Hurricanes Katrina and Rita did nearly $116 million in damage to Safeco's third-quarter profit, but the company still posted higher earnings...
Hurricanes Katrina and Rita did nearly $116 million in damage to Safeco’s third-quarter profit, but the company still posted higher earnings than Wall Street expected and did far better than it had a year ago.
Net income was $101.1 million, up from a year-earlier net loss, coincidentally, of $101.1 million. A year ago, catastrophe losses were higher, and the company had a loss on the sale of its life-insurance and investments business.
Chief Executive Mike McGavick, who is raising money for a potential run for the U.S. Senate in 2006, said he thinks Safeco is “in the home stretch” of selecting a new CEO. McGavick had planned to depart Aug. 31 but agreed to stay until a successor was named. He will remain chairman at least through the end of the year.
“The simplest symbol of my life right now is that I’m walking around with two BlackBerries” to keep political and corporate activities separate, he said yesterday.
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Safeco had less than 1 percent market share in the areas hit by Hurricane Katrina. Its customers outside that region are not likely to see insurance premiums climb as a direct result of the hurricanes, McGavick said.
But if the cost of reinsurance climbs because of the storms, Safeco’s overall cost of doing business will go up, and that could increase premiums elsewhere.
Safeco’s small market share in the Gulf Coast states has kept the company mostly outside a debate about whether insurers should pay for flood damage that occurred after the hurricanes hit, McGavick said.
Some politicians believe private insurers should cover flood damage even if their policies said they would not. Insurers, including McGavick, say they are not responsible for flood damage.
In many areas, damage is covered by a federally administered flood-insurance program.
“If we can’t tell if it’s wind or flood, we’re not going to go through some big forensic,” McGavick said. “We’re going to pay the loss.”
Some Safeco customers in the hurricane-damaged areas had policies that covered neither flood nor wind damage, but the company still paid certain living expenses for them and will not ask for repayment, he said.
It’s impossible to predict whether Safeco will stop selling insurance in some areas ravaged by the hurricanes, McGavick said. But he told analysts on a conference call that in some areas, private insurance will be “more and more difficult to come by and more and more dear to pay for.”
In July, Safeco stopped selling homeowners insurance in Florida after sustaining $126.6 million in catastrophe losses from four hurricanes in the third quarter of 2004.
Late last year, it pulled back on coverage in some parts of Tennessee and Missouri along the New Madrid Fault.
Safeco’s operating profit from continuing operations in the third quarter was $97.8 million, or 77 cents a share. That was 21 cents better than analysts expected, according to Thomson Financial.
Despite surprisingly good earnings, the stock dipped 97 cents yesterday to $51.66.
A drop in the stock market was partly to blame, said analyst Paul Latta of Seattle’s McAdams Wright Ragen. He expected Safeco to report operating earnings of 46 cents a share.
“I would have guessed the stock would’ve been up a little bit,” Latta said.
Melissa Allison: 206-464-3312 or firstname.lastname@example.org