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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
1/21/00
Date of Report (Date of earliest event reported)
SAFECO CORPORATION
(Exact name of registrant as specified in Charter)
WASHINGTON 1-6563 91-0742146
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
SAFECO Plaza, Seattle, Washington 98185
(Address of principal executive officers) (Zip Code)
(206) 545-5000
(Registrant's telephone number, including area code)
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Item 5. Other Events
SHAREHOLDER REPORT
SAFECO CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1999
To Our Shareholders:
Our net income for 1999 was $252 million or $1.90 per diluted share, compared
with $2.51 per diluted share for 1998. If we exclude realized gain from
investments and the one-time write-off of deferred acquisition costs in 1998
relating to our life insurance operations, our income was $1.32 per diluted
share, compared with $2.29 in 1998. Income was $0.24 per diluted share for the
fourth quarter, excluding realized gain from investments. This compares with
income of $0.55 per diluted share in the fourth quarter of 1998.
These results are disappointing. Although our life, credit, and asset
management operations all had record years, their results were more than offset
by property and casualty underwriting losses.
The underwriting losses in our property and casualty units for the year were
$367 million, compared with losses of $109 million for 1998. The combined loss
and expense ratio was 108.4 for 1999, compared with 102.6 for 1998. The fourth
quarter underwriting loss was $114 million, a modest improvement over the loss
of $139 million for the third quarter. Underwriting results by major line of
business for the year and the fourth quarter are stated in the chart below.
Underwriting Results ($ Millions)
<TABLE>
<CAPTION>
Year Ended Fourth Quarter
---------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Personal Lines:
Personal auto $ (63.3) $ 11.5 $ (38.3) $ (9.3)
Homeowners (48.2) (56.4) 9.5 (4.4)
Other personal lines 20.6 14.8 9.8 5.8
Commercial Lines:
American States
Business Insurance (183.4) (72.7) (37.1) (6.8)
SAFECO Commercial (107.6) (27.9) (59.2) (3.9)
Surety 15.2 19.2 2.0 3.2
Other -- 2.1 (1.0) 1.7
------- ------- ------- ------
Total $(366.7) $(109.4) $(114.3) $(13.7)
======= ======= ======= ======
</TABLE>
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During the past few years, the property and casualty industry has continued to
reduce the prices of its products, and this has finally caught up with the
industry. Over the last two years, we also lowered prices to retain market share
and facilitate the transition of the American States business. We are
emphasizing profitability over market share within the company and are now
aggressively increasing the prices of our property and casualty insurance
products. We believe these price increases will be accepted in the marketplace.
Already there is solid evidence that commercial lines prices in the industry
have been increasing in recent months. We are confident our price increases,
coupled with aggressively managing expenses, will restore our profit margins to
acceptable levels over the next two years.
Our life insurance operations produced record profits of $178.6 million for the
year and $49.8 million for the fourth quarter. They are up substantially over a
year ago as nearly all major lines showed improvement. In December 1999, we
finalized the acquisition of the medical excess loss and group life business of
ING Medical Risk Solutions, an Atlanta-based division of ING Group for $34.2
million, and we purchased Sound Benefit Administrators, a third party
administrator, based in Ashland, Wisconsin, for $3.8 million. These
acquisitions are strategic to the future growth of both of these lines.
SAFECO Credit Company matched last year's record profits of $22.6 million
despite the adverse impact of higher interest rates. Non-affiliate receivables
and operating leases were $1.6 billion compared with $1.3 billion on December
31, 1998 representing a 19% increase.
SAFECO's Asset Management operations recorded pre-tax earnings of $13.6
million. Surety operations produced a solid underwriting profit of $15.2
million for the year.
It's been over two years since we acquired American States Financial
Corporation. This was the most significant acquisition ever made by SAFECO. We
remain confident that this acquisition will provide significant benefits to our
overall operations. The acquisition brought to us the small business insurance
product line, which we did not have. This product line is popular with our
agents and customers and gives the agent the opportunity to sell the "total
account." With this product line we are the "go to" company for independent
agents in the insurance and financial services business. And, with a complete
product line and personal service, the independent agent will remain a viable
distribution force in the years to come.
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Our emphasis and commitment to the independent agency system does not ignore the
impact of e-commerce. We have a well thought out e-commerce strategy, which
embraces both the independent agent and the customer. Through this strategy with
our independent agents we expect to market some of our products via the Internet
by year-end. Because of our Internet approach, SAFECO was recently recognized by
PC Week Magazine as number five in its "financial services Fast-track 100" --
the most aggressive and innovative enterprises in the financial industry.
Although it has been a challenging year, SAFECO has met such challenges in the
past and emerged profitable and sound. Our balance sheet remains one of the
strongest in the industry. It is important to note the turnaround of our life
organization in 1999. This turnaround is the result of a disciplined and focused
management strategy, similar to that which we are applying in the property and
casualty organization today. We will keep you informed on our progress.
During 1999, we purchased $302 million of SAFECO stock. Enclosed with this
report is your quarterly dividend check payable January 24, 2000 to shareholders
of record January 7, 2000 at the rate of $0.37 per share.
January 21, 2000 Roger H. Eigsti
Seattle, Washington Chairman and Chief Executive Officer
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SAFECO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities, at Market Value
(Cost: $17,258.9; $16,679.7) ............................... $16,830.7 $17,855.6
Fixed Maturities, at Amortized Cost
(Market Value: $2,772.1; $3,259.2).......................... 2,733.3 2,720.9
Marketable Equity Securities, at Market Value
(Cost: $972.5; $952.8)...................................... 2,004.7 2,036.6
Real Estate................................................... 106.5 596.0
Other Invested Assets......................................... 1,255.8 969.2
--------- ---------
Total Investments........................................... 22,931.0 24,178.3
Finance Receivables............................................. 1,460.6 1,207.7
Deferred Policy Acquisition Costs............................... 598.8 521.1
Goodwill........................................................ 1,354.9 1,359.0
Other Assets.................................................... 4,227.4 3,625.6
--------- ---------
Total....................................................... $30,572.7 $30,891.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Insurance Liabilities........................................... $ 6,551.0 $ 6,290.4
Funds Held Under Deposit Contracts.............................. 13,762.9 12,718.1
Debt............................................................ 2,316.1 2,615.6
Other Liabilities............................................... 2,806.1 2,849.7
--------- ---------
Total Liabilities........................................... 25,436.1 24,473.8
Capital Securities.............................................. 842.5 842.1
Common Shareholders' Equity
(Common shares issued and outstanding: 128.9; 136.3) ......... 4,294.1 5,575.8
--------- ---------
Total....................................................... $30,572.7 $30,891.7
========= =========
Book Value per Common Share..................................... $ 33.31 40.92
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER DECEMBER 31
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
Property and Casualty:
Premiums Written .............. $4,645.0 $4,441.8 $1,112.9 $1,059.5
Net Investment Income ......... 462.3 480.2 117.4 118.2
Life ............................ 1,480.9 1,394.4 377.3 351.5
Credit .......................... 119.8 109.9 31.5 29.1
Asset Management ................ 44.3 39.7 11.6 11.1
Talbot Financial ................ 71.9 57.6 18.3 13.9
Other ........................... 42.0 78.7 8.3 18.6
-------- -------- -------- --------
Total ......................... $6,866.2 $6,602.3 $1,677.3 $1,601.9
======== ======== ======== ========
</TABLE>
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SAFECO CORPORATION AND SUBSIDIARIES
SUMMARY OF CONSOLIDATED INCOME (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income (Loss) before Realized Gain
and Income Taxes:
Property and Casualty Insurance:
Underwriting Loss............................. $(366.7) $(109.4) $(114.3) $(13.7)
Net Investment Income......................... 462.3 480.2 117.4 118.2
Goodwill Amortization......................... (43.8) (43.0) (10.9) (10.9)
------- ------- ------- ------
Total Property and Casualty................. 51.8 327.8 (7.8) 93.6
Life............................................ 178.6 119.1 49.8 12.6
Write-off of Deferred Acquisition Costs....... -- (46.8) -- --
Credit.......................................... 22.6 22.7 5.0 6.0
Asset Management................................ 13.6 8.5 4.1 2.0
Corporate....................................... (52.0) (63.1) (14.1) (18.4)
------- ------- ------- ------
Total....................................... 214.6 368.2 37.0 95.8
Realized Investment Gain before Tax............... 117.7 94.6 21.4 32.2
------- ------- ------- ------
Income before Income Taxes........................ 332.3 462.8 58.4 128.0
------- ------- ------- ------
Provision (Benefit) for Income Taxes on:
Income before Realized Gain..................... (5.9) 33.3 (4.7) 9.6
Realized Investment Gain........................ 41.2 32.7 7.4 10.9
------- ------- ------- ------
Total......................................... 35.3 66.0 2.7 20.5
------- ------- ------- ------
Income before Distribution on
Capital Securities.............................. 297.0 396.8 55.7 107.5
Distributions on Capital Securities, Net of Tax... (44.8) (44.9) (11.2) (11.3)
------- ------- ------- ------
Net Income........................................ $ 252.2 $ 351.9 $ 44.5 $ 96.2
======= ======= ======= ======
Net Income Per Diluted Share of Common Stock:
Income before Realized Gain..................... $ 1.32 $ 2.07 $ .24 $ .55
Realized Gain................................... .58 .44 .10 .15
------- ------- ------- ------
Net Income........................................ $ 1.90 $ 2.51 $ .34 $ .70
======= ======= ======= ======
Dividends Paid to Common Shareholders............. $ 1.44 $ 1.34 $ .37 $ .35
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SAFECO CORPORATION
Dated: January 26, 2000 By: /s/ H. Paul Lowber
------------------------------
H. Paul Lowber
Vice President, Controller and
Chief Accounting Officer
