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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the
fiscal year ended December 31, 1993.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For
the transition period from
____________________ to _____________________.
Commission File Number 1-6563
SAFECO CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0742146
---------- ----------
(State of Incorporation) (I.R.S. Employer I.D. No.)
SAFECO PLAZA, SEATTLE, WASHINGTON - 98185
-----------------------------------------
(Address of principal executive offices) (Zip Code)
206-545-5000
------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
(62,943,607 shares were outstanding at January 31, 1994)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X].
Aggregate market value of voting stock held by non-affiliates of
registrant as of January 31, 1994:
$3,714,000,000
Documents Incorporated by Reference
Parts of This Form
Document: Into Which Incorporated:
Portions of the Parts I and II
1993 Annual Report to
Stockholders
Portions of the Part III
Definitive Proxy Statement
to be Filed Within 120 days
after December 31, 1993.
2
PART I
ITEM 1. BUSINESS
SAFECO Corporation (SAFECO, or the Corporation) is a Washington
Corporation which directly or indirectly owns the stock of operating
subsidiaries engaged in various phases of the insurance business and
other operating subsidiaries engaged in other financially-related
lines of business. The Corporation also manages the SAFECO family of
mutual funds. The home offices of the Corporation and its principal
subsidiaries are in Seattle, Washington and Redmond, Washington. The
Corporation and its subsidiaries had 7,360 employees at December 31,
1993.
The insurance subsidiaries are engaged in two principal lines:
property and casualty insurance, and life and health insurance. Both
are subject to regulation and supervision in every jurisdiction in
which they do business. The nature and extent of such regulation
varies, but generally has its source in statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. Such regulation, supervision and administration
relate, among other things, to the standards of solvency which must
be met and maintained; the licensing of insurers and their agents;
the nature of limitation on investments; deposits of securities for
the benefit of policyholders; approval of policy forms and premium
rates; periodic examination of the affairs of insurance companies;
annual and other reports required to be filed on the financial
condition of insurers or for other purposes; the amount of dividends
which may be distributed to a parent corporation; requirements
regarding reserves for unearned premiums and losses and other
matters. Regulation requires that property and casualty rates be
adequate but not excessive nor unfairly discriminatory. See page 21
in the Annual Report to Stockholders, hereby incorporated by
reference (Exhibit 13), for more information on certain regulatory
matters. In 1988, California voters narrowly passed Proposition 103,
an initiative which significantly affects the property and casualty
insurance business in that state. See Note 5 on page 48 in the 1993
Annual Report to Stockholders for more details.
All areas of the insurance business are highly competitive due to the
marketing structure and the large number of stock and mutual insurance
companies and other entities competing. These factors prevent any one
insurance company or group of insurers from dominating the market.
Property and Casualty Operations
--------------------------------
Subsidiaries engaged in the property and casualty insurance business,
which insure commercial, personal and surety lines, are SAFECO
Insurance Company of America, General Insurance Company of America,
First National Insurance Company of America, SAFECO National
Insurance Company, SAFECO Insurance Company of Illinois, SAFECO
Lloyds Insurance Company, SAFECO Surplus Lines Insurance Company, F.
B. Beattie & Co., Inc., COMAV Managers, Inc., and Whitehall Insurance
Brokers, Inc. Coverages include automobile, homeowners, fire and
allied lines, commercial multi-peril, miscellaneous casualty,
fidelity and workers' compensation. Their products are primarily
sold through independent insurance agents in nearly all states and
the District of Columbia. SAFECO sold its Canadian property and
casualty operations in June of 1991. See page 24 in the 1993 Annual
Report to Stockholders for more information.
- 1 -
3
PART I
ITEM 1. BUSINESS (Continued)
The following table shows consolidated property and casualty gross
premiums written for SAFECO's ten largest states (amounts in
thousands):
1993 1992 1991
---------------- ---------------- ----------------
% of % of % of
State Amount Total Amount Total Amount Total
----- ------ ----- ------ ----- ------ -----
California $ 531,779 25% $ 479,003 25% $ 437,282 24%
Washington 351,231 16% 314,566 16% 268,998 15%
Oregon 144,534 7% 133,586 7% 122,371 7%
Texas 134,183 6% 107,208 6% 88,932 5%
Illinois 81,892 4% 74,382 4% 66,435 3%
Georgia 65,852 3% 59,925 3% 54,137 3%
Missouri 64,763 3% 59,883 3% 54,006 3%
Tennessee 54,207 3% 52,796 3% 48,952 3%
Idaho 47,867 2% 43,536 2% 38,885 2%
Connecticut 47,737 2% 43,929 2% 39,667 2%
---------- --- ---------- --- ---------- ---
1,524,045 71% 1,368,814 71% 1,219,665 67%
All Others 610,467 29% 568,276 29% 610,534 33%
---------- --- ---------- --- ---------- ---
TOTAL $2,134,512 100% $1,937,090 100% $1,830,199 100%
========== === ========== === ========== ===
Voluntary personal, commercial and surety lines (which excludes
assigned risk, FAIR plans, etc.) comprise approximately 69%, 25% and
4%, respectively, of 1993 gross premiums written. Gross premiums
written growth of 10.2% in 1993 is comprised of a 10.4% increase for
personal and increases of 10.3% for commercial and 5.7% for surety
lines. Gross premiums written growth of 5.8% in 1992 was comprised
of a 6.0% increase for personal, and increases of 6.2% for commercial
and 0.8% for surety lines. Excluding Canadian premiums, 1992 gross
premiums written increased 10.9% over 1991, with personal up 13.1%
and commercial up 7.0%.
The growth in personal lines is the result of both rate increases and
an increase in policies in force. This increase in policies in force
is due, in part, to a number of companies in the past withdrawing or
restricting their writings of personal lines. Vehicles insured
increased 2.2% in 1993; however, the number of vehicles insured
declined slightly in the fourth quarter. Vehicles insured increased
6.2% in 1992. This declining trend in the growth rate has been
caused primarily by the rate increases placed in effect in recent
years. As a result, only modest rate increases are planned for 1994.
The number of homes insured increased 8.0% in 1993 and 10.8% in 1992.
It is expected that the number of homes insured will continue to
increase in 1994, although at a somewhat slower pace. SAFECO's
commercial lines premiums increased in 1993 and 1992 as a result of
both real growth and some rate increases. Continued growth in
commercial premiums written is expected in 1994. The larger increase
in surety premiums in 1993 versus 1992 is primarily due to new
commercial accounts acquired and a slightly improved construction
economy.
Additional financial information about SAFECO's business segments is
set forth in Note 16 on page 54 of the 1993 Annual Report to
Stockholders.
- 2 -
4
PART I
ITEM 1. BUSINESS (Continued)
The consolidated financial statements include the estimated liability
(reserves) for unpaid losses and loss adjustment expense of SAFECO's
property and casualty insurance subsidiaries. The liability is
presented net of amounts recoverable from salvage and subrogation
recoveries and gross of amounts recoverable from reinsurance.
Reserves for losses that have been reported to SAFECO and certain
legal expenses are established on a "case basis" method. Claims
incurred but not reported (IBNR) and other adjustment expense are
estimated using statistical procedures. Salvage and subrogation
recoveries are accrued using the "case basis" method for large claims
and statistical procedures for smaller claims.
These reserves aggregate SAFECO's best estimates of the total
ultimate cost of claims that have been incurred but have not yet been
paid. The estimates are based on past claims experience and consider
current claims trends as well as social, legal and economic
conditions, including inflation. The reserves are not discounted.
Loss and loss adjustment expense reserve development is reviewed on a
regular basis to determine that the reserving assumptions and methods
are appropriate. Reserves initially determined are compared to the
amounts ultimately paid. A statistical estimate of the projected
amounts necessary to settle outstanding claims is made regularly and
compared to the recorded reserves.
The table on page 4 provides an analysis of changes in losses and
adjustment expense reserves for 1993, 1992 and 1991 (net of
reinsurance amounts). Changes in the reserves are reflected in the
income statement for the year when the changes are made. Operations
were credited $96.9 million, $44.6 million and $24.1 million in 1993,
1992, and 1991, respectively, as a result of a reduction in the
estimated amounts needed to settle prior years' claims.
- 3 -
5
PART I
ITEM 1. BUSINESS (Continued)
Analysis of Changes in Losses and Adjustment Expense Reserves - (Net of
reinsurance amounts):
1993 1992 1991
---------- ---------- ----------
(In Thousands)
Losses and adjustment expense
reserves at beginning of year . . $1,963,136 $1,865,319 $1,791,461
---------- ---------- ----------
Incurred losses and adjustment
expense for claims occurring
in the current year . . . . . . . 1,447,565 1,351,234 1,309,259
Decrease in estimated losses and
adjustment expense for claims
occurring in prior years . . . . . (96,937) (44,582) (24,057)
---------- ---------- ----------
Total incurred losses and
adjustment expense . . . . . . . . 1,350,628 1,306,652 1,285,202
---------- ---------- ----------
Losses and adjustment expense
payments for claims occurring
during: Current year . . . . . . 719,756 659,960 608,317
Prior years . . . . . . . . . . . 598,886 548,875 603,027
---------- ---------- ----------
Total losses and adjustment
expense payments . . . . . . . . . 1,318,642 1,208,835 1,211,344
---------- ---------- ----------
Losses and adjustment expense
reserves at end of year . . . . . $1,995,122 $1,963,136 $1,865,319
========== ========== ==========
Reconciliation of Liability for Losses and Adjustment Expense Reserves (per
property and casualty balance sheet):
(In Thousands)
Losses and adjustment expense
reserves at end of year . . . . . $1,995,122 $1,963,136 $1,865,319
Reinsurance recoverables on
unpaid losses at end of year . . . 100,065 89,198 152,029
---------- ---------- ----------
Losses and adjustment expense
reserves, gross of reinsurance
recoverables, at end of year . . . $2,095,187 $2,052,334 $2,017,348
========== ========== ==========
The table on page 5 presents the development of the losses and adjustment
expense reserves for 1983 through 1993. The top lines of the table show
the estimated liability for unpaid losses and adjustment expense at
December 31 for each of the indicated years, both gross and net of related
reinsurance amounts. The upper portion of the table shows the cumulative
amount paid with respect to the previously recorded liability as of the
end of each succeeding year. The next section shows the re-estimated
amount of the previously recorded liability based on experience as of each
succeeding year. The estimate is increased or decreased as more
information becomes known about individual claims and as changes in
conditions and claim trends become apparent.
- 4 -
6
PART I
ITEM 1. BUSINESS (Continued)
Analysis of Losses and Adjustment Expense Reserve Development
Year Ended December 31,
-------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- -------- -------- ---------- ---------- ----------
Liability for unpaid losses
and adjustment expense:
Gross of reinsurance........ $588,917 $647,656 $841,300 $1,095,163 $1,328,495 $1,523,554
Reinsurance................. 7,567 18,266 39,910 54,881 78,975 97,003
-------- -------- -------- ---------- ---------- ----------
Net $581,350 $629,390 $801,390 $1,040,282 $1,249,520 $1,426,551
======== ======== ======== ========== ========== ==========
Year Ended December 31,
------------------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
Liability for unpaid losses
and adjustment expense:
Gross of reinsurance ....... $1,702,458 $1,872,144 $2,017,348 $2,052,334 $2,095,187
Reinsurance................. 75,279 80,683 152,029 89,198 100,065
---------- ---------- ---------- ---------- ----------
Net $1,627,179 $1,791,461 $1,865,319 $1,963,136 $1,995,122
========== ========== ========== ========== ==========
Year Ended December 31,
------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- -------- -------- ---------- ---------- ----------
Net paid (cumulative) as of:
1 Yr Later.................. $282,856 $274,748 $320,606 $ 382,274 $ 419,522 $ 443,056
2 Yrs Later.................. 411,443 427,283 526,276 610,331 677,053 725,684
3 Yrs Later.................. 497,009 544,725 664,680 771,278 848,174 902,480
4 Yrs Later.................. 563,150 624,475 758,202 875,910 936,447 1,010,271
5 Yrs Later.................. 608,491 677,612 820,514 945,436 1,033,741 1,083,462
6 Yrs Later.................. 638,686 717,637 837,182 991,806 1,082,759
7 Yrs Later.................. 661,075 746,826 895,193 1,029,619
8 Yrs Later.................. 675,394 765,662 922,963
9 Yrs Later.................. 690,290 787,597
10 Yrs Later.................. 710,492
Year Ended December 31
----------------------------------------------------
1989 1990 1991 1992
---------- ---------- -------- --------
Net paid (cumulative) as of:
1 Yr Later.................. $ 540,198 $ 603,027 $548,875 $598,886
2 Yrs Later.................. 849,568 914,456 905,725
3 Yrs Later.................. 1,035,024 1,109,436
4 Yrs Later.................. 1,149,505
5 Yrs Later..................
Year Ended December 31
----------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- -------- ---------- ---------- ----------- ----------
Net liability re-estimated
as of:
1 Yr Later.................. $602,807 $681,465 $ 888,650 $1,094,095 $1,253,870 $1,397,704
2 Yrs Later.................. 637,666 747,037 946,871 1,118,222 1,258,193 1,368,128
3 Yrs Later.................. 670,317 784,297 961,356 1,121,243 1,258,017 1,355,793
4 Yrs Later.................. 696,877 800,150 969,202 1,140,282 1,264,839 1,338,568
5 Yrs Later.................. 715,462 810,458 989,095 1,149,075 1,266,261 1,360,496
6 Yrs Later.................. 722,250 825,823 1,005,888 1,168,725 1,299,601
7 Yrs Later.................. 737,526 847,874 1,031,969 1,210,457
8 Yrs Later.................. 755,032 875,820 1,075,759
9 Yrs Later.................. 782,969 919,446
10 Yrs Later.................. 826,864
Year Ended December 31
--------------------------------------------------
1989 1990 1991 1992
---------- ---------- ---------- ----------
Net liability re-estimated
as of:
1 Yr Later.................. $1,621,873 $1,767,404 $1,820,737 $1,866,199
2 Yrs Later.................. 1,593,554 1,705,835 1,732,844
3 Yrs Later.................. 1,541,434 1,666,124
4 Yrs Later.................. 1,544,767
Year Ended December 31
-----------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
---------- ----------- ----------- ----------- --------- -------
Net redundancy (deficiency)
cumulative as of:
1 Yr Later.................. $ (21,457) $ (52,075) $ (87,260) $ (53,813) $ (4,350) $28,847
2 Yrs Later.................. (56,316) (117,647) (145,481) (77,940) (8,673) 58,423
3 Yrs Later.................. (88,967) (154,907) (159,966) (80,961) (8,497) 70,758
4 Yrs Later.................. (115,527) (170,760) (167,812) (100,000) (15,319) 87,983
5 Yrs Later.................. (134,112) (181,068) (187,705) (108,793) (16,741) 66,055
6 Yrs Later.................. (140,900) (196,433) (204,498) (128,443) (50,081)
7 Yrs Later.................. (156,176) (218,484) (230,579) (170,175)
8 Yrs Later.................. (173,682) (246,430) (274,369)
9 Yrs Later.................. (201,619) (290,056)
10 Yrs Later.................. (245,514)
Year Ended December 31
-----------------------------------------------------
1989 1990 1991 1992
---------- -------- -------- -------
Net redundancy (deficiency)
cumulative as of:
1 Yr Later................... $ 5,306 $ 24,057 $ 44,582 $96,937
2 Yrs Later.................. 33,625 85,626 132,475
3 Yrs Later.................. 85,745 125,337
4 Yrs Later.................. 82,412
- 5 -
7
PART I
ITEM 1. BUSINESS (Continued)
The lower section of the table on Page 5 shows the cumulative
redundancy (deficiency) developed with respect to the previously
recorded liability as of the end of each succeeding year. For
example, the 1983 reserve of $581.4 million developed a $21.5 million
deficiency after one year which grew over ten years to a deficiency
of $245.5 million. The reserve development deficiencies indicated
for the years 1983 through 1987 were due to the emergence of
liabilities for pollution, asbestos and other hazardous toxic claims
and related legal expenses and adverse development from the
automobile liability and workers' compensation lines due to
significant medical inflation and trends in the civil justice system.
In this same period, loss adjustment expenses were increasing
rapidly, reflecting higher legal costs and increased litigation.
As the trends noted above became apparent, the Corporation
aggressively increased reserves to address these deficiencies.
For 1988 and subsequent years, SAFECO's reserve development has been
favorable. This trend reflects the aggressive reserving undertaken
in prior years to correct deficiencies which is no longer necessary,
favorable legislation in the workers' compensation area, and
moderation of medical costs and inflation.
The impact of reinsurance on the development information presented on
Page 5 is not significant. Reserve development gross of reinsurance
for the previous three years is as follows (in thousands):
1990 1991 1992
---------- ---------- ----------
Gross reserves $1,872,144 $2,017,348 $2,052,334
========== ========== ==========
Cumulative development
net of reinsurance $ 125,337 $ 132,475 $ 96,937
Cumulative development
of reinsurance ceded 158 (3,868) (1,124)
---------- --------- ---------
Cumulative development
gross of reinsurance $ 125,495 $ 128,607 $ 95,813
========== ========== =========
In order to maintain adequate reserves, SAFECO'S objective is to set
reserves which are slightly redundant; that is, the amounts
originally recorded as reserves should be more than the amounts
ultimately required to settle losses. Analysis indicates that
SAFECO's reserves are adequate and probably slightly redundant at
December 31, 1993, 1992 and 1991. Operations were credited $96.9
million, $44.6 million and $24.1 million in 1993, 1992 and 1991,
respectively, as a result of a reduction in the estimated amounts
needed to settle prior years' claims.
In evaluating the information contained in the reserve development
table on Page 5, it should be noted that each amount includes the
effects of all changes in amounts for prior periods. For example,
the amount of the redundancy shown for the December 31, 1992 reserves
that relate to losses incurred in 1983 will be included in the
cumulative redundancy or deficiency amount for the years 1983 through
1991. This
- 6 -
8
PART I
ITEM 1. BUSINESS (Continued)
table does not present accident or policy year development data,
which some readers may be more accustomed to analyzing. Conditions
and trends that have affected development of the liability in the
past may not necessarily occur in the future. Accordingly, it may
not be appropriate to extrapolate future redundancies or deficiencies
based on this table.
SAFECO's property and casualty companies' reserves for losses and
adjustment expense for liability coverages related to environmental,
asbestos and other hazardous toxic claims totaled $113.4 million at
December 31, 1993, compared with $110.5 million at December 31, 1992.
These amounts are before the effect of reinsurance, which is
insignificant. These reserves are approximately 5% of total property
and casualty reserves for losses and adjustment expense at both
December 31, 1993 and 1992. The reserves include estimates for both
reported and IBNR losses and related legal expenses.
The components of these reserves at December 31, 1993 are as follows
(in thousands):
Loss
Adjustment
Loss Expense Total
------- ---------- --------
Case . . . . . . . . $41,550 $11,360 $ 52,910
IBNR . . . . . . . . 29,000 31,500 60,500
------- ------- --------
Total . . . . . . . . $70,550 $42,860 $113,410
======= ======= ========
In view of the changes in environmental regulations and legal
decisions which affect the development of loss reserves, the process
to estimate loss reserves for these matters results in imprecise
estimates. Quantitative techniques have to be supplemented by
subjective considerations and managerial judgment. In view of these
conditions, trends that have affected development of these
liabilities in the past may not necessarily occur in the future. The
reserves carried for these claims at December 31, 1993 are estimates
based on the known facts and current law and are believed to be
adequate. SAFECO's actual loss and adjustment expense payments for
these types of claims totaled $6.5 million, $9.7 million and $5.9
million for 1993, 1992 and 1991, respectively. SAFECO has generally
avoided writing coverages for larger companies with substantial
exposure in these areas.
The property and casualty insurance subsidiaries are required to file
annual statements with state regulatory authorities prepared on an
accounting basis prescribed or permitted by such authorities
(statutory basis). The difference between the liability at December
31, 1993 for losses and adjustment expense reported in the
consolidated financial statements in accordance with generally
accepted accounting principles (GAAP) of $2,095,187,000 and
$1,995,122,000 reported in the annual statement filed with state
regulatory authorities relates to reinsurance recoverables. Under
FASB Statement 113 the GAAP-basis liability for losses and adjustment
expense is reported gross of amounts recoverable from reinsurance.
Statutory-basis financial statements show the liability net of
reinsurance.
- 7 -
9
PART I
ITEM 1. BUSINESS (Continued)
SAFECO's property and casualty subsidiaries protect themselves from
excessive losses by reinsuring on treaty and facultative bases.
Reinsurance recoverables relating to unpaid losses and adjustment
expense were $100.1 million at December 31, 1993 and $89.2 million at
December 31, 1992. Reinsurance costs for catastrophe coverages have
increased in the last few years and are expected to remain higher in
the foreseeable future, given the large amount of catastrophe losses
in recent years. SAFECO's catastrophe property reinsurance program
for 1994 covers 90% of $150 million of single event losses in excess
of a $50 million retention. In the event of a substantial
catastrophe, SAFECO would, therefore, retain the first $50 million of
losses, 10% of the next $150 million and all losses in excess of $200
million. Both the retention level and the aggregate coverage limit
for 1994 are higher than in prior years.
SAFECO's insurance subsidiaries have not entered into retrospective
reinsurance contracts and have not participated in any unusual or
nonrecurring reinsurance transactions such as "swaps" of reserves or
portfolio loss transfers. SAFECO does not use "funding covers" and
has not participated in any surplus relief transactions. None of
SAFECO's significant reinsurers are experiencing financial
difficulties. Additional information on reinsurance can be found in
Note 4 on page 47 in the Annual Report to Stockholders. Reinsurance
amounts ceded in 1991 were higher due to the sale of SAFECO's
Canadian operations in 1991.
On January 17, 1994 a severe earthquake struck southern California.
Based on claims information available as of the date of this report
SAFECO expects its losses to be approximately $60 million, after
reinsurance. The losses will be recorded in the first quarter of
1994. This estimate is based on an expectation of approximately
8,000 claims, resulting in gross losses ranging from $150 million to
$175 million before reinsurance. As noted above, SAFECO's 1994
catastrophe reinsurance program covers 90% of single event losses
between $50 million and $200 million. Because of the size of this
loss, SAFECO will pay approximately $18 million of additional
premiums to reinstate its 1994 catastrophe reinsurance program for
the remainder of 1994. This additional expense will also be recorded
in the first quarter of 1994. In Note 14 on Page 52 in the 1993
Annual Report to Stockholders, SAFECO initially estimated that its
losses due to this quake would exceed $50 million, the threshold at
which the Corporation's reinsurance coverage begins. This initial
estimate was based on claims information available through February
11, 1994, the date of the 1993 Annual Report to Stockholders.
In 1992, approximately 2,400 active insurance companies competed for
$228 billion in property and casualty insurance premiums in the
United States. The SAFECO group of property and casualty companies
ranked 27th among significant groups of such companies, based on net
premiums written.
- 8 -
10
PART I
ITEM 1. BUSINESS (Continued)
Life and Health Operations
Subsidiaries engaged in the life and health insurance business are
SAFECO Life Insurance Company, SAFECO National Life Insurance
Company, First SAFECO National Life Insurance Company of New York and
SAFECO Administrative Services, Inc. These companies offer
individual and group insurance products, pension plans and annuity
products. SAFECO Life's major market in the group operations is
excess loss medical insurance, sold to self-insured employers.
Products are marketed through professional agents in all states and
the District of Columbia.
SAFECO Life Insurance Company reinsures portions of its individual
and group life, accident and health insurance through commercial
reinsurance treaties, thus providing protection against large risks
and catastrophe situations.
In the life and health insurance field, SAFECO Life Insurance Company
competes against some of the largest corporations in the United
States. On the basis of 1992 statutory premiums, SAFECO Life
Insurance Company ranked 38th among life insurance companies doing
business in the United States.
Many life insurance companies' pension and annuity products have been
impacted by general economic conditions, lower investment returns,
rating downgrades, increased competition and decisions by plan
sponsors to diversify assets and fund management. SAFECO Life
Insurance Company has experienced an increase in the level of
withdrawal of funds from its pension and annuity business (see
Statement of Cash Flows on page 34 of the 1993 Annual Report to
Stockholders -- Return of Funds Held Under Deposit Contracts), due to
scheduled payouts on distribution-type products and the lower
interest rate environment. However, SAFECO Life Insurance Company's
overall withdrawal experience remains relatively modest. The table
on page 10 sets forth a summary of the components of "Funds Held
Under Deposit Contracts" at December 31, 1993 and describes the
applicable surrender charges and surrender experience.
- 9 -
11
DETAIL OF SAFECO LIFE INSURANCE COMPANIES' FUNDS HELD UNDER DEPOSIT CONTRACTS
Range of
Credited or
Assumed Interest
Outstanding at Rates at Approximate
December 31, 1993 December 31, Surrender
Product (In Thousands) Expected Maturities 1993 Surrender Charges Experience
------- ----------------- ------------------- --------------- ----------------- ----------
Universal Individual Life $ 191,700 Approximately 5.50% to 7.90% Varies by issue age, 7% per annum
15-20 Years sex, and duration
from $1 to $58 per
Annuities: $1,000 of insurance
Structured Settlement
Immediate 3,196,007 25 Years & Over 4.0% to 12.4% Cannot surrender Cannot surrender
Non-Qualified Deferred 788,902 Approximately 3.8% to 9.0% Typically 5% in Year 5.5% per annum
8-12 Years 1 graded to 0% in
Year 6
Other 7,478 Approximately 7.25% to 8.25% None 5% per annum
7-10 Years
Pension:
Guaranteed Investment
Contacts 297,313 Typically 4 Years 4.85% to 10.05% Cannot surrender Less than 1%
except in extremely per annum
unusual circumstances
Other Qualified Annuities 2,748,039 Approximately 4.75% to 7.23% Typically 9% in Year 1 7% per annum
10-15 Years graded to 0% in year 9.
SAFECO has the option
to defer payout over
20 quarters for
one-half of these
contracts. In addition,
approximately $400
million of these
deposits have a market
value adjustment
provision.
----------
TOTAL $7,229,439
==========
- 10 -
12
PART I
ITEM 1. BUSINESS (Continued)
Investments
-----------
A description of SAFECO's investment portfolio begins on Page 27 of
the Annual Report to Stockholders. SAFECO's consolidated investments
in mortgage-backed securities (primarily residential collateralized
mortgage obligations, or CMOs, and pass-throughs) totaled $2.3
billion at December 31, 1993. The corresponding market value of
these securities at this date was $2.4 billion. Approximately 97% of
these securities are held in the life and health insurance portfolio,
with the balance held in the property and casualty insurance
portfolio. Approximately 91% of the mortgage- backed securities are
government/agency backed or AAA rated at December 31, 1993. Less
than 2% of SAFECO's mortgage-backed securities are of the riskier,
highly volatile type (e.g., interest only, floaters, etc.). SAFECO
has intentionally not invested significant amounts in the riskier
types of mortgage-backed securities. The following two tables detail
SAFECO's consolidated holdings of mortgage-backed securities.
SAFECO Consolidated Holdings of Mortgage-Backed Securities at
December 31, 1993 (dollar amounts in millions):
GAAP Carrying Value GAAP Market Value
------------------- -------------------
Amount % Amount %
-------- ------ -------- ------
Residential CMOs:
Planned Amortization
Class (PAC) and
Targeted Amortization
Class (TAC) (Fixed Coupon) $ 574.3 25.4% $ 595.7 24.6%
Sequential Pay (SEQ) 808.3 35.7 862.0 35.5
Accrual Coupon (Z-Tranche) 489.7 21.6 553.8 22.8
Companions/Supports 18.6 0.8 19.3 0.8
Principal Only 10.4 0.5 10.3 0.4
Inverse Floaters 8.0 0.4 9.1 0.4
Interest Only 2.0 0.1 1.1 -
-------- ----- -------- -----
Subtotal 1,911.3 84.5 2,051.3 84.5
-------- ----- -------- -----
Residential Mortgage-Backed
Pass-Throughs (Non-CMOs):
Government/Agency Backed
- all Fixed Coupon 124.9 5.5 139.2 5.8
Private Issuer-Fixed Coupon 80.4 3.6 85.5 3.5
Private Issuer-Floating 0.4 - 0.4 -
-------- ----- -------- -----
Subtotal 205.7 9.1 225.1 9.3
-------- ----- -------- -----
Securitized Commercial
Real Estate (Non-agency):
Pass-Throughs 85.0 3.8 87.2 3.6
CMOs 60.3 2.6 62.6 2.6
-------- ----- -------- -----
Subtotal 145.3 6.4 149.8 6.2
-------- ----- -------- -----
Asset-Backed Securities
(Non-Real Estate) - - - -
-------- ----- -------- -----
Total Mortgaged-Backed
Securities $2,262.3 100.0% $2,426.2 100.0%
======== ===== ======== =====
- 11 -
13
PART I
ITEM 1. BUSINESS (Continued)
The quality distribution of SAFECO's mortgage-backed security
portfolio as of December 31, 1993 as a percentage of GAAP carrying
value is as follows:
Quality Percent
------------------------ -------
Government/Agency Backed 58%
AAA 33
AA 6
A 1
BBB 1
BB or lower 1
---
100%
===
The following table presents pretax investment income yields for
SAFECO's property and casualty and life and health insurance
subsidiaries (calculations based on GAAP amortized cost):
1993 1992 1991
------ ------ ------
(In Thousands)
Property and Casualty 7.6% 8.2% 8.9%
Life and Health 8.8% 9.3% 9.7%
The declines in the investment income yields in 1993 and 1992 for
both portfolios are primarily due to the lower interest rate
environment. The property and casualty decreases also reflect the
higher percentage of tax- exempt securities in this portfolio.
Other Operations
----------------
The other subsidiaries of the Corporation, which are engaged in lines
of business other than insurance, have been acquired or organized
since 1966 in the course of a program of diversification. These
include SAFECO Properties, Inc. and its subsidiaries (including
Winmar Company, Inc. and SAFECARE Company, Inc.), SAFECO Credit
Company, Inc., SAFECO Securities, Inc., SAFECO Services Corporation,
SAFECO Asset Management Company, PNMR Securities, Inc. and Talbot
Agency, Inc.
Winmar Company, Inc., acquired in 1967, invests in and operates real
estate properties, primarily regional shopping centers, in or near
Burlington, Seattle, Vancouver and Silverdale, Washington; Cleveland
and Columbus, Ohio; Louisville, Kentucky; West Valley City, Utah;
Palm Springs, California; Boise, Idaho; Medford, Albany, Progress,
Jantzen Beach and Portland, Oregon; Milwaukee, Wisconsin; San
Antonio, Texas; and Flagstaff, Arizona. Winmar also offers real
estate services, including property management, design and
construction management and tenant leasing services. See Item 2 -
Properties, for additional information.
SAFECARE Company, Inc., organized in 1968, owns and leases four
healthcare facilities (including convalescent centers and psychiatric
hospitals) and three medical office buildings to third parties. See
Item 2 - Properties, for additional information.
- 12 -
14
PART I
ITEM 1. BUSINESS (Continued)
SAFECO Properties, Inc. sold its hospital operating and management
company (SAFECARE Health Services, Inc.) in May of 1992. See page 27
of the 1993 Annual Report to Stockholders for more information.
SAFECO Credit Company, Inc., organized in 1969, provides loans and
equipment financing and leasing to commercial businesses. A
significant portion of the business of SAFECO Credit Company, Inc.
consists of loans to other members of the SAFECO group. These loans
are limited to 50% or less of the total loans outstanding.
SAFECO Securities, Inc., organized in 1967, is the principal
underwriter for the SAFECO Common Stock Trust, SAFECO Bond Trust,
SAFECO Tax-Exempt Bond Trust and the SAFECO Money Market Trust, each
of which is a publicly- held mutual fund trust having four, three,
five and two investment portfolios, respectively (four trusts total,
with 14 "retail" portfolios available).
SAFECO Services Corporation, organized in 1972, is the transfer agent
for the SAFECO Mutual Funds.
SAFECO Asset Management Company, acquired by the Corporation in 1973,
serves as the investment advisor to the SAFECO Mutual Funds and
various institutional accounts of unrelated organizations.
PNMR Securities, Inc., organized in 1986, is the principal
underwriter for the SAFECO Resource Series Trust mutual fund, which
has five separate investment portfolios, and distributes
variable-return contracts issued by SAFECO Life Insurance Company.
In addition, PNMR acts as a broker-dealer, making shares of
unaffiliated mutual funds available to the public through its
registered representatives.
Talbot Agency, Inc., acquired by the Corporation in 1993, is a full
service insurance agency located in Albuquerque, New Mexico and is
the sole distributor of SAFECO life deferred annuity products to
customers of financial institutions.
ITEM 2. PROPERTIES
Following is a brief description of the materially important
properties owned and leased by SAFECO and its subsidiaries.
SAFECO's property and casualty group leases from General America
Corporation (wholly-owned subsidiary of SAFECO Corporation), its home
office building complex located in Seattle, Washington. This complex
totals 574,000 gross square feet. A small portion of this is rented
to non-SAFECO professional tenants. A 700-car parking garage is
connected to the complex.
SAFECO's life and health insurance companies lease their home office
building complex, located in Redmond, Washington, from General America
Corporation. This complex totals 232,000 gross square feet.
Other buildings owned and occupied by the Companies include a service
facility in Redmond, Washington, as well as regional and branch
offices in Atlanta, GA; Fountain Valley, CA; Cincinnati, OH; Denver,
CO; Portland, OR; St. Louis, MO; and Redmond and Spokane, WA,
comprising 949,000 gross square feet.
All owned buildings are of modern construction, including air
conditioning. All other branch and service offices utilize leased
premises comprising 350,000 gross square feet, generally for periods
of five years or less.
- 13 -
15
PART I
ITEM 2. PROPERTIES (Continued)
Winmar Company, Inc. is engaged in the investment in and management
of a wide variety of real estate projects, primarily regional
shopping centers, located throughout the United States. Some of the
projects are owned by subsidiaries of Winmar and in conjunction with
other investors, and others are leased under long-term leases.
The following is a summary of the property leased to others. All
construction is of steel or steel and concrete.
Rentable
Area
Description (Sq. Ft.) Acreage
----------- --------- -------
Cleveland Heights, Ohio:
Shopping Center 966,000 67
--------- ---
Progress, Oregon:
Shopping Center 849,000 73
Land and free-standing retail stores 19,000 8
--------- ---
Total 868,000 81
--------- ---
Milwaukee, Wisconsin:
Shopping Center 778,000 60
--------- ---
Louisville, Kentucky:
Shopping Center 501,000 70
--------- ---
West Valley City, Utah:
Shopping Center 605,000 59
Free-standing retail stores 36,000 3
--------- ---
Total 641,000 62
--------- ---
Burlington, Washington:
Shopping Center 407,000 71
--------- ---
Silverdale, Washington:
Shopping Center 399,000 53
Office building and cinema 60,000 4
--------- ---
Total 459,000 57
--------- ---
Other 1,157,000 319
--------- ---
TOTAL RENTABLE AREA 5,777,000 787
========= ===
Winmar also owns or leases pursuant to long-term ground leases 1,619
acres of undeveloped land, primarily in Washington, Oregon and Texas.
SAFECARE Company, Inc. leases heathcare facilities to qualified
operators. SAFECARE Company's inpatient medical facilities contain
approximately 300 beds. SAFECARE also owns three medical office
buildings totaling 46,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The insurance and other subsidiaries of the Corporation, because of
the nature of their business, are subject to certain legal actions
filed or threatened, all in the ordinary course of business.
- 14 -
16
PART I
ITEM 3. LEGAL PROCEEDINGS (Continued)
The property and casualty insurance subsidiaries of the Corporation
are parties to fewer than 50 lawsuits for liability coverages related
to environmental claims, for which adequate reserves have been
established. The loss and adjustment expense with respect to any
such lawsuit, or all lawsuits related to a single incident combined,
is not expected to exceed $15 million. See Page 7 of Item 1 for more
information regarding the liability of such subsidiaries for
environmental claims.
For information concerning the settlement of proceedings arising
under California's Proposition 103 by certain property and casualty
subsidiaries of the Corporation, see Note 5 on page 48 in the 1993
Annual Report to Stockholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the fourth
quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 16, 1994 these are the names, ages and positions of the
executive officers of the Registrant as required by Item 10. No family
relationships exist.
Roger H. Eigsti 51 Chairman since May, 1993. President and Chief
Executive Officer since January, 1992. President
and Chief Operating Officer from May, 1989 to
December, 1991. Executive Vice President and Chief
Financial Officer from 1985 to May, 1989. Director
since 1988.
Boh A. Dickey 49 Director since August, 1993. Executive Vice
President since January, 1992. Chief Financial
Officer since May, 1989. Senior Vice President
from May, 1989 to December, 1991. Secretary from
1985 to November, 1991. Vice President and
Controller from 1982 to May, 1989.
Richard W. Hubbard 64 Senior Vice President since May, 1989. Treasurer
since 1985. Vice President from 1985 to May, 1989.
President of SAFECO Asset Management Company since
1984.
Dan D. McLean 61 President of SAFECO Property and Casualty Insurance
Companies since January, 1993. Senior Vice
President of SAFECO Property and Casualty Insurance
Companies from 1984 to December, 1992 and Chief
Operating Officer of such companies from February,
1992 to December, 1992. He is not an officer of
the Registrant.
Rodney A. Pierson 46 Senior Vice President since February, 1994.
Secretary since November, 1991. Controller since
May, 1990. Vice President from May, 1990 to
January, 1994. Vice President of SAFECO Property
and Casualty Insurance Companies from 1987 to May,
1990. Controller of SAFECO Property and Casualty
Insurance Companies from 1984 to May, 1990.
- 15 -
17
PART I
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
James W. Ruddy 44 Senior Vice President since November, 1992.
General Counsel since May, 1989. Vice President
from May, 1989 to November, 1992. Associate
General Counsel from 1985 to May, 1989.
Richard E. Zunker 55 President of SAFECO Life and Health Insurance
Companies since 1985. He is not an officer of the
Registrant.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Pages 29 and 55 of the 1993 Annual Report to Stockholders are hereby
incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
Pages 56 through 59 of the 1993 Annual Report to Stockholders are
hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 21 through 29 of the 1993 Annual Report to Stockholders are
hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 31 through 55 of the 1993 Annual Report to Stockholders are
hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
The definitive proxy statement to be filed within 120 days after
December 31, 1993, excluding the Annual Report of the Compensation
Committee on Executive Compensation appearing on Pages 8 through 15,
is hereby incorporated by reference to fulfill the requirements of
Item 10, "Directors and Officers" (except for that portion of Item 10
relating to executive officers which appears in Part I above), and to
fulfill the requirements of Item 11, "Executive Compensation," Item
12, "Security Ownership of Certain Beneficial Owners and Management,"
and Item 13, "Certain Relationships and Related Transactions."
- 16 -
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) FINANCIAL STATEMENTS AND EXHIBITS
F-1 Consent of Independent Auditors
SAFECO Corporation and Subsidiaries:
Financial Statements (pages 31 through 55 of the 1993 Annual
Report to Stockholders, containing the following statements, are
hereby incorporated by reference):
Consolidated Balance Sheet, December 31, 1993 and 1992.
Statement of Consolidated Income for the Three Years Ended
December 31, 1993.
Statement of Consolidated Cash Flows for the Three Years
Ended December 31, 1993.
Notes to Financial Statements for the Three Years Ended
December 31, 1993.
SAFECO Corporation and Subsidiaries Supplemental Consolidating
Information:
F-2 Balance Sheet, December 31, 1993.
F-3 Statement of Income for the Year Ended December 31, 1993.
F-4 Statement of Cash Flows for the Year Ended December 31,
1993.
Schedules:
F-5 Schedule I - Summary of Investments - Other Than
Investments in Related Parties, December 31, 1993.
Schedule III - Condensed Financial Information of the
Registrant (Parent Company Only).
F-6 Balance Sheet, December 31, 1993 and 1992.
F-7 Statement of Income for the Three Years Ended
December 31, 1993.
Statement of Changes in Stockholders' Equity for the
Three Years Ended December 31, 1993. (See page 36 of
the 1993 Annual Report to Stockholders which is hereby
incorporated by reference.)
F-8 Statement of Cash Flows for the Three Years Ended
December 31, 1993.
F-9 Schedule V - Supplementary Insurance Information for the
Years Ended December 31, 1993, 1992 and 1991.
F-10 Schedule VI - Reinsurance for the Years Ended December 31,
1993, 1992 and 1991.
- 17 -
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(Continued)
F-11 Schedule IX - Short-term Borrowings, December 31, 1993,
1992 and 1991.
F-12 Schedule X - Supplemental Information Concerning
Property/Casualty Insurance Operations for the Years Ended
December 31, 1993, 1992 and 1991.
The following Article 7 schedules are omitted because the information
is provided elsewhere in the Annual Report (Form 10-K) or because of
the absence of conditions under which they are required:
Schedules II, IV, VII and VIII
Exhibits:
F-13 Exhibit Index
F-14 Exhibit 3 - Bylaws (as last amended August 4, 1993).
- Restated Articles of Incorporation (as
amended May 4, 1988) filed as Exhibit 3
to Registrant's Annual Report on Form
10-K for the fiscal year ended December
31, 1988.
Exhibit 4 - First Supplemental Indenture among the
Registrant, SAFECO Credit Company, Inc.
and Morgan Guaranty Trust Company of
New York dated as of March 20, 1992 and
filed as Exhibit 4.3 to Registrant's
Current Report on Form 8-K on March 20,
1992.
- Indenture among the Registrant, SAFECO
Credit Company, Inc. and Morgan
Guaranty Trust Company of New York
dated as of December 19, 1990 and filed
as Exhibit 4.1 to the Registration
Statement (No. 33-36669) filed jointly
by the Registrant and SAFECO Credit
Company, Inc. on September 4, 1990.
- Indenture between the Registrant and
Morgan Guaranty Trust Company of New
York dated as of September 12, 1985 and
filed as Exhibit 4b to the Registration
Statement (No. 2- 99988) filed by the
Registrant on August 30, 1985.
- 18 -
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(Continued)
Exhibit 10 - The following management contracts and
compensatory plan arrangements:
- Executive Severance Agreements with
Roger Eigsti and Boh A. Dickey, each
filed as Exhibit 10 to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1985;
Executive Severance Agreement with R.
W. Hubbard filed as Exhibit 10 to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1986; and Executive Severance Agreement
with R. E. Zunker dated May 1, 1985 and
filed as Exhibit 10 to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
- SAFECO Incentive Plan of 1987 filed as
Exhibit 10 to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1989 and Supplement
thereto filed as Exhibit 10 to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1990.
- SAFECO Stock Option Plan filed as
Exhibit 10 to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1984 and Appendix
thereto filed as Exhibit 10 to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1986.
F-15 Exhibit 11 - Computation of Income Per Share
F-16 Exhibit 12 - Computation of Ratios
F-17 Exhibit 21 - Subsidiaries of the Registrant
F-18 Exhibit 28 - (P) Information from Reports Furnished
to State Insurance Regulatory
Authorities (paper-filed only, under
Form SE)
Exhibit 13 - 1993 Annual Report to Stockholders
(pages 21 to 59, inclusive)
(b) EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K was not required to be filed for any event during the
quarter ended December 31, 1993.
- 19 -
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 16th day of March,
1994.
SAFECO CORPORATION
By ROGER H. EIGSTI
-------------------------------------------
Roger H. Eigsti, Chairman,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
ROGER H. EIGSTI
- ---------------------------------- Chairman, March 16, 1994
Roger H. Eigsti Chief Executive Officer
and President
BOH A. DICKEY
- ---------------------------------- Executive Vice President, March 16, 1994
Boh A. Dickey Chief Financial Officer
and Director
ROD A. PIERSON
- ---------------------------------- Senior Vice President, March 16, 1994
Rod A. Pierson Secretary, Controller and
Chief Accounting Officer
ROBERT S. CLINE
- ---------------------------------- Director March 16, 1994
Robert S. Cline
JOHN W. ELLIS
- ---------------------------------- Director March 16, 1994
John W. Ellis
WILLIAM P. GERBERDING
- ---------------------------------- Director March 16, 1994
William P. Gerberding
DONALD G. GRAHAM, JR.
- ---------------------------------- Director March 16, 1994
Donald G. Graham, Jr.
22
Name Title Date
---- ----- ----
JOSHUA GREEN III
- ---------------------------------- Director March 16, 1994
Joshua Green III
HAROLD W. HAYNES
- ---------------------------------- Director March 16, 1994
Harold W. Haynes
CALVERT KNUDSEN
- ---------------------------------- Director March 16, 1994
Calvert Knudsen
WILLIAM G. REED, JR.
- ---------------------------------- Director March 16, 1994
William G. Reed, Jr.
TONI REMBE
- ---------------------------------- Director March 16, 1994
Toni Rembe
JUDITH M. RUNSTAD
- ---------------------------------- Director March 16, 1994
Judith M. Runstad
HENRY T. SEGERSTROM
- ---------------------------------- Director March 16, 1994
Henry T. Segerstrom
PAUL W. SKINNER
- ---------------------------------- Director March 16, 1994
Paul W. Skinner
- ---------------------------------- Director
George H. Weyerhaeuser
23
F-1
CONSENT OF INDEPENDENT AUDITORS
SAFECO Corporation:
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SAFECO Corporation of our report dated February 11, 1994, included in the
1993 Annual Report to Shareholders of SAFECO Corporation.
Our audits also included the financial statement schedules of SAFECO
Corporation listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 2-58654 and 33-14381) of SAFECO Corporation of our report dated
February 11, 1994, with respect to the consolidated financial statements and
schedules of SAFECO Corporation included and/or incorporated by reference in
the Annual Report (Form 10-K) for the year ended December 31, 1993.
ERNST & YOUNG
Seattle, Washington
March 16, 1994
24
F-2
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING INFORMATION
BALANCE SHEET, DECEMBER 31, 1993
(In Thousands)
Other
Property & Life & Real and
Casualty Health Estate Eliminations Consolidated
---------- ---------- -------- ------------ ------------
ASSETS
Investments:
Fixed Maturities, at Amortized Cost . $3,226,514 $7,426,593 $ - $ 67,869 $10,720,976
Marketable Equity Securities, at
Market Value . . . . . . . . . . . 775,603 26,713 - 107,936 910,252
Mortgage Loans . . . . . . . . . . . . 3,151 487,090 - (88,103) 402,138
Real Estate (At cost less
accumulated depreciation) . . . . . - 7,492 444,431 (4,126) 447,797
Policy Loans . . . . . . . . . . . . . - 50,488 - - 50,488
Short-Term Investments . . . . . . . . 90,605 77,866 228 (59,652) 109,047
---------- ---------- -------- --------- -----------
Total Investments . . . . . . . . . 4,095,873 8,076,242 444,659 23,924 12,640,698
Cash . . . . . . . . . . . . . . . . . 28,834 19,858 494 18,647 67,833
Accrued Investment Income . . . . . . . . 79,101 128,232 - 2,956 210,289
Finance Receivables (Less unearned
finance charges and allowance for
doubtful accounts) . . . . . . . . . . - - - 547,759 547,759
Premiums and Other Service
Fees Receivable . . . . . . . . . . . 375,392 13,257 8,904 3,320 400,873
Other Notes and Accounts Receivable . . . 7,945 14,736 55,351 (2,055) 75,977
Reinsurance Recoverables . . . . . . . . 111,074 15,166 - - 126,240
Land, Buildings and Equipment for
Company Use (At cost less
accumulated depreciation) . . . . . . 120,495 692 1,558 26,873 149,618
Deferred Policy Acquisition Costs . . . . 133,103 234,200 - - 367,303
Other Assets . . . . . . . . . . . . . . 62,789 105,478 6,445 45,989 220,701
---------- ---------- -------- --------- -----------
TOTAL . . . . . . . . . . . . . . . $5,014,606 $8,607,861 $517,411 $ 667,413 $14,807,291
========== ========== ======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and Adjustment Expense . . . . . . $2,095,187 $ 33,185 $ - $ - $ 2,128,372
Unearned Premiums . . . . . . . . . . . . 809,427 9,958 - - 819,385
Life Policy Liabilities . . . . . . . . . - 151,488 - - 151,488
Funds Held Under Deposit Contracts . . . - 7,229,439 - - 7,229,439
Notes and Mortgages Payable:
Credit Company Borrowings . . . . . . - - - 427,930 427,930
10.75% Notes Due 1995 . . . . . . . . - - - 200,000 200,000
Other Notes and Mortgages:
Affiliates . . . . . . . . . . . . - - 131,816 (131,816) -
Other . . . . . . . . . . . . . . . - - 225,077 65,428 290,505
Other Liabilities . . . . . . . . . . . . 301,099 253,042 26,169 49,581 629,891
Federal and Canadian Income Taxes:
Current . . . . . . . . . . . . . . . 19,477 15,961 2,496 29 37,963
Deferred . . . . . . . . . . . . . . . 15,630 51,575 25,921 24,801 117,927
---------- ---------- -------- --------- -----------
Total Liabilities . . . . . . . . . 3,240,820 7,744,648 411,479 635,953 12,032,900
---------- ---------- -------- --------- -----------
Common Stock . . . . . . . . . . . . . . 12,526 6,006 1 188,947 207,480
Additional Paid-In Capital . . . . . . . 63,557 92,806 42,123 (198,486) -
Retained Earnings . . . . . . . . . . . . 1,468,196 757,573 63,808 17,745 2,307,322
Unrealized Appreciation of Marketable
Equity Securities, Net of Tax . . . . 232,075 6,828 - 23,254 262,157
Unrealized Loss from Foreign Currency
Translation, Net of Tax . . . . . . . (2,568) - - - (2,568)
---------- ---------- -------- --------- -----------
Stockholders' Equity . . . . . . . 1,773,786 863,213 105,932 31,460 2,774,391
---------- ---------- -------- --------- -----------
TOTAL . . . . . . . . . . . . . . . $5,014,606 $8,607,861 $517,411 $ 667,413 $14,807,291
========== ========== ======== ========= ===========
25
F-3
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING INFORMATION
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993
(In Thousands)
Other
Property & Life & Real and
Casualty Health Estate Eliminations Consolidated
---------- --------- --------- ------------ ------------
REVENUES:
Insurance:
Property and Casualty Earned Premiums . . . . . . . . . $1,929,714 $ - $ - $ - $1,929,714
Life and Health Premiums and Other Revenues . . . . . . - 305,963 - - 305,963
---------- --------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . 1,929,714 305,963 - - 2,235,677
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . - - 78,252 - 78,252
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . - - - 50,061 50,061
Asset Management . . . . . . . . . . . . . . . . . . . . . - - - 13,250 13,250
Net Investment Income . . . . . . . . . . . . . . . . . . . 277,643 668,158 - 5,994 951,795
Realized Investment Gain . . . . . . . . . . . . . . . . . 114,561 53,544 8,126 11,418 187,649
---------- --------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . 2,321,918 1,027,665 86,378 80,723 3,516,684
---------- --------- -------- -------- ----------
EXPENSES:
Losses, Adjustment Expense and Policyholders' Benefits . . 1,350,628 675,478 - - 2,026,106
Commissions . . . . . . . . . . . . . . . . . . . . . . . . 280,357 82,089 - - 362,446
Proposition 103 Settlement . . . . . . . . . . . . . . . . 40,000 - - - 40,000
Personnel Costs . . . . . . . . . . . . . . . . . . . . . . 150,960 48,431 15,529 11,473 226,393
Interest . . . . . . . . . . . . . . . . . . . . . . . . . - - 18,175 40,615 58,790
Dividends to Policyholders . . . . . . . . . . . . . . . . 20,653 - - - 20,653
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,892 55,392 34,469 10,805 226,558
Amortization of Deferred Policy Acquisition Costs . . . . . 341,997 26,350 - - 368,347
Deferral of Policy Acquisition Costs . . . . . . . . . . . (350,621) (38,925) - - (389,546)
---------- --------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . 1,959,866 848,815 68,173 62,893 2,939,747
---------- --------- -------- -------- ----------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . 362,052 178,850 18,205 17,830 576,937
---------- --------- -------- -------- ----------
Provision (Benefit) for Federal and Canadian Income Taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . 76,356 92,880 4,915 (1,212) 172,939
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . (2,654) (26,133) 1,745 5,139 (21,903)
---------- --------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . 73,702 66,747 6,660 3,927 151,036
---------- --------- -------- -------- ----------
Income Before Cumulative Effect of Accounting Changes . . . . . 288,350 112,103 11,545 13,903 425,901
Cumulative Effect of Accounting Changes:
Postretirement Benefits - FAS 106 (Net of Tax) . . . . . . (12,258) (2,493) (360) (565) (15,676)
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . 7,337 9,092 3,389 (1,265) 18,553
---------- --------- -------- -------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283,429 $ 118,702 $ 14,574 $ 12,073 $ 428,778
========== ========= ======== ======== ==========
26
F-4
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING INFORMATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
(In Thousands)
Real
Property & Life & Estate Other and
Casualty Health Companies Eliminations Consolidated
----------- ---------- --------- ------------ ------------
OPERATING ACTIVITIES:
Insurance Premiums Received . . . . . . . . . . . . . . $ 1,941,266 $ 264,255 $ -- $ -- $2,205,521
Dividends and Interest Received . . . . . . . . . . . . 277,309 590,374 4,721 47,486 919,890
Other Operating Receipts . . . . . . . . . . . . . . . . -- 26,408 77,585 23,835 127,828
Insurance Claims and Policyholders' Benefits Paid . . . (1,315,510) (255,133) -- -- (1,570,643)
Underwriting, Acquisition and Insurance Operating
Costs Paid . . . . . . . . . . . . . . . . . . . . . (532,760) (180,606) -- 2,906 (710,460)
Proposition 103 Settlement . . . . . . . . . . . . . . . (39,815) -- -- -- (39,815)
Interest Paid . . . . . . . . . . . . . . . . . . . . . -- -- (19,233) (40,035) (59,268)
Other Operating Costs Paid . . . . . . . . . . . . . . . -- -- (47,450) (22,846) (70,296)
Income Taxes Paid . . . . . . . . . . . . . . . . . . . (80,823) (95,363) (1,013) 8,055 (169,144)
---------- --------- --------- --------- -----------
Net Cash Provided by Operating Activities . . . . . 249,667 349,935 14,610 19,401 633,613
---------- --------- --------- --------- -----------
INVESTING ACTIVITIES:
Purchase of:
Fixed Maturities . . . . . . . . . . . . . . . . . . (720,750) (2,106,558) -- (16,645) (2,843,953)
Equities and Other Investments . . . . . . . . . . . (103,303) (185) -- (36,903) (140,391)
Investment Real Estate . . . . . . . . . . . . . . . -- -- (46,752) -- (46,752)
Mortgage and Policy Loans . . . . . . . . . . . . . -- (62,157) (7,707) -- (69,864)
Sale of Fixed Maturities . . . . . . . . . . . . . . . . 126,345 675,044 -- 44,006 845,395
Maturity of Fixed Maturities . . . . . . . . . . . . . . 365,295 644,532 -- 705 1,010,532
Sale or Maturity of:
Equities and Other Investments . . . . . . . . . . . 170,896 6,323 -- 27,691 204,910
Investment Real Estate . . . . . . . . . . . . . . . -- 116 27,087 -- 27,203
Mortgage and Policy Loans . . . . . . . . . . . . . 947 45,431 2,994 (2,324) 47,048
Net Decrease (Increase) in Short-Term Investments . . . 54,877 9,522 301 (6,822) 57,878
Finance Receivables Originated or Acquired . . . . . . . -- -- -- (286,758) (286,758)
Principal Payments Received on Finance Receivables . . . -- -- -- 228,772 228,772
Other . . . . . . . . . . . . . . . . . . . . . . . . . (24,043) (1,650) (607) (20,997) (47,297)
---------- --------- --------- ---------- -----------
Net Cash Used in Investing Activities . . . . . . . (129,736) (789,582) (24,684) (69,275) (1,013,277)
---------- --------- --------- ---------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts . . . . . . . . . -- 1,001,880 -- -- 1,001,880
Return of Funds Held Under Deposit Contracts . . . . . . -- (555,430) -- -- (555,430)
Proceeds from Notes and Mortgage Borrowings . . . . . . -- -- 111,500 20,450 131,950
Repayment of Notes and Mortgage Borrowings . . . . . . . -- -- (92,439) (23,444) (115,883)
Net Proceeds from (Repayment of) Short-Term Borrowings . -- -- (7,925) 28,805 20,880
Common Stock Reacquired . . . . . . . . . . . . . . . . -- -- -- (4,329) (4,329)
Dividends Paid to Stockholders . . . . . . . . . . . . . (134,000) (4,560) (1,336) 31,763 (108,133)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 675 -- (317) 3,082 3,440
---------- --------- --------- --------- -----------
Net Cash Provided by (Used in) Financing Activities . (133,325) 441,890 9,483 56,327 374,375
---------- --------- --------- --------- -----------
Net (Decrease) Increase in Cash . . . . . . . . . . . . . . . (13,394) 2,243 (591) 6,453 (5,289)
Cash at Beginning of Year . . . . . . . . . . . . . . . . . . 42,228 17,615 1,085 12,194 73,122
---------- --------- --------- --------- -----------
Cash at End of Year . . . . . . . . . . . . . . . . . . . . . $ 28,834 $ 19,858 $ 494 $ 18,647 $ 67,833
========== ========= ========= ========= ===========
27
F-5
Schedule I
SAFECO CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1993
(In Thousands)
Column A Column B Column C Column D
- -------- ---------- ---------- ---------
Amount
at Which
Shown
in the
Market Balance
Type of Investment Cost Value Sheet
- ------------------ ---------- ----------- ---------
Fixed Maturities:
Bonds:
United States Government and Government
Agencies and Authorities . . . . . . . . . . . . . . . $ 1,153,369 $ 1,256,994 $ 1,153,369
States, Municipalities and Political
Subdivisions . . . . . . . . . . . . . . . . . . . . . 2,539,412 2,991,728 2,539,412
Foreign Governments . . . . . . . . . . . . . . . . . . . 389,838 473,997 389,838
Public Utilities . . . . . . . . . . . . . . . . . . . . . 1,768,791 1,979,504 1,768,791
Convertibles and Bonds
with Warrants Attached . . . . . . . . . . . . . . . . 32,618 35,954 32,618
All Other Corporate Bonds . . . . . . . . . . . . . . . . 4,824,716 5,213,292 4,824,716
Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . 12,232 14,262 12,232
----------- ----------- -----------
Total Fixed Maturities (1) . . . . . . . . . . . 10,720,976 $11,965,731 10,720,976
----------- =========== -----------
Equity Securities:
Common Stocks:
Public Utilities . . . . . . . . . . . . . . . . . . . . . 59,321 $ 94,474 94,474
Banks, Trust and Insurance Companies . . . . . . . . . . . 24,378 81,013 81,013
Industrial, Miscellaneous and All Other . . . . . . . . . 230,318 466,799 466,799
Non-Redeemable Preferred Stocks . . . . . . . . . . . . . . . 199,121 267,966 267,966
----------- ----------- -----------
Total Equity Securities . . . . . . . . . . . . 513,138 $ 910,252 910,252
----------- =========== -----------
Other:
Mortgage Loans on Real Estate (1) . . . . . . . . . . . . . . 402,138 402,138
Real Estate (Net of depreciation) (1) . . . . . . . . . . . . 447,797 447,797
Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . 50,488 50,488
Short-Term Investments . . . . . . . . . . . . . . . . . . . . 109,047 109,047
----------- -----------
Total Other . . . . . . . . . . . . . . . . . . 1,009,470 1,009,470
----------- -----------
Total Investments . . . . . . . . . . . . . $12,243,584 $12,640,698
=========== ===========
(1) The carrying value of investments in fixed maturities, mortgage loans and
real estate that have not produced income for the last twelve months is
less than one percent of the total of such investments at December 31,
1993.
28
F-6
Schedule III
SAFECO CORPORATION
(Parent Company Only)
Balance Sheet
(In Thousands Except Share Amounts)
December 31
ASSETS ------------------------
1993 1992
---------- ----------
Investments:
Stock of Subsidiaries - At Cost Plus Equity in
Undistributed Earnings Since Acquisition
(Includes unrealized appreciation of
marketable equity securities, net of
tax, held by subsidiaries) . . . . . . . . . . . . . . . . . . . . . . . . . . $2,867,013 $2,555,924
Marketable Equity Securities, at Market Value
(Cost: 1993 - $72,521; 1992 - $57,009) . . . . . . . . . . . . . . . . . . . . 102,845 86,183
Fixed Maturities at Amortized Cost (Market
Value: 1993 - $54,122; 1992 - $53,776) . . . . . . . . . . . . . . . . . . . . 51,803 54,221
Short-Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,945 -
Note Receivable from SAFECO
Credit Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,000
Other Investments - At Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 943 1,518
---------- ----------
Total Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,061,549 2,701,846
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939 250
Dividend Receivable
from Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Accounts Receivable
from Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,870 27,570
Federal Income Taxes Recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,506
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,435 3,013
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,072,793 $2,736,185
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts and Interest Payable - Other . . . . . . . . . . . . . . . . . . . . . . $ 6,507 $ 6,657
- Affiliate . . . . . . . . . . . . . . . . . . . . - 1,300
Federal Income Tax:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,317 -
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,256 11,476
Dividends Payable to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 28,322 25,755
10.75% Notes Due 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
Medium-Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 42,850
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,402 288,038
---------- ----------
Stockholders' Equity:
Preferred Stock, No Par Value:
Shares Authorized: 10,000,000
Shares Issued and Outstanding: None
Common Stock, No Par Value:
Shares Authorized: 150,000,000
Shares Reserved for Options:
1993 - 2,128,828; 1992 - 2,356,757
Shares Issued and Outstanding:
1993 - 62,931,562; 1992 - 62,815,265 . . . . . . . . . . . . . . . . . . 207,480 200,557
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307,322 1,993,350
Unrealized Appreciation of Marketable Equity
Securities, Net of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,157 256,189
Unrealized Loss from Foreign Currency
Translation, Net of Tax . . . . . . . . . . . . . . . . . . . . . . . . . . (2,568) (1,949)
---------- ----------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 2,774,391 2,448,147
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . $3,072,793 $2,736,185
========== ==========
29
F-7
Schedule III
SAFECO CORPORATION
(Parent Company Only)
STATEMENT OF INCOME
(In Thousands)
Year Ended December 31
---------------------------------------
1993 1992 1991
-------- -------- --------
REVENUES:
Dividends Received from Non-Affiliates . . . . . . . . . . . . . . . . $ 10,480 $ 6,182 $ 10,679
Interest Earned - Affiliate . . . . . . . . . . . . . . . . . . . . . 859 678 792
- Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,016 1,619 1,321
Equity in Loss of Unconsolidated Affiliate . . . . . . . . . . . . . . (574) (555) (218)
Realized Gain from Security Investments . . . . . . . . . . . . . . . 11,958 2,539 7,984
-------- -------- --------
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 26,739 10,463 20,558
-------- -------- --------
EXPENSES:
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,792 22,756 21,500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 864 559
-------- -------- --------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 25,268 23,620 22,059
-------- -------- --------
Income (Loss) Before Income Taxes . . . . . . . . . . . . . . . . . . . . . 1,471 (13,157) (1,501)
Federal Income Tax Benefit (Includes
provision on realized gain:
1993 - $4,518; 1992 - $863; 1991 - $2,715) . . . . . . . . . . . . . . 1,864 5,855 3,023
-------- -------- --------
Income (Loss) Before Cumulative Effect of
Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . 3,335 (7,302) 1,522
Cumulative Effect of Accounting Change for
Income Taxes - FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . (687) - -
-------- -------- --------
Income (Loss) Before Equity in Earnings
of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,648 (7,302) 1,522
Equity in Earnings of Subsidiaries
(Includes dividends accrued and received) . . . . . . . . . . . . . . 426,130 318,596 258,056
-------- -------- --------
Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . $428,778 $311,294 $259,578
======== ======== ========
DIVIDENDS ACCRUED AND RECEIVED FROM SUBSIDIARIES (Cash):
SAFECO Insurance Company of America . . . . . . . . . . . . . . . . . $ 69,000 $ 60,500 $ 37,500
General Insurance Company of America . . . . . . . . . . . . . . . . . 48,500 43,000 37,000
First National Insurance Company of America . . . . . . . . . . . . . 8,500 5,500 2,000
SAFECO National Insurance Company . . . . . . . . . . . . . . . . . . 3,000 8,000 4,000
SAFECO of Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 6,000 3,000
SAFECO Life Insurance Company . . . . . . . . . . . . . . . . . . . . 4,000 4,000 2,000
SAFECO Administrative Services, Inc. . . . . . . . . . . . . . . . . . 560 800 564
SAFECO Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,336 1,320 1,440
SAFECO Credit Company, Inc. . . . . . . . . . . . . . . . . . . . . . 1,532 1,596 1,116
SAFECO Asset Management Company . . . . . . . . . . . . . . . . . . . 2,000 - -
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $143,428 $130,716 $ 88,620
======== ======== ========
30
F-8
Schedule III
SAFECO CORPORATION
(Parent Company Only)
STATEMENT OF CASH FLOWS
(In Thousands)
Year Ended December 31
---------------------------------------
1993 1992 1991
--------- --------- ---------
OPERATING ACTIVITIES:
Dividends and Interest Received - Affiliates . . . . . . . . . . . . . . . . $ 144,288 $ 130,930 $ 103,412
- Other . . . . . . . . . . . . . . . . . . 10,739 7,018 12,347
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,064) (22,653) (21,500)
Other Operating Costs Paid . . . . . . . . . . . . . . . . . . . . . . . . . (404) (458) (568)
Income Taxes Received . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,432 600 7,704
--------- --------- ---------
Net Cash Provided By Operating Activities . . . . . . . . . . . . . . . 136,991 115,437 101,395
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of:
Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,883) (42,106) (4,187)
Equities and Other Investments . . . . . . . . . . . . . . . . . . . . . (32,902) - (7,039)
Sale of Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . 15,665 532 3,528
Maturity of Fixed Maturities . . . . . . . . . . . . . . . . . . . . . . . . 705 917 1,046
Sale of Equities and Other Investments . . . . . . . . . . . . . . . . . . . 27,692 3,586 54,552
Net (Increase) Decrease in Short-Term Investments . . . . . . . . . . . . . (13,245) (20,265) 400
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,878) 5,273
--------- --------- ---------
Net Cash (Used In) Provided By
Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . (14,968) (59,214) 53,573
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from Medium-Term Note Borrowings . . . . . . . . . . . . . . . . . 7,150 42,850 -
Capital Contributions to Affiliates . . . . . . . . . . . . . . . . . . . . (19,175) - (75,000)
Return of Capital Distribution . . . . . . . . . . . . . . . . . . . . . . . - 1,000 13,000
Common Stock Reacquired . . . . . . . . . . . . . . . . . . . . . . . . . . (4,329) (11,897) (5,690)
Dividends Paid to Stockholders . . . . . . . . . . . . . . . . . . . . . . . (108,133) (97,953) (89,092)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,153 7,969 3,725
--------- --------- ---------
Net Cash Used In Financing Activities . . . . . . . . . . . . . . . . . (120,334) (58,031) (153,057)
--------- --------- ---------
Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . . . . . . . . 1,689 (1,808) 1,911
Cash at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . 250 2,058 147
--------- --------- ---------
Cash at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,939 $ 250 $ 2,058
========= ========= =========
31
F-9
Schedule V
Page 1
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In Thousands)
Caption>
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Reserve Other
for Policy
Future Claims and
Policy Benefits
Benefits, Payable Premiums
Deferred Losses, (Funds and
Policy Claims Held Under Service
Acquisition and Loss Unearned Deposit Fee
Segment Costs Expenses(2) Premiums(2) Contracts) Revenues
- ------- ----------- ----------- ----------- ----------- --------
1993
Property and Casualty:
Personal . . . . . . . . $ 97,104 $1,088,269 $ 515,820 $1,400,705
Commercial and Surety . 35,999 1,006,918 293,607 529,009
--------- ---------- --------- ----------
Total . . . . . . . . 133,103 2,095,187 809,427 1,929,714
--------- ---------- --------- ----------
Life and Health:
Financial Services . . . 137,479 109,272 7,246 $4,184,024 44,156
Employee Benefits . . . 96,721 75,401 2,712 3,045,415 261,807
--------- ---------- --------- ---------- ----------
Total . . . . . . . . 234,200 184,673 9,958 7,229,439 305,963
--------- ---------- --------- ---------- ----------
Real Estate . . . . . . . . . . - - - - -
Other Companies
and Eliminations . . . . . - - - - -
--------- ---------- --------- ---------- ----------
Consolidated Totals . $ 367,303 $2,279,860 $ 819,385 $7,229,439 $2,235,677
========= ========== ========= ========== ==========
1992
Property and Casualty:
Personal . . . . . . . . $ 91,072 $1,065,890 $ 468,785 $1,258,893
Commercial and Surety . 33,407 986,444 263,381 495,567
--------- ---------- --------- ----------
Total . . . . . . . . 124,479 2,052,334 732,166 1,754,460
--------- ---------- --------- ----------
Life and Health:
Financial Services . . . 124,459 110,312 7,017 $3,480,758 40,511
Employee Benefits . . . 97,166 78,617 3,416 2,901,897 288,005
--------- ---------- --------- ---------- ----------
Total . . . . . . . . 221,625 188,929 10,433 6,382,655 328,516
--------- ---------- --------- ---------- ----------
Real Estate . . . . . . . . . . - - - - -
Other Companies
and Eliminations . . . . . - - - - -
--------- ---------- --------- ---------- ----------
Consolidated Totals . $ 346,104 $2,241,263 $ 742,599 $6,382,655 $2,082,976
========= ========== ========= ========== ==========
Column G Column H Column I Column J Column K
-------- -------- -------- -------- --------
Other
Amortiza- Operating
Benefits, tion of Costs
Claims, Deferred (Including
Net Losses and Policy Dividends Net
Investment Adjustment Acquisition to Policy- Premiums
Segment Income(1) Expense Costs holders) Written
- ------- ---------- ----------- ----------- --------- --------
1993
Property and Casualty:
Personal . . . . . . . . $1,018,241 $ 260,094 $146,388 $1,446,534
Commercial and Surety . 332,387 81,903 120,853 553,631
---------- --------- -------- ----------
Total . . . . . . . . $ 277,643 1,350,628 341,997 267,241 $2,000,165
--------- ---------- --------- -------- ==========
Life and Health:
Financial Services . . . 390,550 319,202 7,395 53,057
Employee Benefits . . . 277,608 356,276 18,955 93,930
--------- ---------- -------- --------
Total . . . . . . . . 668,158 675,478 26,350 146,987
--------- ---------- -------- --------
Real Estate . . . . . . . . . . - - - 68,173
Other Companies
and Eliminations . . . . . 5,994 - - 62,893
--------- ---------- --------- ---------
Consolidated Totals . $ 951,795 $2,026,106 $ 368,347 $ 545,294
========= ========== ========= =========
1992
Property and Casualty:
Personal . . . . . . . . $ 960,590 $ 239,284 $ 96,731 $1,314,448
Commercial and Surety . 346,062 81,055 102,760 505,997
---------- --------- --------- ----------
Total . . . . . . . . $ 280,820 1,306,652 320,339 199,491 $1,820,445
--------- ---------- --------- --------- ==========
Life and Health:
Financial Services . . . 344,970 283,787 4,940 42,848
Employee Benefits . . . 278,614 390,352 13,921 92,648
--------- ---------- --------- ---------
Total . . . . . . . . 623,584 674,139 18,861 135,496
--------- ---------- --------- ---------
Real Estate . . . . . . . . . . - - - 178,783
Other Companies
and Eliminations . . . . . (1,356) - - 57,720
--------- ---------- --------- ---------
Consolidated Totals . $ 903,048 $1,980,791 $ 339,200 $ 571,490
========= ========== ========= =========
32
F-9
Schedule V
Page 2
SAFECO CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In Thousands)
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Reserve Other
for Policy
Future Claims and
Policy Benefits
Benefits, Payable Premiums
Deferred Losses, (Funds and
Policy Claims Held Under Service
Acquisition and Loss Unearned Deposit Fee
Segment Costs Expenses(2) Premiums(2) Contracts) Revenues
- ------- ----------- ----------- ----------- ---------- ----------
1991
Property and Casualty:
Personal . . . . . . . . $ 81,555 $1,060,210 $ 418,912 $1,161,879
Commercial and Surety . 33,646 957,139 254,976 474,781
--------- ---------- --------- ----------
Total . . . . . . . . 115,201 2,017,349 673,888 1,636,660
--------- ---------- --------- ----------
Life and Health:
Financial Services . . . 105,467 111,825 6,221 $2,894,559 36,135
Employee Benefits . . . 89,762 78,509 5,723 2,644,313 296,576
--------- ---------- --------- ---------- ----------
Total . . . . . . . . 195,229 190,334 11,944 5,538,872 332,711
--------- ---------- --------- ---------- ----------
Real Estate . . . . . . . . - - - - -
Other Companies
and Eliminations . . . . - - - - -
--------- ---------- --------- ---------- ----------
Consolidated Totals . $ 310,430 $2,207,683 $ 685,832 $5,538,872 $1,969,371
========= ========== ========= ========== ==========
Column A Column G Column H Column I Column J Column K
- -------- -------- -------- -------- -------- --------
Other
Amortiza- Operating
Benefits, tion of Costs
Claims, Deferred (Including
Net Losses and Policy Dividends Net
Investment Adjustment Acquisition to Policy- Premiums
Segment Income(1) Expense Costs holders) Written
- ------- ---------- ---------- ----------- ---------- ----------
1991
Property and Casualty:
Personal . . . . . . . . $ 929,453 $ 223,712 $ 88,765 $1,156,104
Commercial and Surety . 355,749 79,374 100,728 473,606
---------- --------- --------- ----------
Total . . . . . . . . $ 286,073 1,285,202 303,086 189,493 $1,629,710
--------- ---------- --------- --------- ==========
Life and Health:
Financial Services . . . 303,560 245,400 6,776 37,827
Employee Benefits . . . 253,885 370,530 14,160 91,354
--------- ---------- --------- ---------
Total . . . . . . . . 557,445 615,930 20,936 129,181
--------- ---------- --------- ---------
Real Estate . . . . . . . . - - - 265,862
Other Companies
and Eliminations . . . . 3,249 - - 55,934
--------- ---------- --------- ---------
Consolidated Totals . $ 846,767 $1,901,132 $ 324,022 $ 640,470
========= ========== ========= =========
(1) Property and casualty insurance companies' investments are available for
payment of claims and benefits for all product lines within the segments;
therefore, such investments and the related investment income have not been
identified with specific segments. In the life and health companies, a
major portion of investment income and assets is specifically identifiable
within an industry segment. The remainder of these amounts has been
allocated in proportion to the mean policy reserves and liabilities
identified with each segment.
(2) 1992 and 1991 amounts restated for FAS113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," adopted by
SAFECO in the first quarter of 1993.
33
F-10
Schedule VI
SAFECO CORPORATION AND SUBSIDIARIES
REINSURANCE FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
(In Thousands)
Column A Column B Column C Column D Column E Column F
-------- ----------- ----------- -------- ----------- ----------
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
----------- ----------- --------- ----------- ----------
Year Ended
December 31, 1993
- -----------------
Life Insurance In-Force
at December 31, 1993 . . . . . . . . $28,009,316 $(1,302,251) $ - $26,707,065 0.0%
=========== =========== ======== =========== ====
Earned Premiums:
Life Insurance . . . . . . . . . . . $ 104,755 $ (4,465) $ - $ 100,290 0.0
Accident and
Health Insurance . . . . . . . . . 210,240 (5,111) 544 205,673 0.3
Property and
Casualty Insurance . . . . . . . . 2,034,268 (127,537) 22,983 1,929,714 1.2
----------- ----------- -------- -----------
Total Premiums . . . . . . . $ 2,349,263 $ (137,113) $ 23,527 $ 2,235,677 1.1%
=========== =========== ======== =========== ====
Year Ended
December 31, 1992
- -----------------
Life Insurance In-Force
at December 31, 1992 . . . . . . . . $27,416,558 $(1,301,956) $ - $26,114,602 0.0%
=========== =========== ======== =========== ====
Earned Premiums:
Life Insurance . . . . . . . . . . . $ 106,049 $ (3,796) $ 10 $ 102,263 0.0
Accident and
Health Insurance . . . . . . . . . 229,723 (5,396) 1,926 226,253 0.9
Property and
Casualty Insurance . . . . . . . . 1,854,442 (124,352) 24,370 1,754,460 1.4
----------- ----------- -------- -----------
Total Premiums . . . . . . . $ 2,190,214 $ (133,544) $ 26,306 $ 2,082,976 1.3%
=========== =========== ======== =========== ====
Year Ended
December 31, 1991
- -----------------
Life Insurance In-Force
at December 31, 1991 . . . . . . . $26,157,015 $(1,124,561) $ 6,850 $25,039,304 0.0%
=========== =========== ======== =========== ====
Earned Premiums:
Life Insurance . . . . . . . . . . . $ 101,722 $ (3,986) $ 16 $ 97,752 0.0
Accident and
Health Insurance . . . . . . . . . 236,547 (4,823) 3,235 234,959 1.4
Property and
Casualty Insurance . . . . . . . . 1,801,485 (192,792) 27,967 1,636,660 1.7
----------- ----------- -------- -----------
Total Premiums . . . . . . . $ 2,139,754 $ (201,601) $ 31,218 $ 1,969,371 1.6%
=========== =========== ======== =========== ====
34
F-11
Schedule IX
SAFECO CORPORATION AND SUBSIDIARIES
SHORT-TERM BORROWINGS
DECEMBER 31, 1993, 1992 AND 1991
(In Thousands)
A summary of short-term borrowings (excluding borrowings from affiliates) is as
follows:
Commercial Master
Quickline Paper Notes
--------- ---------- --------
Year Ended December 31, 1993:
Outstanding at December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . $ -- $253,500 $35,000
Average interest rate at December 31, 1993 . . . . . . . . . . . . . . . . . --% 3.3% 3.4%
Average daily outstanding balance during year ended December 31, 1993 . . . . $ -- $223,397 $37,278
Average interest rate during year ended December 31, 1993 . . . . . . . . . . --% 3.3% 3.2%
Highest outstanding balance at any month end during
year ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . $ -- $253,500 $40,000
Year Ended December 31, 1992:
Outstanding a December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . $ -- $220,500 $40,000
Average interest rate at December 31, 1992 . . . . . . . . . . . . . . . . . --% 3.6% 3.6%
Average daily outstanding balance during year ended December 31, 1992 . . . . $ -- $185,166 $40,000
Average interest rate during year ended December 31, 1992 . . . . . . . . . . --% 3.8% 3.8%
Highest outstanding balance at any month end during
year ended December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . $ -- $220,500 $40,000
Year Ended December 31, 1991:
Outstanding at December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . $ -- $171,000 $40,000
Average interest rate at December 31, 1991 . . . . . . . . . . . . . . . . . --% 4.9% 4.2%
Average daily outstanding balance during year ended December 31, 1991 . . . . $ 124 $208,807 $39,915
Average interest rate during year ended December 31, 1991 . . . . . . . . . . 7.4% 6.1% 5.9%
Highest outstanding balance at any month end during
year ended December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . $ -- $225,500 $40,000
35
F-12
Schedule X
SAFECO CORPORATION
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In Thousands)
Column A Column B Column C Column D Column E Column F Column G
- -------- -------- -------- -------- -------- -------- ---------
Reserve For
Unpaid
Deferred Losses Discount,
Affiliation Policy and Loss if any, Net
With Acquisition Adjustment Deducted In Unearned Earned Investment
Registrant Costs Expense(1) Column C Premiums(1) Premiums Income
- ----------- ----------- ----------- ----------- ----------- -------- ----------
Consolidated
Property
and Casualty
Subsidiaries:
1993 $133,103 $2,095,187 $ - $809,427 $1,929,714 $277,643
1992 $124,479 $2,052,334 $ - $732,166 $1,754,460 $280,820
1991 $115,201 $2,017,349 $ - $673,888 $1,636,660 $286,073
Column A Column H Column I Column J Column K
- -------- -------- -------- -------- ----------
Losses and Loss
Adjustment Expenses
Incurred Related To Amortization Paid
------------------- of Deferred Losses
Affiliation (a) (b) Policy and Loss Net
With Current Prior Acquisition Adjustment Premiums
Registrant Year Years Costs Expense Written
- ----------- ------- ----- ------------ ---------- ----------
Consolidated
Property
and Casualty
Subsidiaries:
1993 $1,447,565 $(96,937) $341,997 $1,318,642 $2,000,165
1992 $1,351,234 $(44,582) $320,339 $1,208,835 $1,820,445
1991 $1,309,259 $(24,057) $303,086 $1,211,344 $1,629,710
(1) 1992 and 1991 amounts restated for FAS113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," adopted by
SAFECO in the first quarter of 1993.
36
F-13
SAFECO CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX*
F-14 Exhibit 3 -- Bylaws (as last amended August 4, 1993).
-- Restated Articles of Incorporation (as amended May 4, 1988) filed as Exhibit 3 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988, are incorporated herein by this
reference.
Exhibit 4 -- The following documents are incorporated herein by this reference: the First Supplemental Indenture
among the Registrant, SAFECO Credit Company, Inc. and Morgan Guaranty Trust Company of New York
dated as of March 20, 1992 and filed as Exhibit 4.3 to Registrant's Current Report on Form 8-K on
March 20, 1992; Indenture among the Registrant, SAFECO Credit Company, Inc. and Morgan Guaranty
Trust Company of New York dated as of December 19, 1990 and filed as Exhibit 4.1 to the Registration
Statement (No. 33-36669) filed jointly by the Registrant and SAFECO Credit Company, Inc. on
September 4, 1990; and the Indenture between the Registrant and Morgan Guaranty Trust Company of
New York dated as of September 12, 1985 and filed as Exhibit 4b to the Registration Statement
(No. 2-99988) filed by the Registrant on August 30, 1985.
Exhibit 10 -- The following documents are incorporated herein by this reference: the Executive Severance
Agreements with Roger Eigsti and Boh A. Dickey, each dated May 23, 1984, and filed as Exhibit 10
to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985; the
Executive Severance Agreement with R.W. Hubbard dated May 23, 1984 and filed as Exhibit 10 to
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986; and the
Executive Severance Agreement with R.E. Zunker dated May 1, 1985 and filed as Exhibit 10 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
-- Prospectus dated November 10, 1989 for the SAFECO Incentive Plan of 1987 (as amended January 31,
1990), filed as Exhibit 10 to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and the Supplement to such Prospectus dated November 7, 1990 filed as Exhibit 10
to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, the
Prospectus dated February 1, 1985 for the SAFECO Stock Option Plan filed as Exhibit 10 to
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984 and the Appendix
dated January 26, 1987 to such Prospectus filed as Exhibit 10 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1986, are incorporated herein by this reference.
37
F-13
SAFECO CORPORATION AND SUBSIDIARIES (Continued)
EXHIBIT INDEX*
F-15 Exhibit 11 - Computation of Income Per Share
F-16 Exhibit 12 - Computation of Ratios
F-17 Exhibit 21 - Subsidiaries of the Registrant
F-18 Exhibit 28 - (P) Information from Reports Furnished to
State Insurance Regulatory Agencies
(paper-filed only, under Form SE)
Exhibit 13 - 1993 Annual Report to Stockholders
(pages 21 to 59, inclusive)
* Copies of Exhibits are available without charge by making a written request
to:
Rod A. Pierson
Senior Vice President, Secretary and Controller
SAFECO Corporation
SAFECO Plaza
Seattle, WA 98185