<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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
(Telephone)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(128,739,419 shares were outstanding at January 31, 2000)
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, 2000, was $3,200,000,000.
Documents incorporated by reference:
Portions of the registrant's 1999 Annual Report to Shareholders are
incorporated by reference into Parts I and II. Portions of the registrant's
definitive Proxy Statement for the 2000 annual shareholders meeting held
May 3, 2000, are incorporated by reference into Part III.
<PAGE> 2
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS
--------------------------------------------------------------------------------
PART I ITEM 1 - BUSINESS
GENERAL
SAFECO Corporation (the Corporation), a Washington corporation,
owns operating subsidiaries in segments of insurance and other
financially related businesses. (The Corporation and its subsidiaries
are collectively referred to as "SAFECO".) SAFECO's businesses
operate on a nationwide basis. Non-U.S. operations are insignificant.
The insurance subsidiaries engage in property and casualty insurance,
surety and life insurance, and generated approximately 95% of
SAFECO's total 1999 revenues. The home offices of the Corporation and
its principal subsidiaries are in Seattle and Redmond, Washington. As
of December 31, 1999, SAFECO had approximately 13,000 employees.
SAFECO acquired Medical Risk Managers, Inc. on December 31, 1999,
WM Life Insurance Company on December 31, 1997 and American States
Financial Corporation ("American States") on October 1, 1997. These
acquisitions have been treated as purchases for accounting purposes.
In February 1998 the Corporation announced its decision to sell
its real estate subsidiary, SAFECO Properties, to focus on SAFECO's
core insurance and financial services businesses. See page 14 of this
report for additional information.
On March 16, 2000, SAFECO Corporation issued $300 million of
medium-term notes at 7.875% which mature on March 15, 2003. The
proceeds of the notes were subsequently loaned to our subsidiary
SAFECO Credit to primarily repay its commercial paper debt.
SAFECO's insurance subsidiaries engage in two principal lines:
property and casualty (including surety), and life insurance.
SAFECO's property and casualty insurance operations is one of the
largest in the United States. All areas of the insurance business are
highly competitive and no one insurance company or group of insurers
dominates the market.
The Corporation and its insurance subsidiaries are subject to
extensive regulation and supervision. This regulation is generally
designed to protect the interests of policyholders rather than
shareholders and other investors. Such regulation, generally
administered by a department of insurance in each state in which the
insurance subsidiaries do business, relates to, among other things,
the standards of solvency that must be met and maintained; the
licensing of insurers and their agents; the nature of and limitations
on investments; the ability to withdraw from the state; the approval
of premium rates; restrictions on the size of risks that may be
insured under a single policy; reserves and provisions for unearned
premiums, losses and other purposes; deposits of securities for the
benefit of policyholders; approval of policy forms; and the
regulation of market conduct, including underwriting and claims
practices. State insurance departments also conduct periodic
examinations of the affairs of insurance companies and require the
filing of annual and other reports relating to the financial
condition of insurance companies, holding company issues and other
matters. The Corporation's insurance subsidiaries are collectively
licensed to transact insurance business in all 50 states and the
District of Columbia. See page 25 of the 1999 Annual Report to
Shareholders for more information on regulatory matters.
2
<PAGE> 3
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
PROPERTY AND CASUALTY -- OPERATIONS
The Corporation's property and casualty subsidiaries include:
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, American States Insurance Company, American Economy
Insurance Company, American States Preferred Insurance Company,
Insurance Company of Illinois, American States Insurance Company of
Texas, American States Lloyds Insurance Company, F. B. Beattie &
Company, Inc., SAFECO Select Insurance Services, Inc., SAFECO UK,
Ltd. and R.F. Bailey (Underwriting Agencies), Ltd.
Through independent agents, SAFECO's property and casualty
subsidiaries write personal, commercial and surety lines of
insurance. Coverages include automobile, homeowners, fire and allied
lines, workers' compensation, commercial multi-peril, miscellaneous
casualty, surety and fidelity. Products are sold in all states and
the District of Columbia.
SAFECO's purchase of American States on October 1, 1997
broadened the product mix available to the combined companies'
agency force, particularly in introducing American States' small
commercial line products into existing SAFECO agencies.
Consolidated property and casualty gross premiums written for
SAFECO's ten largest states are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------------------
(Amounts In Millions)
% of % of % of
State Amount Total Amount Total Amount Total
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
California $ 688.4 15% $ 669.1 15% $ 584.0 20%
Washington 594.5 13 587.6 13 444.0 15
Texas 323.4 7 314.3 7 225.0 8
Illinois 286.7 6 273.6 6 151.6 5
Oregon 239.5 5 238.6 5 181.0 6
Missouri 221.6 5 219.3 5 118.4 4
Florida 174.2 4 166.9 4 118.8 4
Indiana 160.7 3 167.2 4 50.3 2
Michigan 144.3 3 131.7 3 58.7 2
Tennessee 119.3 3 106.7 2 81.7 3
-------- -------- -------- -------- -------- --------
2,952.6 64 2,875.0 64 2,013.5 69
All Others 1,692.4 36 1,566.8 36 973.9 31
-------- -------- -------- -------- -------- --------
Total $4,645.0 100% $4,441.8 100% $2,987.4 100%
======== ======== ======== ======== ======== ========
</TABLE>
The 1997 gross premiums written above include American States
from the October 1, 1997 acquisition date forward. Based on
annualized American States premiums for 1997, the adjusted
concentrations are 16% for California, 13% for Washington, 7% for
Texas, 6% for Illinois and 5% for Oregon.
Personal lines, American States Business Insurance, SAFECO
Commercial and surety lines comprised approximately 58%, 25%, 15% and
2%, respectively, of the 1999 gross premiums written of $4.6 billion.
3
<PAGE> 4
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
Additional financial information about SAFECO's business segments
appears in Note 14 on page 68 of the 1999 Annual Report to
Shareholders.
PROPERTY AND CASUALTY -- LOSS RESERVES
The consolidated financial statements include the estimated
liability (reserves) for unpaid losses and loss adjustment expense
("LAE") of the Corporation's property and casualty insurance
subsidiaries. The liability is presented net of amounts 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 expenses 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.
SAFECO's objective is to set reserves that are adequate; that is,
the amounts originally recorded as reserves should at least equal the
amounts ultimately required to settle losses. SAFECO's reserves
aggregate its 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 claim trends as
well as social, legal and economic conditions, including inflation.
The reserves are not discounted.
Loss and LAE 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 and adjusted as necessary; such
adjustments are included in current operations.
Analysis indicates that SAFECO's reserves are adequate and
probably slightly redundant at December 31, 1999, 1998 and 1997. The
table on page 5 provides an analysis of changes in losses and LAE
reserves for 1999, 1998, and 1997 (net of reinsurance amounts).
Changes in the reserves are reflected in the income statement for the
year when the changes are made.
Operations in 1999 were charged $78.8 million from increases in
estimated loss and LAE for claims occurring in prior years. Property
and casualty lines of business with significant contributions to the
increase include construction defect ($28.6 million), workers'
compensation ($35.6 million) and asbestos and environmental ($24.8
million), which were partially offset by decreases in other lines
($10.2). For both construction defect and asbestos and environmental,
increased reserve estimates resulted from higher than expected
reported claims in 1999. The increased reserve estimates for workers'
compensation resulted from SAFECO's re-evaluation of loss exposures
on claims related to larger commercial insureds.
Operations in 1998 benefited $100.0 million from a decrease in
estimate loss and LAE for claims occurring in prior years. This
decrease related primarily to American States' operations. The claims
departments of the two companies were combined in 1998. The unified
claims department implemented training and reserving procedures
resulting in lower claims settlements and reduced reserves on prior
years' American States losses. The reductions were in both personal
and commercial auto, workers' compensation and general liability.
The 1997 charge to prior years included a nonrecurring $40.0
million reserve increase related to the American States acquisition.
This reserve increase related to American States' assumed reinsurance
operations, which had been discontinued by American States prior to
SAFECO's acquisition. Excluding this nonrecurring charge, the 1997
loss and LAE development on claims occurring in prior years benefited
operations $9.5 million.
4
<PAGE> 5
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
ANALYSIS OF CHANGES IN LOSS AND LAE EXPENSE RESERVES (NET OF
REINSURANCE):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(In Millions)
<S> <C> <C> <C>
Loss and LAE Reserves at Beginning of Year $ 3,966.3 $ 4,081.9 $ 1,955.7
--------- --------- ---------
American States Loss and LAE Reserves at Acquisition - - 2,204.6
--------- --------- ---------
Incurred Loss and LAE for Claims
Occurring in the Current Year 3,353.0 3,163.2 1,969.5
Increase (Decrease) in Estimated Loss and LAE
for Claims Occurring in Prior Years 78.8 (100.0) 30.5
--------- --------- ---------
Total Incurred Loss and LAE 3,431.8 3,063.2 2,000.0
--------- --------- ---------
Loss and LAE Payments for Claims
Occurring During:
Current Year 1,926.4 1,836.2 1,172.1
Prior Years 1,402.6 1,342.6 906.3
--------- --------- ---------
Total Loss and LAE Payments 3,329.0 3,178.8 2,078.4
--------- --------- ---------
Loss and LAE Reserves
At End of Year $ 4,069.1 $ 3,966.3 $ 4,081.9
========= ========= =========
Reconciliation:
Loss and LAE Reserves,
Net of Reinsurance $ 4,069.1 $ 3,966.3 $ 4,081.9
Add: Reinsurance Recoverables on Unpaid Losses 309.5 253.6 228.6
--------- --------- ---------
Loss and LAE Reserves,
Gross of Reinsurance $ 4,378.6 $ 4,219.9 $4,310.50
========= ========= =========
</TABLE>
5
<PAGE> 6
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
The table on page 7 presents the development of the loss and LAE
reserves for 1989 through 1999. The amounts reported in the table for
the 1996 and prior year end balances are for SAFECO only (i.e., do
not include any amounts for American States.) The top lines of the
table presents the estimated reserve for unpaid loss and LAE at
December 31 for each of the indicated years, both gross and net of
related reinsurance amounts. The upper portion of the table displays
the cumulative amount paid with respect to the previously recorded
reserve as of the end of each succeeding year. The next section
reports 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. The lower section of the table presents the
cumulative redundancy developed with respect to the previously
recorded liability as of the end of each succeeding year. For
example, the 1989 reserve of $1,627.2 million developed a $5.3
million redundancy after one year which grew over ten years to a
redundancy of $111.1 million.
For 1989 and through 1997, SAFECO's reserve development has been
favorable. This trend reflects several factors: conservative
reserving previously undertaken to correct deficiencies in years
prior to 1988, favorable workers' compensation legislation,
moderation of medical costs and inflation, and claims department
changes. The favorable legislation in workers' compensation, which
relates primarily to the states of Oregon and California in the early
1990's, helped reduce fraud, allowed for faster claim settlements 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 investigations. In addition, increased focus on
adjustment expenses helped reduce these costs. As discussed on page
4, the development for 1998 was unfavorable resulting primarily from
construction defect, asbestos and environmental and workers
compensation.
In evaluating the reserve development table on page 7, note 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, 1998 reserves that relates to losses incurred in 1989 is
also included in the cumulative redundancy amount for the years 1989
through 1997. Conditions and trends that have affected development of
the liability in the past may not necessarily occur in the future.
Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.
6
<PAGE> 7
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANALYSIS OF LOSSES AND ADJUSTMENT EXPENSE RESERVE DEVELOPMENT
Year Ended December 31 1989 1990 1991 1992 1993 1994 1995 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Millions)
Reserve for Unpaid
Losses and Adjustment
Expenses:
Gross of Reinsurance $1,702.5 $1,872.1 $2,017.3 $2,052.3 $2,095.2 $2,236.8 $2,180.8 $2,059.1
Reinsurance 75.3 80.7 152.0 89.2 100.1 143.9 110.7 103.4
-------- -------- -------- -------- -------- -------- -------- --------
Net of Reinsurance $1,627.2 $1,791.4 $1,865.3 $1,963.1 $1,995.1 $2,092.9 $2,070.1 $1,955.7
======== ======== ======== ======== ======== ======== ======== ========
Cumulative Net Amount Paid as of:
One Year Later $ 540.2 $ 603.0 $ 584.9 $ 598.9 $ 620.5 $ 693.0 $ 755.4 $ 772.9
Two Years Later 849.6 914.5 905.7 913.4 947.6 1,068.3 1,095.0 1,101.4
Three Years Later 1,035.0 1,109.4 1,086.5 1,106.0 1,147.6 1,252.9 1,267.6 1,287.9
Four Years Later 1,149.5 1,221.6 1,207.2 1,230.6 1,252.5 1,341.5 1,370.0
Five Years Later 1,222.1 1,301.1 1,294.4 1,295.7 1,300.2 1,403.5
Six Years Later 1,276.4 1,368.9 1,336.7 1,326.1 1,342.9
Seven Years Later 1,323.0 1,403.5 1,356.9 1,357.8
Eight Years Later 1,344.0 1.419.0 1,381.4
Nine Years Later 1,359.4 1,439.3
Ten Years Later 1,375.6
Net Reserve Re-estimated as of:
One Year Later 1,621.9 1,767.4 1,820.7 1,866.2 1,913.8 2,033.2 1,992.4 1,947.7
Two Years Later 1,593.6 1,705.8 1,732.8 1,782.1 1,818.3 1,902.3 1,889.9 1,861.4
Three Years Later 1,541.4 1,666.1 1,686.0 1,712.2 1,716.1 1,801.9 1,804.7 1,806.6
Four Years Later 1,544.8 1,657.2 1,650.7 1,642.3 1,643.6 1,733.8 1,757.1
Five Years Later 1,549.9 1,637.5 1,594.9 1,600.9 1,599.8 1,702.8
Six Years Later 1,546.9 1,608.5 1,569.5 1,554.7 1,568.3
Seven Years Later 1,525.4 1,595.4 1,548.7 1,549.8
Eight Years Later 1,515.4 1,586.7 1,551.0
Nine Years Later 1,510.0 1,592.1
Ten Years Later 1,516.1
Cumulative Net Redundancy (Deficiency) as of:
One Year Later 5.3 24.0 44.6 96.9 81.3 59.7 77.7 8.0
Two Years Later 33.6 85.6 132.5 181.0 176.8 190.6 180.2 94.3
Three Years Later 85.8 125.3 179.3 250.9 279.0 291.0 265.4 149.1
Four Years Later 82.4 134.2 214.6 320.8 351.5 359.1 313.0
Five Years Later 77.3 153.9 270.4 362.2 395.3 390.1
Six Years Later 80.3 182.9 295.8 408.4 426.8
Seven Years Later 101.8 196.0 316.6 413.3
Eight Years Later 111.8 204.7 314.3
Nine Years Later 117.2 199.3
Ten Years Later 111.1
<CAPTION>
Year Ended December 31 1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
(In Millions)
Reserve for Unpaid
Losses and Adjustment
Expenses:
Gross of Reinsurance $4,310.5 $4,219.9 $4,378.6
Reinsurance 228.6 253.6 309.5
-------- -------- --------
Net of Reinsurance $4,081.9 $3,966.3 $4,069.1
======== ======== ========
Cumulative Net Amount Paid as of:
One Year Later $1,345.5 $1,389.2
Two Years Later 2,049.3
Three Years Later
Four Years Later
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Net Reserve Re-estimated as of:
One Year Later 3,981.9 4,045.1
Two Years Later 3,989.0
Three Years Later
Four Years Later
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Cumulative Net Redundancy (Deficiency) as of:
One Year Later 100.0 (78.8)
Two Years Later 92.9
Three Years Later
Four Years Later
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
</TABLE>
7
<PAGE> 8
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
The following table summarizes reserve development, gross of
reinsurance, for the last three years. The 1996 reserve amounts are
for SAFECO only (i.e., does not include any amounts for American
States). The gross and ceded amounts for 1997 and 1998 reflect
development for Michigan auto claims for personal injury protection.
The reserves on these claims were increased $57.7 million, gross of
reinsurance, to reflect the expected lifetime payout. This gross
development was ceded to the Michigan Catastrophic Claims
Association. The net of reinsurance development was unaffected.
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(In Millions)
<S> <C> <C> <C>
Gross Reserves $2,059.1 $4,310.5 $4,219.9
======== ======== ========
Cumulative Development
Net of Reinsurance $ 149.1 $ 92.9 $ (78.8)
Cumulative Development
Of Reinsurance Ceded (10.3) (106.2) (70.8)
-------- -------- --------
Cumulative Development
Gross of Reinsurance $ 138.8 $ (13.3) $ (149.6)
======== ======== ========
</TABLE>
ENVIRONMENTAL AND ASBESTOS CLAIMS
The property and casualty companies' reserves for losses and LAE
for liability coverages related to environmental, asbestos and other
toxic claims totaled $332.3 million at December 31, 1999 compared
with $329.8 million at December 31, 1998. These amounts are before
the effect of reinsurance, which totaled $30.1 million and $30.9
million at December 31, 1999 and 1998. These reserves are
approximately 8% of total property and casualty reserves for losses
and LAE at both December 31, 1999 and December 31, 1998. The reserves
include estimates for both reported and IBNR losses and related legal
expenses.
The vast majority of SAFECO's property and casualty insurance
companies' environmental, asbestos and other toxic claims result from
the commercial general liability line of business and the
discontinued assumed reinsurance operations of American States. A few
of these losses occur in other coverages such as umbrella, small
commercial package policies and personal lines. Approximately 5,600
of these claims were pending at December 31, 1999, computed on an
occurrence basis. Most of these pending environmental claims involve
some type of environmental-related coverage dispute. The average
settlement cost of each environmental, asbestos and other toxic claim
for 1999 was $10,600 including legal expenses.
The following table summarizes the components of SAFECO's
reserves for environmental, asbestos and other toxic claims at
December 31, 1999, before the effect of reinsurance:
<TABLE>
<CAPTION>
Loss LAE Total
---------- --------- ------------
<S> <C> <C> <C>
(In Millions)
Case $ 115.3 $ 23.0 $ 138.3
IBNR 147.0 47.0 194.0
---------- --------- ------------
Total $ 262.3 $ 70.0 $ 332.3
========== ========= ============
</TABLE>
8
<PAGE> 9
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
The table below displays the loss reserve activity analysis for
liability coverages related to environmental, asbestos and other
toxic claims, before the effect of reinsurance.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
(In Millions)
Reserves at Beginning of Year $ 329.8 $ 346.9 $ 102.8
American States Reserves at Acquisition - - 264.4
Incurred Losses and LAE 24.8 1.6 (9.9)
Losses and LAE Payments (22.3) (18.7) (10.4)
------- ------- -------
Reserves at End of Year $ 332.3 $ 329.8 $ 346.9
======= ======= =======
</TABLE>
Although estimation of environmental claims is difficult, the
reserves established for these claims at December 31, 1999 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 process of estimating
loss reserves for environmental, asbestos and other toxic claims
results in imprecise estimates due to changes in environmental
regulations and evolving case law which affect the development of
loss reserves. Quantitative loss reserving techniques in this area
need to be supplemented by subjective considerations and managerial
judgment. Because of these conditions, trends that have affected
development of these liabilities in the past may not necessarily
occur in the future.
CONSTRUCTION DEFECT CLAIMS
Prior to its acquisition by SAFECO, American States had
experienced adverse loss development on construction defect claims.
Construction defect claims are a subset of claims that arise from
coverage provided by general property damage liability insurance.
Construction defect claims are claims arising from the alleged
defective work performed in the construction of large habitation
structures, such as apartments, condominiums and large developments
of single family dwellings or other housing. In addition to damages
arising directly from the alleged defective work, construction defect
claims also allege that the economic value of the structure has been
diminished. The vast majority of construction defect claims arise
from past contractor business written in California. SAFECO
Commercial, which does not include American States Business
Insurance, has avoided writing the construction class of business in
California since 1989 and has limited exposure to these types of
claims. Because of this SAFECO has not historically separated these
claims for the purpose of reserve analysis. However, American States,
prior to the acquisition by SAFECO, was a major writer of California
contractor business until 1994 when it implemented significant
restrictions in this line. The total American States reserves for
construction defect claims totaled $306.1 million at December 31,
1999 and $328.6 million at December 31, 1998, representing
approximately 8% of total property and casualty reserves for losses
and LAE at both December 31, 1999 and 1998. Claims payments including
LAE totaled $50.6 million in 1999 and $67.1 million in 1998.
9
<PAGE> 10
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
The following table presents the loss reserve activity analysis
for American States construction defect claims after the effect of
reinsurance for 1999 and 1998 respectively (the first two full years
following the acquisition):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
(In Millions)
Reserves at Beginning of Year $ 328.6 $ 340.3
Incurred Losses and LAE 28.1 55.4
Losses and LAE Payments (50.6) (67.1)
------- -------
Reserves at End of Year $ 306.1 $ 328.6
======= =======
</TABLE>
GAAP VS. STATUTORY
State regulatory authorities require SAFECO's property and
casualty insurance subsidiaries to file annual statements prepared on
an accounting basis prescribed or permitted by their respective state
of domicile (that is, on a statutory basis). The difference between
the $4,378.6 million reserve at December 31, 1999, for the losses and
LAE disclosed in the consolidated financial statements in accordance
with generally accepted accounting principles (GAAP), and the
$4,069.1 million reported in the annual statements filed with state
regulatory authorities relates to reinsurance recoverables. Under
Statement of Financial Accounting Standards No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts", the GAAP-basis liability for losses and LAE is reported
gross of amounts recoverable from reinsurance. Statutory-basis
financial statements report the liability net of reinsurance.
REINSURANCE
SAFECO's property and casualty companies use treaty and
facultative reinsurance to help manage exposure to loss. As noted on
page 5, the liability for unpaid losses and LAE is reported gross of
reinsurance recoverables of $309.5 million at December 31, 1999 and
$253.6 million at December 31, 1998. The largest concentration
(approximately 49%) of total reinsurance recoverables at December 31,
1999 was with American Re-Insurance Company and Employers Reinsurance
Corporation. Our reinsurance recoverable balance categorized by
reinsurer rating (by A.M. Best Company on a scale ranging from A++
to F) at December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Rating %
---------- -----
<S> <C>
A++ 35.9%
A+ 13.7%
A 10.7%
A- 0.1%
B 7.4%
-----
Total Domestic Reinsurers 67.8%
-----
Mandatory Pools 23.4%
Voluntary Pools 3.0%
Foreign 5.8%
-----
Total Pools & Foreign 32.2%
-----
Total 100.0%
=====
</TABLE>
The availability and cost of reinsurance are subject to
prevailing market conditions, both in terms of price and available
capacity. Although the reinsurer is liable to SAFECO to the extent of
the reinsurance ceded, SAFECO remains primarily liable to the
policyholder as the direct insurer on all risks insured. To SAFECO's
knowledge none of its reinsurers is experiencing financial
difficulties. SAFECO's business is not substantially dependent upon
any single reinsurance contract.
SAFECO's catastrophe property reinsurance program for 2000 is
unchanged from 1999 and covers 90% of $400 million of single-event
losses in excess of $100 million retention. In a large catastrophe,
SAFECO would, therefore, retain the first $100 million of losses, 10%
of the next $400 million and all losses in excess of $500 million. In
addition to this nationwide coverage, for all states other than
California SAFECO has a supplemental earthquake-only reinsurance
contract that would cover 90% of $350 million of single-event
earthquake losses in excess of $500 million. Both of these 2000
catastrophe property reinsurance contracts include provisions for one
reinstatement for a second catastrophe event in 2000 at current
rates.
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
10
<PAGE> 11
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
participate in any surplus relief transactions. For additional
information on reinsurance, see Note 6 on page 61 of the 1999 Annual
Report to Shareholders.
LIFE -- OPERATIONS
The Corporation's subsidiaries engaged in the life insurance
business are SAFECO Life Insurance Company, SAFECO National Life
Insurance Company, First SAFECO National Life Insurance Company of
New York, American States Life Insurance Company, SAFECO
Administrative Services, Inc. and SAFECO Investment Services, Inc.
(collectively referred to as "SAFECO Life"). SAFECO Life offers
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 and deferred annuities,
business-owned life insurance, indexed and variable annuities,
tax-sheltered annuities for the education and nonprofit markets,
corporate retirement plans, excess loss group medical insurance and
individual life insurance.
SAFECO Life acquired Medical Risk Managers, Inc. on December 31,
1999, American States Life on October 1, 1997 and WM Life Insurance
Company on December 31, 1997. These acquisitions have been treated as
purchases for accounting purposes.
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.
Funds received under deposit contracts relate primarily to the
annuity and retirement services products of SAFECO's life insurance
subsidiaries. The table on page 12 summarizes the components of funds
held under deposit contracts at December 31, 1999, and describes the
applicable surrender charges and surrender experience.
11
<PAGE> 12
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
DETAIL OF SAFECO LIFE INSURANCE COMPANIES' FUNDS HELD UNDER DEPOSIT CONTRACTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expected Range of
Maturities Credited or
Outstanding of Assumed
at Liabilities Interest Rates Approximate
12/31/99 (at issue at Surrender
Product (In Millions) date) 12/31/99 Surrender Charges Experience
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Universal $2,157.2 Approximately 5.25% to 6.00% Varies by issue age, 7% per annum
Individual 10-20 years sex and duration from
Life $1 to $58 per $1,000
of insurance
Annuities:
Structured 5,823.4 Over 25 years 3.5% to 12.38% Cannot surrender Cannot
Settlement surrender
Immediate
Retirement
Services:
Guaranteed 741.9 Typically 5.63% to 8.44% Market value Less than 1%
Investment 2-5 years adjustment or cannot per annum
Contracts surrender in first year
Other 4,276.7 Approximately 4.00% to 7.95% Highest surrender 13% per annum
Annuities & 5-20 years charges range from 10%
Deposits to 5%, graded down to
0% within 5 to 10
years. SAFECO has
the option to
defer payout over
5 years for
approximately 13%
of these
contracts.
763.7 Approximately Equity return Typically 8% in year 1 2% to 3% per
Equity 6 years at credited is graded to 0% after annum
Indexed original based on S&P year 6.
Annuities issuance, 500 performance
remaining with a minimum
expected guarantee of
maturity 0%. Floor
approximately return based on
5 years a minimum fixed
return on a
portion
(typically 90%)
of the original
deposit amount.
----------
Total $13,762.9
==========
</TABLE>
12
<PAGE> 13
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
INVESTMENTS
A description of SAFECO's investment portfolio appears on pages
35-37 of the 1999 Annual Report to Shareholders. The remainder of
this section provides additional information about SAFECO's
mortgage-backed securities and investment income yields.
SAFECO's consolidated investment in mortgage-backed securities of
$3.9 billion at market value at December 31, 1999, consists mainly of
residential collateralized mortgage obligations (CMOs), pass-throughs
and commercial loan-backed mortgage obligations (CMBS). The SAFECO
Life portfolio contains virtually all of these securities.
Approximately 86% of the mortgage-backed securities are
government/agency-backed or AAA rated at December 31, 1999. SAFECO
has intentionally limited its investment in riskier, more volatile
CMOs and CMBS (e.g., principal only, inverse floaters, etc.) to less
than 1% of total mortgage-backed securities at December 31, 1999.
SAFECO Consolidated Holdings of Mortgage-Backed Securities at
December 31, 1999:
<TABLE>
<CAPTION>
GAAP Market Value
------------------
Amortized
Cost Amount %
---------- --------- --------
(Amounts In Millions)
<S> <C> <C> <C>
Residential CMOs:
Planned Amortization Class
(PAC) and
Targeted Amortization Class
(TAC) (Fixed Coupon) $ 580.4 $ 573.7 14.8%
Sequential Pay (SEQ) 1,004.5 984.9 25.4
Accrual Coupon (Z-Tranche) 689.8 701.2 18.1
Floating Rate 48.4 48.0 1.2
Companion/Support, Principal Only,
Inverse Floaters 28.3 27.4 0.7
-------- -------- --------
Subtotal 2,351.4 2,335.2 60.2
-------- -------- --------
Residential Mortgage-Backed
Pass-Throughs (Non-CMOs): 48.0 47.0 1.2
-------- -------- --------
Securitized Commercial
Real Estate:
Government/Agency-Backed 401.0 393.3 10.2
Pass-Throughs (Non-agency) 48.8 45.2 1.2
CMOs (Non-agency) 693.7 669.4 17.3
-------- -------- --------
Subtotal 1,143.5 1,107.9 28.7
-------- -------- --------
Asset-Backed Securities
(Non-Real Estate): 391.9 381.6 9.9
-------- -------- --------
Total Mortgaged-Backed Securities $3,934.8 $3,871.7 100.0%
======== ======== ========
</TABLE>
13
<PAGE> 14
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
This table displays the quality distribution of SAFECO's
mortgage-backed security portfolio (GAAP market values):
<TABLE>
<CAPTION>
Percent at
Rating December 31, 1999
-----------------
<S> <C> <C>
Government/Agency Backed 44%
AAA 42
AA 7
A 3
BBB 4
BB or lower --
-----------
Total 100%
===========
</TABLE>
The table below summarizes pretax investment income yields for
SAFECO's property and casualty and life insurance subsidiaries
(calculations are based on GAAP amortized cost):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Property and Casualty 6.2% 6.3% 6.6%
Life 7.7% 7.8% 7.9%
</TABLE>
OTHER OPERATIONS
SAFECO's other operations include subsidiaries involved in
commercial lending and leasing, investment management and insurance
agency and financial services distribution operations.
In February 1998, SAFECO announced its decision to sell its real
estate subsidiary, SAFECO Properties, Inc., to focus on its core
insurance and financial services businesses. The majority of SAFECO
Properties' assets were sold for $570 million in a series of closings
during the first half of 1999. Realized gains of $35 million have
been recognized in 1999. At December 31, 1999, investment real estate
held by SAFECO Properties totaled $105 million , less than 1% of
SAFECO's consolidated investments. Since SAFECO Properties'
operations are not material to the consolidated financial statements,
they have not been reclassified as discontinued operations. See Note
2 on page 52 of the 1999 Annual Report to Shareholders, incorporated
herein by reference (Exhibit 13), for additional information.
14
<PAGE> 15
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - BUSINESS (CONTINUED)
--------------------------------------------------------------------------------
SAFECO Credit Company, Inc., organized in 1969, provides loans
and equipment financing and leasing to commercial businesses,
insurance agents and affiliated companies. At December 31, 1999, 4%
of the Credit Company's outstanding loans and leases consisted of
loans to affiliated SAFECO companies.
SAFECO Asset Management Company, acquired in 1973, is the
investment advisor for the SAFECO mutual funds, variable annuity
portfolios and a growing number of outside pension and trust
accounts.
SAFECO Securities, Inc., organized in 1967, is the principal
underwriter of the SAFECO Mutual Funds, comprising the SAFECO Common
Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust,
SAFECO Money Market Trust, and SAFECO Managed Bond Trust. These five
trusts are made up of nineteen separate investment portfolios, all of
which are sold on a "no-load" basis directly to the public. Fifteen
of these portfolios have two additional classes of stock which are
sold to the public through broker/dealers.
In addition, SAFECO Securities, Inc. is the principal underwriter
for the SAFECO Resource Series Trust, a registered investment company
with six separate investment portfolios. SAFECO Securities is also
the principal underwriter 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 and for First SAFECO Separate Account
S, which is a separate account of First SAFECO National Life
Insurance Company of New York.
SAFECO Services Corporation, organized in 1972, is the transfer
agent for SAFECO's mutual funds.
SAFECO Trust Company, organized in 1994, provides asset
management and trust administrative services to high net worth
individuals and unrelated organizations.
SAFECO Investment Services, Inc., organized in 1986, is a
broker/dealer and registered investment advisor that primarily
distributes affiliated and nonaffiliated mutual funds and variable
insurance products through its registered representatives.
Talbot Financial Corporation, acquired in 1993, is a broad-based
insurance broker with a concentrated emphasis on the distribution of
qualified and nonqualified annuity products and mutual funds through
the banking and brokerage arenas.
15
<PAGE> 16
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - PROPERTIES
ITEM 3 - LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
ITEM 2 - PROPERTIES
SAFECO's property and casualty insurance companies lease their
home office complex located in Seattle, Washington from General
America Corporation (a wholly-owned subsidiary of SAFECO
Corporation). This complex totals 567,000 gross square feet. A
700-car parking garage is connected to the complex. SAFECO's life
insurance companies lease their headquarters building located in
Redmond, Washington from General America Corporation. This complex
totals 232,000 gross square feet.
SAFECO is currently developing approximately 650,000 gross square
feet of additional office space for its use on land near the life
insurance companies' Redmond, Washington headquarters.
Other buildings owned and occupied include service facilities in
Redmond, Washington and Indianapolis, Indiana, as well as regional
and branch offices in Fountain Valley and Pleasant Hill, CA; Denver,
CO; Carol Stream, IL; St. Louis, MO; Cincinnati, OH; Portland, OR;
Mountlake Terrace, Redmond, and Spokane, WA. These buildings comprise
approximately 1,800,000 gross square feet. All other branch and
service offices occupy leased premises comprising approximately
2,400,000 square feet, generally for periods of five years or less.
SAFECO Properties' remaining real estate investments are
primarily retail centers. See Item 1 on page 14 of this report.
ITEM 3 - LEGAL PROCEEDINGS
Because of the nature of their businesses, the Corporation's
insurance and other subsidiaries are subject to certain legal actions
filed or threatened in the ordinary course of their business
operations, generally as liability insurers defending third-party
claims brought against their insureds or as insurers defending policy
coverage claims brought against them. 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 difficult, the Corporation
believes that reserves established for these claims are adequate
based on the known facts and current law. The loss and loss
adjustment expense with respect to any such lawsuit, or all lawsuits
related to a single incident combined, are not expected to be
material to the financial condition of SAFECO. See page 8 of Item 1
for more information regarding the liability of such subsidiaries for
environmental claims and the process of estimating environmental loss
reserves.
Four of the Corporation's property and casualty insurance
subsidiaries were among 23 underwriters of real property insurance
named as defendants in a case brought in February 1996 in the United
States District Court for the Western District of Missouri alleging
that their underwriting, sales and marketing practices violated the
Fair Housing Act and certain other civil rights laws. The trial court
refused to certify the plaintiff class and dismissed the lawsuit in
June 1997. The plaintiffs appealed. In February 1998 the Eighth
Circuit Court of Appeals upheld the dismissal, and in January 1999
the United States Supreme Court refused to grant
16
<PAGE> 17
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 3 - LEGAL PROCEEDINGS (CONTINUED)
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------------------------
certiori to hear the case. Meanwhile, in January 1999, a group of
plaintiffs filed separate lawsuits in Missouri state court against
the SAFECO property and casualty insurance companies named in the
federal court action. The state court actions against the SAFECO
defendants have been removed to federal district court and assigned
to the same judge who had ordered dismissal of the original federal
court action. The actions have been stayed while a related action
that has been dismissed against other insurers is on appeal before
the Eighth Circuit Court of Appeals. Based on current information,
management expects that the remaining lawsuits against the SAFECO
subsidiaries will be dismissed just as the original federal court
action was and intends to vigorously pursue such dismissal.
One of SAFECO's property and casualty insurance subsidiaries,
General Insurance Company of America ("General"), has been named a
defendant along with six other property and casualty insurance groups
in a putative class-action lawsuit filed in Illinois state court,
Hobbs v. State Farm Mutual Automobile Insurance Co., et al. SAFECO
Corporation originally was named as a defendant but has since been
dismissed for lack of personal jurisdiction. The plaintiffs allege
that the defendants violated their insurance contracts with
policyholders by using non-original equipment manufacturer
("non-OEM") parts in the repair of vehicles made pursuant to those
contracts. The plaintiffs also allege that the practices of the
defendants in adjusting claims when non-OEM parts were used
constituted a violation of the Illinois unfair business practices
act. The plaintiffs further allege that the fact that the defendants
support the Certified Auto Parts Association ("CAPA"), an independent
organization that certifies the quality of non-OEM parts for
vehicles, constituted a conspiracy to further the improper use of
those parts. The plaintiffs seek actual as well as punitive damages.
General will vigorously defend against these claims.
In March 2000 California voters by over a 2-to-1 margin
overturned a 1999 law that would have given third-party claimants the
right to sue insurance companies for bad faith in connection with the
adjustment of claims. Since the law will not go into effect, such
third-party bad faith claims remain prohibited in California.
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 1999.
17
<PAGE> 18
SAFECO CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 24, 2000, these are the names, ages and positions of
the executive officers of the Registrant as required by Item 10. No
family relationships exist.
<TABLE>
<CAPTION>
<S> <C> <C>
Roger H. Eigsti 57 Chairman since May 1993. Chief Executive Officer since
January 1992. President from May 1989 to August 1996.
Chief Operating Officer from 1989 to 1991. Executive
Vice President and Chief Financial Officer from 1985
to 1989. Director since 1988.
Boh A. Dickey 55 President and Chief Operating Officer since August
1996. Executive Vice President from January 1992 to
August 1996. Chief Financial Officer from May 1989 to
August 1996. Senior Vice President from 1989 to 1991.
Secretary from 1985 to 1991. Vice President and
Controller from 1982 to 1989. Director since 1993.
Rodney A. Pierson 52 Chief Financial Officer since August 1996. Senior Vice
President since February 1994. Secretary since 1991.
Controller from 1990 to 1997. Vice President from 1990
to 1994. Vice President of SAFECO Property and
Casualty Insurance Companies from 1987 to 1990.
Controller of SAFECO Property and Casualty Insurance
Companies from 1984 to 1990.
James W. Ruddy 50 Senior Vice President since 1992. General Counsel
since 1989. Vice President from 1989 to 1992.
Associate General Counsel from 1985 to 1989.
W. Randall Stoddard 52 President of SAFECO Property and Casualty Insurance
Companies since July 1997. Chief Operating Officer of
SAFECO Property and Casualty Insurance Companies from
1996 to July 1997. Senior Vice President of Field
Operations from 1994 to 1996.
Randall H. Talbot 45 President of SAFECO Life Insurance Companies since
February 1998. Chief Executive Officer and President
of Talbot Financial Corporation from 1988 to 1998.
</TABLE>
18
<PAGE> 19
SAFECO CORPORATION AND SUBSIDIARIES
PART II - FINANCIAL INFORMATION, ITEM 5-9
PART III - FINANCIAL INFORMATION, ITEM 10-13
--------------------------------------------------------------------------------
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Pages 40 and 75 of the 1999 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Pages 76 through 79 of the 1999 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pages 22 through 40 of the 1999 Annual
Report to Shareholders are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pages 38 and 39 of the 1999 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 43 through 75 of the 1999 Annual Report to Shareholders 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 filed, excluding the Annual Report of
the Compensation Committee on Executive Compensation appearing on
Pages 6 through 11, 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 of this 10-K), 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."
19
<PAGE> 20
SAFECO CORPORATION AND SUBSIDIARIES
PART IV - FINANCIAL INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------------
PART IV (a) (1) Financial Statements
F-1 Consent of Independent Auditors
SAFECO Corporation and Subsidiaries:
The following consolidated financial statements of SAFECO
Corporation and its subsidiaries, included in the 1999 Annual
Report to Shareholders (pages 42 through 75), are incorporated
herein by reference:
Report of Independent Auditors
Statement of Consolidated Income
Years Ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheet
December 31, 1999 and 1998
Statement of Consolidated Cash Flows
Years Ended December 31, 1999, 1998 and 1997
Statement of Consolidated Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997
Notes to Financial Statements
December 31, 1999
SAFECO Corporation and Subsidiaries Supplemental Consolidating
Information:
F-2 Balance Sheet
December 31, 1999 and 1998
F-3 Statement of Income
Year Ended December 31, 1999
F-4 Statement of Cash Flows
Year Ended December 31, 1999
20
<PAGE> 21
SAFECO CORPORATION AND SUBSIDIARIES
PART IV - FINANCIAL INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
--------------------------------------------------------------------------------
(a) (2) Financial Statement Schedules
F-5 Schedule I Summary of Investments Other Than Investments in
Related Parties December 31, 1999
Schedule II Condensed Financial Information of the Registrant
(Parent Company Only):
F-6 Balance Sheet
December 31, 1999 and 1998
F-7 Statement of Income
Years Ended December 31, 1999, 1998 and 1997
F-8 Statement of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
Statement of Consolidated Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997.
(See page 48 of the 1999 Annual Report to
Shareholders which is incorporated herein by
reference.)
F-9 Schedule III Supplementary Insurance
Information Years Ended December 31, 1999,
1998 and 1997
F-10 Schedule IV Reinsurance
Years Ended December 31, 1999, 1998 and 1997
F-11 Schedule VI Supplemental Information Concerning Property/
Casualty Insurance Operations
Years Ended December 31, 1999, 1998 and 1997
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
21
<PAGE> 22
SAFECO CORPORATION AND SUBSIDIARIES
PART IV - FINANCIAL INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
--------------------------------------------------------------------------------
(a) (3) Exhibits
F-12 Exhibit Index
Exhibit 3.1 Bylaws (as last amended August 5, 1998),
filed as Exhibit 3 to SAFECO's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1998.
Exhibit 3.2 Restated Articles of Incorporation (as
amended May 7, 1997), filed as Exhibit 3.2
to SAFECO's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
Exhibit 4.1 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 4.2 Indenture, dated as of July 15, 1997,
between SAFECO and The Chase Manhattan Bank,
as Trustee, filed as Exhibit 4.2 to SAFECO's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
Exhibit 4.3 Form of Certificate of Exchange Junior
Subordinated Debenture filed as Exhibit 4.2
to SAFECO's Registration Statement on Form
S-4 (No. 333-38205) dated October 17, 1997.
Exhibit 4.4 Certificate of Trust of SAFECO Capital
Trust I dated June 18, 1997, filed as
Exhibit 4.4 to SAFECO's Quarterly Report on
Form 10-Q for the quarter ended June 30,
1997.
Exhibit 4.5 Amended and Restated Declaration of
Trust of SAFECO Capital Trust I dated as of
July 15, 1997, filed as Exhibit 4.5 to
SAFECO's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.
Exhibit 4.6 Form of Exchange Capital Security
Certificate for SAFECO Capital Trust I filed
as Exhibit 4.5 to SAFECO's Registration
Statement on Form S-4 (No. 333-38205) dated
October 17, 1997.
Exhibit 4.7 Form of Exchange Guarantee of SAFECO
Corporation relating to the Exchange Capital
Securities filed as Exhibit 4.6 to SAFECO's
Registration Statement on Form S-4 (No.
333-38205) dated October 17, 1997.
Exhibit 4.8 Indenture, dated as of February 15,
2000, among SAFECO and The Chase Manhattan
Bank, N.A., as Trustee.
Exhibit 4.9 Form of 7.875% Notes due 2003.
22
<PAGE> 23
SAFECO CORPORATION AND SUBSIDIARIES
PART IV - FINANCIAL INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FROM 8-K
(CONTINUED)
--------------------------------------------------------------------------------
Exhibit 10.1 Purchase and Sale Agreement by and between
Washington Square, Inc., Kitsap Associates
Limited Partnership, Winmar Cascade, Inc.,
Winmar Oregon, Inc., Winmar of Kitsap, Inc.,
SCIT, Inc., Town Center Associates, and
Winmar Company, Inc., as sellers; and The
Macerich Partnership, L.P., and Ontario
Teachers' Pension Plan Board, as purchaser,
dated December 11, 1998, filed as Exhibit
10.1 to SAFECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
SAFECO agrees to furnish the Securities and
Exchange Commission, upon request, with
copies of all omitted schedules to the
foregoing Purchase and Sale Agreement.
Exhibit 10.2 Five-Year Credit Agreement dated as of
September 24, 1997, among SAFECO; Bank of
America National Trust and Savings
Association, as Agent; Mellon Bank, N.A., as
Documentation Agent; The Chase Manhattan
Bank, as Syndication Agent; and the various
co-agents, lead managers, and financial
institutions identified in said Credit
Agreement as parties thereto, filed as
Exhibit 10.1 to SAFECO's Annual Report on
Form 10-K for the fiscal year ended December
31, 1997.
The following management contracts and compensatory plan
arrangements:
Exhibit 10.3 SAFECO Corporation Deferred Compensation
Plan for Directors, As Amended and Restated
on November 4, 1998, filed as Exhibit 10.2
to SAFECO's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
Exhibit 10.4 SAFECO Deferred Compensation Plan for
Executives, As Amended and Restated on
November 4, 1998, filed as Exhibit 10.3 to
SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
Exhibit 10.5 Form of Executive Severance Agreements
between SAFECO and each of Rod A. Pierson,
James W. Ruddy, and W. Randall Stoddard, in
each case dated March 11, 1999, and between
SAFECO and each of Boh A. Dickey and Roger
H. Eigsti, in both cases dated May 5, 1999,
filed as Exhibit 10.1 to SAFECO's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1999; and Executive Severance
Agreement between SAFECO, SAFECO Life
Insurance Company and Randall H. Talbot
dated March 11, 1999, filed as Exhibit 10.2
to SAFECO's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
23
<PAGE> 24
SAFECO CORPORATION AND SUBSIDIARIES
PART IV - FINANCIAL INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FROM 8-K
(CONTINUED)
--------------------------------------------------------------------------------
Exhibit 10.6 SAFECO Long-Term Incentive Plan of 1997
as Amended and Restated May 5, 1999, filed
as Exhibit 10.3 to SAFECO's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1999.
Exhibit 10.7 Form of Stock Option Contract granted
under the SAFECO Long-Term Incentive Plan of
1997, filed as Exhibit 10.6 to SAFECO's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
Exhibit 10.8 Form of Nonqualified Stock Option Award
Agreement - Non-Employee Director granted
under the SAFECO Long-Term Incentive Plan of
1997 as Amended and Restated May 5, 1999,
filed as Exhibit 10.4 to SAFECO's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1999.
Exhibit 10.9 Form of Restricted Stock Rights Award
Agreement granted under the SAFECO Long-Term
Incentive Plan of 1997, filed as Exhibit
10.7 to SAFECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
Exhibit 10.10 Form of Performance Stock Rights Award
Agreement granted under the SAFECO Long-Term
Incentive Plan of 1997, filed as Exhibit
10.8 to SAFECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
Exhibit 10.11 SAFECO Incentive Plan of 1987 contained in
the Prospectus dated November 10, 1989, as
amended January 31, 1990, filed as Exhibit
10 to SAFECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989,
and the Supplement to such Prospectus dated
November 8, 1990, filed as Exhibit 10 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990.
F-13 Exhibit 11 Computation of Income Per Share
F-14 Exhibit 12 Computation of Ratios
F-15 Exhibit 21 Subsidiaries of the Registrant
Exhibit 13 1999 Annual Report to Shareholders
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.)
24
<PAGE> 25
SAFECO CORPORATION AND SUBSIDIARIES
PART IV - FINANCIAL INFORMATION
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
--------------------------------------------------------------------------------
(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, 1999. The Registrant filed an
8-K dated January 26, 2000 under Item 5 (Other Items), relating to
its quarterly earnings release.
25
<PAGE> 26
SAFECO CORPORATION AND SUBSIDIARIES
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 24th day of March
2000.
SAFECO CORPORATION
----------------------------------
Registrant
/s/ ROGER H. EIGSTI
----------------------------------
Roger H. Eigsti, Chairman and
Chief Executive Officer
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 indicated on March 24, 2000.
<TABLE>
<CAPTION>
Name Title
----------------------------------------------------------------------------
<S> <C>
/s/ ROGER H. EIGSTI Chairman and
------------------------------------- Chief Executive Officer
Roger H. Eigsti
/s/ BOH A. DICKEY President,
------------------------------------- Chief Operating Officer
Boh A. Dickey and Director
/s/ ROD A. PIERSON Senior Vice President,
------------------------------------- Chief Financial Officer
Rod A. Pierson and Secretary
/s/ H. PAUL LOWBER Vice President, Controller
------------------------------------- and Chief Accounting Officer
H. Paul Lowber
/s/ PHYLLIS J. CAMPBELL Director
-------------------------------------
Phyllis J. Campbell
/s/ ROBERT S. CLINE Director
-------------------------------------
Robert S. Cline
/s/ JOHN W. ELLIS Director
-------------------------------------
John W. Ellis
</TABLE>
26
<PAGE> 27
SAFECO CORPORATION AND SUBSIDIARIES
SIGNATURES
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Title
------------------------------------------------------------------------------
<S> <C>
/s/ WILLIAM P. GERBERDING Director
-------------------------------------
William P. Gerberding
/s/ JOSHUA GREEN III Director
-------------------------------------
Joshua Green III
/s/ WILLIAM W. KRIPPAEHNE, JR. Director
-------------------------------------
William W. Krippaehne, Jr.
/s/ WILLIAM G. REED, JR. Director
-------------------------------------
William G. Reed, Jr.
Director
-------------------------------------
Norman B. Rice
/s/ JUDITH M. RUNSTAD Director
-------------------------------------
Judith M. Runstad
/s/ PAUL W. SKINNER Director
-------------------------------------
Paul W. Skinner
</TABLE>
27
<PAGE> 28
F-1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SAFECO Corporation:
We consent to the use of our report dated February 11, 2000, incorporated by
reference in the Annual Report on Form 10-K of SAFECO Corporation for the year
ended December 31, 1999, with respect to the consolidated financial statements,
as amended, included in this Form 10-K/A.
Our audits also included the financial statement schedules of SAFECO Corporation
listed in the Index at Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
schedules 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 whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-26393) pertaining to the SAFECO Long-Term Incentive Plan of
1997 and the incorporation by reference in the Registration Statements (Forms
S-3) pertaining to the $800,000,000 in SAFECO debt securities and the SAFECO
Agency Stock Purchase Plan, of our report dated February 11, 2000, with respect
to the consolidated financial statements of SAFECO Corporation, as amended, and
our report included in the preceding paragraph with respect to the financial
statement schedules, included in this Form 10-K/A.
/s/ Ernst & Young LLP
Seattle, Washington
August 7, 2000
<PAGE> 29
SAFECO CORPORATION AND SUBSIDIARIES F-2
Balance Sheet - Supplemental Consolidating Information
December 31, 1999
--------------------------------------------------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Property & Credit Other and
ASSETS Casualty Life Company Eliminations Consolidated
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ 5,950.8 $10,789.2 $ -- $ 90.7 $ 16,830.7
Fixed Maturities Held-to-Maturity, at Amortized Cost -- 2,733.3 -- -- 2,733.3
Marketable Equity Securities, at Market Value 1,897.5 33.6 -- 73.6 2,004.7
Mortgage Loans 57.5 830.4 -- (117.5) 770.4
Real Estate (At cost less accumulated depreciation) -- 3.8 -- 102.7 106.5
Policy Loans -- 91.4 -- -- 91.4
Other Invested Assets 17.8 0.2 -- -- 18.0
Short-Term Investments 287.8 382.8 -- (294.6) 376.0
--------- --------- --------- ------------ ------------
Total Investments 8,211.4 14,864.7 -- (145.1) 22,931.0
Cash 61.9 23.2 9.2 18.0 112.3
Accrued Investment Income 104.2 218.4 4.0 1.5 328.1
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) -- -- 1,460.6 -- 1,460.6
Loans to Affiliates -- -- 58.3 (58.3) --
Premiums and Other Service Fees Receivable 1,034.9 13.3 -- 10.1 1,058.3
Other Notes and Accounts Receivable 22.9 65.6 2.0 56.7 147.2
Deferred Income Tax Recoverable
(Includes tax on unrealized appreciation of securities) 5.4 123.0 (51.5) 28.4 105.3
Reinsurance Recoverables 332.3 52.5 -- -- 384.8
Deferred Policy Acquisition Costs 325.4 273.4 -- -- 598.8
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 261.4 1.5 0.3 81.6 344.8
Goodwill 1,209.0 95.7 -- 50.2 1,354.9
Other Assets 134.6 75.1 101.5 32.2 343.4
Separate Account Assets -- 1,403.2 -- -- 1,403.2
--------- --------- --------- ------------ ------------
Total $11,703.4 $17,209.6 $ 1,584.4 $ 75.3 $ 30,572.7
========= ========= ========= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and Adjustment Expense $ 4,378.6 $ 37.8 $ -- $ -- $ 4,416.4
Life Policy Liabilities -- 281.5 -- -- 281.5
Unearned Premiums 1,844.3 8.8 -- -- 1,853.1
Funds Held Under Deposit Contracts -- 13,762.9 -- -- 13,762.9
Debt:
Commercial Paper -- -- -- 508.8 508.8
Credit Company Borrowings - Nonaffiliates -- -- 1,323.1 -- 1,323.1
Credit Company Borrowings - Affiliates -- -- 92.8 (92.8) --
7.875% Notes Due 2005 -- -- -- 200.0 200.0
6.875% Notes Due 2007 -- -- -- 200.0 200.0
Other Notes and Mortgages - Nonaffiliates -- -- -- 84.2 84.2
Other Liabilities 1,052.8 499.2 26.3 (181.5) 1,396.8
Current Income Taxes (10.1) 15.1 2.8 (1.7) 6.1
Separate Account Liabilities -- 1,403.2 -- -- 1,403.2
--------- --------- --------- ------------ ------------
Total Liabilities 7,265.6 16,008.5 1,445.0 717.0 25,436.1
--------- --------- --------- ------------ ------------
Capital Securities -- -- -- 842.5 842.5
--------- --------- --------- ------------ ------------
Common Stock 25.9 17.0 1.0 797.8 841.7
Additional Paid-In Capital 3,010.8 266.3 27.0 (3,304.1) --
Retained Earnings 815.9 1,130.9 111.4 1,004.5 3,062.7
Total Accumulated Other Comprehensive Income 585.2 (213.1) -- 17.6 389.7
--------- --------- --------- ------------ ------------
Total Shareholders' Equity 4,437.8 1,201.1 139.4 (1,484.2) 4,294.1
--------- --------- --------- ------------ ------------
Total $11,703.4 $17,209.6 $ 1,584.4 $ 75.3 $ 30,572.7
========= ========= ========= ============ ============
</TABLE>
<PAGE> 30
SAFECO CORPORATION AND SUBSIDIARIES F-2
Balance Sheet - Supplemental Consolidating Information
December 31, 1998 Continued
--------------------------------------------------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Property & Credit Other and
ASSETS Casualty Life Company Eliminations Consolidated
-------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ 6,954.0 $10,785.2 $ -- $ 116.4 $ 17,855.6
Fixed Maturities Held-to-Maturity, at Amortized Cost -- 2,720.9 -- -- 2,720.9
Marketable Equity Securities, at Market Value 1,910.5 37.9 -- 88.2 2,036.6
Mortgage Loans 66.6 675.6 -- (200.7) 541.5
Real Estate (At cost less accumulated depreciation) -- 3.0 -- 593.0 596.0
Policy Loans -- 88.3 -- -- 88.3
Other Invested Assets 18.3 5.2 -- -- 23.5
Short-Term Investments 291.1 63.2 1.0 (39.4) 315.9
-------- --------- --------- ------------ ------------
Total Investments 9,240.5 14,379.3 1.0 557.5 24,178.3
Cash 46.4 10.1 4.6 13.8 74.9
Accrued Investment Income 119.2 199.2 3.2 1.6 323.2
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) -- -- 1,207.7 -- 1,207.7
Loans to Affiliates -- -- 206.1 (206.1) --
Premiums and Other Service Fees Receivable 948.3 12.5 -- 17.5 978.3
Other Notes and Accounts Receivable 51.4 106.4 5.4 (8.0) 155.2
Reinsurance Recoverables 270.4 47.0 -- -- 317.4
Deferred Policy Acquisition Costs 308.0 213.1 -- -- 521.1
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 236.9 1.5 0.3 41.5 280.2
Goodwill 1,252.9 67.2 -- 38.9 1,359.0
Other Assets 95.5 100.1 100.0 (0.3) 295.3
Separate Account Assets -- 1,201.1 -- -- 1,201.1
-------- --------- --------- ------------ ------------
Total $12,569.5 $16,337.5 $ 1,528.3 $ 456.4 $ 30,891.7
========= ========= ========= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and Adjustment Expense $ 4,219.9 $ 42.8 $ -- $ -- $ 4,262.7
Life Policy Liabilities -- 276.8 -- -- 276.8
Unearned Premiums 1,742.2 8.7 -- -- 1,750.9
Funds Held Under Deposit Contracts -- 12,718.1 -- -- 12,718.1
Debt:
Commercial Paper -- -- -- 732.7 732.7
Credit Company Borrowings - Nonaffiliates -- -- 1,255.2 -- 1,255.2
Credit Company Borrowings - Affiliates -- -- 61.0 (61.0) --
7.875% Notes Due 2005 -- -- -- 200.0 200.0
6.875% Notes Due 2007 -- -- -- 200.0 200.0
Other Notes and Mortgages - Nonaffiliates -- -- -- 227.7 227.7
Other Liabilities 913.3 251.9 36.5 (48.2) 1,153.5
Income Taxes:
Current 26.3 (16.2) (0.2) (7.4) 2.5
Deferred (Includes tax on unrealized appreciation
of investment securities) 227.1 194.2 47.3 24.0 492.6
Separate Account Liabilities -- 1,201.1 -- -- 1,201.1
-------- --------- --------- ------------ ------------
Total Liabilities 7,128.8 14,677.4 1,399.8 1,267.8 24,473.8
-------- --------- --------- ------------ ------------
Capital Securities -- -- -- 842.1 842.1
-------- --------- --------- ------------ ------------
Common Stock 25.0 11.0 1.0 848.0 885.0
Additional Paid-In Capital 3,011.7 266.3 27.0 (3,305.0) --
Retained Earnings 1,343.4 1,036.8 100.5 776.5 3,257.2
Total Accumulated Other Comprehensive Income 1,060.6 346.0 -- 27.0 1,433.6
-------- --------- --------- ------------ ------------
Total Shareholders' Equity 5,440.7 1,660.1 128.5 (1,653.5) 5,575.8
-------- --------- --------- ------------ ------------
Total $12,569.5 $16,337.5 $ 1,528.3 $ 456.4 $ 30,891.7
========= ========= ========= ============ ============
</TABLE>
<PAGE> 31
SAFECO CORPORATION AND SUBSIDIARIES F-3
Statement of Income - Supplemental Consolidating Information
Year Ended December 31, 1999
--------------------------------------------------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Property & Other and
Casualty Life Eliminations Consolidated
---------- -------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Insurance:
Property and Casualty Earned Premiums $4,382.9 $ -- $ -- $ 4,382.9
Life Premiums and Other Revenues -- 360.9 -- 360.9
-------- -------- ------------ ------------
Total 4,382.9 360.9 -- 4,743.8
Credit -- -- 115.1 115.1
Asset Management -- -- 44.3 44.3
Other -- -- 111.1 111.1
Net Investment Income 462.3 1,120.1 2.7 1,585.1
Realized Investment Gain (Loss) 87.3 (6.9) 37.3 117.7
-------- -------- ------------ ------------
Total 4,932.5 1,474.1 310.5 6,717.1
-------- -------- ------------ ------------
EXPENSES
Losses, Adjustment Expense and Policy Benefits 3,431.8 1,072.2 -- 4,504.0
Commissions 714.1 80.8 -- 794.9
Personnel Costs 322.6 72.2 68.8 463.6
Interest -- -- 141.0 141.0
Goodwill Amortization 43.8 3.7 8.3 55.8
Other 298.4 82.9 70.9 452.2
Amortization of Deferred Policy Acquisition Costs 793.0 47.1 -- 840.1
Deferral of Policy Acquisition Costs (810.3) (56.5) -- (866.8)
-------- -------- ------------ ------------
Total 4,793.4 1,302.4 289.0 6,384.8
-------- -------- ------------ ------------
Income Before Income Taxes 139.1 171.7 21.5 332.3
-------- -------- ------------ ------------
Provision (Benefit) for Income Taxes:
Current (56.6) 75.8 51.8 71.0
Deferred 23.6 (16.2) (43.1) (35.7)
-------- -------- ------------ ------------
Total (33.0) 59.6 8.7 35.3
-------- -------- ------------ ------------
Income Before Distributions on Capital Securities 172.1 112.1 12.8 297.0
Distributions on Capital Securities, Net of Tax -- -- (44.8) (44.8)
-------- -------- ------------ ------------
Net Income (Loss) $ 172.1 $ 112.1 $ (32.0) $ 252.2
======== ======== ============ ============
</TABLE>
<PAGE> 32
SAFECO CORPORATION AND SUBSIDIARIES F-4
Statement of Cash Flows - Supplemental Consolidating Information
Year Ended December 31, 1999
--------------------------------------------------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Property & Other and
Casualty Life Eliminations Consolidated
---------- -------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Insurance Premiums Received $4,391.3 $ 245.5 $ -- $ 4,636.8
Dividends and Interest Received 466.3 1,020.0 84.9 1,571.2
Other Operating Receipts -- 58.6 188.6 247.2
Insurance Claims and Policy Benefits Paid (3,296.6) (409.6) -- (3,706.2)
Underwriting, Acquisition and Insurance Operating Costs Paid (1,377.5) (232.6) 5.3 (1,604.8)
Interest Paid and Distributions on Capital Securities -- -- (210.6) (210.6)
Other Operating Costs Paid -- -- (128.6) (128.6)
Income Taxes Recovered (Paid) 21.9 (44.5) (19.4) (42.0)
-------- -------- ------------ ------------
Net Cash Provided by (Used in) Operating Activities 205.4 637.4 (79.8) 763.0
-------- -------- ------------ ------------
INVESTING ACTIVITIES
Purchases of:
Fixed Maturities Available-for-Sale (2,501.7) (2,912.6) (7.8) (5,422.1)
Fixed Maturities Held-to-Maturity -- (0.9) -- (0.9)
Equities (221.5) (10.3) (0.1) (231.9)
Other Investments -- (430.6) (30.0) (460.6)
Maturities of Fixed Maturities Available-for-Sale 185.0 956.2 32.8 1,174.0
Maturities of Fixed Maturities Held-to-Maturity -- 13.3 -- 13.3
Sales of:
Fixed Maturities Available-for-Sale 2,656.9 1,056.0 2.5 3,715.4
Fixed Maturities Held-to-Maturity -- 6.3 -- 6.3
Equities 271.9 15.6 10.6 298.1
Other Investments 9.1 284.8 536.6 830.5
Net Increase in Short-Term Investments (124.7) (26.0) (13.0) (163.7)
Finance Receivables Originated or Acquired -- -- (916.8) (916.8)
Principal Payments Received on Finance Receivables -- -- 644.6 644.6
Other 252.6 (323.1) (30.5) (101.0)
-------- -------- ------------ ------------
Net Cash Provided by (Used in) Investing Activities 527.6 (1,371.3) 228.9 (614.8)
-------- -------- ------------ ------------
FINANCING ACTIVITIES
Funds Received Under Deposit Contracts -- 1,849.5 -- 1,849.5
Return of Funds Held Under Deposit Contracts -- (1,077.3) -- (1,077.3)
Repayment of Notes and Mortgage Borrowings -- -- (138.1) (138.1)
Net Proceeds (Repayment of) from Short-Term Borrowings -- 3.8 (188.6) (184.8)
Common Stock Reacquired -- -- (303.2) (303.2)
Dividends Paid to Shareholders (717.5) (29.0) 554.3 (192.2)
Other -- -- (64.7) (64.7)
-------- -------- ------------ ------------
Net Cash Provided by (Used in) Financing Activities (717.5) 747.0 (140.3) (110.8)
-------- -------- ------------ ------------
Net Increase in Cash 15.5 13.1 8.8 37.4
Cash at the Beginning of Year 46.4 10.1 18.4 74.9
-------- -------- ------------ ------------
Cash at the End of the Year $ 61.9 $ 23.2 $ 27.2 $ 112.3
======== ======== ============ ============
</TABLE>
<PAGE> 33
SAFECO CORPORATION AND SUBSIDIARIES F-5
Summary of Investments Other Than Investments in Related Parties Schedule I
December 31, 1999
--------------------------------------------------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Amount at
Which Shown In
the Balance
Type of Investment Cost Market Value Sheet
------------------ --------- ------------ ---------
<S> <C> <C> <C>
Fixed Maturities Available-for-Sale
Bonds:
United States Government and Government
Agencies and Authorities $ 1,352.2 $ 1,357.9 $ 1,357.9
States, Municipalities and Political Subdivisions 3,160.0 3,153.5 3,153.5
Mortgage-Backed Securities 3,614.3 3,546.5 3,546.5
Foreign Governments 183.3 195.3 195.3
Public Utilities 1,657.3 1,613.9 1,613.9
All Other Corporate Bonds 7,011.2 6,719.9 6,719.9
Redeemable Preferred Stocks 280.6 243.7 243.7
--------- ------------ ---------
Total Fixed Maturities Classified as Available-for-Sale(1) 17,258.9 $ 16,830.7 16,830.7
--------- ============ ---------
Fixed Maturities Held-to-Maturity
Bonds:
United States Government and Government
Agencies and Authorities 282.5 $ 309.4 282.5
States, Municipalities and Political Subdivisions 140.3 136.0 140.3
Mortgage-Backed Securities 320.5 325.2 320.5
Foreign Governments 150.3 169.3 150.3
Public Utilities 415.7 419.9 415.7
All Other Corporate Bonds 1,424.0 1,412.3 1,424.0
--------- ------------ ---------
Total Fixed Maturities Classified as Held-to-Maturity(1) 2,733.3 $ 2,772.1 2,733.3
--------- ============ ---------
Equity Securities
Common Stocks:
Public Utilities 40.2 $ 105.9 105.9
Banks, Trust and Insurance Companies 53.1 126.8 126.8
Industrial, Miscellaneous and All Other 738.7 1,619.7 1,619.7
Non-Redeemable Preferred Stocks 140.5 152.3 152.3
--------- ------------ ---------
Total Equity Securities 972.5 $ 2,004.7 2,004.7
--------- ============ ---------
Other
Mortgage Loans on Real Estate(1) 770.4 770.4
Real Estate (Net of depreciation)(1) 106.5 106.5
Policy Loans 91.4 91.4
Other Invested Assets 18.0 18.0
Short-Term Investments 376.0 376.0
--------- ---------
Total Other 1,362.3 1,362.3
--------- ---------
Total Investments $22,327.0 $22,931.0
========= =========
</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,
1999.
<PAGE> 34
<TABLE>
<CAPTION>
SAFECO CORPORATION F-6
Balance Sheet Schedule II
(Parent Company Only)
December 31 1999 1998
----------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C>
ASSETS
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) $5,981.2 $7,443.3
Fixed Maturities Available-for-Sale, at Market Value
(Amortized cost: $77.4; $90.1) 76.1 92.9
Marketable Equity Securities, at Market Value
(Cost: $22.4; $30.4) 43.9 62.5
Short-Term Investments 62.8 82.3
-------- --------
Total Investments 6,164.0 7,681.0
Cash 0.1 0.3
Dividends Receivable from Affiliated Companies -- 14.3
Accounts Receivable from Affiliated Companies 2.8 3.7
Income Taxes - Current 11.5 14.1
Other Assets 21.7 19.0
-------- --------
Total Assets $6,200.1 $7,732.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and Interest Payable $ 50.0 $ 45.6
Income Taxes:
Deferred 7.0 12.1
Dividends Payable to Shareholders 47.7 47.7
Debt:
Commercial Paper 508.8 732.8
Medium-Term Notes Due 2002 50.0 50.0
7.875% Notes Due 2005 200.0 200.0
6.875% Notes Due 2007 200.0 200.0
8.072% Junior Subordinated Debentures (Capital Securities) 842.5 868.4
-------- --------
Total Liabilities 1,906.0 2,156.6
-------- --------
Preferred Stock, No Par Value:
Shares Authorized: 10
Shares Issued and Outstanding: None
Common Stock, No Par Value:
Shares Authorized: 300
Shares Reserved for Options: 7.3; 7.5
Shares Issued and Outstanding: 128.9; 136.3 841.7 885.0
Retained Earnings 3,062.7 3,257.2
Total Accumulated Other Comprehensive Income 389.7 1,433.6
-------- --------
Total Shareholders' Equity 4,294.1 5,575.8
-------- --------
Total Liabilities and Shareholders' Equity $6,200.1 $7,732.4
======== ========
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
SAFECO CORPORATION F-7
Statement of Income Schedule II
(Parent Company Only)
Year Ended December 31 1999 1998 1997
---------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Dividends -Nonaffiliates $ 2.3 $ 2.5 $ 2.8
Interest -Affiliates 0.9 0.2 0.9
-Others 7.0 6.6 20.0
Realized Gain (Loss) from Security Investments (0.5) 5.8 7.9
------ ------ ------
Total 9.7 15.1 31.6
------ ------ ------
EXPENSES
Interest 140.9 152.7 74.3
Other 1.1 1.9 0.8
------ ------ ------
Total 142.0 154.6 75.1
------ ------ ------
Loss Before Income Taxes (132.3) (139.5) (43.5)
Benefit for Income Taxes
(Includes provision (benefit) on realized gain (loss):
$(0.2); $2.0; $2.8) (47.0) (48.9) (16.0)
------ ------ ------
Loss Before Equity in Earnings
of Subsidiaries (85.3) (90.6) (27.5)
Equity in Earnings of Subsidiaries
(Includes dividends accrued and received) 337.5 442.5 457.5
------ ------ ------
Consolidated Net Income $252.2 $351.9 $430.0
====== ====== ======
Dividends Accrued and Received From Subsidiaries (Cash):
SAFECO Insurance Company of America $168.0 $144.5 $383.0
General Insurance Company of America 174.0 106.0 316.5
First National Insurance Company of America 8.0 9.0 29.5
SAFECO National Insurance Company 7.0 5.5 4.5
SAFECO Insurance Company of Illinois 12.0 12.0 12.0
American States Financial Corporation 346.0 233.0 --
SAFECO Life Insurance Company -- 90.0 16.0
SAFECO Administrative Services, Inc. -- 14.5 0.5
SAFECO Properties, Inc. 25.7 0.2 1.2
SAFECO Credit Company, Inc. 3.6 3.5 3.0
SAFECO Asset Management Company 1.8 5.6 --
SAFECO Capital Trust -- 2.1 1.0
------ ------ ------
Total $746.1 $625.9 $767.2
====== ====== ======
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
SAFECO CORPORATION F-8
Statement of Cash Flows Schedule II
(Parent Company Only)
Year Ended December 31 1999 1998 1997
------------------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Dividends and Interest Received -Affiliates $ 761.3 $ 657.3 $ 760.1
-Others 10.4 9.2 23.8
Interest Paid (143.4) (150.0) (34.6)
Other Operating Costs Paid (6.8) (1.2) (0.3)
Income Taxes Received 50.0 23.1 31.6
-------- -------- ---------
Net Cash Provided by Operating Activities 671.5 538.4 780.6
-------- -------- ---------
INVESTING ACTIVITIES
Purchases of:
Fixed Maturities Available-for-Sale -- (25.7) --
Equities (0.1) (7.2) --
Maturities of Fixed Maturities Available-for-Sale 19.4 25.0 10.6
Acquisitions, Net of Cash Acquired -- -- (3,157.2)
Sales of:
Fixed Maturities Available-for-Sale -- 3.2 4.3
Equities 9.7 19.3 10.3
Net Decrease (Increase) in Short-Term Investments 19.5 (77.3) 18.9
Other -- (0.4) --
-------- -------- ---------
Net Cash Provided by (Used in) Investing Activities 48.5 (63.1) (3,113.1)
-------- -------- ---------
FINANCING ACTIVITIES
Proceeds from Notes and Mortgage Borrowings -- -- 196.1
Net (Repayment of) Proceeds from Short-Term Borrowings (229.9) (80.0) 811.2
Proceeds from Junior Subordinated Debentures (Capital Securities) -- -- 832.2
Proceeds from Common Stock Secondary Offering -- -- 677.2
Common Stock Reacquired (303.1) (236.8) (10.7)
Dividends Paid to Shareholders (192.2) (187.5) (154.1)
Other 5.0 3.8 5.9
-------- -------- ---------
Net Cash Provided by (Used in) Financing Activities (720.2) (500.5) 2,357.8
-------- -------- ---------
Net (Decrease) Increase in Cash (0.2) (25.2) 25.3
Cash at the Beginning of Year 0.3 25.5 0.2
-------- -------- ---------
Cash at the End of Year $ 0.1 $ 0.3 $ 25.5
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Statement of Cash Flows
Reconciliation of Net Income to Net Cash Provided by Operating Activities
(Parent Company Only)
Year Ended December 31 1999 1998 1997
------------------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Net Income $ 252.2 $ 351.9 $ 430.0
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Net Income of Consolidated Subsidiaries (337.5) (442.5) (457.5)
Dividends Accrued and Received from Consolidated Subsidiaries 746.1 625.9 767.2
Realized Investment (Gain) Loss 0.5 (5.8) (7.9)
Amortization and Depreciation 0.7 1.2 0.6
Amortization of Fixed Maturity Investments 0.9 0.7 0.8
Changes in:
Accrued Income Taxes 2.6 (27.0) 14.5
Accrued Interest Expense -- 2.7 39.7
Other Assets and Liabilities 6.0 31.3 (6.8)
-------- -------- ---------
Total Adjustments 419.3 186.5 350.6
-------- -------- ---------
Net Cash Provided by Operating Activities $ 671.5 $ 538.4 $ 780.6
======== ======== =========
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
SAFECO CORPORATION AND SUBSIDIARIES F-9
Supplementary Insurance Information Schedule III
December 31 Year Ended December 31
-----------------------------------------------------------------------------------------------------------------------------------
(In Millions) (In Millions)
Reserve for Other Policy
Future Policy Claims and
Benefits Benefits
Deferred Losses, Payable Premiums
Policy Claims and (Funds Held and Service
Acquisition Loss Unearned Under Deposit Fee
Segment Costs Expenses Premiums Contracts) Revenues
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Property and Casualty:
Personal Lines:
Personal Auto $ 65.6 $ 1,125.2 $ 435.6 $ 1,725.6
Homeowners 82.5 223.1 394.9 708.3
Other 22.8 79.9 118.6 177.7
Commercial Lines:
American States Business Insurance 102.5 1,561.1 561.1 1,017.6
SAFECO Commercial 40.1 1,119.6 255.0 686.4
Surety 11.6 (58.8) 62.9 59.4
Other 0.3 328.5 16.2 7.9
--------- --------- --------- ---------
Total 325.4 4,378.6 1,844.3 4,382.9
--------- --------- --------- ---------
Life:
Retirement Services 103.4 12.7 -- $ 5,782.3 32.9
Settlement Annuities -- -- -- 5,823.4 1.1
Group 13.7 80.9 2.2 -- 193.9
Individual 156.3 225.7 6.6 2,157.2 119.8
Other -- -- -- -- 13.2
--------- --------- --------- --------- ---------
Total 273.4 319.3 8.8 13,762.9 360.9
--------- --------- --------- --------- ---------
Credit -- -- -- -- --
Asset Management -- -- -- -- --
Other and Eliminations -- -- -- -- --
--------- --------- --------- --------- ---------
Consolidated Totals $ 598.8 $ 4,697.9 $ 1,853.1 $13,762.9 $ 4,743.8
========= ========= ========= ========= =========
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
(In Millions) Other
Operating
Costs
Benefits, (Including
Claims, Amortization of Dividends to
Net Losses and Deferred Policy Policyholders Net
Investment Adjustment Acquisition and Goodwill Premiums
Segment Income Expenses Costs Amortization) Written
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Property and Casualty:
Personal Lines:
Personal Auto $ 131.0 $ 1,382.7 $ 211.0 $ 102.0 $ 1,722.5
Homeowners 51.9 544.5 190.5 92.0 722.5
Other 15.8 97.8 57.2 27.7 182.2
Commercial Lines:
American States Business Insurance 141.7 830.8 190.8 179.5 1,115.7
SAFECO Commercial 97.2 553.8 124.8 115.2 676.0
Surety 3.0 17.9 17.9 8.4 59.8
Other 21.7 4.3 0.8 43.8 5.1
--------- --------- --------- --------- ---------
Total 462.3 3,431.8 793.0 568.6 $ 4,483.8
--------- --------- --------- --------- =========
Life:
Retirement Services 410.9 310.5 37.2 43.6
Settlement Annuities 486.6 423.0 -- 22.6
Group 1.9 157.1 4.4 53.6
Individual 144.7 181.6 5.5 47.3
Other 76.0 -- -- 16.0
--------- --------- --------- ---------
Total 1,120.1 1,072.2 47.1 183.1
--------- --------- --------- ---------
Credit -- -- -- 97.2
Asset Management -- -- -- 30.7
Other and Eliminations 2.7 -- -- 161.1
--------- --------- --------- ---------
Consolidated Totals $ 1,585.1 $ 4,504.0 $ 840.1 $ 1,040.7
========= ========= ========= =========
</TABLE>
(1) Real Estate operations reported separately in 1998 and 1997 are combined
with Other and Eliminations in 1999. The real estate operations are
currently being disposed of; its operations are not material to the
consolidated financial statements.
<PAGE> 38
<TABLE>
<CAPTION>
SAFECO CORPORATION AND SUBSIDIARIES F-9
Supplementary Insurance Information Schedule III
December 31 Year Ended December 31 Continued
-----------------------------------------------------------------------------------------------------------------------------------
(In Millions) (In Millions)
Reserve for Other Policy
Future Policy Claims and
Benefits, Benefits
Deferred Losses, Payable Premiums
Policy Claims and (Funds Held and Service
Acquisition Loss Unearned Under Deposit Fee
Segment Costs Expenses Premiums Contracts) Revenues
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Property and Casualty:
Personal Lines:
Personal Auto $ 67.6 $ 1,046.9 $ 438.7 $ 1,729.7
Homeowners 78.8 215.2 380.3 686.7
Other 22.8 91.6 117.8 165.2
Commercial Lines:
American States Business Insurance 87.3 1,504.8 463.0 911.6
SAFECO Commercial 42.6 1,072.0 268.7 640.9
Surety 8.2 (59.3) 62.3 58.5
Other 0.7 348.7 11.4 15.7
--------- --------- --------- ---------
Total 308.0 4,219.9 1,742.2 4,208.3
--------- --------- --------- ---------
Life:
Retirement Services 92.6 12.8 $ 5,819.0 25.2
Settlement Annuities -- -- -- 5,531.6 1.5
Group 9.8 83.3 2.3 -- 203.1
Individual 110.7 223.5 6.4 1,367.5 110.2
Other -- -- -- -- 13.4
--------- --------- --------- --------- ---------
Total 213.1 319.6 8.7 12,718.1 353.4
--------- --------- --------- --------- ---------
Real Estate -- -- -- -- --
Credit -- -- -- -- --
Asset Management -- -- -- -- --
Other and Eliminations -- -- -- -- --
--------- --------- --------- --------- ---------
Consolidated Totals $ 521.1 $ 4,539.5 $ 1,750.9 $12,718.1 $ 4,561.7
========= ========= ========= ========= =========
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
(In Millions) Other
Operating
Costs
Benefits, (Including
Claims, Amortization of Dividends to
Net Losses and Deferred Policy Policyholders Net
Investment Adjustment Acquisition and Goodwill Premiums
Segment Income Expenses Costs Amortization) Written
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Personal Lines:
Personal Auto $ 139.5 $ 1,302.0 $ 210.8 $ 114.3 $ 1,740.5
Homeowners 54.3 532.9 182.4 98.9 701.4
Other 16.0 95.6 51.7 28.0 178.0
Commercial Lines:
American States Business Insurance 144.2 670.1 175.6 140.7 927.6
SAFECO Commercial 98.9 438.7 110.7 119.3 648.8
Surety 3.4 16.8 14.1 8.4 58.8
Other 23.9 7.1 (0.4) 43.0 1.5
--------- --------- --------- --------- ---------
Total 480.2 3,063.2 744.9 552.6 $ 4,256.6
--------- --------- --------- --------- =========
Life:
Retirement Services 411.7 349.8 26.8 79.7
Settlement Annuities 449.4 399.1 -- 21.1
Group 2.7 161.1 3.8 55.0
Individual 98.4 135.5 8.6 62.2
Other 78.8 -- -- 19.4
--------- --------- --------- ---------
Total 1,041.0 1,045.5 39.2 237.4 (1)
--------- --------- --------- ---------
Real Estate -- -- -- 72.6
Credit -- -- -- 87.2
Asset Management -- -- -- 31.2
Other and Eliminations (2.3) -- -- 115.5
--------- --------- --------- ---------
Consolidated Totals $ 1,518.9 $ 4,108.7 $ 784.1 $ 1,096.5
========= ========= ========= =========
</TABLE>
(1) Life other operating costs for 1998 include the $46.8 million
write-off of deferred acquisition costs.
<PAGE> 39
<TABLE>
<CAPTION>
SAFECO CORPORATION AND SUBSIDIARIES F-9
Supplementary Insurance Information Schedule III
December 31 Year Ended December 31 Continued
-----------------------------------------------------------------------------------------------------------------------------------
(In Millions) (In Millions)
Reserve for Other Policy
Future Policy Claims and
Benefits, Benefits
Deferred Losses, Payable Premiums
Policy Claims and (Funds Held and Service
Acquisition Loss Unearned Under Deposit Fee
Segment Costs Expenses Premiums Contracts) Revenues
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Property and Casualty:
Personal Lines:
Personal Auto $ 66.0 $ 1,061.1 $ 427.8 $ 1,268.1
Homeowners 77.1 202.2 365.4 512.0
Other 23.0 89.6 115.0 139.0
Commercial Lines:
American States Business Insurance 93.4 1,582.0 447.0 227.3
SAFECO Commercial 38.3 1,068.0 266.0 603.6
Surety 7.7 (65.3) 61.4 54.4
Other -- 372.9 18.9 12.2
--------- --------- --------- ---------
Total 305.5 4,310.5 1,701.5 2,816.6
--------- --------- --------- ---------
Life:
Retirement Services 115.1 6.0 -- $ 5,666.7 18.1
Settlement Annuities -- -- -- 5,108.5 2.1
Group 9.1 72.5 2.4 -- 193.7
Individual 115.1 239.0 9.8 1,102.7 64.7
Other -- -- -- -- 11.6
--------- --------- --------- --------- ---------
Total 239.3 317.5 12.2 11,877.9 290.2
--------- --------- --------- --------- ---------
Real Estate -- -- -- -- --
Credit -- -- -- -- --
Asset Management -- -- -- -- --
Other and Eliminations -- -- -- -- --
--------- --------- --------- --------- ---------
Consolidated Totals $ 544.8 $ 4,628.0 $ 1,713.7 $11,877.9 $ 3,106.8
========= ========= ========= ========= =========
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
(In Millions) Other
Operating
Costs
Benefits, (Including
Claims, Amortization of Dividends to
Net Losses and Deferred Policy Policyholders Net
Investment Adjustment Acquisition and Goodwill Premiums
Segment Income Expenses Costs Amortization) Written
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Property and Casualty:
Personal Lines:
Personal Auto $ 113.9 $ 935.2 $ 124.7 $ 99.4 $ 1,292.2
Homeowners 44.7 351.2 106.5 84.9 533.0
Other 20.5 75.5 33.5 26.7 148.0
Commercial Lines:
American States Business Insurance 38.1 142.4 130.3 104.0 200.4
SAFECO Commercial 99.3 417.3 77.5 61.8 602.6
Surety 5.2 27.0 17.9 14.3 51.3
Other 5.3 11.4 5.5 4.4 0.7
--------- --------- --------- --------- ---------
Total 327.0 1,960.0 495.9 395.5 (1) $ 2,828.2
--------- --------- --------- --------- =========
Life:
Retirement Services 355.6 278.5 26.6 41.6
Settlement Annuities 420.1 368.9 -- 27.8
Group 2.7 127.9 3.8 52.5
Individual 63.1 80.9 6.6 33.7
Other 74.8 -- -- 9.8
--------- --------- --------- --------
Total 916.3 856.2 37.0 165.4
--------- --------- --------- --------
Real Estate -- -- -- 65.5
Credit -- -- -- 74.7
Asset Management -- -- -- 18.7
Other and Eliminations 1.4 -- -- 67.8
--------- --------- --------- --------
Consolidated Totals $ 1,244.7 $ 2,816.2 $ 532.9 $ 787.6
========= ========= ========= ========
</TABLE>
(1) Property and casualty other operating costs for 1997 include $60.0
million of nonrecurring acquisition charges related to SAFECO's
October 1, 1997 acquisition of American States.
<PAGE> 40
SAFECO CORPORATION AND SUBSIDIARIES F-10
Reinsurance Schedule IV
Year Ended December 31
-------------------------------------------------------------------------------
(In Millions)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other from Other Assumed to
Amount Companies Companies Net Amount Net
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Life Insurance In Force at Year End $48,021.0 $(6,168.8) $ 153.8 $ 42,006.0 0.4%
========= ========= =========== ===========
Premiums earned:
Life Insurance $ 215.2 $ (14.2) $ 0.7 $ 201.7 0.3%
Accident/Health Insurance 171.9 (12.7) -- 159.2 0.0%
Property/Casualty Insurance 4,539.4 (164.4) 7.9 4,382.9 0.2%
--------- --------- ----------- -----------
Total $ 4,926.5 $ (191.3) $ 8.6 $ 4,743.8 0.2%
========= ========= =========== ===========
1998
Life Insurance In Force at Year End $45,009.4 $(5,378.4) $ 192.2 $ 39,823.2 0.5%
========= ========= =========== ===========
Premiums earned:
Life Insurance $ 198.8 $ (13.1) $ 0.9 $ 186.6 0.5%
Accident/Health Insurance 174.8 (9.6) 1.6 166.8 1.0%
Property/Casualty Insurance 4,378.5 (188.5) 18.3 4,208.3 0.4%
--------- --------- ----------- -----------
Total $ 4,752.1 $ (211.2) $ 20.8 $ 4,561.7 0.5%
========= ========= =========== ===========
1997
Life Insurance In Force at Year End $43,499.7 $(3,788.5) $ 210.3 $ 39,921.5 0.5%
========= ========= =========== ===========
Premiums earned:
Life Insurance $ 146.9 $ (10.1) $ 0.2 $ 137.0 0.1%
Accident/Health Insurance 160.3 (9.5) 2.4 153.2 1.6%
Property/Casualty Insurance 2,945.3 (155.8) 27.1 2,816.6 1.0%
--------- --------- ----------- -----------
Total $ 3,252.5 $ (175.4) $ 29.7 $ 3,106.8 1.0%
========= ========= =========== ===========
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
SAFECO CORPORATION F-11
Supplemental Information Concerning Consolidated Property/Casualty Insurance Operations Schedule VI
-------------------------------------------------------------------------------------------------------------------
(In Millions)
Affiliation with Registrant : Property/Casualty Subsidiaries:
December 31 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Policy Acquisition Costs $ 325.4 $ 308.0 $ 305.5
Reserve for Losses and Adjustment Expenses $ 4,378.6 $ 4,219.9 $ 4,310.5
Discount Deducted from Loss Reserves $ -- $ -- $ --
Unearned Premiums $ 1,844.3 $ 1,742.2 $ 1,701.5
Year Ended December 31 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
Earned Premiums $ 4,382.9 $ 4,208.3 $ 2,816.6
Net Investment Income $ 462.3 $ 480.2 $ 327.0
Loss and Adjustment Expenses Incurred Related to:
Current Year $ 3,353.0 $ 3,163.2 $ 1,969.5
Prior Year $ 78.8 $ (100.0) $ 30.5 (1)
Amortization of Deferred Policy Acquisition Expenses $ 793.0 $ 744.9 $ 495.9
Paid Losses and Adjustment Expenses $ 3,329.0 $ 3,178.8 $ 2,078.4
Net Premiums Written $ 4,483.8 $ 4,256.6 $ 2,828.2
</TABLE>
(1) The 1997 increase in losses and adjustment expense incurred related to
prior years of $30.5 million includes a nonrecurring $40.0 million
reserve increase related to the American States acquisition.
<PAGE> 42
SAFECO CORPORATION AND SUBSIDIARIES F-12
Exhibit Index
--------------------------------------------------------------------------------
Exhibit 3.1* Bylaws (as last amended August 5, 1998), filed
as Exhibit 3 to SAFECO's Quarterly Report on Form
10-Q for the quarter ended June 30,1998 (File No.
1-6563), are incorporated herein by this reference.
Exhibit 3.2* Restated Articles of Incorporation (as amended
May 7,1997), filed as Exhibit 3.2 to SAFECO's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-6563), are incorporated
herein by this reference.
Exhibit 4.1 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 4.2* Indenture, dated as of July 15, 1997, between
SAFECO and The Chase Manhattan Bank, as Trustee,
filed as Exhibit 4.2 to SAFECO's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File
No. 1-6563), is incorporated herein by this
reference.
Exhibit 4.3* Form of Certificate of Exchange Junior
Subordinated Debenture filed as Exhibit 4.2 to
SAFECO's Registration Statement on Form S-4 (No.
333-38205) dated October 17,1997, is incorporated
herein by this reference.
Exhibit 4.4* Certificate of Trust of SAFECO Capital Trust I
dated June 18, 1997, filed as Exhibit 4.4 to SAFECO's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-6563), is incorporated
herein by this reference.
Exhibit 4.5* Amended and Restated Declaration of Trust of
SAFECO Capital Trust I dated as of July 15, 1997,
filed as Exhibit 4.5 to SAFECO's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File
No. 1-6563), is incorporated herein by this
reference.
Exhibit 4.6* Form of Exchange Capital Security Certificate
for SAFECO Capital Trust I filed as Exhibit 4.5 to
SAFECO's Registration Statement on Form S-4 (No.
333-38205) dated October 17, 1997, is incorporated
herein by this reference.
Exhibit 4.7* Form of Exchange Guarantee of SAFECO relating to
the Exchange Capital Securities, filed as Exhibit 4.6
to SAFECO's Registration Statement on Form S-4 (No.
333-38205) dated October 17, 1997, is incorporated
herein by this reference.
Exhibit 4.8 Indenture, dated as of February 15, 2000, among
SAFECO and The Chase Manhattan Bank, N.A., as
Trustee.
Exhibit 4.9 Form of 7.875% Notes due 2003.
Exhibit 10.1* Purchase and Sale Agreement by and between Washington
Square, Inc., Kitsap Associates Limited Partnership,
Winmar Cascade, Inc., Winmar Oregon, Inc., Winmar of
Kitsap, Inc., SCIT, Inc., Town Center Associates, and
Winmar Company, Inc., as sellers; and The Macerich
Partnership, L.P., and Ontario Teachers' Pension Plan
Board, as purchaser, dated December 11, 1998, filed
as Exhibit 10.1 to SAFECO's Annual Report on Form
10-K for the fiscal year ended December 31, 1998
(File No. 1-6563), is incorporated herein by this
reference. SAFECO agrees to furnish the Securities
and Exchange Commission, upon request, with copies of
all omitted schedules to the foregoing Purchase and
Sale Agreement.
Exhibit 10.2* Five-Year Credit Agreement dated as of September 24,
1997, among SAFECO; Bank of America National Trust
and Savings Association, as Agent; Mellon Bank, N.A.,
as Documentation Agent; The Chase Manhattan Bank, as
Syndication Agent; and the various co-agents, lead
managers, and financial institutions identified in
said Credit Agreement as a party thereto, filed as
Exhibit 10.1 to SAFECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (File No.
1-6563), is incorporated herein by this reference.
Exhibit 10.3* SAFECO Corporation Deferred Compensation Plan
for Directors, As Amended and Restated on November 4,
1998, filed as Exhibit 10.2 to SAFECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1998 (File No. 1-6563), is incorporated herein by the
reference.
<PAGE> 43
SAFECO CORPORATION AND SUBSIDIARIES F-12
Exhibit Index Continued
--------------------------------------------------------------------------------
Exhibit 10.4* SAFECO Deferred Compensation Plan for
Executives, As Amended and Restated on November 4,
1998, filed as Exhibit 10.3 to SAFECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1998 (File No. 1-6563), is incorporated herein by the
reference.
Exhibit 10.5* The following documents are incorporated herein by
this reference: Form of Executive Severance
Agreements between SAFECO and each of Rod A. Pierson,
James W. Ruddy, and W. Randall Stoddard, in each case
dated March 11, 1999, and between SAFECO and each of
Boh A. Dickey and Roger H. Eigsti, in both cases
dated May 5, 1999, filed as Exhibit 10.1 to SAFECO's
Quarterly Report on Form 10-Q for quarter ended March
31, 1999 (File No. 1-6563); and Executive Severance
Agreement between SAFECO, SAFECO Life Insurance
Company and Randall H. Talbot dated March 11, 1999,
filed as Exhibit 10.2 to SAFECO's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 (File
No. 1-6563).
Exhibit 10.6* SAFECO Long-Term Incentive Plan of 1997 as
Amended and Restated May 5, 1999, filed as Exhibit
10.3 to SAFECO's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 (File No. 1-6563),
is incorporated herein by this reference.
Exhibit 10.7* Form of Stock Option Contract granted under the
SAFECO Long-Term Incentive Plan of 1997, filed as
Exhibit 10.6 to SAFECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (File No.
1-6563), is incorporated herein by this reference.
Exhibit 10.8* Form of Nonqualified Stock Option Award
Agreement - Non-Employee Director granted under the
SAFECO Long-Term Incentive Plan of 1997 as Amended
and Restated May 5, 1999, filed as Exhibit 10.4 to
SAFECO's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 (File No. 1-6563), is
incorporated herein by this reference.
Exhibit 10.9* Form of Restricted Stock Rights Award Agreement
granted under the SAFECO Long-Term Incentive Plan of
1997, filed as Exhibit 10.7 to SAFECO's Annual Report
on Form 10-K for the fiscal year ended December 31,
1997 (File No. 1-6563), is incorporated herein by
this reference.
Exhibit 10.10* Form of Performance Stock Rights Award
Agreement granted under the SAFECO Long-Term
Incentive Plan of 1997, filed as Exhibit 10.8 to
SAFECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (File No. 1-6563), is
incorporated herein by this reference.
Exhibit 10.11* SAFECO Incentive Plan of 1987 contained in the
Prospectus dated November 10, 1989, as amended
January 31, 1990, filed as Exhibit 10 to SAFECO's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 1-6563), and the
Supplement to such Prospectus dated November 8, 1990,
filed as Exhibit 10 to SAFECO's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(File No. 1-6563), are incorporated herein by this
reference.
F-13 Exhibit 11 Computation of Income Per Share
F-14 Exhibit 12 Computation of Ratios
F-15 Exhibit 21 Subsidiaries of the Registrant
Exhibit 13* 1999 Annual Report to Shareholders
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 these exhibits are available without charge by making a written
request to:
Rod A. Pierson
Senior Vice President and Chief Financial Officer
SAFECO Corporation
SAFECO Plaza, Seattle, Washington 98185
