Fitch Ratings has affirmed the 'A' Issuer Default Rating (IDR) 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). Fitch has also revised Safeco's Rating Outlook to Positive from Stable.
The Rating Outlook revision to Positive from Stable reflects improvements in Safeco's overall risk profile and favorable earnings trends over the past several years. Going forward, Fitch views Safeco's ability to maintain its current earnings trends, especially in light of very competitive conditions, and comparable operating and capital levels as key rating considerations.
Fitch views Safeco's operating profile as increasingly dominated by exposure to short-tail personal and commercial lines business with comparatively modest reserving risk. Additionally, Fitch notes that the company has reduced its exposure in hurricane prone states and has lowered its financial leverage by 10 percentage points since 2003.
Fitch's ratings on Safeco continue to reflect the organization's strong competitive position, high-quality balance sheet, and overall solid capitalization. Partially offsetting these positives is the very competitive and cyclical nature of Safeco's key business lines.
Fitch believes that Safeco uses a reasonable amount of financial leverage for its current rating level. Additionally, the company's operating earnings increased 9.1% in the first half of 2006 and 13.6% in 2005 and as a result, Safeco's recent earnings and cash-basis interest coverage have been strong. Fitch also recognizes that Safeco has been able to reduce its financial leverage in recent years while simultaneously repurchasing common shares.
In the near term, Fitch expects that Safeco's senior management will primarily be focused on driving expense savings through outsourcing and technology initiatives. At the same time, Safeco is accelerating the pace of product and service innovation while bolstering its direct distribution channels. Fitch views these steps as prudent and believes that Safeco will take care not to alienate the independent agency network that has historically acted as its primary distribution channel.
Fitch has affirmed and revised the Rating Outlook to Positive for the following ratings:
Safeco Corporation
--Issuer Default Rating (IDR) 'A';
--6.875% notes due 2007 'A-';
--4.20% notes due 2008 'A-';
--4.875% notes due 2010 'A-';
--7.250% notes due 2012 'A-'.
Safeco Capital Trust I
--8.072% Trust preferred securities 'BBB+'.
Safeco Property/Casualty Group
--Insurer financial strength (IFS) '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.
