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Letter to the Editor

Safeco Q2 Results Reflect Improving Growth

After-tax net realized investment gains for the quarter were $11.4 million, compared with net realized investment losses of $24.8 million in the same period of 2006. Operating earnings were $175.0 million for the quarter, compared with $204.2 million in the prior year, a decrease of 14.3 percent.

"With a clear plan and a lot of persistence, we delivered consistency and strong results," said Paula Rosput Reynolds, Safeco president and chief executive officer. "We're also proud to be introducing Teensurance(TM), to consumers who expect more from their insurance company."

Safeco's overall property and casualty (P&C) combined ratio was 89.7 for the quarter versus 86.7 in the same quarter last year. (Combined ratio is the percentage of each premium dollar spent on claims and expenses - the lower the ratio, the better the performance.)

Pretax catastrophe losses for the second quarter were $13.2 million, compared with $60.7 million a year ago. This difference reflects minimal catastrophe activity in 2007.

Safeco's annualized return on equity (ROE) for the second quarter was 18.4 percent. Annualized operating ROE - measured using operating earnings and excluding from equity unrealized gains or losses on bonds - was 17.7 percent for the quarter.

Total revenues in the second quarter were $1.54 billion, essentially even with revenues of the prior year. Operating revenues, which exclude net realized investment gains or losses and gain of sales of real estate, were $1.52 billion for the quarter, compared with $1.54 billion during the same period in 2006.

Net written premiums were $1.47 billion for the second quarter, a 0.4 percent increase from the year-ago period. Net earned premiums were $1.39 billion for the quarter, a 1.5 percent decrease compared with the prior year. Excluding from both periods the premiums from Safeco Financial Institution Solutions (SFIS), which was sold in April 2006, net written premiums in the second quarter of 2007 were up 2.4 percent from the second quarter of last year, and net earned premiums were up 0.5 percent from the same period in 2006.

P&C pretax net investment income for the quarter was $120.1 million, an increase of 2.0 percent compared with the same period last year. P&C after-tax net investment income was $95.5 million, an increase of 6.1 percent compared with year-ago levels.

Safeco Auto reported a quarterly pretax underwriting profit of $17.3 million, compared with $62.0 million in the same period last year. Auto's combined ratio was 97.4 in the quarter, compared with 90.9 a year ago. Pretax catastrophe losses for the quarter were $3.3 million, compared with $12.7 million last year. Second-quarter 2007 results included $6.2 million of favorable prior-year reserve development, compared with $25.6 million of favorable prior-year reserve development due to lower-than-expected bodily injury severity in the year-ago quarter.

Auto net written premiums declined 2.9 percent in the quarter compared with second-quarter 2006. Policies in force (PIF) decreased 2.7 percent in the second quarter from year-ago levels, though Preferred Auto PIF was up 0.7 percent. Auto new-business policies issued were up 7.6 percent from the same quarter in 2006, and retention of 80.1 percent was also higher than a year ago. Preferred Auto new-business policies issued increased 23.2 percent, and Preferred Auto retention held steady at 84.7 percent.

"The overall trends are pointed in the right direction," said Mike Hughes, Safeco executive vice president of Insurance Operations. "Our partnership with our independent agents and our new products are paying off."

Safeco, in business since 1923, is a Fortune 500 property and casualty insurance company based in Seattle. The company sells insurance to drivers, home owners and owners of small- and mid-sized businesses principally through a national network of independent agents and brokers.

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