Safeco has announced plans to reorganize, selling its Life & Investments unit. The decision stems from a desire to increase profitability and focus on the property and casualty (P&C) business, said Mike McGavick, president and CEO.
"We might have been able to cruise along at this level, producing average results quarter after quarter. But we aspire to be much better than average," McGavick said. By eliminating other business lines, the company will operate more competitively and more efficiently. Also, the company aims to reduce costs by $75 million by the end of the year.
Safeco has retained Goldman Sachs to find a buyer for the Life & Investments unit. The proceeds will be used for debt reduction and a special dividend and/or stock repurchase plan, McGavick said.
Rating agency A.M. Best estimated that the company will be able to sell the unit within six to nine months, and has placed the life and health subsidiaries under review with developing implications. Ratings of the property and casualty units are unaffected. Because the Life & Investments unit operates as a distinct business and is not integrated with the P&C lines, the transition following a sale will be relatively easy for Safeco.
Analysts with Fitch Ratings agreed with Safeco management that divestiture of the Life & Investments unit will increase the efficiency of the P&C business. Over time, the slimmed-down operations will recover from the effect of lost earnings and income diversification. Fitch has placed the company on Rating Watch Evolving.