But, Mr. McGavick added it has become apparent that Safeco "could not be truly excellent in both p-c and the life-and-investment business, and we had to make a strategic decision."

"So in the future, Safeco will concentrate exclusively on p-c business, and we have put the life-and-investment business up for sale," he said.

Mr. McGavick's comments followed the company's announcement of a major restructuring plan, including cost-cutting and staff reduction initiatives and the intention to sell off its Life & Investments unit to focus exclusively on property-casualty products.

Additionally, the company said it is strengthening its workers' compensation reserves by $205 million pretax, citing continuing medical-cost inflation in workers' comp claims, particularly in California.

Mr. McGavick commented that most proceeds of the life-and-investment sale will be returned to shareholders as a special dividend, a stock repurchase plan or a combination of the two. A part of the proceeds will also go toward lowering Safeco's debt to a level appropriate with the company's new size, while a small amount could be retained to support ongoing business needs, he said.

"This was an extremely difficult decision given the great contributions of our life and investment team and our long history together," said Mr. McGavick, who explained that last year, life-and-investment generated pretax operating earnings of $237 million on revenues of nearly $2 billion.

Michael LaRocco, president and chief operating officer of personal insurance at Safeco, also told National Underwriter in an interview that L&I performed "very, very well over the last few years. They have been a particularly stellar operation."

"But there have also been very good results in the last couple of quarters for p-c, and by separating these two companies, we can actually increase opportunities to improve them further," he said.

"Particularly with the interest rate in the marketplace the way it is, a life company will have to have scale to get returns it needs--it will have to be part of a larger organization. By freeing it up, it will get a better shot at hitting a return-on-equity that is better than it could achieve as a small play within a p-c company," Mr. LaRocco said.

And likewise, from Safeco's standpoint, "with our focus now squarely on p-c, and without the capital that gets put behind the life company, we can now put all our energies, capital and resource into the p-c company."

Mr. LaRocco also explained that Safeco has been actively communicating with its agents and distributors throughout this process, pointing out that the company had a nationwide call with some 400 agencies following the announcement. "Through that call, we clearly communicated our strategy and we had a very favorable reaction from them," he said.

He also added that his company is not concerned about losing agents to multi-line companies that sell both life and p-c. "Only a small percentage of our agency force delivers any level of life insurance sales. About 30 percent sell some amount, but that would include just one policy. So we are not a big player in terms of their sales of life in their agencies," he said.

"And with our new focus, we are going to increase the opportunity to sell small business, home and auto. So we think this will more than keep them excited and invested in their Safeco relationship."

During the conference call, Mr. McGavick also commented on the company's cost-cutting initiatives, noting that with its new strategic focus on p-c, there are "expense reduction opportunities, especially in our corporate departments." He said Safeco had indicated in its second-quarter earnings report that its expense levels are higher than best performers in the p-c insurance sector and that work is underway to identify inefficiencies.

The goal of this cost-cutting plan is to reduce expenses by $75 million by the end of next year, he added. And by that time, Safeco said it expects to have cut employment by at least 500 positions, excluding jobs that might be affected by the intended sale of its L&I unit.

Most of these job cuts are expected to occur in the Seattle area, where the company is headquartered. "The staff reduction could be slightly more than 500, and it will come from various support functions in our home office in Seattle," said Mr. McGavick, adding that most layoff notices will come this month, though some may not get notices until December.

Safeco's announcement has also been closely watched by various rating agencies. Kevin Maher, director at Standard & Poor's Ratings Services in New York, told National Underwriter that the decision represents a clear shift in strategy.

"Safeco decided to focus strictly on its p-c business. It's not that life operations were not working. It was working pretty well--the company just felt that it had an advantage in the marketplace on the p-c side," Mr. Maher commented.

"It's a dynamic management team--they have taken actions to improve results of their p-c operations in the past few years. Mike McGavick came in at the beginning of 2001 and he led a lot of change, most of which seem to be good," Mr. Maher added.

But he also expressed his concern that Safeco now won't be able to "fall back on life results during difficult times."

"We are always looking for diversification, and in Safeco's case, having life operations demonstrably paid off during tough times on the p-c side," he noted.

"This is a constant dilemma--to achieve diversification yet at the same time, to stay focused. It seems that every company looks at that in a slightly different way and comes to a slightly different conclusion about what is the right mix for them."

Another major part of Safeco's announcement was its reserve boost for workers' comp. Detailing this charge, Safeco said it relates directly to settling and defending claims, and that nearly 90 percent of these reserves are associated with claims that occurred in 2000 or earlier, with the vast majority in large commercial insurance accounts that Safeco has run off its books.

Chris Mead, Safeco's chief financial officer, said during the conference call this week that at the end of second quarter, the company was continuing to have concerns about its workers' comp reserves, but it is now "beginning to be able get [its] arms around it better."

"We continued to review workers' comp reserve during the third quarter, and we have now completed review and are adding $205 million pretax to our reserve," Ms. Mead said, noting that this addition boosts Safeco's workers' comp reserve to $897 million from $692 million.

She said this addition reflects trends her company is seeing in medical inflation, particularly in the state of California. "This is to reflect the ongoing expense to service the increasingly longer payout of workers' comp claims," she said.

Ms. Mead stressed the bottom line here is that medical-cost inflation in workers' comp is not abating and that in fact, in California it's been getting much worse.

"This is coupled with a legal and regulatory environment that makes market conditions unfavorable in California and several other states," she added. "Because of this environment, workers' compensation claims are tending to stay open far longer than used to be the case."

"The situation in California continues to be a problem for the industry. Frankly, this problem can be summed up in two words, attorneys and chiropractors," she said.

She noted that according to the industry data, attorneys are involved in about one-third of workers' comp cases in California, the highest rate among all states. Also, the industry data shows that an injured California worker will, on average, visit a chiropractor 34 times, more than twice as much as in any other state.

"We certainly see evidence of those trends in our own data and they contributed to our reserve action," Ms. Mead said. "This is why we also continue to have new business moratorium in California workers' comp."