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Safeco Profit Slips, but Not As Far As Street Expected; Stock Jumps

Jul 31, 2007

By Amy Martinez, The Seattle Times

Aug. 1--Shares of Safeco rose Tuesday after the Seattle-based property and casualty insurer released second-quarter financial results that were better than analysts had expected.

For the three months ended June 30, Safeco had a profit of $186.4 million, or $1.75 a share. That was down from $199.7 million, or $1.68 a share, a year ago, as the company continued to experience difficulties in its auto-insurance business.

Still, Safeco beat the average estimate of $1.53 a share that analysts polled by Thomson Financial had projected. Wall Street applauded, sending the stock up $1.15, or 2 percent, to $58.47.

Safeco said it began repurchasing $250 million worth of stock in May. The number of shares outstanding is down to 106.3 million from 119 million.

Excluding investment gains and other one-time events, Safeco's earnings were $175 million, or $1.65 a share, compared with $204.2 million, or $1.72 a share, last year.

"Their profit numbers have been very solid, but they've stopped increasing at the rates we've seen in previous years, mainly due to more competition," said Paul Latta, an analyst with McAdams Wright Ragen in Seattle.

"I think the stock is likely to remain in a holding pattern for a while," he said.

Safeco's auto-insurance business posted a combined ratio of 97.4, worse than the year-ago ratio of 90.9. Combined ratio is the percent of each premium dollar spent on claims and expenses; the lower the ratio, the better the performance.

Combined ratio for the auto-insurance business was unchanged from the first quarter, when profit declined 12 percent from a year ago.

The frequency of auto-insurance claims is in line with expectations, but the claims' severity is up, Executive Vice President Mike Hughes said.

Safeco's overall property and casualty combined ratio rose to 89.7 from 86.7 in the second quarter of last year.

"On property, we've seen larger losses than we saw last year," Hughes said in a conference call with analysts. "But last year the trends were unusually low."

Safeco reported second-quarter revenue of $1.54 billion, about the same as a year ago. Net written premiums rose nearly half of a percent to $1.47 billion.

Safeco's profitability was helped by a drop in catastrophe claims. Pretax catastrophe losses for the quarter were $13.2 million, down from $60.7 million a year ago.

The Associated Press contributed to this story.


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