Safeco Estimates 3Q Catastrophe Losses

October 12, 2004

Seattle-based Safeco announced that its aggregate pretax catastrophe losses for the third quarter are estimated at $195 million. The estimated effect on third-quarter net income is $127 million after tax, or $0.96 per diluted share. Safeco expects its total catastrophe losses to increase the company’s third-quarter combined ratio by 13.9 percentage points and that, as a result, its third-quarter combined ratio will be 101.6 percent.

The estimated pretax catastrophe losses include:

* $86 million in personal lines, primarily homeowners claims
* $109 million in commercial claims

Hurricane loss estimates

Of the $195 million in estimated pretax catastrophe losses, $183 million represents estimated losses from claims from the four hurricanes — Charley, Frances, Ivan and Jeanne — that hit Florida and surrounding states in August and September. The total reflects claims received through Oct. 11, 2004 and future estimates of claims from policyholders with damage from the storms.

This estimate also includes an adjustment to Safeco’s estimated pretax losses for Hurricanes Charley and Frances. Previously, the company reported it expected $73 million in pretax losses from the two storms; it now estimates those storms will total $117 million. The $44 million increase is primarily due to more large and severe losses than previously estimated.

With this update, Safeco also has factored in greater increases in building materials and repair costs due to higher-than-usual demand caused by the multiple storms. In addition, many policyholders hit by Hurricanes Charley and Frances sustained additional damage from subsequent storms.

“This hurricane season has taken a tremendous toll in Florida. And though communities are rebuilding, this is no small task. Our claims professionals are still working seven days a week throughout the Southeast to help customers sort through their damage — losses from one, two or even three storms,” said Mike McGavick, Safeco chairman and chief executive officer.

“While we were taken aback by the number of large losses from Charley, we now have inspected every severe and potential large loss from the hurricanes and 67 percent of all claims,” McGavick said. “This is excellent progress and demonstrates our commitment to provide claims service that’s second to none.”

“Four hurricanes hitting one state in a span of just six weeks is an extraordinary event. One factor that is clearly an estimate at this time is the loss cost trends we will see with these storms,” he said. “We’re monitoring state and regional market trends very carefully. If we see repair and restoration cost trends that are different from our current estimates, it may require further revision to our loss estimates for these storms. This is a challenge for all companies in the industry that are working so hard to put Florida back together.

“Thanks to an extremely well-coordinated and professional claims team, our policyholders’ recovery process is well under way.”

Safeco does not anticipate reimbursements from the Florida Hurricane Catastrophe Fund or Safeco’s property catastrophe reinsurance for damages from these hurricanes. Safeco has received no information about state-mandated assessments in Florida and, therefore, the company’s estimate does not reflect any provision for assessments.

Safeco has 0.6 percent share of the homeowners market and 2 percent share of the commercial market in Florida. Analysts have estimated the industry’s total insured losses for the four storms to be between $20 and $28 billion.

The company will announce its third-quarter financial results, which will include the sale of Life & Investments and the completed debt tender offers, on Oct. 19, 2004.

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