Safeco Strengthens WC Reserves; Announces Estimates of Hurricane Isabel Losses

Following the completion of a previously announced review, Safeco strengthened reserves for workers’ compensation, affecting third-quarter financial results by $0.96 per diluted share.

Safeco increased loss reserves and allocated loss adjustment expense reserves by $180 million pretax ($117 million after tax). These reserves relate directly to settling and defending claims.

Nearly 90 percent of these reserves are associated with claims that occurred in 2000 or earlier – the vast majority in large commercial insurance accounts that Safeco has run off its books.

“We’re strengthening these reserves because medical inflation isn’t abating – it remains stubbornly high,” said Chris Mead, Safeco’s CFO.

“This is coupled with a legal and regulatory environment that makes market conditions unfavorable in California and several other states,” she added. “Because of this environment, workers compensation claims are tending to stay open far longer than used to be the case.”

In a related charge, Safeco increased unallocated loss adjustment expense reserves by $25 million pretax ($16 million after tax). These reserves relate to costs required to handle Safeco’s workers compensation claims.

“Workers compensation is a challenge for the entire industry,” Mead said. “Safeco has a conservative reserving philosophy. We don’t discount reserves, and we constantly monitor trends to help ensure we’re adequately reserved.”

Also, Safeco estimated that customer losses associated with Hurricane Isabel are expected to reach $15 million pretax ($10 million after tax).

“Including the hurricane, our catastrophe losses are tracking with what we typically experience in the third quarter,” Mead said.

In a separate action, Safeco announced it is focusing on profitably growing its Property & Casualty business, reducing expenses and putting its Life & Investments unit up for sale. Details of that announcement are available at http://www.safeco.com/safeco/news/archive/2003_0929.asp.

Safeco’s senior management will discuss both announcements with financial analysts at 10 a.m., Eastern time (7 a.m., Pacific) on Tuesday, Sept. 30. The conference call will be broadcast live on the Internet at http://www.safeco.com/irwebcast, and archived later in the day for replay at the same address.