Safeco Sees Strong Q1 Numbers

April 19, 2005

Seattle-based Safeco on Tuesday reported strong first-quarter results for 2005.

The company produced net income for the first quarter of $212.0 million, or $1.65 per diluted share. This compares with net income of $236.2 million, or $1.69 per diluted share, for the same period last year. Last year’s net income result included $50.6 million of income from Safeco’s discontinued life and investments operations, which the company sold in August 2004.

Operating earnings from continuing operations for the first quarter were
$190.0 million, up from $157.8 million in the prior-year period.

After-tax net realized investment gains from continuing operations for the quarter were $22.0 million, compared with $27.8 million in first-quarter 2004.

“Our P/C focus continues to serve us well, even in these more difficult
market conditions,” said Mike McGavick, Safeco chairman and chief executive officer. “We’re maintaining strong margins because of our underwriting discipline and commitment to profitable growth.”

The overall P/C combined ratio for the first quarter was 88.5 versus 89.9 in the same quarter last year. (Combined ratio represents the percentage of each premium dollar spent on claims and expenses — the lower the ratio, the better the performance.)

Catastrophe losses for the first quarter were $24.8 million pretax,
compared with $11.6 million in the first quarter last year.

Safeco’s annualized return on equity (ROE) for the quarter was 21.4
percent. Annualized operating ROE — measured using operating earnings and excluding from equity unrealized gains/losses on bonds — was 20.1 percent for the quarter.

Total revenues in the first quarter were $1.58 billion. Operating
revenues from continuing operations, which exclude net realized investment gains, were $1.55 billion, up 6.3 percent from the same quarter in 2004.

P/C net earned premiums were $1.43 billion for the quarter, a 6.6 percent increase over first-quarter 2004 levels. P/C net written premiums increased to $1.46 billion for the quarter, up 5.9 percent compared with the same period last year.

“While our growth rate has slowed due to increased competitive pressures, we are pleased with our ability to continue to add risks that meet our standards at a faster rate than the industry overall,” said McGavick.

P/C pretax net investment income for the quarter was $113.0 million, an increase of 1.2 percent compared with the same period a year ago.

Safeco’s results for the quarter reflect a $10.0 million tax benefit,
stemming primarily from the favorable resolution of a state tax-related issue.

The company also realized a $9.0 million tax benefit in the same quarter a year ago.

Safeco personal insurance

Safeco Auto reported a first-quarter pretax underwriting profit of
$30.1 million, compared with $23.1 million in the same period a year ago. Auto’s combined ratio was 95.7 in the quarter, compared with 96.3 a year ago.

Auto net written premiums rose 10.0 percent in the first quarter, compared with the same quarter last year. Policies in force (PIF) grew 7.4 percent over a year ago. New-business policies issued declined 10.8 percent compared with the same quarter in 2004. Retention of existing policyholders remained stable over first-quarter 2004 levels.

“Auto is one of the lines where competition has grown, so our slowdown in new sales is no surprise,” said McGavick. “At the same time, the quarter saw the launch of our latest-generation auto product, SNAP 2.0, which we believe will further advance our sophistication around risk selection.”

Safeco Property produced a first-quarter pretax underwriting profit of
$56.0 million, compared with $61.4 million in the same period a year ago.

Property’s combined ratio was 75.4 in the quarter, compared with 73.1 a year ago. The first-quarter 2005 combined ratio included $19.6 million in catastrophe losses, $11.8 million of which were related to the 2004 hurricanes.

Property net written premiums rose 0.3 percent in the quarter over the
prior-year period. PIF declined 5.2 percent over a year ago and was flat compared with year-end 2004. New-business policies issued increased 48.4 percent compared with the same quarter a year ago, and retention improved almost a full point.

“We’re very excited by our prospects in Property insurance. Having spent much of the past several years fixing the homeowners line, we are finally seeing our ability to grow new business as well as earn a profit. With our new-business growth and improving retention, we expect to turn PIF-positive in 2005,” said McGavick. “Our Claims organization stands ready to handle the expected higher incidence of catastrophes we usually see in the second quarter — traditionally our weakest earnings quarter due to catastrophes and severe weather.”

Safeco business insurance

Safeco Business Insurance (SBI) reported a pretax underwriting profit of $57.1 million in the quarter, compared with $42.3 million for the same period in 2004.

The combined ratio for the quarter was 86.4, an improvement over the 89.9 combined ratio posted a year ago.

SBI Regular – Safeco’s core line of commercial products for small-to- medium-sized businesses – reported a pretax underwriting profit of $46.9 million in the quarter, compared with $23.8 million for the same period last year. The SBI Regular combined ratio in the first quarter was 85.1 compared with 92.1 in the same period last year, driven by favorable frequency trends and lower-than-expected catastrophes and weather.

SBI Regular net written premiums increased 3.6 percent during the first quarter compared with the same period last year. PIF declined 0.3 percent compared with year-ago levels. New-business policies issued for the quarter decreased 9.0 percent compared with the same quarter last year, with retention of existing customers holding steady.

“Our automated lines of business, especially commercial auto and BOP, continued to perform well — with strong margins, net written premium growth of 9 percent and PIF growth of 5 percent,” said McGavick. “With our recent addition of 62 new classes of coverage on the automated BOP platform, we are optimistic we can continue to drive growth. Middle-market commercial, however, is more competitive. We are maintaining our underwriting discipline, and Safeco technology, service and claims will give us a competitive advantage across our commercial business.”

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Latest Comments

  • April 19, 2005 at 3:51 am
    Mark says:
    PIF = Policies In Force
  • April 20, 2005 at 2:25 am
    Shalini Jindal says:
    Auto insurance pricing apperas to be in line with loss cost inflation in personal auto insurance market.How will SAFC sustain underwriting margin in the upcoming quarters?
  • April 19, 2005 at 2:22 am
    stephan says:
    If new business slows down and retention has not improved to make up for the new bus. slow down, how does PIF increase?
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