After 4-½ years of piloting the turnaround of Safeco, Chief Executive Mike McGavick said yesterday he is leaving the Seattle-based...

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After 4-½ years of piloting the turnaround of Safeco, Chief Executive Mike McGavick said yesterday he is leaving the Seattle-based insurer to consider a job in public service.

While the political world buzzed with expectations McGavick will run against Democratic U.S. Sen. Maria Cantwell in 2006, Safeco’s board of directors sought to assure employees and investors it will find a strong successor for the man who led the insurer back to financial vitality.

“It won’t be another Mike McGavick, but hopefully he or she will be pretty darn good,” said Bob Cline, Safeco’s lead director.

Cline did not give a timetable for naming a new CEO but said the board has already begun its search.

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McGavick, 47, who will step down as CEO on Aug. 31 but remain chairman until at least the end of the year, said the company does not need a corporate clone of him to lead it into the future.

“Safeco is now a great match for someone temperamentally organized for the long march,” he said. “I’m suited to the dramatic changes we were dealing with before.”

Indeed, McGavick has seen Safeco through a turbulent few years. The quarter before he took the reins, the company posted a paltry profit of just $10.2 million.

Yesterday, Safeco reported second-quarter net income of $187.3 million, or $1.46 a share. That profit was 24 percent below earnings from the same quarter last year. But Safeco’s operating earnings of $1.38 a share were 17 cents better than expected by a consensus of Wall Street analysts polled by Thomson Financial.

The decline in net income stemmed in part from a $46 million drop in investment gains, and from $10 million set aside earlier than usual this year for employee bonuses and profit sharing.

The turnaround orchestrated by McGavick included laying off hundreds of workers and selling Safeco’s life insurance and investments business.

Under McGavick’s direction, Safeco stopped writing policies priced too low to make money. The company lost some policyholders that way, but the business it kept was more profitable.

Analysts point out that despite the strides made under McGavick, he was operating in a relatively friendly environment for the insurance industry.

“McGavick did have the wind at his back the last few years,” said Paul Latta, research director at McAdams Wright Ragen in Seattle. “It will be interesting to see how Safeco weathers a downturn in the industry. I suspect it’s fine.”

McGavick acknowledges that good pricing — that is, higher premiums — in the industry has helped his efforts at Safeco. “When that phase of the market is at hand, you can do things you wouldn’t otherwise be able to do to improve your company,” he said in an interview.

The turnaround moved faster than McGavick anticipated.

“I kind of had in my hip pocket a seven- or eight-year plan as to how long it would take to get to the level of performance we’re at today,” he said. “I was always clear with the board, even when I was hired, that I was unlikely to die in office, unless it was an accident of some kind.”

For 2004, McGavick received $3 million in salary and bonuses, and another $4.3 million in restricted stock awards.

McGavick joined Safeco in early 2001 after several years at Chicago-based CNA, one of the country’s largest commercial insurers, where he rose to be president and chief operating officer of a division that included most of CNA’s commercial-insurance business.

In 1988, he managed the successful comeback campaign of U.S. Sen. Slade Gorton and was Gorton’s chief of staff from 1989 to 1991.

It has long been speculated McGavick would return to politics, first with rumors he would run for governor and, more recently, that he would seek the Republican nomination for the U.S. Senate.

“This news shouldn’t be a huge surprise,” Latta said.

Safeco announced the McGavick news and its financial results after the close of regular trading. The stock surged $1.68, or 3 percent, to $57.80 in extended trading.

Experts said it was important for McGavick to step down rather than take a leave of absence.

“You want to have someone who’s in charge, and not just temporarily,” said Paul Newsome, an insurance analyst at A.G. Edwards & Sons in St. Louis.

Steven Kaplan, professor of finance at the University of Chicago Graduate School of Business, said it would have been inappropriate for the board to wait for the outcome of an election before naming a new CEO.

“I’d bring in a CEO, because I wouldn’t want the uncertainty, and I’d assume he’s ready to do something else with his life,” Kaplan said.

But not every executive-turned-politician follows that advice.

For example, when Pete Coors made his unsuccessful bid for the U.S. Senate last year, the Republican from Colorado took a leave of absence from his position as chairman of Adolph Coors Co., a public company that still carried his family’s name.

Seattle Times researcher Gene Balk contributed to this report.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com