on the sale or write-down of investments. Each investment that has declined in market value below cost is monitored closely. If the decline is judged to be other than temporary the security is written down to estimated realizable value. The amount of such writedowns in 1993, 1992 and 1991 was $15.2 million, $20.6 million and $35.2 million, respectively. Fixed income securities purchased as below investment grade included in these amounts were $3.0 million, $6.2 million and $12.0 million in 1993, 1992 and 1991, respectively. The remainder of the writedowns relate primarily to fixed income securities which were investment grade when purchased and later downgraded. SAFECO Corporation, the parent company, holds an investment portfolio of securities that totaled $195.9 million at market value at December 31, 1993, compared with $140.0 million at December 31, 1992. The majority of these securities are high quality preferred stocks and U.S. Treasuries. For a discussion of the Corporation's investment in real estate, which is made through SAFECO Properties, Inc., see page 26 of this report. SAFECO Corporation's consolidated investment portfolio also included $402.1 million of mortgage loan investments at December 31, 1993, approximately 3% of total assets. These loans are held by the life and health companies and are secured by first mortgage liens on commercial real estate, primarily in the retail, industrial and office building sectors. The majority of the properties are located in the western United States, with approximately 60% of the total in California. Individual loans generally do not exceed $5 million. At December 31, 1993, approximately 3% of the loans were non-performing, compared with approximately 2% at December 31, 1992. The percentage of non-performing loans will likely increase in 1994, due primarily to the slow California economy. The allowance for mortgage loan losses was $7 million at December 31, 1993 and $3 million at December 31, 1992. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) issued Statement 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1990. SAFECO adopted the Statement in the first quarter of 1993. The transition obligation (i.e., the accumulated postretirement benefit obligation) of $23.8 million was recorded as a cumulative effect adjustment in the first quarter of 1993 which net of tax resulted in a reduction of net income of $15.7 million. Additional disclosures relating to this Statement are in Note 11 on page 51. In 1992 the FASB issued Statement 109, "Accounting for Income Taxes." SAFECO adopted the Statement in the first quarter of 1993. The cumulative effect of adopting Statement 109 increased net income by $18.6 million. See Note 15 on page 52 for additional disclosures relating to this Statement. The FASB issued Statement 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," in late 1992. SAFECO adopted the Statement in the first quarter of 1993. Under Statement 113, balances affected by reinsurance transactions are reported gross of reinsurance rather than net in the balance sheet. Adoption had no effect on net income. See Note 4 on page 47 for disclosures relating to reinsurance. In May, 1993, the FASB issued Statement 114, "Accounting by Creditors for Impairment of a Loan." This Statement provides guidance on valuing impaired loans and is effective for 1995. Based on current analysis, the impact of adopting this Statement on SAFECO's net income and financial condition is not expected to be significant. In May of 1993, the FASB also issued Statement 115, "Accounting for Certain Investments in Debt and Equity Securities," which expands the use of the fair value accounting for debt and equity securities. Statement 115 requires that debt and equity securities be classified as trading, available-for-sale or held-to-maturity. Debt securities that the Corporation has the positive intent and ability to hold to maturity (as narrowly defined by Statement 115) will be classified as held-to-maturity and will continue to be reported at amortized cost. Debt securities classified as available-for-sale will be carried at market value, with changes in unrealized gains and losses recorded directly to stockholders' equity, net of applicable income taxes. Trading securities are to be carried at market value with immediate recognition in income of changes in market value. Statement 115 is effective for 1994 and SAFECO will adopt it as of January 1, 1994. Adoption of this Statement is not anticipated to affect net income as SAFECO does not expect to have a trading portfolio of either debt or equity securities. SAFECO anticipates that less than 20% of the debt securities portfolio will be classified as held-to-maturity, with the remainder considered available-for-sale. The increase in stockholders' equity due to adoption has not been quantified and will depend on the amount of unrealized gain attributable to the available-for-sale portfolio and the effect, if any, resulting from revaluation of certain deferred policy acquisition costs. DIVIDENDS The Corporation has paid cash dividends continuously since 1933. Common stock dividends paid were $1.72 per share in 1993, compared with $1.56 in 1992 and $1.42 in 1991. These dividends are funded with dividends to the Corporation from its subsidiaries. The Corporation expects to continue paying dividends in the foreseeable future. However, payment of future dividends is subject to the Board of Directors' approval and is dependent upon earnings and the financial condition of the Corporation. NUMBER OF STOCKHOLDERS There were approximately 5,000 common stockholders of record at December 31, 1993. 29 10 SAFECO CORPORATION ANNUAL REPORT ON FORM 10-K The Corporation files an Annual Report on Form 10-K with the Securities and Exchange Commission in compliance with the regulations of the Securities and Exchange Commission. Form 10-K contains additional information about the Corporation and its subsidiary companies. Any SAFECO Corporation stockholder may obtain Form 10-K for the year ended December 31, 1993 without charge, by making a written request to: Rod A. Pierson Senior Vice President, Secretary and Controller SAFECO Corporation SAFECO Plaza Seattle, Washington 98185 MANAGEMENT'S REPORT The management of SAFECO is responsible for the financial statements, related notes and all other information presented in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts based on the best estimates and judgments of management. In order to safeguard assets and to maintain the integrity and objectivity of data in these financial statements, SAFECO maintains a comprehensive system of internal accounting controls. These controls are supported by the careful selection and training of qualified personnel, by the appropriate division of duties and responsibilities, and by written policies and procedures throughout the Corporation. In addition, an integral part of the comprehensive system of internal control is an effective internal audit department. SAFECO's internal audit department systematically evaluates the adequacy and effectiveness of internal accounting controls and measures adherence to established policies and procedures. The management of SAFECO believes that as of December 31, 1993, its system of internal control is adequate to accomplish the objectives discussed herein. The financial statements for the years ended December 31, 1993, 1992 and 1991 have been examined by Ernst & Young, independent auditors. Their audits were made in accordance with generally accepted auditing standards and included a review of the system of internal accounting controls to the extent necessary to express an opinion on the financial statements. The audit committee of the Board of Directors, comprised solely of outside directors, meets regularly with the independent auditors, management and internal auditors to review the scope and results of the audit work performed. The independent auditors have unrestricted access to the audit committee, without the presence of management, to discuss the results of their audit, the adequacy of internal accounting controls and the quality of financial reporting. REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS Board of Directors and Stockholders of SAFECO Corporation: We have audited the financial statements of SAFECO Corporation and its subsidiaries for the years ended December 31, 1993, 1992 and 1991 (pages 31 to 55 inclusive). These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SAFECO Corporation and its subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As described in Notes 11 and 15, SAFECO Corporation and its subsidiaries adopted in 1993 the provisions of Financial Accounting Standards Board (FASB) Statement 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and FASB Statement 109, "Accounting for Income Taxes." Ernst & Young Seattle, Washington February 11, 1994 30 11 SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME Year Ended December 31 (In Thousands Except Per Share Amounts) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- REVENUES: Insurance: Property and Casualty Earned Premiums . . . . . . . . . . . $1,929,714 $1,754,460 $1,636,660 Life and Health Premiums and Other Revenues . . . . . . . . 305,963 328,516 332,711 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2,235,677 2,082,976 1,969,371 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 78,252 187,172 274,387 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,061 47,896 46,934 Asset Management . . . . . . . . . . . . . . . . . . . . . . . 13,250 13,057 10,794 Net Investment Income (Note 2) . . . . . . . . . . . . . . . . 951,795 903,048 846,767 Realized Investment Gain (Note 2) . . . . . . . . . . . . . . . 187,649 60,589 34,685 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . 3,516,684 3,294,738 3,182,938 ---------- ---------- ---------- EXPENSES: Losses, Adjustment Expense and Policyholders' Benefits . . . . 2,026,106 1,980,791 1,901,132 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . 362,446 343,154 316,881 Proposition 103 Settlement (Note 5) . . . . . . . . . . . . . . 40,000 - - Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . 226,393 233,971 250,720 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,790 64,097 70,797 Dividends to Policyholders . . . . . . . . . . . . . . . . . . 20,653 15,978 12,418 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,558 289,164 333,174 Amortization of Deferred Policy Acquisition Costs . . . . . . . 368,347 339,200 324,022 Deferral of Policy Acquisition Costs . . . . . . . . . . . . . (389,546) (374,874) (343,520) ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2,939,747 2,891,481 2,865,624 ---------- ---------- ---------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . 576,937 403,257 317,314 ---------- ---------- ---------- Provision (Benefit) for Federal and Canadian Income Taxes (Note 15): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,939 125,815 80,421 Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,903) (33,852) (22,685) ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . 151,036 91,963 57,736 ---------- ---------- ---------- Income Before Cumulative Effect of Accounting Changes . . . . . . . 425,901 311,294 259,578 Cumulative Effect of Accounting Changes (Notes 11 and 15): Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . (15,676) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . 18,553 - - ---------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,778 $ 311,294 $ 259,578 ========== ========== ========== Net Income Per Share of Common Stock: Income Before Cumulative Effect of Accounting Changes . . . . . $ 6.77 $ 4.96 $ 4.14 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . (.25) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . .30 - - ---------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.82 $ 4.96 $ 4.14 ========== ========== ==========
See Notes to Financial Statements on pages 42 through 55. 31 12 SAFECO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET December 31 (In Thousands) 1993 1992 - ------------------------------------------------------------------------------------------------------------------- ASSETS Investments (Note 2): Fixed Maturities, at Amortized Cost (Market value: 1993 - $11,965,731; 1992 - $10,402,554) . . . . . . . $10,720,976 $ 9,558,258 Marketable Equity Securities, at Market Value (Cost: 1993 - $513,138; 1992 - $530,999) . . . . . . . . . . . . . . 910,252 919,164 Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,138 391,108 Real Estate (At cost less accumulated depreciation: 1993 - $94,610; 1992 - $93,152) (Note 3) . . . . . . . . . . . . . . 447,797 393,271 Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,488 50,455 Short-Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . 109,047 164,279 ----------- ----------- Total Investments . . . . . . . . . . . . . . . . . . . . . . . 12,640,698 11,476,535 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,833 73,122 Accrued Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . 210,289 201,035 Finance Receivables (Less unearned finance charges and allowance for doubtful accounts: 1993 - $51,147; 1992 - $47,895) . . . . . . . . . 547,759 495,206 Premiums and Other Service Fees Receivable . . . . . . . . . . . . . . . . 400,873 336,440 Other Notes and Accounts Receivable . . . . . . . . . . . . . . . . . . . . 75,977 71,386 Reinsurance Recoverables (Note 4) . . . . . . . . . . . . . . . . . . . . . 126,240 109,485 Land, Buildings and Equipment for Company Use (At cost less accumulated depreciation: 1993 - $127,522; 1992 - $124,143) (Note 3) . . . . . . . . . . . . . 149,618 141,044 Deferred Policy Acquisition Costs . . . . . . . . . . . . . . . . . . . . . 367,303 346,104 Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,701 140,752 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,807,291 $13,391,109 =========== ===========
See Notes to Financial Statements on pages 42 through 55. 32 13 SAFECO CORPORATION AND SUBSIDIARIES
December 31 (In Thousands Except Share Amounts) 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Losses and Adjustment Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,128,372 $ 2,091,098 Unearned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819,385 742,599 Life Policy Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,488 150,165 Funds Held Under Deposit Contracts . . . . . . . . . . . . . . . . . . . . . . . . 7,229,439 6,382,655 Notes and Mortgages Payable (Note 3): Credit Company Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,930 403,705 10.75% Notes Due 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000 Other Notes and Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,505 235,218 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629,891 544,140 Federal and Canadian Income Taxes (Note 15): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,963 30,113 Deferred (Includes tax on unrealized appreciation of marketable equity securities: 1993 - $138,990; 1992 - $131,976) . . . . . . . . . . . . 117,927 163,269 ----------- ----------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,032,900 10,942,962 ----------- ----------- Commitments and Contingencies (Note 5) Preferred Stock, No Par Value: Shares Authorized: 10,000,000 Shares Issued and Outstanding: None Common Stock, No Par Value (Notes 7 and 8): Shares Authorized: 150,000,000 Shares Reserved for Options: 1993 - 2,182,828; 1992 - 2,356,757 Shares Issued and Outstanding: 1993 - 62,931,562; 1992 - 62,815,265 . . . . . . 207,480 200,557 Retained Earnings (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307,322 1,993,350 Unrealized Appreciation of Marketable Equity Securities, Net of Tax . . . . . . . . 262,157 256,189 Unrealized Loss from Foreign Currency Translation, Net of Tax . . . . . . . . . . . (2,568) (1,949) ----------- ----------- Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,774,391 2,448,147 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,807,291 $13,391,109 =========== ===========
See Notes to Financial Statements on pages 42 through 55. 33 14 SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS Year Ended December 31 (In Thousands) 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Insurance Premiums Received . . . . . . . . . . . . . . . . . . $ 2,205,521 $ 2,073,514 $ 1,922,983 Dividends and Interest Received . . . . . . . . . . . . . . . . 919,890 860,410 824,457 Other Operating Receipts . . . . . . . . . . . . . . . . . . . . 127,828 212,689 298,125 Insurance Claims and Policyholders' Benefits Paid . . . . . . . (1,570,643) (1,495,936) (1,450,771) Underwriting, Acquisition and Insurance Operating Costs Paid . . (710,460) (653,424) (642,341) Proposition 103 Settlement . . . . . . . . . . . . . . . . . . . (39,815) - - Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . (59,268) (63,796) (69,926) Other Operating Costs Paid . . . . . . . . . . . . . . . . . . . (70,296) (155,578) (227,872) Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . (169,144) (113,302) (72,682) ----------- ----------- ----------- Net Cash Provided by Operating Activities . . . . . . . 633,613 664,577 581,973 ----------- ----------- ----------- INVESTING ACTIVITIES: Purchase of: Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . (2,843,953) (2,804,215) (2,822,808) Equities and Other Investments . . . . . . . . . . . . . . . (140,391) (89,393) (171,085) Investment Real Estate . . . . . . . . . . . . . . . . . . . (46,752) (23,384) (24,494) Mortgage and Policy Loans . . . . . . . . . . . . . . . . . (69,864) (74,045) (56,473) Sale of Fixed Maturities . . . . . . . . . . . . . . . . . . . . 845,395 1,093,592 1,510,897 Maturity of Fixed Maturities . . . . . . . . . . . . . . . . . . 1,010,532 754,619 300,885 Sale or Maturity of: Equities and Other Investments . . . . . . . . . . . . . . . 204,910 100,447 217,415 Investment Real Estate . . . . . . . . . . . . . . . . . . . 27,203 13,167 7,677 Mortgage and Policy Loans . . . . . . . . . . . . . . . . . 47,048 32,717 22,746 Net Decrease (Increase) in Short-Term Investments . . . . . . . 57,878 (41,234) (1,482) Finance Receivables Originated or Acquired . . . . . . . . . . . (286,758) (258,794) (243,896) Principal Payments Received on Finance Receivables . . . . . . . 228,772 186,229 158,685 Proceeds from Sale of Hospital Operations . . . . . . . . . . . - 125,115 - Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,297) (25,789) (23,732) ----------- ----------- ----------- Net Cash Used in Investing Activities . . . . . . . . . (1,013,277) (1,010,968) (1,125,665) ----------- ----------- ----------- FINANCING ACTIVITIES: Funds Received Under Deposit Contracts . . . . . . . . . . . . . 1,001,880 954,813 991,718 Return of Funds Held Under Deposit Contracts . . . . . . . . . . (555,430) (506,090) (389,024) Proceeds from Notes and Mortgage Borrowings . . . . . . . . . . 131,950 42,850 162,865 Repayment of Notes and Mortgage Borrowings . . . . . . . . . . . (115,883) (82,680) (59,398) Net Proceeds from (Repayment of) Short-Term Borrowings . . . . . 20,880 52,897 (52,096) Common Stock Reacquired . . . . . . . . . . . . . . . . . . . . (4,329) (11,897) (5,690) Dividends Paid to Stockholders . . . . . . . . . . . . . . . . . (108,133) (97,953) (89,092) Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,440 7,286 3,297 ----------- ----------- ----------- Net Cash Provided by Financing Activities . . . . . . . 374,375 359,226 562,580 ----------- ----------- ----------- Net (Decrease) Increase in Cash . . . . . . . . . . . . . . . . . . (5,289) 12,835 18,888 Cash at the Beginning of Year . . . . . . . . . . . . . . . . . . . 73,122 60,287 41,399 ----------- ----------- ----------- Cash at the End of Year . . . . . . . . . . . . . . . . . . . . . . $ 67,833 $ 73,122 $ 60,287 =========== =========== ===========
For purposes of reporting cash flows, cash consists of balances on hand and on deposit in banks and financial institutions. See Notes to Financial Statements on pages 42 through 55. 34 15 SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS -- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Year Ended December 31 (In Thousands) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,778 $311,294 $259,578 --------- -------- -------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Realized Investment Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,649) (60,589) (34,685) Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . 32,113 31,928 35,488 Amortization of Fixed Maturity Investments . . . . . . . . . . . . . . . . . . . (20,910) (17,376) (19,934) Provision for Losses on Receivables . . . . . . . . . . . . . . . . . . . . . . 4,483 8,881 13,355 Deferred Income Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . (21,903) (33,852) (22,685) Interest Expense on Deposit Contracts . . . . . . . . . . . . . . . . . . . . . 400,122 375,305 366,833 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . . (2,877) - - Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 (1,151) (1,145) Changes in: Losses and Adjustment Expense Liabilities . . . . . . . . . . . . . . . . . 37,274 30,060 140,107 Life Policy Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,323 3,521 946 Unearned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,786 56,767 1,456 Deferred Policy Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . (21,199) (35,674) (19,498) Accrued Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . (9,254) (13,491) (322) Accrued Interest on Accrual Bonds . . . . . . . . . . . . . . . . . . . . . (56,712) (68,509) (60,534) Other Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72,913) (43,455) (16,272) Accrued Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,850 11,842 8,867 Other Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 37,786 109,076 (69,582) --------- -------- -------- Total Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,835 353,283 322,395 --------- -------- -------- Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . $ 633,613 $664,577 $581,973 ========= ======== ========
See Notes to Financial Statements on pages 42 through 55. 35 16 SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31 (In Thousands) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------- Common Stock (Notes 7 and 8): Balance at the Beginning of Year . . . . . . . . . . . . . . . $ 200,557 $ 191,300 $ 187,333 Stock Issued for Options and Rights . . . . . . . . . . . . . 4,152 7,968 3,685 Common Stock Reacquired . . . . . . . . . . . . . . . . . . . (223) (713) (427) Stock Issued for Acquisition of Subsidiary . . . . . . . . . . 2,149 - - Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 2,002 709 ---------- ---------- ---------- Balance at the End of Year . . . . . . . . . . . . . . . . . . 207,480 200,557 191,300 ---------- ---------- ---------- Retained Earnings (Note 7): Balance at the Beginning of Year . . . . . . . . . . . . . . . 1,993,350 1,793,726 1,630,397 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 428,778 311,294 259,578 Dividends Declared . . . . . . . . . . . . . . . . . . . . . . (110,700) (100,486) (90,986) Common Stock Reacquired . . . . . . . . . . . . . . . . . . . (4,106) (11,184) (5,263) ---------- ---------- ---------- Balance at the End of Year . . . . . . . . . . . . . . . . . . 2,307,322 1,993,350 1,793,726 ---------- ---------- ---------- Unrealized Appreciation of Marketable Equity Securities, Net of Tax: Balance at the Beginning of Year . . . . . . . . . . . . . . . 256,189 231,224 153,378 Increase in Unrealized Appreciation . . . . . . . . . . . . . 5,968 24,965 77,846 ---------- ---------- ---------- Balance at the End of Year . . . . . . . . . . . . . . . . . . 262,157 256,189 231,224 ---------- ---------- ---------- Unrealized Gain (Loss) from Foreign Currency Translation, Net of Tax: Balance at the Beginning of Year . . . . . . . . . . . . . . . (1,949) 4,884 4,591 Change in Unrealized Gain (Loss) from Foreign Currency Translation . . . . . . . . . . . . . . . . . . . (619) (6,833) 293 ---------- ---------- ---------- Balance at the End of Year . . . . . . . . . . . . . . . . . . (2,568) (1,949) 4,884 ---------- ---------- ---------- Stockholders' Equity . . . . . . . . . . . . . . . . . $2,774,391 $2,448,147 $2,221,134 ========== ========== ==========
See Notes to Financial Statements on pages 42 through 55. 36 17 PROPERTY AND CASUALTY INSURANCE COMPANIES SAFECO Insurance Company of America o General Insurance Company of America First National Insurance Company of America o SAFECO National Insurance Company o SAFECO Insurance Company of Illinois SAFECO Lloyds Insurance Company o SAFECO Surplus Lines Insurance Company o F. B. Beattie and Co., Inc.
STATEMENT OF COMBINED INCOME Year Ended December 31 (In Thousands) 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- Net Premiums Written . . . . . . . . . . . . . . . . . . . . . . $2,000,165 $1,820,445 $1,629,710 (Increase) Decrease in Unearned Premiums . . . . . . . . . . . . (70,451) (65,985) 6,950 ---------- ---------- ---------- Earned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . 1,929,714 1,754,460 1,636,660 ---------- ---------- ---------- Losses and Expenses: Losses and Adjustment Expense . . . . . . . . . . . . . . . . 1,350,628 1,306,652 1,285,202 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . 280,357 261,802 236,504 Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . 150,960 136,773 132,530 Taxes Other Than Payroll and Income Taxes . . . . . . . . . . 53,094 48,749 46,299 Dividends to Policyholders . . . . . . . . . . . . . . . . . . 20,653 15,978 12,418 Other Operating Expenses . . . . . . . . . . . . . . . . . . . 72,798 65,806 61,608 Amortization of Deferred Policy Acquisition Costs . . . . . . 341,997 320,339 303,086 Deferral of Policy Acquisition Costs . . . . . . . . . . . . . (350,621) (329,617) (299,866) ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,919,866 1,826,482 1,777,781 ---------- ---------- ---------- Underwriting Profit (Loss) . . . . . . . . . . . . . . . . . . . 9,848 (72,022) (141,121) Net Investment Income (Excluding realized gain) . . . . . . . . . 277,643 280,820 286,073 Proposition 103 Settlement . . . . . . . . . . . . . . . . . . . (40,000) - - ---------- ---------- ---------- Income Before Realized Gain and Income Taxes . . . . . . . . . . 247,491 208,798 144,952 Realized Gain from Security Investments Before Income Taxes . . 114,561 54,622 56,981 ---------- ---------- ---------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . 362,052 263,420 201,933 Provision for Federal and Canadian Income Taxes (Including tax provision on realized gain: 1993 - $43,398; 1992 - $18,107; 1991 - $19,200) 73,702 39,761 18,731 ---------- ---------- ---------- Income Before Cumulative Effect of Accounting Changes . . . . . . 288,350 223,659 183,202 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . (12,258) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . 7,337 - - ---------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283,429 $ 223,659 $ 183,202 ========== ========== ==========
See Notes to Financial Statements on pages 42 through 55. 37 18 LIFE AND HEALTH INSURANCE COMPANIES SAFECO Life Insurance Company o SAFECO National Life Insurance Company o First SAFECO National Life Insurance Company of New York SAFECO Administrative Services, Inc. o PNMR Securities, Inc.
STATEMENT OF COMBINED INCOME Year Ended December 31 (In Thousands) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ Premiums and Other Revenue . . . . . . . . . . . . . . . . . . . . . . . $305,963 $328,516 $332,711 Net Investment Income (Excluding realized gain (loss)) . . . . . . . . . 668,158 623,584 557,445 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974,121 952,100 890,156 -------- -------- -------- Benefits and Expenses: Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 675,478 674,139 615,930 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,089 80,207 79,877 Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,431 47,279 42,952 Taxes Other Than Payroll and Income Taxes . . . . . . . . . . . . . . 9,003 9,556 9,720 Other Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . 46,389 43,711 40,286 Amortization of Deferred Policy Acquisition Costs . . . . . . . . . . 26,350 18,861 20,936 Deferral of Policy Acquisition Costs . . . . . . . . . . . . . . . . . (38,925) (45,257) (43,654) -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848,815 828,496 766,047 -------- -------- -------- Income Before Realized Gain (Loss) and Income Taxes . . . . . . . . . . . 125,306 123,604 124,109 Realized Gain (Loss) from Security Investments Before Income Taxes . . . . . . . . . . . . . . . 53,544 3,377 (27,248) -------- -------- -------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 178,850 126,981 96,861 Provision for Federal Income Taxes (Including tax provision (benefit) on realized gain (loss): 1993 - $18,344; 1992 - $1,175; 1991 - $(9,256)) 66,747 49,179 35,148 -------- -------- -------- Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . 112,103 77,802 61,713 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . (2,493) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . 9,092 - - -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,702 $ 77,802 $ 61,713 ======== ======== ========
See Notes to Financial Statements on pages 42 through 55. 38 19 REAL ESTATE COMPANIES SAFECO Properties, Inc. o Winmar Company, Inc. o SAFECARE Company, Inc.
STATEMENT OF CONSOLIDATED INCOME Year Ended December 31 (In Thousands) 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------- REVENUES: Commercial Real Estate Revenue . . . . . . . . . . . . . . . . . . . . $64,315 $ 60,864 $ 58,297 Healthcare Facility Revenue . . . . . . . . . . . . . . . . . . . . . - 101,542 198,609 Real Estate Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 5,979 12,350 3,263 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,609 6,490 6,935 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,349 5,926 7,283 ------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,252 187,172 274,387 ------- -------- -------- EXPENSES: Commercial Real Estate Operating Expenses . . . . . . . . . . . . . . 22,369 23,310 20,534 Healthcare Facility Operating Expenses . . . . . . . . . . . . . . . . - 91,849 176,087 Real Estate Sales Costs . . . . . . . . . . . . . . . . . . . . . . . 5,750 10,937 1,471 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,553 26,628 35,583 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,486 14,213 18,239 General and Administrative . . . . . . . . . . . . . . . . . . . . . . 11,875 14,251 16,578 ------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,033 181,188 268,492 Interest and Other Expenses Capitalized . . . . . . . . . . . . . . . (3,860) (2,405) (2,630) ------- -------- -------- Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,173 178,783 265,862 ------- ------- -------- Income Before Realized Gain (Loss) and Income Taxes . . . . . . . . . . . 10,079 8,389 8,525 Realized Gain (Loss) from Real Estate Investments Before Income Taxes . . . . . . . . . . . . . 8,126 (6) (460) ------- -------- -------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 18,205 8,383 8,065 Provision for Federal Income Taxes (Including tax provision on realized gain (loss): 1993 - $2,717; 1992 - $680; 1991 - $93) . . . . 6,660 3,029 2,768 ------- -------- -------- Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . 11,545 5,354 5,297 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . (360) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . 3,389 - - ------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,574 $ 5,354 $ 5,297 ======= ======== ========
See Notes to Financial Statements on pages 42 through 55. 39 20 SAFECO CREDIT COMPANY, INC.
STATEMENT OF INCOME Year Ended December 31 (In Thousands) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ Investment Revenues: Interest and Finance Charges: Finance Receivables . . . . . . . . . . . . . . . . . . . . . . . . . $45,151 $43,156 $42,421 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,985 3,431 7,437 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,136 46,587 49,858 Interest on Other Investments . . . . . . . . . . . . . . . . . . . . . . 140 1,480 1,587 -------- -------- -------- Total Investment Revenues . . . . . . . . . . . . . . . . . . . . 49,276 48,067 51,445 Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,918 26,646 30,516 -------- -------- -------- Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . 23,358 21,421 20,929 Provision for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . 4,450 3,420 3,260 -------- -------- -------- Net Investment Income After Provision for Credit Losses . . . . . . . . . 18,908 18,001 17,669 Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,770 3,260 2,926 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,678 21,261 20,595 -------- -------- -------- Operating Expenses: Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,274 7,483 6,975 General and Administrative . . . . . . . . . . . . . . . . . . . . . . . . 6,214 4,742 4,131 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,488 12,225 11,106 -------- -------- -------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 10,190 9,036 9,489 Provision for Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . 3,751 2,896 3,093 -------- -------- -------- Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . . . 6,439 6,140 6,396 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . . . (360) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . . (42) - - -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,037 $ 6,140 $ 6,396 ======== ======== ========
See Notes to Financial Statements on pages 42 through 55. 40 21 ASSET MANAGEMENT COMPANIES SAFECO Asset Management Company o SAFECO Securities, Inc. o SAFECO Services Corporation
STATEMENT OF COMBINED INCOME Year Ended December 31 (In Thousands) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ REVENUES: Management and Advisory Fees . . . . . . . . . . . . . . . . . . . . . . $10,074 $ 8,867 $ 7,582 Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,877 1,866 1,637 Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299 2,324 1,575 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,250 13,057 10,794 -------- -------- -------- EXPENSES: Personnel Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,199 3,326 2,983 Marketing and Shareholder Communication . . . . . . . . . . . . . . . . 890 649 784 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,622 2,579 1,848 -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,711 6,554 5,615 -------- -------- -------- Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 6,539 6,503 5,179 Provision for Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 2,284 2,242 1,782 -------- -------- -------- Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . . 4,255 4,261 3,397 Cumulative Effect of Accounting Changes: Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . . . . . . . . (204) - - Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . 2 - - -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,053 $ 4,261 $ 3,397 ======== ======== ========
See Notes to Financial Statements on pages 42 through 55. 41 22 SAFECO CORPORATION NOTES TO FINANCIAL STATEMENTS (All dollar amounts in thousands, except share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF REPORTING The financial statements have been prepared in accordance with generally accepted accounting principles and include SAFECO Corporation and its subsidiaries and real estate joint ventures (the Corporation, or SAFECO). All significant intercompany transactions and accounts have been eliminated in the consolidated financial statements. Certain reclassifications have been made in the 1992 and 1991 financial statements and footnotes to conform to current classifications. SAFECO's property and casualty subsidiaries sold their Canadian operations in the second quarter of 1991. See page 24 for further information. SAFECO Properties, Inc. sold its hospital operations subsidiary, SAFECARE Health Services, Inc. in May of 1992. See page 26 for further information. As these operations are not material to the consolidated financial statements, they have not been reclassified as discontinued operations. ACCOUNTING FOR PREMIUMS Property and casualty insurance premiums are included in income as earned on a daily pro rata basis over the term of the respective policies. The unearned portion is included in the balance sheet as a liability for unearned premiums, before the effect of reinsurance. The reinsurance amounts related to the unearned premium reserve were $52,384 and $45,573 at December 31, 1993 and 1992, respectively. See Note 4 for more information. Life and health insurance premiums are reported as income when collected for traditional individual life policies and when earned for group and individual health policies. Funds received under pension deposit contracts, annuities and universal life policies of $1,001,880, $954,813 and $991,718 in 1993, 1992 and 1991, respectively, are recorded as liabilities rather than premium income when received. Premiums for universal life products consist of front-end loads, mortality charges and expense charges assessed against individual policyholder account balances. These loads and charges are recognized as income when earned. INVESTMENTS Fixed maturity investments (bonds and redeemable preferred stock) which the Corporation has the ability and intent to hold to maturity are considered held for investment and carried at amortized cost in the balance sheet. Those fixed maturity investments which the Corporation intends to sell prior to maturity are classified as available for sale and carried in the balance sheet at the lower of aggregate amortized cost or market value. None of the portfolio is held for trading purposes. SAFECO Corporation and its insurance subsidiaries carry marketable equity securities at market value. The aggregate excess of market value over cost is included in stockholders' equity as unrealized appreciation of marketable equity securities, net of tax. Non-insurance subsidiaries carry marketable equity securities at the lower of cost or market. The Financial Accounting Standards Board (FASB) issued Statement 115, "Accounting for Certain Investments in Debt and Equity Securities" in May of 1993. See page 43 for a discussion of this new accounting standard. When the collectibility of income on certain investments is considered doubtful, they are placed on non-accrual status and thereafter interest income is recognized only when payment is received. Investments that have declined in market value below cost and for which the decline is judged to be other than temporary are written down to estimated realizable values. Writedowns are made directly on an individual security basis and are included in realized investment losses in the statement of income. The cost of security investments sold is determined by the "identified cost" method. Mortgage loans are carried at outstanding principal balances, less an allowance for loan losses. The allowance for mortgage loan losses at December 31, 1993 and 1992 was $7,000 and $3,000, respectively. Short-term investments are carried at cost, which approximates market value. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are classified as investment real estate or as land, buildings and equipment for company use, and are carried at cost less accumulated depreciation. Investment real estate that has declined in market value below cost and for which the decline is judged to be other than temporary is written down to estimated net realizable value. Estimated values of real estate are obtained using independent appraisals, outside consultants, internal analysis and judgment as appropriate under the circumstances. Values are reviewed quarterly. The writedowns are included in realized investment losses in the statement of income. Real estate taxes, interest expense and certain other carrying costs related to projects under development are capitalized as a cost of such projects during the development phase and until the project is substantially completed or until the total carrying value equals estimated net realizable value. After substantial completion, the carrying costs are charged to expense when incurred and depreciation is provided. Projects that involve construction of income-producing property are considered to be substantially complete at the earlier of attainment of a predetermined occupancy level or one year of operations. Projects that involve the development of land are considered substantially complete when planned improvement 42 23 1993 ANNUAL REPORT activity is concluded or the property is offered for sale. Interest capitalized relating to the development of real estate was $3,554, $2,129 and $2,263 for 1993, 1992 and 1991, respectively. SAFECO provides depreciation on buildings, furniture and automobiles at various rates based on estimated useful lives using straight-line and accelerated methods. DEFERRED POLICY ACQUISITION COSTS Property and casualty insurance acquisition costs, consisting of commissions and certain other underwriting expenses, which vary with and are primarily related to the production of business, are deferred and amortized over the effective period of the related insurance policies. Investment income is considered in determining whether a premium deficiency exists. Life insurance acquisition costs, consisting of commissions and certain other underwriting expenses, which vary with and are primarily related to the production of new business, are deferred. Policy acquisition costs for traditional individual life insurance policies are amortized over the premium payment period of the related policies using assumptions consistent with those used in computing policy benefit liabilities. Acquisition costs for annuity contracts and universal life insurance policies are amortized over the lives of the contracts or policies in proportion to the present value of estimated future gross profits. To the extent actual experience differs from assumptions, and to the extent estimates of future gross profits require revision, the unamortized balance of deferred policy acquisition costs is adjusted accordingly. LOSSES AND ADJUSTMENT EXPENSE Unpaid losses and adjustment expense represent the estimated liability for claims reported plus losses incurred but not yet reported and the related estimated adjustment expense. The liability for losses and related adjustment expense is determined using "case basis" evaluations and statistical analyses and represents an estimate of the ultimate net cost of all losses incurred but not paid through December 31 of each year. Although considerable variability is inherent in such estimates, management believes that the liability for unpaid losses and related adjustment expense is adequate. These estimates are continually reviewed and adjusted as necessary; such adjustments are included in current operations. Salvage and subrogation recoverables are accrued using the "case basis" method for large recoverables and statistical estimates based on historical experience for smaller recoverables. Recoverable amounts deducted from the liability for losses and adjustment expense were $134,042 and $135,441 at December 31, 1993 and 1992, respectively. The property and casualty companies' liability for unpaid losses and adjustment expense is presented gross of amounts recoverable from reinsurers of $100,065 and $89,198 at December 31, 1993 and 1992, respectively. See Note 4 for more information. LIFE POLICY LIABILITIES Liabilities for future benefits under traditional individual life insurance policies have been computed on the net level premium method and reflect interest, mortality and persistency assumptions based on Company experience modified to provide for adverse deviation. Interest assumptions generally range from 8-1/2% graded to 3-1/4%. Liabilities for universal life insurance policies, deferred annuity contracts and pension deposit contracts are equal to the accumulated account value of such policies or contracts as of the valuation date. Liabilities for structured settlement annuities are based on interest rate assumptions using market rates at issue, graded downward over 40 years to a range of 6-3/4% to 8-3/4%. NET INCOME PER SHARE OF COMMON STOCK Net income per share of common stock is based on the weighted average number of common shares outstanding during each year. Dilution arising from stock options is insignificant. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) issued Statement 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1990. SAFECO adopted the Statement in the first quarter of 1993. The transition obligation (i.e., the accumulated postretirement benefit obligation) of $23,751 was recorded as a cumulative effect adjustment in the first quarter of 1993 which, net of tax, resulted in a reduction of net income of $15,676. Additional disclosures relating to this Statement are in Note 11. In 1992, the FASB issued Statement 109, "Accounting for Income Taxes." SAFECO adopted the Statement in the first quarter of 1993. The cumulative effect of adopting Statement 109 increased net income by $18,553. See Note 15 for additional disclosures relating to this Statement. The FASB issued Statement 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," in late 1992. SAFECO adopted the Statement in the first quarter of 1993. Under Statement 113, balances affected by reinsurance transactions are reported gross of reinsurance rather than net in the balance sheet. Adoption had no effect on net income. See Note 4 for disclosures relating to reinsurance. In May of 1993, the FASB issued Statement 114, "Accounting by Creditors for Impairment of a Loan." This Statement provides guidance on valuing impaired loans and is effective for 1995. Based on current analysis, the impact of adopting this Statement on SAFECO's net income and financial condition is not expected to be significant. In May of 1993, the FASB also issued Statement 115, "Accounting for Certain Investments in Debt and Equity Securities," which expands the use of fair value accounting for debt and equity securities. Statement 115 requires that 43 24 SAFECO CORPORATION 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) debt and equity securities be classified as trading, available-for-sale or held-to-maturity. Debt securities that the Corporation has the positive intent and ability to hold to maturity (as narrowly defined by Statement 115) will be classified as held-to-maturity and will continue to be reported at amortized cost. Debt securities classified as available-for-sale will be carried at market value, with changes in unrealized gains and losses recorded directly to stockholders' equity, net of applicable income taxes. Trading securities are to be carried at market value with immediate recognition in income of changes in market value. Statement 115 is effective for 1994 and SAFECO will adopt it as of January 1, 1994. Adoption of this Statement is not anticipated to affect net income as SAFECO does not expect to have a trading portfolio of either debt or equity securities. SAFECO anticipates that less than 20% of the debt securities portfolio will be classified as held-to-maturity, with the remainder considered available-for-sale. The increase in stockholders' equity due to adoption has not been quantified and will depend on the amount of unrealized gain attributable to the available-for-sale portfolio and the effect, if any, resulting from revaluation of certain deferred policy acquisition costs. 2. INVESTMENTS Investment income is comprised of:
1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- Interest: Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . $867,022 $818,429 $754,500 Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . 40,027 39,817 38,062 Short-term investments . . . . . . . . . . . . . . . . . . . . 8,266 8,365 14,580 Dividends: Marketable equity securities . . . . . . . . . . . . . . . . . 45,146 42,092 43,172 Redeemable preferred stock . . . . . . . . . . . . . . . . . . 1,540 1,584 1,740 Other investment income . . . . . . . . . . . . . . . . . . . . . 4,830 5,156 5,784 -------- -------- -------- Total investment income . . . . . . . . . . . . . . . . . . . 966,831 915,443 857,838 Investment expenses . . . . . . . . . . . . . . . . . . . . . . . 15,036 12,395 11,071 -------- -------- -------- Net investment income . . . . . . . . . . . . . . . . . . . . $951,795 $903,048 $846,767 ======== ======== ========
The carrying value of investments in fixed maturities and mortgage loans that have not produced income for the last twelve months is less than one percent of the total of such investments at December 31, 1993. At December 31, 1993, the aggregate market value of marketable equity securities was in excess of cost by $397,114, comprised of gross unrealized gains of $399,515 and gross unrealized losses of $2,401. At December 31, 1992, the aggregate market value of marketable equity securities was in excess of cost by $388,165, comprised of gross unrealized gains of $397,801 and gross unrealized losses of $9,636. The following analysis summarizes the realized gains and losses, the changes in unrealized gains and losses and applicable income taxes, on fixed maturity and marketable equity securities:
1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- Realized gains (losses): Fixed maturity securities . . . . . . . . . . . . . . . . . . $ 121,907 $ 39,532 $ (7,009) Marketable equity securities . . . . . . . . . . . . . . . . 57,616 21,063 42,154 Applicable income taxes . . . . . . . . . . . . . . . . . . . (66,017) (20,164) (11,931) --------- --------- --------- Net realized gain . . . . . . . . . . . . . . . . . . . . . . $ 113,506 $ 40,431 $ 23,214 ========= ========= ========= Increase in unrealized appreciation of securities: Fixed maturity securities . . . . . . . . . . . . . . . . . . $ 400,459 $ 42,298 $ 645,982 Marketable equity securities . . . . . . . . . . . . . . . . 8,949 37,826 117,948 Applicable income taxes . . . . . . . . . . . . . . . . . . . (155,617) (27,242) (259,736) --------- --------- --------- Net unrealized gain . . . . . . . . . . . . . . . . . . . . $ 253,791 $ 52,882 $ 504,194 ========= ========= =========
44 25 1993 ANNUAL REPORT Realized gains (losses) from real estate are as follows:
1993 1992 1991 - ------------------------------------------------------------------------------------------------------- Realized gains (losses) . . . . . . . . . . . . . . . . . $ 8,126 $ (6) $(460) Applicable income taxes . . . . . . . . . . . . . . . . . (2,717) (680) (93) ------- ----- ----- Net realized gain (loss) . . . . . . . . . . . . . . . . $ 5,409 $(686) $(553) ======= ===== =====
The amortized cost and estimated market values of investments in fixed maturities are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------------------------- At December 31, 1993: U.S. Treasury securities and obligations of U.S. government corporations and agencies . . . . . . . . . . . . . $ 1,028,324 $ 88,900 $ (395) $ 1,116,829 Obligations of states and political subdivisions . . . . . 2,539,412 453,726 (1,410) 2,991,728 Debt securities issued by foreign governments . . . . . . . 389,838 84,316 (157) 473,997 Corporate securities . . . . . . . . . . 4,488,884 471,956 (18,086) 4,942,754 Mortgage-backed securities . . . . . . . 2,262,286 177,872 (13,997) 2,426,161 Other debt securities . . . . . . . . . 12,232 2,072 (42) 14,262 ----------- ---------- -------- ----------- Total . . . . . . . . . . . . . . $10,720,976 $1,278,842 $(34,087) $11,965,731 =========== ========== ======== =========== At December 31, 1992: U.S. Treasury securities and obligations of U.S. government corporations and agencies . . . . . . . . . . . . $ 908,308 $ 40,971 $ (2,558) $ 946,721 Obligations of states and political subdivisions . . . . . . . 2,170,393 362,589 (2,076) 2,530,906 Debt securities issued by foreign governments . . . . . . . 390,174 49,119 (2,095) 437,198 Corporate securities . . . . . . . . . . 3,822,460 276,575 (45,117) 4,053,918 Mortgage-backed securities . . . . . . . 2,252,104 183,484 (19,311) 2,416,277 Other debt securities . . . . . . . . . 14,819 2,822 (107) 17,534 ----------- ---------- -------- ----------- Total . . . . . . . . . . . . . . $ 9,558,258 $ 915,560 $(71,264) $10,402,554 =========== ========== ======== ===========
Included in the amounts above are certain fixed maturity investments classified as available for sale and carried in the balance sheet at the lower of aggregate amortized cost or market value. At December 31, 1993, these investments had a carrying value of $172,269 and a market value of $227,442. At December 31, 1992, they had a carrying value of $175,215 and a market value of $203,653. The amortized cost and estimated market value of fixed maturities at December 31, 1993, by contractual maturity, are presented below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
Estimated Amortized Market Cost Value - ---------------------------------------------------------------------------------------------------------------------- Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,008 $ 89,091 Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . 982,464 1,051,253 Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . 2,094,596 2,296,927 Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,294,622 6,102,299 Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,262,286 2,426,161 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,720,976 $11,965,731 =========== ===========
45 26 SAFECO CORPORATION 2. INVESTMENTS (CONTINUED) The proceeds from sales of investments in fixed maturities and related gains and losses are as follows:
1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- Proceeds from sales . . . . . . . . . . . . . . . . . . . $845,395 $1,093,592 $1,510,897 ======== ========== ========== Gross realized gains on sales . . . . . . . . . . . . . . $ 92,809 $ 59,932 $ 72,308 Gross realized losses on sales . . . . . . . . . . . . . (23,120) (26,361) (45,385) -------- ---------- ---------- Realized gains on sales . . . . . . . . . . . . . . . . . 69,689 33,571 26,923 Writedowns . . . . . . . . . . . . . . . . . . . . . . . (15,171) (20,571) (35,188) Other, including gains on calls and redemptions . . . . . 67,389 26,532 1,256 -------- ---------- ---------- Total realized gain (loss) . . . . . . . . . . . . . . . $121,907 $ 39,532 $ (7,009) ======== ========== ==========
3. NOTES AND MORTGAGES PAYABLE At December 31, 1993, SAFECO Credit has short-term borrowings of $288,500 through commercial paper and master note agreements and $138,800 of medium-term notes. The repayment of each of these borrowings is guaranteed by SAFECO Corporation. At December 31, 1993, SAFECO Credit Company had available bank lines of credit totaling $300,000. No amounts were outstanding under these lines of credit at December 31, 1993. These lines support 90-day borrowings and day-to-day (quickline) borrowings. SAFECO Credit pays a fee to have these lines of credit available and does not maintain deposits as compensating balances. In December 1990, the Securities and Exchange Commission declared effective a shelf registration of $200,000 of debt securities by SAFECO Corporation and/or SAFECO Credit. SAFECO Credit has issued $149,850 of medium-term notes under this shelf registration. The remaining outstanding notes under this shelf registration have rates ranging from 6.90% to 9.15% and maturities from January 1994 to December 2001. SAFECO Corporation has issued $50,000 of medium-term notes under this shelf registration, with rates ranging from 6.96% to 7.33%, all maturing in 2002 and 2003. No additional notes are to be issued under this shelf registration. The real estate companies and SAFECO Credit enter into interest rate swap agreements to reduce the impact of changes in interest rates on their floating rate debt. At December 31, 1993, interest rate swap agreements were outstanding with notional amounts of $56,989, which replace the floating rates with fixed rates ranging from 4.51% to 9.0%. Maturities of the agreements range from July 1995 to January 2001. There were no swap terminations during 1993. The net interest paid of $3,706 under these agreements was recorded as an adjustment to interest expense as incurred. Substantially all investment real estate and the home office tower are pledged as collateral for real estate mortgages and contracts payable. The total amount, current portions, interest rates and maturities of notes and mortgages payable at December 31 are as follows:
1993 1992 -------------------------------------------------------------- Total Current Total Current - ----------------------------------------------------------------------------------------------------------------------- SAFECO Credit borrowings payable through 2001; 1993 interest rates from 3.2% to 9.15% . . . . . . . . . . . . . . $427,930 $333,780 $403,705 $278,205 ======== ======== ======== ======== Other Notes and Mortgages: Real estate mortgages and contracts payable in installments and medium-term notes payable through 2007; 1993 interest rates from 4.45% to 11.25% . . . . . . . . . . . . . . $238,093 $ 34,982 $167,847 $ 41,141 Unsecured notes and loans payable in installments through 1996; 1993 interest rates from 5.0% to 9.0% . . . . . 52,412 29,096 67,371 64,055 -------- -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . $290,505 $ 64,078 $235,218 $105,196 ======== ======== ======== ========
Aggregate annual principal installments payable under these obligations for each of the five years subsequent to 1993 are as follows: 1994 - $397,858; 1995 - $28,508; 1996 - $62,249; 1997 - $7,626; 1998 - $25,656. 46 27 1993 ANNUAL REPORT 4. REINSURANCE SAFECO's insurance subsidiaries protect themselves from excessive losses by reinsuring on treaty and facultative bases. Reinsurance contracts do not relieve the Corporation from its obligations to policyholders. With respect to the amounts of reinsurance related to the liabilities for losses, adjustment expense, life policies liabilities and unearned premiums, a continuing liability exists, in the event reinsurance companies are unable to meet their obligations. The Corporation evaluates the financial condition of its reinsurers to minimize its exposure to losses from reinsurer insolvencies. SAFECO's insurance subsidiaries have not entered into retrospective reinsurance contracts and have not participated in any unusual or nonrecurring reinsurance transactions such as "swaps" of reserves, portfolio loss transfers or funding covers. FASB Statement 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," was adopted by SAFECO in the first quarter of 1993. Balances affected by reinsurance transactions are now reported gross of reinsurance rather than net in the balance sheet. The adoption of Statement 113 had no effect on SAFECO's net income. Prior period balance sheet amounts have been restated for comparability. The balance sheet caption "Reinsurance Recoverables" is comprised of the following amounts at December 31:
1993 1992 - ---------------------------------------------------------------------------- Property and Casualty Reinsurance recoverables on: Unpaid losses and adjustment expense . . . . . $100,065 $ 89,198 Paid losses and adjustment expense . . . . . . . . . . 11,009 14,994 Life and Health Reinsurance recoverables on: Unpaid losses and adjustment expense (policy and contract claims) . . . . . . 132 404 Paid claims . . . . . . . . . . 1,037 492 Life policy liabilities . . . . . 13,821 11,328 Other reinsurance recoverables and payables . . . . . . . . . . . . . 176 (6,931) -------- -------- Reinsurance recoverables . . . . $126,240 $109,485 ======== ========
The Unearned Premium liability is presented before the effect of reinsurance. The reinsurance amounts related to the unearned premium liability are included with Other Assets in the balance sheet and totaled $52,384 and $45,573 at December 31, 1993 and 1992, respectively. The effects of reinsurance are netted against the insurance revenue and loss amounts in the statement of income. These amounts are as follows:
1993 1992 1991 - -------------------------------------------------------------------------------------------- Property and Casualty ceded earned premiums . . . . . . . . $127,537 $124,352 $192,792 Life and Health ceded earned premiums . . 9,576 9,192 8,809 -------- -------- -------- Total ceded premiums . . . . . . . . . . $137,113 $133,544 $201,601 ======== ======== ======== Property and Casualty ceded losses and adjustment expense . . . . . . . . . $ 54,996 $ 53,087 $191,170 Life and Health ceded policy benefits . . 7,441 6,463 5,948 -------- -------- -------- Total ceded loss, adjustment expense and policy benefits . . . . . . . . . $ 62,437 $ 59,550 $197,118 ======== ======== ========
Reinsurance premiums ceded on a written basis are approximately equal to the ceded earned premiums disclosed above. Reinsurance premiums assumed are insignificant. 5. COMMITMENTS AND CONTINGENCIES SAFECO leases office space, commercial real estate and certain equipment under leases which expire at various dates through 2058. These leases are accounted for as operating leases. Minimum rental commitments for leases in effect at December 31, 1993 are as follows:
Year Payable Minimum Rentals - ----------------------------------------------------------------------- 1994 . . . . . . . . . . . . . . . . . . . . . . $ 6,742 1995 . . . . . . . . . . . . . . . . . . . . . . 5,546 1996 . . . . . . . . . . . . . . . . . . . . . . 3,395 1997 . . . . . . . . . . . . . . . . . . . . . . 2,221 1998 . . . . . . . . . . . . . . . . . . . . . . 1,908 1999 and thereafter . . . . . . . . . . . . . . . 61,693 ------- Total . . . . . . . . . . . . . . . . . . . . $81,505 =======
See Note 4 for discussion relating to reinsurance. 47 28 SAFECO CORPORATION 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) The property and casualty companies have written financial guarantee insurance covering municipal revenue bond issues, real estate partnership borrowings and residual values of certain commercial buildings. The majority of these guarantees were written in the period 1984 through 1987. At December 31, 1993, guarantees totaling $259,401 were outstanding. Substantially all individual guarantees are supported by collateral (first mortgage liens) in the underlying properties. At December 31, 1993, the reserve for losses and loss adjustment expense for this business was $22,120 and the related unearned premium reserve was $2,242. At December 31, 1993, SAFECO Properties, Inc. is the guarantor of $38,500 of outstanding debt financing for a not-for-profit hospital. SAFECO's property and casualty companies have, in turn, guaranteed the full amount of this potential obligation of SAFECO Properties and this amount is included in the guarantee total of $259,401 noted in the paragraph above. The credit risk exposure is limited to any excess of the outstanding debt over the value of the collateral. PROPOSITION 103 In November, 1988, California voters passed Proposition 103, an initiative that, among other things, required property and casualty insurance rates to be rolled back to levels 20% below their 1987 levels for the period November 8, 1988 to November 7, 1989 (Rollback Period). In May 1989 the California Supreme Court upheld as facially constitutional most, but not all, of the provisions of Proposition 103. The Supreme Court held that insurance companies were entitled to have the opportunity to earn a fair and reasonable return. In addition, companies were to have the right to demonstrate through rate filings that the insurance rates used during the Rollback Period met applicable standards and, consequently, did not have to be rolled back. In June 1989 SAFECO made rate filings that demonstrated its rates met the applicable standards, should not be required to be reduced during the Rollback Period and should be approved for use on and after November 8, 1989. In 1990 the California Commissioner of Insurance approved the use of these rates for use on and after November 8, 1989. The Department refused, however, to review these filings for purposes of determining whether SAFECO had a rollback obligation. Instead, the Department insisted on calculating rate rollback obligations based on the financial results of SAFECO for calendar year 1989. While over time the Department used several different approaches, in October 1991 the Department alleged SAFECO had a rollback obligation of $88.7 million plus interest. SAFECO consistently contested the Department's approach concerning the rollback matter in rate hearings and related litigation from 1989 through August 1993. By 1993 SAFECO was engaged in appeals of two separate lawsuits with the Department. In August 1993, having concluded the courts would not force the Department to review rate filings in connection with the rollback matter and in order to end four years of proceedings and avoid future years of such proceedings, SAFECO agreed to withdraw from the two appeals and to pay $40 million to policyholders who purchased or renewed policies covered by Proposition 103 during the Rollback Period and who had not otherwise been paid a rollback refund. This $40 million settlement, $0.41 per share on an after-tax basis, was reflected in the financial results for the third quarter and paid in the fourth quarter of 1993. The settlement payment equates to one hundred eleven dollars per policy. 6. FAIR VALUE DISCLOSURES The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FASB Statement 107, "Disclosures about Fair Value of Financial Instruments." Estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required in developing the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimating methodologies may have a material effect on the estimated fair value amounts. For cash, short-term investments, accounts receivable, policy loans and other liabilities, carrying value is a reasonable estimate of fair value. Fair value information for SAFECO's investments in fixed maturities and marketable equity securities, which is the same as market value, can be found on the face of the balance sheet on page 32 and in Note 2. Market value generally represents quoted market prices for securities traded in the public marketplace or analytically determined values for securities not publicly traded. The fair values of mortgage and commercial loans have been estimated by discounting the projected cash flows using the current rate at which loans would be made to borrowers with similar credit ratings and for the same maturities. 48 29 1993 ANNUAL REPORT Commercial loans are a component of "Finance Receivables" in the balance sheet. Finance Receivables also include lease receivables, which are exempt from Statement 107 disclosure requirements. The fair value of investment contracts (Funds Held Under Deposit Contracts) with defined maturities is estimated by discounting projected cash flows using rates that would be offered for similar contracts with the same remaining maturities. For investment contracts with no defined maturities, fair value is estimated to be the present surrender value. The carrying values of the SAFECO Credit and Other Notes and Mortgages borrowings that have variable interest rates are reasonable estimates of fair value. For these borrowings that have fixed interest rates, fair value is estimated by discounting the projected cash flows using the rate at which similar borrowings could currently be made. The fair value of the 10.75% Notes Due 1995 is estimated based on quotes from broker-dealers who make markets in similar securities. The fair value of interest rate swaps (see Note 3) is the difference between the present value of SAFECO's future interest obligations at the stated (fixed) rate and the counterparties' obligations at the floating rates. The estimated present value of SAFECO's obligations under the swaps exceeded the counterparties' by $3,000 at December 31, 1993 and by $5,000 at December 31, 1992. The estimated fair value of the property and casualty companies' financial guaranty business (see Note 5) was approximately $24,000 at both December 31, 1993 and 1992. These amounts equal the total of the recorded reserves for losses and loss adjustment expense and unearned premiums at December 31, 1993 and 1992. Other insurance-related financial instruments are exempt from Statement 107 disclosure requirements. Estimated fair values of financial instruments at December 31 are as follows:
1993 1992 ------------------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - --------------------------------------------------------------------------------------------------------------- Financial assets: Mortgage loans ................................... $ 402,138 $ 437,000 $ 391,108 $ 405,000 Commercial loans ................................. 368,735 370,000 333,279 342,000 Financial liabilities: Funds held under deposit contracts ............... 7,229,439 7,531,000 6,382,655 6,429,000 Credit Company borrowings ........................ 427,930 438,000 403,705 410,000 10.75% notes due 1995 ............................ 200,000 220,000 200,000 224,000 Other notes and mortgages ........................ 290,505 297,000 235,218 236,000
7. COMMON STOCK Changes in common stock outstanding for the last three years are as follows:
1993 1992 1991 - --------------------------------------------------------------------------------------------------------------- Number of shares outstanding at the beginning of year ........... 62,815,265 62,748,014 62,721,616 Shares reacquired ............................................... (69,872) (233,777) (142,885) Shares issued for stock options and rights ...................... 152,393 301,028 169,283 Shares issued for acquisition of subsidiary ..................... 33,776 - - ---------- ---------- ---------- Number of shares outstanding at the end of year ................. 62,931,562 62,815,265 62,748,014 ========== ========== ==========
49 30 SAFECO CORPORATION 8. STOCK INCENTIVE PLAN The SAFECO Incentive Plan of 1987 provides for the issuance of up to 2,400,000 shares of SAFECO Corporation common stock. Stock options, stock appreciation rights, restricted stock rights and performance stock rights are authorized under the Plan. Stock options are granted at exercise prices not less than the fair market value of the stock on the date of grant. The terms and conditions upon which options become exercisable may vary among grants; however, option rights expire no later than ten years from the date of grant. Changes in stock options for the three years ended December 31, 1993 are as follows:
Outstanding Options - ------------------------------------------------------------------------- Shares Price per Share ------------------------------ Balance December 31, 1990 . . . . . 1,216,060 $ 8.06 - $38.50 Granted. . . . . . . . . . . . . 127,500 38.00 - 39.38 Exercised. . . . . . . . . . . . (232,284) 8.06 - 35.50 Canceled. . . . . . . . . . . . (6,500) 24.50 - 38.50 --------- ------ ------ Balance December 31, 1991 . . . . . 1,104,776 8.06 - 39.38 Granted. . . . . . . . . . . . . 141,400 46.63 - 56.38 Exercised. . . . . . . . . . . . (293,790) 8.06 - 38.50 Canceled. . . . . . . . . . . . . (23,550) 26.00 - 38.75 --------- ------ ------ Balance December 31, 1992 . . . . . 928,836 14.34 - 56.38 Granted. . . . . . . . . . . . . 137,600 56.50 - 63.50 Exercised. . . . . . . . . . . . (147,705) 14.34 - 39.38 Canceled. . . . . . . . . . . . (4,500) 28.63 - 39.25 --------- ------ ------ Balance December 31, 1993. . . . . . 914,231 $14.50 - $63.50 ========= ====== ====== Exercisable at December 31, 1993 440,394 $14.50 - $63.50 ========= ====== ======
Stock appreciation rights have been granted in tandem with certain options. Stock appreciation rights provide stock option holders the right to receive payment in cash and/or stock equal to the appreciation in value of the optioned stock from the date of grant, in lieu of exercise of stock options held. Shares exercised during 1993, 1992 and 1991 include 500, 2,400 and 69,060, respectively, which were surrendered under the Plan to exercise stock appreciation rights. During 1993, 1992 and 1991, $21, $114, and $406, respectively, were charged to operations for the compensation element of stock appreciation rights. Restricted stock rights provide for the holder to receive a stated number of share rights if the holder remains in the employ of the Corporation for a stated number of years. Matured rights are issued in stock and/or paid in cash at the option of the holder. During 1993, 1992 and 1991, $1,436, $1,383 and $2,494, respectively, were charged to operations for the compensation element of restricted stock rights. Changes in restricted stock rights for the three years ended December 31, 1993 are as follows:
Share Rights - ------------------------------------------------------- Balance December 31, 1990 . . . . 63,430 Awarded . . . . . . . . . . . 23,250 Matured . . . . . . . . . . . (22,900) Canceled . . . . . . . . . . (893) ------- Balance December 31, 1991 . . . . 62,887 Awarded . . . . . . . . . . . 18,450 Matured . . . . . . . . . . . (24,550) Canceled . . . . . . . . . . (2,245) ------- Balance December 31, 1992 . . . . 54,542 Awarded . . . . . . . . . . . 16,100 Matured . . . . . . . . . . . (25,511) Canceled . . . . . . . . . . (713) ------- Balance December 31, 1993 . . . . 44,418 =======
There were 1,224,179 shares of common stock reserved for future options and rights at December 31, 1993. No performance stock rights have been awarded. 9. STATUTORY INFORMATION The insurance subsidiaries are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). Statutory net income differs from net income reported in accordance with generally accepted accounting principles primarily because policy acquisition costs are expensed when incurred, life insurance reserves are based on different assumptions and income tax expense reflects only taxes paid or currently payable. Statutory net income and equity are as follows:
Statutory Net Income 1993 1992 1991 - ----------------------------------------------------------------------------------------- Property and Casualty . . . . . . . . . . $283,605 $206,729 $172,683 Life and Health . . . . . . . . . . . . . 19,141 30,629 45,155
December 31 Statutory Stockholder's Equity 1993 1992 - ------------------------------------------------------------------------- Property and Casualty . . . . . . . . . . $1,557,360 $1,421,374 Life and Health . . . . . . . . . . . . . 382,878 365,124
50 31 1993 ANNUAL REPORT 10. DIVIDEND RESTRICTIONS The insurance subsidiaries are restricted by certain states as to the amount of dividends they may pay to their parent without regulatory consent. In addition, dividend payments by certain other subsidiaries are limited by agreements with lenders which have provided financing for those subsidiaries. The amount of subsidiary retained earnings available for the payment of dividends to SAFECO Corporation without prior regulatory or lender approval approximated $337,053 at December 31, 1993. 11. EMPLOYEE BENEFIT PLANS The Corporation administers defined contribution, defined benefit and profit sharing bonus plans covering substantially all employees. The defined contribution plans include profit sharing retirement plans and a savings plan. Benefits are earned under the defined benefit plan for each year of service after 1988, based on the employee's compensation level plus a stipulated rate of return on the benefit balance. It is the Corporation's policy to fund the defined benefit plan on a current basis to the full extent deductible under federal income tax regulations. Included in the amounts below are $4,987, $5,181 and $4,727 of contributions to the defined benefit plan for 1993, 1992 and 1991, respectively. These contributions approximate the accrual expense for each year. The cost of all plans charged to income is as follows:
1993 1992 1991 - ---------------------------------------------------------------------------- Property and Casualty . . . . $42,623 $35,102 $24,835 Life and Health . . . . . . . 8,592 7,150 5,162 Real Estate . . . . . . . . . 1,807 2,154 2,585 All Others . . . . . . . . . 2,166 1,541 1,048 ------- ------- ------- Total . . . . . . . . . $55,188 $45,947 $33,630 ======= ======= =======
In addition, SAFECO provides certain healthcare and life insurance benefits ("other postretirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Corporation. The costs of these benefits is shared by SAFECO and the retiree. Effective January 1, 1993, SAFECO adopted FASB Statement 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Under Statement 106, the Corporation now accrues for other postretirement benefits during the years that employees provide services. Prior to adoption of Statement 106 other postretirement benefits were accounted for on the pay-as-you-go (cash) basis. The transition obligation (i.e., the accumulated postretirement benefit obligation) of $23,751 was recorded as a cumulative effect adjustment in the first quarter of 1993 which net of tax resulted in a reduction of net income of $15,676. Components of the net periodic other postretirement benefit cost for the year ended December 31, 1993 are as follows: - ----------------------------------------------------------------------- Service cost - benefits earned during the period . . . . . . . . $ 880 Interest cost on accumulated postretirement benefit obligation . 1,861 Actual return on plan assets . . . . . . . . . . . . . . . . . . 24 Net amortization and deferral . . . . . . . . . . . . . . . . . (24) ------ Net periodic postretirement benefit cost . . . . . . . . . $2,741 ======
Under the cash basis of accounting for these other postretirement benefits, the expense was $690 and $714, for 1992 and 1991, respectively. The following table summarizes the funded status of the plan:
December 31, January 1, 1993 1993 - ----------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO): Retirees . . . . . . . . . . . . . . . . . . . . $10,115 $10,138 Fully eligible active plan participants. . . . . 4,646 5,129 Other active plan participants . . . . . . . . . 9,972 8,484 ------- -------- Total APBO . . . . . . . . . . . . . . . . . . 24,733 23,751 Less plan assets at fair value . . . . . . . . . . . . 420 - ------- ------- Funded status. . . . . . . . . . . . . . . . . . . . . 24,313 23,751 Unrecognized gain . . . . . . . . . . . . . . . . . . 1,056 - ------- ------- Accrued postretirement benefit cost recorded in the balance sheet . . . . . . . . . . . $25,369 $23,751 ======= =======
Actuarial assumptions used to determine 1993 costs and benefit obligations at January 1, 1993 include a discount rate of 8% and a healthcare cost trend rate of 13% for 1994, declining by one percent per year to 7% and remaining at that level thereafter. The accumulated postretirement benefit obligation at December 31, 1993 was determined using a discount rate of 7-1/2% and a healthcare cost trend rate of 12% for 1995, declining by one percent per year to 7% and remaining at that level thereafter. A one percentage point increase in the assumed healthcare cost trend rate for each year would increase the accumulated other postretirement benefit obligation as of December 31, 1993 by $3,185 and the annual net periodic other postretirement benefit cost for the year then ended by $425. 51 32 SAFECO CORPORATION 12. RENT CHARGED TO OPERATIONS The amount of rent charged to operations is as follows:
1993 1992 1991 - ---------------------------------------------------------------------------- Property and Casualty. . . . . . . . . $5,823 $5,916 $4,989 Real Estate . . . . . . . . . . . . . 1,257 1,446 1,639 All Others . . . . . . . . . . . . . . 1,225 1,202 1,156 ------ ------ ------ Total . . . . . . . . . . . . . $8,305 $8,564 $7,784 ====== ====== ======
13. REAL ESTATE COMPANIES' LEASED PROPERTIES The real estate companies receive rental income, principally from shopping centers, under leases which expire at various dates through 2047. These leases are accounted for as operating leases. Minimum future rentals from leases in effect at December 31, 1993 are as follows:
Year Receivable Amount - ------------------------------------------ 1994 . . . . . . . . . . . . . $ 35,478 1995 . . . . . . . . . . . . . 32,702 1996 . . . . . . . . . . . . . 29,926 1997 . . . . . . . . . . . . . 27,205 1998 . . . . . . . . . . . . . 24,406 1999 and thereafter . . . . . 140,419 -------- Total . . . . . . . . . $290,136 ========
These amounts do not include contingent rentals that are based on a percentage of sales in excess of stipulated minimums or increases in the Consumer Price Index. Contingent rentals included in revenue were $4,976, $5,693 and $5,910 in 1993, 1992 and 1991, respectively. The real estate companies' investment in rental property and related accumulated depreciation is as follows:
December 31 1993 1992 - ---------------------------------------------------------------------- Shopping centers . . . . . . . . . $286,891 $229,973 Healthcare facilities . . . . . . 18,110 25,923 Other . . . . . . . . . . . . . . 41,958 51,287 -------- -------- 346,959 307,183 Less accumulated depreciation . . 87,083 86,403 -------- -------- Total . . . . . . . . . . . $259,876 $220,780 ======== ========
14. SUBSEQUENT EVENT On January 17, 1994 a severe earthquake struck Southern California. Based on claims information available as of the date of this report, SAFECO expects its losses to exceed $50 million, the threshold at which the Corporation's reinsurance coverage begins. Under SAFECO's catastrophe reinsurance program, it is reimbursed for 90% of the losses between $50 million and $200 million. To date, approximately 6,100 claims have been reported. Because of the extensive damage to communications and transportation systems in the earthquake area, and the time it takes to complete accurate surveys and inventories on homes and businesses damaged in earthquakes, it will be some time before a reasonable estimate of SAFECO's losses can be made. The loss will be recorded in the first quarter of 1994. 15. INCOME TAXES As of January 1, 1993, SAFECO adopted the liability method of accounting for income taxes pursuant to FASB Statement 109, "Accounting for Income Taxes." This accounting change was implemented through a cumulative effect adjustment which reduced the net deferred tax liability (and increased net income in the first quarter of 1993) by $18,553. Prior year financial statements and related disclosures which follow the guidelines provided in APB 11 were not restated. Differences between income tax computed by applying the U.S. Federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income before income taxes and the consolidated provision for Federal and Canadian income taxes are as follows:
1993 1992 1991 - ----------------------------------------------------------------------------- Computed "expected" tax expense . . . . . $201,928 $137,107 $107,887 Tax-exempt municipal bond income . . . . (55,139) (47,906) (43,276) Dividends received deduction . . . . . . (11,031) (9,908) (10,200) Proration adjustment . . . . . . . . . . 5,137 3,593 2,400 "Fresh start" adjustment for discounting of losses and adjustment expense - 1986 Tax Reform Act . . . . . . . . . . - - (3,080) Federal tax rate change . . . . . . . . . 4,151 - - Other . . . . . . . . . . . . . . . . . . 5,990 9,077 4,005 -------- -------- -------- Consolidated provision for Federal and Canadian income taxes . . . . . . $151,036 $ 91,963 $ 57,736 ======== ======== ========
52 33 1993 ANNUAL REPORT The tax effects of temporary differences which give rise to the deferred tax assets and deferred tax liabilities at December 31, 1993 and January 1, 1993, the date of adoption of Statements 109 and 106, are as follows:
December 31, January 1, 1993 1993 - ----------------------------------------------------------------------------------------- Deferred tax assets: Discounted loss and adjustment expense reserves . . . $121,406 $116,334 Unearned premium reserve. . . . . . . . . . . . . . . 52,993 46,688 Adjustment to life policy liabilities . . . . . . . . 7,838 - Capitalization of policy acquisition costs - 1990 Tax Act . . . . . . . . . . . . . . . 14,105 9,370 Postretirement benefits . . . . . . . . . . . . . . . 8,879 8,075 Realized capital gains. . . . . . . . . . . . . . . . 7,406 14,526 Other . . . . . . . . . . . . . . . . . . . . . . . . 30,500 30,710 -------- -------- Total deferred tax assets . . . . . . . . . . . 243,127 225,703 -------- -------- Deferred tax liabilities: Deferred policy acquisition costs . . . . . . . . . . 128,556 117,675 Bond discount accrual . . . . . . . . . . . . . . . . 16,673 20,699 Accelerated depreciation. . . . . . . . . . . . . . . 42,314 36,754 Adjustment to life policy liabilities . . . . . . . . - 23,653 Real estate development expenses capitalized . . . . 13,173 12,539 Unrealized appreciation of marketable equity securities . . . . . . . . . . . . . . . . 138,990 131,976 Other . . . . . . . . . . . . . . . . . . . . . . . . 21,348 19,587 -------- -------- Total deferred tax liabilities . . . . . . . . . 361,054 362,883 -------- -------- Net deferred tax liability . . . . . . . . . . . $117,927 $137,180 ======== ========
The deferred tax benefit of $21,903 for 1993 represents the decrease in the net deferred tax liability of $19,253 excluding an increase of $2,980 related to unrealized appreciation of marketable equity securities and a decrease of $330 related to the unrealized gain from foreign currency translation which are reported in stockholders' equity. Under APB 11 deferred tax expense (benefit) resulted from timing differences in the recognition of revenue and expense for tax and financial statement purposes. For 1992 and 1991, the sources of these differences and the tax effect of each were as follows:
1992 1991 - ----------------------------------------------------------------------------------------- Discounted loss and adjustment expense reserves . . . . . $ (9,045) $ (8,886) Bond discount accrual . . . . . . . . . . . . . . . . . . 4,536 2,794 Deferred policy acquisition costs . . . . . . . . . . . . 12,130 6,629 Unearned premium reserve. . . . . . . . . . . . . . . . . (10,590) (5,630) Salvage and subrogation reserves. . . . . . . . . . . . . 1,318 (567) Adjustment to life policy liabilities . . . . . . . . . . (27,393) (4,720) Capitalization of policy acquisition costs - 1990 Tax Act . . . . . . . . . . . . . . . . (4,162) (4,202) Accelerated depreciation. . . . . . . . . . . . . . . . . 1,813 674 Real estate development expense capitalized . . . . . . . (2,515) 764 Realized capital gains. . . . . . . . . . . . . . . . . . (6,468) (12,991) Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,524 3,450 -------- -------- Deferred tax benefit . . . . . . . . . . . . . . $(33,852) $(22,685) ======== ========
53 34 SAFECO CORPORATION 16. SEGMENT DATA
Under- Capital Investment Realized writing Identifiable Expen- Revenues Income Gain (Loss) Profit (Loss) Net Income* Assets ditures - ----------------------------------------------------------------------------------------------------------------------------- (In Thousands) 1993 Property and Casualty: Personal. . . . . . . . . . $1,400,705 $ 6,252 $ 294,597 Commercial and Surety . . . 529,009 3,596 213,898 ---------- --------- Total. . . . . . . . . 1,929,714 $277,643 $114,561 $ 9,848 $283,429** 5,014,606 $26,320 ---------- -------- -------- ========= ----------- Life and Health: Financial Services. . . . . 44,156 390,550 61,486 5,052,710 Employee Benefits . . . . . 261,807 277,608 (7,942) 3,555,151 ---------- -------- -------- ----------- Total . . . . . . . . 305,963 668,158 53,544 118,702 8,607,861 486 ---------- -------- -------- ----------- Real Estate. . . . . . . . . . 78,252 8,126 14,574 517,411 47,363 Other and Eliminations . . . . 63,311 5,994 11,418 12,073 667,413 69 ---------- -------- -------- -------- ----------- ------- Consolidated Totals. . $2,377,240 $951,795 $187,649 $428,778 $14,807,291 $74,238 ========== ======== ======== ======== =========== ======= 1992 Property and Casualty: Personal . . . . . . . . . $1,258,893 $ (37,712) $ 265,987 Commercial and Surety . . . 495,567 (34,310) 172,509 ---------- --------- Total . . . . . . . . 1,754,460 $280,820 $ 54,622 $ (72,022) $223,659 4,745,518 $22,273 ---------- -------- -------- ========= ----------- Life and Health: Financial Services. . . . . 40,511 344,970 11,281 4,257,512 Employee Benefits . . . . . 288,005 278,614 (7,904) 3,356,978 ---------- -------- -------- ----------- Total . . . . . . . . 328,516 623,584 3,377 77,802 7,614,490 214 ---------- -------- -------- ----------- Real Estate. . . . . . . . . . 187,172 (6) 5,354 463,872 23,771 Other and Eliminations . . . . 60,953 (1,356) 2,596 4,479 567,229 553 ---------- -------- -------- -------- ----------- ------- Consolidated Totals. . $2,331,101 $903,048 $ 60,589 $311,294 $13,391,109 $46,811 ========== ======== ======== ======== =========== ======= 1991 Property and Casualty: Personal. . . . . . . . . . $1,161,879 $ (80,052) $ 232,270 Commercial and Surety . . . 474,781 (61,069) 160,995 ---------- --------- Total. . . . . . . . . 1,636,660 $286,073 $ 56,981 $(141,121) $183,202 4,433,058 $20,664 ---------- -------- -------- ========= ----------- Life and Health: Financial Services. . . . . 36,135 303,560 5,839 3,643,790 Employee Benefits . . . . . 296,576 253,885 (33,087) 3,038,523 ---------- -------- -------- ----------- Total. . . . . . . . . 332,711 557,445 (27,248) 61,713 6,682,313 752 ---------- -------- ------- ----------- Real Estate. . . . . . . . . . 274,387 (460) 5,297 583,156 24,755 Other and Eliminations . . . . 57,728 3,249 5,412 9,366 415,417 226 ---------- -------- -------- -------- ----------- ------- Consolidated Totals . . $2,301,486 $846,767 $ 34,685 $259,578 $12,113,944 $46,397 ========== ======== ======== ======== =========== =======
Property and casualty companies' investments are available for payments of claims and benefits for all product lines within the segments; therefore, such investments and the related investment income and realized gains have not been identified with specific segments. In the life and health companies, a major portion of investment income, realized gains and assets is specially identifiable within an industry segment. The remainder of these amounts has been allocated in proportion to the mean policy reserves and liabilities identified with each segment. *1993 Net Income amounts include cumulative effect of accounting changes (FASB Statements 106 and 109). **1993 Property and Casualty Net Income includes a charge of $40,000 ($26,000 after tax) for the Proposition 103 settlement. 54 35 1993 ANNUAL REPORT 17. INTERIM FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter Annual - -------------------------------------------------------------------------------------------- (In Thousands) Revenues: 1993 . . . . . . . . . . . . . $837,296 $874,989 $897,015 $907,384 $3,516,684 1992 . . . . . . . . . . . . . 833,917 827,551 808,119 825,151 3,294,738 1991 . . . . . . . . . . . . . 796,671 771,683 784,542 830,042 3,182,938 Income Before Realized Gain:* 1993 . . . . . . . . . . . . . $ 55,304 $ 93,168 $ 61,593 $ 96,921 $ 306,986 1992 . . . . . . . . . . . . . 78,689 30,386 71,239 91,235 271,549 1991 . . . . . . . . . . . . . 54,166 50,932 64,857 66,962 236,917 Realized Gain:* 1993 . . . . . . . . . . . . . $ 17,200 $ 36,183 $ 32,197 $ 33,335 $ 118,915 1992 . . . . . . . . . . . . . 6,340 11,760 8,910 12,735 39,745 1991 . . . . . . . . . . . . . 1,142 264 3,453 17,802 22,661 Net Income:** 1993 . . . . . . . . . . . . . $ 75,381 $129,351 $ 93,790 $130,256 $ 428,778 1992 . . . . . . . . . . . . . 85,029 42,146 80,149 103,970 311,294 1991 . . . . . . . . . . . . . 55,308 51,196 68,310 84,764 259,578 (Per Share) Income Before Realized Gain:* 1993 . . . . . . . . . . . . . $ .88 $ 1.48 $ .98 $ 1.54 $ 4.88 1992 . . . . . . . . . . . . . 1.25 .48 1.14 1.46 4.33 1991 . . . . . . . . . . . . . .86 .82 1.03 1.07 3.78 Realized Gain:* 1993 . . . . . . . . . . . . . $ .27 $ .58 $ .51 $ .53 $ 1.89 1992 . . . . . . . . . . . . . .10 .19 .14 .20 .63 1991 . . . . . . . . . . . . . .02 - .06 .28 .36 Net Income:** 1993 . . . . . . . . . . . . . $ 1.20 $ 2.06 $ 1.49 $ 2.07 $ 6.82 1992 . . . . . . . . . . . . . 1.35 .67 1.28 1.66 4.96 1991 . . . . . . . . . . . . . .88 .82 1.09 1.35 4.14 Dividends Paid: 1993 . . . . . . . . . . . . . $ .41 $ .41 $ .45 $ .45 $ 1.72 1992 . . . . . . . . . . . . . .37 .37 .41 .41 1.56 1991 . . . . . . . . . . . . . .34 .34 .37 .37 1.42 Market Price Range:*** 1993 - High. . . . . . . . . . $ 66-1/2 $ 66-1/8 $ 65-1/4 $ 65-3/8 $ 66-1/2 - Low . . . . . . . . . . 56-7/8 54-7/8 58-1/4 54 54 1992 - High. . . . . . . . . . 49-7/8 51-3/4 54-1/4 59-1/8 59-1/8 - Low . . . . . . . . . . 45 42-3/8 48-1/2 52-1/8 42-3/8
*Amounts are net of income tax. **Includes cumulative effect of adoption of FASB Statements 106 and 109. Both of these new accounting standards were adopted in the first quarter of 1993. The combined effect on net income was an increase of $2,877 or $0.05 per share. ***SAFECO Corporation common stock is traded on the NASDAQ. 55 36 SAFECO CORPORATION SUMMARY OF GROWTH
(In Thousands Except Per Share Amounts) 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- SUMMARY OF CONTINUING OPERATIONS Income (Loss), Net of Income Taxes, Before Realized Gain: Property and Casualty . . . . . . . . . . . . . . . . . . . . . . . . . $ 217,187 $ 187,144 $ 145,421 Life and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,903 75,600 79,705 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,136 6,040 5,850 Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,439 6,140 6,396 Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,255 4,261 3,397 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,934) (7,636) (3,852) ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,986 271,549 236,917 Realized Gain, Net of Income Taxes . . . . . . . . . . . . . . . . . . . 118,915 39,745 22,661 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . 2,877 - - ---------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 428,778 $ 311,294 $ 259,578 ========== ========== ========== STATISTICS PER SHARE OF COMMON STOCK* Primary Net Income from Continuing Operations: Income Before Realized Gain . . . . . . . . . . . . . . . . . . . . . $ 4.88 $ 4.33 $ 3.78 Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.89 .63 .36 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . .05 - - Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.82 4.96 4.14 Average Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 62,879 62,792 62,739 Fully Diluted Net Income from Continuing Operations: Income Before Realized Gain . . . . . . . . . . . . . . . . . . . . . . 4.85 4.29 3.75 Realized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.88 .63 .35 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . .05 - - Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.78 4.92 4.10 Average Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 63,233 63,239 63,255 Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.72 1.56 1.42 Market Price: High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 1/2 59 1/8 48 3/4 Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 42 3/8 31 1/4 Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 57 1/4 48 3/4 Stockholders' Equity: Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.09 38.97 35.40 With Securities at Market Value, Net of Tax . . . . . . . . . . . . . . 56.94 47.84 43.83 REVENUES FROM CONTINUING OPERATIONS (EXCLUDING REALIZED GAINS) Insurance: Property and Casualty . . . . . . . . . . . . . . . . . . . . . . . . . $2,134,512 $1,937,090 $1,830,199 Life and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305,963 328,516 332,711 Net Investment Income (Excluding realized gain or loss): Property and Casualty . . . . . . . . . . . . . . . . . . . . . . . . . 277,643 280,820 286,073 Life and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668,158 623,584 557,445 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,994 (1,356) 3,249 Real Estate (Excluding realized gain or loss) . . . . . . . . . . . . . . 78,252 187,172 274,387 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,046 51,327 54,371 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,250 13,057 10,794 ---------- ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,537,818 $3,420,210 $3,349,229 ========== ========== ==========
*Per share amounts are adjusted for stock dividends and stock splits. 56 37 1993 ANNUAL REPORT
1990 1989 1988 1987 1986 1985 1984 1983 - ------------------------------------------------------------------------------------------------------------------------ $ 183,666 $ 188,928 $ 191,443 $ 175,093 $ 99,098 $ 52,342 $ 47,742 $ 79,513 77,626 70,911 44,714 33,944 48,511 48,141 52,460 21,319 6,139 669 (8,142) (7,420) 2,756 1,554 3,483 5,038 4,476 4,009 3,509 2,420 3,305 3,956 3,664 3,852 3,016 2,545 2,021 1,493 615 125 (306) (448) (3,177) (3,346) 1,304 4,772 3,633 10,581 13,966 13,753 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 271,746 263,716 234,849 210,302 157,918 116,699 121,009 123,027 6,663 36,501 33,786 42,708 66,037 46,220 6,844 5,906 - - - - - - - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 278,409 $ 300,217 $ 268,635 $ 253,010 $ 223,955 $ 162,919 $ 127,853 $ 128,933 ========== ========== ========== ========== ========== ========== ========== ========== $ 4.31 $ 4.17 $ 3.59 $ 3.12 $ 2.34 $ 1.62 $ 1.63 $ 1.64 .10 .58 .51 .63 .98 .65 .09 .08 - - - - - - - - 4.41 4.75 4.10 3.75 3.32 2.27 1.72 1.72 63,119 63,192 65,450 67,465 67,402 71,928 74,462 74,883 4.29 4.14 3.58 3.09 2.32 1.61 1.62 1.63 .10 .57 .51 .63 .97 .64 .09 .08 - - - - - - - - 4.39 4.71 4.09 3.72 3.29 2.25 1.71 1.71 63,466 63,722 65,756 67,984 68,056 72,604 74,944 75,260 1.28 1.14 1.02 .90 1/2 .82 1/2 .77 1/2 .70 .60 42 1/8 39 1/4 29 1/2 38 31 7/8 23 1/4 17 1/2 15 25 3/8 23 1/4 23 24 5/8 22 3/4 15 1/2 13 3/8 11 3/8 32 7/8 35 5/8 23 5/8 27 3/4 26 1/2 23 1/4 16 1/2 13 3/4 31.50 29.27 24.87 21.39 19.68 16.44 14.40 13.88 33.14 33.15 27.08 22.87 25.22 19.50 14.66 13.55 $1,792,836 $1,696,940 $1,627,861 $1,545,922 $1,479,533 $1,246,206 $1,031,156 $ 925,979 311,961 274,275 264,974 240,423 232,667 243,374 228,443 197,406 283,248 263,415 220,496 179,837 151,959 127,668 112,397 105,449 476,177 391,876 296,233 233,837 189,363 144,586 103,108 75,992 5,348 14,670 20,245 22,573 20,833 18,373 15,977 15,856 254,718 246,216 223,190 195,900 216,082 208,527 176,188 156,585 45,193 38,665 34,290 30,767 30,414 30,039 31,352 27,902 9,009 8,322 7,166 6,708 4,087 2,489 1,745 14,617 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $3,178,490 $2,934,379 $2,694,455 $2,455,967 $2,324,938 $2,021,262 $1,700,366 $1,519,786 ========== ========== ========== ========== ========== ========== ========== ==========
57 38 SAFECO CORPORATION SUMMARY OF GROWTH (CONTINUED)
(In Thousands Except Ratios) 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- PREMIUMS BY MAJOR CLASSES OF PROPERTY AND CASUALTY INSURANCE Personal Auto . . . . . . . . . . . . . . . . . . . . . . . . . $ 977,105 $ 907,016 $ 805,826 Homeowners . . . . . . . . . . . . . . . . . . . . . . . . . . 362,419 310,841 271,531 Other Personal . . . . . . . . . . . . . . . . . . . . . . . . 126,353 109,063 92,628 --------- --------- --------- Total Personal . . . . . . . . . . . . . . . . . . . . . 1,465,877 1,326,920 1,169,985 Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . 544,162 491,942 450,744 Surety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,245 79,714 79,077 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,228 38,478 47,507 Total Canada . . . . . . . . . . . . . . . . . . . . . . . . . - 36 82,886 --------- ---------- ---------- Gross Premiums Written . . . . . . . . . . . . . . . . . . . . 2,134,512 1,937,090 1,830,199 Ceded Reinsurance Premiums . . . . . . . . . . . . . . . . . . 134,347 116,645 200,489 ---------- ---------- ---------- Net Premiums Written . . . . . . . . . . . . . . . . . . . . . $2,000,165 $1,820,445 $1,629,710 ========== ========== ========== OPERATING RATIOS OF PROPERTY AND CASUALTY INSURANCE Ratios to Earned Premiums (GAAP Basis): Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.21% 63.93% 67.81% Adjustment Expense . . . . . . . . . . . . . . . . . . . . . 9.78 10.55 10.72 Underwriting Expenses . . . . . . . . . . . . . . . . . . . 28.43 28.72 29.33 Dividends to Policyholders . . . . . . . . . . . . . . . . . 1.07 .91 .76 --------- --------- ---------- Combined Losses and Expenses . . . . . . . . . . . . . . . . 99.49% 104.11% 108.62% ========= ========= ========== Premiums Written to Policyholders' Surplus . . . . . . . . . . 1.3:1 1.3:1 1.4:1 PRE-TAX INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE REALIZED GAIN Property and Casualty: Underwriting . . . . . . . . . . . . . . . . . . . . . . . . $ 9,848 $(72,022) $(141,121) Investment . . . . . . . . . . . . . . . . . . . . . . . . . 277,643 280,820 286,073 Proposition 103 Settlement . . . . . . . . . . . . . . . . . (40,000) - - Life and Health . . . . . . . . . . . . . . . . . . . . . . . . 125,306 123,604 124,109 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 10,079 8,389 8,525 Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,190 9,036 9,489 Asset Management . . . . . . . . . . . . . . . . . . . . . . . 6,539 6,503 5,179 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,317) (13,662) (9,625) -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . $389,288 $342,668 $282,629 ======== ======== ======== STOCKHOLDERS' EQUITY Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . $2,774,391 $2,448,147 $2,221,134 With Securities at Market, Net of Tax . . . . . . . . . . . . . 3,583,482 3,005,382 2,750,453 LONG-TERM DEBT FROM CONTINUING OPERATIONS . . . . . . . . . . . 600,209 504,638 523,557 TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 14,807,291 13,391,109 12,113,944
58 39 1993 ANNUAL REPORT
1990 1989 1988 1987 1986 1985 1984 1983 - ------------------------------------------------------------------------------------------------------------------------------- $ 717,584 $ 644,765 $ 595,969 $ 549,267 $ 519,473 $ 452,476 $ 399,322 $ 370,296 239,550 222,539 219,042 214,102 207,097 199,739 193,800 191,270 82,642 74,060 71,115 68,086 64,646 59,996 47,995 46,094 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,039,776 941,364 886,126 831,455 791,216 712,211 641,117 607,660 464,328 480,633 483,918 463,823 448,872 328,942 202,761 156,438 75,927 77,195 69,817 62,472 60,594 49,435 40,590 34,159 39,128 38,885 35,163 31,949 26,968 20,131 16,570 16,051 173,677 158,863 152,837 156,223 151,883 135,487 130,118 111,671 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,792,836 1,696,940 1,627,861 1,545,922 1,479,533 1,246,206 1,031,156 925,979 104,804 101,428 109,921 108,177 108,751 72,628 50,096 38,403 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $1,688,032 $1,595,512 $1,517,940 $1,437,745 $1,370,782 $1,173,578 $ 981,060 $ 887,576 ========== ========== ========== ========== ========== ========== ========== ========== 65.50% 63.13% 58.05% 56.58% 61.88% 66.43% 65.98% 59.02% 11.67 9.99 11.94 13.84 13.25 12.12 10.54 9.94 29.24 29.31 29.38 30.25 30.25 31.44 33.28 33.67 .75 .88 .97 .72 .65 .56 .42 .45 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 107.16% 103.31% 100.34% 101.39% 106.03% 110.55% 110.22% 103.08% ========== ========== ========== ========== ========== ========== ========== ========== 1.6:1 1.5:1 1.8:1 2.1:1 2.2:1 2.4:1 2.4:1 1.8:1 $ (119,173) $ (52,243) $ (5,084) $ (19,698) $ (77,568) $ (115,975) $ (96,363) $ (26,875) 283,248 263,415 220,496 179,837 151,959 127,668 112,397 105,449 - - - - - - - - 118,486 106,906 67,967 56,316 76,704 76,109 58,560 29,777 9,123 884 (12,494) (10,805) 6,020 2,110 7,707 8,670 6,815 6,031 5,050 3,341 4,637 4,501 4,077 4,872 4,586 3,881 3,081 2,518 1,178 244 (566) (810) (8,799) (8,793) (2,371) (304) (2,672) 9,053 15,009 14,896 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 294,286 $ 320,081 $ 276,645 $ 211,205 $ 160,258 $ 103,710 $ 100,821 $ 135,979 ========== ========== ========== ========== ========== ========== ========== ========== $1,975,699 $1,850,728 $1,570,383 $1,435,418 $1,328,215 $1,105,684 $1,068,607 $1,036,327 2,078,670 2,096,028 1,709,729 1,535,092 1,701,853 1,311,762 1,088,084 1,012,035 451,328 512,859 540,996 539,825 538,081 489,402 347,351 264,273 10,683,462 9,415,865 7,869,181 6,738,785 5,876,072 4,766,332 3,861,804 3,396,684
59 EX-21 6 EXHIBIT 21 1 SAFECO Corporation Organization Chart F-17 December 31, 1993 Exhibit 21 SAFECO CORPORATION (Washington) (ownership percentages are 100%, except where indicated) 1. SAFECO Insurance Company of America (WA) A. SAFECO Management Corporation (NY) B. SAFECO Surplus Lines Insurance Company (WA) 2. General Insurance Company of America (WA) 3. First National Insurance Company of America (WA) 4. SAFECO National Insurance Company (MO) 5. SAFECO Insurance Company of Illinois (IL) 6. SAFECO Life Insurance Company (WA) A. SAFECO National Life Insurance Company (WA) B. First SAFECO National Life Insurance Company of New York (NY) 7. SAFECO Assigned Benefits Service Company (WA) 8. SAFECO Administrative Services, Inc. (WA) A. Employee Benefit Claims of Wisconsin, Inc. (WI) B. Wisconsin Pension and Group Services, Inc. (WI) 9. PNMR Securities, Inc. (WA) 2 10. SAFECO Properties, Inc. (WA) A. Winmar Company, Inc. (WA) a) Barton Street Corporation (WA) b) Capitol Court Corporation (WI) c) Gem State Investors, Inc. (WA) d) Kitsap Mall, Inc. (WA) e) North Coast Management, Inc. (OR) f) SAFECO Properties of Boise, Inc. (ID) g) Scit, Inc. (MA) h) Valley Fair Shopping Centers, Inc. (DE) i) WDI Golf Club, Inc. (CA) j) WNY Development, Inc. (WA) k) Winmar Cascade, Inc. (WA) l) Winmar Metro, Inc. (WA) m) Winmar Northwest, Inc. (WA) n) Winmar Pacific, Inc. (WA) i) Pacific Surfside Corporation (OR) ii) Washington Square, Inc. (WA) iii) Winmar of Jantzen Beach, Inc. (OR) iv) W-P Development, Inc. (OR) o) Winmar Redmond, Inc. (WA) p) Winmar of Kitsap, Inc. (WA) q) Winmar of Texas, Inc. (TX) r) Winmar of Wisconsin, Inc. (WI) s) Winmar of the Desert, Inc. (CA) t) C-W Properties, Inc. (50%) (WA) B. SAFECARE Company, Inc. (WA) a) S.C. Marysville, Inc. (WA) b) S.C. Simi Valley, Inc. (WA) i) Simi Valley Hospital, Inc. (WA) c) S.C. Vancouver, Inc. (WA) d) Lifeguard Ventures, Inc. (50%) (CA) C. RIA Development, Inc. (WA) 11. SAFECO Credit Company, Inc. (WA) 3 12. SAFECO Asset Management Company (WA) 13. SAFECO Securities, Inc. (WA) 14. SAFECO Services Corporation (WA) 15. General America Corporation (WA) A. COMAV Managers, Inc. (IL) B. F.B. Beattie & Co., Inc. (WA) a) F.B. Beattie Insurance Services, Inc., (CA) C. General America Corporation of Texas (TX) -- (Attorney-in-fact) for: a) SAFECO Lloyds Insurance Company (TX) D. Talbot Agency, Inc. (NM) E. Whitehall Insurance Brokers, Inc. (CA) 16. Agena, Inc. (20%) (WA) NOTE: Certain inactive companies are not shown. -----END PRIVACY-ENHANCED MESSAGE-----