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Safeco Drops Life Insurance

By Jeff Hwang
September 30, 2003
Seattle-based insurer Safeco (Nasdaq: SAFC) announced on Monday plans to sell off its Life & Investments business unit in order to focus on its core Property & Casualty insurance business.

In 2002, the Life & Investments unit generated $237 million in pretax operating earnings on almost $2 billion in revenues, or more than a quarter of Safeco's revenues. But while L&I is a nice addition to earnings, Safeco CEO Mike McGavick believes that Safeco lacks the scale needed to compete effectively in the business.

Safeco joins other companies that have recently sought to gain scale through acquisitions. On Sunday, Canadian insurer Manulife Financial (NYSE: MFC) announced a deal to acquire John Hancock Financial (NYSE: JHF) for $10 billion in stock. And earlier this month, AXA Financial (NYSE: AXA) announced the acquisition of Mony (NYSE: MNY) for $1.5 billion in cash.

The bulk of the proceeds from Safeco's planned sale will be paid back to shareholders in the form of a special dividend, a share buyback, or a combination of both. Some of the cash will also be used to pay down debt.

In addition to the proposed sale of its L&I unit, Safeco also announced $75 million in expense reductions by 2004. In the process, the company will eliminate 500 jobs in continuing businesses, the majority of which will come from its Seattle headquarters.

The insurer also said it would take a higher-than-expected charge of $133 million, or $0.96 per share, to boost reserves for its workers compensation business.

But the bottom line for Safeco is its plan to focus on the property and casualty insurance business. By focusing here, the company believes it can be exceptionally competitive in delivering value to both its customers and its shareholders.

That said, this is a mostly positive announcement, as it is much better to be exceptional at one thing than to be somewhat good at a few things.

Jeff Hwang can be reached at
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