Seattle, Wash.-based Safeco’s net income dropped nearly $37 million in the second-quarter 2008 over the same time period in 2007, the company reported today. For the second-quarter 2008, Safeco posted net income of $149.5 million. This compares with net income of $186.4 million for the same quarter last year.
Overall property and casualty (P&C) combined ratio for Safeco was 94.0 percent for the quarter versus 89.7 in the same quarter last year. Combined ratio is the percentage of each premium dollar spent on claims and expenses.
Net written premiums were $1.43 billion for the second quarter, a 2.5 percent decrease from the year-ago period. Net earned premiums were $1.38 billion for the quarter, a 1.3 percent decrease compared with the prior year.
Pretax catastrophe losses for the second quarter rose significantly in 2008, Safeco reported, coming in at $66.9 million in 2008, compared with $6.7 million a year ago. Results in 2007 were affected by very light weather impact during the second quarter. This year’s second quarter catastrophe losses added 4.8 points to the combined ratio, the company said.
“Safeco’s strong performance shows the fundamental value of our portfolio of business lines,” said Paula Rosput Reynolds, Safeco chairman, president and chief executive officer. “We made a commitment to continue to deliver top tier returns to shareholders in 2008 even though we expected a weak underwriting cycle and a sluggish economy.” She added, “While others might have taken a breather after announcing a transaction, we continued to introduce new products and greater efficiencies to the business.”
Safeco Auto reported a quarterly pretax underwriting profit of $33.6 million, compared with $17.3 million in the same period last year. Auto’s combined ratio was 94.5 in the quarter, compared with 97.4 a year ago and 99.7 in the previous quarter.
Auto net written premiums declined 7.1 percent in the quarter compared with second-quarter 2007. Policies in force (PIF) decreased 6.8 percent in the second quarter from year-ago levels. Preferred Auto policies were down 1.9 percent. Renewal retention was 78.6 percent, down 1.5 points from a year ago due to specific rate action in several states.
“Our disciplined approach to underwriting and pricing is positively impacting the combined ratio,” said Mike Hughes, Safeco executive vice president of Insurance Operations. “The combination of working across all disciplines — underwriting, multi-variate modeling, agency management, and claims — is delivering the desired result. We are now much better positioned for future growth.”
Safeco Property, which includes homeowners, landlord protection and related coverages, produced a quarterly pretax underwriting loss of $1.6 million, compared with $37.1 million underwriting profit in the same period a year ago. Property’s combined ratio was 100.6 in the quarter, compared with 84.0 in the same quarter of 2007. The second-quarter 2008 results included $35.7 million in pretax catastrophe losses (adding 14 points to the combined ratio) compared with $9.9 million a year ago (which added 4 points to the combined ratio). These losses stem primarily from storms in the Midwest in the second quarter of 2008; whereas the second quarter of 2007 had unusually low storm activity.
Property net written premiums increased 9.8 percent in the quarter compared with a year ago, and PIF were up 7.2 percent from prior-year levels. Homeowners’ retention increased to 86.4 percent from 85.4 percent.
Safeco Business Insurance (SBI) reported a pretax underwriting loss of $0.6 million in the second quarter, compared with $51.9 million profit for the same period in 2007. The second-quarter combined ratio was 100.2, compared with 86.6 a year ago.
SBI Regular – Safeco’s core commercial line serving small- to mid-sized businesses — reported a pretax underwriting loss of $0.8 million in the quarter, compared with $31.8 million underwriting profit for the same period last year. The SBI Regular combined ratio was 100.2 in the second quarter, compared with 90.2 in the same period last year.
Second-quarter results included $15.2 million in pretax catastrophe losses (adding 5.3 points to the combined ratio), compared with $0.5 million (which added 0.2 points to the combined ratio) in the prior-year period. SBI Regular net written premiums during the second quarter were down 7.3 percent compared with the same period last year. SBI Regular PIF was down 1.6 percent compared with year-ago levels. The retention rate of existing customers was down 2.3 points.
“Catastrophes and weather did materially impact SBI profitability in the quarter, so we do expect lower combined ratios in the months ahead based on historic catastrophe and weather activity,” said Hughes.
Safeco’s Special Accounts Facility, which writes selected large-commercial accounts and four specialty commercial programs, reported a pretax underwriting profit of $0.2 million in the quarter. This compares with a $20.1 million pretax underwriting profit in last year’s second quarter. Special Accounts Facility’s combined ratio was 99.7 in the period, compared with 69.5 last year. This line was impacted by 9 points of catastrophe losses.
The Special Accounts Facility reported net written premium of $55.6 million which was down 13.5 percent compared with the second quarter of last year due to competitive pricing conditions.
Safeco Surety reported a pretax underwriting profit of $54.7 million in the quarter, compared with $37.3 million for the same period in 2007. Surety’s combined ratio was 44.9 for the second quarter, compared with 56.4 a year ago. Favorable prior-year reserve development was $23.0 million in the second quarter of 2008 compared with favorable prior-year reserve development of $6.6 million in the second quarter of 2007. This result comes as a result of lower-than-expected claims activity. Second-quarter net written premiums grew 13.4 percent compared with the same period last year.
P&C Other, which includes results from operations that Safeco has exited or placed in runoff, had a pretax underwriting loss of $7.9 million in the second quarter, compared with a pretax underwriting loss of $5.2 million in the same quarter of 2007.
Liberty Mutual-Safeco Acquisition
On April 23, 2008, Safeco Corporation and Liberty Mutual Group (“Liberty Mutual”) announced that they have entered into a definitive agreement pursuant to which Liberty Mutual will acquire all outstanding shares of common stock of Safeco for $68.25 per share in cash.
The proposed transaction, which is valued at approximately $6.2 billion, has been approved by the Boards of Directors of both companies. It is subject to approval by Safeco’s shareholders as well as customary regulatory approvals and conditions. The transaction is expected to close by the end of the third quarter of 2008 and is not subject to financing contingencies.
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