Ensuring that the recovery plans for Property & Casualty operations had the rigor and urgency necessary to succeed;
Property & Casualty reserves for loss and LAE for liability coverages related to environmental, asbestos and other toxic claims totaled $340.7 at December 31, 2001, compared with $315.5 at December 31, 2000. These amounts are before the effect of reinsurance, which totaled $19.7 and $28.8 at December 31, 2001 and 2000, respectively. These reserves are approximately 7% of total property and casualty reserves for loss and LAE at both December 31, 2001 and 2000. The reserves included estimates for both reported and IBNR claims and related legal expenses.
The vast majority of Property & Casualty’s environmental, asbestos and other toxic claims resulted from the commercial general liability line of business and the discontinued assumed reinsurance operations of American States. Approximately 4,800 of these claims, computed on an occurrence basis, were pending at December 31, 2001. The average settlement cost of each environmental, asbestos and other toxic claims for 2001 was fifteen thousand dollars including legal expenses.
New deposits from fixed return products were $788.0, $205.0 and $354.0 in 2001, 2000 and 1999, respectively. In 2001, $693.0 of the new deposits were from the new SAFECO Select deferred annuity product sold during the second half of 2001. New deposits from variable return products were $299.0, $248.0 and $265.0 in 2001, 2000 and 1999, respectively.
On July 24, 2001, the Corporation announced that it had reached a definitive agreement to sell SAFECO Credit to General Electric Capital Corporation (GECC). On August 15, 2001, SAFECO completed the sale (effective July 31, 2001) of SAFECO Credit to GECC for total cash proceeds of $918.9, which included the repayment of loans to SAFECO Credit and settlement of other affiliated transactions between SAFECO Credit and the Corporation totaling $668.9. The sale resulted in net proceeds of $250.0 and a pretax gain of $97.0. The after-tax gain on the sale of $54.0 is reported in the Consolidated Statements of Income (Loss). The sale of SAFECO Credit was completed pursuant to the terms of an Amended and Restated Stock Purchase Agreement, dated as of July 23, 2001 by and among GECC, the Corporation and SAFECO Credit.
SAFECO is not aware of any recently passed or current recommendations by regulatory authorities which have or would have, if passed, a material effect on its liquidity, capital resources or results of operations.
Property & Casualty’s fixed maturities portfolio, which totaled $6.5 billion at estimated fair value at December 31, 2001, is currently comprised of 42% tax-exempt and 58% taxable investments compared with 46% tax-exempt and 54% taxable at December 31, 2000. Property & Casualty has been investing new money primarily in taxable bonds and shifting holdings from tax-exempts to taxables to maximize the portfolio’s after-tax return in view of the higher level of underwriting losses in 2001 and 2000, and the resulting alternative minimum tax. The effective tax rate on investment income was 22%, 21% and 16% in 2001, 2000 and 1999, respectively, reflecting the shift to a higher level of taxable bond holdings.
SAFECO’s consolidated investment in mortgage-backed securities of $4.8 billion at fair value at December 31, 2001, consists mainly of residential collateralized mortgage obligations (CMOs), pass-throughs and commercial loan-backed mortgage obligations (CMBS). Life & Investments portfolio holds 82% while Property & Casualty holds 18% of these securities. Approximately 87% of the mortgage-backed securities are government/agency-backed or AAA rated at December 31, 2001. SAFECO has intentionally limited its investment in riskier, more volatile CMOs and CMBS (e.g., principal only, inverse floaters, etc.) to less than 1% of total mortgage-backed securities at December 31, 2001.
Changes in the nature of the property and casualty book of business;