<PAGE> 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)
<TABLE>
<S> <C>
WASHINGTON 91-0742146
---------- ----------
(State of Incorporation) (I.R.S. Employer I.D. No.)
</TABLE>
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
<TABLE>
<S> <C>
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.
</TABLE>
<PAGE> 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 -
<PAGE> 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):
<TABLE>
<CAPTION>
1993 1992 1991
---------------- ---------------- ----------------
% of % of % of
State Amount Total Amount Total Amount Total
----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
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%
========== === ========== === ========== ===
</TABLE>
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 -
<PAGE> 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 -
<PAGE> 5
PART I
ITEM 1. BUSINESS (Continued)
Analysis of Changes in Losses and Adjustment Expense Reserves - (Net of
reinsurance amounts):
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
Reconciliation of Liability for Losses and Adjustment Expense Reserves (per
property and casualty balance sheet):
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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 -
<PAGE> 6
PART I
ITEM 1. BUSINESS (Continued)
Analysis of Losses and Adjustment Expense Reserve Development
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1989 1990 1991 1992
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
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..................
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1989 1990 1991 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
---------- ----------- ----------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1989 1990 1991 1992
---------- -------- -------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
- 5 -
<PAGE> 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):
<TABLE>
<CAPTION>
1990 1991 1992
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== =========
</TABLE>
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 -
<PAGE> 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):
<TABLE>
<CAPTION>
Loss
Adjustment
Loss Expense Total
------- ---------- --------
<S> <C> <C> <C>
Case . . . . . . . . $41,550 $11,360 $ 52,910
IBNR . . . . . . . . 29,000 31,500 60,500
------- ------- --------
Total . . . . . . . . $70,550 $42,860 $113,410
======= ======= ========
</TABLE>
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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 11
DETAIL OF SAFECO LIFE INSURANCE COMPANIES' FUNDS HELD UNDER DEPOSIT CONTRACTS
<TABLE>
<CAPTION>
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
------- ----------------- ------------------- --------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
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
==========
</TABLE>
- 10 -
<PAGE> 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):
<TABLE>
<CAPTION>
GAAP Carrying Value GAAP Market Value
------------------- -------------------
Amount % Amount %
-------- ------ -------- ------
<S> <C> <C> <C> <C>
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%
======== ===== ======== =====
</TABLE>
- 11 -
<PAGE> 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:
<TABLE>
<CAPTION>
Quality Percent
------------------------ -------
<S> <C>
Government/Agency Backed 58%
AAA 33
AA 6
A 1
BBB 1
BB or lower 1
---
100%
===
</TABLE>
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):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Property and Casualty 7.6% 8.2% 8.9%
Life and Health 8.8% 9.3% 9.7%
</TABLE>
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 -
<PAGE> 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 -
<PAGE> 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.
<TABLE>
<CAPTION>
Rentable
Area
Description (Sq. Ft.) Acreage
----------- --------- -------
<S> <C> <C>
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
========= ===
</TABLE>
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 -
<PAGE> 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.
<TABLE>
<S> <C> <C>
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.
</TABLE>
- 15 -
<PAGE> 17
PART I
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
<TABLE>
<S> <C> <C>
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.
</TABLE>
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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
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.
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 24
F-2
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING INFORMATION
BALANCE SHEET, DECEMBER 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Other
Property & Life & Real and
Casualty Health Estate Eliminations Consolidated
---------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
========== ========== ======== ========= ===========
</TABLE>
<PAGE> 25
F-3
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING INFORMATION
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Other
Property & Life & Real and
Casualty Health Estate Eliminations Consolidated
---------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
========== ========= ======== ======== ==========
</TABLE>
<PAGE> 26
F-4
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING INFORMATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Real
Property & Life & Estate Other and
Casualty Health Companies Eliminations Consolidated
----------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
========== ========= ========= ========= ===========
</TABLE>
<PAGE> 27
F-5
Schedule I
SAFECO CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- -------- ---------- ---------- ---------
Amount
at Which
Shown
in the
Market Balance
Type of Investment Cost Value Sheet
- ------------------ ---------- ----------- ---------
<S> <C> <C> <C>
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
=========== ===========
</TABLE>
(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.
<PAGE> 28
F-6
Schedule III
SAFECO CORPORATION
(Parent Company Only)
Balance Sheet
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
December 31
ASSETS ------------------------
1993 1992
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
<PAGE> 29
F-7
Schedule III
SAFECO CORPORATION
(Parent Company Only)
STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
<PAGE> 30
F-8
Schedule III
SAFECO CORPORATION
(Parent Company Only)
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
<PAGE> 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)
<TABLE>
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
- ------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
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
========= ========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
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
- ------- ---------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
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
========= ========== ========= =========
</TABLE>
<PAGE> 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)
<TABLE>
<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
- ------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
========= ========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
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
- ------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
========= ========== ========= =========
</TABLE>
(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.
<PAGE> 33
F-10
Schedule VI
SAFECO CORPORATION AND SUBSIDIARIES
REINSURANCE FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
(In Thousands)
<TABLE>
<CAPTION>
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
- -----------------
<S> <C> <C> <C> <C> <C>
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%
=========== =========== ======== =========== ====
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1992
- -----------------
<S> <C> <C> <C> <C> <C>
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%
=========== =========== ======== =========== ====
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1991
- -----------------
<S> <C> <C> <C> <C> <C>
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%
=========== =========== ======== =========== ====
</TABLE>
<PAGE> 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:
<TABLE>
<CAPTION>
Commercial Master
Quickline Paper Notes
--------- ---------- --------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 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)
<TABLE>
<CAPTION>
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
- ----------- ----------- ----------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
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
- ----------- ------- ----- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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.
<PAGE> 36
F-13
SAFECO CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX*
<TABLE>
<S> <C> <C>
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.
</TABLE>
<PAGE> 37
F-13
SAFECO CORPORATION AND SUBSIDIARIES (Continued)
EXHIBIT INDEX*
<TABLE>
<S> <C> <C>
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)
</TABLE>
* 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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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
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<PAGE> 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.
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<PAGE> 1
F-15
Exhibit 11
SAFECO CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER SHARE
(In Thousands,
Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
<PAGE> 1
F-16
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SAFECO CORPORATION AND CONSOLIDATED SUBSIDIARIES
(In Thousands, Except Ratios)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
SAFECO CREDIT
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
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
========= ======== ======== ======== ========
</TABLE>
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Year Ended December 31
(In Thousands Except Per Share Amounts) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== =========
</TABLE>
*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
<PAGE> 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
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
Operating Ratios as
a % of Earned Premiums
(GAAP Basis)
------------------------------
<S> <C> <C> <C>
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%
===== ====== ======
</TABLE>
23
<PAGE> 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:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---------- -------- ---------
(In Thousands-Canadian $)
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Percent at
Rating December 31, 1993
- ------ -----------------
<S> <C>
AAA ........................... 44%
AA ............................ 24
A ............................. 25
BBB ........................... 6
BB or lower ................... 1
----
Total ...................... 100%
</TABLE>
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:
<TABLE>
<CAPTION>
Percent at
Rating December 31, 1993
- ------ -----------------
<S> <C>
AAA .......................... 39%
AA ........................... 7
A ............................ 25
BBB .......................... 27
BB or lower .................. 2
----
Total ..................... 100%
</TABLE>
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:
<TABLE>
<CAPTION>
Amortized Carrying Market
Cost Value Value
- ------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
28
<PAGE> 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
<PAGE> 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
<PAGE> 11
SAFECO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME Year Ended December 31
(In Thousands Except Per Share Amounts) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
31
<PAGE> 12
SAFECO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET December 31
(In Thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
32
<PAGE> 13
SAFECO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
(In Thousands Except Share Amounts) 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
33
<PAGE> 14
SAFECO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED CASH FLOWS Year Ended December 31
(In Thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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
<PAGE> 15
SAFECO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========= ======== ========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
35
<PAGE> 16
SAFECO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31
(In Thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
36
<PAGE> 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.
<TABLE>
<CAPTION>
STATEMENT OF COMBINED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
37
<PAGE> 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.
<TABLE>
<CAPTION>
STATEMENT OF COMBINED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
38
<PAGE> 19
REAL ESTATE COMPANIES
SAFECO Properties, Inc. o Winmar Company, Inc. o SAFECARE Company, Inc.
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======= ======== ========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
39
<PAGE> 20
SAFECO CREDIT COMPANY, INC.
<TABLE>
<CAPTION>
STATEMENT OF INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
40
<PAGE> 21
ASSET MANAGEMENT COMPANIES
SAFECO Asset Management Company o SAFECO Securities, Inc. o SAFECO Services
Corporation
<TABLE>
<CAPTION>
STATEMENT OF COMBINED INCOME Year Ended December 31
(In Thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Financial Statements on pages 42 through 55.
41
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
44
<PAGE> 25
1993 ANNUAL REPORT
Realized gains (losses) from real estate are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized gains (losses) . . . . . . . . . . . . . . . . . $ 8,126 $ (6) $(460)
Applicable income taxes . . . . . . . . . . . . . . . . . (2,717) (680) (93)
------- ----- -----
Net realized gain (loss) . . . . . . . . . . . . . . . . $ 5,409 $(686) $(553)
======= ===== =====
</TABLE>
The amortized cost and estimated market values of investments in fixed
maturities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=========== ========== ======== ===========
</TABLE>
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.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=========== ===========
</TABLE>
45
<PAGE> 26
SAFECO CORPORATION
2. INVESTMENTS (CONTINUED)
The proceeds from sales of investments in fixed maturities and related
gains and losses are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
======== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1993 1992
--------------------------------------------------------------
Total Current Total Current
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION> 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
Year Payable Minimum Rentals
- -----------------------------------------------------------------------
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . $ 6,742
1995 . . . . . . . . . . . . . . . . . . . . . . 5,546
1996 . . . . . . . . . . . . . . . . . . . . . . 3,395
1997 . . . . . . . . . . . . . . . . . . . . . . 2,221
1998 . . . . . . . . . . . . . . . . . . . . . . 1,908
1999 and thereafter . . . . . . . . . . . . . . . 61,693
-------
Total . . . . . . . . . . . . . . . . . . . . $81,505
=======
</TABLE>
See Note 4 for discussion relating to reinsurance.
47
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION> 1993 1992
-------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
7. COMMON STOCK
Changes in common stock outstanding for the last three years are as
follows:
<TABLE>
<CAPTION> 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
49
<PAGE> 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:
<TABLE>
<CAPTION>
Outstanding Options
- -------------------------------------------------------------------------
Shares Price per Share
------------------------------
<S> <C> <C>
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
========= ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
Share Rights
- -------------------------------------------------------
<S> <C>
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
=======
</TABLE>
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:
<TABLE>
<CAPTION>
Statutory Net Income 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and Casualty . . . . . . . . . . $283,605 $206,729 $172,683
Life and Health . . . . . . . . . . . . . 19,141 30,629 45,155
</TABLE>
<TABLE>
<CAPTION>
December 31
Statutory Stockholder's Equity 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Property and Casualty . . . . . . . . . . $1,557,360 $1,421,374
Life and Health . . . . . . . . . . . . . 382,878 365,124
</TABLE>
50
<PAGE> 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:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
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
======
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 32
SAFECO CORPORATION
12. RENT CHARGED TO OPERATIONS
The amount of rent charged to operations is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
Year Receivable Amount
- ------------------------------------------
<S> <C>
1994 . . . . . . . . . . . . . $ 35,478
1995 . . . . . . . . . . . . . 32,702
1996 . . . . . . . . . . . . . 29,926
1997 . . . . . . . . . . . . . 27,205
1998 . . . . . . . . . . . . . 24,406
1999 and thereafter . . . . . 140,419
--------
Total . . . . . . . . . $290,136
========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31
1993 1992
- ----------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
52
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C>
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)
======== ========
</TABLE>
53
<PAGE> 34
SAFECO CORPORATION
16. SEGMENT DATA
<TABLE>
<CAPTION>
Under- Capital
Investment Realized writing Identifiable Expen-
Revenues Income Gain (Loss) Profit (Loss) Net Income* Assets ditures
- -----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
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
========== ======== ======== ======== =========== =======
</TABLE>
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
<PAGE> 35
1993 ANNUAL REPORT
17. INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Annual
- --------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
*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
<PAGE> 36
SAFECO CORPORATION
SUMMARY OF GROWTH
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
*Per share amounts are adjusted for stock dividends and stock splits.
56
<PAGE> 37
1993 ANNUAL REPORT
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 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
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
57
<PAGE> 38
SAFECO CORPORATION
SUMMARY OF GROWTH (CONTINUED)
<TABLE>
<CAPTION>
(In Thousands Except Ratios) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
58
<PAGE> 39
1993 ANNUAL REPORT
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
59
<PAGE> 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)
<PAGE> 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)
<PAGE> 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.
