SAFECO Affirmed

S&P assigned its preliminary “BBB+” senior debt, “BBB” subordinated debt, and “BBB-” preferred stock ratings to Seattle-based SAFECO Corp.’s $900 million universal shelf registration, which was filed in May 2002. S&P also affirmed its ratings on the property/casualty and life insurance holding company. The outlook is stable.

The shelf ratings are based on SAFECO’s strong business position as the 13th largest P/C writer in the U.S. The company also benefits from better strategic focus since the entrance of a new management team in 2001, as well as strong consolidated capital adequacy and improved investment strategy.

Negatives include the poor operating performance of SAFECO’s P/C pool and marginal interest coverage at the holding company level after taking over American States Financial Corp. in 1997. Operating performance and interest coverage are expected to improve in 2002, due to restructuring and re- underwriting actions initiated by management.

S&P expects any drawdowns on the shelf to have no material impact on financial leverage. SAFECO’s financial leverage has improved in recent years, with total debt to total capital at 20.5 percent at March 31, 2002, compared with 29.2 percent at year-end 2000.

Over the medium term, S&P expects financial leverage ratios to remain supportive of the rating level at current levels or lower. The P/C pool’s combined ratio is expected to be about 106 percent or better at year-end 2002, compared with 120 percent in 2001.

Combined with continued good earnings at SAFECO’s life operations, this is expected to lead the holding company to post interest coverage of at least four to five times in 2002. Consolidated capital adequacy is also expected to remain supportive of the rating level at no lower than 145 percent.

Topics Property Casualty