Seattle, Washington 98185
Fax: (206) 545-5730
Incorporated: 1923 as General Insurance Company of America
Assets: $10.12 billion
Stock Exchange: NASDAQ
SAFECO Corporation is one of the largest diversified financial corporations in the United States. Originally a property-and-casualty insurance company, it also is engaged in health and life insurance, real estate management and development, surety, commercial credit, and investment management. An industry innovator, SAFECO was a stock company that offered participating policies, a concept so new that it required legal battles for the right to be sold. Another innovation was the blanket policy, which combined coverages and later became a standard product. Diversification into real estate and financial services came in the late 1960s. SAFECO’s variety of conservative risk policies maintained the company through the recession-plagued 1970s and the natural disasters of the 1980s.
SAFECO dates to the founding of the General Insurance Company of America in 1923. This Seattle, Washington-based company was the project of Hawthorne K. Dent, who was a vice president of Northwestern Mutual Fire Insurance Company when he resigned to launch his own company. During the 1920s, eastern stock companies dominated the insurance industry, though smaller mutual companies had begun to be a presence. Mutual insurance companies were owned and organized by their policyholders, who shared the dividends when the company earned a profit. If the company had insufficient surplus to meet its claims and expenses, the policy-holders were assessed to make up the deficit. Most mutuals in the early 1920s were these “assessable mutuals,” and they avoided high-risk business. Competition between the two varieties was sometimes fierce, as agents tried to choose between the lower prices of the mutual policies and the established strength of the larger stock companies. Dent’s own father had been beaten in such a brawl while a salesman for Northwestern in its early days.
General borrowed ideas from both the mutual and the stock companies; it combined policyholder dividends and careful risk selection with the financial strength of capital paid by stockholders to protect policyholders in case of loss. Dent’s plan was for policyholders to benefit from the mutual system’s cost-saving devices without the assessment liability. Soliciting $2 million from the community’s business leaders to back his vision, Dent’s new enterprise was underway in April 1923.
As a stock insurance company committed to giving consumers a low-cost product and financial indemnity, General made an early practice of caution and conservation. This extended to such rules as turning off lights, not accepting collect calls, and watching paper clips.
In General’s early days, fire insurance was the principal basis of insurance companies. When the number of automobiles more than doubled between 1919 and 1929, however, auto insurance gained prominence. General’s immediate challenge was to woo independent agents away from the closed distribution system created by the established industry giants. One way to do this was by offering new, innovative products. General was the first capital stock company to issue a participating fire insurance policy. Participating policies paid dividends to policyholders at the policy’s expiration. Dent also created the American Insurance Agency, a wholly owned subsidiary, as another draw for agents. The agency trained young hirees to sell insurance in Seattle. These direct agents competed with independent agents.
In its first five years, General’s annual premium volume increased from less than $500,000 to $6.5 million, in 1928. When automobiles flourished, General formed the General Casualty Corporation, in 1925, to write liability insurance for that industry. In 1928 First National Insurance Company was formed to sell higher-cost policies. That same year, General paid its first stockholder dividends. The company had been formed with a policy of paying no dividends for a five-year period in order to build a surplus.
The year 1929 marked the stock market crash and the onset of the Great Depression. Also in 1929, the parent company’s name became General America Corporation. During this period, General continued to innovate and enlarge on its product line. These innovations met with some resistance and the company was often involved in litigation. At one point, General took the insurance commissioner of Oregon to that state’s supreme court to force acceptance of the participating policy. The court declared the concept legal and an example of lower-cost insurance in the public interest. As insurance buyers were extremely cost-conscious during these years, General’s low rates garnered many new customers. This sparked rate wars. The rate wars caused the insurance commissioner of the state of Washington to call a halt finally, as both companies and policyholders were at risk. General suffered a drop in profits during the price wars, but it had steady growth in sales and was Washington’s leading fire insurance company by 1935.
Throughout the 1930s, General expanded across the United States and into Canada, as well as into new market areas. By 1936 the home-office staff had grown to 250 from its starting 14. The company reported its highest net profit in 15 years in 1937. Despite the nation’s economic climate during the 1930s, General’s premium volume doubled every five years. In 1937 the company launched another innovation: the blanket policy, which combined varieties of coverage. In another five years, blanket policies were accepted widely throughout the industry.
In 1940 the Tacoma Narrows Bridge collapsed, and General suffered its first real underwriting error. The tragedy cost the company $50,000. With the attack on Pearl Harbor in 1941, land war-risk insurance was immediately in demand. Many companies withdrew such coverage in a panic, but General continued its coverage, hoping to prevent the government from entering that sector of the industry. General’s warrisk premium income was more than $2 million in 1942, when the government formed the War Damage Corporation to insure land war risks.
Big changes in the insurance industry followed the 1944 Supreme Court ruling that insurance constituted interstate commerce and that insurers were therefore subject to federal antitrust laws. Congress passed the McCarran Act in 1945, shifting regulation back to the states, but changes already had taken place. Competitive innovations thrived, and direct writers became widely accepted. Use of employees to sell insurance—direct writers—was rare prior to World War II.
By 1950 General was an acknowledged industry leader. The company increased its automobile writings by 207% between 1947 and 1952, while industry auto insurance growth averaged 51%. In 1951 General’s combined loss-and-expense ratio was lower than any of the nation’s 30 largest stock casualty insurance companies. Its carefully selected business was one of General’s strengths from the start. In 1953 General organized a new subsidiary, Selective Auto and Fire Insurance Company of America. The subsidiary soon officially changed its name to SAFECO Insurance Company of America. Among other innovations, SAFECO put independent agents back into competition with direct writers. Although there was resistance to some new sales policies—such as taking cash with applications, direct billing, and six-month renewal dates rather than a year—SAFECO brought in more than $6 million in premiums during its first full year of operation.
During the 1950s the company’s underwriting units were regrouped, forming commercial lines, personal lines, and surety. When SAFECO was launched in 1953, the company committed to a strong marketing and advertising campaign for the first time. That campaign would go on to include the Pink Panther after 1978, and later, the sponsorship of the “CBS Evening News” with Walter Cronkite. A new subsidiary bearing the company’s original name, General Life Insurance Company of America—the forerunner of SAFECO Life Insurance Company— was formed in 1957. Until this time, the company had concentrated on property and casualty insurance. Life insurance seemed a good ballast for the unpredictible expenses of property and casualty coverage. SAFECO was not alone; many insurance companies entered the life insurance business between 1955 and 1965. SAFECO Life showed a profit in 1958, its second year, after writing almost $20 million of business in-force. Within ten years, SAFECO Life reached $1 billion of business in-force. H.K. Dent died in 1958, at the age of 78. Willis Campbell had succeeded Dent as president in 1952.
General had accumulated enough capital by the 1960s to diversify further. Winmar Company, a Seattle-based real estate development and management firm, was purchased in 1967 in order to invest in commercial real estate ventures. In 1968 General Insurance Company of America became SAFECO Corporation. Also that year, SAFECARE Company was formed to design and build convalescent centers and hospitals; it has since become a subsidiary of Winmar. SAFECO Credit Company was formed in 1969 to provide short- and medium-term business financing.
When Willis Campbell had become president of General in 1952, it was a property and casualty insurance company with revenues of more than $77 million. Campbell became chairman of SAFECO 1966, with Gordon Sweany assuming the presidency. By 1966 the company had grown into a diversified financial services institution with revenues of more than $227 million.
The 1970s were an uncertain time for securities values and money management, but SAFECO continued to grow. In 1977 Sweany became chairman of the board while R.M. Trafton took over as president. Both had law degrees and had worked with the company for a cumulative 68 years. Between 1960 and 1980, the company showed an underwriting profit every year except for two. In 1979 SAFECO was the 27th-largest U.S. property and casualty underwriter.
Per-share earnings for the company more than doubled between 1976 and 1980. At the same time, other major property and casualty companies were suffering a decline, largely as a result of the widening gap between inflationary costs and state-regulated restrictions of rate increases. SAFECO profited when others did not because the company did not slash premium costs with the strategy of making up the difference in investment income. The company pulled out of New York and New Jersey when rate commissioners in both states restricted premiums. Pulling out of New York cost SAFECO about 10% of its total premium volume, but the move was reported to increase profitability.
Hurricane Frederic cost SAFECO $5 million in property losses in 1979, but the company still showed a strong profit for the year. In addition to the loss of premium income from the New York and New Jersey business, SAFECO had high cash outlays in 1980, including a $25 million payment to the Internal Revenue Service following a tax audit. At this time, the company’s biggest premium category was personal automobile, which outperformed the industry because of SAFECO’s conservative risk selection and its concentration in less populated areas. Automobile lines and homeowners insurance line began suffering substantial underwriting losses in the early 1980s, however, as home fires and thefts increased and the cost and frequency of auto claims shot up. Despite record gains in its life and health insurance operations, SAFECO reported a first quarter loss of $41 million in 1985.
Battling with the volatile stock market, increased medical costs, stiff price competition, and fluctuating inflation and interest rates left SAFECO in a weakened position by 1988, when the company was suddenly hit with California’s Proposition 103. This proposition cut state property and casualty rates by 20%. The company suffered losses of $5.3 million as a result of Hurricane Hugo’s record damages on the southeastern U.S. coast and $4.6 million for the California earthquake’s damages. SAFECO, nonetheless, managed a strong return by 1989 year end with the help of healthy investment performance and sharply increased life profits. Despite considerable underwriting losses, property and casualty operations still provided 66% of SAFECO’s 1989 pretax earnings.
Early in 1990 insurance regulators in Pennsylvania moved to block SAFECO’s decision not to renew its 8,000 auto insurance policies in that state. The nonrenewal decision followed premium rollback legislation passed in February. The 1990s decade thus began with further struggles between the industry and its regulators.
First National Insurance of America; General America Corp.; General Insurance Company of America; PNMR Securities, Inc.; SAFECO Administrative Services, Inc.; SAFECO Life Insurance Company; SAFECO National Insurance Company; SAFECO Properties, Inc.; SAFECO Services Corporation; SAFECO Credit Company, Inc.; SAFECO Insurance Company of America; SAFECO Insurance Company of Illinois; SAFECO Asset Management Company; SAFECO Assigned Benefits Services Company; SAFECO Securities, Inc.; Agena, Inc. (20%).
Saunders, Dero, “The Muddy Trackers,” Forbes, July 7, 1980; Saunders, Dero, “Portrait of a Bottom Fisherman,” Forbes, May 25, 1981; Copeland, Sid, The SAFECO Story, Seattle, SAFECO Corporation, 1981.
—Carol I. Keeley