Investors sent Safeco shares down more than 5 percent yesterday despite a strong fourth-quarter earnings report.

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Investors sent Safeco shares down more than 5 percent yesterday despite a strong fourth-quarter earnings report.

Analysts said the market was disappointed that management lowered its 2005 outlook for premium growth to the mid- to high single digits, down from last fall’s forecast of a double-digit increase.

Competition is lowering prices across the industry, particularly for auto insurance, analysts said.

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“Even mid- to high-single digits is very good, considering that we’re in a difficult pricing environment,” said Cliff Gallant, an insurance analyst at Keefe, Bruyette & Woods in New York. “Those comments are very much in line with what we’re hearing from other managements.”

Still, the stock tumbled $2.63, or 5.23 percent, to $47.61.

Safeco’s chief executive, Mike McGavick, said the company revised its growth outlook based on the competitive pressures it felt during the fourth quarter.

“We will grow less swiftly than we have been growing, but still faster than the competition,” McGavick said in a telephone interview.

Safeco’s profit rose 8.2 percent in the quarter, to $179.8 million, or $1.41 a share.

Operating income was $1.32 a share, beating a consensus of analysts’ expectations by 2 cents, according to Thomson Financial/First Call.

Revenues from continuing operations during the quarter were up nearly 10 percent to $1.57 billion; expenses fell 5.3 percent to $1.30 billion.

For the year, profit rose 66 percent to $562.4 million, or $4.16 a share.

That’s despite pretax catastrophe losses of $275.6 million, caused mostly by hurricanes in Florida and nearby states, compared with $153.7 million in 2003.

“They’ve done quite Herculean tasks to turn this company around,” said Paul Newsome, an insurance analyst with A.G. Edwards in St. Louis.

McGavick said 2004 was “the culmination of a multiyear effort to make sure we were charging adequate prices for the risks we take on.”

Safeco has moved to a sophisticated automated system that prices policies across all its major lines of business, McGavick said. The company also simplified the way agents do business and lowered costs by putting small-business, homeowners and auto insurance on a single computer platform.

And Safeco got back to its roots in terms of costs, McGavick said.

“We got our arms around being the kind of wisely frugal company that we’ve been in the past,” he said.

The company’s combined ratio — the percentage of each premium dollar it spends on claims and expenses — improved from 100.1 in 2003 to 91.5 in 2004.

In the past two years, Safeco has laid off several hundred workers; it now has about 10,000 employees.

Last year, Safeco sold its life-insurance and investment business in an effort to sharpen its focus on the property and casualty businesses.

Melissa Allison: 206-464-3312 or

Safeco’s annual results
Dec. 31 %
Annual 2004 2003 CHG
Profit $562,400,000 $339,200,000 +65.8
Per share 4.16 2.44 +70.5
Sales 6,195,400,000 5,450,100,000 +13.7