* Operating Earnings is Net Income excluding Net Realized Investment Gains, Gains on Sales of Real Estate, Losses on Debt Repurchases and Contribution to Safeco Insurance Foundation. Measures used in this news release that are not based on U.S. generally accepted accounting principles (GAAP) are defined and reconciled to the most directly comparable GAAP measure in our Form 8-K available through the SEC and online at http://www.safeco.com/ir .

Safeco (NYSE: SAF) reported net income for fourth-quarter 2006 of $216.4 million, or $1.96 per diluted share. This compares with net income of $190.7 million, or $1.53 per diluted share, for the same period last year. For the full year, Safeco produced its best-ever net income result of $880.0 million, or $7.51 per diluted share, compared with $691.1 million, or $5.43 per diluted share, in 2005.

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After-tax net realized investment gains for the fourth quarter were $1.5 million, compared with $6.4 million in the same period of 2005. For the full year, after-tax net realized investment gains were $11.7 million, compared with $43.5 million in 2005.

Operating earnings, which exclude net realized investment gains, gains on sales of real estate, losses on debt repurchases and contribution to the Safeco Insurance Foundation, were $207.3 million for the quarter, compared with $184.3 million in the same quarter of 2005. For full-year 2006, operating earnings were $781.1 million, up from $650.2 million in 2005.

"I'm encouraged by the momentum we established throughout 2006," said Paula Rosput Reynolds, Safeco president and chief executive officer. "The fourth-quarter and full-year results are tangible evidence that when Safeco commits to a direction, it will deliver."

The overall property and casualty (P&C) combined ratio was 87.2 for the fourth quarter versus 89.1 in the same quarter last year. The combined ratio for the full year was 87.3, compared with 91.1 a year ago. (Combined ratio is the percentage of each premium dollar spent on claims and expenses - the lower the ratio, the better the performance.)

Pretax catastrophe losses for the fourth quarter were $36.1 million, primarily due to estimated losses from the Pacific Northwest windstorm in December. Pretax catastrophe losses were $51.4 million in the prior-year period, stemming largely from Hurricane Wilma. After reinsurance, pretax catastrophe losses were $155.3 million for the year, compared with $267.4 million in 2005, primarily from Hurricanes Katrina and Rita.

Safeco's annualized return on equity (ROE) for the fourth quarter was 21.1 percent. Annualized operating ROE -- measured using operating earnings and excluding from equity unrealized gains or losses on bonds -- was 20.9 percent for the quarter. For the full year, ROE was 21.9 percent, and operating ROE was 20.0 percent.

Total revenues in the fourth quarter were $1.53 billion, compared with $1.59 billion in 2005. For the full year, total revenues were $6.29 billion, compared with $6.35 billion in 2005. Operating revenues, which exclude net realized investment gains and gains on sales of real estate, were $1.52 billion for the quarter -- down 4.3 percent from the same period in 2005. For the full year, operating revenues decreased 2.7 percent to $6.12 billion compared with $6.29 billion in 2005.

Net earned premiums were $1.39 billion for the quarter, a 4.9 percent decrease from last year. For the full year, net earned premiums were $5.61 billion, compared with $5.81 billion in 2005 -- a 3.4 percent decrease.

Net written premiums were $1.34 billion for the fourth quarter, down 3.2 percent compared with the year-ago period. For the full year, net written premiums were $5.64 billion, compared with $5.80 billion in 2005.

Year-over-year revenue and premium growth was affected by the April 2006 sale of Safeco Financial Institution Solutions (SFIS), the company's lender- placed property insurance business. Excluding SFIS premiums from both periods, net written premiums in the fourth quarter declined 0.2 percent from the same quarter of 2005, and net earned premiums declined 2.2 percent from the year- ago period. Excluding SFIS premiums from both years, net written premiums in 2006 were down 1.5 percent from 2005, and net earned premiums in 2006 were down 2.1 percent from 2005.

P&C pretax net investment income for the quarter was $120.9 million, an increase of 1.6 percent compared with the same period last year. For the full year, P&C pretax net investment income increased 3.5 percent to $476.6 million from $460.6 million in 2005.

P&C after-tax net investment income for the quarter was $94.6 million, an increase of 6.8 percent, compared with the same quarter last year. P&C after- tax net investment income for the year was $366.1 million, up 7.7 percent from $340.0 million in 2005.

Expense Savings

Safeco met its announced 2006 goal to reduce the annualized expense run rate by $75 million. As previously disclosed, most of the savings will be reinvested in the business, including an estimated $45 million annualized increase in compensation paid to independent agents.

Safeco recorded $3.0 million in restructuring and asset impairment charges associated with the actions taken in the fourth quarter. For the full year, these charges totaled $25.7 million.

Safeco is targeting an additional $50-$75 million reduction in its annualized expense run rate by year-end 2007. These projected savings are consistent with Safeco's previously announced strategy to achieve greater competitiveness.

Safeco Personal Insurance

Safeco Auto reported a quarterly pretax underwriting profit of $48.5 million, compared with $18.6 million in the same period last year. Auto's combined ratio was 92.7 in the quarter, compared with 97.3 a year ago. Favorable prior-year reserve development was $29.2 million in fourth-quarter 2006, compared with $5.8 million in the same period of 2005. Catastrophe losses were comparable for both periods.

For the full year, Auto posted a $244.1 million pretax underwriting profit, compared with $139.6 million in 2005. The full-year Auto combined ratio was 91.0, compared with 95.1 for 2005.

Auto net written premiums declined 4.8 percent in the quarter compared with the prior-year period. Policies in force (PIF) at the end of the fourth quarter decreased 4.1 percent from the year-ago level. New-business policies in the fourth quarter decreased 5.7 percent compared with the same quarter a year ago, and retention remained constant relative to the prior-year period. Preferred Auto PIF decreased by 0.5 percent from the same period a year ago, and new business among preferred customers was up 8.3 percent.

"Our production is showing real improvement, thanks to the initiatives we put in place over the last two quarters. We're optimistic that we're on the right track in personal auto," said Michael Hughes, Safeco executive vice president of Insurance Operations.

Safeco Property, which includes homeowners, landlord protection and related coverages, produced a quarterly pretax underwriting profit of $32.1 million, compared with $52.5 million in the same period a year ago. Property's combined ratio was 86.1 in the quarter, compared with 77.3 in the same quarter of 2005. The combined ratio in the fourth quarter of 2006 included $28.1 million in pretax catastrophe losses and $1.9 million of favorable prior-year reserve development, compared with $17.4 in pretax catastrophe losses and $12.1 million of favorable prior-year reserve development in the same quarter of 2005. The majority of the fourth quarter 2006 catastrophe losses was associated with the December windstorm in the Pacific Northwest.

For the full year, Property delivered a $163.7 million underwriting profit, compared with $198.2 million in 2005. The 2006 Property combined ratio was 82.0, compared with 78.3 for 2005.

Property net written premiums (excluding Florida, where Safeco exited the personal property market) grew 4.7 percent in the quarter compared with a year ago, while PIF grew 4.0 percent from the prior-year level. New-business policies increased 40.0 percent compared with the same quarter a year ago, and retention (excluding Florida) increased to 86.0 percent from 85.1 percent.

Safeco Business Insurance

Safeco Business Insurance (SBI) reported a pretax underwriting profit of $58.9 million in the fourth quarter, compared with $104.7 million for the same period in 2005. The combined ratio for the quarter was 84.5, compared with 73.0 a year ago.

For the full year, SBI produced a $230.9 million underwriting profit, compared with $223.4 million in 2005. The 2006 SBI combined ratio was 84.7, compared with 85.6 for 2005.

SBI Regular -- Safeco's core commercial line serving small- to mid-sized businesses -- reported a pretax underwriting profit of $36.5 million in the quarter, compared with $47.9 million for the same period last year. The SBI Regular combined ratio was 88.4 in the fourth quarter, compared with 85.0 in the same period last year. Fourth-quarter 2006 pretax results included $4.9 million of favorable prior-year reserve development, compared with $20.5 million of favorable prior-year reserve development in the same period a year ago.

For the full year, SBI Regular reported $162.2 million in underwriting profit, compared with $144.7 million in 2005. The 2006 SBI Regular combined ratio was 87.0, compared with 88.6 in 2005.

SBI Regular net written premiums rose 4.5 percent during the fourth quarter compared with the same period last year. SBI Regular PIF increased 0.4 percent from a year ago. New-business policies issued during the quarter increased 16.7 percent compared with the same quarter last year, and the retention rate of existing customers increased slightly to 80.0 percent from 79.5 percent in 2005. For commercial products delivered over Safeco's automated underwriting platform, PIF increased 5.2 percent from the year-ago level.

"Our commercial multi-peril product on the automated Safeco Now(R) platform is continuing to gain traction in the marketplace," said Hughes. "That, along with competitive rates and ease of doing business, has helped us to generate solid growth performance."

Safeco's Special Accounts Facility, which writes selected large-commercial accounts and three specialty commercial programs, reported a pretax underwriting profit of $22.4 million in the quarter. This compares with a $56.8 million pretax underwriting profit in last year's fourth quarter. Special Account Facility's combined ratio was 65.7 in the period, compared with 19.3 last year. Results for the fourth quarter of 2006 included $3.2 million of favorable prior-year reserve development, compared with $41.3 million of favorable prior-year reserve development in the fourth quarter of 2005.

For the full year, Special Accounts Facility reported $68.7 million in underwriting profit, compared with $78.7 million in 2005. The 2006 Special Accounts Facility combined ratio was 74.0, compared with a 72.2 combined ratio in 2005.

Surety

Safeco Surety reported its most profitable year ever with a pretax underwriting profit of $32.7 million in the quarter, compared with $18.6 million for the same period in 2005.

Surety's combined ratio was 58.9 for the quarter, compared with 73.8 a year ago. Fourth-quarter net written premiums grew 15.6 percent compared with the same period last year.

For the full year, Surety generated a $98.4 million underwriting profit, compared with $55.0 million in 2005. The 2006 Surety combined ratio was 66.9, compared with 78.9 for 2005.

P&C Other

The P&C Other segment, which includes results from operations that Safeco has exited or placed in runoff, including Safeco Financial Institution Solutions (SFIS), which was sold in April 2006, had a pretax underwriting loss of $1.7 million in the fourth quarter. In fourth-quarter 2005, P&C Other recorded a $34.1 million pretax underwriting loss, driven primarily by pretax catastrophe losses in SFIS of $24.1 million related mainly to Hurricanes Katrina and Rita.

For the full year, P&C Other had a $54.4 million pretax underwriting loss, compared with a $103.9 million loss in 2005.

Capital Management

On Nov. 7, 2006, Safeco repurchased 10.2 million shares, or 8.8 percent, of its outstanding common stock through an Accelerated Share Repurchase (ASR) program. The shares were purchased from a dealer at $58.75 per share, for a cost of $603.1 million.

During 2006, Safeco repurchased an aggregate 20.7 million shares, or 16.7 percent, of its outstanding common stock for $1.17 billion. At year-end, approximately 4.8 million shares remained available for repurchase under board-approved programs.

Additional Financial Information Available

Safeco estimates its catastrophe losses using its knowledge of severity and reporting patterns from past events as well as claims data and assumptions specific to each catastrophe. Due to the nature of catastrophe losses, their complexity, and legal, regulatory and other uncertainties affecting the estimation of such losses, Safeco expects to continually refine its estimates of catastrophe losses until all uncertainties are resolved.

Safeco uses both GAAP and non-GAAP financial measures to track the performance of its operations. The definition of each non-GAAP measure and reconciliation to the most directly comparable GAAP measure are included in Safeco's Form 8-K that will be furnished to the U.S. Securities and Exchange Commission today.

The Form 8-K will include this news release and Safeco's summary financial results, consolidated statements of income and balance sheets in the company's fourth-quarter and full-year financial supplement.

Safeco's fourth-quarter and year-end press release, financial supplement and Form 8-K are available online at http://www.safeco.com/ir .

Management Reviews Results on Webcast

Safeco's senior management team will discuss the company's fourth-quarter and full-year performance with analysts today at 12 p.m., Eastern Time (9 a.m., Pacific Time). The conference call will be broadcast live on the Internet at http://www.safeco.com/irwebcast and archived later in the day for replay.

Safeco, in business since 1923, is a Fortune 500 property and casualty insurance company based in Seattle. The company sells insurance to drivers, homeowners, and small- and mid-sized businesses principally through a national network of independent agents and brokers. More information about Safeco can be found at http://www.safeco.com.

FORWARD-LOOKING INFORMATION CONTAINED IN THIS

NEWS RELEASE IS SUBJECT TO RISK AND UNCERTAINTY

Forward-looking information contained in this release is subject to risk and uncertainty. Information contained in this release that relates to Safeco's anticipated financial performance, expense reduction initiatives, business prospects and plans, and similar matters are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Statements in this release that are not historical information are forward-looking. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this release, including changes in general economic and business conditions in the insurance industry, and changes in our business strategies. Additional information on factors that may impact these forward-looking statements can be found in Item 1A "Risk Factors" in our 2005 Annual Report on Form 10-K.

Source: prnewswire