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                                                                    EXHIBIT 10.2

                SAFECO DEFERRED COMPENSATION PLAN FOR EXECUTIVES
                    AS AMENDED AND RESTATED NOVEMBER 4, 1998
                        (AS LAST AMENDED AUGUST 2, 2000)

1.     PURPOSE

       The purpose of the SAFECO Deferred Compensation Plan for Executives (the
       "Plan") is to provide a select group of management or highly compensated
       employees of SAFECO Corporation ("SAFECO") and its Subsidiaries with an
       opportunity to defer all or part of the Eligible Compensation payable to
       such employees and all or part of such employees' Excess Contributions to
       the Savings Plan. The Plan shall be unfunded for tax purposes and for
       purposes of Title I of the Employee Retirement Income Security Act of
       1974, as it may be amended from time to time.

2.     DEFINITIONS

       2.01   Account. The term "Account" means a separate deferred compensation
              account established by SAFECO under this Plan in the name of a
              Participant.

       2.02   Administrative Committee. The "Administrative Committee" means the
              three-person committee appointed by the SAFECO Board of Directors
              to administer the Corporation's qualified retirement and savings
              plans.

       2.03   Annual Installment Method. "Annual Installment Method" means a
              distribution of a Participant's Account in annual installments
              over a stated number of years (not to exceed 20), with each
              installment paid in January as soon as practicable after year-end.
              The amount of the installment payable following any given year-end
              shall be determined by valuing the Participant's Account as of the
              close of business on the last business day of the year and then
              multiplying that value by a fraction, the numerator of which is
              one and the denominator of which is the remaining number of annual
              payments. (For example, for an Annual Installment Method of 10
              years, the first payment will be 1/10 of the Account, the
              following year, 1/9 of the Account, etc.)

       2.04   Beneficial Owner. "Beneficial Owner" has the meaning set forth in
              Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
              as amended.

       2.05   Beneficiary. "Beneficiary" refers to one or more trusts, estates,
              other entities or individuals designated by the Participant to
              receive certain benefits described in the Plan in the event of the
              Participant's death.

       2.06   Board of Directors or Board. The "Board of Directors" or the
              "Board" refers to the Board of Directors of SAFECO Corporation.

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       2.07   Change in Control. A "Change in Control" shall be deemed to have
              occurred if the event set forth in any one of the following
              paragraphs has occurred:

              (a)    Any Person is or becomes the Beneficial Owner, directly or
                     indirectly, of SAFECO securities (not including in the
                     securities beneficially owned by such Person any securities
                     acquired directly from SAFECO or its affiliates, as defined
                     in Rule 12b-2 adopted under the Exchange Act
                     ("Affiliates")) representing 25% or more of the combined
                     voting power of SAFECO's then outstanding securities,
                     excluding any Person who becomes such a Beneficial Owner in
                     connection with a transaction described in clause (x) of
                     paragraph (c) of this Section 2.07; or

              (b)    The following individuals cease for any reason to
                     constitute a majority of the number of directors then
                     serving: individuals who were directors of SAFECO on the
                     date the Plan was adopted by the SAFECO Board of Directors,
                     and any new director (other than a director whose initial
                     assumption of office is in connection with an actual or
                     threatened election contest, including but not limited to a
                     consent solicitation, relating to the election of directors
                     of SAFECO) whose appointment or election by the Board of
                     Directors or nomination for election by SAFECO's
                     shareholders was approved by a vote of at least two-thirds
                     of the directors then still in office who either were
                     directors on the date the Plan was adopted or whose
                     appointment, election or nomination for election was
                     previously so approved or recommended; or

              (c)    There is consummated a merger or consolidation of SAFECO or
                     any Subsidiary with any other corporation, other than (x) a
                     merger or consolidation which would result in the voting
                     securities of SAFECO outstanding immediately prior to such
                     merger or consolidation continuing to represent (either by
                     remaining outstanding or by being converted into voting
                     securities of the surviving entity or any parent thereof),
                     in combination with the ownership of any trustee or other
                     fiduciary holding securities under an employee benefit plan
                     of SAFECO or any Subsidiary, at least 75% of the combined
                     voting power of the securities of SAFECO or such surviving
                     entity or any parent thereof outstanding immediately after
                     such merger or consolidation, or (y) a merger or
                     consolidation effected to implement a recapitalization of
                     SAFECO (or similar transaction) in which no Person is or
                     becomes the Beneficial Owner, directly or indirectly, of
                     securities of SAFECO (not including in the securities
                     beneficially owned by such Person any securities acquired
                     directly from SAFECO or its Affiliates other than in
                     connection with the acquisition by SAFECO or its Affiliates
                     of a business) representing 25% or more of the combined
                     voting power of SAFECO's then outstanding securities; or

              (d)    The shareholders of SAFECO approve a plan of complete
                     liquidation or dissolution or there is consummated an
                     agreement for the sale or disposition

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                     of all or substantially all of SAFECO's assets, other than
                     a sale or disposition by SAFECO of all or substantially all
                     of its assets to an entity of which at least 75% of the
                     combined voting power is owned by shareholders of SAFECO in
                     substantially the same proportions as their ownership of
                     SAFECO immediately prior to such sale.

              Notwithstanding the foregoing, a "Change in Control" shall not be
              deemed to have occurred by virtue of the consummation of any
              transaction or series of integrated transactions immediately
              following which the record holders of the Common Stock immediately
              prior to such transaction or series of transactions continue to
              have substantially the same proportionate ownership in an entity
              which owns all or substantially all of SAFECO's assets immediately
              following such transaction or series of transactions.

       2.08   Closing Price. "Closing Price" means the price at which the last
              trade of SAFECO Common Stock was made prior to 1:00 p.m. Pacific
              Coast time on the NASDAQ Stock Market.

       2.09   Code. "Code" means the Internal Revenue Code of 1986, as amended.

       2.10   Common Stock. "Common Stock" means SAFECO Corporation common
              stock.

       2.11   Compensation Committee. "Compensation Committee" means the
              Compensation Committee of the Board of Directors.

       2.12   Corporation. "Corporation" means SAFECO Corporation and its
              Subsidiaries, collectively.

       2.13   Deferral Election. "Deferral Election" means a written document in
              the form prescribed by the Administrative Committee which an
              employee of SAFECO or any of its Subsidiaries has signed and
              delivered to the Administrative Committee, and which the
              Administrative Committee has accepted, indicating the employee's
              intent to participate in the Plan and the amount or percentage of
              Eligible Compensation, Qualifying Gains and/or Excess
              Contributions which the employee desires to have credited to his
              or her Account in the Plan.

       2.14   Deferrals. "Deferrals" refers to the Eligible Compensation,
              Qualifying Gains and/or Excess Contributions that a Participant
              designates in his or her Deferral Election(s) pursuant to the
              terms and conditions of the Plan.

       2.15   Disability. "Disability" means a physical or mental condition
              occurring prior to the Participant's Retirement which, in the sole
              judgment of the Administrative Committee, based upon medical
              reports and other evidence satisfactory to the Administrative
              Committee, presumably permanently prevents a Participant from
              satisfactorily performing his or her usual duties for the
              Corporation or the duties of

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              any other position or positions for the Corporation for which such
              Participant is qualified by reason of training, education or
              experience.

       2.16   Eligible Compensation. "Eligible Compensation" means compensation
              payable to a Participant by the Corporation in the form of Salary,
              bonus, settlements of RSRs, dividend equivalents payable on RSRs,
              settlements of PSRs, and any other form that the Compensation
              Committee may determine in its sole discretion, excluding gains on
              the exercise of stock options.

       2.17   Eligible Stock Option. "Eligible Stock Option" means a
              nonqualified stock option to purchase Common Stock exercisable
              under any plan or arrangement designated by the Compensation
              Committee that permits a Participant to defer gain on the exercise
              of the option.

       2.18   Excess Contribution. "Excess Contribution" means the amount of
              Salary (not to exceed 10%) that a Participant has elected to
              contribute to the Savings Plan which is in excess of applicable
              Code limitations on contributions to the Savings Plan.

       2.19   Exchange Act. "Exchange Act" means the Securities Exchange Act of
              1934, as amended.

       2.20   Hardship. "Hardship" means an unforeseeable emergency resulting
              from a sudden and unexpected illness or accident of the
              Participant or a Participant's dependent (as defined in Section
              152(a) of the Code), loss of the Participant's property due to
              casualty, or other similar extraordinary and unforeseeable
              circumstances arising from events beyond the Participant's
              control.

       2.21   Match. "Match" means an amount, not to exceed 4% of Salary, equal
              to two-thirds of the Excess Contributions which a Participant has
              elected to defer under this Plan.

       2.22   Measurement Fund. "Measurement Fund" means a phantom investment
              designated by the Administrative Committee for use as an index to
              value the portion, if any, of a Participant's Account allocated to
              that phantom investment.

       2.23   Measurement Fund Election. "Measurement Fund Election" means a
              written document in the form prescribed by the Administrative
              Committee that a Participant has signed and delivered to the
              Administrative Committee, and which the Administrative Committee
              has accepted, indicating the manner in which the Participant's
              Deferrals and/or Account are to be allocated among the available
              Measurement Funds.

       2.24   Participant. A "Participant" means an employee eligible to
              participate in the Plan who has timely filed a Deferral Election
              in accordance with Section 3 and whose Deferral Election has been
              accepted by the Administrative Committee. Any such person shall be
              a Participant as of the effective date of his or her first
              Deferral

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              Election and shall continue until the date his or her entire
              Account has been paid out in accordance with the Plan.

       2.25   PSRs. "PSRs" refers to performance stock rights issued under the
              SAFECO Long-Term Incentive Plan of 1997 or any successor incentive
              plan.

       2.26   Person. "Person" for purposes of Section 2.07 means any person (as
              defined in Section 2(a)(9) of the Exchange Act, and as such term
              is modified in Section 13(d) and 14(d) of the Exchange Act) other
              than (i) any employee plan established by SAFECO, (ii) SAFECO or
              any of its Affiliates, (iii) an underwriter temporarily holding
              securities pursuant to an offering of such securities, or (iv) a
              corporation owned, directly or indirectly, by SAFECO shareholders
              in substantially the same proportions as their ownership of
              SAFECO.

       2.27   Phantom Stock Fund. "Phantom Stock Fund" refers to a Measurement
              Fund tied to the performance of the Common Stock, as more
              specifically described in Section 5.06.

       2.28   Qualifying Gain. "Qualifying Gain" means the net value accrued
              upon a stock-for stock exercise of an Eligible Stock Option (i.e.,
              the amount by which the total value of the shares exercised
              exceeds the value of the shares used to pay the exercise price,
              where both the shares paid and the shares exercised are valued at
              the Closing Price on the date of exercise). For example, a
              Participant elects to defer the Qualifying Gain accrued upon
              exercise of an Eligible Stock Option to purchase 1,000 shares at
              an exercise price of $20 per share. The Closing Price of the
              Common Stock on the date of exercise is $25. The Participant
              delivers 800 shares of Common Stock (worth $20,000) to pay the
              exercise price. In return, the Participant receives 800 shares of
              Common Stock worth $20,000 and his or her Account is credited with
              a Qualifying Gain of $5,000.

       2.29   RSRs. "RSRs" refers to restricted stock rights issued under the
              SAFECO Incentive Plan of 1987, the SAFECO Long-Term Incentive Plan
              of 1997, or any successor incentive plan.

       2.30   Retirement. "Retirement" means a Participant's termination of
              employment with the Corporation occurring at or after age 55
              (other than as a result of death or Disability), provided the sum
              of the Participant's age and the Participant's years of service
              with the Corporation equals or exceeds 75.

       2.31   Rollover. "Rollover" means an amount transferred to a
              Participant's Account from another nonqualified plan of SAFECO or
              any Subsidiary, including but not limited to:

              (a)    the 401(a)(17) Savings Plan Benefit under the SAFECO
                     Employees' Supplemental Retirement Plan B, as amended
                     November 4, 1998

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                     ("SRP B"), if any, deemed transferred to a Participant's
                     Account on January 1, 1999 in accordance with Section 6.2
                     of SRP B;

              (b)    the sum of the 401(a)(17) Cash Balance Benefit, the
                     401(a)(17) PSRP Benefit, and the Supplemental Percentage
                     Cash Balance Benefit (as those terms are defined in SRP B)
                     under SRP B, if any, deemed transferred to a Participant's
                     Account in accordance with Section 7.2(a) of SRP B upon the
                     Participant's Retirement;

              (c)    any benefit under the SAFECO Employees' Supplemental
                     Retirement Plan A ("SRP A") deemed transferred in
                     accordance with Section 7.2(a) of SRP A upon the
                     Participant's Retirement; and

              (d)    any other amount deemed transferred from any nonqualified
                     plan of SAFECO or any Subsidiary with the Administrative
                     Committee's permission, which may be unreasonably withheld.

       2.32   Salary. "Salary" means a Participant's base annual salary before
              reduction for (i) compensation voluntarily deferred or contributed
              by the Participant under qualified or nonqualified plans of SAFECO
              or any Subsidiary and (ii) amounts not included in the
              Participant's gross income under Code Sections 125, 402(e), and
              402(h) pursuant to plans established by SAFECO or any Subsidiary.

       2.33   Savings Plan. "Savings Plan" means the SAFECO 401(k) Savings Plan,
              as amended and restated effective January 1, 1999.

       2.34   Subsidiary. "Subsidiary" means any corporation of which 50% or
              more of the voting stock is owned, directly or indirectly, by
              SAFECO Corporation.

3.     DEFERRAL ELECTIONS

       3.01   Filing of Deferral Election. An eligible employee who wishes to
              participate in the Plan must file a Deferral Election with SAFECO
              on the form(s) prescribed by the Administrative Committee. A
              Participant may elect to defer all or any portion of the
              Participant's Eligible Compensation and/or Qualifying Gains. If a
              Participant elects to defer Excess Contributions, 100% of the
              Participant's Excess Contributions must be deferred.

       3.02   Deferral Election Irrevocable.

       (a)    A Deferral Election is irrevocable as to the amount or percentage
              of Eligible Compensation or Excess Contributions to be deferred
              for the year or years to which the Deferral Election relates. Any
              request to change the amount or percentage to be deferred shall
              not be effective until January 1 of the next calendar year, except
              that (i) in the case of RSRs, the change request shall not be
              effective

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              until the second settlement date following the date of the
              request, and (ii) an election with respect to a PSR may never be
              modified or revoked.

       (b)    A Deferral Election to defer Qualifying Gains with respect to a
              designated Eligible Stock Option is irrevocable.

       3.03   Timing of Deferral Election

              (a)    Except as otherwise provided in this paragraph and in
                     Section 3.04, a Deferral Election for Eligible Compensation
                     shall be filed with the Administrative Committee no later
                     than December 31 and shall be effective for Eligible
                     Compensation earned on or after January 1 of the following
                     calendar year. A Deferral Election to defer amounts payable
                     in settlement of RSRs, however, shall not take effect until
                     one additional year later. A Deferral Election to defer
                     payments in settlement of PSRs must be made within 10
                     business days of the grant of the PSR. Notwithstanding the
                     foregoing, if in its discretion the Compensation Committee
                     designates as "Eligible Compensation" any form of
                     compensation that is not specifically identified in Section
                     2.16 or that has not been previously designated as Eligible
                     Compensation, a Deferral Election with respect to the newly
                     designated Eligible Compensation shall be filed with the
                     Administrative Committee by such time as the Administrative
                     Committee shall determine but in no event later than the
                     date the Participant becomes entitled to receive payment of
                     such compensation. Further notwithstanding the foregoing,
                     in the first year in which an employee becomes eligible to
                     participate in the Plan, the newly eligible employee shall
                     have 30 days after becoming eligible in which to make a
                     Deferral Election to defer Eligible Compensation for
                     services to be performed subsequent to the election.

              (b)    A Deferral Election for Excess Contributions shall be filed
                     with the Administrative Committee no later than December 31
                     of the year prior to the year in which the Excess
                     Contributions will occur; provided, however, that in the
                     first year in which an employee of SAFECO or any Subsidiary
                     becomes eligible to participate in the Plan, the newly
                     eligible employee shall have 30 days after becoming
                     eligible in which to file a Deferral Election for Excess
                     Contributions.

              (c)    A Deferral Election to defer a Rollover described in
                     Section 2.30(d) must be filed with the Administrative
                     Committee no later than one calendar year prior to the date
                     on which the Rollover will be credited to the Participant's
                     Account under the Plan. (No Deferral Election is required
                     for a Rollover described in Section 2.30(d) if the Rollover
                     to the Participant's Account is required by the
                     Corporation.)

              (d)    A Deferral Election to defer Qualifying Gain upon exercise
                     of an Eligible Stock Option shall be valid only if: (i) a
                     separate Deferral Election is made by the Participant with
                     respect to the Eligible Stock Option; (ii) the Deferral
                     Election is delivered to and accepted by the Committee at
                     least six months

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                     before the Participant elects to exercise the Eligible
                     Stock Option; and (iii) the exercise price of the Eligible
                     Stock Option is paid in Common Stock (either through
                     physical delivery or attestation).

       3.04   Special Rules. Eligible employees shall have until May 15, 1998 to
              file Deferral Elections with respect to Eligible Compensation
              earned and/or Excess Contributions made during the remainder of
              1998 as well as settlements of RSRs payable in February 1999.
              Eligible employees shall have until February 15, 2000 to file
              Deferral Elections with respect to PSRs granted in February 1999
              (excluding any settlements payable under such PSRs in February
              2000).

4.     DEFERRAL ACCOUNTS

       4.01   Establishment of Accounts. An Account shall be established for
              each Participant to which all Deferrals, Matches and Rollovers
              attributable to the Participant, and the earnings thereon, shall
              be credited. A Participant's Account shall at all times be a
              bookkeeping entry only and shall not represent any investment made
              by SAFECO or any Subsidiary on the Participant's behalf.

       4.02   Crediting of Accounts.

              (a)    Deferrals of Eligible Compensation shall be credited to a
                     Participant's Account on the date such Deferrals would
                     otherwise be payable to the Participant.

              (b)    Deferrals of Excess Contributions and the corresponding
                     Match shall be credited to a Participant's Account on the
                     date the Excess Contributions would have been contributed
                     to the Savings Plan but for applicable Code limitations.

              (c)    Qualifying Gains shall be credited to a Participant's
                     Account on the date that the Eligible Stock Option to which
                     they relate is exercised;

              (d)    Rollovers shall be credited to a Participant's Account on
                     the date they are deemed transferred to the Plan.

       4.03   Vesting. A Participant shall be fully vested at all times in his
              or her Deferrals. A Participant shall be vested in Matches
              credited to his or her Account to the same extent that the
              Participant is vested in the employer match provided under the
              Savings Plan. A Participant shall be fully vested in Rollovers to
              the Participant's Account; provided, however, that in the case of
              a Rollover described in Section 2.30(d), the Participant initially
              shall be vested only to the extent the Participant was vested in
              the benefit under the terms of the plan from which it was deemed
              transferred, as determined at the time of deemed transfer to the
              Participant's Account.

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5.      MEASUREMENT FUNDS

       5.01   Measurement Funds. A Participant's Account shall be allocated
              among the Measurement Funds selected by the Participant in
              accordance with the Participant's most recent Measurement Fund
              Election and such rules as the Administrative Committee may
              establish from time to time. The Account of each Participant shall
              be credited (or debited) on a daily basis according to the
              performance of each Measurement Fund selected by the Participant.
              If a Participant fails to file a Measurement Fund Election, the
              Participant's Account shall be allocated to the Money Market
              Portfolio Measurement Fund until such time as the Participant
              files a Measurement Fund Election making a different allocation.

       5.02   Measurement Fund Elections. Each time a Participant files a new
              Measurement Fund Election, the Participant shall indicate whether
              his or her new allocation among the various Measurement Funds is
              intended to apply to the Participant's entire Account or instead
              only to future Deferrals, Matches, and Rollovers. A Measurement
              Fund Election will be given effect no later than the next business
              day after it is received by the Administrative Committee, subject
              to the limitation set forth in Section 5.03.

       5.03   Limitation Applicable to Section 16 Reporters. In the case of a
              Participant who is subject to reporting under Section 16(a) of the
              Exchange Act, a Measurement Fund Election applicable to amounts
              already accrued in a Participant's Account will not be given
              effect if it would generate a "non-exempt" transaction for
              purposes of the rules promulgated under Section 16 of the Exchange
              Act. (A "non-exempt" transaction would result if a Participant's
              Measurement Fund Election caused a transfer of all or part of the
              Participant's Account into (or out of) the Phantom Stock Fund less
              than six months after the Participant elected an opposite-way
              transfer into or out of that Fund.)

       5.04   Availability of Measurement Funds. The Measurement Funds available
              to Participants at any given time shall be set forth in Appendix
              A. SAFECO is under no obligation to offer any particular
              investment as a Measurement Fund and reserves the right to
              eliminate, change, and add Measurement Funds at any time.

       5.05   No Actual Investment. Notwithstanding any other Plan provision
              that may be interpreted to the contrary, the Measurement Funds are
              to be used for measurement purposes only. Neither a Participant's
              election of any Measurement Fund nor the crediting or debiting of
              amounts to the Participant's Account in accordance with that
              election shall be construed as an actual investment of the
              Participant's Account in any Measurement Fund.

       5.06   Phantom Stock.

              (a)    The portion of a Participant's Account that is allocated to
                     the Phantom Stock Fund, if any, shall be credited or
                     debited, as the case may be, as if it were 100% invested in
                     Common Stock. Each amount credited to the

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                     Phantom Stock Fund shall be credited in units ("Units" or
                     "Phantom Stock Units") based on the Closing Price of the
                     Common Stock on the date of crediting. Fractional Units
                     shall be credited to a minimum of three decimal points

              (b)    To the extent cash dividends are paid on the Common Stock,
                     a Participant's Account shall be credited with phantom
                     dividends. Phantom dividends shall equal the per-share
                     dividend paid on the Common Stock multiplied by the number
                     of Phantom Stock Units in the Participant's Account on the
                     record date for the cash dividend. Phantom dividends shall
                     be credited to a Participant's Account in the form of
                     additional Phantom Stock Units. The number of additional
                     Units credited shall be determined based on the Closing
                     Price of the Common Stock on the dividend payment date.

              (c)    No actual shares of Common Stock will be issued directly or
                     indirectly under the Plan in respect of Phantom Stock
                     Units. No voting or other rights of any kind associated
                     with ownership of the Common Stock shall inure to a
                     Participant by virtue of the Participant's allocation of
                     all or any portion of his or her Account to the Phantom
                     Stock Fund.

              (d)    In the event of any change in the Common Stock reason of an
                     issuance of additional shares, recapitalization,
                     reclassification, merger, reorganization, stock split,
                     reverse stock split, combination of shares, stock dividend
                     or similar transaction, the number of Phantom Stock Units
                     held by a Participant under the Plan shall be
                     proportionately adjusted by the Administrative Committee.

6.     DISTRIBUTION OF DEFERRED COMPENSATION ACCOUNT

       6.01   General. Except as otherwise expressly provided in this Plan, no
              withdrawal or payment shall be made from a Participant's Account
              except following the earliest to occur of the Participant's death,
              Disability, Retirement or other termination of service with the
              Corporation. Payments shall be made in accordance with Sections
              6.02 and 6.03 unless the Participant has filed an election
              pursuant to Section 6.04 requesting an alternative distribution
              type and/or time period. The portion, if any, of a Participant's
              Account that is not vested as of the date of the Participant's
              termination of service shall not be distributed to the Participant
              (unless the Participant is terminated following a Change in
              Control, as described in Section 10.01). All payments shall be
              made in cash, regardless of the Measurement Funds selected by the
              Participant.

       6.02   Retirement and Disability Distributions. If a Participant
              terminates service with the Corporation on account of Retirement
              or Disability, the Participant's Account shall be paid to the
              Participant using an Annual Installment Method of 10 years,
              commencing in January of the year following the Participant's
              Retirement or termination on account of Disability.

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       6.03   Distributions Following Death. If a Participant dies prior to
              Retirement, the Participant's Account shall be paid out in a
              single lump sum within 30 days of the date the Corporation is
              notified, in a form acceptable to the Administrative Committee, of
              the Participant's death. The value of the Participant's Account
              shall be determined as of the date of the Participant's death.

       6.04   Distributions Following Other Terminating Events. If a Participant
              terminates employment with the Corporation for any reason other
              than Retirement, Disability, or death, the Participant's Account
              shall be paid out in a single lump sum within 30 days of the
              Participant's termination of employment, with the value of the
              Participant's Account determined as of the termination date.

6.05   Distribution Election.

              (a)    A Participant shall be permitted, in accordance with such
                     rules as the Administrative Committee may establish from
                     time to time, to elect a distribution that is different
                     from the default provisions set forth in Sections 6.02 and
                     6.03 (but not 6.04) and may revoke his or her distribution
                     election or file a new distribution election with the
                     Administrative Committee at any time, subject to paragraph
                     (b) below. Such distribution may consist of a lump sum, an
                     Annual Installment Method over a stated period of up to 20
                     years, or a combination of the two. Payments under any
                     alternative distribution elected by a Participant must
                     commence no later than January of the year following the
                     year in which the Participant terminates employment, unless
                     the Administrative Committee permits otherwise in its sole
                     discretion, which may be unreasonably withheld. To be
                     effective, a distribution election must be accepted by the
                     Administrative Committee at least 12 months prior to the
                     Participant's termination of employment. Any distribution
                     election filed by a Participant shall apply to the entire
                     Account, including amounts credited to the Account prior to
                     the date of the election and those credited later, without
                     regard to the way the Account is allocated among
                     Measurement Funds.

              (b)    In the case of a Participant making a Deferral Election to
                     defer Eligible Compensation, Qualifying Gains and/or Excess
                     Contributions for the first time, a distribution election
                     filed at the same time as the Participant's initial
                     Deferral Election shall be given effect even if the
                     Participant terminates employment within 12 months of the
                     filing. A distribution election filed with the
                     Administrative Committee at the same time as the
                     Participant's initial Deferral Election shall be
                     irrevocable for 12 months.

       6.06   Distribution in the Event of Taxation. If, for any reason, all or
              any portion of a Participant's Account becomes taxable to the
              Participant prior to distribution in accordance with the Plan, a
              Participant may petition the Administrative Committee for a
              special distribution of the taxable portion. Upon the grant of
              such a petition,

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              which shall not be unreasonably withheld, SAFECO shall promptly
              distribute to the Participant the portion of his or her Account
              that has become taxable.

7.     DESIGNATION OF BENEFICIARY

       A Participant may designate one or more Beneficiaries to receive amounts
       payable under the Plan in the event of the Participant's death. To
       designate a Beneficiary, the Participant shall complete a Beneficiary
       designation form in accordance with the Administrative Committee's rules
       and procedures as in effect from time to time. A Participant may change a
       Beneficiary designation at any time by filing a new Beneficiary
       designation form with the Administrative Committee. Upon acceptance by
       the Administrative Committee of the new form, all Beneficiary
       designations previously filed by the Participant shall be canceled. If
       the Participant names someone other than his or her spouse as primary
       Beneficiary, a spousal consent in the form established by the
       Administrative Committee must be signed by the Participant's spouse and
       returned to the Administrative Committee. If a Participant fails to
       designate a Beneficiary or if the designated Beneficiary predeceases the
       Participant, then the Account of the deceased Participant shall be paid
       to the Participant's surviving spouse, or if none, to the personal
       representative of the Participant's probate estate.

8.     HARDSHIP WITHDRAWALS

       A Participant may petition the Administrative Committee to make an
       immediate, accelerated distribution from his or her Account in the event
       the Participant has incurred a severe financial Hardship. Distributions
       will not be made to the extent the Hardship can be relieved through
       insurance proceeds, liquidation of the Participant's assets (but only to
       the extent that such liquidation would not itself cause a severe
       financial Hardship) or by cessation of deferrals under the Plan. Payments
       for severe financial Hardship under this Plan are limited to the amount
       necessary to relieve an "unforeseeable emergency" as defined in Treas.
       Reg. Section 1.457-2(h)(4) and (5). The Administrative Committee shall
       determine whether the Participant has incurred a severe financial
       Hardship and may, in its sole discretion, grant the immediate,
       accelerated distribution of all or any portion of the Participant's
       Account; provided, however, that such distribution shall not exceed the
       amount determined by the Administrative Committee to be necessary to
       alleviate the severe financial Hardship. Notwithstanding anything in this
       Plan to the contrary, if a Participant obtains a Hardship withdrawal, the
       Participant's Deferral Election will be automatically suspended for a
       period of twelve months, beginning with the first day of the next
       regularly scheduled payroll period.

9.     EARLY WITHDRAWAL SUBJECT TO PENALTY

       A Participant (or, after a Participant's death, his or her Beneficiary)
       may elect, at any time, to withdraw all (but not part) of his or her
       Account, less a withdrawal penalty equal to 10% of such amount. (The net
       amount shall be referred to as the "Withdrawal Amount".) This election
       may be made at any time, before or after the Participant's Retirement,
       death, Disability or termination of employment, and whether or not the
       Participant (or

                                       12
<PAGE>   13

       Beneficiary) is in the process of being paid pursuant to an Annual
       Installment Method. If the early withdrawal election is made before the
       Participant's Retirement, Disability or death, a Participant's Withdrawal
       Amount shall be his or her Account calculated as if a termination of
       employment had occurred on the date of the election. The Participant (or
       Beneficiary) shall make this election by giving the Administrative
       Committee written notice in the form determined from time to time by the
       Administrative Committee. The Participant (or Beneficiary) shall be paid
       the Withdrawal Amount within 30 days of his or her election. Once the
       Withdrawal Amount is paid, the Participant's participation in the Plan
       shall terminate and the Participant shall not be eligible to participate
       in the Plan in the future.

10.    CHANGE IN CONTROL

       10.01  Termination Following a Change in Control. In the event a
              Participant's employment with SAFECO and all Subsidiaries is
              terminated within two years following a Change in Control, the
              Participant's entire Account, including any unvested portion,
              shall be paid to the Participant (or the Participant's
              Beneficiary) in a single lump sum within 30 days after the
              termination of employment.

       10.02  Distributions Triggered by Termination Following a Change in
              Control. For purposes of calculating the lump sum distribution
              payable under Section 10.01, the Participant's Account shall be
              valued as of the date of his or her termination of employment.
              Phantom Stock units shall be valued at the higher of (x) and (y),
              where (x) equals the Closing Price of the Common Stock on the date
              of termination and (y) equals:

              (a)    If the Change in Control was of the type described in
                     paragraph (a) of Section 2.07, the highest price paid for
                     shares of Common Stock by any Person who became a
                     Beneficial Owner of securities representing 25% or more of
                     the combined voting power of SAFECO's outstanding
                     securities; and

              (b)    If the Change in Control was of any type other than that
                     described in paragraph (a) of Section 2.07, the highest
                     Closing Price of the Common Stock during the last 10
                     trading days prior to and including the date of the Change
                     in Control.

       10.03  Administration. Upon and after the occurrence of a Change in
              Control, the Plan shall be administered by the Administrator
              appointed under Section 11.02.

       10.04  Legal Fees to Enforce Rights After Change in Control. SAFECO is
              aware that upon the occurrence of a Change in Control, the Board
              or a shareholder of SAFECO (or the board of directors or a
              shareholder of a successor corporation) might take action adverse
              to one or more Participants, such as (i) causing or attempting to
              cause SAFECO or such successor to refuse to comply with its
              obligations under the Plan; and (ii) instituting litigation or
              causing or attempting to

                                       13
<PAGE>   14

              cause SAFECO or such successor to institute litigation seeking to
              deny Participants the benefits intended under the Plan. In these
              circumstances, the purpose of the Plan could be frustrated.
              Accordingly, if, following a Change in Control, (i) it should
              appear to a Participant that SAFECO or any successor to SAFECO has
              failed to comply with its obligations under the Plan or (ii)
              SAFECO or any successor to SAFECO takes any action to declare the
              Plan void or unenforceable or institutes any litigation or other
              legal action designed to deny, diminish or recover from any
              Participant the benefits intended to be provided under the Plan,
              then the Participant shall be authorized to retain counsel of his
              or her choice, at the expense of SAFECO or any successor to
              SAFECO, to represent the Participant in connection with the
              initiation or defense of any litigation or other legal action,
              whether by or against SAFECO, such successor, or any director,
              officer, shareholder or other person affiliated with SAFECO or
              such successor, in any jurisdiction.

11.    ADMINISTRATION

       11.01  Committee Duties.

              (a)    Except as otherwise provided in this Section 11, the Plan
                     shall be administered by the Administrative Committee,
                     which shall have exclusive authority over all matters
                     involving administration of the Plan, including the
                     selection of employees eligible to participate and the type
                     or types of Deferrals that a given Participant is permitted
                     to elect. The Administrative Committee shall have the
                     discretion and authority (i) to make, amend, interpret, and
                     enforce such rules as it deems necessary or desirable for
                     the administration of the Plan and (ii) to interpret the
                     Plan and decide or resolve any and all questions that may
                     arise in connection with the Plan from time to time,
                     subject to the Plan's express provisions. The decision or
                     action of the Administrative Committee with respect to any
                     question arising out of or in connection with the
                     administration, interpretation and application of the Plan
                     and the rules it may adopt thereunder shall be final,
                     conclusive and binding upon all persons having any interest
                     in the Plan.

              (b)    The Administrative Committee may make equitable adjustments
                     under the Plan from time to time, including retroactive
                     adjustments, to correct mathematical, accounting, or
                     factual errors made in good faith by SAFECO or a
                     Participant.

              (c)    The Administrative Committee may delegate administrative
                     duties to other persons, including officers of SAFECO, and
                     may retain the services of lawyers, accountants, or other
                     outside third parties to assist with the administration of
                     the Plan.

              (d)    In cases where a decision or Plan interpretation by the
                     Administrative Committee relates specifically to the
                     benefits to which a member of the

                                       14
<PAGE>   15

                     Administrative Committee may be entitled, the decision or
                     interpretation shall be subject to review and approval by
                     the Compensation Committee.

       11.02  Administration upon a Change in Control. Upon and after a Change
              in Control, the administrative powers and responsibilities of the
              Administrative Committee shall pass to an "Administrator," who
              shall be an independent third party selected by the individual who
              was the Chief Executive Officer of SAFECO immediately prior to the
              Change in Control (the "Ex-CEO"). The Administrator shall have the
              discretionary power to determine all questions arising in
              connection with the administration and interpretation of the Plan,
              including without limitation benefit entitlement determinations.
              Upon and after a Change in Control, SAFECO must: (i) pay all
              reasonable expenses and fees of the Administrator; (ii) indemnify
              the Administrator against all costs, expenses and liabilities,
              including without limitation attorneys' fees, arising in
              connection with the performance of the Administrator's duties
              hereunder, except with respect to matters resulting from the gross
              negligence or willful misconduct of the Administrator or its
              employees or agents; and (iii) supply complete and timely
              information to the Administrator about all matters relating to the
              Plan, including the Participants and their Beneficiaries;
              Participant Accounts; the Retirement, death, Disability or
              termination of employment of Participants; and such other
              information as the Administrator may reasonably require. The
              Administrator may be terminated (and a replacement appointed) only
              by the Ex-CEO or by such other person as the Ex-CEO may designate
              in writing. SAFECO or any successor to SAFECO may not terminate
              the Administrator.

12.    AMENDMENT OF THE PLAN

       The Compensation Committee may from time to time make such amendments to
       the Plan as it deems appropriate; provided, however, that (i) no
       amendment which cancels or reduces the benefits to which a Participant is
       entitled as of the date of the amendment shall be effective without the
       written consent of the Participant, and (ii) Sections 10 and 11.02 and
       this Section 12 shall not be amended following a Change in Control
       without the written consent of 66.67% of the Participants. The
       Administrative Committee shall be authorized to make amendments to the
       Plan which are immaterial or clerical in nature or which are, in the
       opinion of counsel, required by local, state or federal law or
       regulation.

13.    TERMINATION OF THE PLAN

       The Corporation reserves the right to terminate the Plan at any time by
       action of the Board of Directors, subject to the limitations on
       amendments set forth in Section 12. Unless the Board determines
       otherwise, in the event the Plan is terminated, the Account of each
       Participant shall be valued as of the date specified for such purpose by
       the Board, and the value of the Account shall be paid in cash to the
       Participant within 30 days after the valuation date.

                                       15
<PAGE>   16

14.    CLAIMS PROCEDURES

       14.01  Presentation of Claim. Any Participant or Beneficiary of a
              deceased Participant (such Participant or Beneficiary being
              referred to below as a "Claimant") may deliver to the
              Administrative Committee a written claim for a determination with
              respect to the amounts distributable to such Claimant from the
              Plan. If the claim relates to the contents of a notice received by
              the Claimant, the claim must be made within 60 days after the
              Claimant received such notice. All other claims must be made
              within 180 days of the date on which the event that gave rise to
              the claim occurred. The claim must state with particularity the
              determination desired by the Claimant.

       14.02  Notification of Decision. The Administrative Committee shall
              consider a Claimant's claim within a reasonable time and shall
              notify the Claimant in writing:

              (a)    that the Claimant's requested determination has been made
                     and the claim has been allowed in full; or

              (b)    that the Administrative Committee has reached a conclusion
                     contrary, in whole or in part, to the Claimant's requested
                     determination, in which case the notice must set forth in a
                     manner calculated to be understood by the Claimant:

                     (i)    the specific reason(s) for the denial of the claim
                            (or any part of it);

                     (ii)   specific reference to the provisions of the Plan
                            upon which such denial was based;

                     (iii)  a description of any additional material or
                            information necessary for the Claimant to perfect
                            the claim and an explanation of why such material or
                            information is necessary; and

                     (iv)   an explanation of the claim review procedure set
                            forth in Section 14.03.

       14.03  Review of a Denied Claim. Within 60 days after receiving a notice
              from the Administrative Committee indicating that a claim has been
              denied, in whole or in part, a Claimant may file with the
              Administrative Committee a written request for a review of the
              denial of the claim. Thereafter, but not later than 30 days after
              the review procedure began, the Claimant (or the Claimant's duly
              authorized representative) may review pertinent documents, submit
              written comments or other documents, and/or request a hearing,
              which the Administrative Committee in its sole discretion may
              grant.

       14.04  Decision on Review. The Administrative Committee shall render its
              decision on review promptly and in any case within 60 days after
              the Claimant's filing of a

                                       16
<PAGE>   17

              written request for review of the denial, unless a hearing is held
              or other special circumstances require additional time, in which
              case the Administrative Committee's decision must be rendered
              within 120 days after such date. The decision must be written in a
              manner calculated to be understood by the Claimant and shall
              contain (i) the specific reasons for the decision, (ii) specific
              reference to the Plan provisions upon which the decision was
              based, and (iii) such other matters as the Administrative
              Committee deems relevant.

       14.05  Legal Action. A Claimant's compliance with the provisions of this
              Section 14 is a mandatory prerequisite to a Claimant's right to
              commence any legal action with respect to any claim for benefits
              under the Plan.

15.    MISCELLANEOUS

       15.01  No Employment Rights. Nothing in the Plan shall confer upon any
              Participant any right to be continued in the employment SAFECO or
              any Subsidiary or to interfere in any way with the right of SAFECO
              or any Subsidiary, in its sole discretion, to terminate a
              Participant's employment at any time.

       15.02  No Right to Assets. Participants shall have no right to any assets
              of the funds selected as Measurement Funds. The rights of a
              Participant (and of his or her Beneficiary) under the Plan shall
              be solely those of an unsecured general creditor of SAFECO and
              shall not constitute an interest in any specific asset of SAFECO
              or any of its Subsidiaries.

       15.03  Employment Taxes; FICA; Withholding. SAFECO will collect
              applicable employment taxes, including FICA, on all Deferrals,
              Rollovers and Matches credited to a Participant's Account;
              provided, however, that in the case of a Rollover or Match in
              which the Participant is not fully vested under Section 4.03 at
              the time the amount is credited to the Participant's Account,
              employment taxes will be collected only as the Match or Rollover
              becomes vested. From distributions under the Plan, SAFECO will
              deduct federal, state, and local taxes and such other amounts as
              may be required by law to be withheld with respect to such
              payments.

       15.04  Governing Law; Severability. This Plan shall be governed by and
              interpreted in accordance with the internal laws of the State of
              Washington without regard to conflicts of law principles. If any
              provision of the Plan is held to be invalid or unenforceable, such
              invalidity or unenforceability shall in no way affect the validity
              or enforceability of any other Plan provision.

       15.05  Binding Provisions. All of the provisions of the Plan, as it may
              be amended from time to time, shall be binding upon and inure to
              the benefit of SAFECO, its successors and assigns, each
              Participant, every Beneficiary or guardian of a Participant, and
              the personal representative or executor of a Participant's estate.

                                       17
<PAGE>   18

       15.06  Transferability. Interests in the Plan may not be transferred,
              assigned, pledged or encumbered. Prior to the time payment of an
              Account is actually made to a Participant, the Participant shall
              have no rights by way of anticipation or otherwise to assign or
              dispose of any interest under the Plan.

       15.07  Effective Date. The effective date of the Plan is May 6, 1998.

                                       18
<PAGE>   19

                                   Appendix A

                             MEASUREMENT FUNDS UNDER
              THE SAFECO DEFERRED COMPENSATION PLAN FOR EXECUTIVES

The following Measurement Funds shall be available under the Plan:

       a.     Phantom Stock Fund

       b.     Interest-Accruing Fund (interest credited at an annual rate equal
              to the applicable federal long-term rate for purposes of Section
              1274 of the Internal Revenue Code of 1986, as amended, in effect
              at January 1 of each year)

       c.     SAFECO 401(k) Savings Plan Investment Options:

              -      Diversified Common Stock Portfolio
              -      Intermediate Term Bond Portfolio
              -      Money Market Portfolio
              -      SAFECO Equity Fund
              -      SAFECO Growth Fund
              -      SAFECO Income Fund
              -      SAFECO International Stock Fund
              -      SAFECO Small Company Stock Fund
              -      Vanguard Total Bond Market Index Fund
              -      Vanguard Total Stock Market Index Fund
              -      Vanguard Growth Index Fund
              -      Vanguard Balanced Index Fund
              -      RS Emerging Growth Fund
              -      SAFECO High-Yield Bond Fund
              -      Fidelity Growth Company Fund

                                       19<PAGE>   1
                                                                    EXHIBIT 10.3

                              SEPARATION AGREEMENT

        This Separation Agreement is made and entered into by and between W.
RANDALL STODDARD ("Stoddard") and SAFECO INSURANCE COMPANY OF AMERICA (the
"Company"), as of the date written under the signature of Stoddard on the
signature page of this Agreement.

                                    RECITALS

A.      Stoddard is employed as President of the Company, and, pursuant to terms
of this Agreement, resigns from employment effective August 31, 2000.

B.      This Agreement sets forth the complete understanding between Stoddard
and the Company regarding the commitments and obligations arising out of the
termination of their employment relationship.

                                    AGREEMENT

1.      Continued Employment.

        1.1    Employment Transition Period. Stoddard's active duties and
responsibilities with the Company as officer and director will end on August 2,
2000. Under the terms and subject to the conditions of this Agreement,
Stoddard's status as an employee with the Company shall continue through and
including August 31, 2000. During such period, Stoddard shall be considered an
"employee" of the Company for the limited purposes of the employee benefit plan
coverages available to employees of the Company and the SAFECO Long-Term
Incentive Plan of 1997 ("Plan"), but Stoddard shall not be required to report to
the Company for or to perform any work. Stoddard will resign from employment
with the Company effective August 31, 2000.

        1.2    Group Insurance Benefits Coverage. The Company shall continue to
provide coverage under any group insurance benefits plan under which Stoddard
and/or his dependents were covered on the date hereof, through and including
August 31, 2000. Stoddard shall be responsible to pay any amounts chargeable as
"employee premium contribution" amounts with respect to any such coverage.
Contingent upon Stoddard's execution of this Agreement and the expiration of the
revocation period described in Section 13.3, SAFECO Corporation has agreed that
Stoddard may be treated as eligible to participate as a retired employee under
the Company's retiree medical program. From and after August 31, 2000, Stoddard
and/or his dependents shall be eligible for such benefits continuation or
conversion coverage as may be available or required under the terms of the
Company's benefits plans or policies, or as may be required under the group
health plan provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985, as subsequently amended (COBRA), or other applicable federal or state law.

        1.3    Eligibility for Other Group Benefits. Stoddard shall be eligible
as an "employee" of the Company through August 31, 2000 for group benefits under
the Company's employee benefit plans. Stoddard shall be eligible to participate
in and shall receive pro rata contributions to the

                                     1 of 8
<PAGE>   2

SAFECO Employees' Profit Sharing Retirement Plan, Savings Plan, and Cash Balance
Plan, and for a Profit Sharing Bonus (based on an assumed annual salary of
$335,000) as the same may be available to other employees of the Company.

        1.4    Payment for Accrued Sick Leave and Vacation Units. The Company
shall pay Stoddard for any vested sick leave units and vacation pay accrued but
unused at August 31, 2000, but only to the extent compensable under the
Company's normal sick leave and vacation policies and procedures.

        1.5    Reimbursement for Expenses Incurred. The Company shall reimburse
Stoddard for reasonable and necessary business expenses incurred by him on or
before August 31, 2000, but not submitted for reimbursement at such date, to the
extent reimbursable under the Company's normal expense reimbursement policies
and procedures and submitted for payment by September 15, 2000.

        1.6    RSRs and Performance Stock Rights. Stoddard acknowledges and
agrees that as a consequence of his resignation on August 31, 2000, any rights
he may have under any grant of a restricted stock right ("RSR") or performance
stock right award ("PSR Award") granted under the Plan will expire, and he will
not be entitled to any payment under any RSR or PSR Award after August 31, 2000.

        1.7    Stock Options. Stoddard acknowledges and agrees that as a
consequence of his resignation on August 31, 2000, and pursuant to the terms of
each stock option for SAFECO Corporation common stock ("Stock Option") that has
been granted to him under either the SAFECO Incentive Plan of 1987 or the Plan,
other than the Stock Options granted to him in May 1998, May 1999 and May 2000
whose terms have been extended pursuant to Section 3.1, he will have through
November 30, 2000, to exercise each Stock Option and after that date he will
lose all rights under each Stock Option.

2.      Payments. As compensation to Stoddard, and in consideration of his
resignation as an employee and officer of the Company and his release granted
herein, the Company agrees to pay a total sum of $1,005,000, plus an amount
equal to 5,062 multiplied by the closing price of SAFECO Corporation common
stock as reported on NASDAQ on August 31, 2000 ("Calculated Payment"). This
payment shall be allocated and paid as follows:

        2.1    Release Payment. $375,000 shall be allocated as consideration for
Stoddard's release of claims as set forth in section 5 of this Agreement (the
"Release Payment"). Stoddard and the Company agree that $75,000 of the Release
Payment represents liquidated damages for potential wage-related claims and
shall be subject to withholding and deduction for payroll taxes and other
deductions as are required by federal and state law. Stoddard and the Company
agree that $300,000 of the Release Payment represents liquidated damages for
other potential claims being released and does not constitute wages or a wage
substitute and that the Company will not make payroll deductions or wage
withholding from that amount. The Release Payment shall be made within 30 days
following the expiration of the revocation period described in Section 13.3

                                     2 of 8
<PAGE>   3

in the form of three checks, one payable to Stoddard in the amount of $75,000
less the applicable withholding and deduction for payroll taxes, one payable to
Stoddard in the amount of $216,000 (72% of $300,000 of the Release Payment) and
one payable to the Internal Revenue Service on behalf of Stoddard in the amount
of $84,000 (28% of $300,000 of the Release Payment).

        2.2    Non-Compete, Non-Solicitation and Non-Disparagement Payments. In
consideration of the promises made by Stoddard not to compete, not to solicit
employees and not to disparage the Company in Sections 7.1, 7.2 and 7.3,
respectively, the Company will pay Stoddard $330,000 on September 1, 2001,
$300,000 on September 1, 2002, and the Calculated Payment on September 1, 2003,
respectively. Each of these payments shall be made in the form of two checks,
one payable to Stoddard in the amount of 72% of the specified payment and the
second payable to the Internal Revenue Service on behalf of Stoddard in the
amount of 28% of the specified payment.

        2.3    Payments in Case of Death. Should Stoddard die after his
execution of this Agreement but before one or more of the payments described
under Sections 2.1 or 2.2 have been made, then, so long as Stoddard has not made
any claim described in Section 5 of this Agreement against the Company or any of
its affiliates, employees, officers or directors or otherwise violated the terms
of this Agreement, Stoddard's right to receive the payments described in
Sections 2.1 and 2.2 shall pass to his estate, i.e., to the person or persons to
whom such rights pass by will or under applicable laws of descent and
distribution.

3.      Further Consideration. As further consideration to Stoddard for the
release granted under Section 5 of this Agreement, the Company, at no cost to
Stoddard, will do the following:

        3.1    SAFECO Stock Option Term Extension. Contingent upon Stoddard's
execution of this Agreement and the expiration of the revocation period
described in Section 13.3, SAFECO Corporation through the Compensation Committee
of its Board of Directors has agreed to amend those SAFECO Corporation stock
options previously granted to Stoddard in May 1998, May 1999 and May 2000 to
provide that the term of each shall extend until August 31, 2003, the third
anniversary of Stoddard's resignation, and to amend each of those options and
the April 1997 stock option to accelerate the vesting of any unvested shares to
August 2, 2000. Stoddard acknowledges that as a consequence of extending the
term of each of these stock options none of them will qualify for preferential
income tax treatment as an incentive stock option under the Internal Revenue
Code.

        3.2    Outplacement Services. The Company agrees to provide outplacement
services to Stoddard through July 31, 2001.

        3.3    Attorney's Fees. The Company agrees to pay up to $2,000 of the
attorney's fees incurred by Stoddard for a review of this Agreement.

        3.4    Tax Consultation. The Company agrees to pay up to $2,000 of the
tax consultation fees incurred by Stoddard for a review of matters raised by the
payments contemplated by this Agreement.

                                     3 of 8
<PAGE>   4

        3.5    Option Loan. The Company agrees to recommend to its affiliate,
SAFECO Credit Company, Inc., ("Credit Company") to extend any outstanding
loan(s) to Stoddard that were made in connection with the exercise of a SAFECO
stock option until December 31, 2000. Stoddard acknowledges that Credit Company
will not extend such loans beyond December 31, 2000.

4.      Resignation.

        4.1    Resignation. In consideration of the payments and other
compensation described above, Stoddard tenders his resignation as an officer and
director of the Company and its affiliates effective August 2, 2000, and his
resignation as an employee effective August 31, 2000.

        4.2    No Authority To Act. From and after August 2, 2000, Stoddard
shall have no further authority to bind the Company to any contract or agreement
or to act on behalf of the Company, and the Company shall have no obligation to
reimburse Stoddard for any expenses incurred by him on or after August 31, 2000,
except as expressly stated in this Agreement.

5.      Release and Settlement.

        5.1    Release Payment. For the purposes of this Agreement "Release
Payment" means the payment by the Company of the amounts referenced in Section
2.1.

        5.2    Release. In consideration of the Company's delivery of the
Release Payment to Stoddard under the terms of this Agreement, Stoddard hereby
releases the Company and its affiliated companies, and the employees, agents,
officers, directors and shareholders of any of them, from all claims, demands,
actions or causes of action of any kind or nature whatsoever which Stoddard may
now have or may ever have had against any of them, whether such claims are known
or unknown, and including but not limited to the Claims described in Section
5.3. However, nothing in this Separation Agreement shall create or imply any
waiver by Stoddard (i) with respect to his entitlement to compensation for
vested retirement benefits or deferred compensation, in accordance with the
terms and conditions of the Company's employee benefit plans, or (ii) of any
claims with respect to any breach by the Company of its obligations under this
Agreement.

        5.3    The Claims. For the purposes of this Agreement, "Claims" shall
mean and include claims with respect to any of the following: (i) breach of
contract; (ii) discrimination, retaliation, or constructive or wrongful
discharge; (iii) lost wages, lost employee benefits, physical and personal
injury, stress, mental distress, or impaired reputation; (iv) claims arising
under the Age Discrimination in Employment Act ("ADEA"), Title VII of the Civil
Rights Act, the Equal Pay Act, or any other federal, state or local laws or
regulations prohibiting employment discrimination; (v) attorneys' fees (other
than those that the Company has agreed to reimburse under Section 3.3); and (vi)
any other claim arising from or relating to Stoddard's employment with the
Company and/or his separation from service, including claims with respect to the
Severance Agreement dated March 11, 1999 between Stoddard and SAFECO
Corporation, which

                                     4 of 8
<PAGE>   5

Stoddard agrees is terminated as of the date of the expiration of the revocation
period described in Section 13.3.

        5.4    Consideration for Release. The Company represents, and Stoddard
acknowledges, that the Release Payment and the further consideration described
in Section 3 exceed any amount the Company may arguably be required to pay under
any agreement or arrangement to which Stoddard is a party or under which he
claims some benefit, or under the standard policies and procedures of the
Company, and represents valuable consideration to him for the release of his
ADEA and other claims described above.

6.      Confidential Information.

        6.1    Confidential Information. Stoddard recognizes that by virtue of
his employment by the Company, Stoddard has acquired certain non-public
information with respect to the Company, and its operations (the "Confidential
Information"). Stoddard recognizes and acknowledges that the Confidential
Information constitutes valuable, special and unique assets of the Company,
access to and knowledge of which were essential to the performance of Stoddard's
duties during his employment.

        6.2    Non-Disclosure. Stoddard agrees to hold the Confidential
Information in trust and confidence. Stoddard agrees not to (i) directly or
indirectly make use of the Confidential Information, (ii) reveal any
Confidential Information to any other party, or (iii) divulge or use any
Confidential Information for any purpose other than for the benefit of the
Company, except and to the extent Stoddard may be required to disclose by lawful
order or process of a court (in which event Stoddard will provide reasonable
advance notice of such disclosure to the Company and will cooperate with the
Company's efforts to obtain protective treatment for such information).

        6.3    Materials. Unless the Company otherwise agrees, Stoddard shall
not remove from the Company's premises or possession any documents, compilations
of data or other files or records of any nature, or any copy or reproduction
thereof, that contain Confidential Information or that belong to the Company.

7.      No Competing Employment; No Solicitation of Employees.

        7.1    No Competing Employment. Stoddard agrees that until September 1,
2001, Stoddard shall not work for or consult with any company that competes with
the Company or its affiliates in the insurance business without the prior
written consent of the Company.

        7.2    No Solicitation of Employees. Stoddard agrees that until
September 1, 2002, Stoddard shall not solicit, directly or indirectly, any
employee of the Company or its affiliates to leave such employment and/or to
become an employee, officer or consultant of or to any other enterprise.

                                     5 of 8
<PAGE>   6

        7.3    Non-Disparagement. Stoddard agrees not to criticize, disparage,
or make negative comments about the Company, its affiliates, or any of its or
their directors, officers or employees. This Section 7.3 shall not be construed
to prohibit Stoddard from responding truthfully to any court or regulatory body
or to responding truthfully under oath in compliance with a subpoena or other
legal process.

8.      No Admission. Stoddard understands and acknowledges that neither the
Release Payment nor the execution and delivery of this Agreement by the Company
constitutes an admission by the Company to (i) any breach of an agreement with
Stoddard, (ii) any violation of a federal, state or local statute, regulation or
ordinance, or (iii) any other wrongdoing.

9.      Legal Action.

        9.1    No Action on Released Claims. Stoddard agrees not to sue or
pursue any court or administrative action against the Company, or any of its
employees, agents, officers, directors or shareholders, regarding any claims
released herein or otherwise arising from Stoddard's employment with the Company
or his separation from service, except with respect to any breach by the Company
of its obligations under this Agreement.

        9.2    Liability for Defense Costs. If, notwithstanding this Agreement,
Stoddard should file any lawsuit or other proceeding based on legal claims that
Stoddard has released herein, Stoddard agrees that he will pay or reimburse the
Company for all reasonable costs which it, or its employees, agents, officers or
directors, incur in defending against Stoddard's claims. This Section shall not
apply to any claimed breach by the Company of any of the terms or conditions of
this Agreement.

10.     Arbitration.

        10.1   Notice and Selection of Arbitrator. The parties agree that any
dispute arising under this Agreement, other than an action at law or in equity
by the Company to seek damages for or to seek injunctive relief against Stoddard
for a violation of any provision of Section 6 or 7, shall be submitted to
arbitration in Seattle, Washington, before a disinterested arbitrator.
Arbitration shall be commenced by service on the other party to the dispute by a
written request for arbitration, containing a brief description of the matter at
issue and the names and addresses of three arbitrators acceptable to the
petitioner. The other party shall within thirty (30) days following receipt of
such notice either select one of the proposed arbitrators or provide the names
and addresses of three other arbitrators acceptable to the proposing party. If
the parties are unable to select an arbitrator from those proposed, or, if they
are unable to select a third arbitrator, an arbitrator shall be chosen
impartially by the American Arbitration Association.

        10.2   Rules of Proceeding. Arbitration proceedings shall be conducted
under the employment rules then prevailing of the American Arbitration
Association. The arbitrator shall not be bound to any formal rules of evidence
or procedure, and may consider such matters as a reasonable business person
would take into account in decision-making.

                                     6 of 8
<PAGE>   7

        10.3   Decision Final and Binding. The decision of the arbitrator shall
be final and binding on the parties, and may be entered and enforced in any
court of competent jurisdiction.

        10.4   Expenses. Each party shall share equally the expenses of the
arbitrator and other arbitration expenses. Attorney fees, witness fees and other
expenses incurred by a party in preparing for the arbitration are not
"arbitration expenses" and shall be paid by the party incurring them.

11.     Confidentiality.

        11.1   Terms of Agreement. Stoddard and the Company agree that neither
of them shall reveal or publicize the existence of this Agreement or its terms,
including but not limited to the amount of the Release Payment, except under
compulsion of law and as required under the rules and regulations of the
Securities and Exchange Commission ("SEC"). Stoddard acknowledges that a copy of
this Agreement will be filed as an exhibit to a filing made by SAFECO
Corporation with the SEC. Further, the parties agree that they shall not discuss
with or make to the public at large or to any individual person or persons any
statements about this Agreement, or matters relating to its terms.
Notwithstanding the provisions of this Section 10.1, the parties may discuss the
existence and terms of this Agreement with their respective attorneys,
accountants and financial advisors to the extent necessary to obtain counsel and
advice therefrom. Stoddard may also discuss the existence and terms of this
Agreement with his spouse after obtaining her agreement to be bound by this
confidentiality provision.

        11.2   Employment References. In the event a prospective employer
contacts the Company for an employment reference with respect to Stoddard, the
Company shall not provide any information relating to Stoddard or his employment
history or performance with the Company except for such information Stoddard
authorizes the Company in writing from time to time to release in response to
such inquiries.

12.     Costs. Except for the Company's agreement to pay for Stoddard's
attorney's fees as stated and limited in Section 3.3, each party shall bear its
own costs and expenses incurred in connection with the negotiation of this
Agreement and the preparation of this Agreement.

13.     Acknowledgment.

        13.1   Informed Agreement. Stoddard declares that he has read and fully
understands the terms of this Agreement, and its significance and consequence.
Stoddard further declares that this Agreement is the product of good faith
negotiations between himself and the Company, and that he voluntarily accepts
the same for the purpose of resolving arrangements with respect to his
separation from service. Stoddard understands and acknowledges that, except as
specifically reserved herein, in exchange for the Release Payment he is waiving
and giving up every possible claim arising out of his employment with the
Company and/or his separation from service.

                                     7 of 8
<PAGE>   8

        13.2   Attorney. Stoddard acknowledges that the Company has advised him
to review the terms of this Agreement with an attorney and that he has done so
or knowingly waived his right to do so.

        13.3   Review and Revocation Periods. Stoddard acknowledges that the
Company has given him at least 21 days during which to consider this Agreement
prior to signing, and understands that he has seven days after signing in which
he may revoke this Agreement. This Agreement shall not become effective or
enforceable until such seven-day period has expired. Stoddard understands that
he may revoke this Agreement by delivering a written notice to Allie Mysliwy at
SAFECO Plaza, Seattle, WA 98185, no later than the close of business on the
seventh day after his execution hereof. Stoddard understands and acknowledges
that if he revokes this Agreement it shall not be effective or enforceable and
he will not receive the payments described herein.

14.     Entire Agreement. This is the entire agreement between Stoddard and the
Company. Neither the Company nor any affiliate has made any promises to Stoddard
other than those included within this Agreement.

15.     Governing Law. The parties acknowledge that this Settlement Agreement
shall be interpreted under and enforced by and consistent with the laws of the
State of Washington.

                                            /s/ W. Randall Stoddard
                                            ------------------------------------
                                            W. RANDALL STODDARD

                                            Dated: August 8, 2000
                                                   -----------------------------

                                            SAFECO INSURANCE COMPANY OF AMERICA

                                            By /s/ R.H. Eigsti
                                               ---------------------------------
                                               R.H. Eigsti, Chairman

                                            Dated: August 2, 2000
                                                   -----------------------------

                                     8 of 8

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