Seattle-based insurer Safeco said fourth-quarter profit fell 33 percent on claims from the October wildfires in California and a loss in...
Seattle-based insurer Safeco said fourth-quarter profit fell 33 percent on claims from the October wildfires in California and a loss in its auto unit.
Profit fell to $144.5 million, or $1.56 a share, from $216.4 million, or $1.96, in the same period a year earlier, Safeco said Thursday. Profit excluding investment gains was $140.1 million, or $1.51 a share, compared with the $1.44 average estimate of 17 analysts surveyed by Bloomberg News.
The wildfires and high winds forced the largest evacuation in California’s history, causing an estimated $2.26 billion in insured losses across the industry, according to a tally by the state’s insurance regulator. Claims expenses at Safeco’s auto unit, the company’s largest, increased because of the rising cost of medical care.
“We had a quarter we wouldn’t want to repeat” in the auto business, Chief Executive Officer Paula Rosput Reynolds said on a conference call. While the company made money in its smaller property- and business-insurance units, auto is “the cylinder that’s not operating properly.”
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The company lost $19 million from underwriting auto insurance in the quarter, compared with a pretax gain of $48.5 million in the same period a year earlier. Policy sales fell 4.1 percent, and the total number of policyholders declined 3.4 percent.
“Competition within Safeco’s areas of the market should only continue to intensify,” Thomas Cholnoky, an analyst with Goldman Sachs Group, said in a note to investors Jan. 10 as he cut his rating on the shares to “sell” from “neutral.” Rising auto-insurance costs “could stunt the company’s goal” of earning four cents profit for every dollar of premium it collects, he said.
Safeco increased prices on auto coverage in 34 states in 2007 to help reach profit targets and will raise rates in more states this year, Executive Vice President Mike Hughes said. The company expects to reach its profit goal for auto by the end of the year, he said.
The company is also raising rates for home- and business-insurance policies, Hughes said. Shrinking margins resulted in declines even as policy sales rose. Profit at the property unit fell to $24.4 million from underwriting, compared with $32.1 million in the same period a year earlier, while falling to $38.5 million in the commercial insurance unit from $58.9 million in 2006.
Safeco lowered its estimate of the cost of the Southern California wildfires to $27.3 million. In November, the company estimated losses would be $35 million. A series of storms that hit California, Washington and Oregon in January cost $10 million and will be included in first-quarter results, the company said.
Safeco stock has fallen about 17 percent in the past year, compared with the 12 percent decline in the 24-member KBW Insurance Index. It rose $2.96, or 5.9 percent, to $53.37 Thursday, before the results were released. The stock was unchanged in after-hours trading.