Seattle-based SAFECO reported a first-quarter operating income of $12.0 million. SAFECO President and CEO Mike McGavick said these results are right on target with the company’s plans for the first quarter and are consistent with the goal to improve performance and create shareholder value. The company’s operating income excludes a one-time, after-tax charge of $916.9 million to write off all goodwill associated with prior acquisitions. It also excludes $0.02 per share operating profit generated by SAFECO Credit Company, which is being accounted for as a discontinued operation, and the effects of adopting new standards to account for derivatives.
As a result of the one-time goodwill charge, SAFECO reported a quarterly net loss of $882.8 million, or $6.91 per share. Goodwill represents the difference between what SAFECO paid for prior acquisitions and the value of assets acquired. Writing off goodwill is a non-cash accounting adjustment.
The Property & Casualty companies, SAFECO’s largest operating segment, posted improvements in the first quarter as underwriting losses declined to $127.7 million. That compares with $132.6 million for the same period last year. This positive change is the result of better performance by SAFECO Business Insurance, which reduced underwriting losses for small-business insurance from $59.0 million in the first quarter of 2000 to $27.4 million this year, an improvement of more than 50 percent. Also showing improvement was SAFECO’s personal auto insurance line, which reduced quarterly underwriting losses to $27.6 million.
Offsetting the improvements in small-business and auto insurance were higher underwriting losses for homeowners and SAFECO Commercial, the company’s line of products for larger businesses. Quarterly underwriting losses in homeowners increased from $14.1 million last year to $33.1 million this year; Commercial Insurance underwriting losses increased from $26.5 million to $43.8 million.
In February, a 6.8-magnitude earthquake hit the Seattle area, generating an estimated $15 million in customer claims. Of the $15 million in claims, the breakdown was $6 million in Personal Insurance, $6 million in Business Insurance and $3 million in Commercial Insurance.
In late March, the senior leadership team of SAFECO Personal Insurance was replaced. An interim management team – including new leaders for the company’s homeowners and auto insurance lines – initiated programs to improve the entire book of business. Later this year, Personal Insurance will roll out new automated underwriting technologies to reduce costs, attract profitable new business by offering more competitive rates for the best customers, and eliminate consistently unprofitable business.
Commercial Insurance, like SAFECO’s other major insurance lines, is proceeding with previously announced plans to improve rate adequacy and eliminate consistently unprofitable business.
Net written premiums for the p/c companies decreased by 2.5 percent compared with the same period last year. This includes an increase of 1 percent in net written premium for Personal Insurance during the quarter and a decrease of 16 percent for Business Insurance. Net written premiums in Commercial Insurance remained unchanged.
Topics Profit Loss Underwriting
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