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                                                                    EXHIBIT 10.7

                            PERFORMANCE STOCK RIGHTS
                                 AWARD AGREEMENT

            ISSUED UNDER THE SAFECO LONG-TERM INCENTIVE PLAN OF 1997

SAFECO CORPORATION ("SAFECO") grants to Michael S. McGavick ("Employee") the
following performance stock rights pursuant to, and in accordance with the
provisions of, the SAFECO Long-Term Incentive Plan of 1997 (the "Plan").

1.      SHARES SUBJECT TO RIGHTS. SAFECO shall issue to Employee up to a total
        of 33,171 shares of SAFECO common stock (the "Award Shares"), or, at the
        Employee's request, make a payment of an amount equal to the Fair Market
        Value of the Award Shares (or any portion thereof) upon the Employee's
        achievement of the stated Performance Goals for each of the Performance
        Cycles covered by this Award Agreement.

2.      PERFORMANCE CYCLES. The period covered by this Award Agreement is
        January 1, 2001 through December 31, 2003 (the "Award Period"), within
        which each of the following periods shall constitute a Performance
        Cycle:

        Performance Cycle 1: January 1, 2001 through December 31, 2001;
        Performance Cycle 2: January 1, 2001 through December 31, 2002; and
        Performance Cycle 3: January 1, 2001 through December 31, 2003

3.      PERFORMANCE GOALS. The Performance Goals for each Performance Cycle are
        stated on Schedule A, Performance Goals.

4.      SHARES EARNED. Following the end of each Performance Cycle, the number
        of Award Shares earned ("Earned Shares") shall be determined based on
        the Combined Percentage Achieved for that Performance Cycle, computed as
        follows:

        a.      The sum of the product of the Percentage Achieved for each
                Performance Goal multiplied by the appropriate weighting factor
                shall equal the Combined Percentage Achieved for that
                Performance Cycle; provided, that the Combined Percentage
                Achieved for any Performance Cycle may not exceed 100%.

        b.      The Earned Shares with respect to any Performance Cycle shall
                equal the Combined Percentage Achieved multiplied by the number
                of shares set forth below, less any Award Shares previously
                issued under this Award Agreement:

                Performance Cycle                   Number of Shares

                Performance Cycle 1                 1/3 Award Shares
                Performance Cycle 2                 2/3 Award Shares
                Performance Cycle 3                 Total Award Shares
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5.      ACHIEVEMENT OF PERFORMANCE GOALS; PAYMENT OF SHARES EARNED. The
        determination as to whether a Performance Goal has been met, its level
        of achievement and the Combined Percentage Achieved shall be made as
        soon as practical after the end of each Performance Cycle by the
        Committee selected by the SAFECO Board of Directors to administer the
        Plan (the "Committee"). Promptly following such determination (and in
        any event no later than 45 days following the end of a Performance
        Cycle), the Earned Shares shall be settled by the issuance and delivery
        of unrestricted shares of SAFECO common stock equal to the number of
        Earned Shares or, at Employee's request, by a cash payment equal to the
        Fair Market Value of those shares on the date settlement would otherwise
        have been made in shares (the "Settlement Date") or by a combination of
        cash and shares.

6.      ADJUSTMENT OF PERFORMANCE GOALS. The Committee may adjust the
        Performance Goals in such manner as it deems equitable in recognition of
        unusual or nonrecurring events affecting SAFECO, changes in applicable
        tax laws or accounting principles, or such other factors as the
        Committee may determine. If, however, an Employee is a person covered by
        Section 162(m) of the Code and the adjustment of any Performance Goal or
        other term of this Award Agreement would cause an increase in the number
        of Award Shares to be issued with respect to a Performance Cycle, then
        the Committee may not make such adjustment.

7.      TAX WITHHOLDING. As a condition to settlement of the Earned Shares,
        Employee must tender to SAFECO on or before the Settlement Date an
        amount sufficient to satisfy all applicable federal, state and local
        withholding tax requirements ("Tax Requirements"). Unless Employee pays
        SAFECO an amount equal to the Tax Requirements by the Settlement Date,
        SAFECO shall pay the Tax Requirements and either withhold the amount
        paid from Employee's next paycheck or reduce the number of Award Shares
        issued to Employee (or the cash equivalent paid to Employee) by the
        number of Award Shares which, as of the Settlement Date, has a Fair
        Market Value equal to the Tax Requirements.

8.      TERMINATION OF EMPLOYMENT. If Employee ceases to be an employee of
        either SAFECO or a subsidiary of SAFECO for any reason, then, except as
        provided in the Plan with respect to a Change in Control or to the
        extent the Committee may decide otherwise in select situations, Employee
        shall lose all rights to receive any Award Shares or their cash
        equivalent with respect to any unexpired Performance Cycles covered by
        this Award Agreement (including the Performance Cycle in which Employee
        terminates employment).

9.      FORFEITURE. In the event Employee engages in any activity deemed by the
        Committee to be in competition with SAFECO or otherwise contrary to
        SAFECO's interests while employed by SAFECO or one of its subsidiaries,
        or within one year following Employee's termination of employment, all
        of Employee's rights under this Award Agreement shall be forfeited,
        including the right to receive settlement of any Earned


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        Shares. In addition, in such event, Employee shall surrender to SAFECO
        any Award Shares issued to Employee during the 12 months prior to
        termination of employment, or if such Award Shares were settled in cash
        or Employee no longer owns the Award Shares, Employee shall reimburse
        SAFECO for the Fair Market Value of the Award Shares on the date they
        were settled. Employee agrees that SAFECO shall have the right to offset
        any amounts owing to Employee by SAFECO (e.g., including, without
        limitation, salary, profit-sharing bonus, payment for accrued vacation
        and sick leave) by any amount that Employee owes to SAFECO under this
        Section 9.

10.     CONTINUATION OF EMPLOYMENT. Nothing in this Award Agreement shall be
        construed or interpreted to confer upon Employee any right to continued
        employment by SAFECO or a SAFECO subsidiary or to interfere in any way
        with the right of SAFECO, in its sole discretion, to terminate Employee
        at any time.

11.     NO ADDITIONAL COMPENSATION PAYMENTS. No dividend equivalent payments
        shall be made with respect to the Award Shares.

12.     COORDINATION WITH OTHER BENEFIT PLANS. Settlements of Award Shares shall
        not be taken into account in administering other employee benefit and
        bonus programs for which Employee may be eligible (e.g., the SAFECO
        Employees' Profit Sharing Retirement Plan, Cash Balance Plan or 401(k)
        Savings Plan and the profit-sharing cash bonus).

13.     RIGHTS NOT TRANSFERABLE. The rights granted to Employee under this Award
        Agreement shall not be transferable except by will or by the laws of
        descent and distribution. During the Employee's lifetime, only Employee
        or Employee's guardian may exercise such rights.

14.     NO RIGHTS AS STOCKHOLDER. Neither Employee, nor Employee's personal
        representative, heir, legatee or distributee, shall be deemed to be a
        holder of, or to have any rights with respect to, any Award Shares until
        the Award Shares are issued.

15.     NO SEPARATE FUND. SAFECO has not segregated any assets or established
        any separate account or fund to insure payment of its obligations under
        this Award Agreement.

16.     OTHER PLAN PROVISIONS. The rights granted under this Award Agreement are
        subject to all of the provisions of the Plan, as it may be amended from
        time to time, and, except as otherwise expressly provided, to all
        constructions, interpretations, rules and regulations which may be
        adopted in connection with the Plan. Capitalized terms not otherwise
        defined in this Award Agreement shall have the meanings assigned to them
        in the Plan.


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17.     PLAN DOCUMENT. By signing below to acknowledge acceptance of the rights
        granted under this Award Agreement, Employee acknowledges that Employee
        has received a Plan Summary which includes the text of the Plan and has
        been afforded an opportunity to ask any questions that Employee may have
        regarding the Plan or the rights granted under this Award Agreement.

Dated this 27th day of March, 2001.

SAFECO:                      SAFECO CORPORATION


                            By: ______________________________
                                Robert S. Cline
                                Chair, Compensation Committee

EMPLOYEE:                   Accepted this ___ day of _____________, 2001


                            _________________________________
                            Michael S. McGavick

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                          SCHEDULE A--PERFORMANCE GOALS
                For March 2001 Corporate Performance Stock Rights

a.      Operating Return on Equity--Receives 1/3 Weight. The average annual
        operating return on equity for SAFECO, with investments at cost, for
        each Performance Cycle:

<TABLE>
<S>     <C>
    ----------------------------- --------------------------- --------------------------
    |       PERFORMANCE          |       PERFORMANCE         |       PERFORMANCE       |
    |         CYCLE 1            |         CYCLE 2           |         CYCLE 3         |
    ----------------------------- --------------------------- --------------------------
    | PERCENTAGE   |  RETURN ON  | PERCENTAGE  | RETURN ON   | PERCENTAGE | RETURN ON  |
    |  ACHIEVED    |   EQUITY*   |  ACHIEVED   |  EQUITY**   |  ACHIEVED  |  EQUITY*** |
    ------------------------------------------------------------------------------------
    |                                      Redacted                                    |
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</TABLE>

        *Return on equity figure for Performance Cycle 1 is the return on equity
        figure for calendar year 2001.

        **Return on equity figure for Performance Cycle 2 is the average of the
        return on equity figures for calendar years 2001 and 2002.

        ***Return on equity figure for Performance Cycle 3 is the average of the
        return on equity figures for calendar years 2001, 2002 and 2003.


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b.      Operating Earnings Per Share--Receives 1/3 Weight. The average annual
        operating earnings per share for SAFECO.


<TABLE>
<S>     <C>
    ----------------------------- --------------------------- --------------------------
    |       PERFORMANCE          |       PERFORMANCE         |       PERFORMANCE       |
    |         CYCLE 1            |         CYCLE 2           |         CYCLE 3         |
    ----------------------------- --------------------------- --------------------------
    |  PERCENTAGE  |  EARNINGS   | PERCENTAGE  |  EARNINGS   | PERCENTAGE |EARNINGS PER|
    |   ACHIEVED   | PER SHARE*  |  ACHIEVED   | PER SHARE** |  ACHIEVED  |  SHARE***  |
    ------------------------------------------------------------------------------------
    |                                      Redacted                                    |
    ------------------------------------------------------------------------------------
    |              |             |             |             |            |            |
    ------------------------------------------------------------------------------------
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    ------------------------------------------------------------------------------------
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    ------------------------------------------------------------------------------------
</TABLE>


        *Earnings per share figure for Performance Cycle 1 is the earnings per
        share for calendar year 2001.

        **Earnings per share figure for Performance Cycle 2 is the average of
        the earnings per share figures for calendar years 2001 and 2002.

        ***Earnings per share figure for Performance Cycle 3 is the average of
        the earnings per share figures for calendar years 2001, 2002 and 2003.


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c.      Change in Stock Price--Receives 1/3 Weight. For each Performance Cycle,
        the average annual change in the price of SAFECO's common stock more
        than the average annual change in the price of the common stocks of the
        companies included in the Peer Index used in SAFECO's proxy statement:

                     Percentage      Change in SAFECO Stock Price
                      Achieved       Over Change in Average of Peer
                                     Index Companies Stock Prices*
                                               Redacted