<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, 1995.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee
Required). For the transition period from
________________ to ___________________.
Commission File Number 1-6563.
SAFECO CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0742146
(State of Incorporation) (I.R.S. Employer I.D. No.)
SAFECO PLAZA, SEATTLE, WASHINGTON 98185
(Address of principal executive offices)
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
(125,998,253 shares were outstanding at January 31, 1996)
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].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 31, 1996 was $4,520,000,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's 1995 Annual Report to Stockholders are incorporated
by reference into Parts I and II.
Portions of the registrant's definitive Proxy Statement for the 1996 annual
shareholder meeting to be held May 1, 1996 are incorporated by reference into
Part III.
<PAGE> 2
PART I
Item 1. Business
SAFECO Corporation (the Corporation) is incorporated as a business
corporation under the laws of the state of Washington. The
Corporation is a holding company and is engaged, through its
operating subsidiaries, in various segments of insurance and other
financially-related businesses. The Corporation and its
subsidiaries, collectively referred to as "SAFECO", employed
approximately 7,500 employees at December 31, 1995. The home
offices of the Corporation and its principal subsidiaries are in
Seattle, Washington and Redmond, Washington.
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 pages 28 and 29 in the 1995 Annual
Report to Stockholders, incorporated herein by reference (Exhibit
13), for more information on certain regulatory matters.
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 competing entities. These factors
prevent any one insurance company or group of insurers from
dominating the market.
Property and Casualty Operations
Subsidiaries of the Corporation engaged in the property and
casualty insurance business, which insure personal, commercial, 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 SAFECO Select Insurance Services, Inc.
Coverages include automobile, homeowners, fire and allied lines,
workers' compensation, commercial multi-peril, miscellaneous
casualty, surety and fidelity. Products are sold in nearly all
states and the District of Columbia. SAFECO sold its Canadian
property and casualty operations in 1991. See page 31 in the 1995
Annual Report to Stockholders for more information.
2
<PAGE> 3
PART I
Item 1. Business (Continued)
Consolidated property and casualty gross premiums written for
SAFECO's ten largest states are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------------------------------------
(Amounts In Thousands)
State Amount % of Total Amount % of Total Amount % of Total
----- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
California $ 548,284 23% $ 553,608 24% $ 531,779 25%
Washington 388,705 17% 376,557 16% 351,231 16%
Texas 163,710 7% 152,715 7% 134,183 6%
Oregon 152,477 6% 148,300 7% 144,534 7%
Illinois 106,062 5% 95,689 4% 81,892 4%
Florida 76,095 3% 61,176 3% 45,679 2%
Missouri 73,167 3% 68,201 3% 64,763 3%
Georgia 70,535 3% 71,619 3% 65,852 3%
Montana 58,831 3% 51,945 2% 46,404 2%
Tennessee 58,180 2% 54,932 2% 54,207 3%
-------------------------------------------------------------------------------------------------------
1,696,046 72% 1,634,742 71% 1,520,524 71%
All Others 670,810 28% 643,303 29% 613,988 29%
-------------------------------------------------------------------------------------------------------
TOTAL $2,366,856 100% $2,278,045 100% $2,134,512 100%
-------------------------------------------------------------------------------------------------------
</TABLE>
Voluntary personal, commercial and surety lines (which exclude
assigned risk, FAIR plans, etc.) comprised approximately 70%, 25%
and 4%, respectively, of the 1995 gross premiums written. The gross
premiums written growth of 3.9% in 1995 was comprised of a 5.3%
increase for personal, a decrease of 0.8% for commercial and an
increase of 10.9% for surety lines. Gross premiums written growth
of 6.7% in 1994 was comprised of a 6.6% increase for personal, and
increases of 7.1% for commercial and 7.1% for surety lines.
The growth in personal lines premiums resulted from both rate
increases and an increase in policies in force. The number of
vehicles insured increased 1.8% in 1995, compared with 1.3% in 1994
and 2.2% in 1993. This moderate growth rate was caused primarily by
rate increases in recent years. The number of homes insured
increased 1.2% in 1995, 2.7% in 1994 and 8.0% in 1993. This
reduction in the growth rate was due to rate increases in recent
years and to the moratorium on the writing of new homeowners
policies in California.
SAFECO's commercial lines premiums decreased in 1995 due primarily
to increased rate competition in workers' compensation,
particularly in California due to open rating, and to increased
rate competition in commercial auto. The increase in surety
premiums in 1995 and 1994 was primarily due to new commercial and
contract accounts acquired.
Additional financial information about SAFECO's business segments
is set forth in Note 15 on page 68 of the 1995 Annual Report to
Stockholders.
3
<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 the Corporation'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 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 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 5 provides an analysis of changes in losses and
adjustment expense reserves for 1995, 1994, and 1993 (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 $59.7 million, $81.3 million and $96.9 million in
1995, 1994 and 1993, respectively, as a result of a reduction in
the estimated amounts needed to settle prior years' claims.
4
<PAGE> 5
PART I
Item 1. Business (Continued)
Analysis of Changes in Losses and Adjustment Expense Reserves -
(net of reinsurance amounts):
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Losses and adjustment expense
reserves at beginning of year $2,092,946 $1,995,122 $1,963,136
------------------------------------------------------
Incurred losses and adjustment
expense for claims occurring
in the current year 1,586,675 1,609,392 1,447,565
Decrease in estimated losses and
adjustment expense for claims
occurring in prior years (59,699) (81,325) (96,937)
------------------------------------------------------
Total incurred losses and
adjustment expense 1,526,976 1,528,067 1,350,628
------------------------------------------------------
Losses and adjustment expense
payments for claims occurring
during: Current year 856,796 809,722 719,756
Prior years 693,049 620,521 598,886
------------------------------------------------------
Total losses and adjustment
expense payments 1,549,845 1,430,243 1,318,642
------------------------------------------------------
Losses and adjustment expense
reserves at end of year $2,070,077 $2,092,946 $1,995,122
======================================================
Reconciliation of Losses and Adjustment Expense Reserves:
Losses and adjustment expense
reserves at end of year $2,070,077 $2,092,946 $1,995,122
Reinsurance recoverables on
unpaid losses at end of year 110,746 143,858 100,065
------------------------------------------------------
Losses and adjustment expense
reserves, gross of reinsurance
recoverables, at end of year $2,180,823 $2,236,804 $2,095,187
======================================================
</TABLE>
The table on page 6 presents the development of the losses and
adjustment expense reserves for 1985 through 1995. The top lines of
the table show the estimated reserve 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 reserve as of the end of each succeeding
year. The next section shows the re-estimated amount of the
previously recorded reserve 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.
5
<PAGE> 6
PART I
Item 1. Business (Continued)
<TABLE>
<CAPTION>
Analysis of Losses and Adjustment Expense Reserve Development
Year Ended December 31 1985 1986 1987 1988 1989
--------- ----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Reserve for Unpaid
Losses and Adjustment
Expenses:
Gross of reinsurance $ 841,300 $ 1,095,163 $ 1,328,495 $ 1,523,554 $ 1,702,458
Reinsurance 39,910 54,881 78,975 97,003 75,279
--------- ----------- ----------- ----------- -----------
Net of reinsurance $ 801,390 $ 1,040,282 $ 1,249,520 $ 1,426,551 $ 1,627,179
========= =========== =========== =========== ===========
Cumulative net amount paid as of:
One Year Later $ 320,606 $ 382,274 $ 419,522 $ 443,056 $ 540,198
Two Years Later 526,276 610,331 677,053 725,684 849,568
Three Years Later 664,680 771,278 848,174 902,480 1,035,024
Four Years Later 758,202 875,910 936,447 1,010,271 1,149,505
Five Years Later 820,514 945,436 1,033,741 1,083,462 1,222,050
Six Years Later 837,182 991,806 1,082,759 1,129,885 1,276,405
Seven Years Later 895,193 1,029,619 1,119,813 1,169,932
Eight Years Later 922,963 1,057,329 1,150,953
Nine Years Later 945,133 1,082,006
Ten Years Later 964,895
Net reserve re-estimated as of:
One Year Later 888,650 1,094,095 1,253,870 1,397,704 1,621,873
Two Years Later 946,871 1,118,222 1,258,193 1,368,128 1,593,554
Three Years Later 961,356 1,121,243 1,258,017 1,355,793 1,541,434
Four Years Later 969,202 1,140,282 1,264,839 1,338,568 1,544,767
Five Years Later 989,095 1,149,075 1,266,261 1,360,496 1,549,861
Six Years Later 1,005,888 1,168,725 1,299,601 1,386,746 1,546,875
Seven Years Later 1,031,969 1,210,457 1,332,409 1,383,317
Eight Years Later 1,075,759 1,240,940 1,328,560
Nine Years Later 1,101,353 1,239,903
Ten Years Later 1,102,927
Cumulative net redundancy (deficiency) as of:
One Year Later (87,260) (53,813) (4,350) 28,847 5,306
Two Years Later (145,481) (77,940) (8,673) 58,423 33,625
Three Years Later (159,966) (80,961) (8,497) 70,758 85,745
Four Years Later (167,812) (100,000) (15,319) 87,983 82,412
Five Years Later (187,705) (108,793) (16,741) 66,055 77,318
Six Years Later (204,498) (128,443) (50,081) 39,805 80,304
Seven Years Later (230,579) (170,175) (82,889) 43,234
Eight Years Later (274,369) (200,658) (79,040)
Nine Years Later (299,963) (199,621)
Ten Years Later (301,537)
<CAPTION>
Analysis of Losses and Adjustment Expense Reserve Development
Year Ended December 31 1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Reserve for Unpaid
Losses and Adjustment
Expenses:
Gross of reinsurance $ 1,872,144 $ 2,017,348 $ 2,052,334 $ 2,095,187 $ 2,236,804 $ 2,180,823
Reinsurance 80,683 152,029 89,198 100,065 143,858 110,746
----------- ----------- ----------- ----------- ------------- -----------
Net of reinsurance $ 1,791,461 $ 1,865,319 $ 1,963,136 $ 1,995,122 $ 2,092,946 $ 2,070,077
=========== =========== =========== =========== ============= ===========
Cumulative net amount paid as of:
One Year Later $ 603,027 $ 548,875 $ 598,886 $ 620,521 693,049
Two Years Later 914,456 905,725 913,365 947,647
Three Years Later 1,109,436 1,086,502 1,106,033
Four Years Later 1,221,598 1,207,170
Five Years Later 1,301,116
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Net reserve re-estimated as of:
One Year Later 1,767,404 1,820,737 1,866,199 1,913,797 2,033,247
Two Years Later 1,705,835 1,732,844 1,782,067 1,818,306
Three Years Later 1,666,124 1,685,958 1,712,163
Four Years Later 1,657,170 1,650,683
Five Years Later 1,637,543
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Cumulative net redundancy (deficiency) as of:
One Year Later 24,057 44,582 96,937 81,325 59,699
Two Years Later 85,626 132,475 181,069 176,816
Three Years Later 125,337 179,361 250,973
Four Years Later 134,291 214,636
Five Years Later 153,918
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
</TABLE>
6
<PAGE> 7
PART I
Item 1. Business (Continued)
The lower section of the table on page 6 shows the cumulative
redundancy (deficiency) developed with respect to the previously
recorded liability as of the end of each succeeding year. For
example, the 1985 reserve of $801.4 million developed a $87.3
million deficiency after one year which grew over ten years to a
deficiency of $301.5 million. The reserve development deficiencies
indicated for the years 1985 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.
The table below presents the approximate amounts of adverse reserve
development by major category for the calendar years 1985-1987
viewed as of December 31, 1995. Note that each year below stands on
its own and the years should not be added together. For example,
the amount of adverse development recorded in 1987 or subsequent
for losses incurred in 1982 is included in the adverse development
amounts for each year shown below.
<TABLE>
<CAPTION>
1985 1986 1987
-----------------------------
(In Millions)
<S> <C> <C> <C>
Environmental, asbestos, and other
toxic claims including related
loss adjustment expenses $149 $126 $101
Canadian Automobile Liability 27 34 27
Workers' Compensation 41 42 35
Loss Adjustment Expense
excluding environmental,
asbestos, and other toxic claims 61 33 (22)
Other 24 (35) (62)
-----------------------------
Total adverse development as
reported in table on page 6 $302 $200 $ 79
-----------------------------
</TABLE>
7
<PAGE> 8
PART I
Item 1. Business (Continued)
As the trends noted above became apparent, SAFECO aggressively
increased reserves to address these deficiencies.
For 1988 and subsequent years, SAFECO's reserve development has
been favorable. This trend reflects several factors: aggressive
reserving undertaken in prior years to correct deficiencies which
is no longer necessary, favorable legislation in the workers'
compensation area, moderation of medical costs and inflation and
claims department changes. The favorable legislation in the
workers' compensation area, which relates primarily to the states
of Oregon and California, has helped reduce fraud, allowed for
final settlement of claims and made it more difficult to reopen
claims -- all of which reduced SAFECO's ultimate loss costs. The
cost of claim settlements in several lines of business has
benefited from changes in the organization of SAFECO's claims
department which has established separate specialized units for
workers' compensation, environmental exposures and fraud
investigation. In addition, increased focus on adjustment expenses
has helped reduce these costs.
The impact of reinsurance on the development information presented
on page 6 is not significant. Reserve development gross of
reinsurance for the previous three years is summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross reserves $2,052,334 $2,095,187 $2,236,804
--------------------------------------------
Cumulative development
net of reinsurance $ 250,973 $ 176,816 $ 59,699
Cumulative development
of reinsurance ceded 5,065 10,211 5,858
--------------------------------------------
Cumulative development
gross of reinsurance $ 256,038 $ 187,027 $ 65,557
--------------------------------------------
</TABLE>
SAFECO's objective is to set reserves which are adequate; that is,
the amounts originally recorded as reserves should at least equal
the amounts ultimately required to settle losses. Analysis
indicates that SAFECO's reserves are adequate and probably slightly
redundant at December 31, 1995, 1994 and 1993. Operations were
credited $59.7 million, $81.3 million and $96.9 million in 1995,
1994 and 1993, respectively, as a result of a reduction in the
estimated amounts needed to settle prior years' claims.
8
<PAGE> 9
PART I
Item 1. Business (Continued)
In evaluating the information contained in the reserve development
table on page 6, and the table on page 7, 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, 1994 reserves that relate to losses incurred in
1985 will be included in the cumulative redundancy (deficiency)
amount for the years 1985 through 1993. This 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 (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 toxic claims totaled $107.5
million at December 31, 1995, compared with $108.2 million at
December 31, 1994. 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, 1995 and 1994. The
reserves include estimates for both reported and IBNR losses and
related legal expenses.
The vast majority of SAFECO's property and casualty insurance
subsidiaries' environmental, asbestos and other toxic claims result
from the general liability line of business. A few of these types
of losses occur in other coverages such as umbrella, small
commercial package policies, and personal lines. Approximately
1,100 of these claims were pending at December 31, 1995, computed
on an occurrence basis. For the last three years, an average of 477
claims were opened and an average of 497 claims were closed each
year. Most of SAFECO's pending environmental claims involve some
type of environmental-related coverage dispute. The average
settlement cost of each environmental, asbestos and other toxic
claim for the last three years was $21,400 including legal expenses
and $12,700 excluding legal expenses.
The components of these reserves at December 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
Loss
Adjustment
Loss Expense Total
------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Case $38,807 $12,003 $ 50,810
IBNR 26,000 30,700 56,700
----------------------------------------
Total $64,807 $42,703 $107,510
----------------------------------------
</TABLE>
9
<PAGE> 10
PART I
Item 1. Business (Continued)
The following table presents the loss reserve activity analysis for
liability coverages related to environmental, asbestos and other
toxic claims.*
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
(In Thousands)
<S> <C> <C> <C>
Reserves at beginning of year $108,230 $113,410 $110,543
Incurred losses and
adjustment expense 9,323 10,252 9,364
Losses and adjustment
expense payments (10,043) (15,432) (6,497)
--------------------------------------
Reserves at end of year $107,510 $108,230 $113,410
--------------------------------------
</TABLE>
*Amounts are before the effect of reinsurance, which is
insignificant.
In view of changes in environmental regulations and evolving case
law which affect the development of loss reserves, the process of
estimating loss reserves for environmental, asbestos and other
toxic claims 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. Although estimation of
environmental claims is a difficult process, the reserves
established for these claims at December 31, 1995 are believed to
be adequate based on the known facts and current law. 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 reserves at December
31, 1995, for the losses and adjustment expense reported in the
consolidated financial statements in accordance with generally
accepted accounting principles (GAAP) of $2,180,823 and $2,070,077
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.
10
<PAGE> 11
PART I
Item 1. Business (Continued)
SAFECO'S 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 $110.7 million at
December 31, 1995, and $143.9 million at December 31, 1994. The
higher amount in 1994 is due to amounts recoverable by SAFECO from
its reinsurers related to the Los Angeles earthquake. Reinsurance
costs for catastrophe coverages have increased in the last few
years and are expected to remain relatively high in the foreseeable
future, given the large amount of catastrophe losses in recent
years. SAFECO's catastrophe property reinsurance program for 1996
covers 90% of $300 million of single event losses in excess of a
$75 million retention. In the event of a substantial catastrophe,
SAFECO would, therefore, retain the first $75 million of losses,
10% of the next $300 million and all losses in excess of $375
million. In addition to this nationwide coverage, for the states of
Washington and Oregon SAFECO has an additional earthquake
reinsurance contract for 1996 that would cover 90% of $100 million
of single event earthquake losses in excess of $375 million. Both
of these 1996 catastrophe property reinsurance contracts include
provisions for one reinstatement for a second catastrophe event in
1996 at current rates. The aggregate coverage limit is higher for
1996 than in prior years and the additional Northwest earthquake
coverage is new for 1996.
SAFECO's insurance subsidiaries (property and casualty and life and
health) do not enter into retrospective reinsurance contracts and
do not participate in any unusual or nonrecurring reinsurance
transactions such as "swaps" of reserves or loss portfolio
transfers. SAFECO does not use "funding covers" and does not
participate in any surplus relief transactions. None of SAFECO's
significant reinsurers are experiencing financial difficulties.
Additional information on reinsurance can be found in Note 5 on
page 60 of the 1995 Annual Report to Stockholders.
In 1994, approximately 2,400 active insurance companies competed
for $251 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.
11
<PAGE> 12
PART I
Item 1. Business (Continued)
Life and Health Operations
Subsidiaries of the Corporation 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. (collectively referred to as SAFECO Life). These companies
offer individual and group insurance products, retirement services
(pension) and annuity products. These products are marketed through
professional agents in all states and the District of Columbia. The
most significant product lines in terms of premium/deposit volume
include: single premium immediate annuities, deferred annuities,
tax-sheltered annuities for nonprofit entities, corporate
retirement plans and excess loss group medical insurance.
SAFECO Life 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 competes
against some of the largest corporations in the United States. On
the basis of 1994 statutory premiums, SAFECO Life ranked 56th among
life insurance companies doing business in the United States.
Many life insurance companies' pension and annuity products have
been impacted in recent years by general economic conditions,
volatile investment returns, rating downgrades, increased
competition and decisions by plan sponsors to diversify assets and
fund management. SAFECO Life has experienced an increase in the
level of withdrawal of funds from its retirement services and
annuity business (see Statement of Consolidated Cash Flows on page
44 of the 1995 Annual Report to Stockholders Return of Funds Held
Under Deposit Contracts), due to scheduled payouts on
distribution-type products and the interest rate environment.
However, SAFECO Life's overall withdrawal experience remains
relatively modest, and proceeds from sales of fixed income
retirement services and annuity products have remained relatively
stable. The table on page 13 sets forth a summary of the components
of "Funds Held Under Deposit Contracts" at December 31, 1995, and
describes the applicable surrender charges and surrender
experience.
12
<PAGE> 13
DETAIL OF SAFECO LIFE INSURANCE COMPANIES' FUNDS HELD UNDER DEPOSIT CONTRACTS
<TABLE>
<CAPTION>
Outstanding at Range of Credited
December 31, 1995 Expected Maturities or Assumed Interest
Product (In Thousands) of Liabilities Rates at December 31, 1995
- ------------------------ ---------------------- --------------------------------- ----------------------------------
<S> <C> <C> <C>
Universal Individual Life $ 217,481 Approximately 10-20 Years 5.25% to 7.15%
Annuities:
Structured Settlement Immediate 4,120,880 Over 25 Years 3.5% to 12.69%
Non-Qualified Deferred 1,172,640 Approximately 5-12 Years 3.85% to 9.0%
Other 4,424 Approximately 7-10 Years 3.57% to 8.39%
Pension:
Guaranteed Investment Contacts 204,024 Typically 2-5 Years 4.85% to 8.80%
Other Qualified Annuities
and Deposits 3,036,935 Approximately 5-15 Years 4.94% to 7.46%
----------
TOTAL $8,756,384
----------
<CAPTION>
Approximate
Product Surrender Charges Surrender Experience
- ------------------------ -------------------------- -------------------------
<S> <C> <C>
Universal Individual Life Varies by issue age, sex, 7% per annum
and duration from
$1 to $58 per $1,000
of insurance
Annuities:
Structured Settlement Immediate Cannot surrender Cannot surrender
Non-Qualified Deferred Typically 5% in Year 1 9% per annum
graded to 0% in Year 6
Other None 5% per annum
Pension:
Guaranteed Investment Contacts Market value adjustment Less than 1% per annum
Other Qualified Annuities
and Deposits Typically 9% in year 1 8% per annum
graded to 0% in year 9.
SAFECO has the option to
defer payout over 20
quarters for about one-quarter
of these contracts. In
addition, approximately $338
million of these deposits
have a market value adjust-
ment provision
</TABLE>
13
<PAGE> 14
PART I
Item 1. Business (Continued)
Investments
A description of SAFECO's investment portfolio can be found on
pages 36-38 of the 1995 Annual Report to Stockholders. The
remainder of this section provides additional details of SAFECO's
mortgage-backed securities as well as information on investment
income yields.
SAFECO's consolidated investments in mortgage-backed securities --
primarily residential collateralized mortgage obligations (CMOs),
and pass-throughs -- totaled $2.8 billion at market value at
December 31, 1995. Approximately 99% of these securities are held
in the life and health insurance companies' portfolio.
Approximately 95% of the mortgage-backed securities are
government/agency backed or AAA rated at December 31, 1995. Less
than 1% of SAFECO's mortgage-backed securities are of the riskier,
highly volatile type (e.g., interest only, inverse floaters,
etc.). SAFECO has intentionally not invested significant amounts
in the riskier types of mortgage-backed securities.
SAFECO Consolidated Holdings of Mortgage-Backed Securities at
December 31, 1995:
<TABLE>
<CAPTION>
GAAP Market Value
-------------------------
Amortized
Residential CMOS: Cost Amount %
--------- ---------- --------
(Amounts In Millions)
<S> <C> <C> <C>
Planned Amortization
Class (PAC) and
Targeted Amortization
Class (TAC) (Fixed Coupon) $ 860.4 $ 894.6 32.1%
Sequential Pay (SEQ) 879.8 917.3 32.9%
Accrual Coupon (Z-Tranche) 476.8 529.0 18.9%
Companions/Supports 11.2 12.1 0.4%
Principal Only 0.4 0.4 -
Inverse Floaters 4.1 4.5 0.2%
Interest Only - 0.8 -
--------- -------- -----
Subtotal 2,232.7 2,358.7 84.5%
--------- -------- -----
Residential Mortgage-Backed
Pass-Throughs (Non-CMOs):
Government/Agency Backed
- all Fixed Coupon 251.3 263.7 9.4%
Private Issuer-Fixed Coupon 43.4 44.7 1.6%
Private Issuer-Floating 0.2 0.2 -
--------- -------- -----
Subtotal 294.9 308.6 11.0%
--------- -------- -----
Securitized Commercial
Real Estate (Non-agency):
Pass-Throughs 67.0 65.8 2.4%
CMOs 54.4 58.2 2.1%
--------- -------- -----
Subtotal 121.4 124.0 4.5%
--------- -------- -----
Asset-Backed Securities
(Non-Real Estate) - - -
--------- -------- -----
Total Mortgaged-Backed
Securities $ 2,649.0 $2,791.3 100%
========= ======== =====
</TABLE>
14
<PAGE> 15
PART I
Item 1. Business (Continued)
The quality distribution of SAFECO's mortgage-backed security portfolio
is detailed in the following table (GAAP Market Values):
<TABLE>
<CAPTION>
Percent at
Rating December 31, 1995
-----------------------------------------------------------------------
<S> <C>
Government/Agency Backed 60%
AAA 35%
AA 3%
A 1%
BBB 1%
BB or lower -
---
Total 100%
===
</TABLE>
Pretax investment income yields for SAFECO's property and casualty and
life and health insurance subsidiaries are summarized as follows
(calculations based on GAAP amortized cost):
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Property and Casualty 7.2% 7.3% 7.6%
Life and Health 8.3% 8.3% 8.8%
</TABLE>
The declines in the investment income yields for both portfolios are
primarily due to the lower interest rate environment in 1993, the first
part of 1994 and in 1995. 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 primarily 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 Asset Management Company, SAFECO Securities,
Inc., SAFECO Services Corporation, SAFECO Trust Company, PNMR
Securities, Inc., and Talbot Financial Corporation.
15
<PAGE> 16
PART I
Item 1. Business (Continued)
Winmar Company, Inc., acquired in 1967, invests in and manages real
estate properties, primarily regional shopping centers. These
properties are located in or near Burlington, Seattle, Vancouver and
Silverdale, Washington; Cleveland and Columbus, Ohio; Louisville,
Kentucky; West Valley City, Utah; Rancho Mirage, California; Boise,
Idaho; Medford, Albany, Tigard and Jantzen Beach, Oregon; Milwaukee,
Wisconsin; and San Antonio, Texas. 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 healthcare
facilities, primarily skilled nursing facilities to third parties. See
Item 2 -- Properties, for additional information.
SAFECO Credit Company, Inc., organized in 1969, provides loans and
equipment financing and leasing to commercial businesses. At December
31, 1995, 9% of the outstanding loans and leases of SAFECO Credit
Company, Inc. consisted of loans to affiliated SAFECO companies. These
affiliate loans are limited to 50% or less of the total loans
outstanding.
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.
SAFECO Securities, Inc., organized in 1967, is the principal
underwriter of the SAFECO Mutual Funds including: the SAFECO Common
Stock Trust, SAFECO Bond Trust, SAFECO Tax-Exempt Bond Trust and the
SAFECO Money Market Trust, totaling seventeen separate investment
portfolios, which are marketed directly to the public; the SAFECO
Institutional Series Trust which is marketed to institutions and has
one investment portfolio; the SAFECO Advisor Series Trust which is sold
to the public through broker/dealers and which has eight investment
portfolios each of which has three classes of stock. In addition,
SAFECO Securities, Inc., is the principal underwriter for the SAFECO
Resource Series Trust mutual fund which has five separate investment
portfolios and for the variable insurance products issued by SAFECO
Resource Variable Account B, SAFECO Separate Account SL and SAFECO
Separate Account C, all of which are separate accounts of SAFECO Life
Insurance Company.
SAFECO Services Corporation, organized in 1972, is the transfer agent
for the SAFECO Mutual Funds.
SAFECO Trust Company, organized in 1994, provides asset management and
trust administrative services to high net worth individuals and
unrelated organizations.
PNMR Securities, Inc., organized in 1986, acts as a broker-dealer,
making shares of unaffiliated and affiliated mutual funds and
proprietary and non-proprietary variable insurance products available
to the public through its registered representatives.
Talbot Financial Corporation, acquired by the Corporation in 1993, is a
broad-based insurance brokerage with a heavy emphasis on the
distribution of qualified and non-qualified annuity products and mutual
funds through the banking and brokerage arenas.
16
<PAGE> 17
PART I
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 567,000 gross square feet. 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; Redmond, WA 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 425,000 gross square feet, generally for periods of
five years or less.
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. 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
leaseable property.
<TABLE>
<CAPTION>
Leasable Area
(Sq. Ft.)
-------------
<S> <C>
Shopping Centers:
Tigard, Oregon 709,000
West Valley City, Utah 623,000
Louisville, Kentucky 620,000
Milwaukee, Wisconsin 573,000
Cleveland Heights, Ohio 464,000
Silverdale, Washington 451,000
Burlington, Washington 419,000
San Antonio, Texas 232,000
Albany, Oregon 141,000
-----------------
4,232,000
-----------------
Office and Industrial Space:
Louisville, Kentucky 609,000
Vancouver, Washington 212,000
-----------------
821,000
-----------------
Other 190,000
-----------------
Total Leasable Area 5,243,000
-----------------
</TABLE>
17
<PAGE> 18
PART I
Item 2. Properties (Continued)
Winmar also owns or leases pursuant to long-term ground leases
1,360 acres of undeveloped land, primarily in Washington, Oregon,
Texas and California.
SAFECARE Company, Inc., owns and leases healthcare facilities,
primarily skilled nursing facilities, which contain approximately
400 beds, to qualified operators.
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. The Corporation does not believe that such litigation
will have a material adverse effect on its financial condition,
future operating results or liquidity.
The property and casualty insurance subsidiaries of the
Corporation are parties to a number of lawsuits for liability
coverages related to environmental claims. Although estimation of
environmental claims loss reserves is a difficult process, the
reserves established for these claims are believed to be adequate
based on the known facts and current law. 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 pages 9-10 of Item 1 for more information regarding
the liability of such subsidiaries for environmental claims and
the process of estimating environmental loss reserves.
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 1995.
18
<PAGE> 19
PART I
Executive Officers of the Registrant
As of March 27, 1996, these are the names, ages and positions of the
executive officers of the Registrant as required by Item 10. No family
relationships exist.
Roger H. Eigsti 53 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 51 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.
Dan D. McLean 63 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 48 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.
James W. Ruddy 46 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 57 President of SAFECO Life and Health
Insurance Companies since 1985. He is not
an officer of the Registrant.
Ronald L. Spaulding 52 Vice President and Treasurer since
January 1995. Vice President of SAFECO
Life and Health Insurance Companies since
1984.
19
<PAGE> 20
PART II
Item 5. Market For Registrant's Common Stock and Related Security Holder
Matters
Pages 39 and 69 of the 1995 Annual Report to Stockholders are
incorporated herein by reference.
Item 6. Selected Financial Data
Pages 70 through 73 of the 1995 Annual Report to Stockholders are
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 27 through 39 of the 1995 Annual Report to Stockholders are
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Pages 41 through 69 of the 1995 Annual Report to Stockholders are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The definitive proxy statement to be filed within 120 days after
December 31, 1995, excluding the Annual Report of the Compensation
Committee on Executive Compensation appearing on Pages 9 through
16, is incorporated herein by reference to fulfill the requirements
of Item 10, "Directors and Executive Officers of the Registrant"
(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."
20
<PAGE> 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(a) Financial Statements:
F-1 Consent of Independent Auditors
SAFECO Corporation and Subsidiaries:
Financial Statements (pages 40 through 69 of the 1995 Annual
Report to Stockholders, containing the following statements,
are incorporated herein by reference):
Consolidated Balance Sheet -- December 31, 1995 and
1994
Statement of Consolidated Income -- Years Ended
December 31, 1995, 1994 and 1993
Statement of Consolidated Cash Flows -- Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements --
December 31, 1995
Report of Independent Auditors
SAFECO Corporation and Subsidiaries Supplemental
Consolidating Information:
F-2 Balance Sheet -- December 31, 1995 and 1994
F-3 Statement of Income -- Year Ended December 31, 1995
F-4 Statement of Cash Flows -- Year Ended December 31,
1995
21
<PAGE> 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(Continued)
(a) Financial Statement Schedules:
F-5 Schedule I Summary of Investments -- Other Than
Investments in Related Parties, December 31,
1995
Schedule II Condensed Financial Information of the
Registrant (Parent Company Only):
F-6 Balance Sheet -- December 31, 1995 and 1994
F-7 Statement of Income -- Years Ended December
31, 1995, 1994 and 1993
F-8 Statement of Cash Flows -- Years Ended
December 31, 1995, 1994 and 1993
Statement of Changes in Stockholders' Equity
-- Years Ended December 31, 1995, 1994 and
1993. (See page 46 of the 1995 Annual Report
to Stockholders which is incorporated herein
by reference.)
F-9 Schedule III Supplementary Insurance Information -- Years
Ended December 31, 1995, 1994 and 1993
F-10 Schedule IV Reinsurance -- Years Ended December 31,
1995, 1994 and 1993
F-11 Schedule VI Supplemental Information Concerning
Property/Casualty Insurance Operations --
Years Ended December 31, 1995, 1994 and 1993
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:
Schedule V
22
<PAGE> 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(Continued)
(a) Listing of Exhibits:
F-12 Exhibit Index
F-13 Exhibit 3 -- Bylaws (as last amended November 1,
1995).
-- 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 -- SAFECO agrees to furnish the
Securities and Exchange Commission,
upon request, with copies of all
instruments defining rights of
holders of long-term debt of SAFECO
and its consolidated subsidiaries.
Exhibit 10 -- The following management contracts
and compensatory plan arrangements:
F-14 -- Executive Severance Agreement with
James W. Ruddy.
-- SAFECO Corporation Deferred
Compensation Plan for Directors filed
as Exhibit 10 to Registrant's Annual
Report on Form 10-K for the fiscal
year ended December 31, 1994.
-- 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; and Executive
Severance Agreement with R. E. Zunker
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
23
<PAGE> 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(Continued)
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 (filed in
paper version only, as allowed under
SEC; EDGAR Rules)
Exhibit 13 -- 1995 Annual Report to Stockholders
(pages 27 to 73, inclusive)
Exhibit 27 -- Financial Data Schedule (This exhibit
is included only in the electronic
EDGAR filing version of this 10-K.
The Financial Data Schedule is not a
separate financial statement but a
schedule that summarizes certain
standard financial information
extracted directly from the financial
statements in this filing.)
(b) Reports on Form 8-K:
No Forms 8-K were filed or required to be filed for any event
during the quarter ended December 31, 1995.
24
<PAGE> 25
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 27th day of March,
1996.
SAFECO CORPORATION
--------------------------------------
Registrant
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 27, 1996
- ------------------------- Chief Executive Officer
Roger H. Eigsti and President
BOH A. DICKEY Executive Vice President, March 27, 1996
- ------------------------- Chief Financial Officer
Boh A. Dickey and Director
ROD A. PIERSON Senior Vice President, March 27, 1996
- ------------------------- Secretary, Controller and
Rod A. Pierson Chief Accounting Officer
PHYLLIS J. CAMPBELL Director March 27, 1996
- -------------------------
Phyllis J. Campbell
ROBERT S. CLINE Director March 27, 1996
- -------------------------
Robert S. Cline
JOHN W. ELLIS Director March 27, 1996
- -------------------------
John W. Ellis
WILLIAM P. GERBERDING Director March 27, 1996
- -------------------------
William P. Gerberding
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
DONALD G. GRAHAM, JR. Director March 27, 1996
- -------------------------
Donald G. Graham, Jr.
JOSHUA GREEN III Director March 27, 1996
- -------------------------
Joshua Green III
CALVERT KNUDSEN Director March 27, 1996
- -------------------------
Calvert Knudsen
WILLIAM G. REED, JR. Director March 27, 1996
- -------------------------
William G. Reed, Jr.
JUDITH M. RUNSTAD Director March 27, 1996
- -------------------------
Judith M. Runstad
PAUL W. SKINNER Director March 27, 1996
- -------------------------
Paul W. Skinner
GEORGE H.WEYERHAEUSER Director March 27, 1996
- -------------------------
George H. Weyerhaeuser
WILLIAM R. WILEY Director March 27, 1996
- -------------------------
William R. Wiley
</TABLE>
26
<PAGE> 27
F-1
CONSENT OF ERNST & YOUNG LLP, 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 9, 1996, included in the 1995
Annual Report to Stockholders of SAFECO Corporation.
Our audit 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 and Form S-3 No. 33-52863) of SAFECO
Corporation of our report dated February 9, 1996, with respect to the
consolidated financial statements of SAFECO Corporation incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedules included in this Annual Report (Form 10-K) of
SAFECO Corporation.
ERNST & YOUNG LLP
Seattle, Washington
March 25, 1996
<PAGE> 28
SAFECO Corporation and Subsidiaries F-2
Balance Sheet
Supplemental Consolidating Information
<TABLE>
<CAPTION>
December 31, 1995
- -----------------------------------------------------------------------------------------------------
(In Thousands)
Property & Life Real
ASSETS Casualty & Health Estate
---------- -------- ------
<S> <C> <C> <C>
Investments:
Fixed Maturities Available-for-Sale, at Market Value $4,081,768 $ 7,724,129 $ --
Fixed Maturities Held-to-Maturity, at Amortized Cost -- 2,044,517 --
Marketable Equity Securities, at Market Value 994,704 29,007 --
Mortgage Loans 1,874 553,934 --
Real Estate (At cost less accumulated depreciation) -- 6,260 496,535
Policy Loans -- 55,925 --
Short-Term Investments 84,971 74,930 1,206
---------- ----------- --------
Total Investments 5,163,317 10,488,702 497,741
Cash 21,052 35,533 (616)
Accrued Investment Income 79,405 150,916 --
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) -- -- --
Loans to Affiliates -- -- --
Premiums and Other Service Fees Receivable 418,854 13,060 8,050
Other Notes and Accounts Receivable 11,729 15,044 15,571
Reinsurance Recoverables 120,628 16,656 --
Deferred Policy Acquisition Costs 145,868 210,491 --
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 140,992 1,010 1,855
Other Assets 72,562 7,816 4,435
Separate Account Assets -- 276,399 --
---------- ----------- --------
TOTAL $6,174,407 $11,215,627 $527,036
========== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense $2,180,823 $ 26,407 $ --
Unearned Premiums 902,553 8,209 --
Life Policy Liabilities -- 154,090 --
Funds Held Under Deposit Contracts -- 8,756,384 --
Notes and Mortgages Payable:
Credit Company Borrowings - Non-Affiliates -- -- --
Credit Company Borrowings - Affiliates -- -- --
7.875% Notes Due 2005 -- -- --
Other Notes and Mortgages - Non-Affiliates -- -- 198,407
Other Notes and Mortgages - Affiliates -- -- 161,046
Other Liabilities 418,772 435,333 27,187
Federal and Canadian Income Taxes:
Current 2,143 13,363 2,474
Deferred 239,505 196,829 25,714
Separate Account Liabilities -- 276,399 --
---------- ----------- --------
Total Liabilities 3,743,796 9,867,014 414,828
---------- ----------- --------
Common Stock 20,026 6,001 1
Additional Paid-In Capital 56,930 92,311 42,123
Retained Earnings 1,689,261 929,238 70,084
Unrealized Appreciation of Investment Securities,
Net of Tax 668,226 321,063 --
Unrealized Loss from Foreign Currency Translation, Net of Tax (3,832) -- --
---------- ----------- --------
Stockholders' Equity 2,430,611 1,348,613 112,208
---------- ----------- --------
TOTAL $6,174,407 $11,215,627 $527,036
========== =========== ========
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------------------------------------
(In Thousands)
Credit Other and
ASSETS Company Eliminations Consolidated
------- ------------ ------------
<S> <C> <C> <C>
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ -- $ 122,247 $11,928,144
Fixed Maturities Held-to-Maturity, at Amortized Cost -- -- 2,044,517
Marketable Equity Securities, at Market Value -- 95,697 1,119,408
Mortgage Loans -- (139,319) 416,489
Real Estate (At cost less accumulated depreciation) -- (3,837) 498,958
Policy Loans -- -- 55,925
Short-Term Investments 800 (93,099) 68,808
-------- --------- -----------
Total Investments 800 (18,311) 16,132,249
Cash 1,067 8,441 65,477
Accrued Investment Income 2,892 1,040 234,253
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) 741,177 -- 741,177
Loans to Affiliates 83,395 (83,395) --
Premiums and Other Service Fees Receivable -- 4,654 444,618
Other Notes and Accounts Receivable 1,010 (1,215) 42,139
Reinsurance Recoverables -- -- 137,284
Deferred Policy Acquisition Costs -- -- 356,359
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 586 25,573 170,016
Other Assets 50,547 32,512 167,872
Separate Account Assets -- -- 276,399
-------- --------- -----------
TOTAL $881,474 $ (30,701) $18,767,843
======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense $ -- $ -- $ 2,207,230
Unearned Premiums -- -- 910,762
Life Policy Liabilities -- -- 154,090
Funds Held Under Deposit Contracts -- -- 8,756,384
Notes and Mortgages Payable:
Credit Company Borrowings - Non-Affiliates 614,270 -- 614,270
Credit Company Borrowings - Affiliates 126,605 (126,605) --
7.875% Notes Due 2005 -- 200,000 200,000
Other Notes and Mortgages - Non-Affiliates -- 54,868 253,275
Other Notes and Mortgages - Affiliates -- (161,046) --
Other Liabilities 18,604 (2,050) 897,846
Federal and Canadian Income Taxes:
Current (1,576) 1,596 18,000
Deferred 26,946 7,947 496,941
Separate Account Liabilities -- -- 276,399
-------- --------- -----------
Total Liabilities 784,849 (25,290) 14,785,197
-------- --------- -----------
Common Stock 1,000 190,419 217,447
Additional Paid-In Capital 27,000 (218,364) --
Retained Earnings 68,625 (1,671) 2,755,537
Unrealized Appreciation of Investment Securities,
Net of Tax -- 24,205 1,013,494
Unrealized Loss from Foreign Currency Translation, Net of Tax -- -- (3,832)
-------- --------- -----------
Stockholders' Equity 96,625 (5,411) 3,982,646
-------- --------- -----------
TOTAL $881,474 $ (30,701) $18,767,843
======== ========= ===========
</TABLE>
<PAGE> 29
F-2
Continued
SAFECO Corporation and Subsidiaries
Balance Sheet Continued Continued
Supplemental Consolidating Information
<TABLE>
<CAPTION>
December 31, 1994
- --------------------------------------------------------------------------------------------------
(In Thousands) Property & Life & Real
ASSETS Casualty Health Estate
---------- ---------- --------
<S> <C> <C> <C>
Investments:
Fixed Maturities Available-for-Sale, at Market Value $3,473,186 $5,919,478 $ --
Fixed Maturities Held-to-Maturity, at Amortized Cost -- 2,053,132 --
Marketable Equity Securities, at Market Value 735,053 24,887 --
Mortgage Loans 1,956 552,597 --
Real Estate (At cost less accumulated depreciation) -- 6,367 473,429
Policy Loans -- 53,329 --
Short-Term Investments 137,008 67,822 749
---------- ---------- --------
Total Investments 4,347,203 8,677,612 474,178
Cash 14,296 27,222 366
Accrued Investment Income 83,932 141,926 --
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) -- -- --
Loans to Affiliates -- -- --
Premiums and Other Service Fees Receivable 393,726 12,213 9,114
Other Notes and Accounts Receivable 11,089 9,248 54,848
Reinsurance Recoverables 156,993 15,517 --
Deferred Policy Acquisition Costs 141,653 247,190 --
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 132,399 690 1,426
Other Assets 74,444 9,032 5,841
Separate Account Assets -- 158,266 --
---------- ---------- --------
TOTAL $5,355,735 $9,298,916 $545,773
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense $2,236,804 $ 29,050 $ --
Unearned Premiums 858,181 8,783 --
Life Policy Liabilities -- 155,322 --
Funds Held Under Deposit Contracts -- 7,988,456 --
Notes and Mortgages Payable:
Credit Company Borrowings - Non-Affiliates -- -- --
Credit Company Borrowings - Affiliates -- -- --
10.75% Notes Due 1995 -- -- --
Other Notes and Mortgages - Non-Affiliates -- -- 217,210
Other Notes and Mortgages - Affiliates -- -- 161,044
Other Liabilities 381,663 162,906 28,399
Federal and Canadian Income Taxes:
Current 8,509 12,852 2,692
Deferred 19,635 (30,206) 28,084
Separate Account Liabilities -- 158,266 --
---------- ---------- --------
Total Liabilities 3,504,792 8,485,429 437,429
---------- ---------- --------
Common Stock 20,026 6,001 1
Additional Paid-In Capital 57,057 92,311 42,123
Retained Earnings 1,530,635 841,373 66,220
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax 248,863 (126,198) --
Unrealized Loss from Foreign Currency Translation, Net of Tax (5,638) -- --
---------- ---------- --------
Stockholders' Equity 1,850,943 813,487 108,344
---------- ---------- --------
TOTAL $5,355,735 $9,298,916 $545,773
========== ========== ========
<CAPTION>
December 31, 1994
- ------------------------------------------------------------------------------------------------------
(In Thousands) Credit Other and
ASSETS Company Eliminations Consolidated
<S> <C> <C> <C>
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ -- $ 116,407 $ 9,509,071
Fixed Maturities Held-to-Maturity, at Amortized Cost -- -- 2,053,132
Marketable Equity Securities, at Market Value -- 95,114 855,054
Mortgage Loans -- (135,570) 418,983
Real Estate (At cost less accumulated depreciation) -- (3,931) 475,865
Policy Loans -- -- 53,329
Short-Term Investments 1,050 (105,055) 101,574
-------- --------- -----------
Total Investments 1,050 (33,035) 13,467,008
Cash 11,061 10,559 63,504
Accrued Investment Income 2,155 1,951 229,964
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) 619,059 -- 619,059
Loans to Affiliates 89,073 (89,073) --
Premiums and Other Service Fees Receivable -- 3,680 418,733
Other Notes and Accounts Receivable 33 (5,646) 69,572
Reinsurance Recoverables -- -- 172,510
Deferred Policy Acquisition Costs -- -- 388,843
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 499 25,959 160,973
Other Assets 32,248 31,732 153,297
Separate Account Assets -- -- 158,266
-------- --------- -----------
TOTAL $755,178 $ (53,873) $15,901,729
======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense $ -- $ -- $ 2,265,854
Unearned Premiums -- -- 866,964
Life Policy Liabilities -- -- 155,322
Funds Held Under Deposit Contracts -- -- 7,988,456
Notes and Mortgages Payable:
Credit Company Borrowings - Non-Affiliates 510,600 -- 510,600
Credit Company Borrowings - Affiliates 113,205 (113,205) --
10.75% Notes Due 1995 -- 200,000 200,000
Other Notes and Mortgages - Non-Affiliates -- 55,099 272,309
Other Notes and Mortgages - Affiliates -- (161,044) --
Other Liabilities 24,020 (996) 595,992
Federal and Canadian Income Taxes:
Current (2,073) 647 22,627
Deferred 19,833 (1,486) 35,860
Separate Account Liabilities -- -- 158,266
-------- --------- -----------
Total Liabilities 665,585 (20,985) 13,072,250
-------- --------- -----------
Common Stock 1,000 184,166 211,194
Additional Paid-In Capital 27,000 (218,491) --
Retained Earnings 61,593 (4,021) 2,495,800
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax -- 5,458 128,123
Unrealized Loss from Foreign Currency Translation, Net of Tax -- -- (5,638)
-------- --------- -----------
Stockholders' Equity 89,593 (32,888) 2,829,479
-------- --------- -----------
TOTAL $755,178 $ (53,873) $15,901,729
======== ========= ===========
</TABLE>
<PAGE> 30
F-3
SAFECO Corporation and Subsidiaries
Statement of Income
Supplemental Consolidating Information
Year Ended December 31, 1995
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Property & Life & Real Other and
Casualty Health Estate Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
REVENUES:
Insurance:
Property and Casualty Earned Premiums $ 2,162,141 $ -- $ -- $ -- $ 2,162,141
Life and Health Premiums and Other Revenues -- 261,570 -- -- 261,570
---------------------------------------------------------------------
Total 2,162,141 261,570 -- -- 2,423,711
Real Estate -- -- 74,959 -- 74,959
Finance -- -- -- 65,931 65,931
Asset Management -- -- -- 18,532 18,532
Net Investment Income 291,450 778,221 -- 5,609 1,075,280
Realized Investment Gain 51,657 5,894 (818) 7,538 64,271
---------------------------------------------------------------------
Total 2,505,248 1,045,685 74,141 97,610 3,722,684
---------------------------------------------------------------------
EXPENSES:
Losses, Adjustment Expense and Policy Benefits 1,526,976 723,466 -- -- 2,250,442
Commissions 322,566 78,596 -- -- 401,162
Personnel Costs 155,359 47,536 13,823 14,103 230,821
Interest -- -- 26,117 58,126 84,243
Dividends to Policyholders 15,239 -- -- -- 15,239
Other 139,868 57,591 25,959 10,745 234,163
Amortization of Deferred Policy Acquisition Costs 376,537 32,376 -- -- 408,913
Deferral of Policy Acquisition Costs (380,752) (35,347) -- -- (416,099)
---------------------------------------------------------------------
Total 2,155,793 904,218 65,899 82,974 3,208,884
---------------------------------------------------------------------
Income Before Income Taxes 349,455 141,467 8,242 14,636 513,800
---------------------------------------------------------------------
Provision (Benefit) for Federal and Canadian Income Taxes:
Current 66,242 62,812 5,212 (2,802) 131,464
Deferred (6,913) (13,798) (2,368) 6,456 (16,623)
---------------------------------------------------------------------
Total 59,329 49,014 2,844 3,654 114,841
---------------------------------------------------------------------
Net Income $ 290,126 $ 92,453 $ 5,398 $ 10,982 $ 398,959
=====================================================================
</TABLE>
<PAGE> 31
F-4
SAFECO Corporation and Subsidiaries
Statement of Cash Flows
Supplemental Consolidating Information
Year Ended December 31, 1995
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Property Life & Real Other and
& Casualty Health Estate Eliminations Consolidated
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received $ 2,177,909 $ 216,269 $ -- $ -- $ 2,394,178
Dividends and Interest Received 288,165 703,993 2,584 64,911 1,059,653
Other Operating Receipts -- 23,492 82,862 59,567 165,921
Insurance Claims and Policy Benefits Paid (1,545,295) (272,206) -- -- (1,817,501)
Underwriting, Acquisition and Insurance Operating
Costs Paid (605,303) (179,807) -- 2,589 (782,521)
Interest Paid -- -- (26,031) (58,912) (84,943)
Other Operating Costs Paid -- -- (34,231) (53,839) (88,070)
Income Taxes Paid (Received) (82,145) (62,301) (5,283) 5,148 (144,581)
----------------------------------------------------------------
Net Cash Provided by Operating Activities 233,331 429,440 19,901 19,464 702,136
----------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale (652,070) (1,424,510) -- (2,756) (2,079,336)
Fixed Maturities Held-to-Maturity -- (291,965) -- -- (291,965)
Equities (165,806) (1,225) -- (3,146) (170,177)
Other Investments (12,593) (67,959) (33,538) (183,028) (297,118)
Maturities of Fixed Maturities Available-for-Sale 333,348 375,291 -- 1,857 710,496
Maturities of Fixed Maturities Held-to-Maturity -- 17,878 -- -- 17,878
Sales of:
Fixed Maturities Available-for-Sale 213,511 327,160 -- 9,194 549,865
Fixed Maturities Held-to-Maturity -- -- -- -- --
Equities 151,097 2,952 -- 22,724 176,773
Other Investments 19,902 60,767 32,224 191,977 304,870
Net Decrease (Increase) in Short-Term Investments 44,809 (7,036) (456) (13,996) 23,321
Finance Receivables Originated or Acquired -- -- -- (374,670) (374,670)
Principal Payments Received on Finance Receivables -- -- -- 244,234 244,234
Other (41,242) (857) (1,212) (23,760) (67,071)
----------------------------------------------------------------
Net Cash Used in Investing Activities (109,044) (1,009,504) (2,982) (131,370) (1,252,900)
----------------------------------------------------------------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts -- 1,304,665 -- -- 1,304,665
Return of Funds Held Under Deposit Contracts -- (720,845) -- -- (720,845)
Proceeds from Notes and Mortgage Borrowings -- -- 12,981 186,020 199,001
Repayment of Notes and Mortgage Borrowings -- -- (28,275) (213,691) (241,966)
Net Proceeds from (Repayment of) Short-Term Borrowings 11,469 9,143 (606) 123,908 143,914
Common Stock Reacquired -- -- -- (8,690) (8,690)
Dividends Paid to Stockholders (129,000) (4,588) (1,600) 6,709 (128,479)
Other -- -- (401) 5,538 5,137
----------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (117,531) 588,375 (17,901) 99,794 552,737
----------------------------------------------------------------
Net Increase (Decrease) in Cash 6,756 8,311 (982) (12,112) 1,973
Cash at the Beginning of Year 14,296 27,222 366 21,620 63,504
----------------------------------------------------------------
Cash at the End of the Year $ 21,052 $ 35,533 $ (616) $ 9,508 $ 65,477
================================================================
</TABLE>
<PAGE> 32
F-5
Schedule I
SAFECO Corporation and Subsidiaries
Summary of Investments Other
Than Investments in Related Parties
December 31, 1995
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Amount at Which
Shown in the
Type of Investment Cost Market Value Balance Sheet
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities Available-for-Sale:
Bonds:
United States Government and Government
Agencies and Authorities $ 1,087,644 $ 1,184,686 $ 1,184,686
States, Municipalities and Political
Subdivisions 2,997,988 3,465,306 3,465,306
Mortgage-Backed Securities 2,357,143 2,472,187 2,472,187
Foreign Governments 208,920 258,425 258,425
Public Utilities 1,533,916 1,682,596 1,682,596
Convertibles and Bonds
with Warrants Attached 33,065 32,252 32,252
All Other Corporate Bonds 2,563,419 2,755,352 2,755,352
Redeemable Preferred Stocks 71,495 77,340 77,340
-------------------------------------------
Total Fixed Maturities classified as Available-for-Sale (1) 10,853,590 $11,928,144 11,928,144
-------------------------------------------
Fixed Maturities Held-to-Maturity:
Bonds:
United States Government and Government
Agencies and Authorities 210,894 $ 270,936 210,894
States, Municipalities and Political
Subdivisions 52,438 57,127 52,438
Mortgage-Backed Securities 291,881 319,074 291,881
Foreign Governments 135,467 167,423 135,467
Public Utilities 456,938 540,509 456,938
All Other Corporate Bonds 896,899 1,033,445 896,899
-------------------------------------------
Total Fixed Maturities classified as Held-to-Maturity (1) 2,044,517 $ 2,388,514 2,044,517
-------------------------------------------
Equity Securities:
Common Stocks:
Public Utilities 52,963 $ 95,930 95,930
Banks, Trust and Insurance Companies 28,663 99,210 99,210
Industrial, Miscellaneous and All Other 379,599 733,445 733,445
Non-Redeemable Preferred Stocks 136,905 190,823 190,823
-------------------------------------------
Total Equity Securities 598,130 $ 1,119,408 1,119,408
-------------------------------------------
Other:
Mortgage Loans on Real Estate (1) 416,489 416,489
Real Estate (Net of depreciation) (1) 498,958 498,958
Policy Loans 55,925 55,925
Short-Term Investments 68,808 68,808
----------- -----------
Total Other 1,040,180 1,040,180
----------- -----------
Total Investments $14,536,417 $16,132,249
----------- -----------
</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, 1995.
<PAGE> 33
F-6
Schedule II
SAFECO Corporation
(Parent Company Only)
Balance Sheet
December 31
- --------------------------------------------------------------------------------
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
Assets 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Stock of Subsidiaries - At Cost Plus Equity in
Undistributed Earnings Since Acquisition
(Includes unrealized appreciation of
investment securities, net of
tax, held by subsidiaries) $4,042,909 $2,907,866
Fixed Maturities Available-for-Sale,
at Market Value
(Amortized cost: 1995 - $78,798;1994 - $89,793) 80,996 80,821
Marketable Equity Securities, at Market Value
(Cost: 1995 - $62,856; 1994 - $76,058) 88,628 88,739
Notes Receivable - SAFECO Credit, due 2002 15,000 --
Short-Term Investments 9,005 3,385
Other Security Investments - At Cost 763 1,732
-------------------------
Total Investments 4,237,301 3,082,543
Cash 115 5
Dividends Receivable
from Affiliated Companies 34,837 32,403
Accounts Receivable
from Affiliated Companies 1,058 --
Federal Income Taxes - Current -- 204
Other Assets 8,505 4,098
-------------------------
TOTAL $4,281,816 $3,119,253
-------------------------
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Accounts and Interest Payable $ 4,423 $ 6,430
Federal Income Taxes:
Current 544 --
Deferred 10,816 2,496
Dividends Payable to Stockholders 33,387 30,848
Medium-Term Notes Due 2002 50,000 50,000
7.875% Notes Due 2005 200,000 --
10.75% Notes Due September 1995 -- 200,000
----------------------------
Total Liabilities 299,170 289,774
----------------------------
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:*
1995 - 3,699,983; 1994 - 2,042,691
Shares Issued and Outstanding:*
1995 - 125,978,742; 1994 - 62,951,634 217,447 211,194
Retained Earnings 2,755,537 2,495,800
Unrealized Appreciation of Investment
Securities, Net of Tax 1,013,494 128,123
Unrealized Loss from Foreign Currency
Translation, Net of Tax (3,832) (5,638)
-----------------------------
Stockholders' Equity 3,982,646 2,829,479
-----------------------------
TOTAL $ 4,281,816 $ 3,119,253
-----------------------------
</TABLE>
* 2-for-1 stock split effective December 1, 1995.
<PAGE> 34
F-7
Schedule II
SAFECO Corporation
(Parent Company Only)
Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
REVENUES:
Dividends Received from Non-Affiliates $ 5,239 $ 6,746 $ 10,480
Interest Earned -Affiliate 858 58 859
-Others 11,370 5,035 4,016
Equity in Loss of Unconsolidated Affiliate (969) (211) (574)
Realized Gain from Security Investments 6,628 2,685 11,958
---------------------------------------
Total 23,126 14,313 26,739
---------------------------------------
EXPENSES:
Interest Expense 30,701 25,072 24,792
Miscellaneous 638 638 476
---------------------------------------
Total 31,339 25,710 25,268
---------------------------------------
Income (Loss) Before Income Taxes (8,213) (11,397) 1,471
Federal Income Tax Benefit
(Includes provision on realized gain:
1995 - $2,320; 1994 - $940; 1993 - $4,518) 4,099 5,806 1,864
---------------------------------------
Income (Loss) Before Cumulative Effect of
Accounting Changes (4,114) (5,591) 3,335
Cumulative Effect of Accounting Changes
for Income Taxes -- -- (687)
---------------------------------------
Income (Loss) Before Equity in Earnings
of Subsidiaries (4,114) (5,591) 2,648
Equity in Earnings of Subsidiaries
(Includes dividends accrued and received) 403,073 319,965 426,130
---------------------------------------
Consolidated Net Income $ 398,959 $ 314,374 $ 428,778
---------------------------------------
Dividends Accrued and Received From Subsidiaries (Cash):
SAFECO Insurance Company of America $ 69,000 $ 78,000 $ 69,000
General Insurance Company of America 45,000 56,000 48,500
First National Insurance Company of America 4,000 6,000 8,500
SAFECO National Insurance Company 3,500 4,000 3,000
SAFECO Insurance Company of Illinois 10,000 6,000 5,000
SAFECO Life Insurance Company 4,000 4,000 4,000
SAFECO Administrative Services, Inc. 588 720 560
SAFECO Properties, Inc. 1,534 4,043 1,336
SAFECO Credit Company, Inc. 1,840 1,508 1,532
SAFECO Asset Management Company 1,000 2,000 2,000
---------------------------------------
Total $ 140,462 $ 162,271 $ 143,428
---------------------------------------
</TABLE>
<PAGE> 35
F-8
Schedule II
SAFECO Corporation
(Parent Company Only)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Dividends and Interest Received -Affiliates $ 138,886 $ 128,868 $ 144,288
-Other 16,438 11,447 10,739
Interest Paid (33,034) (25,317) (25,064)
Other Operating Costs Paid (1,635) (1,330) (404)
Income Taxes Received 5,588 4,399 7,432
---------------------------------------
Net Cash Provided By Operating Activities 126,243 118,067 136,991
---------------------------------------
INVESTING ACTIVITIES:
Purchase of:
Fixed Maturities Available-for-Sale -- (45,393) --
Fixed Maturities Held-to-Maturity -- -- (12,883)
Equities (3,146) (27,421) (32,902)
Other Investments (211,764) -- --
Maturities of Fixed Maturities Available-for-Sale 770 2,018 --
Maturities of Fixed Maturities Held-to-Maturity -- -- 705
Sales of:
Fixed Maturities Available-for-Sale 9,194 4,952 --
Fixed Maturities Held-to-Maturity -- -- 15,665
Equities 22,724 26,285 27,692
Other Investments 196,764 -- --
Net (Increase) Decrease in Short-Term Investments (5,620) 41,396 (13,245)
Other -- (1,000) --
---------------------------------------
Net Cash Provided By (Used In)
Investing Activities 8,922 837 (14,968)
---------------------------------------
FINANCING ACTIVITIES:
Proceeds from Medium-Term Note Borrowings -- -- 7,150
Proceeds from Notes and Mortgage Borrowings 198,664 -- --
Repayment of Notes and Mortgage Borrowings (201,379) -- --
Capital Contributions to Affiliates (1,000) (750) (19,175)
Common Stock Reacquired (8,690) (5,327) (4,329)
Dividends Paid to Stockholders (128,479) (118,387) (108,133)
Other 5,829 3,626 4,153
---------------------------------------
Net Cash Used In Financing Activities (135,055) (120,838) (120,334)
---------------------------------------
Net Increase (Decrease) in Cash 110 (1,934) 1,689
Cash at the Beginning of Year 5 1,939 250
---------------------------------------
Cash at the End of Year $ 115 $ 5 $ 1,939
=======================================
</TABLE>
<PAGE> 36
F-9
Schedule III
Page 1
SAFECO Corporation and Subsidiaries
Supplementary Insurance Information
Year Ended December 31
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Other Policy
Reserve for Claims and
Future Policy Benefits
Deferred Benefits, Payable Premiums
Policy Losses, Claims (Funds Held and Service
Acquisition and Loss Unearned Under Deposit Fee
Segment Costs Expenses Premiums Contracts) Revenues
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Property and Casualty:
Personal $106,696 $1,112,559 $591,059 $1,562,716
Commercial and Surety 39,172 1,068,264 311,494 599,425
---------------------------------------- ----------
Total 145,868 2,180,823 902,553 2,162,141
---------------------------------------- ----------
Life and Health:
Financial Services 143,228 109,653 6,283 $5,515,427 47,178
Employee Benefits 67,263 70,844 1,926 3,240,957 214,392
-----------------------------------------------------------------------
Total 210,491 180,497 8,209 8,756,384 261,570
-----------------------------------------------------------------------
Real Estate - - - - -
Other and Eliminations - - - - -
-----------------------------------------------------------------------
Consolidated Totals $356,359 $2,361,320 $910,762 $8,756,384 $2,423,711
=======================================================================
1994
Property and Casualty:
Personal $102,745 $1,168,981 $553,811 $1,469,857
Commercial and Surety 38,908 1,067,823 304,370 583,574
---------------------------------------- ----------
Total 141,653 2,236,804 858,181 2,053,431
---------------------------------------- ----------
Life and Health:
Financial Services 151,614 108,822 6,797 $4,871,635 46,642
Employee Benefits 95,576 75,550 1,986 3,116,821 230,129
-----------------------------------------------------------------------
Total 247,190 184,372 8,783 7,988,456 276,771
-----------------------------------------------------------------------
Real Estate - - - - -
Other and Eliminations - - - - -
-----------------------------------------------------------------------
Consolidated Totals $388,843 $2,421,176 $866,964 $7,988,456 $2,330,202
=======================================================================
<CAPTION>
Benefits, Claims, Amortization of Other Operating
Net Losses and Deferred Policy Costs (Including Net
Investment Adjustment Acquisition Dividends to Premiums
Segment Income (1) Expenses Costs Policyholders) Written
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Property and Casualty:
Personal $1,143,191 $281,747 $140,305 $1,599,700
Commercial and Surety 383,785 94,790 111,975 607,284
---------------------------------------------------------------------
Total $ 291,450 1,526,976 376,537 252,280 $2,206,984
--------------------------------------------------------------------------------------
Life and Health:
Financial Services 494,758 403,518 12,222 57,839
Employee Benefits 283,463 319,948 20,154 90,537
-----------------------------------------------------------------
Total 778,221 723,466 32,376 148,376
-----------------------------------------------------------------
Real Estate - - - 65,899
Other and Eliminations 5,609 - - 82,974
-----------------------------------------------------------------
Consolidated Totals $1,075,280 $2,250,442 $408,913 $549,529
=================================================================
1994
Property and Casualty:
Personal $1,142,855 $272,545 $122,388 $1,507,546
Commercial and Surety 385,212 92,651 115,125 595,919
---------------------------------------------------------------------
Total $ 283,481 1,528,067 365,196 237,513 $2,103,465
--------------------------------------------------------------------------------------
Life and Health:
Financial Services 435,101 354,463 9,914 53,680
Employee Benefits 271,116 319,752 19,493 94,671
-----------------------------------------------------------------
Total 706,217 674,215 29,407 148,351
-----------------------------------------------------------------
Real Estate - - - 97,163
Other and Eliminations 1,912 - - 67,420
-----------------------------------------------------------------
Consolidated Totals $ 991,610 $2,202,282 $394,603 $550,447
=================================================================
</TABLE>
<PAGE> 37
F-9
Schedule III
Page 2
SAFECO Corporation and Subsidiaries
Supplementary Insurance Information
Year Ended December 31
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Other Policy
Reserve for Claims and
Future Policy Benefits
Deferred Benefits, Payable Premiums
Policy Losses, Claims (Funds Held and Service
Acquisition and Loss Unearned Under Deposit Fee
Segment Costs Expenses Premiums 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 and Eliminations - - - - -
-----------------------------------------------------------------------
Consolidated Totals $367,303 $2,279,860 $819,385 $7,229,439 $2,235,677
=======================================================================
<CAPTION>
Benefits, Claims, Amortization of Other Operating
Net Losses and Deferred Policy Costs (Including
Investment Adjustment Acquisition Dividends to Net Premiums
Segment Income (1) Expense Costs Policyholders) 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 and Eliminations 5,994 - - 62,893
---------------------------------------------------------------
Consolidated Totals $951,795 $2,026,106 $368,347 $545,294
===============================================================
</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.
<PAGE> 38
F-10
Schedule IV
SAFECO Corporation and Subsidiaries
Reinsurance
Year Ended December 31
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed from of Amount
Other Other Assumed to
Gross Amount Companies Companies Net Amount Net
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Life Insurance In Force at Year End $28,171,372 $(1,303,597) $ 15,532 $26,883,307 0.1%
==========================================================
Earned Premiums:
Life Insurance $ 107,511 $ (4,744) $ 152 $ 102,919 0.1%
Accident/Health Insurance 169,900 (5,641) (5,608) 158,651 (3.5%)
Property/Casualty Insurance 2,300,853 (160,342) 21,630 2,162,141 1.0%
----------------------------------------------------------
Total $ 2,578,264 $ (170,727) $ 16,174 $ 2,423,711 0.7%
==========================================================
1994
Life Insurance In Force at Year End $28,692,952 $(1,322,748) $ -- $27,370,204 0.0%
==========================================================
Earned Premiums:
Life Insurance $ 107,099 $ (4,844) $ 38 $ 102,293 0.0%
Accident/Health Insurance 178,405 (4,216) 289 174,478 0.2%
Property/Casualty Insurance 2,207,615 (175,861) 21,677 2,053,431 1.1%
----------------------------------------------------------
Total $ 2,493,119 $ (184,921) $ 22,004 $ 2,330,202 0.9%
==========================================================
1993
Life Insurance In Force at Year End $28,009,316 $(1,302,251) $ -- $26,707,065 0.0%
==========================================================
Earned Premiums:
Life Insurance $ 104,755 $ (4,465) $ -- $ 100,290 0.0%
Accident/Health Insurance 210,240 (5,111) 544 205,673 0.3%
Property/Casualty Insurance 2,034,268 (127,537) 22,983 1,929,714 1.2%
----------------------------------------------------------
Total $ 2,349,263 $ (137,113) $ 23,527 $ 2,235,677 1.1%
==========================================================
</TABLE>
<PAGE> 39
F-11
Schedule VI
SAFECO Corporation
Supplemental Information Concerning Property/Casualty Insurance Operations
Year Ended December 31
- --------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Discount, if
Reserve For any,
Deferred Unpaid Deducted
Policy Losses and from
Affiliation With Acquisition Adjustment Loss Unearned Earned
Registrant Costs Expense Reserves Premiums Premiums
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated
Property/Casualty
Subsidiaries:
1995 $145,868 $2,180,823 - $902,553 $2,162,141
1994 $141,653 $2,236,804 - $858,181 $2,053,431
1993 $133,103 $2,095,187 - $809,427 $1,929,714
<CAPTION>
Amortization
Losses and Adjustment of Deferred Paid Losses
Net Expenses Incurred Related to Policy and Net
Affiliation With Investment Current Prior Acquisition Adjustment Premiums
Registrant Income Year Years Costs Expenses Written
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated
Property/Casualty
Subsidiaries:
1995 $291,450 $1,586,675 $(59,699) $376,537 $1,549,845 $2,206,984
1994 $283,481 $1,609,392 $(81,325) $365,196 $1,430,243 $2,103,465
1993 $277,643 $1,447,565 $(96,937) $341,997 $1,318,642 $2,000,165
</TABLE>
<PAGE> 40
F-12
SAFECO Corporation And Subsidiaries
Exhibit Index*
- --------------------------------------------------------------------------------
F-13 Exhibit 3 - Bylaws (as last amended November 1, 1995).
- 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 - SAFECO agrees to furnish the Securities and Exchange
Commission, upon request, with copies of all instruments
defining rights of holders of long-term debt of SAFECO and its
consolidated subsidiaries.
F-14 Exhibit 10 - Executive Severance Agreement with James W. Ruddy dated
November 6, 1987.
- SAFECO Corporation Deferred Compensation Plan for Directors
dated November 2, 1994, filed as Exhibit 10 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994, is incorporated herein by this reference.
- 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; 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.
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 (filed in paper version only, as
allowed under SEC; EDGAR Rules)
Exhibit 13 - 1995 Annual Report to Stockholders (pages 27 to 73,
inclusive)
Exhibit 27 - Financial Data Schedule (This exhibit is included only in the
electronic EDGAR filing version of this 10-K. The Financial
Data Schedule is not a separate financial statement but a
schedule that summarizes certain standard financial
information extracted directly from the financial statements
in this filing.)
* 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-13
Exhibit 3
BYLAWS
OF
SAFECO CORPORATION
(As last amended November 1, 1995)
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 the annual meeting, the
reasons for conducting such business at the annual meeting and any material
interest of the stockholder in such business.
<PAGE> 2
SAFECO Corporation Bylaws
At November 1, 1995
Page 2
(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 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 10 nor more than 60 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 20 nor more than 60 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.
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.
<PAGE> 3
SAFECO Corporation Bylaws
At November 1, 1995
Page 3
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 12 to 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
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 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
<PAGE> 4
SAFECO Corporation Bylaws
At November 1, 1995
Page 4
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 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.
<PAGE> 5
SAFECO Corporation Bylaws
At November 1, 1995
Page 5
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 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 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 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 (i) the chief executive
officer of the corporation, (ii) the chairs of each of the Audit, Compensation,
Finance and Nominating Committees, and (iii) any other director of the
corporation appointed by the Board. The chief executive officer shall be the
chair of the Committee, unless the Board designates some other member of the
Committee as chair.
<PAGE> 6
SAFECO Corporation Bylaws
At November 1, 1995
Page 6
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 in 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, succession planning, 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
chair of the Committee 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.
ARTICLE IV
FINANCE COMMITTEE
1. MEMBERSHIP. The Finance Committee shall consist of not less than five members
appointed by the Board, one of whom shall be designated as its chair 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.
<PAGE> 7
SAFECO Corporation Bylaws
At November 1, 1995
Page 7
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
chair 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.
ARTICLE V
AUDIT COMMITTEE
1. MEMBERSHIP. The Audit Committee shall consist of not less than three members
appointed by the Board, none of whom shall be an employee of the corporation or
any of its subsidiaries. The Board shall designate one member of the Committee
as its chair. 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
<PAGE> 8
SAFECO Corporation Bylaws
At November 1, 1995
Page 8
(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 chair
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.
ARTICLE VI
NOMINATING COMMITTEE
1. MEMBERSHIP. The Nominating Committee shall consist of not less than three
members appointed by the Board, not more than one of whom shall be an employee
of the corporation or any of its subsidiaries. The Board shall designate one
member of the Committee as its chair. 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;
<PAGE> 9
SAFECO Corporation Bylaws
At November 1, 1995
Page 9
(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
chair 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.
ARTICLE VII
COMPENSATION COMMITTEE
1. MEMBERSHIP. The Compensation Committee shall consist of not less than three
members appointed by the Board, none of whom shall be an employee of the
corporation or any of its subsidiaries. The Board shall designate one member of
the Committee as its chair. 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;
<PAGE> 10
SAFECO Corporation Bylaws
At November 1, 1995
Page 10
(2) Report to the Board remuneration information
concerning the chief executive officer and through
the chief executive officer make such information as
to any employee available 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
chair 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.
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.
<PAGE> 11
SAFECO Corporation Bylaws
At November 1, 1995
Page 11
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 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
<PAGE> 12
SAFECO Corporation Bylaws
At November 1, 1995
Page 12
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
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 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.
<PAGE> 13
SAFECO Corporation Bylaws
At November 1, 1995
Page 13
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
therefor 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 therefor 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 such stock.
4. LOSS OR DESTRUCTION OF CERTIFICATES. In the case of loss or destruction of
any certificate 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 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.
<PAGE> 14
SAFECO Corporation Bylaws
At November 1, 1995
Page 14
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 Section 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 Section 2 of this Article.
4. DEFINITIONS. For purposes of this Article XII, 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.
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.
<PAGE> 15
SAFECO Corporation Bylaws
At November 1, 1995
Page 15
ARTICLE XIII
SEAL
The seal of this corporation shall consist of a flat-faced, circular die with
the words ASAFECO 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 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
<PAGE> 1
F-14
Exhibit 10
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into this 6th day of November, 1987, by
and among SAFECO CORPORATION, a Washington corporation, referred to herein as
("SAFECO") and JAMES W. RUDDY ("Executive").
RECITALS:
A. Executive presently serves as Associate General Counsel of SAFECO
Corporation and is an integral part of the management of SAFECO.
B. SAFECO considers the establishment and maintenance of a sound and vital
management to be essential to protect and enhance the best interests of SAFECO
and its shareholders. In this connection, SAFECO recognizes that the possibility
of a change in the control of SAFECO Corporation may exist from time to time,
and that such possibility, and the uncertainty and questions that it may create
for Executive and other SAFECO management, may result in the departure or
distraction of such management to the detriment of SAFECO Corporation and its
shareholders. Further, SAFECO recognizes that, in the early stages of an attempt
to gain control of SAFECO, certain Executives may be called upon by SAFECO to
take certain actions against the party attempting to gain control that may
jeopardize the Executive's continued employment should the attempt be
successful. Accordingly, the Board of Directors of SAFECO Corporation (the
"Board") has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive and other
SAFECO management personnel to their assigned duties.
C. SAFECO desires to enter into this Executive Severance Agreement to induce
Executive to remain in the employ of SAFECO and in consideration of Executive's
agreement to remain in the employ of SAFECO subject to the terms and conditions
set forth herein. Executive is willing
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to enter into this Agreement in consideration of the severance benefits which
SAFECO herein promises to pay Executive in the event Executive's employment with
SAFECO is terminated subsequent to a change in control of SAFECO under certain
conditions described herein.
D. This Agreement is not intended to alter the compensation and benefits that
Executive could reasonably expect in the absence of a change in control of
SAFECO Corporation and, accordingly, this Agreement will be operative only upon
a change in control of SAFECO Corporation as that term is hereafter defined.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto mutually agree as follows:
1. Definitions.
In addition to the words and terms elsewhere defined herein, the
following words and terms as used herein shall have the following meaning unless
the context or use indicate a different meaning:
(a) "Cause." SAFECO shall be deemed to have terminated
Executive's employment for "Cause" if such termination is a result of a good
faith determination by the Board or an authorized committee of the Board that:
(i) Executive has committed a felony;
(ii) Executive has committed any crime involving moral
turpitude;
(iii) Executive has misappropriated funds of SAFECO;
(iv) Executive has continually engaged in conduct that
constitutes gross malfeasance of duty; or
(v) Executive has been habitually absent from work for
reasons unrelated to disability.
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<PAGE> 3
Notwithstanding the foregoing, the Executive's termination shall not be deemed
to be for Cause unless and until there shall have been delivered to Executive a
copy of a Notice of Termination described in paragraph 4 hereof and Executive
shall have been given the opportunity to be heard as specified in such paragraph
4.
(b) "Change in Control." A "Change in Control" of SAFECO
Corporation shall mean a change in control of a nature that would be required to
be reported in response to Item 5(f) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"); provided without limitation, that such a change in control shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13(d)-3 under the Exchange Act), directly or indirectly, of
securities of SAFECO Corporation representing 25% or more of the combined voting
power of SAFECO Corporation's then outstanding securities; or (ii) at any time
less than fifty-one percent (51%) of the members of the Board shall be persons
who are either nominated for election by the Board or an authorized committee of
the Board or elected by the Board.
(c) "Disability." SAFECO shall be deemed to have terminated
Executive's employment based on "Disability" if such termination is attributable
to Executive's absence from his duties with SAFECO on a full-time basis for one
hundred thirty (130) consecutive business days, as a result of Executive's
incapacity due to physical or mental illness, unless within thirty (30) days
after giving the Notice of Termination described in paragraph 4 hereof Executive
shall have returned to the full-time performance of his duties.
(d) "Code." The Internal Revenue Code of 1986, as amended from
time to time.
(e) "Good Reason." Executive shall be deemed to have
terminated his employment with SAFECO for "Good Reason" if such termination is
based on:
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<PAGE> 4
(i) Subsequent to a Change in Control of SAFECO
Corporation, and without Executive's express written consent, the assignment to
Executive of any duties inconsistent with Executive's position, duties,
responsibilities and status with SAFECO immediately prior to a Change in
Control, or a change in Executive's reporting responsibilities, titles or
offices as in effect immediately prior to a Change in Control, or any removal of
Executive from or any failure to re-elect Executive to any position, except in
connection with the termination of Executive's employment for Cause, Disability
or Retirement or as a result of Executive's death;
(ii) Subsequent to a Change in Control of SAFECO
Corporation, a reduction by SAFECO in Executive's base salary as in effect on
the date hereof or as the same may be increased from time to time;
(iii) Subsequent to a Change in Control of SAFECO
Corporation, a failure by SAFECO to continue any bonus plans in which Executive
actually participates as the same may be modified from time to time but
substantially in the forms in effect immediately prior to the Change in Control,
or a failure by SAFECO to continue Executive's participation in bonus plans on
at least the same basis as Executive participates immediately prior to the
Change in Control;
(iv) Subsequent to a Change in Control of SAFECO
Corporation and without Executive's express written consent, SAFECO's requiring
Executive to occupy an office anywhere outside of King County, Washington,
except for required travel on SAFECO's business to an extent substantially
consistent with Executive's business travel obligations immediately prior to the
Change in Control;
(v) Subsequent to a Change in Control of SAFECO
Corporation, the failure of SAFECO to continue in effect any benefit or
compensation plan, stock option plan, life insurance plan, health and accident
plan or disability plan in which Executive is participating at the
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<PAGE> 5
time of a Change in Control of SAFECO Corporation (or plans providing Executive
with substantially similar benefits), the taking of any action by SAFECO which
would adversely affect Executive's participation in or significantly reduce
Executive's benefit under any such plans or deprive Executive of any significant
fringe benefit enjoyed by Executive at the time of the Change in Control, or the
failure by SAFECO to provide Executive with the number of paid vacation days to
which Executive is then entitled in accordance with SAFECO's normal vacation
policy in effect immediately prior to a Change in Control; or
(vi) Subsequent to a Change in Control of SAFECO
Corporation, the failure to SAFECO to obtain the assumption of, or the agreement
to perform, this Agreement by any successor as contemplated in paragraph 11
hereof.
(f) "Retirement." Executive's termination of employment shall
be based on "Retirement" if termination is in accordance with the retirement
policy of SAFECO generally applicable to its salaried employees and in effect
immediately prior to any Change in Control of SAFECO Corporation.
(g) "SAFECO Affiliate." A corporation shall be deemed to be a
SAFECO Affiliate if 80% or more of its combined outstanding voting stock is
owned by SAFECO.
2. Executive's Employment.
It is understood and agreed that, until there has been a change in
Control of SAFECO Corporation, this Executive Severance Agreement creates in the
Executive no rights to continued employment with SAFECO, it being understood
that Executive's employment with SAFECO prior to any Change in Control is at
will, as are all SAFECO's current employment arrangements. It is further
understood and agreed that Executive's existing employment arrangement with
SAFECO entitled Executive to certain rights on any termination of employment,
including the right to receive his full base salary through the date of
termination, the right to be paid for any
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<PAGE> 6
accrued vacation and sick leave, the right to be paid any bonuses for any past
fiscal year which have not yet been paid to Executive under any bonus plan
maintained by SAFECO, and the right to receive his vested rights in savings,
profit sharing, retirement, stock option plans and other employee benefit
programs maintained by SAFECO in accordance with the terms of such plans and
programs. The parties acknowledge that such rights fall outside the scope of,
and shall not be affected by, this Agreement in any respect.
3. Conditions to Termination Benefits.
In no event shall any benefits described in paragraph 5 hereof be
payable unless and until there is a Change in Control of SAFECO Corporation and
Executive's employment by SAFECO is terminated: (a) By SAFECO other than for
Cause, Disability or Retirement; or (b) By Executive for Good Reason.
4. Notice and Date of Termination.
Any purported termination by SAFECO for Cause, Disability or
Retirement, or by the Executive for Good Reason, shall be communicated by a
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall state the
specific basis for the termination under this Agreement and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the applicable provision of this
Agreement. If the termination is due to Disability, the Notice of Termination
shall not be given until the expiration of the 130-day disability period. The
effective date of termination (the "Date of Termination") shall mean:
(a) If Executive's employment is terminated for Disability,
thirty (30) days after the Notice of Termination is given (provided that
Executive shall not have returned to the performance of his full-time duties
during said thirty (30) day period); or
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<PAGE> 7
(b) If Executive's employment is terminated for Cause, the
date specified in the Notice of Termination, provided in no event shall such
date be prior to the delivery of the Notice; or
(c) If Executive's employment is terminated for any other
reason, the date on which the Notice of Termination is given. If the Notice of
Termination specifies that the Executive's termination of employment is for
Cause, Executive's Termination shall be deemed to have been for Cause only if
the Executive, within thirty (30) days following the Date of Termination, is
given an opportunity to be heard before the board or an authorized committee of
the board and the board or such authorized committee thereafter makes a good
faith determination the Executive is guilty of conduct described in
subparagraphs (i) through (v) of paragraph 1(a) hereof.
5. Benefits Upon Termination.
If, after a Change in Control of SAFECO Corporation shall have
occurred, Executive's employment by SAFECO shall be terminated by SAFECO other
than for Cause, Disability or Retirement or shall be terminated by Executive for
Good Reason, then, subject to the provisions of paragraph 7 hereof, Executive
shall be entitled to the following benefits:
(a) SAFECO shall maintain in full force and effect, for
Executive's continued benefit until the earlier of (i) three (3) years after the
Date of Termination, (ii) Executive's commencement of full-time employment with
a new employer, or (iii) December 31 of the year in which Executive's
sixty-fifth (65th) birthday occurs, all life insurance and all medical, health
and accident insurance programs and arrangements in which Executive was entitled
to participate immediately prior to the Date of Termination, provided that
Executive's continued participation is possible under the terms and conditions
of such plans and programs. In the event Executive's participation in any such
plan or program is barred, SAFECO shall arrange to provide Executive
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<PAGE> 8
with benefits substantially similar to those which Executive is entitled to
receive under such plans and programs.
(b) SAFECO shall pay to Executive on the Date of Termination a
lump sum benefit equal to the lesser of:
(i) That amount, which when added to the "Other Change
in Control Benefits" paid to Executive is equal to 2.99 times the average annual
compensation paid by SAFECO to the Executive and included in the gross income of
the Executive during the most recent five (5) taxable years ending before the
Change in Control of SAFECO Corporation occurs (or such portion of such period
during which the Executive was an employee of SAFECO). For purposes of this
subparagraph, the "Other Change in Control Benefits" shall equal the present
value (determined in accordance with Section 1274(b)(ii) of the Code, or any
successor provision thereof) of all other payments and benefits (including
without limitation the value of the Deferred Option Benefit provided in
paragraph 6 hereof) that the Executive receives, or is entitled to receive,
under this Agreement or otherwise, as a result of a Change in Control of SAFECO
Corporation or any other change in ownership or control of SAFECO Corporation
within the meaning of Section 280G (or any successor provision thereof); or
(ii) The "Executive's Projected Annual Benefit,"
multiplied by the lesser of (a) three or (b) the number of years (rounded to the
nearest hundredth of a year) from the Date of Termination to December 31 of the
year in which Executive's sixty-fifth (65th) birthday occurs. For purposes of
this Agreement, the "Executive's Projected Annual Benefit" shall equal the
highest monthly salary paid to the Executive during the 12 months immediately
preceding the Date of Termination, multiplied by 12.
Executive shall not be required to mitigate the amount of any payment provided
in this paragraph 5 by seeking other employment or otherwise, nor shall the
amount of any payment provided for in
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<PAGE> 9
this paragraph 5 be reduced by any compensation earned by Executive as a result
of employment with another employer after the Date of Termination, or otherwise.
6. Deferral Option.
(a) SAFECO agrees that Executive may elect to defer all or a
portion of the payments that are to be made to Executive under paragraph 5(b)
hereof. Executive may exercise such election by delivering to the President and
Secretary of SAFECO Corporation a written notice of election prior to the
occurrence of any Change in Control of SAFECO Corporation, which notice shall
state the portion of the payments under paragraph 5(b) that is to be deferred
(expressed as a dollar amount or as a percentage ("the Deferred Benefit"), the
date the payment of the Deferred Benefit shall commence ("the Deferred Benefit
Commencement Date"), and the number of equal consecutive monthly installments
(not to exceed 120) that the Deferred Benefit is to be paid in. In no event
shall the Deferred Benefit Commencement Date be subsequent to the first day of
January of the year immediately following the Executive's sixty-fifth (65th)
birthday. In the event such an election is made:
(i) The amount that would have otherwise been paid
under the provisions of paragraph 5(b) hereof shall be reduced by an amount
equal to the Deferred Benefit.
(ii) The Deferred Benefit, together with simple
interest calculated at an annual rate of ten percent (10%) on the unpaid balance
of the Deferred Benefit from the date that payment of the Deferred Benefit would
have otherwise been made under the provisions of paragraph 5(b) hereof, shall be
paid in the number of equal consecutive monthly installments selected by
Executive, with the first such installment being made on the Deferred Benefit
Commencement Date and a subsequent payment being made on the first day of each
month thereafter.
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(b) The parties agree that the following provisions shall
apply with respect to payment of the Deferred Benefit to the Executive under the
provisions hereof:
(i) If Executive dies prior to receiving the full
amount of the Deferred Benefit that he is entitled to receive hereunder, SAFECO
shall continue to pay the Deferred Benefit to the estate of Executive in the
same manner as the Deferred Benefit would have been paid to Executive if he had
not died.
(ii) It is understood by the parties that the Deferred
Benefit shall in no event be set aside or deposited to a separate account or
fund, and that the rights of Executive to the deferred Benefit shall not be
greater than the rights of any other general, unsecured creditor
of SAFECO.
(iii) Executive, his spouse, and any other person or
entity claiming through or under Executive shall not have any power or authority
to commute, encumber, or dispose of any right to receive payment of the Deferred
Benefit, all of which payments are expressly declared to be non-assignable. In
the event of any attempt at assignment or other disposition, SAFECO shall have
no further liability to pay the Deferred Benefit. The Deferred Benefit provided
for in this Agreement shall not be subject to seizure for the payment of any
debts, judgments, alimony, separate maintenance or child support, or be reached
or transferred by operation of law, or in the event of bankruptcy, insolvency or
otherwise.
(iv) SAFECO shall have no right to offset the payment
of any portion of the Deferred Benefit against any amounts that the Executive
owes or may owe SAFECO.
7. Golden Parachute Provisions of Code.
The parties acknowledge their intention to not have any payments
under this Agreement be characterized as "excess parachute payments" under
Section 280G of the Code, and that this Agreement has been prepared with that
intention in mind. Accordingly, the parties hereto agree
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that all terms and provisions of this Agreement shall be construed and
interpreted to give effect to such intention. In addition, if at any time it is
determined that any payment hereunder does constitute an "excess parachute
payment" under such Section 280G, as may be amended from time to time, or is
otherwise subject to special adverse tax treatment under a successor provision
to such Section 280G or any other provision of the Code, it is agreed that such
payment or payments shall be reduced (or eliminated if necessary), as determined
by the Compensation Committee of the Board of Directors of SAFECO Corporation,
to the extent necessary to avoid such special adverse tax treatment.
8. Taxes and Withholdings.
All amounts payable to Executive hereunder shall be subject to such
payroll and withholding deductions as are required by law.
9. Term of Agreement.
This Agreement shall remain in effect until Executive's employment
with SAFECO is terminated unless prior thereto a Change in Control of SAFECO
Corporation shall have occurred, in which event the terms of this Agreement
shall remain in effect until the seventh anniversary date of such Change in
Control; provided, however, in the event Executive has become entitled to
receive payments hereunder prior to said seventh anniversary date, the terms of
this Agreement shall remain in effect until all amounts due Executive hereunder
have been paid.
10. Successors; Binding Agreement.
(a) SAFECO will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of SAFECO, by agreement in form
and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that SAFECO
would be required to perform it if no such succession had taken place. Failure
of SAFECO to obtain
-11-
<PAGE> 12
such agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to compensation from SAFECO
in the same amount and on the same terms as Executive would be entitled
hereunder if Executive terminated his employment for Good Reason, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "SAFECO" shall include SAFECO Corporation and SAFECO Life
Insurance Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this paragraph 11 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive's estate.
11. Notice.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
appropriate address set forth on the last page of this Agreement, or to such
other address as the addressee may have furnished to the other in writing in
accordance herewith, provided that all notices to SAFECO shall be directed to
the attention of the President of SAFECO Corporation with a copy to the
Secretary of SAFECO Corporation.
-12-
<PAGE> 13
12. Miscellaneous.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
Executive and such officer as may be specifically designated by the Board of
Directors of SAFECO Corporation. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement; provided,
however, that this Agreement shall not supersede or in any way limit the rights,
duties or obligations Executive may have under any other written agreement with
SAFECO. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Washington.
13. Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. Arbitration.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Seattle, Washington, in
accordance with the rules of the
-13-
<PAGE> 14
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have signed this Agreement the day
and year first written above.
SAFECO CORPORATION
By: /s/ Bruce Maines
----------------------------
President
Address: SAFECO Corporation
SAFECO Plaza
Seattle, WA 98185
/s/ James W. Ruddy
----------------------------
JAMES W. RUDDY
Address: SAFECO Corporation
SAFECO Plaza
Seattle, WA 9818
-14-
<PAGE> 1
F-15
Exhibit 11
SAFECO Corporation and Subsidiaries
Computation of Income Per Share
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands Except Per Share Amounts)
Primary Income Per Share
Of Common Stock*
1. Average number of common
shares outstanding 125,961 125,944 125,758
--------------------------------------------
2. Additional common shares
assumed issued under the
treasury stock method 613 470 708
--------------------------------------------
3. Net Income $398,959 $314,374 $428,778
--------------------------------------------
4. Primary Net Income per share
of common stock (L.3 /L.1) $ 3.17 $ 2.50 $ 3.41
--------------------------------------------
</TABLE>
* Per share amounts are adjusted for the 2-for-1 split in December, 1995.
<PAGE> 1
F-16
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
Year Ended December 31
- --------------------------------------------------------------------------------
(In Thousands, Except Ratios)
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income From Continuing Operations
Before Income Taxes $ 513,800 $ 389,741 $ 576,937 $ 403,257 $ 317,314
Total Fixed Charges Below 88,561 74,072 63,552 67,761 73,994
Less Interest Capitalized (294) (831) (1,381) (154) (30)
Less Undistributed Loss
from Unconsolidated Subsidiary 969 211 574 555 218
---------------------------------------------------------------------
Total Earnings $ 603,036 $ 463,193 $ 639,682 $ 471,419 $ 391,496
=====================================================================
Fixed Charges:
Interest $ 84,243 $ 69,346 $ 58,790 $ 64,097 $ 70,797
Interest Capitalized 294 831 1,381 154 30
Interest Portion of Rental Expense 3,194 3,050 2,768 2,855 2,595
Amortization of Deferred Debt Expense 830 845 613 655 572
---------------------------------------------------------------------
Total Fixed Charges $ 88,561 $ 74,072 $ 63,552 $ 67,761 $ 73,994
=====================================================================
Ratio of Earnings to Fixed Charges 6.8 6.3 10.1 7.0 5.3
=====================================================================
</TABLE>
SAFECO Credit
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income Before Income Taxes $13,300 $10,761 $10,190 $ 9,036 $ 9,489
Total Fixed Charges Below 41,854 30,721 26,056 26,800 30,700
-------------------------------------------------------
Total Earnings $55,154 $41,482 $36,246 $35,836 $40,189
=======================================================
Fixed Charges:
Interest $41,772 $30,652 $25,918 $26,646 $30,516
Interest Portion of Rental Expense 82 69 100 102 160
Amortization of Deferred Debt Expense -- -- 38 52 24
-------------------------------------------------------
Total Fixed Charges $41,854 $30,721 $26,056 $26,800 $30,700
=======================================================
Ratio of Earnings to Fixed Charges 1.3 1.4 1.4 1.3 1.3
=======================================================
</TABLE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL STATEMENTS
SAFECO Corporation (the Corporation, or SAFECO) 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 provides asset management to the SAFECO family of mutual
funds, SAFECO Trust Company and other outside managed accounts.
CAPITAL RESOURCES AND LIQUIDITY
Insurance premiums, funds received under deposit contracts, dividends,
interest, rental income and asset management fees are SAFECO's 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,
1995, 1994 and 1993 was $702.1 million, $753.0 million and $633.6 million,
respectively (see Statement of Consolidated Cash Flows on page 44). The lower
amount of operating cash flow in 1995 was primarily due to increased claim
payments caused by catastrophe losses (see pages 30 and 31 for additional
discussion). The increases in property and casualty insurance premiums received
in 1995 and 1994 resulted from a combination of rate increases and a higher
number of policies in force. Dividends and interest received increased in both
1995 and 1994 due mainly to the increasing invested asset base of the life and
health insurance companies.
The high level of proceeds from the maturity of fixed maturities in all three
years was due to the large amount of calls of fixed maturities and prepayments
of mortgage-backed securities. These calls and prepayments in 1993 and 1994 were
caused by declining interest rates in 1993 and the first part of 1994. Although
interest rates rose for the remainder of 1994, they declined in 1995, causing
more calls and prepayments in 1995. These changes in interest rates have also
caused fluctuations in the market value of fixed maturity investments. This has
affected SAFECO's reported book value (stockholders' equity) because the
difference between market value and amortized cost on fixed maturities
classified as available-for-sale is included in stockholders' equity, net of
tax. Property and casualty investment income is expected to continue to grow
slowly in 1996.
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, 1995,
the real estate subsidiaries had notes and mortgages payable to non-affiliates
of $198.4 million, of which $39.8 million was due within one year. It is
anticipated that these obligations will be met through a combination of
rollovers and replacement borrowings.
SAFECO Credit Company's borrowings are 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, 1995 of $614.3 million, of
which $567.8 million was due within one year. Almost all of this current portion
is comprised of short-term commercial paper borrowings. It is anticipated that
the majority of these commercial paper borrowings will be rolled over in 1996.
SAFECO Credit has entered into interest rate swap agreements to reduce the
impact
27 SAFECO Corporation 1995 Annual Report
<PAGE> 2
of changes in interest rates on its floating rate debt. The interest rate swap
agreements provide only for the exchange of interest on the notional amounts at
the stated rates, with no multipliers or leverage. At December 31, 1995,
interest rate swap agreements were outstanding with notional amounts of $134.9
million, replacing the floating rates of 5.83% to 5.99% with fixed rates ranging
from 4.51% to 8.07%. Maturities of these agreements range from February 1996 to
October 2002. At December 31, 1994, interest rate swap agreements were
outstanding with notional amounts of $70.9 million, replacing the floating rates
of 6.06% to 6.73% with fixed rates ranging from 4.51% to 9.00%. The notional
amount of interest rate swaps outstanding is higher in 1995 compared with 1994
because SAFECO Credit has increased its use of rate swaps to fix the interest
costs on its floating rate debt.
In July 1994 the Securities and Exchange Commission (SEC) declared effective
a shelf registration providing for the issuance of up to $200 million of debt
securities by SAFECO Corporation. In March 1995 SAFECO Corporation issued $200
million of 7.875% notes, due April 2005. The proceeds were used to replace
SAFECO Corporation's existing $200 million of 10.75% notes which came due in
September of 1995.
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 SEC in 1990. SAFECO Credit issued $149.9 million of medium-term notes under
this registration, of which $78.4 million remained outstanding as of December
31, 1995. 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 medium-term notes reduced SAFECO Credit's
reliance on short-term financing. As of December 31, 1995, SAFECO Corporation
had issued $50.0 million of medium-term notes under this registration, all
maturing in 2002 and 2003. No additional notes will be issued under this shelf
registration.
SAFECO Corporation's debt is rated AA by Standard & Poor's and Aa3 by Moody's
Investor Services. SAFECO's property and casualty companies' financial strength
ratings are A++ by A.M. Best, AAA by Standard and Poor's and Aa1 by Moody's.
During 1995, SAFECO Life Insurance Company's rating was upgraded to A++ by A.M.
Best. SAFECO Life is rated AA by Standard & Poor's and Aa2 by Moody's. The
financial strength ratings are important to SAFECO and the industry in marketing
insurance products.
Many life insurance companies' pension and annuity products have been
impacted in recent years by general economic conditions, volatile 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 retirement services and annuity
business (see Statement of Consolidated Cash Flows on page 44 -- Return of Funds
Held Under Deposit Contracts) due to scheduled payouts on distribution-type
products and the interest rate environment. However, SAFECO's overall withdrawal
experience remains relatively modest, and proceeds from sales of fixed income
retirement services and annuity products have remained relatively stable. Of the
total of $8.8 billion in deposit contracts at December 31, 1995, approximately
47% 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 13% of total
deposit contracts, generally have expected maturities of 5 to 12 years and
associated surrender charges graded from 5% in year one to zero in year six.
Other retirement services products, comprising approximately 35% of total
deposit contracts, have expected maturities of 5 to 15 years. Surrender charges
on these products are typically 9% in year one graded to zero in year nine, and
SAFECO retains the option to defer payouts over five years on approximately one
quarter of these contracts. SAFECO's guaranteed investment contracts (GICs)
within its retirement services area comprise approximately 2% of total deposit
contracts.
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
its 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 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.
SAFECO Corporation 1995 Annual Report 28
<PAGE> 3
The National Association of Insurance Commissioners (NAIC) adopted 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 became effective
December 31, 1994. The formulas are used as an early warning tool by the NAIC
and state regulators to identify companies that are undercapitalized and which
merit further regulatory attention or the initiation of regulatory action. The
RBC formula for life insurers establishes capital requirements relating to
amounts of insurance risk, business risk, asset credit risk and interest rate
risk. The RBC formula for property and casualty insurers 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 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.
The NAIC has recently undertaken a major project to codify statutory
accounting principles. While the impact of these proposals is currently being
studied, the effect on statutory surplus is not expected to be material.
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 47 through 51 of this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Income (Loss), Net of Income Taxes, Before Realized Gain:
Property and Casualty ....................................... $256,408 $192,734 $217,187*
Life and Health ............................................. 88,988 84,941 76,903
Real Estate ................................................. 5,929 6,568 6,136
Credit ...................................................... 8,872 7,365 6,439
Asset Management ............................................ 4,746 4,116 4,255
Corporate ................................................... (7,536) (7,272) (3,934)
------------------------------------------
Total .................................................... 357,407 288,452 306,986
------------------------------------------
Realized Gain (Loss), Net of Income Taxes, from:
Security Investments ........................................ 42,083 26,035 113,506
Real Estate Investments ..................................... (531) (113) 5,409
------------------------------------------
Total .................................................... 41,552 25,922 118,915
------------------------------------------
Income Before Cumulative Effect of Accounting Changes ........... 398,959 314,374 425,901
Cumulative Effect of Accounting Changes ......................... - - 2,877
------------------------------------------
Net Income ...................................................... $398,959 $314,374 $428,778
------------------------------------------
Net Income Per Share of Common Stock:**
Income Before Realized Gain ................................. $ 2.84 $ 2.29 $ 2.44
Realized Gain ............................................... .33 .21 .95
Cumulative Effect of Accounting Changes ..................... - - .02
------------------------------------------
Net Income .................................................. $ 3.17 $ 2.50 $ 3.41
------------------------------------------
</TABLE>
* Includes a charge of $40 million ($26 million after tax, or $0.21 per share)
for the Proposition 103 settlement.
** Per share amounts are adjusted for the 2-for-1 stock split in December, 1995
(see Note 8).
29 SAFECO Corporation 1995 Annual Report
<PAGE> 4
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, workers' compensation, commercial
multi-peril, miscellaneous casualty, surety and fidelity. 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 31).
Approximately 23% of SAFECO's property and casualty premiums are written in
California and approximately 46% of premiums are written in the three west coast
states of California, Washington and Oregon. SAFECO's writing of new property
business continues to be restricted in California to reduce its exposure to
large single-event catastrophes (see discussion on page 31). SAFECO's emphasis
for future personal lines growth is in various target states, mostly east of the
Rocky Mountains.
Voluntary personal, commercial and surety lines (which excludes assigned
risk, FAIR plans, etc.) comprised approximately 70%, 25% and 4%, respectively,
of the 1995 gross premiums written. The gross premiums written growth set forth
in the table on page 32 of 3.9% in 1995 is comprised of a 5.3% increase for
personal, a decrease of 0.8% for commercial and an increase of 10.9% for surety
lines. Gross premiums written growth of 6.7% in 1994 was comprised of a 6.6%
increase for personal, and increases of 7.1% for commercial and 7.1% for surety
lines.
The growth in personal lines premiums is the result of both rate increases
and an increase in policies in force. The number of vehicles insured increased
1.8% in 1995, compared with 1.3% in 1994 and 2.2% in 1993. This moderate growth
rate has been caused primarily by rate increases in recent years. The number of
homes insured increased 1.2% in 1995, 2.7% in 1994 and 8.0% in 1993. This
reduction in the growth rate is due to rate increases in recent years and to the
moratorium on the writing of new homeowners policies in California (discussed on
page 31).
SAFECO's commercial lines premiums decreased in 1995 due primarily to
increased rate competition in workers' compensation, particularly in California
due to open rating, and to increased rate competition in commercial auto. The
increase in surety premiums in 1995 and 1994 is primarily due to new
commercial and contract accounts acquired.
SAFECO's property and casualty results were impacted in both 1994 and 1995 by
the January 17, 1994 Los Angeles earthquake. SAFECO's estimated gross losses for
all lines (before reinsurance) from the earthquake were $267 million. Net of
reinsurance, the estimated losses were $132 million. Of this net amount, $90
million was reflected in 1994 results and $42 million was reflected in 1995
results. The 1995 losses were due to subsequent increases in the estimated cost
of claims from the earthquake. The total 1994 amount charged to earnings from
the earthquake of $113 million included $23 million to reinstate reinsurance
coverage for a second catastrophe in the event it occurred in 1994. Most of
these costs relate to earthquake coverage, included in other personal lines
discussed below. Including 1995 earthquake losses, catastrophe losses for all
lines, net of reinsurance, totaled $143 million for the year. In 1994 the charge
to earnings from catastrophes was $153 million including the $23 million
reinsurance reinstatement premium. SAFECO's strategy to reduce the impact of
future catastrophe losses includes continuing to maintain a strong catastrophe
reinsurance program (see discussion on page 33), obtaining higher deductibles on
earthquake coverages in some states and restricting the writing of new property
business in catastrophe-prone states. In addition, for the last several years
SAFECO has invested in earthquake and wind modeling technologies which allow it
to better monitor exposures.
Voluntary personal auto, SAFECO's largest single line of business, produced
pretax underwriting profits of $87.4 million, $43.4 million and $37.3 million in
1995, 1994 and 1993, respectively. The profits in all three years were due
primarily to rate increases in 1990, 1991 and 1992. Average auto rates were
increased 3% in 1995, 3% in 1994 and 6% in 1993. After increasing in 1994, the
severity or cost of settling claims and the frequency of accidents both
decreased in 1995. The level of auto rate increases in 1996 will be
substantially dependent upon loss cost trends. Due to increasing competition in
the personal auto business the underwriting profit level of 1995 may be
difficult to achieve in 1996.
The homeowners line produced pretax underwriting losses of $54.2 million,
$33.6 million and $51.7 million in 1995, 1994 and 1993, respectively. Losses due
to catastrophes continue to impact results for this line. Catastrophe losses for
homeowners totaled $70 million, $36 million after reinsurance, and $52 million
in 1995, 1994 and 1993, respectively. The 1995 homeowners claims include $18
million from two late spring hailstorms that hit the Dallas area, $11 million
from storms in California in January and March and $16 million from West Coast
winter storms in December. The 1994 homeowners claims include $5 million after
reinsurance from the Los Angeles earthquake, $7 million from an April hailstorm
in Dallas
SAFECO Corporation 1995 Annual Report 30
<PAGE> 5
and $4 million from winter storms and freezing on the East Coast in January. The
1993 homeowners claims include $27 million from the Puget Sound area windstorm
in January and $7 million from the California wild fires in November. Homeowners
rates were increased 8%, 6% and 7% in 1995, 1994 and 1993, respectively.
SAFECO's total homeowners premiums increased 9%, 11% and 17% in 1995, 1994 and
1993, respectively, due to rate increases, increases in the number of homes
insured and efforts to increase homeowners insurance to value. The
insurance-to-value effort was begun in 1993 to review the adequacy of coverage
or policy limits for nearly all homes over a three year period. A continuing
increase in premiums per policy is expected in 1996 as a result of planned rate
increases and the ongoing effect of the insurance-to-value effort. Excluding the
impact of catastrophes, these measures are expected to improve homeowners'
results in 1996.
Other personal lines produced underwriting losses of $30.9 million in 1995
and $76.1 million in 1994, compared with an underwriting profit of $20.6 million
in 1993. Coverages in these lines include earthquake, dwelling fire, inland
marine and boats. The losses in 1995 and 1994 were due to the January 1994 Los
Angeles earthquake. Losses from the quake included in these lines totaled $40
million in 1995 and $105 million, net of reinsurance, in 1994 (includes $23
million reinsurance reinstatement premium). California currently requires
insurers to offer earthquake coverage in connection with homeowners and other
residential policies. After careful review, effective July 1, 1994, SAFECO
suspended writing new homeowners, dwelling fire and condominium policies in
California. Existing homeowners policies are being renewed and earthquake
coverage is being offered every two years, as required by California insurance
regulations, to policyholders who previously declined the coverage. In addition,
SAFECO has filed and is waiting for approval of a new earthquake mini-policy in
California. Once approved, this policy should permit SAFECO to again write the
above suspended coverages. SAFECO also modified its earthquake policies in
several other states to increase the deductible.
SAFECO believes federal legislation is necessary to create a permanent,
long-term solution for the losses that arise from natural disasters such as
earthquakes. SAFECO supports the National Disaster Protection Partnership Act,
currently before Congress, as the best means to encourage mitigation efforts to
reduce such losses and to provide a mechanism to pay such losses.
Commercial operations produced pretax underwriting losses of $12.7 million,
$22.5 million and $5.5 million for 1995, 1994 and 1993, respectively. Even with
a continuation of the competitive commercial insurance market, SAFECO has
experienced some modest renewal price increases for the past three years. The
improvement in 1995 compared with 1994 was due mainly to better results in the
general liability line. Results in 1994 were impacted by higher losses in the
general liability and commercial auto coverages, compared with 1993. Workers'
compensation produced underwriting gains in both years. However, increasing rate
competition in 1995 resulting from the impact of certain states enacting
workers' compensation reforms has reduced premiums and this competition is
expected to continue into 1996. The effects of lower rates are expected to be
partly offset by the beneficial impact of these reforms. Overall, SAFECO's
voluntary commercial lines combined ratio was 102.4, 104.3 and 101.2 for 1995,
1994 and 1993, respectively. The combined ratios for all three years compare
favorably with the industry and are a result of 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 pretax underwriting profits of $22.3 million, $16.1
million and $18.2 million for 1995, 1994 and 1993, respectively. Results in both
the contract and commercial lines were excellent in all three years. Due to
continuing intense competition in both lines, the record level of income in 1995
may be difficult to achieve in 1996.
Other insurance product lines (primarily assigned risk and FAIR plans)
produced underwriting losses of $5.5 million, $4.6 million and $9.0 million in
1995, 1994 and 1993, respectively. These losses were lower in 1995 and 1994
compared to the previous few years due to reduced losses in both commercial and
personal assigned risk business.
SAFECO sold its Canadian property and casualty operations in 1991 with no
significant gain or loss resulting from the transaction. Canadian underwriting
profits were $6.7 million, $8.4 million and $5.3 million for 1995, 1994 and
1993, respectively, and resulted from 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. Canadian assets were
$113 million and $153 million at December 31, 1995 and 1994, respectively.
31 SAFECO Corporation 1995 Annual Report
<PAGE> 6
PROPERTY AND CASUALTY OPERATING STATISTICS
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE
PERCENTAGE PERCENTAGE INCREASE
INCREASE INCREASE (DECREASE)
OVER PRIOR OVER PRIOR OVER PRIOR
YEAR YEAR YEAR
------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross Premiums Written .............................. $2,366,856 3.9% $2,278,045 6.7% $2,134,512 10.2%
---------- ---------- ----------
Net Premiums Written ................................ $2,206,984 4.9 $2,103,465 5.2 $2,000,165 9.9
---------- ---------- ----------
Earned Premiums ..................................... $2,162,141 5.3 $2,053,431 6.4 $1,929,714 10.0
---------- ---------- ----------
Underwriting Profit (Loss) .......................... $ 6,348 $ (77,345) $ 9,848
Net Investment Income ............................... 291,450 2.8 283,481 2.1 277,643 (1.1)
Proposition 103 Settlement .......................... - - (40,000)
---------- ---------- ----------
Income Before Realized Investment
Gain and Income Taxes ........................... $ 297,798 $ 206,136 $ 247,491
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RATIOS AS
A % OF EARNED PREMIUMS
(GAAP BASIS)
-------------------------------------
<S> <C> <C> <C>
Loss Ratio ...................................................................... 60.04% 64.70% 60.21%
Adjustment Expense Ratio ........................................................ 10.58 9.72 9.78
Expense Ratio ................................................................... 28.39 28.24 28.43
Dividends to Policyholders ...................................................... 0.70 1.11 1.07
-------------------------------------
Combined Ratio .............................................................. 99.71% 103.77% 99.49%
-------------------------------------
</TABLE>
PROPERTY AND CASUALTY -- PROPOSITION 103
For discussion relating to California's Proposition 103, see Note 6 on page
62.
PROPERTY AND CASUALTY -- LOSS RESERVES
The liability (reserves) for losses and adjustment expense for the property
and casualty companies was $2,181 million at December 31, 1995, compared with
$2,237 million at December 31, 1994. The decline in this liability at December
31, 1995 compared to December 31, 1994 is due in part to the losses related to
the Los Angeles earthquake in 1994, and to the run-off of loss reserves related
to the sold Canadian operations discussed previously. The liability is presented
net of amounts recoverable from salvage and subrogation recoveries (see Note 1
on page 53) and gross of amounts recoverable from reinsurance (see Note 5 on
page 61). The amount of reinsurance recoverables related to the above gross
liabilities was $110.7 million at December 31, 1995 and $143.9 million at
December 31, 1994.
Reserves for losses that have been reported to SAFECO 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 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.
SAFECO's objective is to set reserves which are adequate; that is, the
amounts originally recorded as reserves should at least equal the amounts
ultimately required to settle losses. Analysis indicates that SAFECO's reserves
are adequate and probably slightly redundant at December 31, 1995, 1994 and
1993. Operations were credited $59.7 million, $81.3 million and $96.9 million in
1995, 1994 and 1993, respectively, as a result of a reduction in the estimated
amounts needed to settle prior years' claims.
SAFECO Corporation 1995 Annual Report 32
<PAGE> 7
SAFECO's property and casualty companies' reserves for losses and adjustment
expense for liability coverages related to environmental, asbestos and other
toxic claims totaled $107.5 million at December 31, 1995, compared with $108.2
million at December 31, 1994. 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, 1995 and 1994. The reserves include estimates for both reported and
IBNR losses and related legal expenses.
The vast majority of SAFECO's property and casualty insurance subsidiaries'
environmental, asbestos and other toxic claims result from the general liability
line of business. A few of these types of losses occur in other coverages such
as umbrella, small commercial package policies and personal lines.
The following table presents the loss reserve activity analysis for liability
coverages related to environmental, asbestos and other toxic claims.*
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Reserves at Beginning
of Year $108,230 $113,410 $110,543
Incurred Losses and
Adjustment Expense 9,323 10,252 9,364
Losses and Adjustment
Expense Payments (10,043) (15,432) (6,497)
----------------------------------
Reserves at End of Year $107,510 $108,230 $113,410
----------------------------------
</TABLE>
* Amounts are before the effect of reinsurance, which is insignificant.
In view of changes in environmental regulations and evolving case law which
affect the development of loss reserves, the process of estimating loss reserves
for environmental, asbestos and other toxic claims 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. Although estimation of environmental claims is a difficult
process, the reserves established for these claims at December 31, 1995 are
believed to be adequate based on the known facts and current law. SAFECO has
generally avoided writing coverages for larger companies with substantial
exposure in these areas.
SAFECO's property and casualty companies 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 $110.7 million at December 31, 1995 and $143.9
million at December 31, 1994. The higher amount in 1994 is due to amounts
recoverable by SAFECO from its reinsurers related to the Los Angeles earthquake.
Reinsurance costs for catastrophe coverages have increased in the last few years
and are expected to remain relatively high in the foreseeable future, given the
large amount of catastrophe losses in recent years. SAFECO's catastrophe
property reinsurance program for 1996 covers 90% of $300 million of single event
losses in excess of a $75 million retention. In the event of a substantial
catastrophe, SAFECO would, therefore, retain the first $75 million of losses,
10% of the next $300 million and all losses in excess of $375 million. In
addition to this nationwide coverage, for the states of Washington and Oregon
SAFECO has an additional earthquake reinsurance contract for 1996 that would
cover 90% of $100 million of single event earthquake losses in excess of $375
million. Both of these 1996 catastrophe property reinsurance contracts include
provisions for one reinstatement for a second catastrophe event in 1996 at
current rates. The aggregate coverage limit is higher for 1996 than in prior
years and the additional Northwest earthquake coverage is new for 1996.
SAFECO's insurance subsidiaries do not enter into retrospective reinsurance
contracts and do not participate in any unusual or nonrecurring reinsurance
transactions such as "swaps" of reserves or loss portfolio transfers. SAFECO
does not use "funding covers" and does not participate in any surplus relief
transactions. None of SAFECO's significant reinsurers are experiencing financial
difficulties. Additional information on reinsurance can be found in Note 5 on
page 60.
33 SAFECO Corporation 1995 Annual Report
<PAGE> 8
LIFE AND HEALTH
The life and health companies offer individual and group insurance products,
retirement services (pension) and annuity products. These products are marketed
through professional agents in all states and the District of Columbia. The most
significant product lines in terms of premium/deposit volume include: single
premium immediate annuities, deferred annuities, tax sheltered annuities for
nonprofit entities, corporate retirement plans and excess loss group medical
insurance.
Earnings before investment transactions and income taxes ("pretax income")
for all lines combined were $135.6 million in 1995, compared with $131.0 million
in 1994 and $125.3 million in 1993.
The following table summarizes the profit contributions of the life and
health companies' major product lines:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Annuities $ 31,249 $ 28,363 $ 21,233
Retirement Services 27,277 19,298 16,098
Group 13,329 23,129 27,661
Individual (1,272) 1,579 2,431
Corporate and Other 64,990 58,646 57,883
-----------------------------------------
Pretax Income $135,573 $131,015 $125,306
-----------------------------------------
</TABLE>
The annuity operations produced pretax income of $31.2 million, $28.4 million
and $21.2 million in 1995, 1994 and 1993, respectively. These increasing profits
are a result of higher investment income and growth in annuity assets under
management. Approximately 80% ($4.2 billion) of annuity assets relate to single
premium immediate annuities (SPIAs). These are sold to fund personal injury
settlements and are contracts which cannot be surrendered. New SPIA deposits
were $488 million in 1995, compared with $402 million in 1994 and $447 million
in 1993. SPIA pretax income was $24.9 million, $23.3 million and $17.5 million
in 1995, 1994 and 1993, respectively. These earnings reflect the growth in SPIA
assets. Deferred annuities comprise nearly all of the other 20% of annuity
assets. These are fixed rate annuities marketed through banks by SAFECO's
subsidiary, Talbot Financial Corporation. Deferred annuity deposits were $188
million in 1995, compared with $296 million in 1994 and $218 million in 1993.
The lower level of sales in 1995 was the result of lower interest rates. Total
annuity assets amounted to $5.4 billion at December 31, 1995 compared with $4.7
billion at December 31, 1994 and $4.1 billion at December 31, 1993.
Retirement services operations produced pretax income of $27.3 million, $19.3
million and $16.1 million in 1995, 1994 and 1993, respectively. Retirement
services profits increased in all three years as a result of improved investment
performance, a larger asset base and consistent management of interest rate
margins stemming from adjustments in credited interest rates. Results for 1995
also benefited from a $1.8 million reduction in assessments from insolvency
guaranty fund associations. Retirement services products are comprised primarily
of tax sheltered annuities which are sold to teachers and employees of hospitals
and charitable organizations, IRAs and corporate retirement funds. SAFECO has a
certain amount of protection against policy surrenders or early withdrawals of
most of these products in the form of surrender charges for the first few years
of each policy or the option to defer payouts over 20 quarters. Retirement
services had $3.5 billion of assets on deposit at December 31, 1995 compared
with $3.3 billion at December 31, 1994 and $3.1 billion at December 31, 1993.
New retirement services deposit growth has slowed in recent years as lower
interest rates have hampered sales of fixed products. Although variable products
currently are a relatively small portion of retirement services' volume, SAFECO
is focusing on these types of products and sales are increasing significantly.
The group life and health operations contributed $13.3 million to the 1995
pretax income, compared with income of $23.1 million in 1994 and $27.7 million
in 1993. The major market of the group operation is excess loss medical
insurance, sold to self-insured employers, which accounted for $14.4 million,
$18.5 million and $15.8 million of income in 1995, 1994 and 1993, respectively.
Total medical profit, which also includes some small-case, fully insured
business, declined in 1995. Total group premiums decreased 8% during 1995,
compared with decreases of 12% in 1994 and 10% in 1993. The premium declines in
all three years are due primarily to greater competition in the large-case,
excess loss market. Because of the greater competition in these three years, as
well as the uncertainty caused by the healthcare reform debate, SAFECO avoided
writing business at unsatisfactory rates and as a result, experenced the loss of
some group in-force medical business. With the defeat of national healthcare
reform legislation, SAFECO plans to write additional excess loss medical
insurance, as this market appears to be more attractive than it has been in the
last few years.
SAFECO Corporation 1995 Annual Report 34
<PAGE> 9
In addition to the competitive conditions noted above, in 1995 the group
operations' results were affected by adverse medical and life claims experience.
In 1994, results were impacted by adverse life claims experience and poor long
term disability experience. In 1996 SAFECO will be reinsuring 100% of its new
and existing long term disability business, which should benefit future results.
SAFECO will continue to sell life and disability coverages in combination with
medical coverages in 1996 but will no longer actively pursue the stand-alone
life and disability market.
The individual life operations produced a pretax loss of $1.3 million in
1995, compared with gains of $1.6 million and $2.4 million in 1994 and 1993,
respectively. The decrease in 1995 results, as well as the lower level of
earnings in all three years, was primarily caused by increased death claims. The
majority of SAFECO's new writings are comprised of interest sensitive products
such as universal life and variable universal life products. Term insurance has
accounted for virtually all new issues of traditional life products in recent
years and now comprises approximately 94% of the total traditional face amount
in force.
The corporate and other line is primarily comprised of investment income
resulting from the investment of capital and prior years' earnings of the
operating lines of business, and is a major component of SAFECO's life and
health earnings, contributing pretax income of $65.0 million in 1995, $58.6
million in 1994 and $57.9 million in 1993.
SAFECO's life insurance subsidiaries have not participated as a ceding
company in any assumptive reinsurance transactions. See Note 5 on page 60 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
skilled nursing facilities.
The real estate subsidiaries produced pretax income before investment
transactions ("pretax income") of $9.1 million, $10.2 million and $10.1 million
in 1995, 1994 and 1993, respectively. These pretax income amounts include gains
from the sale of properties held for sale of $1.9 million, $5.6 million and $0.2
million in 1995, 1994 and 1993 respectively. The increase in pretax income
(excluding these gains) in 1995 over 1994 was due to better operating results on
shopping center and medical facility properties and to recommencing the
capitalization of carrying costs in 1995 on a mixed-use development project.
Construction and pre-leasing on this development began in July 1995. The
decrease in pretax income (excluding these gains) in 1994 compared to 1993 was
due primarily to the purchase of a shopping center in 1994 and to the sale of
heathcare facilities in 1993.
In addition to the pretax income amounts above, the real estate subsidiaries
realized pretax investment losses of $0.8 million in 1995 and $0.2 million in
1994 and investment gains of $8.1 million in 1993. The 1993 realized investment
gain was the result of the sale of several mature healthcare facilities.
Results in all three years have been impacted by the slow real estate economy
and the overall depressed retail industry. Because of these conditions, SAFECO's
strategy is to emphasize smaller projects and enhancements to existing
properties.
At December 31, 1995, investment real estate held by SAFECO Properties
totaled $495 million, approximately 3% of consolidated investments. Major retail
shopping centers (including land held for development), office and industrial
space and healthcare facilities comprised approximately 80% of the total.
Approximately 63% of these holdings are located in the states of Washington and
Oregon. Rental properties included in investment real estate are detailed in
Note 13 on page 66.
CREDIT
SAFECO Credit Company, Inc. provides loans and equipment financing and
leasing to commercial businesses, including affiliated companies. Credit
operations produced pretax income of $13.3 million in 1995, compared with $10.8
million in 1994 and $10.2 million in 1993. Loan and lease receivables from
non-affiliates grew 21% in 1995 and 15% in 1994. Continued growth in receivables
is expected. The strong earnings in all three years are primarily attributable
to the continuing increase in loan production, combined with favorable
collection experience and low delinquencies. Results were, however, impacted by
increased borrowing costs in 1994 and rate competition in both 1994 and 1995.
Approximately 70% of total loan and lease receivables outstanding at December
31, 1995 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. At December 31, 1995, 9% of
the outstanding loans and leases of SAFECO Credit consisted of loans to
affiliated SAFECO companies.
35 SAFECO Corporation 1995 Annual Report
<PAGE> 10
ASSET MANAGEMENT
SAFECO Asset Management Company is the investment advisor for the SAFECO
mutual funds, variable annuity portfolios and a growing number of outside
pension and trust accounts. These investment management activities produced
pretax income of $6.9 million in 1995, $6.4 million in 1994 and $6.5 million in
1993. Assets under management continue to grow and totaled $3.0 billion at
December 31, 1995, an increase of 22% over 1994. In 1994 SAFECO Trust Company
was chartered to serve the investment needs of high net worth individuals.
Continued growth in assets under management from existing funds, new funds and
from new pension accounts is expected.
INVESTMENT SUMMARY
SAFECO Corporation's consolidated pretax investment income increased to
$1,075.3 million during 1995 from $991.6 million in 1994 and $951.8 million in
1993. 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' pretax investment income was $291.5
million in 1995, $283.5 million in 1994 and $277.6 million in 1993, representing
increases of 3% in 1995, 2% in 1994 and a decrease of 1% in 1993. The increases
in 1995 and 1994 are primarily due to the investment of the property and
casualty companies' positive cash flow. Although property and casualty cash flow
was positive in all three years, the recent high level of catastrophe losses has
dampened the growth of investment income. Growth in investment income in 1996 is
expected to continue to be slowed by the lower interest rate environment.
The life and health companies' pretax investment income was $778.2 million in
1995, $706.2 million in 1994 and $668.2 million in 1993. The growth in all years
was due primarily to the increasing amount of retirement services and annuity
assets under management.
Consolidated pretax realized gains from security investments totaled $65.1
million for 1995, compared with $39.2 million and $179.5 million in 1994 and
1993, respectively. The high level of gains in 1995 and 1993 were due primarily
to falling interest rates which produced calls, redemptions and mortgage
pay-downs on debt securities and to the strong stock market. Rising interest
rates in 1994 lowered the gains from these sources. 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 fair value. The amounts of such writedowns in 1995,
1994 and 1993 were $13.6 million, $4.8 million and $15.2 million, respectively.
Fixed income securities purchased as below investment grade included in these
amounts were $2.4 million in 1995, none in 1994 and $3.0 million in 1993. The
remainder of the writedowns relate primarily to fixed income securities which
were investment grade when purchased and later downgraded. The low amount of
writedowns in all three years reflects the high quality of SAFECO's portfolios.
SAFECO's property and casualty investment portfolio totaled $5.2 billion at
market value at December 31, 1995. The investment philosophy for this
portfolio is to emphasize investment yield without sacrificing investment
quality. Fixed income securities comprised 79% of this investment portfolio
while equity securities comprised 19% (see table on page 38).
The property and casualty fixed income portfolio, which totaled $4.1 billion
at market value at December 31, 1995, is currently comprised of 80% tax-exempt
and 20% 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 1995 was 13%, compared with 13% and 15% in 1994 and 1993,
respectively. The decrease from 1993 reflects the higher percentage of
tax-exempt securities in the portfolio. On an after-tax basis, investment income
increased 3% in 1995, 4% in 1994, and decreased 0.3% in 1993.
SAFECO Corporation 1995 Annual Report
36
<PAGE> 11
The quality of the property and casualty companies' fixed income portfolio is
detailed in the following table:
<TABLE>
<CAPTION>
PERCENT AT
RATING DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
AAA ......................................................... 50%
AA .......................................................... 23
A ........................................................... 20
BBB ......................................................... 6
BB or lower ................................................. 1
---
Total ................................................ 100%
===
</TABLE>
SAFECO's life and health investment portfolio totaled $10.5 billion at
carrying value at December 31, 1995. Fixed income securities, all of which are
taxable, comprise 93% of this investment portfolio at December 31, 1995. 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. The quality of the life and health companies' fixed income
portfolio is detailed in the following table:
<TABLE>
<CAPTION>
PERCENT AT
RATING DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
AAA ......................................................... 40%
AA .......................................................... 8
A ........................................................... 27
BBB ......................................................... 23
BB or lower ................................................. 2
---
Total ................................................ 100%
===
</TABLE>
This portfolio contains $240.1 million, at market value, of securities below
investment grade quality. This was approximately 2% of the total $10.1 billion
life and health fixed income portfolio at market value at December 31, 1995.
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 market value of $262.0 million were held at December 31,
1995. This was approximately 2% of the total investments at market value of
SAFECO Corporation and consolidated subsidiaries at December 31, 1995.
SAFECO's consolidated investment in "exotic" securities and high-risk
derivatives was less than 1% of the total investments of SAFECO Corporation and
subsidiaries at both December 31, 1995 and 1994. SAFECO has intentionally
avoided investing in these types of securities. In addition, SAFECO does not
enter into financial instruments for trading or speculative purposes.
SAFECO's consolidated investments in mortgage-backed securities -- primarily
residential collateralized mortgage obligations and pass-throughs -- totaled
$2.8 billion at market value at December 31, 1995. Approximately 99% of these
securities are held in the life and health portfolio. Approximately 95% of the
mortgage-backed securities are government/agency backed or AAA rated at December
31, 1995. Less than 1% of SAFECO's mortgage-backed securities are of the
riskier, highly volatile type (e.g., interest only, inverse floaters, etc.).
SAFECO has intentionally not invested significant amounts in the riskier types
of mortgage-backed securities.
SAFECO Corporation, the parent company, holds an investment portfolio of
securities that totaled $178.6 million at market value at December 31, 1995,
compared with $172.9 million at December 31, 1994. 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 35 of this report.
SAFECO Corporation's consolidated investment portfolio also includes $416.5
million of mortgage loan investments at December 31, 1995, approximately 3% of
total investments. These loans are held by the life and health companies and are
secured by first mortgage liens on completed, income-producing 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 58% of the total in California. Individual loans generally do not
exceed $5 million. Less than 3% of the loans were non-performing at both
December 31, 1995 and 1994. The allowance for mortgage loan losses was $9.6
million at December 31, 1995 and $9.5 million at December 31, 1994.
SAFECO Corporation 1995 Annual Report
37
<PAGE> 12
The table below provides a summary of SAFECO's consolidated securities
investment portfolio at December 31, 1995. The excess of market value over cost
of the consolidated fixed income and equity security portfolios was $1.9 billion
at December 31, 1995 and $86 million at December 31, 1994. The large increase in
the excess of market over cost was due primarily to the drop in interest rates
in 1995, which increased the market value of SAFECO's fixed income securities.
<TABLE>
<CAPTION>
AMORTIZED CARRYING MARKET
DECEMBER 31, 1995 COST VALUE VALUE
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Property and Casualty:
Fixed Income - taxable (available-for-sale) ...... $ 698,112 $ 797,697 $ 797,697
Fixed Income - non-taxable (available-for-sale) .. 2,838,562 3,284,071 3,284,071
Equity Securities ................................ 517,280 994,704 994,704
Life and Health:
Fixed Income - taxable (available-for-sale) ...... 7,199,261 7,724,129 7,724,129
Fixed Income - taxable (held-to-maturity) ........ 2,044,517 2,044,517 2,388,514
Equity Securities ................................ 17,287 29,007 29,007
SAFECO Corporation:
Fixed Income - taxable (available-for-sale) ...... 78,798 80,996 80,996
Equity Securities ................................ 62,856 88,628 88,628
Miscellaneous ........................................ 39,564 48,320 48,320
Short-Term Investments ............................... 68,808 68,808 68,808
---------------------------------------------
Total ......................................... $13,565,045 $15,160,877 $15,504,874
=============================================
</TABLE>
NEW ACCOUNTING STANDARDS
SAFECO adopted Financial Accounting Standards Board (FASB) Statements 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
109, "Accounting for Income Taxes," in the first quarter of 1993. See the
Consolidated Statement of Income on page 41 for the effect on income of adoption
of statements 106 and 109. For additional disclosure relating to statements 106
and 109, see Note 12 and Note 14, respectively.
SAFECO adopted FASB Statement 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1994. Adoption had no effect on net income.
SAFECO adopted FASB Statement 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts," in the first quarter of 1993.
Adoption had no effect on net income. See Note 5 for disclosures relating to
reinsurance.
In 1993, the FASB issued Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired loans. The
FASB also issued Statement 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures," in 1994, which amends Statement
114. Both statements are effective for 1995 and were adopted by SAFECO on
January 1, 1995. Adoption did not affect net income. For additional disclosure
relating to these two statements, see Note 2 on page 58.
In 1993, the FASB 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. As of January 1, 1994, SAFECO adopted the
provisions of this statement for investments held as of, or acquired after that
date. Statement 115 requires that debt and equity securities be classified as
trading, available-for-sale or held-to-maturity. Fixed maturity securities that
SAFECO has the positive intent and ability to hold to maturity (as narrowly
defined by Statement 115) are classified as held-to-maturity and are reported at
amortized cost. Fixed maturity securities classified as available-for-sale are
carried at market value, with changes in unrealized gains and losses recorded
directly to stockholders' equity, net of applicable income taxes and deferred
policy acquisition costs valuation allowance. All marketable equity securities
are classified as available-for-sale and continue to be carried at market value,
with changes in unrealized gains and losses recorded directly to stockholders'
equity, net of applicable income taxes.
Under Statement 115, trading securities are carried at market value with
immediate recognition in income of changes in market value. Since SAFECO does
not have any securities held for trading, the adoption of this statement had no
effect on net income. As required by Statement 115, no restatement of prior
period amounts has been made. See Note 2 on page 56 for detail of the effect on
stockholders' equity of the adoption of Statement 115.
SAFECO Corporation 1995 Annual Report
38
<PAGE> 13
The FASB issued an Implementation Guide on Statement 115 in November of 1995.
In addition to providing guidance on Statement 115, the Guide allowed for a
one-time-only reclassification of securities among the three categories defined
in Statement 115. Such reclassifications will not call into question the
original classifications. As allowed under the Guide, SAFECO reclassified
certain held-to-maturity securities to the available-for-sale category on
December 31, 1995. While SAFECO's investment philosophy has not changed, this
reclassification will allow the Corporation to enhance its flexibility in
responding to changes in market conditions. See Note 2 on page 56 for
disclosures relating to this reclassification.
In March of 1995, the FASB issued Statement 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Statement 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying value. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Statement 121 is
effective for financial statements for fiscal years beginning after December 15,
1995 and SAFECO will adopt it in the first quarter of 1996. Although the impact
of the statement is currently being studied, it is not expected to have a
material effect on SAFECO's financial position or results of operations.
In October of 1995, the FASB issued Statement 123, "Accounting For
Stock-Based Compensation." The statement encourages entities to adopt a fair
value method of accounting for employee stock compensation plans. Entities that
choose not to adopt the new fair value accounting rules must disclose pro forma
net income and earnings per share under the new method. The statement is
effective for fiscal years beginning after December 15, 1995 and SAFECO will
adopt the disclosure requirements in 1996. Adoption will not affect net income.
DIVIDENDS
The Corporation has paid cash dividends continuously since 1933. Common stock
dividends paid to stockholders were $1.02 per share in 1995, compared to $0.94
in 1994 and $0.86 in 1993. 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 are approximately 4,500 common stockholders of record at December 31,
1995.
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, 1995, WITHOUT CHARGE, BY MAKING
A WRITTEN REQUEST TO:
ROD A. PIERSON
SENIOR VICE PRESIDENT, SECRETARY AND CONTROLLER
SAFECO CORPORATION
SAFECO PLAZA
SEATTLE, WASHINGTON 98185
SAFECO Corporation 1995 Annual Report
39
<PAGE> 14
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. 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, 1995, its system of
internal control is adequate to accomplish the objectives discussed herein.
The financial statements for the years ended December 31, 1995, 1994 and 1993
have been audited by Ernst & Young LLP, 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 LLP
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, 1995, 1994 and 1993 (pages 41 to
69 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, SAFECO Corporation and
its subsidiaries adopted certain new accounting standards in 1995, 1994 and 1993
as required by the Financial Accounting Standards Board.
/s/ Ernst & Young LLP
Seattle, Washington
February 9, 1996
SAFECO Corporation 1995 Annual Report
40
<PAGE> 15
STATEMENT OF CONSOLIDATED INCOME
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Insurance:
Property and Casualty Earned Premiums ............................. $2,162,141 $2,053,431 $1,929,714
Life and Health Premiums and Other Revenues ....................... 261,570 276,771 305,963
--------------------------------------------
Total .......................................................... 2,423,711 2,330,202 2,235,677
Real Estate ....................................................... 74,959 107,315 78,252
Finance ........................................................... 65,931 53,851 50,061
Asset Management .................................................. 18,532 15,055 13,250
Net Investment Income (Note 2) .................................... 1,075,280 991,610 951,795
Realized Investment Gain (Note 2) ................................. 64,271 39,040 187,649
--------------------------------------------
Total .......................................................... 3,722,684 3,537,073 3,516,684
--------------------------------------------
EXPENSES
Losses, Adjustment Expense and Policy Benefits .................... 2,250,442 2,202,282 2,026,106
Commissions ....................................................... 401,162 394,128 362,446
Proposition 103 Settlement (Note 6) ............................... - - 40,000
Personnel Costs ................................................... 230,821 224,526 226,393
Interest .......................................................... 84,243 69,346 58,790
Dividends to Policyholders ........................................ 15,239 22,835 20,653
Other ............................................................. 234,163 256,718 226,558
Amortization of Deferred Policy Acquisition Costs ................. 408,913 394,603 368,347
Deferral of Policy Acquisition Costs .............................. (416,099) (417,106) (389,546)
--------------------------------------------
Total .......................................................... 3,208,884 3,147,332 2,939,747
--------------------------------------------
Income Before Income Taxes ............................................ 513,800 389,741 576,937
--------------------------------------------
Provision (Benefit) for Federal and Canadian Income Taxes (Note 14):
Current ........................................................... 131,464 83,609 172,939
Deferred .......................................................... (16,623) (8,242) (21,903)
--------------------------------------------
Total .......................................................... 114,841 75,367 151,036
--------------------------------------------
Income Before Cumulative Effect of Accounting Changes ................. 398,959 314,374 425,901
Cumulative Effect of Accounting Changes (Notes 12 and 14):
Postretirement Benefits (Net of tax) .............................. - - (15,676)
Income Taxes ...................................................... - - 18,553
--------------------------------------------
Net Income ............................................................ $ 398,959 $ 314,374 $ 428,778
============================================
Net Income Per Share of Common Stock (Note 8):
Income Before Cumulative Effect of Accounting Changes ............. $ 3.17 $ 2.50 $ 3.39
Cumulative Effect of Accounting Changes:
Postretirement Benefits (Net of tax) ............................ - - (.13)
Income Taxes .................................................... - - .15
--------------------------------------------
Net Income ............................................................ $ 3.17 $ 2.50 $ 3.41
============================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
SAFECO Corporation 1995 Annual Report
41
<PAGE> 16
CONSOLIDATED BALANCE SHEET
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- -----------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized cost: 1995 - $10,853,590; 1994 - $9,608,210) ..... $11,928,144 $ 9,509,071
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market value: 1995 - $2,388,514; 1994 - $1,948,309) ........ 2,044,517 2,053,132
Marketable Equity Securities, at Market Value
(Cost: 1995 - $598,130; 1994 - $565,007) .................... 1,119,408 855,054
Mortgage Loans ................................................ 416,489 418,983
Real Estate (At cost less accumulated depreciation:
1995 - $83,831; 1994 - $105,841) (Note 3) ................... 498,958 475,865
Policy Loans .................................................. 55,925 53,329
Short-Term Investments ........................................ 68,808 101,574
----------------------------
Total Investments ......................................... 16,132,249 13,467,008
Cash .............................................................. 65,477 63,504
Accrued Investment Income ......................................... 234,253 229,964
Finance Receivables (Less unearned finance charges and allowance
for doubtful accounts: 1995 - $66,427; 1994 - $56,276) ......... 741,177 619,059
Premiums and Other Service Fees Receivable ........................ 444,618 418,733
Other Notes and Accounts Receivable ............................... 42,139 69,572
Reinsurance Recoverables (Note 5) ................................. 137,284 172,510
Deferred Policy Acquisition Costs ................................. 356,359 388,843
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation:
1995 - $155,928; 1994 - $141,185) ............................ 170,016 160,973
Other Assets ...................................................... 167,872 153,297
Separate Account Assets ........................................... 276,399 158,266
----------------------------
Total ..................................................... $18,767,843 $15,901,729
============================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
SAFECO Corporation 1995 Annual Report 42
<PAGE> 17
CONSOLIDATED BALANCE SHEET
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(In Thousands Except Share Amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense (Note 4) ........................................ $ 2,207,230 $ 2,265,854
Unearned Premiums .............................................................. 910,762 866,964
Life Policy Liabilities ........................................................ 154,090 155,322
Funds Held Under Deposit Contracts ............................................. 8,756,384 7,988,456
Notes and Mortgages Payable (Note 3):
Credit Company Borrowings ................................................... 614,270 510,600
7.875% Notes Due 2005 ...................................................... 200,000 --
10.75% Notes Due September 1995 ............................................ -- 200,000
Other Notes and Mortgages ................................................... 253,275 272,309
Other Liabilities .............................................................. 897,846 595,992
Federal and Canadian Income Taxes (Note 14):
Current ..................................................................... 18,000 22,627
Deferred (Includes tax on unrealized appreciation of investment
securities: 1995 - $543,556; 1994 - $66,818) ............................ 496,941 35,860
Separate Account Liabilities ................................................... 276,399 158,266
------------------------------
Total Liabilities ...................................................... 14,785,197 13,072,250
------------------------------
Commitments and Contingencies (Note 6)
Preferred Stock, No Par Value:
Shares Authorized: 10,000,000
Shares Issued and Outstanding: None
Common Stock, No Par Value (Notes 8 and 9):
Shares Authorized: 150,000,000
Shares Reserved for Options: 1995 - 3,699,983; 1994 - 2,042,691
Shares Issued and Outstanding: 1995 - 125,978,742; 1994 - 62,951,634 ....... 217,447 211,194
Retained Earnings (Note 11) ................................................... 2,755,537 2,495,800
Unrealized Appreciation of Investment Securities, Net of Tax ................... 1,013,494 128,123
Unrealized Loss from Foreign Currency Translation, Net of Tax .................. (3,832) (5,638)
------------------------------
Stockholders' Equity ................................................... 3,982,646 2,829,479
------------------------------
Total .................................................................. $18,767,843 $15,901,729
==============================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
43 SAFECO Corporation 1995 Annual Report
<PAGE> 18
STATEMENT OF CONSOLIDATED CASH FLOWS
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Insurance Premiums Received ..................................... $ 2,394,178 $ 2,312,818 $ 2,205,521
Dividends and Interest Received ................................. 1,059,653 970,267 919,890
Other Operating Receipts ........................................ 165,921 175,289 127,828
Insurance Claims and Policy Benefits Paid ....................... (1,817,501) (1,674,422) (1,570,643)
Underwriting, Acquisition and Insurance Operating Costs Paid .... (782,521) (768,236) (710,460)
Proposition 103 Settlement ...................................... -- -- (39,815)
Interest Paid ................................................... (84,943) (69,798) (59,268)
Other Operating Costs Paid ...................................... (88,070) (100,687) (70,296)
Income Taxes Paid ............................................... (144,581) (92,210) (169,144)
-------------------------------------------------
Net Cash Provided by Operating Activities .................. 702,136 753,021 633,613
-------------------------------------------------
INVESTING ACTIVITIES
Purchases of:
Fixed Maturities Available-for-Sale .......................... (2,079,336) (2,124,172) --
Fixed Maturities Held-to-Maturity ............................ (291,965) (358,297) (2,843,953)
Equities ..................................................... (170,177) (124,588) (118,856)
Other Investments ............................................ (297,118) (172,080) (138,151)
Maturities of Fixed Maturities Available-for-Sale ............... 710,496 746,383 --
Maturities of Fixed Maturities Held-to-Maturity ................. 17,878 54,564 1,010,532
Sales of:
Fixed Maturities Available-for-Sale .......................... 549,865 786,361 --
Fixed Maturities Held-to-Maturity ............................ -- -- 845,395
Equities ..................................................... 176,773 120,723 185,968
Other Investments ............................................ 304,870 122,903 93,193
Net Decrease in Short-Term Investments .......................... 23,321 13,938 57,878
Finance Receivables Originated or Acquired ...................... (374,670) (301,821) (286,758)
Principal Payments Received on Finance Receivables .............. 244,234 229,198 228,772
Other ........................................................... (67,071) (51,501) (47,297)
-------------------------------------------------
Net Cash Used in Investing Activities ...................... (1,252,900) (1,058,389) (1,013,277)
-------------------------------------------------
FINANCING ACTIVITIES
Funds Received Under Deposit Contracts .......................... 1,304,665 1,012,164 1,001,880
Return of Funds Held Under Deposit Contracts .................... (720,845) (659,698) (555,430)
Proceeds from Notes and Mortgage Borrowings ..................... 199,001 39,734 131,950
Repayment of Notes and Mortgage Borrowings ...................... (241,966) (119,961) (115,883)
Net Proceeds from Short-Term Borrowings ......................... 143,914 150,586 20,880
Common Stock Reacquired ......................................... (8,690) (5,327) (4,329)
Dividends Paid to Stockholders .................................. (128,479) (118,387) (108,133)
Other ........................................................... 5,137 1,928 3,440
-------------------------------------------------
Net Cash Provided by Financing Activities .................. 552,737 301,039 374,375
-------------------------------------------------
Net Increase (Decrease) in Cash .................................... 1,973 (4,329) (5,289)
Cash at the Beginning of Year ...................................... 63,504 67,833 73,122
-------------------------------------------------
Cash at the End of Year ............................................ $ 65,477 $ 63,504 $ 67,833
=================================================
</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 52 through 69.
SAFECO Corporation 1995 Annual Report 44
<PAGE> 19
STATEMENT OF CONSOLIDATED CASH FLOWS --
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net Income ........................................................ $ 398,959 $314,374 $ 428,778
-------------------------------------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain .................................... (64,271) (39,040) (187,649)
Depreciation and Amortization ............................... 51,706 39,473 32,113
Amortization of Fixed Maturity Investments .................. (38,150) (22,609) (20,910)
Deferred Income Tax Benefit ................................. (16,623) (8,242) (21,903)
Interest Expense on Deposit Contracts ....................... 432,327 405,536 400,122
Cumulative Effect of Accounting Changes ..................... -- -- (2,877)
Other Adjustments ........................................... 8,000 9,514 4,998
Changes in:
Losses and Adjustment Expense ............................. (58,624) 137,482 37,274
Unearned Premiums ......................................... 43,798 47,579 76,786
Life Policy Liabilities ................................... (1,232) 3,834 1,323
Accrued Income Taxes ...................................... (4,627) (15,336) 7,850
Accrued Interest on Accrual Bonds ......................... (36,908) (41,285) (56,712)
Accrued Investment Income ................................. (4,289) (19,675) (9,254)
Deferred Policy Acquisition Costs ......................... (10,331) (21,540) (21,199)
Other Assets and Liabilities .............................. 2,401 (37,044) (35,127)
-----------------------------------------
Total Adjustments ...................................... 303,177 438,647 204,835
-----------------------------------------
Net Cash Provided by Operating Activities ......................... $702,136 $753,021 $ 633,613
=========================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
45 SAFECO Corporation 1995 Annual Report
<PAGE> 20
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SAFECO Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Common Stock (Notes 8 and 9):
Balance at the Beginning of Year .................................. $ 211,194 $ 207,480 $ 200,557
Stock Issued for Options and Rights ............................... 5,839 3,616 4,152
Common Stock Reacquired ........................................... (486) (344) (223)
Stock Issued for Acquisition of Subsidiary ........................ -- -- 2,149
Other ............................................................. 900 442 845
----------------------------------------------
Balance at the End of Year ........................................ 217,447 211,194 207,480
----------------------------------------------
Retained Earnings (Note 11):
Balance at the Beginning of Year .................................. 2,495,800 2,307,322 1,993,350
Net Income ........................................................ 398,959 314,374 428,778
Dividends Declared ................................................ (131,018) (120,913) (110,700)
Common Stock Reacquired ........................................... (8,204) (4,983) (4,106)
----------------------------------------------
Balance at the End of Year ........................................ 2,755,537 2,495,800 2,307,322
----------------------------------------------
Unrealized Appreciation of Investment Securities, Net of Tax (Note 2):
Balance at the Beginning of Year .................................. 128,123 262,157 256,189
Net Effect of Adoption of FASB Statement 115 ..................... -- 640,477 --
Change in Unrealized Appreciation ................................. 885,371 (774,511) 5,968
----------------------------------------------
Balance at the End of Year ........................................ 1,013,494 128,123 262,157
----------------------------------------------
Unrealized Gain (Loss) from Foreign Currency Translation, Net of Tax:
Balance at the Beginning of Year .................................. (5,638) (2,568) (1,949)
Change in Unrealized Gain (Loss) ................................. 1,806 (3,070) (619)
----------------------------------------------
Balance at the End of Year ........................................ (3,832) (5,638) (2,568)
----------------------------------------------
Stockholders' Equity ........................................... $3,982,646 $2,829,479 $2,774,391
==============================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
SAFECO Corporation 1995 Annual Report 46
<PAGE> 21
STATEMENT OF COMBINED INCOME
PROPERTY AND CASUALTY INSURANCE COMPANIES
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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net Premiums Written ................................................. $2,206,984 $2,103,465 $2,000,165
Increase in Unearned Premiums ........................................ (44,843) (50,034) (70,451)
----------------------------------------------
Earned Premiums ...................................................... 2,162,141 2,053,431 1,929,714
----------------------------------------------
Losses and Expenses:
Losses and Adjustment Expense ..................................... 1,526,976 1,528,067 1,350,628
Commissions ....................................................... 322,566 308,513 280,357
Personnel Costs ................................................... 155,359 148,246 150,960
Taxes Other than Payroll and Income Taxes ......................... 59,658 58,889 53,094
Dividends to Policyholders ........................................ 15,239 22,835 20,653
Other Operating Expenses .......................................... 80,210 72,776 72,798
Amortization of Deferred Policy Acquisition Costs ................. 376,537 365,196 341,997
Deferral of Policy Acquisition Costs .............................. (380,752) (373,746) (350,621)
----------------------------------------------
Total ........................................................ 2,155,793 2,130,776 1,919,866
----------------------------------------------
Underwriting Profit (Loss) .......................................... 6,348 (77,345) 9,848
Net Investment Income (Excluding realized gain) ..................... 291,450 283,481 277,643
Proposition 103 Settlement ........................................... -- -- (40,000)
----------------------------------------------
Income Before Realized Gain and Income Taxes ......................... 297,798 206,136 247,491
Realized Gain from Security Investments
Before Income Taxes ............................................... 51,657 31,003 114,561
----------------------------------------------
Income Before Income Taxes ........................................... 349,455 237,139 362,052
Provision for Federal and Canadian Income Taxes
(Including tax provision on realized gain: 1995 - $17,939;
1994 - $10,298; 1993 - $43,398) .............................. 59,329 23,700 73,702
----------------------------------------------
Income Before Cumulative Effect of Accounting Changes ................ 290,126 213,439 288,350
Cumulative Effect of Accounting Changes:
Postretirement Benefits (Net of tax) ............................. -- -- (12,258)
Income Taxes ...................................................... -- -- 7,337
----------------------------------------------
Net Income ........................................................... $ 290,126 $ 213,439 $ 283,429
==============================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
47 SAFECO Corporation 1995 Annual Report
<PAGE> 22
STATEMENT OF COMBINED INCOME
LIFE AND HEALTH INSURANCE COMPANIES
SAFECO Life Insurance Company / SAFECO National Life Insurance Company / First
SAFECO National Life Insurance Company of New York / SAFECO Administrative
Services, Inc.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Premiums and Other Revenue ............................................. $ 261,570 $276,771 $305,963
Net Investment Income (Excluding realized gain) ........................ 778,221 706,217 668,158
------------------------------------------
Total .......................................................... 1,039,791 982,988 974,121
------------------------------------------
Benefits and Expenses:
Policy Benefits ..................................................... 723,466 674,215 675,478
Commissions ......................................................... 78,596 85,615 82,089
Personnel Costs ..................................................... 47,536 47,698 48,431
Taxes Other than Payroll and Income Taxes ........................... 8,268 7,891 9,003
Other Operating Expenses ............................................ 49,323 50,507 46,389
Amortization of Deferred Policy Acquisition Costs ................... 32,376 29,407 26,350
Deferral of Policy Acquisition Costs ................................ (35,347) (43,360) (38,925)
------------------------------------------
Total .......................................................... 904,218 851,973 848,815
------------------------------------------
Income Before Realized Gain and Income Taxes ........................... 135,573 131,015 125,306
Realized Gain from Security Investments
Before Income Taxes ................................................. 5,894 5,888 53,544
------------------------------------------
Income Before Income Taxes ............................................. 141,467 136,903 178,850
Provision for Federal Income Taxes
(Including tax provision on realized gain:
1995 - $2,429; 1994 - $2,106; 1993 - $18,344) .................... 49,014 48,180 66,747
------------------------------------------
Income Before Cumulative Effect of Accounting Changes .................. 92,453 88,723 112,103
Cumulative Effect of Accounting Changes:
Postretirement Benefits (Net of tax) ................................ -- -- (2,493)
Income Taxes ........................................................ -- -- 9,092
------------------------------------------
Net Income ............................................................. $ 92,453 $ 88,723 $118,702
==========================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
SAFECO Corporation 1995 Annual Report 48
<PAGE> 23
STATEMENT OF CONSOLIDATED INCOME
REAL ESTATE COMPANIES
SAFECO Properties, Inc. / Winmar Company, Inc. / SAFECARE Company, Inc.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
REVENUES
Operating Property Revenue ........................................ $64,862 $ 75,681 $64,315
Real Estate Sales ................................................. 5,304 26,521 5,979
Interest .......................................................... 2,620 3,638 4,609
Other ............................................................. 2,173 1,475 3,349
--------------------------------------
Total ........................................................ 74,959 107,315 78,252
--------------------------------------
EXPENSES
Operating Property Expenses ....................................... 12,193 26,184 22,369
Real Estate Sales Costs ........................................... 3,380 19,179 5,750
Interest .......................................................... 29,137 27,426 21,553
Depreciation ...................................................... 14,854 13,520 10,486
General and Administrative ........................................ 12,060 12,154 11,504
Minority Interest ................................................. 287 1,780 371
--------------------------------------
Total ........................................................ 71,911 100,243 72,033
Interest and Other Expenses Capitalized ........................... (6,012) (3,080) (3,860)
--------------------------------------
Net Expenses ................................................. 65,899 97,163 68,173
--------------------------------------
Income Before Realized Gain (Loss) and Income Taxes .................. 9,060 10,152 10,079
Realized Gain (Loss) from Real Estate Investments
Before Income Taxes ............................................... (818) (174) 8,126
--------------------------------------
Income Before Income Taxes ........................................... 8,242 9,978 18,205
Provision for Federal Income Taxes
(Including tax provision (benefit) on realized gain (loss):
1995 - $(287); 1994 - $(61); 1993 - $2,717) ................... 2,844 3,523 6,660
--------------------------------------
Income Before Cumulative Effect of Accounting Changes ................ 5,398 6,455 11,545
Cumulative Effect of Accounting Changes:
Postretirement Benefits (Net of tax) ............................. -- -- (360)
Income Taxes ...................................................... -- -- 3,389
--------------------------------------
Net Income ........................................................... $ 5,398 $ 6,455 $14,574
======================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
49 SAFECO Corporation 1995 Annual Report
<PAGE> 24
STATEMENT OF INCOME
SAFECO CREDIT COMPANY, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Investment Revenues:
Interest and Finance Charges:
Finance Receivables ............................................ $60,047 $48,986 $45,151
Affiliates ..................................................... 5,868 4,330 3,985
-----------------------------------
Total ........................................................ 65,915 53,316 49,136
Interest on Other Investments ..................................... 28 281 140
-----------------------------------
Total Investment Revenues .................................... 65,943 53,597 49,276
Interest Expense ..................................................... 41,772 30,652 25,918
-----------------------------------
Net Investment Income ............................................. 24,171 22,945 23,358
Provision for Credit Losses .......................................... 2,600 3,650 4,450
-----------------------------------
Net Investment Income After Provision for Credit Losses ........... 21,571 19,295 18,908
Other Revenue ........................................................ 5,856 4,584 4,770
-----------------------------------
Total ........................................................ 27,427 23,879 23,678
-----------------------------------
Operating Expenses:
Personnel Costs ................................................... 7,785 7,204 7,274
General and Administrative ........................................ 6,342 5,914 6,214
-----------------------------------
Total ........................................................ 14,127 13,118 13,488
-----------------------------------
Income Before Income Taxes ........................................... 13,300 10,761 10,190
Provision for Federal Income Taxes ................................... 4,428 3,396 3,751
-----------------------------------
Income Before Cumulative Effect of Accounting Changes ................ 8,872 7,365 6,439
Cumulative Effect of Accounting Changes:
Postretirement Benefits (Net of tax) .............................. -- -- (360)
Income Taxes ...................................................... -- -- (42)
-----------------------------------
Net Income ........................................................... $ 8,872 $ 7,365 $ 6,037
===================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
SAFECO Corporation 1995 Annual Report 50
<PAGE> 25
STATEMENT OF COMBINED INCOME
ASSET MANAGEMENT COMPANIES
SAFECO Asset Management Company / SAFECO Securities, Inc. / SAFECO Services
Corporation / SAFECO Trust Company
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
REVENUES
Management and Advisory Fees ...................................... $12,994 $11,235 $10,074
Transfer Agent Fees ............................................... 3,088 2,367 1,877
Other ............................................................. 2,450 1,453 1,299
-----------------------------------
Total .......................................................... 18,532 15,055 13,250
-----------------------------------
EXPENSES
Personnel Costs ................................................... 6,318 4,737 4,199
Marketing and Shareholder Communication ........................... 2,266 1,564 890
Other ............................................................. 3,051 2,403 1,622
-----------------------------------
Total .......................................................... 11,635 8,704 6,711
-----------------------------------
Income Before Income Taxes ........................................... 6,897 6,351 6,539
Provision for Federal Income Taxes ................................... 2,151 2,235 2,284
-----------------------------------
Income Before Cumulative Effect of Accounting Changes ................ 4,746 4,116 4,255
Cumulative Effect of Accounting Changes:
Postretirement Benefits (Net of tax) ............................. -- -- (204)
Income Taxes ...................................................... -- -- 2
-----------------------------------
Net Income ........................................................... $ 4,746 $ 4,116 $ 4,053
===================================
</TABLE>
See Notes to Financial Statements on pages 52 through 69.
51 SAFECO Corporation 1995 Annual Report
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data, unless otherwise stated)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
SAFECO Corporation is a Washington corporation which owns operating
subsidiaries in various segments of insurance and other financially related
businesses. SAFECO's businesses operate on a nationwide basis. Non-U.S.
operations are insignificant. The insurance subsidiaries engage in both property
and casualty, surety and life and health insurance, and market their products
primarily through independent agents. Approximately 46% of SAFECO's property and
casualty premiums are written in the three west coast states of California,
Washington and Oregon. SAFECO's other operations include subsidiaries involved
in real estate investment and management (SAFECO Properties), commercial lending
and leasing (SAFECO Credit) and investment management.
BASIS OF REPORTING
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. The financial
statements 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 to prior year financial information to conform to the 1995 classification.
ACCOUNTING FOR PREMIUMS
Property and casualty insurance premiums are included in income as earned on
a daily pro rata basis over the terms of the respective policies. The unearned
portion is included in the balance sheet as a liability for unearned premiums,
before the effect of reinsurance. See Note 5 for more information on
reinsurance.
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 deposit contracts, annuities and universal
life policies of $1,304,665, $1,012,164 and $1,001,880 in 1995, 1994 and 1993,
respectively, are recorded as liabilities rather than premium income when
received. Revenues 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
SAFECO adopted Financial Accounting Standards Board (FASB) Statement 115,
"Accounting for Certain Investments in Debt and Equity Securities," on January
1, 1994, applying the provisions of the statement to investments held as of, or
acquired after that date. See discussion of new accounting standards on page 54.
Fixed maturity investments (bonds and redeemable preferred stock) which
SAFECO has the positive intent and ability to hold to maturity are classified as
held-to-maturity and carried at amortized cost in the balance sheet. Fixed
maturities classified as available-for-sale are carried at market value, with
changes in unrealized gains and losses recorded directly to stockholders'
equity, net of applicable income taxes and deferred policy acquisition costs
valuation allowance. SAFECO has no fixed maturities classified as trading.
All marketable equity securities are classified as available-for-sale and
are carried at market value, with changes in unrealized gains and losses
recorded directly to stockholders' equity, net of applicable income taxes.
When the collectibility of income on certain investments is considered
doubtful, they are placed on nonaccrual 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 fair value. Writedowns are made directly on an
individual security basis and reduce realized investment gains 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 mortgage loan losses. The allowance for mortgage loan losses at
December 31, 1995 and 1994 was $9,633 and $9,511, 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.
SAFECO Corporation 1995 Annual Report 52
<PAGE> 27
Real estate taxes, interest expense and certain other carrying costs related
to projects under development are capitalized as a cost of such projects until
the project is substantially complete unless the total carrying value has
reached estimated net realizable value. Costs in excess of estimated net
realizable value are charged to operations. Projects that involve construction
of income-producing property are considered to be substantially complete when
available for occupancy. Projects that involve the development of land are
considered substantially complete when planned improvement activity is concluded
or the property is offered for sale. After substantial completion, carrying
costs are charged to expense when incurred and, for income-producing property,
depreciation is then provided.
Interest capitalized relating to the development of real estate was $3,088,
$2,482 and $3,554 for 1995, 1994 and 1993, 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. 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. 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.
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. See Note 4 for more information on loss reserves.
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 $134,294 and $131,093 at
December 31, 1995 and 1994, respectively.
The property and casualty companies' liability for unpaid losses and
adjustment expense is presented gross of amounts recoverable from reinsurers.
See Note 5 for more information on reinsurance.
LIFE POLICY LIABILITIES
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 5.5% to 8.75%.
Liabilities for future policy benefits under traditional individual life
insurance policies have been computed on the level premium method and reflect
interest, mortality and persistency assumptions based on actual experience
modified to provide for adverse deviation. Interest assumptions generally range
from 8.5% graded to 3.25%.
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. Per share amounts have been
adjusted to reflect the 2-for-1 stock split on December 1, 1995. Dilution
arising from stock options is insignificant.
53 SAFECO Corporation 1995 Annual Report
<PAGE> 28
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NEW ACCOUNTING STANDARDS
SAFECO adopted Financial Accounting Standards Board (FASB) Statements 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
109, "Accounting for Income Taxes," in the first quarter of 1993. See the
Consolidated Statement of Income on page 41 for the effect on income of adoption
of statements 106 and 109. For additional disclosure relating to statements 106
and 109, see Note 12 and Note 14, respectively.
SAFECO adopted FASB Statement 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1994. Adoption had no effect on net income.
SAFECO adopted FASB Statement 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts," in the first quarter of 1993.
Adoption had no effect on net income. See Note 5 for disclosures relating to
reinsurance.
In 1993, the FASB issued Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired loans. The
FASB also issued Statement 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures," in 1994, which amends Statement
114. Both statements are effective for 1995 and were adopted by SAFECO on
January 1, 1995. Adoption did not affect net income. For additional disclosure
relating to these two statements see Note 2 on page 58.
In 1993, the FASB 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. As of January 1, 1994, SAFECO adopted the
provisions of this statement for investments held as of, or acquired after that
date. Statement 115 requires that debt and equity securities be classified as
trading, available-for-sale or held-to-maturity. Fixed maturity securities that
SAFECO has the positive intent and ability to hold to maturity (as narrowly
defined by Statement 115) are classified as held-to-maturity and are reported at
amortized cost. Fixed maturity securities classified as available-for-sale are
carried at market value, with changes in unrealized gains and losses recorded
directly to stockholders' equity, net of applicable income taxes and deferred
policy acquisition costs valuation allowance. All marketable equity securities
are classified as available-for-sale and continue to be carried at market value,
with changes in unrealized gains and losses recorded directly to stockholders'
equity, net of applicable income taxes.
Under Statement 115, trading securities are carried at market value with
immediate recognition in income of changes in market value. Since SAFECO does
not have any securities held for trading, the adoption of this statement had no
effect on net income. As required by Statement 115, no restatement of prior
period amounts has been made. See Note 2 on page 56 for detail of the effect on
stockholders' equity of the adoption of Statement 115.
The FASB issued an Implementation Guide on Statement 115 in November of 1995.
In addition to providing guidance on Statement 115, the Guide allowed for a
one-time-only reclassification of securities among the three categories defined
in Statement 115. Such reclassifications will not call into question the
original classifications. As allowed under the Guide, SAFECO reclassified
certain held-to-maturity securities to the available-for-sale category on
December 31, 1995. While SAFECO's investment philosophy has not changed, this
reclassification will allow the Corporation to enhance its flexibility in
responding to changes in market conditions. See Note 2 on page 56 for
disclosures relating to this reclassification.
In March of 1995, the FASB issued Statement 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Statement 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying value. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Statement 121 is
effective for financial statements for fiscal years beginning after December 15,
1995 and SAFECO will adopt it in the first quarter of 1996. Although the impact
of the statement is currently being studied, it is not expected to have a
material effect on SAFECO's financial position or results of operations.
In October of 1995, the FASB issued Statement 123, "Accounting For
Stock-Based Compensation." The statement encourages entities to adopt a fair
value method of accounting for employee stock compensation plans. Entities that
choose not to adopt the new fair value accounting rules must disclose pro forma
net income and earnings per share under the new method. The statement is
effective for fiscal years beginning after December 15, 1995 and SAFECO will
adopt the disclosure requirements in 1996. Adoption will not affect net income.
SAFECO Corporation 1995 Annual Report 54
<PAGE> 29
NOTE 2: INVESTMENTS
Investment income is comprised of:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities ................................................. $ 981,345 $ 908,194 $ 867,022
Mortgage loans ................................................... 40,874 40,664 40,027
Short-term investments ........................................... 17,371 8,354 8,266
Dividends:
Marketable equity securities ..................................... 40,993 42,059 45,146
Redeemable preferred stock ....................................... 4,034 2,133 1,540
Other investment income .............................................. 4,567 4,714 4,830
----------------------------------------------
Total investment income .......................................... 1,089,184 1,006,118 966,831
Investment expenses .................................................. 13,904 14,508 15,036
----------------------------------------------
Net investment income ............................................ $ 1,075,280 $ 991,610 $ 951,795
==============================================
</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, 1995.
The following analysis summarizes realized gains and losses on investments:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized investment gains (losses):
Fixed maturities ................................................. $ 29,293 $ (8,843) $ 121,907
Marketable equity securities ..................................... 35,796 48,057 57,616
Investment real estate ........................................... (818) (174) 8,126
----------------------------------------------
Realized investment gain before income taxes .................. 64,271 39,040 187,649
Applicable income taxes .......................................... (22,719) (13,118) (68,734)
----------------------------------------------
Net realized investment gain .................................. $ 41,552 $ 25,922 $ 118,915
==============================================
</TABLE>
The proceeds from sales of investment securities and related gains and losses
for 1995 are as follows:
<TABLE>
<CAPTION>
FIXED FIXED
MATURITIES MATURITIES MARKETABLE
AVAILABLE- HELD-TO- EQUITY
FOR-SALE MATURITY SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales .................................................. $ 549,865 $ -- $ 176,773
----------------------------------------------
Gross realized gains on sales ........................................ $ 26,945 $ -- $ 46,546
Gross realized losses on sales ....................................... (12,331) -- (10,750)
----------------------------------------------
Realized gains on sale ............................................... 14,614 -- 35,796
Writedowns ........................................................... (13,609) -- --
Other, including gains on calls and redemptions ...................... 28,288 -- --
----------------------------------------------
Total realized gain .............................................. $ 29,293 $ -- $ 35,796
==============================================
</TABLE>
55 SAFECO Corporation 1995 Annual Report
<PAGE> 30
NOTE 2: INVESTMENTS (CONTINUED)
The proceeds from sales of investment securities and related gains and
losses for 1994 are as follows:
<TABLE>
<CAPTION>
FIXED FIXED
MATURITIES MATURITIES MARKETABLE
AVAILABLE- HELD-TO- EQUITY
FOR-SALE MATURITY SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales ............................................................... $ 786,361 $-- $ 120,723
----------------------------------------
Gross realized gains on sales ..................................................... $ 19,235 $-- $ 52,680
Gross realized losses on sales .................................................... (50,043) -- (4,623)
----------------------------------------
Realized gains (losses) on sale ................................................... (30,808) -- 48,057
Writedowns ........................................................................ (4,804) -- --
Other, including gains on calls and redemptions ................................... 26,769 -- --
----------------------------------------
Total realized gain (loss) .................................................... $ (8,843) $-- $ 48,057
========================================
</TABLE>
The proceeds from sales of investments in fixed maturities and related gains
and losses for 1993 are as follows:
<TABLE>
<CAPTION>
1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Proceeds from sales ................................................................................................. $ 845,395
---------
Gross realized gains on sales ....................................................................................... $ 92,809
Gross realized losses on sales ...................................................................................... (23,120)
---------
Realized gains on sale .............................................................................................. 69,689
Writedowns .......................................................................................................... (15,171)
Other, including gains on calls and redemptions ..................................................................... 67,389
---------
Total realized gain ............................................................................................. $ 121,907
=========
</TABLE>
The following analysis summarizes the changes in unrealized gains and losses
on investment securities:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of investment securities:
Fixed maturities ......................................... $ 1,622,513 $(1,448,717) $ 400,459
Marketable equity securities ................................. 231,231 (107,067) 8,949
Applicable income taxes .................................. (648,810) 544,524 (155,617)
------------------------------------------------
Net change in unrealized appreciation ................. $ 1,204,934 $(1,011,260) $ 253,791
================================================
</TABLE>
As discussed in Note 1, SAFECO adopted the provisions of FASB Statement 115
as of January 1, 1994. The net effect on stockholders' equity of the adoption of
Statement 115 was an increase of $640,477 as of January 1, 1994. The net
increase of $640,477 was comprised of the following amounts: aggregate market
value in excess of amortized cost of fixed maturities classified as
available-for-sale of $1,013,117, less deferred policy acquisition costs
valuation allowance of $27,768 and deferred income taxes of $344,872.
SAFECO reclassified certain fixed maturity securities from the
held-to-maturity category to the available-for-sale category on December 31,
1995, as allowed by the FASB's Implementation Guide discussed in Note 1 on page
54. The securities reclassified had a net carrying value (amortized cost) of
$331,123 and a market value of $358,630 at December 31, 1995. This
reclassification had no effect on net income. While SAFECO's investment
philosophy has not changed, this reclassification will allow the Corporation
to enhance its flexibility in responding to changes in market conditions.
SAFECO Corporation 1995 Annual Report 56
<PAGE> 31
The following is a summary of fixed maturities and marketable equity
securities classified as available-for-sale at December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. ..........
government corporations and agencies .................. $ 1,087,644 $ 98,207 $ (1,165) $ 97,042 $ 1,184,686
Obligations of states and political subdivisions .......... 2,997,988 467,564 (246) 467,318 3,465,306
Debt securities issued by foreign governments ............. 208,920 49,505 -- 49,505 258,425
Corporate securities ...................................... 4,201,895 356,271 (10,626) 345,645 4,547,540
Mortgage-backed securities ................................ 2,357,143 120,053 (5,009) 115,044 2,472,187
----------------------------------------------------------------------
Total fixed maturities classified as available-for-sale 10,853,590 1,091,600 (17,046) 1,074,554 11,928,144
Marketable equity securities .............................. 598,130 525,190 (3,912) 521,278 1,119,408
----------------------------------------------------------------------
Total .............................................. $ 11,451,720 $ 1,616,790 $ (20,958) 1,595,832 $ 13,047,552
========================================= ============
Deferred policy acquisition costs valuation allowance ..... (42,815)
Applicable income taxes ................................... (539,523)
------------
Unrealized appreciation of investment securities,
net of tax, included in stockholders' equity .......... $ 1,013,494
============
</TABLE>
The following is a summary of fixed maturities classified as held-to-maturity
at December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies ....... $ 210,894 $ 60,042 $ -- $ 60,042 $ 270,936
Obligations of states and political subdivisions 52,438 4,689 -- 4,689 57,127
Debt securities issued by foreign governments .. 135,467 31,956 -- 31,956 167,423
Corporate securities ........................... 1,353,837 224,245 (4,128) 220,117 1,573,954
Mortgage-backed securities ..................... 291,881 27,193 -- 27,193 319,074
---------------------------------------------------------------
Total fixed maturities classified as
held-to-maturity ........................ $2,044,517 $ 348,125 $ (4,128) $ 343,997 $2,388,514
===============================================================
</TABLE>
The following is a summary of fixed maturities and marketable equity
securities classified as available-for-sale at December 31, 1994:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN (LOSS) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies .................... $ 1,009,473 $ 5,002 $ (43,104) $ (38,102) $ 971,371
Obligations of states and political subdivisions ............ 2,740,754 192,205 (104,504) 87,701 2,828,455
Debt securities issued by foreign governments ............... 227,398 22,713 (3,546) 19,167 246,565
Corporate securities ........................................ 3,806,929 60,441 (175,136) (114,695) 3,692,234
Mortgage-backed securities .................................. 1,793,208 33,287 (87,980) (54,693) 1,738,515
Other debt securities ....................................... 30,448 1,608 (125) 1,483 31,931
--------------------------------------------------------------------
Total fixed maturities classified as available-for-sale . 9,608,210 315,256 (414,395) (99,139) 9,509,071
Marketable equity securities ................................ 565,007 314,211 (24,164) 290,047 855,054
--------------------------------------------------------------------
Total ................................................ $ 10,173,217 $ 629,467 $ (438,559) 190,908 $ 10,364,125
====================================== ============
Applicable income taxes ..................................... (62,785)
----------
Unrealized appreciation of investment securities,
net of tax, included in stockholders' equity ............ $ 128,123
==========
</TABLE>
57 SAFECO Corporation 1995 Annual Report
<PAGE> 32
NOTE 2: INVESTMENTS (CONTINUED)
The following is a summary of fixed maturities classified as
held-to-maturity at December 31, 1994:
<TABLE>
<CAPTION>
GROSS GROSS NET ESTIMATED
AMORTIZED UNREALIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES GAIN (LOSS) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies .................. $ 124,266 $ 649 $ (10,953) $ (10,304) $ 113,962
Obligations of states and political subdivisions .......... 36,517 2,260 (527) 1,733 38,250
Debt securities issued by foreign governments ............. 139,951 2,651 (2,434) 217 140,168
Corporate securities ...................................... 1,230,969 24,490 (76,261) (51,771) 1,179,198
Mortgage-backed securities ................................ 521,429 8,374 (53,072) (44,698) 476,731
------------------------------------------------------------------
Total fixed maturities classified as
held-to-maturity ................................... $2,053,132 $ 38,424 $ (143,247) $ (104,823) $1,948,309
==================================================================
</TABLE>
The amortized cost and estimated market value of fixed maturities at December
31, 1995, 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>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less ..................................... $ 169,603 $ 170,212 $ - $ -
Due after one year through five years ....................... 1,447,974 1,528,183 5,000 5,250
Due after five years through ten years ...................... 1,909,901 2,075,602 25,124 29,513
Due after ten years ......................................... 4,968,969 5,681,960 1,722,512 2,034,677
Mortgage-backed securities .................................. 2,357,143 2,472,187 291,881 319,074
----------------------------------------------------------
Total ................................................... $ 10,853,590 $ 11,928,144 $ 2,044,517 $2,388,514
==========================================================
</TABLE>
In 1993, the FASB issued Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired loans (FAS
114). The FASB also issued Statement 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosure" (FAS 118), in 1994,
which amends Statement 114. Both statements are effective for 1995 and were
adopted by SAFECO on January 1, 1995. Adoption did not affect net income.
The following table summarizes SAFECO's consolidated allowance for credit
losses:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance at beginning of year ..................................................................... $24,557 $19,199
Provision for credit losses ........................................................................ 4,200 6,650
Recoveries ......................................................................................... 650 904
Loans charged off as uncollectible ................................................................. (1,891) (2,196)
--------------------
Allowance at end of year ........................................................................... $27,516 $24,557
====================
</TABLE>
This allowance relates to SAFECO Credit's Finance Receivables ($741 million
at December 31, 1995) and to Mortgage Loan investments ($416 million at December
31, 1995) nearly all of which are held by SAFECO's life and health company. The
1995 allowance includes amounts determined under FAS 114 and FAS 118 (specific
reserves), as well as general reserve amounts. The total investment in impaired
loans, as defined under FAS 114 and 118 and before any reserve for losses, is
$6.5 million at December 31, 1995. A specific loan loss reserve has been
established for each impaired loan, the total of which is $2.3 million at
December 31, 1995 and is included in the overall allowance of $27.5 million at
December 31, 1995.
SAFECO Corporation 1995 Annual Report 58
<PAGE> 33
NOTE 3: NOTES AND MORTGAGES PAYABLE
At December 31, 1995, SAFECO Credit had short-term borrowings of $534,150
through commercial paper and $78,350 of medium-term notes. The repayment of each
of these borrowings is guaranteed by SAFECO Corporation. The weighted average
interest rates on the short-term borrowings were 5.8% and 5.8% at December 31,
1995 and 1994, respectively.
At December 31, 1995, SAFECO Credit had available bank lines of credit
totaling $375,000. No amounts were outstanding under these lines of credit at
December 31, 1995. 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. Effective
January 1, 1996, these bank lines of credit were moved from SAFECO Credit to
SAFECO Corporation, to be used for general corporate purposes, including
continuing support of SAFECO Credit's 90-day borrowings.
In July 1994, the Securities and Exchange Commission (SEC) declared effective
a shelf registration of $200,000 of debt securities by SAFECO Corporation. In
March 1995, SAFECO Corporation issued $200,000 of 7.875% notes due April 2005.
The proceeds were invested in short-term treasury securities and were
subsequently used to redeem SAFECO Corporation's existing $200,000 of 10.75%
notes which came due September of 1995.
In 1990, the SEC declared effective a shelf registration of $200,000 of debt
securities by SAFECO Corporation and/or SAFECO Credit. SAFECO Credit issued
$149,850
of medium-term notes under this shelf registration. Of this amount, $78,350
remains outstanding, with rates ranging from 6.90% to 9.15% and maturities from
February 1996 to December 2001. SAFECO Corporation 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 will be issued under this shelf
registration.
SAFECO Credit enters into interest rate swap agreements with outside parties
to reduce the impact of changes in interest rates on its floating rate debt.
The interest rate swap agreements provide only for the exchange of interest on
the notional amounts at the stated rates, with no multipliers or leverage. At
December 31, 1995, interest rate swap agreements were outstanding with notional
amounts of $134,942, which replace the floating rates of 5.83% to 5.99% with
fixed rates ranging from 4.51% to 8.07%. Maturities of these agreements range
from February 1996 to October 2002. At December 31, 1994, interest rate swap
agreements were outstanding with notional amounts of $70,855, replacing the
floating rates of 6.06% to 6.73% with fixed rates ranging from 4.51% to 9.00%.
There were no swap terminations in 1995, 1994 or 1993. The net interest accrued
of $152 under these agreements in 1995 was recorded as a decrease in interest
expense.
Real estate mortgages and contracts payable are collateralized by the
related investment real estate buildings and property.
The total amount, current portions, interest rates and maturities of notes
and mortgages payable at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------
TOTAL CURRENT TOTAL CURRENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SAFECO Credit borrowings payable through 2001; weighted average interest rates
at December 31:
1995 - 6.1%; 1994 - 6.2% ........................................................ $614,270 $567,770 $510,600 $432,250
-----------------------------------------
SAFECO Corporation, 7.875% notes due 2005 .............................................. $200,000 $ - $ - $ -
-----------------------------------------
SAFECO Corporation, 10.75% notes due September 1995 .................................... $ - $ - $200,000 $200,000
-----------------------------------------
Other Notes and Mortgages:
Real estate mortgages and contracts payable in installments and medium-term
notes payable through 2014; weighted average interest rates at December
31:
1995 - 7.8%; 1994 - 7.9% ........................................................ $216,990 $ 9,604 $232,136 $ 3,828
Unsecured notes and loans payable in installments through 1997; weighted
average interest rates at December 31:
1995 - 7.3%; 1994 - 7.5% ........................................................ 36,285 31,260 40,173 3,227
-----------------------------------------
Total ........................................................................ $253,275 $ 40,864 $272,309 $ 7,055
=========================================
</TABLE>
Aggregate annual principal installments payable under these obligations for
each of the five years subsequent to 1995 are as follows: 1996 - $608,634; 1997
- - $31,360; 1998 - $24,040; 1999 - $3,776; 2000 - $54,364.
59 SAFECO Corporation 1995 Annual Report
<PAGE> 34
NOTE 4: PROPERTY AND CASUALTY LOSS RESERVES
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. 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.
The following is a summary of the activity related to SAFECO's property and
casualty companies' reserve for losses and adjustment expense (net of
reinsurance amounts):
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Losses and adjustment expense reserves at beginning of year. . . . . . . . . . $2,092,946 $1,995,122 $1,963,136
---------- ---------- ----------
Incurred losses and adjustment expense for claims occurring
in the current year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,586,675 1,609,392 1,447,565
Decrease in estimated losses and adjustment expense for claims
occurring in prior years . . . . . . . . . . . . . . . . . . . . . . . . . (59,699) (81,325) (96,937)
---------- ---------- ----------
Total incurred losses and adjustment expense . . . . . . . . . . . . . . . . . 1,526,976 1,528,067 1,350,628
---------- ---------- ----------
Losses and adjustment expense payments for claims occurring during:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 856,796 809,722 719,756
Prior years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693,049 620,521 598,886
---------- ---------- ----------
Total losses and adjustment expense payments . . . . . . . . . . . . . . . . . 1,549,845 1,430,243 1,318,642
---------- ---------- ----------
Losses and adjustment expense reserves at end of year . . . . . . . . . $2,070,077 $2,092,946 $1,995,122
========== ========== ==========
</TABLE>
The year-end reserve amounts above are net of related reinsurance
recoverables of $110,746, $143,858 and $100,065 for 1995, 1994 and 1993,
respectively.
The amounts above do not include SAFECO's life and health insurance
companies' loss reserves for accident and health claims as these amounts are not
material in relation to consolidated losses and adjustment expense reserves and
because the majority of these claims are incurred and paid in full within a
one-year period.
The decrease in the property and casualty companies' estimated losses and
adjustment expense for claims occurring in prior years reflects several factors:
aggressive reserving undertaken in prior years to correct deficiencies which is
no longer necessary, favorable legislation in the workers' compensation area,
moderation of medical costs and inflation and claims department changes. The
favorable legislation in the workers' compensation area, which relates primarily
to the states of Oregon and California, has helped reduce fraud, allowed for
final settlement of claims and made it more difficult to reopen claims -- all of
which reduced SAFECO's ultimate loss costs. The cost of claim settlements in
several lines of business has benefited from changes in the organization of
SAFECO's claims department which has established separate specialized units for
workers' compensation, environmental exposures and fraud investigation. In
addition, increased focus on adjustment expenses has helped reduce these costs.
The property and casualty companies' liability for unpaid losses and
adjustment expense includes reserves for environmental, asbestos and other toxic
claims. These reserves are approximately 5% of total property and casualty
reserves for losses and adjustment expense at December 31, 1995, 1994 and 1993.
The reserves include estimates for both reported and IBNR losses and related
legal expenses. Reserving for these claims is subject to significant
uncertainties. Such uncertainties include difficulties in predicting the outcome
of judicial decisions as case law evolves regarding liability exposure,
insurance coverage and interpretation of policy language and changes in
environmental regulations. In view of these conditions, trends that have
affected development of these liabilities in the past may not necessarily occur
in the future. Although estimation of environmental claims is a difficult
process, the reserves established for these claims at December 31, 1995 are
believed to be adequate based on the known facts and current law.
NOTE 5: REINSURANCE
SAFECO's insurance subsidiaries protect themselves from excessive losses by
reinsuring on treaty and facultative bases. Reinsurance contracts do not relieve
SAFECO of its obligations to policyholders. With respect to the amounts of
reinsurance related to the liabilities for losses, adjustment expense, life
policy liabilities and unearned premiums, a continuing liability exists, in the
event reinsurance companies are unable to meet their obligations. SAFECO
evaluates the financial condition of its reinsurers to minimize its exposure to
losses from reinsurer insolvencies.
SAFECO's insurance subsidiaries do not enter into retrospective reinsurance
contracts and do not participate in any unusual or nonrecurring reinsurance
transactions such as "swaps" of reserves, loss portfolio transfers or funding
covers.
SAFECO Corporation 1995 Annual Report 60
<PAGE> 35
The balance sheet caption "Reinsurance Recoverables" is comprised of the
following amounts at December 31:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property and Casualty:
Reinsurance recoverables on:
Unpaid losses and adjustment expense. . . . . . . . . . . . . . . . . . . . . . . $ 110,746 $ 143,858
Paid losses and adjustment expense. . . . . . . . . . . . . . . . . . . . . . . . 9,882 13,135
Life and Health:
Reinsurance recoverables on:
Unpaid losses and adjustment expense (policy and contract claims). . . . . . . . 850 646
Paid claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658 506
Life policy liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,844 14,033
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 332
----------- ---------
Reinsurance recoverables. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 137,284 $ 172,510
=========== =========
</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 $50,633 and $51,103 at
December 31, 1995 and 1994, 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>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and Casualty ceded earned premiums . . . . . . . . . . . . . . . . . . . . . $ 160,342 $ 175,861 $ 127,537
Life and Health ceded earned premiums . . . . . . . . . . . . . . . . . . . . . . . . 10,385 9,060 9,576
--------- --------- ---------
Total ceded premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,727 $ 184,921 $ 137,113
========= ========= =========
Property and Casualty ceded losses and adjustment expense . . . . . . . . . . . . . . $ 46,184 $ 184,670 $ 54,996
Life and Health ceded policy benefits . . . . . . . . . . . . . . . . . . . . . . . . 6,344 5,588 7,441
--------- --------- ---------
Total ceded losses, adjustment expense and policy benefits. . . . . . . . . . . . $ 52,528 $ 190,258 $ 62,437
========= ========= =========
</TABLE>
Property and casualty reinsurance recoverables, ceded premiums and ceded
losses and adjustment expense were higher in 1994 due to the reinsurance amounts
related to the Los Angeles earthquake on January 17, 1994.
Reinsurance premiums ceded on a written basis are approximately equal to the
ceded earned premiums disclosed above. Reinsurance premiums assumed are
insignificant.
NOTE 6: 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, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR PAYABLE MINIMUM RENTALS
- --------------------------------------------------------
<C> <C>
1996. . . . . . . . . . . . . . . . . . . . $ 8,726
1997. . . . . . . . . . . . . . . . . . . . 7,887
1998. . . . . . . . . . . . . . . . . . . . 7,353
1999. . . . . . . . . . . . . . . . . . . . 6,447
2000. . . . . . . . . . . . . . . . . . . . 4,417
2001 and thereafter . . . . . . . . . . . . 64,039
-------
Total. . . . . . . . . . . . . . . . . $98,869
=======
</TABLE>
The amount of rent charged to operations was $9,582, $9,151 and $8,305 for
1995, 1994 and 1993, respectively.
See Note 5 for discussion relating to reinsurance.
The property and casualty companies have written financial guaranty insurance
covering municipal revenue bond issues, real estate partnership borrowings and
residual values of certain commercial buildings. The majority of these
guaranties were written in the period 1984 through 1987. The remaining
guaranties have maturities ranging from 1996 to 1998. At December 31, 1995,
guaranties totaling $178,760 were outstanding. Substantially all individual
guaranties are supported by collateral (first mortgage liens) in the underlying
properties. At December 31, 1995, the reserve for losses and loss adjustment
expense for this business was $21,906 and the related unearned premium reserve
was $678.
61 SAFECO Corporation 1995 Annual Report
<PAGE> 36
NOTE 6: COMMITMENTS AND CONTINGENCIES (Continued)
At December 31, 1995, SAFECO Properties, Inc. is the guarantor of $35,900 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 guaranty
total of $178,760 noted in the previous paragraph. The credit risk exposure is
limited to any excess of the outstanding debt over the value of the collateral.
For information on environmental, asbestos and other toxic claims
liabilities, see Note 4.
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 a one-year rollback
period.
In June 1989, SAFECO made rate filings that demonstrated its rates should not
be required to be reduced during the rollback period and should be approved for
future use. The California Insurance Department, however, 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.
In order to end four years of legal proceedings and avoid future years of
such proceedings, SAFECO agreed in August 1993 to pay $40 million to
policyholders who purchased or renewed policies covered by Proposition 103
during the rollback period.
This $40 million settlement, $0.21 per share on an after-tax basis, was
reflected in the financial results during the third quarter of 1993.
NOTE 7: FINANCIAL INSTRUMENTS
Estimated fair value amounts of financial instruments 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 amounts for fixed maturities and marketable equity securities are
the same as market value. 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 for 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.
Commercial loans are a component of "Finance Receivables" in the balance
sheet. Finance Receivables also include lease receivables, which are exempt from
fair value 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 7.875% and
10.75% Notes are estimated based on quotes from broker/dealers who make markets
in similar securities.
The estimated fair value of the property and casualty companies' financial
guaranty business (see Note 6) was approximately $23,000 at December 31, 1995
and $29,000 at December 31, 1994. These amounts equal the total recorded
reserves for losses and loss adjustment expense and unearned premiums at
December 31, 1995 and 1994. Other insurance-related financial instruments are
exempt from fair value disclosure requirements.
SAFECO Corporation 1995 Annual Report 62
<PAGE> 37
Estimated fair values of financial instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale. . . . . . . . . . . $11,928,144 $11,928,144 $9,509,071 $9,509,071
Fixed maturities held-to-maturity. . . . . . . . . . . . 2,044,517 2,388,514 2,053,132 1,948,309
Marketable equity securities . . . . . . . . . . . . . . 1,119,408 1,119,408 855,054 855,054
Mortgage loans . . . . . . . . . . . . . . . . . . . . . 416,489 443,000 418,983 416,000
Commercial loans . . . . . . . . . . . . . . . . . . . . 494,138 520,000 411,851 403,000
Financial liabilities:
Funds held under deposit contracts . . . . . . . . . . . 8,756,384 9,282,000 7,988,456 7,678,000
Credit Company borrowings. . . . . . . . . . . . . . . . 614,270 618,000 510,600 510,000
7.875% notes due 2005. . . . . . . . . . . . . . . . . . 200,000 221,000 - -
10.75% notes due September 1995. . . . . . . . . . . . . - - 200,000 204,000
Other notes and mortgages. . . . . . . . . . . . . . . . 253,275 265,000 272,309 259,000
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
SAFECO's consolidated investments in mortgage-backed securities of $2.8
billion at market value at December 31, 1995 ($2.2 billion at December 31, 1994)
are primarily residential collateralized mortgage obligations and pass-throughs
(CMOs). CMOs, while technically defined as derivative instruments, are exempt
from derivative disclosure requirements. SAFECO's investment in CMOs comprised
of the riskier, highly volatile type (e.g., interest only, inverse floaters,
etc.) has been intentionally limited to only a small amount -- less than 1% of
total CMOs at both December 31, 1995 and 1994.
SAFECO Credit provides loan and lease commitments, at both variable and fixed
rates of interest. Fixed rate loan and lease commitments outstanding at December
31, 1995 were approximately $60,000, or less than 1% of consolidated
investments. The majority of these commitments have original terms of up to 90
days and contracted fixed interest rates range from 7.7% to 14.0% at December
31, 1995. Fixed rate commitments outstanding at December 31, 1994 were
approximately $64,000. Exposure to credit risk relating to these commitments
(i.e., risk that the borrower will be unable to perform its obligations) is
mitigated through credit review and approval controls. Because the majority of
the fixed rate commitments have terms of 90 days, the estimated fair value of
these commitments is not material.
SAFECO does not enter into financial instruments for trading or speculative
purposes. SAFECO's involvement in other investment-type derivatives is
intentionally of a very limited nature. Such derivatives include currency-linked
bonds and equity-linked bonds. Individually, and in the aggregate, these
derivatives are not material and thus no additional disclosures are warranted.
Interest rate swap agreements are entered into by SAFECO Credit to reduce the
impact of changes in interest rates on its floating rate debt. The interest rate
swap agreements provide only for the exchange of interest on the notional
amounts at the stated rates, with no multipliers or leverage. At December 31,
1995, interest rate swap agreements were outstanding with notional amounts of
$134,942, which replace the floating rates of 5.83% to 5.99% with fixed rates
ranging from 4.51% to 8.07%. Maturities of the agreements range from February
1996 to October 2002. At December 31, 1994, interest rate swap agreements were
outstanding with notional amounts of $70,855, replacing the floating rates of
6.06% to 6.73% with fixed rates ranging from 4.51% to 9.00%. There were no swap
terminations during 1995, 1994 and 1993. The net interest accrued of $152 in
1995 under these agreements was recorded as a decrease in interest expense. The
fair value of interest rate swaps 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 was higher than the counterparties' by
approximately $1,000 at December 31, 1995. At December 31, 1994 the estimated
present value of SAFECO's obligations under the swaps was lower than the
counterparties' by approximately $1,000. Exposure to credit risk relating to
interest rate swaps is the risk that the counterparty will be unable to perform
its obligations. This risk is mitigated through credit review, approval controls
and by entering into agreements with only highly rated counterparties.
63 SAFECO Corporation 1995 Annual Report
<PAGE> 38
NOTE 8: COMMON STOCK
On December 1, 1995, the Corporation's common stock was split 2-for-1. Per
share amounts have been adjusted to reflect the stock split.
Changes in common stock outstanding for the last three years are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares outstanding at the beginning of year 62,951,634 62,931,562 62,815,265
Shares reacquired ................................... (288,805) (104,320) (69,872)
Shares issued for stock options and rights .......... 364,279 124,392 152,393
Shares issued for acquisition of subsidiary ......... -- -- 33,776
Two-for-one stock split ............................. 62,951,634 -- --
---------------------------------------------
Number of shares outstanding at the end of year.. 125,978,742 62,951,634 62,931,562
---------------------------------------------
</TABLE>
NOTE 9: STOCK INCENTIVE PLAN
The SAFECO Incentive Plan of 1987 provides for the issuance of up to
4,800,000 shares of SAFECO Corporation common stock. Stock options, restricted
stock rights, performance stock rights and stock appreciation 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.
All share amounts and prices are adjusted for the 2-for-1 stock split in
1995.
Changes in stock options for the three years ended December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
SHARES PRICE PER SHARE
- ------------------------------------------------------------------------
<S> <C> <C>
Balance December 31, 1992 ........... 1,857,672 $ 7.17 - $ 28.19
Granted .......................... 275,200 28.25 - 31.75
Exercised ........................ (295,410) 7.17 - 19.69
Canceled ......................... (9,000) 14.32 - 19.63
------------------------------
Balance December 31, 1993 ........... 1,828,462 7.25 - 31.75
Granted .......................... 297,400 24.75 - 29.25
Exercised ........................ (238,726) 7.25 - 23.94
Canceled ......................... (17,300) 17.75 - 31.07
------------------------------
Balance December 31, 1994 ........... 1,869,836 9.41 - 31.75
Granted .......................... 312,200 26.75 - 33.81
Exercised ........................ (357,203) 9.41 - 31.07
Canceled ......................... (21,200) 19.00 - 31.75
------------------------------
Balance December 31, 1995 ........... 1,803,633 $12.25 - $ 33.81
==============================
Exercisable at
December 31, 1995 ............... 833,497 $12.25 - $ 31.75
==============================
</TABLE>
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 1995, 1994 and 1993, $1,313, $827 and $1,436,
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,
1995 are as follows:
<TABLE>
<CAPTION>
SHARE RIGHTS
- -----------------------------------------------------------------------------------
<S> <C>
Balance December 31, 1992 .......................................... 109,084
Awarded ......................................................... 32,200
Matured ......................................................... (51,022)
Canceled ........................................................ (1,426)
-------
Balance December 31, 1993 .......................................... 88,836
Awarded ......................................................... 40,400
Matured ......................................................... (39,898)
Canceled ........................................................ (1,650)
-------
Balance December 31, 1994 ........................................... 87,688
Awarded ......................................................... 44,800
Matured ......................................................... (35,762)
Canceled ........................................................ (1,150)
-------
Balance December 31, 1995 .......................................... 95,576
=======
</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. No
stock appreciation rights were exercised in 1995. Shares exercised during 1994
and 1993 include 2,000 and 500, respectively, which were surrendered under the
Plan to exercise stock appreciation rights. During 1994 and 1993, $72, and $21,
respectively, were charged to operations for the compensation element of stock
appreciation rights.
There were 1,800,774 shares of common stock reserved for future options and
rights at December 31, 1995. No performance stock rights have been awarded.
SAFECO Corporation 1995 Annual Report 64
<PAGE> 39
NOTE 10: 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 (i.e., statutory basis). Prescribed statutory accounting
practices include state laws, regulations, and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
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 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Property and Casualty ...... $299,330 $217,348 $283,605
Life and Health ............ 103,047 48,630 19,141
</TABLE>
<TABLE>
<CAPTION>
STATUTORY STOCKHOLDER'S EQUITY
DECEMBER 31 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Property and Casualty ................ $1,864,732 $1,506,112
Life and Health ...................... 504,683 416,821
</TABLE>
SAFECO's insurance subsidiaries have received written approval from the
Washington State Insurance Department to treat certain loans to related SAFECO
subsidiaries (all made at market rates) as admitted assets. The allowance of
such loans has not materially enhanced surplus at December 31, 1995.
NOTE 11: DIVIDEND RESTRICTIONS
SAFECO's subsidiaries are restricted as to the amount of dividends they may
pay to their parent without regulatory or lender consent. The amount of
subsidiary retained earnings available for the payment of dividends to SAFECO
Corporation without prior regulatory or lender approval approximated $522,460 at
December 31, 1995.
NOTE 12: 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 plan
on a current basis to the full extent deductible under federal income tax
regulations. The present value of all accrued benefits under the plan was
$26,200 at December 31, 1995, determined using a discount rate of 7.5%. The fair
value of plan assets was $37,000 at December 31, 1995.
The cost of the plans discussed above charged to income
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Defined contribution .............. $26,889 $22,591 $30,967
Defined benefit ................... 5,619 5,669 6,002
Profit sharing bonus .............. 21,771 18,178 18,219
-----------------------------
Total .......................... $54,279 $46,438 $55,188
=============================
</TABLE>
In addition, SAFECO provides certain healthcare and life insurance benefits
("other postretirement benefits") for retired employees. Substantially all
employees become eligible for these benefits if they reach retirement age while
working for the Corporation. The cost 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 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.
65 SAFECO Corporation 1995 Annual Report
<PAGE> 40
NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)
Components of the net periodic other postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period ....................... $ 767 $ 980 $ 880
Interest cost on accumulated
postretirement benefit
obligation ............................ 1,636 1,816 1,861
Actual return on plan assets ............... 106 (18) 24
Net amortization and deferral .............. (406) (43) 24
-------------------------------
Net periodic postretirement
benefit cost ........................ $ 1,891 $ 2,771 $ 2,741
===============================
</TABLE>
The following table summarizes the funded status of the plan:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (APBO):
Retirees .................................... $11,322 $ 8,539
Fully eligible active plan
participants .............................. 3,982 3,179
Other active plan participants .............. 12,398 7,982
------------------
Total APBO ................................ 27,702 19,700
Less plan assets at fair value ................... 880 584
------------------
Funded status .................................... 26,822 19,116
Unrecognized gain ................................ 1,485 8,270
------------------
Accrued postretirement benefit cost
recorded in the balance sheet ................. $28,307 $27,386
==================
</TABLE>
Other postretirement benefit cost is determined using actuarial assumptions
at the beginning of the year. The funded status is determined using assumptions
at the end of the year. The discount rate used was 7.5%, 8.5% and 7.5% at
December 31, 1995, 1994 and 1993, respectively. The accumulated postretirement
benefit obligation at December 31, 1995 was determined using a healthcare cost
trend rate of 11% for 1996, declining by 1% per year, starting in 1997, to 6%
and remaining at that level thereafter. The trend rate for the years 1997 to
2001 is 1% higher than the rate used for the prior year's valuation. 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, 1995 by $3,472 and the annual net periodic other postretirement
benefit cost for the year then ended by $338.
NOTE 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 2034. These leases
are accounted for as operating leases. Minimum future rentals from leases in
effect at December 31,1995 are as follows:
<TABLE>
<CAPTION>
YEAR RECEIVABLE AMOUNT
- ----------------------------------------------------------------------------------
<S> <C>
1996 ................................................................ $ 44,324
1997 ................................................................ 40,818
1998 ................................................................ 38,188
1999 ................................................................ 34,694
2000 ................................................................ 30,979
2001 and thereafter .................................................. 200,052
--------
Total ............................................................ $389,055
========
</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 $4,295, $5,460
and $4,976 in 1995, 1994 and 1993, respectively.
The real estate companies' investment in rental property and related
accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Shopping centers ............................... $303,111 $343,747
Office and industrial space .................... 46,734 11,220
Healthcare facilities .......................... 25,850 19,467
Other .......................................... 40,115 39,506
--------------------
415,810 413,940
Less accumulated depreciation .................. 83,907 97,949
--------------------
Total ..................................... $331,903 $315,991
====================
</TABLE>
SAFECO Corporation 1995 Annual Report 66
<PAGE> 41
NOTE 14: 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.
Under the liability method, deferred tax assets and liabilities are determined
based on the differences between their financial reporting and their tax bases
and are measured using the enacted tax rates.
Differences between income tax computed by applying the U.S. Federal income
tax rate of 35% to income before income taxes and the consolidated provision for
Federal and Canadian income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense ....................................... $ 179,830 $ 136,409 $ 201,928
Tax-exempt municipal bond income ...................................... (64,700) (60,039) (55,139)
Dividends received deduction .......................................... (10,238) (10,369) (11,031)
Proration adjustment .................................................. 7,781 6,506 5,137
Federal tax rate change ............................................... -- -- 4,151
Other ................................................................. 2,168 2,860 5,990
-------------------------------------
Consolidated provision for Federal and Canadian income taxes ...... $ 114,841 $ 75,367 $ 151,036
=====================================
</TABLE>
The tax effects of temporary differences which give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves .................................. $131,679 $122,663 $121,406
Unearned premium reserve ......................................................... 59,634 56,495 52,993
Adjustment to life policy liabilities ............................................ 30,209 20,444 7,838
Capitalization of life policy acquisition costs .................................. 21,860 18,263 14,105
Postretirement benefits .......................................................... 9,907 9,585 8,879
Realized capital gains ........................................................... 10,483 6,773 7,406
Deferred policy acquisition costs valuation allowance ............................ 14,985 -- --
Other ............................................................................ 36,197 36,899 30,500
--------------------------------
Total deferred tax assets ..................................................... 314,954 271,122 243,127
--------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs ................................................ 139,711 136,095 128,556
Bond discount accrual ............................................................ 22,460 19,119 16,673
Accelerated depreciation ......................................................... 65,289 52,043 42,314
Real estate development expenses capitalized ..................................... 12,230 12,527 13,173
Unrealized appreciation of investment securities ................................. 558,541 66,818 138,990
Other ............................................................................ 13,664 20,380 21,348
--------------------------------
Total deferred tax liabilities ................................................ 811,895 306,982 361,054
--------------------------------
Net deferred tax liability .................................................... $496,941 $ 35,860 $117,927
================================
</TABLE>
The deferred tax benefit of $16,623 for 1995 represents the increase in the
net deferred tax liability of $461,081 excluding an increase of $491,723 related
to unrealized appreciation of investment securities, a decrease of $14,985
related to deferred policy acquisition costs valuation allowance and an increase
of $966 related to the unrealized loss from foreign currency translation which
are reported in stockholders' equity.
The deferred tax benefit of $8,242 for 1994 represents the decrease in the
net deferred tax liability of $82,067 excluding a decrease of $72,172 related to
unrealized appreciation of investment securities and a decrease of $1,653
related to the unrealized loss from foreign currency translation which are
reported in stockholders' equity.
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.
67 SAFECO Corporation 1995 Annual Report
<PAGE> 42
NOTE 15: SEGMENT DATA
<TABLE>
<CAPTION>
UNDER- CAPITAL
INVESTMENT REALIZED WRITING IDENTIFIABLE EXPEN-
REVENUES INCOME GAIN (LOSS) PROFIT (LOSS) NET INCOME* ASSETS DITURES
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Property and Casualty:
Personal ............. $ 1,562,716 $ (2,526) $ 335,021
Commercial and Surety 599,425 8,874 229,702
----------- -----------
Total ............. 2,162,141 $ 291,450 $ 51,657 $ 6,348 $ 290,126 6,174,407 $ 36,275
----------- ----------- ----------- =========== -----------
Life and Health:
Financial Services ... 47,178 494,758 14,908 7,104,443
Employee Benefits .... 214,392 283,463 (9,014) 4,111,184
----------- ----------- ----------- -----------
Total ............. 261,570 778,221 5,894 92,453 11,215,627 623
----------- ----------- ----------- -----------
Real Estate .............. 74,959 (818) 5,398 527,036 33,866
Other and Eliminations ... 84,463 5,609 7,538 10,982 850,773 1,021
----------- ----------- ----------- ----------- ----------- -----------
Consolidated Totals $ 2,583,133 $ 1,075,280 $ 64,271 $ 398,959 $18,767,843 $ 71,785
=========== =========== =========== =========== =========== ===========
1994
Property and Casualty:
Personal ............. $ 1,469,857 $ (67,932) $ 316,922
Commercial and Surety 583,574 (9,413) 218,457
----------- -----------
Total ............. 2,053,431 $ 283,481 $ 31,003 $ (77,345) $ 213,439 5,355,735 $ 32,774
----------- ----------- ----------- =========== -----------
Life and Health:
Financial Services ... 46,642 435,101 5,281 5,735,705
Employee Benefits .... 230,129 271,116 607 3,593,417
----------- ----------- ----------- -----------
Total ............. 276,771 706,217 5,888 88,723 9,329,122 330
----------- ----------- ----------- -----------
Real Estate .............. 107,315 (174) 6,455 545,773 47,572
Other and Eliminations ... 68,906 1,912 2,323 5,757 671,099 748
----------- ----------- ----------- ----------- ----------- -----------
Consolidated Totals $ 2,506,423 $ 991,610 $ 39,040 $ 314,374 $15,901,729 $ 81,424
=========== =========== =========== =========== =========== ===========
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
=========== =========== =========== =========== =========== ===========
</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 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.
* 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.
SAFECO Corporation 1995 Annual Report 68
<PAGE> 43
NOTE 16: INTERIM FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Annual
- --------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C>
1995 .......................... $897,527 $925,790 $944,289 $955,078 $ 3,722,684
1994 .......................... 857,825 864,583 901,796 912,869 3,537,073
1993 .......................... 837,296 874,989 897,015 907,384 3,516,684
Income Before Realized Gain: *
1995 .......................... $ 61,586 $ 92,436 $100,836 $102,549 $ 357,407
1994 .......................... 43,486 88,818 69,683 86,465 288,452
1993 .......................... 55,304 93,168 61,593 96,921 306,986
Realized Gain: *
1995 .......................... $ 3,624 $ 10,263 $ 14,021 $ 13,644 $ 41,552
1994 .......................... 12,540 1,231 2,829 9,322 25,922
1993 .......................... 17,200 36,183 32,197 33,335 118,915
Net Income: **
1995 .......................... $ 65,210 $102,699 $114,857 $116,193 $ 398,959
1994 .......................... 56,026 90,049 72,512 95,787 314,374
1993 .......................... 75,381 129,351 93,790 130,256 428,778
(Per Share)***
Income Before Realized Gain: *
1995 .......................... $ .49 $ .74 $ .80 $ .81 $ 2.84
1994 .......................... .35 .70 .56 .68 2.29
1993 .......................... .44 .74 .49 .77 2.44
Realized Gain: *
1995 .......................... $ .03 $ .08 $ .11 $ .11 $ .33
1994 .......................... .10 .01 .02 .08 .21
1993 .......................... .14 .29 .25 .27 .95
Net Income: **
1995 .......................... $ .52 $ .82 $ .91 $ .92 $ 3.17
1994 .......................... .45 .71 .58 .76 2.50
1993 .......................... .60 1.03 .74 1.04 3.41
Dividends Paid:
1995 .......................... $.24 1/2 $.24 1/2 $.26 1/2 $.26 1/2 $ 1.02
1994 .......................... .22 1/2 .22 1/2 .24 1/2 .24 1/2 .94
1993 .......................... .20 1/2 .20 1/2 .22 1/2 .22 1/2 .86
Market Price Range: ****
1995 - High .................... $27 15/16 $29 3/4 $33 9/16 $37 5/8 $37 5/8
- Low ..................... 25 1/4 27 1/4 28 1/16 31 1/4 25 1/4
1994 - High .................... 29 5/8 29 13/16 29 7/16 26 29 13/16
- Low ..................... 26 3/8 25 24 13/16 23 11/16 23 11/16
</TABLE>
*Amounts are net of income tax.
**1993 amounts include 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 $0.02 per share.
***Per share amounts are adjusted for the 2-for-1 stock split in December,
1995 (see Note 8).
****SAFECO Corporation common stock trades on The Nasdaq Stock Market under the
symbol SAFC.
69 SAFECO Corporation 1995 Annual Report
<PAGE> 44
SUMMARY OF GROWTH
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
SUMMARY OF CONTINUING OPERATIONS
Income (Loss), Net of Income Taxes, Before Realized Gain:
Property and Casualty ............................................ $ 256,408 $ 192,734 $ 217,187
Life and Health .................................................. 88,988 84,941 76,903
Real Estate ...................................................... 5,929 6,568 6,136
Credit ........................................................... 8,872 7,365 6,439
Asset Management ................................................. 4,746 4,116 4,255
Corporate ........................................................ (7,536) (7,272) (3,934)
---------------------------------------------
Total ......................................................... 357,407 288,452 306,986
Realized Gain, Net of Income Taxes ................................... 41,552 25,922 118,915
Cumulative Effect of Accounting Changes .............................. -- -- 2,877
---------------------------------------------
Net Income ........................................................... $ 398,959 $ 314,374 $ 428,778
=============================================
STATISTICS PER SHARE OF COMMON STOCK*
Primary Net Income from Continuing Operations:
Income Before Realized Gain ...................................... $ 2.84 $ 2.29 $ 2.44
Realized Gain .................................................... .33 .21 .95
Cumulative Effect of Accounting Changes .......................... -- -- .02
Net Income ....................................................... 3.17 2.50 3.41
Average Number of Shares ......................................... 125,961 125,944 125,758
Fully Diluted Net Income from Continuing Operations:
Income Before Realized Gain ...................................... 2.82 2.28 2.43
Realized Gain .................................................... .33 .21 .94
Cumulative Effect of Accounting Changes .......................... -- -- .02
Net Income ....................................................... 3.15 2.49 3.39
Average Number of Shares ......................................... 126,574 126,414 126,466
Dividends Paid ....................................................... 1.02 .94 .86
Market Price:
High ............................................................. 37 5/8 29 13/16 33 1/4
Low .............................................................. 25 1/4 23 11/16 27
Close ............................................................ 34 1/2 26 27 1/2
Stockholders' Equity:
Book Value ....................................................... 31.61 22.47 22.04
With Securities at Market Value, Net of Tax ...................... 33.39 21.93 28.47
REVENUES FROM CONTINUING OPERATIONS
(EXCLUDING REALIZED GAINS)
Insurance:
Property and Casualty (Gross premiums written) ................... $ 2,366,856 $ 2,278,045 $ 2,134,512
Life and Health .................................................. 261,570 276,771 305,963
Net Investment Income (Excluding realized gain or loss):
Property and Casualty ............................................ 291,450 283,481 277,643
Life and Health .................................................. 778,221 706,217 668,158
Other ............................................................ 5,609 1,912 5,994
Real Estate (Excluding realized gain or loss) ........................ 74,959 107,315 78,252
Credit (Including affiliate loans) ................................... 71,799 58,181 54,046
Asset Management ..................................................... 18,532 15,055 13,250
---------------------------------------------
Total ......................................................... $ 3,868,996 $ 3,726,977 $ 3,537,818
=============================================
</TABLE>
*Share amounts are adjusted for stock splits.
SAFECO Corporation 1995 Annual Report 70
<PAGE> 45
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
SUMMARY OF CONTINUING OPERATIONS
Income (Loss), Net of Income Taxes,
Before Realized Gain:
<S> <C> <C> <C> <C> <C> <C>
Property and Casualty ..................... $ 187,144 $ 145,421 $ 183,666 $ 188,928 $ 191,443 $ 175,093
Life and Health ........................... 75,600 79,705 77,626 70,911 44,714 33,944
Real Estate ............................... 6,040 5,850 6,139 669 (8,142) (7,420)
Credit .................................... 6,140 6,396 4,476 4,009 3,509 2,420
Asset Management .......................... 4,261 3,397 3,016 2,545 2,021 1,493
Corporate ................................. (7,636) (3,852) (3,177) (3,346) 1,304 4,772
-----------------------------------------------------------------------------------
Total .................................. 271,549 236,917 271,746 263,716 234,849 210,302
Realized Gain, Net of Income Taxes ............ 39,745 22,661 6,663 36,501 33,786 42,708
Cumulative Effect of Accounting Changes ....... -- -- -- -- -- --
-----------------------------------------------------------------------------------
Net Income .................................... $ 311,294 $ 259,578 $ 278,409 $ 300,217 $ 268,635 $ 253,010
===================================================================================
STATISTICS PER SHARE OF COMMON STOCK*
Primary Net Income from
Continuing Operations:
Income Before Realized Gain ............... $ 2.17 $ 1.89 $ 2.16 $ 2.09 $ 1.79 $ 1.56
Realized Gain ............................. .31 .18 .05 .29 .26 .32
Cumulative Effect of Accounting Changes ... -- -- -- -- -- --
Net Income ................................ 2.48 2.07 2.21 2.38 2.05 1.88
Average Number of Shares .................. 125,584 125,478 126,238 126,384 130,900 134,930
Fully Diluted Net Income
from Continuing Operations:
Income Before Realized Gain ............... 2.15 1.87 2.14 2.07 1.79 1.55
Realized Gain ............................. .31 .18 .05 .29 .25 .31
Cumulative Effect of Accounting Changes ... -- -- -- -- -- --
Net Income ................................ 2.46 2.05 2.19 2.36 2.04 1.86
Average Number of Shares .................. 126,478 126,510 126,932 127,444 131,512 135,968
Dividends Paid ................................ .78 .71 .64 .57 .51 .45 1/4
Market Price:
High ...................................... 29 9/16 24 3/8 21 1/16 19 5/8 14 3/4 19
Low ....................................... 21 3/16 15 5/8 12 11/16 11 5/8 11 1/2 12 5/16
Close ..................................... 28 5/8 24 3/8 16 7/16 17 13/16 11 13/16 13 7/8
Stockholders' Equity:
Book Value ................................ 19.49 17.70 15.75 14.63 12.44 10.69
With Securities at Market
Value, Net of Tax ....................... 23.92 21.92 16.57 16.57 13.54 11.44
REVENUES FROM CONTINUING OPERATIONS
(EXCLUDING REALIZED GAINS)
Insurance:
Property and Casualty
(Gross premiums written) .................... $ 1,937,090 $ 1,830,199 $ 1,792,836 $ 1,696,940 $ 1,627,861 $ 1,545,922
Life and Health ........................... 328,516 332,711 311,961 274,275 264,974 240,423
Net Investment Income
(Excluding realized gain or loss):
Property and Casualty ..................... 280,820 286,073 283,248 263,415 220,496 179,837
Life and Health ........................... 623,584 557,445 476,177 391,876 296,233 233,837
Other ..................................... (1,356) 3,249 5,348 14,670 20,245 22,573
Real Estate
(Excluding realized gain or loss) ........... 187,172 274,387 254,718 246,216 223,190 195,900
Credit (Including affiliate loans) ............ 51,327 54,371 45,193 38,665 34,290 30,767
Asset Management .............................. 13,057 10,794 9,009 8,322 7,166 6,708
-----------------------------------------------------------------------------------
Total .................................. $ 3,420,210 $ 3,349,229 $ 3,178,490 $ 2,934,379 $ 2,694,455 $ 2,455,967
===================================================================================
<CAPTION>
1986 1985
- -------------------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
SUMMARY OF CONTINUING OPERATIONS
Income (Loss), Net of Income Taxes,
Before Realized Gain:
<S> <C> <C>
Property and Casualty ..................... $ 99,098 $ 52,342
Life and Health ........................... 48,511 48,141
Real Estate ............................... 2,756 1,554
Credit .................................... 3,305 3,956
Asset Management .......................... 615 125
Corporate ................................. 3,633 10,581
--------------------------
Total .................................. 157,918 116,699
Realized Gain, Net of Income Taxes ............ 66,037 46,220
Cumulative Effect of Accounting Changes ....... -- --
--------------------------
Net Income .................................... $ 223,955 $ 162,919
==========================
STATISTICS PER SHARE OF COMMON STOCK*
Primary Net Income from
Continuing Operations:
Income Before Realized Gain ............... $ 1.17 $ .81
Realized Gain ............................. .49 .33
Cumulative Effect of Accounting Changes ... -- --
Net Income ................................ 1.66 1.14
Average Number of Shares .................. 134,804 143,856
Fully Diluted Net Income
from Continuing Operations:
Income Before Realized Gain ............... 1.16 .80
Realized Gain ............................. .49 .32
Cumulative Effect of Accounting Changes ... -- --
Net Income ................................ 1.65 1.12
Average Number of Shares .................. 136,112 145,208
Dividends Paid ................................ .41 1/4 .38 3/4
Market Price:
High ...................................... 15 15/16 11 5/8
Low ....................................... 11 3/8 7 3/4
Close ..................................... 13 1/4 11 5/8
Stockholders' Equity:
Book Value ................................ 9.84 8.22
With Securities at Market
Value, Net of Tax ....................... 12.61 9.75
REVENUES FROM CONTINUING OPERATIONS
(EXCLUDING REALIZED GAINS)
Insurance:
Property and Casualty
(Gross premiums written) .................... $ 1,479,533 $ 1,246,206
Life and Health ........................... 232,667 243,374
Net Investment Income
(Excluding realized gain or loss):
Property and Casualty ..................... 151,959 127,668
Life and Health ........................... 189,363 144,586
Other ..................................... 20,833 18,373
Real Estate
(Excluding realized gain or loss) ........... 216,082 208,527
Credit (Including affiliate loans) ............ 30,414 30,039
Asset Management .............................. 4,087 2,489
--------------------------
Total .................................. $ 2,324,938 $ 2,021,262
==========================
</TABLE>
71 SAFECO Corporation 1995 Annual Report
<PAGE> 46
SUMMARY OF GROWTH (Continued)
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Ratios)
<S> <C> <C> <C>
PREMIUMS BY MAJOR CLASSES OF
PROPERTY AND CASUALTY INSURANCE
Personal Auto ..................................................................... $ 1,043,586 $ 1,013,445 $ 977,105
Homeowners ........................................................................ 440,247 403,673 362,419
Other Personal .................................................................... 163,055 144,624 126,353
--------------------------------------------
Total Personal ............................................................. 1,646,888 1,561,742 1,465,877
Commercial ........................................................................ 588,064 591,857 544,162
Surety ............................................................................ 100,052 90,246 84,245
Other ............................................................................. 31,852 34,200 40,228
Total Canada ...................................................................... -- -- --
--------------------------------------------
Gross Premiums Written ............................................................ 2,366,856 2,278,045 2,134,512
Ceded Reinsurance Premiums ........................................................ 159,872 174,580 134,347
--------------------------------------------
Net Premiums Written .............................................................. $ 2,206,984 $ 2,103,465 $ 2,000,165
============================================
OPERATING RATIOS OF PROPERTY AND CASUALTY INSURANCE
Ratios to Earned Premiums (GAAP Basis):
Losses ........................................................................ 60.04% 64.70% 60.21%
Adjustment Expense ............................................................ 10.58 9.72 9.78
Underwriting Expenses ......................................................... 28.39 28.24 28.43
Dividends to Policyholders .................................................... .70 1.11 1.07
--------------------------------------------
Combined Losses and Expenses .................................................. 99.71% 103.77% 99.49%
============================================
Premiums Written to Policyholders' Surplus ........................................ 1.2:1 1.4:1 1.3:1
PRETAX INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE REALIZED GAIN
Property and Casualty:
Underwriting .................................................................. $ 6,348 $ (77,345) $ 9,848
Investment .................................................................... 291,450 283,481 277,643
Proposition 103 Settlement .................................................... -- -- (40,000)
Life and Health ................................................................... 135,573 131,015 125,306
Real Estate ....................................................................... 9,060 10,152 10,079
Credit ............................................................................ 13,300 10,761 10,190
Asset Management .................................................................. 6,897 6,351 6,539
Corporate ......................................................................... (13,099) (13,714) (10,317)
--------------------------------------------
Total ...................................................................... $ 449,529 $ 350,701 $ 389,288
============================================
STOCKHOLDERS' EQUITY
Book Value ........................................................................ $ 3,982,646 $ 2,829,479 $ 2,774,391
With Securities at Market,
Net of Tax ........................................................................ 4,206,244 2,761,344 3,583,482
LONG-TERM DEBT FROM CONTINUING OPERATIONS ......................................... 503,567 534,232 600,209
TOTAL ASSETS ...................................................................... 18,767,843 15,901,729 14,807,291
</TABLE>
SAFECO Corporation 1995 Annual Report 72
<PAGE> 47
<TABLE>
<CAPTION>
1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands Except Ratios)
<S> <C> <C> <C> <C>
PREMIUMS BY MAJOR CLASSES OF
PROPERTY AND CASUALTY INSURANCE
Personal Auto ...................................... $ 907,016 $ 805,826 $ 717,584 $ 644,765
Homeowners ......................................... 310,841 271,531 239,550 222,539
Other Personal ..................................... 109,063 92,628 82,642 74,060
---------------------------------------------------------------
Total Personal .............................. 1,326,920 1,169,985 1,039,776 941,364
Commercial ......................................... 491,942 450,744 464,328 480,633
Surety ............................................. 79,714 79,077 75,927 77,195
Other .............................................. 38,478 47,507 39,128 38,885
Total Canada ....................................... 36 82,886 173,677 158,863
---------------------------------------------------------------
Gross Premiums Written ............................. 1,937,090 1,830,199 1,792,836 1,696,940
Ceded Reinsurance Premiums ......................... 116,645 200,489 104,804 101,428
---------------------------------------------------------------
Net Premiums Written ............................... $ 1,820,445 $ 1,629,710 $ 1,688,032 $ 1,595,512
===============================================================
OPERATING RATIOS OF PROPERTY AND CASUALTY INSURANCE
Ratios to Earned Premiums (GAAP Basis):
Losses ......................................... 63.93% 67.81% 65.50% 63.13%
Adjustment Expense ............................. 10.55 10.72 11.67 9.99
Underwriting Expenses .......................... 28.72 29.33 29.24 29.31
Dividends to Policyholders ..................... .91 .76 .75 .88
---------------------------------------------------------------
Combined Losses and Expenses ................... 104.11% 108.62% 107.16% 103.31%
===============================================================
Premiums Written to Policyholders' Surplus ......... 1.3:1 1.4:1 1.6:1 1.5:1
PRETAX INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE REALIZED GAIN
Property and Casualty:
Underwriting ................................... $ (72,022) $ (141,121) $ (119,173) $ (52,243)
Investment ..................................... 280,820 286,073 283,248 263,415
Proposition 103 Settlement ..................... -- -- -- --
Life and Health .................................... 123,604 124,109 118,486 106,906
Real Estate ........................................ 8,389 8,525 9,123 884
Credit ............................................. 9,036 9,489 6,815 6,031
Asset Management ................................... 6,503 5,179 4,586 3,881
Corporate .......................................... (13,662) (9,625) (8,799) (8,793)
---------------------------------------------------------------
Total ....................................... $ 342,668 $ 282,629 $ 294,286 $ 320,081
===============================================================
STOCKHOLDERS' EQUITY
Book Value ......................................... $ 2,448,147 $ 2,221,134 $ 1,975,699 $ 1,850,728
With Securities at Market,
Net of Tax ......................................... 3,005,382 2,750,453 2,078,670 2,096,028
LONG-TERM DEBT FROM CONTINUING OPERATIONS .......... 504,638 523,557 451,328 512,859
TOTAL ASSETS ....................................... 13,391,109 12,113,944 10,683,462 9,415,865
<CAPTION>
1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands Except Ratios)
<S> <C> <C> <C> <C>
PREMIUMS BY MAJOR CLASSES OF
PROPERTY AND CASUALTY INSURANCE
Personal Auto ...................................... $ 595,969 $ 549,267 $ 519,473 $ 452,476
Homeowners ......................................... 219,042 214,102 207,097 199,739
Other Personal ..................................... 71,115 68,086 64,646 59,996
------------------------------------------------------------
Total Personal .............................. 886,126 831,455 791,216 712,211
Commercial ......................................... 483,918 463,823 448,872 328,942
Surety ............................................. 69,817 62,472 60,594 49,435
Other .............................................. 35,163 31,949 26,968 20,131
Total Canada ....................................... 152,837 156,223 151,883 135,487
------------------------------------------------------------
Gross Premiums Written ............................. 1,627,861 1,545,922 1,479,533 1,246,206
Ceded Reinsurance Premiums ......................... 109,921 108,177 108,751 72,628
------------------------------------------------------------
Net Premiums Written ............................... $ 1,517,940 $ 1,437,745 $ 1,370,782 $ 1,173,578
============================================================
OPERATING RATIOS OF PROPERTY AND CASUALTY INSURANCE
Ratios to Earned Premiums (GAAP Basis):
Losses ......................................... 58.05% 56.58% 61.88% 66.43%
Adjustment Expense ............................. 11.94 13.84% 13.25% 12.12%
Underwriting Expenses .......................... 29.38 30.25% 30.25% 31.44%
Dividends to Policyholders ..................... .97 .72% .65% .56%
------------------------------------------------------------
Combined Losses and Expenses ................... 100.34% 101.39% 106.03% 110.55%
============================================================
Premiums Written to Policyholders' Surplus ......... 1.8:1 2.1:1 2.2:1 2.4:1
PRETAX INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE REALIZED GAIN
Property and Casualty:
Underwriting ................................... $ (5,084) $ (19,698) $ (77,568) $ (115,975)
Investment ..................................... 220,496 179,837 151,959 127,668
Proposition 103 Settlement ..................... -- -- -- --
Life and Health .................................... 67,967 56,316 76,704 76,109
Real Estate ........................................ (12,494) (10,805) 6,020 2,110
Credit ............................................. 5,050 3,341 4,637 4,501
Asset Management ................................... 3,081 2,518 1,178 244
Corporate .......................................... (2,371) (304) (2,672) 9,053
------------------------------------------------------------
Total ....................................... $ 276,645 $ 211,205 $ 160,258 $ 103,710
============================================================
STOCKHOLDERS' EQUITY
Book Value ......................................... $ 1,570,383 $ 1,435,418 $ 1,328,215 $ 1,105,684
With Securities at Market,
Net of Tax ......................................... 1,709,729 1,535,092 1,701,853 1,311,762
LONG TERM DEBT FROM CONTINUING OPERATIONS........... 540,996 539,825 538,081 489,402
TOTAL ASSETS........................................ 7,869,181 6,738,785 5,876,072 4,766,332
</TABLE>
73 SAFECO Corporation 1995 Annual Report
<PAGE> 1
F-17
Exhibit 21
SAFECO Corporation Organization Chart
December 31, 1995
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. SAFECO Properties, Inc. (WA)
` A. Winmar Company, Inc. (WA)
a) Barton Street Corporation (WA)
b) C-W Properties, Inc. (WA)
c) Capitol Court Corporation (WI)
<PAGE> 2
d) Gem State Investors, Inc. (WA)
e) Kitsap Mall, Inc. (WA)
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 Oregon, Inc. (OR)
i) North Coast Management, Inc. (OR)
ii) Pacific Surfside Corp. (OR)
iii) Washington Square, Inc. (WA)
iv) Winmar of Jantzen Beach, Inc. (OR)
v) Winmar Pacific, Inc. (WA)
vi) 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 the Desert, Inc. (CA)
B. SAFECARE Company, Inc. (WA)
a) S.C. Bellevue, Inc. (WA)
b) S.C. Everett, Inc. (WA)
c) S.C. Marysville, Inc. (WA)
d) S.C. Simi Valley, Inc. (WA)
i) Simi Valley Hospital, Inc. (WA)
e) S.C. Vancouver, Inc. (WA)
f) Lifeguard Ventures, Inc. (50%) (CA)
C. RIA Development, Inc. (WA)
10. SAFECO Credit Company, Inc. (WA)
11. SAFECO Asset Management Company (WA)
12. SAFECO Securities, Inc. (WA)
<PAGE> 3
13. SAFECO Services Corporation (WA)
14. SAFECO Trust Company (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 Financial Corporation (WA)
a) Talbot Agency, Inc. (NM)
i) Boney Moore and Talbot, Inc. (NM)
ii) J. Dorr Forbes, Inc. (WA)
iii) Newport Financial Corporation (IL)
iv) PNMR Securities Inc. (WA)
v) Talbot Agency of California, Inc. (CA)
vi) Talbot Agency of Texas, Inc. (TX)
vii) Talbot Financial Services of Hawaii, Inc. (HI)
viii) Tandy & Wood, Inc. (ID)
E. SAFECO Select Insurance Services, Inc. (CA)
16. AGENA Corporation (31%) (WA)
NOTE: Certain inactive companies are not shown.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE STATEMENT OF CONSOLIDATED INCOME AND RETAINED
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 11,928,144
<DEBT-CARRYING-VALUE> 2,044,517
<DEBT-MARKET-VALUE> 2,388,514
<EQUITIES> 1,119,408
<MORTGAGE> 416,489
<REAL-ESTATE> 498,958
<TOTAL-INVEST> 16,132,249
<CASH> 65,477
<RECOVER-REINSURE> 137,284
<DEFERRED-ACQUISITION> 356,359
<TOTAL-ASSETS> 18,767,843
<POLICY-LOSSES> 2,207,230
<UNEARNED-PREMIUMS> 910,762
<POLICY-OTHER> 154,090
<POLICY-HOLDER-FUNDS> 8,756,384
<NOTES-PAYABLE> 1,067,545
0
0
<COMMON> 217,447
<OTHER-SE> 3,765,199
<TOTAL-LIABILITY-AND-EQUITY> 18,767,843
2,423,711
<INVESTMENT-INCOME> 1,075,280
<INVESTMENT-GAINS> 64,271
<OTHER-INCOME> 159,422
<BENEFITS> 2,250,442
<UNDERWRITING-AMORTIZATION> 408,913
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 513,800
<INCOME-TAX> 114,841
<INCOME-CONTINUING> 398,959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 398,959
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 0
<RESERVE-OPEN> 2,092,946
<PROVISION-CURRENT> 1,586,675
<PROVISION-PRIOR> (59,699)
<PAYMENTS-CURRENT> 856,796
<PAYMENTS-PRIOR> 693,049
<RESERVE-CLOSE> 2,070,077
<CUMULATIVE-DEFICIENCY> (59,699)
</TABLE>
