Fitch Ratings has affirmed the 'A-' long-term rating on
Safeco Corporation (Safeco) and the 'A-'rating on Safeco's senior
unsecured notes. Additionally, Fitch has affirmed the 'BBB+' rating on
Safeco Capital Trust I's capital securities and the 'AA-' insurer
financial strength rating on Safeco's key domestic insurance
subsidiaries (Safeco P/C). The Rating Outlook is Stable.
Fitch's ratings on Safeco reflect the organization's favorable earnings trends, strong competitive position in key business lines, and overall solid capitalization. Partially offsetting these positives is the very competitive and cyclical nature of Safeco P/C's key business lines and a modest amount of uncertainty derived from the company's on-going search for new chief executive officer.
Safeco's earnings trends have been positive, which Fitch attributes to product design and platform enhancements the company has implemented in recent years as well as generally favorable market conditions in key business lines. Through the first nine months of 2005, Safeco's after-tax operating earnings increased 16% to $466 million and its combined ratio was a strong 91.7%, despite significant catastrophe-related losses that contributed 4.6 percentage points to the ratio.
Fitch believes that Safeco uses a reasonable amount of financial leverage for its current rating level and that the company has good earnings and cash-basis interest coverage. Fitch also recognizes that Safeco has been able to reduce its financial leverage in recent years while simultaneously repurchasing common shares. The company's debt plus capital securities-to-total capital ratio was 22% on an equity credit adjusted basis at Sept. 30, 2005.
Fitch considers Safeco's operating earnings-basis and cash-basis interest coverage to be sound. Operating earnings-based interest and trust preferred dividend coverage was 10.9 times (x) through the first nine months of 2005 and Safeco P/C's ordinary dividend capacity in 2005 was $755 million, or 9.3x annual interest and trust preferred dividend requirements.
Fitch believes that Safeco's competitive positions in auto and homeowners insurance lines were bolstered in recent years by revamped products and a new platform made available to the company's independent agency distribution. However, Fitch also believes that given the intense competitive nature of these lines, it will be increasingly difficult for these revamped products and new platform to contribute to significant operational and financial improvements going forward.
Safeco is in the process of conducting a search to replace its former chief executive officer (CEO) who retired in August 2005 but has remained with the company while it completes its search. Although Safeco's management has operated effectively during this time Fitch believes that an inherent uncertainty exists when changes in management take place at the most senior level. From a strategic perspective, Fitch believes that the company's near-term direction is unlikely to change materially after a new CEO is named.
The following are affirmed by Fitch with a Stable Outlook:
Safeco Corporation
-- Long-term rating at 'A-';
-- 6.875% notes due 2007 at 'A-';
-- 4.20% notes due 2008 at 'A-';
-- 4.875% notes due 2010 at 'A-';
-- 7.250% notes due 2012 at 'A-'.
Safeco Capital Trust I
-- 8.072% Trust preferred securities at 'BBB+'.
Safeco Property/Casualty Group
-- Insurer financial strength at 'AA-'.
Members of the Safeco P/C Group include:
Safeco Insurance Co. of America
General Insurance Co. of America
American State Insurance Co.
American Economy Insurance Co.
Safeco Insurance Co. of Illinois
First National Ins. Co. of America
Safeco National Insurance Co.
American States Preferred Ins. Co.
American State Insurance Company of Texas
American States Lloyds Insurance Company
Insurance Company of Illinois
Safeco Surplus Lines Insurance Co.
Safeco Lloyds Company
Safeco Insurance Co. of Indiana
Safeco Insurance Co. of Oregon
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch's ratings on Safeco reflect the organization's favorable earnings trends, strong competitive position in key business lines, and overall solid capitalization. Partially offsetting these positives is the very competitive and cyclical nature of Safeco P/C's key business lines and a modest amount of uncertainty derived from the company's on-going search for new chief executive officer.
Safeco's earnings trends have been positive, which Fitch attributes to product design and platform enhancements the company has implemented in recent years as well as generally favorable market conditions in key business lines. Through the first nine months of 2005, Safeco's after-tax operating earnings increased 16% to $466 million and its combined ratio was a strong 91.7%, despite significant catastrophe-related losses that contributed 4.6 percentage points to the ratio.
Fitch believes that Safeco uses a reasonable amount of financial leverage for its current rating level and that the company has good earnings and cash-basis interest coverage. Fitch also recognizes that Safeco has been able to reduce its financial leverage in recent years while simultaneously repurchasing common shares. The company's debt plus capital securities-to-total capital ratio was 22% on an equity credit adjusted basis at Sept. 30, 2005.
Fitch considers Safeco's operating earnings-basis and cash-basis interest coverage to be sound. Operating earnings-based interest and trust preferred dividend coverage was 10.9 times (x) through the first nine months of 2005 and Safeco P/C's ordinary dividend capacity in 2005 was $755 million, or 9.3x annual interest and trust preferred dividend requirements.
Fitch believes that Safeco's competitive positions in auto and homeowners insurance lines were bolstered in recent years by revamped products and a new platform made available to the company's independent agency distribution. However, Fitch also believes that given the intense competitive nature of these lines, it will be increasingly difficult for these revamped products and new platform to contribute to significant operational and financial improvements going forward.
Safeco is in the process of conducting a search to replace its former chief executive officer (CEO) who retired in August 2005 but has remained with the company while it completes its search. Although Safeco's management has operated effectively during this time Fitch believes that an inherent uncertainty exists when changes in management take place at the most senior level. From a strategic perspective, Fitch believes that the company's near-term direction is unlikely to change materially after a new CEO is named.
The following are affirmed by Fitch with a Stable Outlook:
Safeco Corporation
-- Long-term rating at 'A-';
-- 6.875% notes due 2007 at 'A-';
-- 4.20% notes due 2008 at 'A-';
-- 4.875% notes due 2010 at 'A-';
-- 7.250% notes due 2012 at 'A-'.
Safeco Capital Trust I
-- 8.072% Trust preferred securities at 'BBB+'.
Safeco Property/Casualty Group
-- Insurer financial strength at 'AA-'.
Members of the Safeco P/C Group include:
Safeco Insurance Co. of America
General Insurance Co. of America
American State Insurance Co.
American Economy Insurance Co.
Safeco Insurance Co. of Illinois
First National Ins. Co. of America
Safeco National Insurance Co.
American States Preferred Ins. Co.
American State Insurance Company of Texas
American States Lloyds Insurance Company
Insurance Company of Illinois
Safeco Surplus Lines Insurance Co.
Safeco Lloyds Company
Safeco Insurance Co. of Indiana
Safeco Insurance Co. of Oregon
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
© 2005 Business Wire
