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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from
_____ to _____.
Commission File Number 1-6563
SAFECO CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0742146
(State of Incorporation) (I.R.S. Employer I.D. No.)
SAFECO Plaza, Seattle, Washington 98185
(Address of principal executive offices)
206-545-5000
(Telephone)
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, No Par Value
(136,279,790 shares were outstanding at January 31, 1999)
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 [ ].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 31, 1999, was $5,300,000,000.
Documents incorporated by reference:
Portions of the registrant's 1998 Annual Report to Shareholders are
incorporated by reference into Parts I and II. Portions of the
registrant's definitive Proxy Statement for the 1999 annual shareholders
meeting to be held May 5, 1999, are incorporated by reference into Part
III.
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PART I ITEM 1. BUSINESS
GENERAL
SAFECO Corporation (the Corporation) is a Washington corporation
that owns operating subsidiaries in various segments of insurance and
other financially related businesses. (The Corporation and its
subsidiaries are collectively referred to as "SAFECO".) SAFECO's
businesses operate on a nationwide basis. Non-U.S. operations are
insignificant. The insurance subsidiaries engage in property and
casualty insurance, surety and life insurance, and generated
approximately 95% of SAFECO's total 1998 revenues. The home offices of
the Corporation and its principal subsidiaries are in Seattle and
Redmond, Washington.
On October 1,1997 SAFECO acquired American States Financial
Corporation ("American States"), an Indianapolis, Indiana-based
insurance holding company with 1996 revenues of $2.0 billion. SAFECO
acquired WM Life Insurance Company (WM Life) on December 31, 1997. Both
acquisitions were treated as purchases for accounting purposes. See Note
2 on page 57 of the 1998 Annual Report to Shareholders, incorporated
herein by reference (Exhibit 13), for additional information. As of
December 31, 1998, SAFECO had approximately 13,000 employees.
In February 1998 SAFECO announced its decision to sell its real
estate investment and management operations to focus on its core
insurance and financial services businesses. See page 14 of this report
for additional information. As SAFECO Properties' operations are not
material to the consolidated financial statements they have not been
reclassified as discontinued operations.
SAFECO's insurance subsidiaries engage in two principal lines:
property and casualty (including surety), and life insurance. SAFECO's
property and casualty operation is one of the largest in the United
States. All areas of the insurance business are highly competitive and
no one insurance company or group of insurers dominates the market.
The Corporation and its insurance subsidiaries are subject to
extensive regulation and supervision. This regulation is generally
designed to protect the interests of policyholders rather than
shareholders and other investors. Such regulation, generally
administered by a department of insurance in each state in which the
insurance subsidiaries do business, relates to, among other things, the
standards of solvency that must be met and maintained; the licensing of
insurers and their agents; the nature of and limitations on investments;
the ability to withdraw from the state; the approval of premium rates;
restrictions on the size of risks that may be insured under a single
policy; reserves and provisions for unearned premiums, losses and other
purposes; deposits of securities for the benefit of policyholders;
approval of policy forms; and the regulation of market conduct,
including underwriting and claims practices. State insurance departments
also conduct periodic examinations of the affairs of insurance companies
and require the filing of annual and other reports relating to the
financial condition of insurance companies, holding company issues and
other matters. The Corporation's insurance subsidiaries are collectively
licensed to transact insurance business in all 50 states and the
District of Columbia. See page 28 of the 1998 Annual Report to
Shareholders for more information on regulatory matters.
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3
PART I ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY -- OPERATIONS
The Corporation's property and casualty subsidiaries include:
SAFECO Insurance Company of America, General Insurance Company of
America, First National Insurance Company of America, SAFECO National
Insurance Company, SAFECO Insurance Company of Illinois, SAFECO Lloyds
Insurance Company, SAFECO Surplus Lines Insurance Company, American
States Insurance Company, American Economy Insurance Company, American
States Preferred Insurance Company, Insurance Company of Illinois,
American States Insurance Company of Texas, American States Lloyds
Insurance Company, F. B. Beattie & Company, Inc. and SAFECO Select
Insurance Services, Inc.
SAFECO's property and casualty subsidiaries write personal,
commercial and surety lines of insurance through independent agents.
Coverages include automobile, homeowners, fire and allied lines,
workers' compensation, commercial multi-peril, miscellaneous casualty,
surety and fidelity. Products are sold in all states and the District of
Columbia.
As discussed above, SAFECO purchased American States on October
1, 1997. SAFECO's purchase of American States has broadened the product
mix available to the combined companies' agency force, particularly in
introducing American States' small commercial lines products into
existing SAFECO agencies.
Consolidated property and casualty gross premiums written for
SAFECO's ten largest states are as follows:
1998 1997 1996
----------------- ---------------- -----------------
% of % of % of
State Amount Total Amount Total Amount Total
- - ----- ------ ----- ------ ----- ------ -----
(Amounts In Millions)
California $ 669.1 15% $ 584.0 20% $ 549.4 22%
Washington 587.6 13 444.0 15 389.2 16
Texas 314.3 7 225.0 8 183.2 7
Illinois 273.6 6 151.6 5 111.4 5
Oregon 238.6 5 181.0 6 155.4 6
Missouri 219.3 5 118.4 4 79.9 3
Indiana 167.2 4 50.3 2 17.9 1
Florida 166.9 4 118.8 4 91.8 4
Michigan 131.7 3 58.7 2 40.2 2
Ohio 117.9 3 57.4 2 36.2 1
-------- --- -------- --- -------- ---
2,886.2 65 1,989.2 68 1,654.6 67
All Others 1,555.6 35 998.2 32 808.9 33
-------- --- -------- --- -------- ---
Total $4,441.8 100% $2,987.4 100% $2,463.5 100%
======== === ======== === ======== ===
The 1997 gross premiums written above include American States
from the October 1, 1997 acquisition date forward. Based on annualized
American States premiums for 1997, the adjusted concentrations are 16%
for California, 13% for Washington, 7% for Texas, 6% for Illinois and 5%
for Oregon.
Personal lines, American States Business Insurance (ASBI),
SAFECO Commercial and surety lines comprised approximately 61%, 21%, 16%
and 2%, respectively, of the 1998 gross premiums written of $4.4
billion.
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PART I ITEM 1. BUSINESS (CONTINUED)
During 1998 the number of personal lines policies in force
increased by 1.8%, while the number of ASBI policies in force increased
by 2.1%. During the fourth quarter of 1998, premiums written by ASBI
increased 8.5% over the same quarter of 1997. Premiums written by SAFECO
Commercial increased 6.6% in 1998 over 1997. Surety premiums were flat
in 1998 compared with 1997 due to increased rate competition in both the
commercial and contract lines.
Additional financial information about SAFECO's business
segments appears in Note 16 on page 72 of the 1998 Annual Report to
Shareholders.
PROPERTY AND CASUALTY -- LOSS RESERVES
The consolidated financial statements include the estimated
liability (reserves) for unpaid losses and loss adjustment expense
("LAE") of the Corporation's property and casualty insurance
subsidiaries. The liability is presented net of amounts from salvage
and subrogation recoveries and gross of amounts recoverable from
reinsurance.
Reserves for losses that have been reported to SAFECO and
certain legal expenses are established on the "case basis" method.
Claims incurred but not reported (IBNR) and other adjustment 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.
SAFECO's objective is to set reserves that are adequate; that
is, the amounts originally recorded as reserves should at least equal
the amounts ultimately required to settle losses. 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 LAE reserve development is reviewed on a regular basis
to determine that the reserving assumptions and methods are appropriate.
Reserves initially determined are compared to the amounts ultimately
paid. A statistical estimate of the projected amounts necessary to
settle outstanding claims is made regularly and compared to the recorded
reserves and adjusted as necessary; such adjustments are included in
current operations. Analysis indicates that SAFECO's reserves are
adequate and probably slightly redundant at December 31, 1998, 1997 and
1996.
The table on page 5 provides an analysis of changes in losses
and LAE reserves for 1998, 1997, and 1996 (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 $100.0 million
in 1998 for a decrease in estimated loss and LAE from claims occurring
in years 1997 and prior. This decrease related primarily to American
States operations. Following the acquisition of American States in 1997,
the claims departments of the two companies were combined in 1998. The
unified claims department implemented training and reserving procedures
resulting in lower claims settlements and reduced reserves on prior
years' American States losses. The reductions were in both personal and
commercial auto, workers' compensation and general liability.
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5
PART I ITEM 1. BUSINESS (CONTINUED)
The 1997 charge to prior years operations of $30.5 million
included a nonrecurring $40.0 million reserve increase related to the
American States acquisition. This reserve increase related to American
States' assumed reinsurance operations, which had been discontinued by
American States prior to SAFECO's acquisition. Excluding this
nonrecurring charge, the 1997 loss and LAE development on claims
occurring in prior years benefited operations $9.5 million. Operations
were credited $77.7 million in 1996 for loss and LAE development in
prior years.
ANALYSIS OF CHANGES IN LOSS AND LAE EXPENSE RESERVES (NET OF
REINSURANCE):
1998 1997 1996
-------- -------- --------
(In Millions)
Loss and LAE Reserves
at Beginning of Year $4,081.9 $1,955.7 $2,070.1
-------- -------- --------
American States Loss and LAE
Reserves at Acquisition
(October 1, 1997) -- 2,204.6 --
-------- -------- --------
Incurred Loss and LAE for Claims
Occurring in the Current Year 3,163.2 1,969.5 1,658.2
Increase (Decrease) in
Estimated Loss and LAE
for Claims Occurring in Prior Years (100.0) 30.5 (77.7)
-------- -------- --------
Total Incurred Loss and LAE 3,063.2 2,000.0 1,580.5
-------- -------- --------
Loss and LAE Payments for Claims
Occurring During:
Current Year 1,836.2 1,172.1 939.5
Prior Years 1,342.6 906.3 755.4
-------- -------- --------
Total Loss and LAE Payments 3,178.8 2,078.4 1,694.9
-------- -------- --------
Loss and LAE Reserves
at End of Year $3,966.3 $4,081.9 $1,955.7
======== ======== ========
Reconciliation:
Loss and LAE Reserves,
Net of Reinsurance $3,966.3 $4,081.9 $1,955.7
Add: Reinsurance Recoverables
on Unpaid Losses 253.6 228.6 103.4
-------- -------- --------
Loss and LAE Reserves,
Gross of Reinsurance $4,219.9 $4,310.5 $2,059.1
======== ======== ========
5
6
PART I ITEM 1. BUSINESS (CONTINUED)
The table on page 7 presents the development of the loss and LAE
reserves for 1988 through 1998. The amounts reported in the table except
for the 1997 and 1998 year end balances are for SAFECO only (i.e., do
not include any amounts for American States.) The top lines of the table
show the estimated reserve for unpaid loss and LAE at December 31 for
each of the indicated years, both gross and net of related reinsurance
amounts. The upper portion of the table shows the cumulative amount paid
with respect to the previously recorded reserve as of the end of each
succeeding year. The next section shows the re-estimated amount of the
previously recorded reserve based on experience as of each succeeding
year. The estimate is increased or decreased as more information becomes
known about individual claims and as changes in conditions and claim
trends become apparent. The lower section of the table shows the
cumulative redundancy developed with respect to the previously recorded
liability as of the end of each succeeding year. For example, the 1988
reserve of $1,426.6 million developed a $28.9 million redundancy after
one year which grew over ten years to a redundancy of $60.9 million.
For 1988 and through 1997, SAFECO's reserve development has been
favorable. This trend reflects several factors: aggressive reserving
previously undertaken to correct deficiencies in years prior to 1988,
favorable workers' compensation legislation, moderation of medical costs
and inflation, and claims department changes. The favorable legislation
in workers' compensation, which relates primarily to the states of
Oregon and California in the early 1990's, helped reduce fraud, allowed
for faster claim settlement and made it more difficult to reopen claims
-- all of which reduced SAFECO's ultimate loss costs. The cost of claim
settlements in several lines of business has benefited from changes in
the organization of SAFECO's claims department which has established
separate specialized units for workers' compensation, environmental
exposures and fraud investigations. In addition, increased focus on
adjustment expenses helped reduce these costs.
In evaluating the reserve development table on page 7, note that
each amount includes the effects of all changes in amounts for prior
periods. For example, the amount of the redundancy shown for the
December 31, 1997 reserves that relates to losses incurred in 1988 is
included in the cumulative redundancy amount for the years 1988 through
1996. 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.
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7
PART I ITEM 1. BUSINESS (CONTINUED)
ANALYSIS OF LOSSES AND ADJUSTMENT EXPENSE RESERVE DEVELOPMENT
Year Ended December 31 1988 1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -------- --------
(In Millions)
Reserve for Unpaid
Losses and Adjustment
Expenses:
Gross of Reinsurance $1,523.6 $1,702.5 $1,872.1 $2,017.3 $2,052.3 $2,095.2 $2,236.8
Reinsurance 97.0 75.3 80.7 152.0 89.2 100.1 143.9
-------- -------- -------- -------- -------- -------- --------
Net of Reinsurance $1,426.6 $1,627.2 $1,791.4 $1,865.3 $1,963.1 $1,995.1 $2,092.9
======== ======== ======== ======== ======== ======== ========
Cumulative Net Amount Paid as of:
One Year Later $ 443.1 $ 540.2 $ 603.0 $ 584.9 $ 598.9 $ 620.5 $ 693.0
Two Years Later 725.7 849.6 914.5 905.7 913.4 947.6 1,068.3
Three Years Later 902.5 1,035.0 1,109.4 1,086.5 1,106.0 1,147.6 1,252.9
Four Years Later 1,010.3 1,149.5 1,221.6 1,207.2 1,230.6 1,252.5 1,341.5
Five Years Later 1,083.5 1,222.1 1,301.1 1,294.4 1,295.7 1,300.2
Six Years Later 1,129.9 1,276.4 1,368.9 1,336.7 1,326.1
Seven Years Later 1,169.9 1,323.0 1,403.5 1,356.9
Eight Years Later 1,203.4 1,344.0 1.419.0
Nine Years Later 1,220.3 1,359.4
Ten Years Later 1,232.4
Net Reserve Re-estimated as of:
One Year Later 1,397.7 1,621.9 1,767.4 1,820.7 1,866.2 1,913.8 2,033.2
Two Years Later 1,368.1 1,593.6 1,705.8 1,732.8 1,782.1 1,818.3 1,902.3
Three Years Later 1,355.8 1,541.4 1,666.1 1,686.0 1,712.2 1,716.1 1,801.9
Four Years Later 1,338.6 1,544.8 1,657.2 1,650.7 1,642.3 1,643.6 1,733.8
Five Years Later 1,360.5 1,549.9 1,637.5 1,594.9 1,600.9 1,599.8
Six Years Later 1,386.7 1,546.9 1,608.5 1,569.5 1,554.7
Seven Years Later 1,383.3 1,525.4 1,595.4 1,548.7
Eight Years Later 1,373.7 1,515.4 1,586.7
Nine Years Later 1,369.2 1,510.0
Ten Years Later 1,365.7
Cumulative Net Redundancy as of:
One Year Later 28.9 5.3 24.0 44.6 96.9 81.3 59.7
Two Years Later 58.5 33.6 85.6 132.5 181.0 176.8 190.6
Three Years Later 70.8 85.8 125.3 179.3 250.9 279.0 291.0
Four Years Later 88.0 82.4 134.2 214.6 320.8 351.5 359.1
Five Years Later 66.1 77.3 153.9 270.4 362.2 395.3
Six Years Later 39.9 80.3 182.9 295.8 408.4
Seven Years Later 43.3 101.8 196.0 316.6
Eight Years Later 52.9 111.8 204.7
Nine Years Later 57.4 117.2
Ten Years Later 60.9
Year Ended December 31 1995 1996 1997 1998
-------- -------- -------- --------
(In Millions)
Reserve for Unpaid
Losses and Adjustment
Expenses:
Gross of Reinsurance $2,180.8 $2,059.1 $4,310.5 $4,219.9
Reinsurance 110.7 103.4 228.6 253.6
-------- -------- -------- --------
Net of Reinsurance $2,070.1 $1,955.7 $4,081.9 $3,966.3
======== ======== ======== ========
Cumulative Net Amount Paid as of:
One Year Later $ 755.4 $ 772.9 $1,345.5
Two Years Later 1,095.0 1,101.4
Three Years Later 1,267.6
Four Years Later
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Net Reserve Re-estimated as of:
One Year Later 1,992.4 1,947.7 3,981.9
Two Years Later 1,889.9 1,861.4
Three Years Later 1,804.7
Four Years Later
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
Cumulative Net Redundancy as of:
One Year Later 77.7 8.0 100.0
Two Years Later 180.2 94.3
Three Years Later 265.4
Four Years Later
Five Years Later
Six Years Later
Seven Years Later
Eight Years Later
Nine Years Later
Ten Years Later
7
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PART I ITEM 1. BUSINESS (CONTINUED)
The following table summarizes reserve development, gross of
reinsurance, for the last three years. The 1995 and 1996 reserve amounts
are for SAFECO only (i.e. does not include any amounts for American
States).
1995 1996 1997
-------- -------- --------
(In Millions)
Gross Reserves $2,180.8 $2,059.1 $4,310.5
======== ======== ========
Cumulative Development
Net of Reinsurance $ 265.4 $ 94.3 $ 100.0
Cumulative Development
of Reinsurance Ceded 3.6 (9.8) (43.1)
-------- -------- --------
Cumulative Development
Gross of Reinsurance $ 269.0 $ 84.5 $ 56.9
======== ======== ========
Environmental and Asbestos Claims
The property and casualty companies' reserves for losses and LAE
for liability coverages related to environmental, asbestos and other
toxic claims totaled $329.8 million at December 31, 1998 compared with
$346.9 million at December 31, 1997. These amounts are before the effect
of reinsurance, which totaled $30.9 million and $24.7 million at
December 31, 1998 and 1997. These reserves are approximately 8% of total
property and casualty reserves for losses and LAE at both December 31,
1998 and December 31, 1997. The reserves include estimates for both
reported and IBNR losses and related legal expenses.
The vast majority of SAFECO' property and casualty insurance
subsidiaries' environmental, asbestos and other toxic claims result from
the commercial general liability line of business and the discontinued
assumed reinsurance operations of American States. A few of these losses
occur in other coverages such as umbrella, small commercial package
policies and personal lines. Approximately 6,000 of these claims were
pending at December 31, 1998, computed on an occurrence basis. Most of
these pending environmental claims involve some type of
environmental-related coverage dispute. The average settlement cost of
each environmental, asbestos and other toxic claim for 1998 was $13,200
including legal expenses.
The following table summarizes the components of SAFECO's
reserves for environmental, asbestos and other toxic claims at December
31, 1998, before the effect of reinsurance:
Loss LAE Total
------ ------ ------
(In Millions)
Case $103.6 $ 28.8 $132.4
IBNR 153.5 43.9 197.4
------ ------ ------
Total $257.1 $ 72.7 $329.8
====== ====== ======
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9
PART I ITEM 1. BUSINESS (CONTINUED)
This table shows the loss reserve activity analysis for
liability coverages related to environmental, asbestos and other toxic
claims, before the effect of reinsurance.
1998 1997 1996
------ ------ ------
(In Millions)
Reserves at Beginning of Year $346.9 $102.8 $107.5
American States Reserves at Acquisition -- 264.4 --
Incurred Losses and LAE 1.6 (9.9) 4.6
Losses and LAE Payments (18.7) (10.4) (9.3)
------ ------ ------
Reserves at End of Year $329.8 $346.9 $102.8
====== ====== ======
Although estimation of environmental claims is difficult, the
reserves established for these claims at December 31, 1998 are believed
to be adequate based on the known facts and current law. SAFECO has
generally avoided writing coverages for larger companies with
substantial exposure in these areas. In view of changes in environmental
regulations and evolving case law which affect the development of loss
reserves, the process of estimating loss reserves for environmental,
asbestos and other toxic claims results in imprecise estimates.
Quantitative loss reserving techniques have to be supplemented by
subjective considerations and managerial judgment. Because of these
conditions, trends that have affected development of these liabilities
in the past may not necessarily occur in the future.
Construction Defect Claims
Prior to its acquisition by SAFECO, American States had
experienced adverse loss development on construction defect claims.
Construction defect claims are a subset of claims that arise from
coverage provided by general property damage liability insurance. They
are defined as those claims involving allegations of defective work
which result in claims for damages related to the diminution of value of
large construction projects, such as condominiums, office buildings,
shopping centers and housing developments. The vast majority of American
States' reported construction defect claims involve construction
activity in California, with most of such reported claims being incurred
in accident years prior to 1994.
From an operational perspective, in late 1992, American States
established a dedicated claims unit specifically for the management of
construction defect claims. SAFECO has not historically separated these
claims for the purpose of reserve analysis. Beginning in 1993, American
States intentionally began reducing the volume of new contractor
business written in California. American States' reserves for
construction defect claims totaled $328.6 million at December 31, 1998
and $340.3 million at December 31, 1997, representing approximately 8%
of total property and casualty reserves for losses and LAE at both
December 31, 1998 and 1997. The reserves established for these claims at
December 31, 1998 are believed to be adequate.
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10
PART I ITEM 1. BUSINESS (CONTINUED)
This following table shows the loss reserve activity analysis
for American States construction defect claims after the effect of
reinsurance for 1998 (the first full year following the acquisition):
1998
------
(In Millions)
Reserves at Beginning of Year $340.3
Incurred Losses and LAE 55.4
Losses and LAE Payments (67.1)
------
Reserves at End of Year $328.6
======
GAAP vs. Statutory
State regulatory authorities require SAFECO's property and
casualty insurance subsidiaries to file annual statements prepared on an
accounting basis prescribed or permitted by their respective state of
domicile (that is, on a statutory basis). The difference between the
$4,219.9 million reserve at December 31, 1998, for the losses and LAE
disclosed in the consolidated financial statements in accordance with
generally accepted accounting principles (GAAP), and the $3,966.3
million reported in the annual statements filed with state regulatory
authorities relates to reinsurance recoverables. Under FASB Statement
113, the GAAP-basis liability for losses and LAE is reported gross of
amounts recoverable from reinsurance. Statutory-basis financial
statements show the liability net of reinsurance.
Reinsurance
SAFECO's property and casualty companies use treaty and
facultative reinsurance to help manage exposure to loss. As noted above,
the liability for unpaid losses and LAE is reported gross of reinsurance
recoverables of $253.6 million at December 31, 1998 and $228.6 million
at December 31, 1997. The availability and cost of reinsurance are
subject to prevailing market conditions, both in terms of price and
available capacity. Although the reinsurer is liable to SAFECO to the
extent of the reinsurance ceded, SAFECO remains primarily liable to the
policyholder as the direct insurer on all risks insured. To SAFECO's
knowledge none of its reinsurers is experiencing financial difficulties.
SAFECO's catastrophe property reinsurance program for 1999 is
unchanged from 1998 and covers 90% of $400 million of single-event
losses in excess of a $100 million retention. In a large catastrophe,
SAFECO would, therefore, retain the first $100 million of losses, 10% of
the next $400 million and all losses in excess of $500 million. In
addition to this nationwide coverage, for all states other than
California SAFECO has a supplemental earthquake-only reinsurance
contract that would cover 90% of $350 million of single-event earthquake
losses in excess of $500 million. Both of these 1999 catastrophe
property reinsurance contracts include provisions for one reinstatement
for a second catastrophe event in 1999 at current rates.
SAFECO's insurance subsidiaries do not enter into retrospective
reinsurance contracts and do not participate in any unusual or
nonrecurring reinsurance transactions such as "swaps" of reserves or
loss portfolio transfers. SAFECO does not use "funding covers" and does
not participate in any surplus relief transactions. For additional
information on reinsurance, see Note 6 on page 65 of the 1998 Annual
Report to Shareholders.
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11
PART I ITEM 1. BUSINESS (CONTINUED)
LIFE -- OPERATIONS
The Corporation's subsidiaries engaged in the life insurance
business are SAFECO Life Insurance Company, SAFECO National Life
Insurance Company, First SAFECO National Life Insurance Company of New
York, American States Life Insurance Company, Empire Life Insurance
Company and SAFECO Administrative Services, Inc. (collectively referred
to as "SAFECO Life"). These companies offer individual and group
insurance products, retirement services (pension) and annuity products.
SAFECO Life markets these products through professional agents in all
states and the District of Columbia. The most significant product lines
in terms of premium/deposit volume are single premium immediate and
deferred annuities, business-owned life insurance (BOLI), indexed and
variable annuities, tax-sheltered annuities for the education and
nonprofit markets, corporate retirement plans, excess loss group medical
insurance and individual life insurance.
SAFECO acquired American States Life on October 1, 1997 and WM
Life Insurance Company on December 31, 1997. Both acquisitions have been
treated as purchases for accounting purposes. WM Life Insurance Company
was merged into SAFECO Life Insurance Company on July 1, 1998.
SAFECO Life reinsures portions of its individual and group life,
accident and health insurance through commercial reinsurance treaties,
thus providing protection against large risks and catastrophe
situations.
Funds received under deposit contracts relate primarily to the
annuity and retirement services products of SAFECO's life insurance
subsidiaries. The table on page 12 summarizes the components of funds
held under deposit contracts at December 31, 1998, and describes the
applicable surrender charges and surrender experience.
11
12
PART I ITEM 1. BUSINESS (CONTINUED)
DETAIL OF SAFECO LIFE INSURANCE COMPANIES' FUNDS HELD UNDER DEPOSIT CONTRACTS
Outstanding at Expected Maturities Range of Credited or Approximate
12/31/98 of Liabilities Assumed Interest Rates Surrender
Product (In Millions) (at issue date) at 12/31/98 Surrender Charges Experience
------- ------------- --------------- ----------- ----------------- ----------
Universal $1,367.4 Approximately 10-20 5.25% to 7.15% Varies by issue age, 7% per annum
Individual Years sex and duration from
Life $1 to $58 per $1,000
of insurance
Annuities:
Structured 5,531.6 Over 25 Years 3.5% to 12.40% Cannot surrender Cannot surrender
Settlement
Immediate
Retirement
Services:
Guaranteed 605.2 Typically 5.63% to 6.20% Market value adjustment or Less than 1%
Investment 2-5 Years cannot surrender in first year per annum
Contracts
Other 4,490.9 Approximately 4.00% to 7.95% Highest surrender charges range 13% per annum
Annuities & 5-20 Years from 10% to 5%, graded down to
Deposits 0% within 5 to 10 years. SAFECO
has the option to defer payout
over 5 years for about 13%
of these contracts.
723.0 Approximately Equity return credited Typically 8% in year 1 graded to 2% to 3% per annum
Equity 6 Years is based on S&P 500 0% after year 6.
Indexed performance with a
Annuities minimum guarantee of
0%. Floor return
based on a minimum
fixed return on a
portion (typically
90%) of the
original deposit
amount.
---------
Total $12,718.1
=========
12
13
PART I ITEM 1. BUSINESS (CONTINUED)
INVESTMENTS
A description of SAFECO's investment portfolio appears on pages
38-40 of the 1998 Annual Report to Shareholders. The rest of this
section provides additional information about SAFECO's mortgage-backed
securities and investment income yields.
SAFECO's consolidated investment in mortgage-backed securities
of $3.7 billion at market value at December 31, 1998, consists mainly of
residential collateralized mortgage obligations (CMOs) and
pass-throughs. The life portfolio contains virtually all of these
securities. Approximately 92% of the mortgage-backed securities are
government/agency-backed or AAA rated at December 31, 1998. SAFECO has
intentionally limited its investment in riskier, more volatile CMOs
(principal only, inverse floaters, and so forth) to less than 1% of
total mortgage-backed securities at December 31, 1998.
SAFECO Consolidated Holdings of Mortgage-Backed Securities at
December 31, 1998:
GAAP Market Value
-----------------------
Amortized
Cost Amount %
-------- -------- --------
(Amounts In Millions)
Residential CMOs:
Planned Amortization Class
(PAC) and
Targeted Amortization Class
(TAC) (Fixed Coupon) $1,088.6 $1,121.6 29.9%
Sequential Pay (SEQ) 726.4 757.5 20.2
Accrual Coupon (Z-Tranche) 647.3 742.0 19.8
Floating Rate 42.3 42.8 1.1
Companion/Support, Principal Only,
Inverse Floaters 24.7 26.9 0.8
-------- -------- --------
Subtotal 2,529.3 2,690.8 71.8
-------- -------- --------
Residential Mortgage-Backed
Pass-Throughs (Non-CMOs):
Government/Agency-Backed 75.0 75.3 2.0
Private Issue 13.1 13.3 0.4
-------- -------- --------
Subtotal 88.1 88.6 2.4
-------- -------- --------
Securitized Commercial
Real Estate:
Government/Agency-Backed 373.6 388.3 10.4
Pass-Throughs (Non-agency) 93.5 95.6 2.5
CMOs (Non-agency) 278.4 284.0 7.6
-------- -------- --------
Subtotal 745.5 767.9 20.5
-------- -------- --------
Asset-Backed Securities
(Non-Real Estate): 196.9 199.1 5.3
-------- -------- --------
Total Mortgaged-Backed
Securities $3,559.8 $3,746.4 100.0%
======== ======== ========
13
14
PART I ITEM 1. BUSINESS (CONTINUED)
This table shows the quality distribution of SAFECO's mortgage-backed
security portfolio (GAAP market values):
Percent at
Rating December 31, 1998
------ -----------------
Government/Agency Backed 56%
AAA 36
AA 3
A 2
BBB 3
BB or lower --
---
Total 100%
===
The table below summarizes pretax investment income yields for
SAFECO's property and casualty and life insurance subsidiaries
(calculations are based on GAAP amortized cost):
1998 1997 1996
---- ---- ----
Property and Casualty 6.3% 6.6% 6.8%
Life 7.8% 7.9% 8.1%
Investment income yields declined in both portfolios mainly
because of the lower interest rate environment in all years shown.
OTHER OPERATIONS
SAFECO's other operations include subsidiaries involved in
commercial lending and leasing (SAFECO Credit), investment management
and insurance agency and financial services distribution operations.
In February 1998 SAFECO announced its decision to sell its real
estate investment and management operations to focus on its core
insurance and financial services businesses. These operations include
SAFECO Properties, Inc. and its subsidiaries Winmar Company, Inc., which
primarily develops and manages retail shopping centers, and SAFECARE
Company, Inc., which invests in medical real estate including skilled
nursing, retirement and assisted living facilities. In February 1999
SAFECO closed the sale on the majority of SAFECO Properties' assets to
The Macerich Partnership, L.P. and the Ontario Teacher's Pension Plan
Board for $427 million. The closing was the first phase in a series of
sales of SAFECO Properties' holdings. The sales of two additional
properties for the combined proceeds of approximately $143 million are
expected to be completed during the second quarter of 1999. SAFECO is
continuing to market its remaining properties, which have a book value
of approximately $200 million. SAFECO expects to recognize a gain on
the sale of all of the properties. As SAFECO Properties' operations
are not material to the consolidated financial statements they have
not been reclassified as discontinued operations.
14
15
PART I ITEM 1. BUSINESS (CONTINUED)
SAFECO Credit Company, Inc., organized in 1969, provides loans
and equipment financing and leasing to commercial businesses, including
affiliated companies. At December 31, 1998, 14% of the Credit Company's
outstanding loans and leases consisted of loans to affiliated SAFECO
companies.
SAFECO Asset Management Company, acquired in 1973, is the
investment advisor for SAFECO's mutual funds, variable annuity
portfolios and outside pension and trust accounts.
SAFECO Securities, Inc., organized in 1967, is the principal
underwriter of the SAFECO Mutual Funds, comprising the SAFECO Common
Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust,
SAFECO Money Market Trust, and the SAFECO Managed Bond Trust. These five
trusts are made up of nineteen separate investment portfolios, all of
which are sold directly to the public. Fifteen of these portfolios have
two additional classes of stock which are sold to the public through
broker/dealers.
In addition, SAFECO Securities, Inc. is the principal
underwriter for the SAFECO Resource Series Trust mutual fund, with six
separate investment portfolios. SAFECO Securities is also the principal
underwriter for the variable insurance products issued by SAFECO
Resource Variable Account B, SAFECO Separate Account SL and SAFECO
Separate Account C, all of which are separate accounts of SAFECO Life
Insurance Company and for First SAFECO Separate Account S, which is a
separate account of First SAFECO National Life Insurance Company of New
York.
SAFECO Services Corporation, organized in 1972, is the transfer
agent for SAFECO's mutual funds.
SAFECO Trust Company, organized in 1994, provides asset
management and trust administrative services to high net worth
individuals and unrelated organizations.
SAFECO Investment Services, Inc., organized in 1986, is a
broker/dealer that distributes affiliated and nonaffiliated mutual funds
and variable insurance products through its registered representatives.
Talbot Financial Corporation, acquired in 1993, is a broad-based
insurance broker with a heavy emphasis on the distribution of qualified
and nonqualified annuity products and mutual funds through the banking
and brokerage arenas.
15
16
PART I ITEM 2. PROPERTIES
SAFECO's property and casualty insurance companies lease their
home office complex located in Seattle, Washington from General America
Corporation (a wholly-owned subsidiary of SAFECO Corporation). This
complex totals 567,000 gross square feet. A 700-car parking garage is
connected to the complex. SAFECO's life insurance companies lease their
headquarters building located in Redmond, Washington from General
America Corporation. This complex totals 232,000 gross square feet.
SAFECO is currently developing approximately 650,000 gross
square feet of additional office space for its use on land near the life
insurance companies' Redmond, Washington headquarters.
American States' main office complex is leased from a third
party and is located in Indianapolis, Indiana. This 408,000 gross square
foot complex is leased through 2009.
Other buildings owned and occupied include service facilities in
Redmond, Washington and Indianapolis, Indiana, as well as regional and
branch offices in Fountain Valley and Pleasant Hill, CA; Denver, CO;
Atlanta, GA; Carol Stream, IL; St. Louis, MO; Cincinnati, OH; Portland,
OR; Montlake Terrace, Redmond, and Spokane, WA. These buildings comprise
approximately 1,800,000 gross square feet. All other branch and service
offices occupy leased premises comprising approximately 2,000,000 square
feet, generally for periods of five years or less.
SAFECO Properties, Inc., and its subsidiaries Winmar Company,
Inc. and SAFECARE Company, Inc., invest in and manage real estate
properties, primarily retail shopping centers throughout the United
States. The properties are owned by subsidiaries of Winmar and in
conjunction with other investors, and others are leased under long-term
leases. See Item 1 on page 14 of this report and Note 2 on page 57 of
the 1998 Annual Report to Shareholders for additional information.
ITEM 3. LEGAL PROCEEDINGS
Because of the nature of their businesses, the Corporation's
insurance and other subsidiaries are subject to certain legal actions
filed or threatened in the ordinary course of their business operations,
generally as liability insurers defending third-party claims brought
against their insureds or as insurers defending policy coverage claims
brought against them. The Corporation does not believe that such
litigation will have a material adverse effect on its financial
condition, future operating results or liquidity.
The property and casualty insurance subsidiaries of the
Corporation are parties to a number of lawsuits for liability coverages
related to environmental claims. Although estimation of environmental
claims loss reserves is difficult, the Corporation believes that
reserves established for these claims are adequate based on the known
facts and current law. The loss and loss adjustment expense with respect
to any such lawsuit, or all lawsuits related to a single incident
combined, are not expected to be material to the financial condition of
SAFECO. See page 8 of Item 1 for more information regarding the
liability of such subsidiaries for environmental claims and the process
of estimating environmental loss reserves.
Four of the Corporation's property and casualty insurance
subsidiaries were among 23 underwriters of real property insurance named
as defendants in a case brought in February 1996 in the United States
District Court for the Western District of Missouri alleging that their
underwriting, sales and marketing practices violated the Fair Housing
Act and certain other civil rights laws. The trial court refused to
certify the plaintiff class and dismissed the lawsuit in June 1997. The
plaintiffs appealed. In July 1998 the Eighth Circuit Court of Appeals
upheld the
16
17
PART 1 ITEM 3. LEGAL PROCEEDINGS(CONTINUED)
dismissal, and in January 1999 the United States Supreme Court refused
to grant certiori to hear the case. Meanwhile, in January 1999, a group
of plaintiffs filed separate lawsuits in Missouri state court against
the SAFECO property and casualty insurance companies named in the
federal court action. The state court action against the SAFECO
defendants was removed to federal district court in February 1999 and
assigned to the same judge who had ordered dismissal of the original
federal court action. Based on current information, management expects
that the remaining lawsuits against the SAFECO subsidiaries will be
dismissed just as the original federal court action was and intends to
vigorously pursue such dismissal.
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 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 24, 1999, 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 56 Chairman since May 1993. Chief Executive Officer since January 1992. President
from May 1989 to August 1996. Chief Operating Officer from 1989 to 1991. Executive
Vice President and Chief Financial Officer from 1985 to 1989. Director since 1988.
Boh A. Dickey 54 President and Chief Operating Officer since August 1996. Executive Vice President
from January 1992 to August 1996. Chief Financial Officer from May 1989 to August
1996. Senior Vice President from 1989 to 1991. Secretary from 1985 to 1991. Vice
President and Controller from 1982 to 1989. Director since 1993.
Rodney A. Pierson 51 Chief Financial Officer since August 1996. Senior Vice President since February
1994. Secretary since 1991. Controller from 1990 to 1997. Vice President from 1990
to 1994. Vice President of SAFECO Property and Casualty Insurance Companies from
1987 to 1990. Controller of SAFECO Property and Casualty Insurance Companies from
1984 to 1990.
James W. Ruddy 49 Senior Vice President since 1992. General Counsel since 1989. Vice President from
1989 to 1992. Associate General Counsel from 1985 to 1989.
W. Randall Stoddard 51 President of SAFECO Property and Casualty Insurance Companies since July 1997.
Chief Operating Officer of SAFECO Property and Casualty Insurance Companies from
1996 to July 1997. Senior Vice President of Field Operations from 1994 to 1996.
Randall H. Talbot 44 President of SAFECO Life Insurance Companies since February 1998. Chief Executive
Officer and President of Talbot Financial Corporation from 1988 to 1998.
17
18
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Pages 41 and 75 of the 1998 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Pages 76 through 79 of the 1998 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 26 through 41 of the 1998 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pages 40 and 41 of the 1998 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 43 through 75 of the 1998 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III The definitive proxy statement to be filed within 120 days after
December 31, 1998, excluding the Annual Report of the Compensation
Committee on Executive Compensation appearing on Pages 6 through 12, is
incorporated herein by reference to fulfill the requirements of ITEM
10, "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" (except for
that portion of Item 10 relating to executive officers which appears in
Part I of this 10-K), and to fulfill the requirements of ITEM 11,
"EXECUTIVE COMPENSATION," ITEM 12, "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT," and ITEM 13, "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
18
19
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements
F-1 Consent of Independent Auditors
SAFECO Corporation and Subsidiaries:
The following consolidated financial statements of SAFECO
Corporation and its subsidiaries, included in the 1998 Annual
Report to Shareholders (pages 42 through 75), are incorporated
herein by reference:
Consolidated Balance Sheet
December 31, 1998 and 1997
Statement of Consolidated Income
Years Ended December 31, 1998, 1997 and 1996
Statement of Consolidated Cash Flows
Years Ended December 31, 1998, 1997 and 1996
Statement of Consolidated Comprehensive Income
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
December 31, 1998
Report of Independent Auditors
SAFECO Corporation and Subsidiaries Supplemental Consolidating
Information:
F-2 Balance Sheet
December 31, 1998 and 1997
F-3 Statement of Income
Year Ended December 31, 1998
F-4 Statement of Cash Flows
Year Ended December 31, 1998
19
20
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(a) (2) Financial Statement Schedules
F-5 Schedule I Summary of Investments Other Than Investments
in Related Parties December 31, 1998
Schedule II Condensed Financial Information of the
Registrant (Parent Company Only):
F-6 Balance Sheet
December 31, 1998 and 1997
F-7 Statement of Income
Years Ended December 31, 1998, 1997 and
1996
F-8 Statement of Cash Flows Years Ended
December 31, 1998, 1997 and 1996
Statement of Changes in Shareholders' Equity
Years Ended December 31, 1998, 1997 and
1996. (See page 48 of the 1998 Annual
Report to Shareholders which is
incorporated herein by reference.)
F-9 Schedule III Supplementary Insurance Information
Years Ended December 31, 1998, 1997 and 1996
F-10 Schedule IV Reinsurance
Years Ended December 31, 1998, 1997 and 1996
F-11 Schedule VI Supplemental Information Concerning
Property/Casualty Insurance Operations
Years Ended December 31, 1998, 1997 and 1996
The following Article 7 schedules are omitted because the
information is provided elsewhere in the Annual Report (Form
10-K) or because of the absence of conditions under which they
are required:
Schedule V
20
21
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K(CONTINUED)
(a) (3) Exhibits
F-12 Exhibit Index
Exhibit 3.1 Bylaws (as last amended August 5, 1998),
filed as Exhibit 3 to SAFECO's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1998.
Exhibit 3.2 Restated Articles of Incorporation (as
amended May 7, 1997), filed as Exhibit 3.2 to
SAFECO's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
Exhibit 4.1 SAFECO agrees to furnish the Securities and
Exchange Commission, upon request, with copies
of all instruments defining rights of holders of
long-term debt of SAFECO and its consolidated
subsidiaries.
Exhibit 4.2 Indenture, dated as of July 15, 1997,
between SAFECO and The Chase Manhattan Bank, as
Trustee, filed as Exhibit 4.2 to SAFECO's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
Exhibit 4.3 Form of Certificate of Exchange Junior
Subordinated Debenture filed as Exhibit 4.2 to
SAFECO's Registration Statement on Form S-4 (No.
333-38205) dated October 17, 1997.
Exhibit 4.4 Certificate of Trust of SAFECO Capital Trust
I dated June 18, 1997, filed as Exhibit 4.4 to
SAFECO's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
Exhibit 4.5 Amended and Restated Declaration of Trust of
SAFECO Capital Trust I dated as of July 15,
1997, filed as Exhibit 4.5 to SAFECO's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1997.
Exhibit 4.6 Form of Exchange Capital Security
Certificate for SAFECO Capital Trust I filed as
Exhibit 4.5 to SAFECO's Registration Statement
on Form S-4 (No. 333-38205) dated October 17,
1997.
Exhibit 4.7 Form of Exchange Guarantee of SAFECO
Corporation relating to the Exchange Capital
Securities filed as Exhibit 4.6 to SAFECO's
Registration Statement on Form S-4 (No.
333-38205) dated October 17, 1997.
21
22
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K(CONTINUED)
Exhibit 10.1 Purchase and Sale Agreement by and between
Washington Square, Inc., Kitsap Associates
Limited Partnership, Winmar Cascade, Inc.,
Winmar Oregon, Inc., Winmar of Kitsap, Inc.,
SCIT, Inc., Town Center Associates, and Winmar
Company, Inc., as sellers; and The Macerich
Partnership, L.P., and Ontario Teachers' Pension
Plan Board, as purchaser, dated December 11,
1998. SAFECO agrees to furnish the Securities
and Exchange Commission, upon request, with
copies of all omitted schedules to the foregoing
Purchase and Sale Agreement.
Exhibit 10.4 Five-Year Credit Agreement dated as of
September 24, 1997, among SAFECO; Bank of
America National Trust and Savings Association,
as Agent; Mellon Bank, N.A., as Documentation
Agent; The Chase Manhattan Bank, as Syndication
Agent; and the various co-agents, lead managers,
and financial institutions identified in said
Credit Agreement as parties thereto, filed as
Exhibit 10.1 to SAFECO's Annual Report on Form
10-K for the fiscal year ended December 31,
1997.
The following management contracts and compensatory plan
arrangements:
Exhibit 10.2 SAFECO Corporation Deferred Compensation
Plan for Directors, As Amended and Restated on
November 4, 1998.
Exhibit 10.3 SAFECO Deferred Compensation Plan for
Executives, As Amended and Restated on November
4, 1998.
Exhibit 10.5 Executive Severance Agreements between
SAFECO and each of Roger H. Eigsti and Boh A.
Dickey dated May 23, 1984, filed as Exhibit 10
to SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985; the Form of
Executive Severance Agreements between SAFECO
and each of Rod A. Pierson, James W. Ruddy, and
W. Randall Stoddard, in each case dated August
30, 1996, filed as Exhibit 10 to SAFECO's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996; and Executive
Severance Agreement between SAFECO and SAFECO
Life Insurance Company and Randall H. Talbot
dated February 7, 1998, filed as Exhibit 10 to
SAFECO's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
Exhibit 10.6 SAFECO Long-Term Incentive Plan of 1997
filed as Exhibit 99.1 to SAFECO's Registration
Statement on Form S-8 (No. 333-26393) dated May
2, 1997.
Exhibit 10.7 Form of Stock Option Contract granted under
the SAFECO Long-Term Incentive Plan of 1997,
filed as Exhibit 10.6 to SAFECO's Annual Report
on Form 10-K for the fiscal year ended December
31, 1997.
22
23
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K(CONTINUED)
Exhibit 10.8 Form of Restricted Stock Rights Award
Agreement granted under the SAFECO Long-Term
Incentive Plan of 1997, filed as Exhibit 10.7 to
SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
Exhibit 10.9 Form of Performance Stock Rights Award
Agreement granted under the SAFECO Long-Term
Incentive Plan of 1997, filed as Exhibit 10.8 to
SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
Exhibit 10.10 SAFECO Incentive Plan of 1987 contained in
the Prospectus dated November 10, 1989, as
amended January 31, 1990, filed as Exhibit 10 to
SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, and the
Supplement to such Prospectus dated November 8,
1990, filed as Exhibit 10 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990.
F-13 Exhibit 11 Computation of Income Per Share
F-14 Exhibit 12 Computation of Ratios
F-15 Exhibit 21 Subsidiaries of the Registrant
Exhibit 13 1998 Annual Report to Shareholders
Exhibit 27 Financial Data Schedule
(This exhibit is included only in the electronic
EDGAR filing version of this 10-K. The Financial
Data Schedule is not a separate financial
statement but a schedule that summarizes certain
standard financial information extracted
directly from the financial statements in this
filing.)
(b) Reports on Form 8-K
The Registrant filed two Forms 8-Ks during the quarter ended
December 31, 1998. The Registrant filed an 8-K dated October 14, 1998
under Item 5 (Other Items), announcing that its life operation would
record a pretax charge to earnings in the third quarter of $46.8
million. The Registrant filed an 8-K dated December 17, 1998 under Item
5, announcing an agreement to sell the majority of SAFECO Properties'
assets to The Macerich Partnership, L.P. and the Ontario Teacher's
Pension Plan Board for $570 million.
23
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 24th day of March
1999.
SAFECO CORPORATION
-----------------------------------
Registrant
/s/ ROGER H. EIGSTI
------------------------------------
Roger H. Eigsti, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 24, 1999.
Name Title
---- -----
/s/ ROGER H. EIGSTI Chairman and
- - ---------------------------------- Chief Executive Officer
Roger H. Eigsti
/s/ BOH A. DICKEY President,
- - ---------------------------------- Chief Operating Officer
Boh A. Dickey and Director
/s/ ROD A. PIERSON Senior Vice President,
- - ---------------------------------- Chief Financial Officer
Rod A. Pierson and Secretary
/s/ H. PAUL LOWBER Vice President, Controller
- - ---------------------------------- and Chief Accounting Officer
H. Paul Lowber
/s/ PHYLLIS J. CAMPBELL Director
- - ----------------------------------
Phyllis J. Campbell
/s/ ROBERT S. CLINE Director
- - ----------------------------------
Robert S. Cline
/s/ JOHN W. ELLIS Director
- - ----------------------------------
John W. Ellis
24
25
Name Title
---- -----
/s/ WILLIAM P. GERBERDING Director
- - ----------------------------------
William P. Gerberding
/s/ JOSHUA GREEN III Director
- - ----------------------------------
Joshua Green III
/s/ WILLIAM W. KRIPPAEHNE, JR. Director
- - ----------------------------------
William W. Krippaehne, Jr.
/s/ WILLIAM G. REED, JR. Director
- - ----------------------------------
William G. Reed, Jr.
/s/ JUDITH M. RUNSTAD Director
- - ----------------------------------
Judith M. Runstad
/s/ PAUL W. SKINNER Director
- - ----------------------------------
Paul W. Skinner
/s/ GEORGE H. WEYERHAEUSER Director
- - ----------------------------------
George H. Weyerhaeuser
25
26
F-1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SAFECO Corporation:
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SAFECO Corporation of our report dated February 12, 1999, included in the
1998 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 the Registration Statement
(Form S-8 No. 333-26393) pertaining to the SAFECO Long-Term Incentive Plan of
1997 of our report dated February 12, 1999, with respect to the consolidated
financial statements of SAFECO Corporation incorporated by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) for the year
ended December 31, 1998 of SAFECO Corporation.
ERNST & YOUNG LLP
Seattle, Washington
March 23, 1999
27
Balance Sheet - Supplemental Consolidating Information, SAFECO CORPORATION
AND SUBSIDIARIES F-2
December 31, 1998
- - -------------------------------------------------------------------------------
(In Millions)
Property &
ASSETS Casualty Life Real Estate
-------- --------- -----------
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ 6,954.0 $10,785.2 $ --
Fixed Maturities Held-to-Maturity, at Amortized Cost -- 2,720.9 --
Marketable Equity Securities, at Market Value 1,910.5 37.9 --
Mortgage Loans 66.6 675.6 --
Real Estate (At cost less accumulated depreciation) -- 8.2 597.7
Policy Loans -- 88.3 --
Short-Term Investments 291.1 63.2 2.1
--------- --------- ---------
Total Investments 9,222.2 14,379.3 599.8
Cash 46.4 10.1 0.6
Accrued Investment Income 119.2 199.2 --
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) -- -- --
Loans to Affiliates -- -- --
Premiums and Other Service Fees Receivable 948.3 12.5 10.3
Other Notes and Accounts Receivable 51.4 106.4 20.0
Reinsurance Recoverables 270.4 47.0 --
Deferred Policy Acquisition Costs 308.0 213.1 --
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 236.9 1.5 1.7
Goodwill 1,252.9 67.2 --
Other Assets 113.8 100.1 7.3
Separate Account Assets -- 1,201.1 --
--------- --------- ---------
Total $12,569.5 $16,337.5 $ 639.7
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and Adjustment Expense $ 4,219.9 $ 42.8 $ --
Life Policy Liabilities -- 276.8 --
Unearned Premiums 1,742.2 8.7 --
Funds Held Under Deposit Contracts -- 12,718.1 --
Debt:
Commercial Paper -- -- --
Credit Company Borrowings - Nonaffiliates -- -- --
Credit Company Borrowings - Affiliates -- -- --
7.875% Notes Due 2005 -- -- --
6.875% Notes Due 2007 -- -- --
Other Notes and Mortgages - Nonaffiliates -- -- 161.9
Other Notes and Mortgages - Affiliates -- -- 318.1
Other Liabilities 913.3 251.9 22.1
Income Taxes:
Current 26.3 (16.2) 5.6
Deferred (Includes tax on unrealized appreciation
of investment securities) 227.1 194.2 24.9
Separate Account Liabilities -- 1,201.1 --
--------- --------- ---------
Total Liabilities 7,128.8 14,677.4 532.6
--------- --------- ---------
Capital Securities -- -- --
--------- --------- ---------
Common Stock 25.0 11.0 --
Additional Paid-In Capital 3,011.7 266.3 42.1
Retained Earnings 1,343.4 1,036.8 65.0
Total Accumulated Other Comprehensive Income 1,060.6 346.0 --
--------- --------- ---------
Total Shareholders' Equity 5,440.7 1,660.1 107.1
--------- --------- ---------
Total $12,569.5 $16,337.5 $ 639.7
========= ========= =========
Other and
ASSETS Credit Company Elimination Consolidated
-------------- ----------- ------------
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ -- $ 116.4 $17,855.6
Fixed Maturities Held-to-Maturity, at Amortized Cost -- -- 2,720.9
Marketable Equity Securities, at Market Value -- 88.2 2,036.6
Mortgage Loans -- (200.7) 541.5
Real Estate (At cost less accumulated depreciation) -- (4.7) 601.2
Policy Loans -- -- 88.3
Short-Term Investments 1.0 (41.5) 315.9
--------- --------- ---------
Total Investments 1.0 (42.3) 24,160.0
Cash 4.6 13.2 74.9
Accrued Investment Income 3.2 1.6 323.2
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) 1,207.7 -- 1,207.7
Loans to Affiliates 206.1 (206.1) --
Premiums and Other Service Fees Receivable -- 7.2 978.3
Other Notes and Accounts Receivable 5.4 (28.0) 155.2
Reinsurance Recoverables -- -- 317.4
Deferred Policy Acquisition Costs -- -- 521.1
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 0.3 39.8 280.2
Goodwill -- 38.9 1,359.0
Other Assets 100.0 (7.6) 313.6
Separate Account Assets -- -- 1,201.1
--------- --------- ---------
Total $ 1,528.3 $ (183.3) $30,891.7
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and Adjustment Expense $ -- $ -- $ 4,262.7
Life Policy Liabilities -- -- 276.8
Unearned Premiums -- -- 1,750.9
Funds Held Under Deposit Contracts -- -- 12,718.1
Debt:
Commercial Paper -- 732.7 732.7
Credit Company Borrowings - Nonaffiliates 1,255.2 -- 1,255.2
Credit Company Borrowings - Affiliates 61.0 (61.0) --
7.875% Notes Due 2005 -- 200.0 200.0
6.875% Notes Due 2007 -- 200.0 200.0
Other Notes and Mortgages - Nonaffiliates -- 65.8 227.7
Other Notes and Mortgages - Affiliates -- (318.1) --
Other Liabilities 36.5 (70.3) 1,153.5
Income Taxes:
Current (0.2) (13.0) 2.5
Deferred (Includes tax on unrealized appreciation
of investment securities) 47.3 (0.9) 492.6
Separate Account Liabilities -- -- 1,201.1
--------- --------- ---------
---------
Total Liabilities 1,399.8 735.2 24,473.8
--------- --------- ---------
Capital Securities -- 842.1 842.1
--------- --------- ---------
Common Stock 1.0 848.0 885.0
Additional Paid-In Capital 27.0 (3,347.1) --
Retained Earnings 100.5 711.5 3,257.2
Total Accumulated Other Comprehensive Income -- 27.0 1,433.6
--------- --------- ---------
Total Shareholders' Equity 128.5 (1,760.6) 5,575.8
--------- --------- ---------
Total $ 1,528.3 $ (183.3) $30,891.7
========= ========= =========
28
Balance Sheet - Supplemental Consolidating Information, SAFECO CORPORATION AND
SUBSIDIARIES F-2
December 31, 1997 Continued
- - -------------------------------------------------------------------------------
(In Millions)
Property &
ASSETS Casualty Life Real Estate
-------- ---- -----------
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ 7,135.3 $ 9,875.9 $ --
Fixed Maturities Held-to-Maturity, at Amortized Cost -- 2,708.6 --
Marketable Equity Securities, at Market Value 1,742.1 39.3 --
Mortgage Loans 12.0 663.7 --
Real Estate (At cost less accumulated depreciation) -- 3.6 587.0
Policy Loans -- 85.3 --
Short-Term Investments 224.5 66.5 3.1
--------- --------- ---------
Total Investments 9,113.9 13,442.9 590.1
Cash 96.1 246.3 --
Accrued Investment Income 142.9 189.7 --
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) -- -- --
Loans to Affiliates -- -- --
Premiums and Other Service Fees Receivable 925.3 12.4 9.4
Other Notes and Accounts Receivable 18.0 37.0 17.1
Reinsurance Recoverables 268.3 42.7 --
Deferred Policy Acquisition Costs 305.5 239.3 --
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 207.9 1.6 2.4
Goodwill 1,261.0 35.4 0.4
Other Assets 153.2 145.2 6.6
Separate Account Assets -- 905.4 --
--------- --------- ---------
Total $12,492.1 $15,297.9 $ 626.0
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and Adjustment Expense $ 4,310.5 $ 41.7 $ --
Life Policy Liabilities -- 275.8 --
Unearned Premiums 1,701.5 12.2 --
Funds Held Under Deposit Contracts -- 11,877.9 --
Debt:
Commercial Paper -- -- --
Credit Company Borrowings - Nonaffiliates -- -- --
Credit Company Borrowings - Affiliates -- -- --
7.875% Notes Due 2005 -- -- --
6.875% Notes Due 2007 -- -- --
Other Notes and Mortgages - Nonaffiliates -- -- 193.2
Other Notes and Mortgages - Affiliates -- -- 289.0
Other Liabilities 884.4 306.1 23.3
Income Taxes:
Current (13.5) 21.2 (12.1)
Deferred (Includes tax on unrealized appreciation
of investment securities) 192.6 172.9 28.8
Separate Account Liabilities -- 905.4 --
--------- --------- ---------
Total Liabilities 7,075.5 13,613.2 522.2
--------- --------- ---------
Capital Securities -- -- --
--------- --------- ---------
Common Stock 25.0 11.0 --
Additional Paid-In Capital 3,012.7 266.3 42.1
Retained Earnings 1,463.1 1,098.1 61.7
Total Accumulated Other Comprehensive Income 915.8 309.3 --
--------- --------- ---------
Total Shareholders' Equity 5,416.6 1,684.7 103.8
--------- --------- ---------
Total $12,492.1 $15,297.9 $ 626.0
========= ========= =========
Other and
ASSETS Credit Company Eliminations Consolidated
-------------- ------------ ------------
Investments:
Fixed Maturities Available-for-Sale, at Market Value $ -- $ 132.0 $17,143.2
Fixed Maturities Held-to-Maturity, at Amortized Cost -- -- 2,708.6
Marketable Equity Securities, at Market Value -- 98.3 1,879.7
Mortgage Loans -- (176.7) 499.0
Real Estate (At cost less accumulated depreciation) -- (4.5) 586.1
Policy Loans -- -- 85.3
Short-Term Investments 8.9 (168.3) 134.7
--------- --------- ---------
Total Investments 8.9 (119.2) 23,036.6
Cash 3.7 45.3 391.4
Accrued Investment Income 3.5 0.9 337.0
Finance Receivables (Less unearned finance charges
and allowance for doubtful accounts) 1,004.3 -- 1,004.3
Loans to Affiliates 162.7 (162.7) --
Premiums and Other Service Fees Receivable -- 6.8 953.9
Other Notes and Accounts Receivable 0.3 (1.3) 71.1
Reinsurance Recoverables -- -- 311.0
Deferred Policy Acquisition Costs -- -- 544.8
Land, Buildings and Equipment for Company Use
(At cost less accumulated depreciation) 0.5 25.6 238.0
Goodwill -- 35.8 1,332.6
Other Assets 94.1 (57.4) 341.7
Separate Account Assets -- -- 905.4
--------- --------- ---------
Total $ 1,278.0 $ (226.2) $29,467.8
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and Adjustment Expense $ -- $ -- $ 4,352.2
Life Policy Liabilities -- -- 275.8
Unearned Premiums -- -- 1,713.7
Funds Held Under Deposit Contracts -- -- 11,877.9
Debt:
Commercial Paper -- 812.8 812.8
Credit Company Borrowings - Nonaffiliates 892.0 -- 892.0
Credit Company Borrowings - Affiliates 195.0 (195.0) --
7.875% Notes Due 2005 -- 200.0 200.0
6.875% Notes Due 2007 -- 200.0 200.0
Other Notes and Mortgages - Nonaffiliates -- 61.9 255.1
Other Notes and Mortgages - Affiliates -- (289.0) --
Other Liabilities 29.9 (20.4) 1,223.3
Income Taxes:
Current (0.3) 14.0 9.3
Deferred (Includes tax on unrealized appreciation
of investment securities) 43.7 8.9 446.9
Separate Account Liabilities -- -- 905.4
--------- --------- ---------
Total Liabilities 1,160.3 793.2 23,164.4
--------- --------- ---------
Capital Securities -- 841.7 841.7
--------- --------- ---------
Common Stock 1.0 872.3 909.3
Additional Paid-In Capital 27.0 (3,348.1) --
Retained Earnings 89.7 586.5 3,299.1
Total Accumulated Other Comprehensive Income -- 28.2 1,253.3
--------- --------- ---------
Total Shareholders' Equity 117.7 (1,861.1) 5,461.7
--------- --------- ---------
Total $ 1,278.0 $ (226.2) $29,467.8
========= ========= =========
29
Statement of Income - Supplemental Consolidating Information F-3
SAFECO CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1998
- - -------------------------------------------------------------------------------
(In Millions)
Property & Other and
Casualty Life Real Estate Eliminations Consolidated
-------- ---- ----------- ------------ ------------
REVENUES
Insurance:
Property and Casualty Earned Premiums $4,208.3 $ -- $ -- $ -- $4,208.3
Life Premiums and Other Revenues -- 353.4 -- -- 353.4
-------- -------- -------- -------- --------
Total 4,208.3 353.4 -- -- 4,561.7
Real Estate -- -- 77.9 -- 77.9
Credit -- -- -- 98.6 98.6
Asset Management -- -- -- 42.8 42.8
Other -- -- -- 57.6 57.6
Net Investment Income 480.2 1,041.0 -- (2.3) 1,518.9
Realized Investment Gain 94.6 18.3 0.5 (18.8) 94.6
-------- -------- -------- -------- --------
Total 4,783.1 1,412.7 78.4 177.9 6,452.1
-------- -------- -------- -------- --------
EXPENSES
Losses, Adjustment Expense and Policy Benefits 3,063.2 1,045.5 -- -- 4,108.7
Commissions 683.4 101.3 -- -- 784.7
Personnel Costs 303.7 64.5 12.4 58.1 438.7
Interest -- -- 30.9 128.6 159.5
Goodwill Amortization 43.0 3.7 -- 6.8 53.5
Other 288.5 90.6 29.3 40.4 448.8
Write-Off of Deferred Acquisition Costs -- 46.8 -- -- 46.8
Amortization of Deferred Policy Acquisition Costs 744.9 39.2 -- -- 784.1
Deferral of Policy Acquisition Costs (766.0) (69.5) -- -- (835.5)
-------- -------- -------- -------- --------
Total 4,360.7 1,322.1 72.6 233.9 5,989.3
-------- -------- -------- -------- --------
Income Before Income Taxes 422.4 90.6 5.8 (56.0) 462.8
-------- -------- -------- -------- --------
Provision (Benefit) for Income Taxes:
Current 75.4 36.1 6.1 (13.0) 104.6
Deferred (25.4) (3.6) (3.9) (5.7) (38.6)
-------- -------- -------- -------- --------
Total 50.0 32.5 2.2 (18.7) 66.0
-------- -------- -------- -------- --------
Income Before Distributions on Capital Securities 372.4 58.1 3.6 (37.3) 396.8
Distributions on Capital Securities, Net of Tax -- -- -- (44.9) (44.9)
-------- -------- -------- -------- --------
Net Income $ 372.4 $ 58.1 $ 3.6 $ (82.2) $ 351.9
======== ======== ======== ======== ========
30
Statement of Cash Flows - Supplemental Consolidating Information F-4
SAFECO CORPORATION AND SUBSIDIARIES
Year Ended December 31, 1998
- - -------------------------------------------------------------------------------
(In Millions)
Property &
Casualty Life Real Estate
-------- ---- -----------
OPERATING ACTIVITIES
Insurance Premiums Received $4,236.7 $ 251.5 $ --
Dividends and Interest Received 460.9 958.4 2.0
Other Operating Receipts -- 37.0 85.0
Insurance Claims and Policy Benefits Paid (3,155.3) (440.8) --
Underwriting, Acquisition and Insurance Operating
Costs Paid (1,286.1) (215.9) --
Interest Paid and Distributions on Capital Securities -- -- (30.9)
Other Operating Costs Paid -- -- (33.0)
Income Taxes Paid (37.1) (73.1) 11.7
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities 219.1 517.1 34.8
-------- -------- --------
INVESTING ACTIVITIES
Purchases of:
Fixed Maturities Available-for-Sale (1,395.1) (2,179.7) --
Fixed Maturities Held-to-Maturity -- (1.7) --
Equities (135.7) (26.8) --
Other Investments -- (116.0) (105.3)
Maturities of Fixed Maturities Available-for-Sale 324.1 760.0 --
Maturities of Fixed Maturities Held-to-Maturity -- 7.3 --
Sales of:
Fixed Maturities Available-for-Sale 1,349.1 655.3 --
Fixed Maturities Held-to-Maturity -- 18.2 --
Equities 182.3 30.7 --
Other Investments 8.5 93.8 74.0
Net (Increase) Decrease in Short-Term Investments (2.1) 15.2 1.0
Finance Receivables Originated or Acquired -- -- --
Principal Payments Received on Finance Receivables -- -- --
Other (144.5) (26.6) (0.1)
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities 186.6 (770.3) (30.4)
-------- -------- --------
FINANCING ACTIVITIES
Funds Received Under Deposit Contracts -- 1,241.9 --
Return of Funds Held Under Deposit Contracts -- (1,116.0) --
Proceeds from Notes and Mortgage Borrowings -- -- 20.0
Repayment of Notes and Mortgage Borrowings -- -- (49.5)
Net Proceeds from Short-Term Borrowings 78.1 3.5 27.0
Common Stock Reacquired -- -- --
Dividends Paid to Shareholders (530.0) (112.5) --
Other (3.5) 0.1 (1.3)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (455.4) 17.0 (3.8)
-------- -------- --------
Net Increase (Decrease) in Cash (49.7) (236.2) 0.6
Cash at the Beginning of Year 96.1 246.3 --
-------- -------- --------
Cash at the End of the Year $ 46.4 $ 10.1 $ 0.6
======== ======== ========
Other and
Eliminations Consolidated
------------ ------------
OPERATING ACTIVITIES
Insurance Premiums Received $ -- $4,488.2
Dividends and Interest Received 84.7 1,506.0
Other Operating Receipts 129.1 251.1
Insurance Claims and Policy Benefits Paid -- (3,596.1)
Underwriting, Acquisition and Insurance Operating
Costs Paid (28.1) (1,530.1)
Interest Paid and Distributions on Capital Securities (206.6) (237.5)
Other Operating Costs Paid (105.2) (138.2)
Income Taxes Paid 12.7 (85.8)
-------- --------
Net Cash Provided by (Used in) Operating Activities (113.4) 657.6
-------- --------
INVESTING ACTIVITIES
Purchases of:
Fixed Maturities Available-for-Sale (27.4) (3,602.2)
Fixed Maturities Held-to-Maturity -- (1.7)
Equities (7.2) (169.7)
Other Investments 2.4 (218.9)
Maturities of Fixed Maturities Available-for-Sale 26.8 1,110.9
Maturities of Fixed Maturities Held-to-Maturity -- 7.3
Sales of:
Fixed Maturities Available-for-Sale 17.2 2,021.6
Fixed Maturities Held-to-Maturity -- 18.2
Equities 20.1 233.1
Other Investments (17.1) 159.2
Net (Increase) Decrease in Short-Term Investments (107.0) (92.9)
Finance Receivables Originated or Acquired (629.2) (629.2)
Principal Payments Received on Finance Receivables 420.3 420.3
Other (50.5) (221.7)
-------- --------
Net Cash Provided by (Used in) Investing Activities (351.6) (965.7)
-------- --------
FINANCING ACTIVITIES
Funds Received Under Deposit Contracts -- 1,241.9
Return of Funds Held Under Deposit Contracts -- (1,116.0)
Proceeds from Notes and Mortgage Borrowings -- 20.0
Repayment of Notes and Mortgage Borrowings (12.3) (61.8)
Net Proceeds from Short-Term Borrowings 277.8 386.4
Common Stock Reacquired (236.8) (236.8)
Dividends Paid to Shareholders 455.0 (187.5)
Other (49.9) (54.6)
-------- --------
Net Cash Provided by (Used in) Financing Activities 433.8 (8.4)
-------- --------
Net Increase (Decrease) in Cash (31.2) (316.5)
Cash at the Beginning of Year 49.0 391.4
-------- --------
Cash at the End of the Year $ 17.8 $ 74.9
======== ========
31
Summary of Investments Other Than Investments in Related Parties F-5
SAFECO CORPORATION AND SUBSIDIARIES Schedule I
December 31, 1998
- - -------------------------------------------------------------------------------
(In Millions)
Amount at
Which Shown in
the Balance
Type of Investment Cost Market Value Sheet
- - ----------------- --------- ------------ --------------
Fixed Maturities Available-for-Sale
Bonds:
United States Government and Government
Agencies and Authorities $ 1,351.0 $ 1,483.1 $ 1,483.1
States, Municipalities and Political
Subdivisions 4,835.1 5,340.4 5,340.4
Mortgage-Backed Securities 3,251.6 3,397.6 3,397.6
Foreign Governments 208.3 244.5 244.5
Public Utilities 1,675.4 1,792.0 1,792.0
All Other Corporate Bonds 5,085.7 5,317.2 5,317.2
Redeemable Preferred Stocks 272.6 280.8 280.8
--------- --------- ---------
Total Fixed Maturities Classified as Available-for-Sale (1) 16,679.7 $17,855.6 17,855.6
--------- --------- ---------
Fixed Maturities Held-to-Maturity
Bonds:
United States Government and Government
Agencies and Authorities 272.1 $ 374.5 272.1
States, Municipalities and Political
Subdivisions 127.2 153.6 127.2
Mortgage-Backed Securities 308.1 348.8 308.1
Foreign Governments 149.6 198.1 149.6
Public Utilities 416.5 497.3 416.5
All Other Corporate Bonds 1,447.4 1,686.9 1,447.4
--------- --------- ---------
Total Fixed Maturities Classified as Held-to-Maturity (1) 2,720.9 $ 3,259.2 2,720.9
--------- --------- ---------
Equity Securities
Common Stocks:
Public Utilities 68.3 $ 151.9 151.9
Banks, Trust and Insurance Companies 56.2 199.0 199.0
Industrial, Miscellaneous and All Other 660.5 1,493.8 1,493.8
Non-Redeemable Preferred Stocks 167.8 191.9 191.9
--------- --------- ---------
Total Equity Securities 952.8 $ 2,036.6 2,036.6
--------- --------- ---------
Other
Mortgage Loans on Real Estate (1) 541.5 541.5
Real Estate (Net of depreciation) (1) 601.2 601.2
Policy Loans 88.3 88.3
Short-Term Investments 315.9 315.9
--------- ---------
Total Other 1,546.9 1,546.9
--------- ---------
Total Investments $21,900.3 $24,160.0
========= =========
(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,
1998.
32
Balance Sheet F-6
SAFECO CORPORATION Schedule II
(Parent Company Only)
December 31 1998 1997
-------- --------
(In Millions)
ASSETS
Investments:
Stock of Subsidiaries - At Cost Plus Equity in
Undistributed Earnings Since Acquisition
(Includes unrealized appreciation of investment
securities, net of tax, held by subsidiaries) $7,443.3 $7,440.1
Fixed Maturities Available-for-Sale,
at Market Value
(Amortized cost: 1998 - $90.1; 1997 - $92.9) 92.9 94.5
Marketable Equity Securities, at Market Value
(Cost: 1998 - $30.4; 1997 - $37.1) 62.5 73.9
Short-Term Investments 82.3 8.7
-------- --------
Total Investments 7,681.0 7,617.2
Cash 0.3 25.5
Dividends Receivable
from Affiliated Companies 14.3 45.5
Accounts Receivable
from Affiliated Companies 3.7 --
Income Taxes - Current 14.1 --
Other Assets 19.0 20.1
-------- --------
Total $7,732.4 $7,708.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable to Affiliated Companies $ -- $ 0.8
Accounts and Interest Payable 45.6 43.4
Income Taxes:
Current -- 12.9
Deferred 12.1 13.5
Dividends Payable to Shareholders 47.7 45.2
Debt:
Commercial Paper 732.8 812.8
Medium-Term Notes Due 2002 50.0 50.0
7.875% Notes Due 2005 200.0 200.0
6.875% Notes Due 2007 200.0 200.0
8.072% Junior Subordinated Debentures
(Capital Securities) 868.4 868.0
-------- --------
Total Liabilities 2,156.6 2,246.6
-------- --------
Preferred Stock, No Par Value:
Shares Authorized:10
Shares Issued and Outstanding: None
Common Stock, No Par Value:
Shares Authorized: 300
Shares Reserved for Options:
1998 - 7.5; 1997 - 7.9
Shares Issued and Outstanding:
1998 - 136.3; 1997 - 141.2 885.0 909.3
Retained Earnings 3,257.2 3,299.1
Total Accumulated Other
Comprehensive Income 1,433.6 1,253.3
-------- --------
Total Shareholders' Equity 5,575.8 5,461.7
-------- --------
Total $7,732.4 $7,708.3
======== ========
33
Statement of Income F-7
SAFECO CORPORATION Schedule II
(Parent Company Only)
Year Ended December 31 1998 1997 1996
- - ---------------------- ------ ------ ------
(In Millions)
REVENUES
Dividends -Nonaffiliates $ 2.5 $ 2.8 $ 3.4
Interest -Affiliates 0.2 0.9 1.5
-Others 6.6 20.0 6.1
Equity in Loss of Unconsolidated Affiliate -- -- (1.0)
Realized Gain from Security Investments 5.8 7.9 17.3
------ ------ ------
Total 15.1 31.6 27.3
------ ------ ------
EXPENSES
Interest 152.7 74.3 19.3
Other 1.9 0.8 0.6
------ ------ ------
Total 154.6 75.1 19.9
------ ------ ------
Income (Loss) Before Income Taxes (139.5) (43.5) 7.4
Provision (Benefit) for Income Taxes
(Includes provision on realized gain:
1998 - $2.0; 1997 - $2.8; 1996 - $6.1) (48.9) (16.0) 1.8
------ ------ ------
Income (Loss) Before Equity in Earnings
of Subsidiaries (90.6) (27.5) 5.6
Equity in Earnings of Subsidiaries
(Includes dividends accrued and received) 442.5 457.5 433.4
------ ------ ------
Consolidated Net Income $351.9 $430.0 $439.0
====== ====== ======
Dividends Accrued and Received From Subsidiaries (Cash):
SAFECO Insurance Company of America $144.5 $383.0 $ 75.0
General Insurance Company of America 106.0 316.5 45.5
First National Insurance Company of America 9.0 29.5 4.0
SAFECO National Insurance Company 5.5 4.5 5.0
SAFECO Insurance Company of Illinois 12.0 12.0 12.0
American States Financial Corporation 233.0 -- --
SAFECO Life Insurance Company 90.0 16.0 4.0
SAFECO Administrative Services, Inc. 14.5 0.5 0.6
SAFECO Properties, Inc. 0.2 1.2 1.4
SAFECO Credit Company, Inc. 3.5 3.0 2.2
SAFECO Asset Management Company 5.6 -- --
SAFECO Capital Trust 2.1 1.0 --
------ ------ ------
Total $625.9 $767.2 $149.7
====== ====== ======
34
Statement of Cash Flows F-8
SAFECO CORPORATION Schedule II
(Parent Company Only)
Year Ended December 31 1998 1997 1996
- - ---------------------- -------- -------- --------
(In Millions)
OPERATING ACTIVITIES
Dividends and Interest Received -Affiliates $ 657.3 $ 760.1 $ 148.6
-Others 9.2 23.8 11.1
Interest Paid (150.0) (34.6) (19.3)
Other Operating Costs Paid (1.2) (0.3) (0.3)
Income Taxes Received (Paid) 23.1 31.6 (2.2)
-------- -------- --------
Net Cash Provided by Operating Activities 538.4 780.6 137.9
-------- -------- --------
INVESTING ACTIVITIES
Purchases of:
Fixed Maturities Available-for-Sale (25.7) -- (45.9)
Equities (7.2) -- (5.0)
Maturities of Fixed Maturities Available-for-Sale 25.0 10.6 0.8
Acquisitions, Net of Cash Acquired -- (3,157.2) --
Sales of:
Fixed Maturities Available-for-Sale 3.2 4.3 16.2
Equities 19.3 10.3 42.9
Net Decrease (Increase) in Short-Term Investments (77.3) 18.9 (5.8)
Other (0.4) -- 2.3
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities (63.1) (3,113.1) 5.5
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from Notes and Mortgage Borrowings -- 196.1 --
Net (Repayment of) Proceeds from Short-Term Borrowings (80.0) 811.2 --
Proceeds from Junior Subordinated Debentures (Capital Securities) -- 832.2 --
Proceeds from Common Stock Secondary Offering -- 677.2 --
Common Stock Reacquired (236.8) (10.7) (9.6)
Dividends Paid to Stockholders (187.5) (154.1) (139.9)
Other 3.8 5.9 6.2
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (500.5) 2,357.8 (143.3)
-------- -------- --------
Net (Decrease) Increase in Cash (25.2) 25.3 0.1
Cash at the Beginning of Year 25.5 0.2 0.1
-------- -------- --------
Cash at the End of Year $ 0.3 $ 25.5 $ 0.2
======== ======== ========
35
Supplementary Insurance Information F-9
SAFECO CORPORATION AND SUBSIDIARIES Schedule III
December 31
- - -----------
(In Millions)
Reserve for Other Policy
Future Policy Claims and
Benefits, Benefits
Deferred Losses, Payable
Policy Claims and (Funds Held
Acquisition Loss Unearned Under Deposit
Segment Costs Expenses Premiums Contracts)
- - ------- ----- -------- -------- ----------
1998
Property and Casualty:
Personal Lines:
Personal Auto $ 67.6 $ 1,046.9 $ 438.7
Homeowners 78.8 215.2 380.3
Other 22.8 91.6 117.8
Commercial Lines:
ASBI(1) 87.3 1,504.8 463.0
SAFECO Commercial 42.6 1,072.0 268.7
Surety 8.2 (59.3) 62.3
Other 0.7 348.7 11.4
----- ------- -------
Total 308.0 4,219.9 1,742.2
----- ------- -------
Life:
Retirement Services 92.6 12.8 -- $ 5,819.0
Settlement Annuities -- -- -- 5,531.6
Group 9.8 83.3 2.3 --
Individual 110.7 223.5 6.4 1,367.5
Other -- -- -- --
----- ----- --- --------
Total 213.1 319.6 8.7 12,718.1
----- ----- --- --------
Real Estate -- -- -- --
Credit -- -- -- --
Asset Management -- -- -- --
Other and Eliminations -- -- -- --
--------- --------- --------- ---------
Consolidated Totals $ 521.1 $ 4,539.5 $ 1,750.9 $12,718.1
========= ========= ========= =========
Year Ended December 31
- - ----------------------
(In Millions)
Other
Operating
Costs
Benefits, (Including
Premiums Claims, Amortization of Dividends to
and Service Net Losses and Deferred Policy Policyholders Net
Fee Investment Adjustment Acquisition and Goodwill Premiums
Segment Revenues Income (3) Expenses Costs Amortization) Written
- - ------- -------- ---------- -------- ----- ------------- -------
1998
Property and Casualty:
Personal Lines:
Personal Auto $ 1,729.7 $ 1,302.0 $ 210.8 $ 114.3 $ 1,740.5
Homeowners 686.7 532.9 182.4 98.9 701.4
Other 165.2 95.6 51.7 28.0 178.0
Commercial Lines:
ASBI(1) 911.6 670.1 175.6 140.7 927.6
SAFECO Commercial 640.9 438.7 110.7 119.3 648.8
Surety 58.5 16.8 14.1 8.4 58.8
Other 15.7 7.1 (0.4) -- 1.5
------- ------- ----- ----- ---------
Total 4,208.3 $ 480.2 3,063.2 744.9 509.6 $ 4,256.6
------- --------- ------- ----- ----- =========
Life:
Retirement Services 25.2 411.7 349.8 26.8 79.7
Settlement Annuities 1.5 449.4 399.1 -- 21.1
Group 203.1 2.7 161.1 3.8 55.0
Individual 110.2 98.4 135.5 8.6 62.2
Other 13.4 78.8 -- -- 19.4
----- ------- ------- ---- -----
Total 353.4 1,041.0 1,045.5 39.2 237.4(2)
----- ------- ------- ---- -----
Real Estate -- -- -- -- 72.6
Credit -- -- -- -- 87.2
Asset Management -- -- -- -- 34.3
Other and Eliminations -- (2.3) -- -- 155.4
--------- --------- --------- --------- ---------
Consolidated Totals $ 4,561.7 $ 1,518.9 $ 4,108.7 $ 784.1 $ 1,096.5
========= ========= ========= ========= =========
(1) ASBI is American States Business Insurance.
(2) Life other operating costs for 1998 include the $46.8 million
write-off of deferred acquisition costs.
(3) 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 and gains have not been identified
with specific segments. In the life companies, a major
portion of investment income, realized gains and assets is
specifically identifiable within an industry segment. The
remainder of these amounts has been allocated in proportion to
the mean policy reserves and liabilities identified with each
segment.
36
Supplementary Insurance Information F-9
SAFECO CORPORATION AND SUBSIDIARIES Schedule III
Continued
December 31
- - -----------
(In Millions)
Reserve for Other Policy
Future Policy Claims and
Benefits, Benefits
Deferred Losses, Payable
Policy Claims and (Funds Held
Acquisition Loss Unearned Under Deposit
Segment Costs Expenses Premiums Contracts)
- - ------- ----- -------- -------- ----------
1997
Property and Casualty:
Personal Lines:
Personal Auto $ 66.0 $ 1,061.1 $ 427.8
Homeowners 77.1 202.2 365.4
Other 23.0 89.6 115.0
Commercial Lines:
ASBI(1) 93.4 1,582.0 447.0
SAFECO Commercial 38.3 1,068.0 266.0
Surety 7.7 (65.3) 61.4
Other -- 372.9 18.9
----- ------- -------
Total 305.5 4,310.5 1,701.5
----- ------- -------
Life:
Retirement Services 115.1 6.0 -- $ 5,666.7
Settlement Annuities -- -- -- 5,108.5
Group 9.1 72.5 2.4 --
Individual 115.1 239.0 9.8 1,102.7
Other -- -- -- --
--------- --------- --------- ---------
Total 239.3 317.5 12.2 11,877.9
--------- --------- --------- ---------
Real Estate -- -- -- --
Credit -- -- -- --
Asset Management -- -- -- --
Other and Eliminations -- -- -- --
--------- --------- --------- ---------
Consolidated Totals $ 544.8 $ 4,628.0 $ 1,713.7 $11,877.9
========= ========= ========= =========
Year Ended December 31
- - ----------------------
(In Millions)
Other
Operating
Costs
Benefits, (Including
Premiums Claims, Amortization of Dividends to
and Service Net Losses and Deferred Policy Policyholders Net
Fee Investment Adjustment Acquisition and Goodwill Premiums
Segment Revenues Income (3) Expenses Costs Amortization) Written
- - ------- -------- ---------- -------- ----- ------------- -------
1997
Property and Casualty:
Personal Lines:
Personal Auto $ 1,268.1 $ 935.2 $ 124.7 $ 99.4 $ 1,292.2
Homeowners 512.0 351.2 106.5 84.9 533.0
Other 139.0 75.5 33.5 26.7 148.0
Commercial Lines:
ASBI(1) 227.3 142.4 130.3 104.0 200.4
SAFECO Commercial 603.6 417.3 77.5 61.8 602.6
Surety 54.4 27.0 17.9 14.3 51.3
Other 12.2 11.4 5.5 4.4 0.7
------- ------- ----- ------- ---------
Total 2,816.6 $ 327.0 1,960.0 495.9 395.5(4) $ 2,828.2
------- --------- ------- ----- ------- =========
Life:
Retirement Services 18.1 355.6 278.5 26.6 41.6
Settlement Annuities 2.1 420.1 368.9 -- 27.8
Group 193.7 2.7 127.9 3.8 52.5
Individual 64.7 63.1 80.9 6.6 33.7
Other 11.6 74.8 -- -- 9.8
--------- --------- --------- --------- ---------
Total 290.2 916.3 856.2 37.0 165.4
--------- --------- --------- --------- ---------
Real Estate -- -- -- -- 65.5
Credit -- -- -- -- 74.7
Asset Management -- -- -- -- 19.6
Other and Eliminations -- 1.4 -- -- 66.9
--------- --------- --------- --------- ---------
Consolidated Totals $ 3,106.8 $ 1,244.7 $ 2,816.2 $ 532.9 $ 787.6
========= ========= ========= ========= =========
(4) Property and casualty other operating costs for 1997 include
$60.0 million of nonrecurring acquisition charges related to
SAFECO's October 1, 1997 acquisition of American States.
37
Supplementary Insurance Information F-9
SAFECO CORPORATION AND SUBSIDIARIES Schedule III
Continued
December 31
- - -----------
(In Millions)
Reserve for Other Policy
Future Policy Claims and
Benefits, Benefits
Deferred Losses, Payable
Policy Claims and (Funds Held
Acquisition Loss Unearned Under Deposit
Segment Costs Expenses Premiums Contracts)
- - ------- ----- -------- -------- ----------
1996
Property and Casualty:
Personal Lines:
Personal Auto $ 41.8 $ 765.3 $ 275.1
Homeowners 52.3 170.5 249.7
Other 18.4 81.9 92.8
Commercial Lines:
SAFECO Commercial 38.8 1,060.8 260.7
Surety 4.3 (23.6) 59.8
Other -- 4.2 --
----- ------- -----
Total 155.6 2,059.1 938.1
----- ------- -----
Life:
Retirement Services 113.0 0.1 -- $4,611.5
Settlement Annuities -- -- -- 4,591.0
Group 8.5 70.2 2.4 --
Individual 119.0 108.5 6.4 590.2
Other -- -- -- --
-------- -------- -------- --------
Total 240.5 178.8 8.8 9,792.7
-------- -------- -------- --------
Real Estate -- -- -- --
Credit -- -- -- --
Asset Management -- -- -- --
Other and Eliminations -- -- -- --
-------- -------- -------- --------
Consolidated Totals $ 396.1 $2,237.9 $ 946.9 $9,792.7
======== ======== ======== ========
Year Ended December 31
- - ----------------------
(In Millions)
Other
Operating
Costs
Benefits, (Including
Premiums Claims, Amortization of Dividends to
and Service Net Losses and Deferred Policy Policyholders Net
Fee Investment Adjustment Acquisition and Goodwill Premiums
Segment Revenues Income (3) Expenses Costs Amortization) Written
- - ------- -------- ---------- -------- ----- ------------- -------
1996
Property and Casualty:
Personal Lines:
Personal Auto $1,073.6 $ 761.5 $ 132.0 $ 66.8 $1,085.0
Homeowners 435.0 371.5 119.6 60.5 448.5
Other 131.1 71.5 41.3 21.0 142.8
Commercial Lines:
SAFECO Commercial 573.3 364.6 90.6 111.2 584.0
Surety 51.3 11.4 7.7 4.3 52.8
Other 11.1 -- -- -- --
------- ------- ----- ----- --------
Total 2,275.4 $ 281.6 1,580.5 391.2 263.8 $2,313.1
------- -------- ------- ----- ----- ========
Life:
Retirement Services 9.5 341.4 258.5 26.6 37.2
Settlement Annuities 1.9 386.9 339.6 -- 26.3
Group 198.8 2.8 131.0 4.0 52.9
Individual 44.6 38.8 53.1 5.1 21.0
Other 11.1 66.8 -- -- 10.7
-------- -------- -------- -------- --------
Total 265.9 836.7 782.2 35.7 148.1
-------- -------- -------- -------- --------
Real Estate -- -- -- -- 66.9
Credit -- -- -- -- 65.2
Asset Management -- -- -- -- 15.6
Other and Eliminations -- (1.6) -- -- 37.8
-------- -------- -------- -------- --------
Consolidated Totals $2,541.3 $1,116.7 $2,362.7 $ 426.9 $ 597.4
======== ======== ======== ======== ========
38
Reinsurance F-10
SAFECO CORPORATION AND SUBSIDIARIES Schedule IV
Year Ended December 31
- - -------------------------------------------------------------------------------
(In Millions)
Ceded Assumed Percentage
Gross to Other from Other of Amount
Amount Companies Companies Net Amount Assumed to Net
------ --------- --------- ---------- --------------
1998
Life Insurance In Force at Year End $45,009.4 $(5,378.4) $ 192.2 $39,823.2 0.5%
========= ========= ========= =========
Premiums earned:
Life Insurance $ 198.8 $ (13.1) $ 0.9 $ 186.6 0.5%
Accident/Health Insurance 174.8 (9.6) 1.6 166.8 1.0%
Property/Casualty Insurance 4,378.5 (188.5) 18.3 4,208.3 0.4%
--------- --------- --------- ---------
Total $ 4,752.1 $ (211.2) $ 20.8 $ 4,561.7 0.5%
========= ========= ========= =========
1997
Life Insurance In Force at Year End $43,499.7 $(3,788.5) $ 210.3 $39,921.5 0.5%
========= ========= ========= =========
Premiums earned:
Life Insurance $ 146.9 $ (10.1) $ 0.2 $ 137.0 0.1%
Accident/Health Insurance 160.3 (9.5) 2.4 153.2 1.6%
Property/Casualty Insurance 2,945.3 (155.8) 27.1 2,816.6 1.0%
--------- --------- --------- ---------
Total $ 3,252.5 $ (175.4) $ 29.7 $ 3,106.8 1.0%
========= ========= ========= =========
1996
Life Insurance In Force at Year End $28,524.8 $(1,791.1) $ 80.9 $26,814.6 0.3%
========= ========= ========= =========
Premiums earned:
Life Insurance $ 120.8 $ (5.6) $ 0.2 $ 115.4 0.2%
Accident/Health Insurance 158.6 (8.1) -- 150.5 0.0%
Property/Casualty Insurance 2,404.9 (152.6) 23.1 2,275.4 1.0%
--------- --------- --------- ---------
Total $ 2,684.3 $ (166.3) $ 23.3 $ 2,541.3 0.9%
========= ========= ========= =========
39
Supplemental Information Concerning Consolidated Property/Casualty Insurance
Operations
F-11
SAFECO CORPORATION Schedule VI
December 31
- - -----------
(In Millions)
Reserve For Discount
Deferred Unpaid Losses Deducted
Affiliation Policy and from
with Acquisition Adjustment Loss Unearned
Registrant Costs Expenses Reserves Premiums
---------- ----- -------- -------- --------
Property/Casualty
Subsidiaries:
1998 $ 308.0 $4,219.9 $ -- $1,742.2
1997 $ 305.5 $4,310.5 $ -- $1,701.5
1996 $ 155.6 $2,059.1 $ -- $ 938.1
December 31 Year Ended December 31
- - ----------- ----------------------
(In Millions) (In Millions)
Losses and Adjustment Amortization
Expenses Incurred of Deferred Paid Losses
Affiliation Net Related to: Policy and Net
with Earned Investment Acquisition Adjustment Premiums
Registrant Premiums Income Current Year Prior Years Costs Expenses Written
---------- -------- ------ ------------ ----------- ----- -------- -------
Property/Casualty
Subsidiaries:
1998 $4,208.3 $ 480.2 $3,163.2 $ (100.0) $ 744.9 $3,178.8 $4,256.6
1997 $2,816.6 $ 327.0 $1,969.5 $ 30.5(1) $ 495.9 $2,078.4 $2,828.2
1996 $2,275.4 $ 281.6 $1,658.2 $ (77.7) $ 391.2 $1,694.9 $2,313.1
(1) The 1997 increase in losses and adjustment expense incurred related to
prior years of $30.5 million includes a nonrecurring $40.0 million
reserve increase related to the American States acquisition.
40
SAFECO CORPORATION AND SUBSIDIARIES F-12
Exhibit Index
- - --------------------------------------------------------------------------------
Exhibit 3.1* Bylaws (as last amended August 5, 1998), filed as Exhibit 3
to SAFECO's Quarterly Report on Form 10-Q for the quarter ended
June 30,1998 (File No. 1-6563), are incorporated herein by this
reference.
Exhibit 3.2* Restated Articles of Incorporation (as amended May 7,1997),
filed as Exhibit 3.2 to SAFECO's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (File No. 1-6563), are
incorporated herein by this reference.
Exhibit 4.1 SAFECO agrees to furnish the Securities and Exchange
Commission, upon request, with copies of all instruments
defining rights of holders of long- term debt of SAFECO and its
consolidated subsidiaries.
Exhibit 4.2* Indenture, dated as of July 15, 1997, between SAFECO and
The Chase Manhattan Bank, as Trustee, filed as Exhibit 4.2 to
SAFECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-6563), is incorporated herein by this
reference.
Exhibit 4.3* Form of Certificate of Exchange Junior Subordinated
Debenture filed as Exhibit 4.2 to SAFECO's Registration
Statement on Form S-4 (No. 333-38205) dated October 17,1997, is
incorporated herein by this reference.
Exhibit 4.4* Certificate of Trust of SAFECO Capital Trust I dated June
18, 1997, filed as Exhibit 4.4 to SAFECO's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File No. 1-6563),
is incorporated herein by this reference.
Exhibit 4.5* Amended and Restated Declaration of Trust of SAFECO Capital
Trust I dated as of July 15, 1997, filed as Exhibit 4.5 to
SAFECO's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-6563), is incorporated herein by this
reference.
Exhibit 4.6* Form of Exchange Capital Security Certificate for SAFECO
Capital Trust I filed as Exhibit 4.5 to SAFECO's Registration
Statement on Form S-4 (No. 333-38205) dated October 17, 1997, is
incorporated herein by this reference.
Exhibit 4.7* Form of Exchange Guarantee of SAFECO corporation relating to the
Exchange Capital Securities, filed as Exhibit 4.6 to SAFECO's
Registration Statement on Form S-4 (No. 333-38205) dated October
17,1997, is incorporated herein by this reference.
Exhibit 10.1* Purchase and Sale Agreement by and between Washington
Square, Inc., Kitsap Associates Limited Partnership, Winmar
Cascade, Inc., Winmar Oregon, Inc., Winmar of Kitsap, Inc.,
SCIT, Inc., Town Center Associates, and Winmar Company, Inc., as
sellers; and The Macerich Partnership, L.P., and Ontario
Teachers' Pension Plan Board, as purchaser, dated December 11,
1998. SAFECO agrees to furnish the Securities and Exchange
Commission, upon request, with copies of all omitted schedules
to the foregoing Purchase and Sale Agreement.
41
SAFECO CORPORATION AND SUBSIDIARIES F-12
Exhibit Index Continued
- - --------------------------------------------------------------------------------
Exhibit 10.2* SAFECO Corporation Deferred Compensation Plan for
Directors, As Amended and Restated on November 4, 1998.
Exhibit 10.3* SAFECO Deferred Compensation Plan for Executives, As
Amended and Restated on November 4, 1998.
Exhibit 10.4* Five-Year Credit Agreement dated as of September 24, 1997,
among SAFECO; Bank of America National Trust and Savings
Association, as Agent; Mellon Bank, N.A., as Documentation
Agent; The Chase Manhattan Bank, as Syndication Agent; and the
various co-agents, lead managers, and financial institutions
identified in said Credit Agreement as a party thereto, filed as
Exhibit 10.1 to SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 1-6563), is
incorporated herein by this reference.
Exhibit 10.5* The following documents are incorporated herein by this
reference: Executive Severance Agreements between SAFECO and
each of Roger H. Eigsti and Boh A. Dickey dated May 23, 1984,
filed as Exhibit 10 to SAFECO's Annual Report on Form 10-K for
the fiscal year ended December 31, 1985 (File No. 1-6563); the
Form of Executive Severance Agreements between SAFECO and each
of Rod A. Pierson, James W. Ruddy, and W. Randall Stoddard, in
each case dated August 30, 1996, filed as Exhibit 10 to SAFECO's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 (File No. 1-6563); and Executive Severance Agreement
between SAFECO and SAFECO Life Insurance Company and Randall H.
Talbot dated February 7, 1998, filed as Exhibit 10 to SAFECO's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (File No. 1-6563).
Exhibit 10.6* SAFECO Long-Term Incentive Plan of 1997 filed as Exhibit
99.1 to SAFECO's Registration Statement on Form S-8 (No.
333-26393) dated May 2, 1997, is incorporated herein by this
reference.
Exhibit 10.7* Form of Stock Option Contract granted under the SAFECO
Long-Term Incentive Plan of 1997, filed as Exhibit 10.6 to
SAFECO's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-6563).
Exhibit 10.8* Form of Restricted Stock Rights Award Agreement granted
under the SAFECO Long-Term Incentive Plan of 1997, filed as
Exhibit 10.7 to SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 1-6563).
Exhibit 10.9* Form of Performance Stock Rights Award Agreement granted
under the SAFECO Long-Term Incentive Plan of 1997, filed as
Exhibit 10.8 to SAFECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 1-6563).
42
SAFECO CORPORATION AND SUBSIDIARIES F-12
Exhibit Index Continued
- - --------------------------------------------------------------------------------
Exhibit 10.10* SAFECO Incentive Plan of 1987 contained in the Prospectus
dated November 10, 1989, as amended January 31, 1990, filed as
Exhibit 10 to SAFECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 (File No. 1-6563), and the
Supplement to such Prospectus dated November 8, 1990, filed as
Exhibit 10 to SAFECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (File No. 1-6563).
F-13 Exhibit 11 Computations of Income Per Share
F-14 Exhibit 12 Computation of Ratios
F-15 Exhibit 21 Subsidiaries of the Registrant
Exhibit 13* 1998 Annual Report to Shareholders
Exhibit 27 Financial Data Schedule (This exhibit is included only in the
electronic EDGAR filing version of this 10-K. The Financial Data
Schedule is not a separate financial statement but a schedule
that summarizes certain standard financial information extracted
directly from the financial statements in this filing.)
* Copies of these exhibits are available without charge by making a written
request to:
Rod A. Pierson
Senior Vice President and Chief Financial Officer
SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185