Safeco suffered two jolts last week–posting a nearly 25 percentdrop in quarterly earnings as Chief Executive Officer Mike McGavicksaid he would be leaving the carrier, reportedly to explore apossible run for the U.S. Senate.

Insurance industry sources in Washington said Mr. McGavick willhave an exploratory committee consider whether he should seek theRepublican nomination to run against U.S. Sen. Maria Cantwell, aDemocrat. The Seattle Times reported that he is the GOP consensuscandidate.

Seattle-based Safeco produced net income in the second quarterof $187.3 million, compared to $247 million in the same period lastyear. It attributed the poorer showing to declining investmentincome and a rising but still impressive combined ratio.

Much of the decline can be attributed to after-tax net realizedinvestment gains from continuing operations that came in at $9.2million, compared to $55.4 million in the second quarter of lastyear. Second-quarter catastrophe losses fell more than 50 percentto $13.1 million pretax, compared to $29 million in the secondquarter of 2004.

Written premiums grew 3.6 percent. “While that's a healthy rategiven what we see going on in the marketplace, we note that it's inline with our expectation that premium growth would slow at thistime–as we had forecast earlier in the year,” Mr. McGavicksaid.

In a conference call with analysts, Mr. McGavick was positiveabout the results, including the second-quarter combined ratio of89.1, which rose from 85.4 in 2004.

Noting that the combined ratio was evidence of the continuationof a “truly strong bottom-line performance,” he said the figurefell in line with recent quarters, even though it wasn't as good asthe “truly extraordinary” 85.4 figure last year.

Concerning his political activity, Mr. McGavick, who also servesas president and chairman of Safeco, said: “A number of folks beganencouraging me to consider the possibility that there was publicservice on my horizon. I've decided to step down…in order toconsider that possibility fully.”

While he said the best way to do that is to “make a clean break”so that his consideration of this possibility will not in any wayimpact the company, Mr. McGavick will actually stay on as chairmanuntil year-end. He leaves as CEO at the end of the month.

Mr. McGavick also said the board has requested that he beavailable to continue to lead the company if a new CEO is not inplace by Aug. 31–and that he has agreed to spend the remainder ofthe year traveling around to meet with agents and perform other“transitional leadership services.”

Safeco Lead Director Bob Cline said that many potentialsuccessors have “already been identified,” and that both internaland external candidates are being considered.

Recalling different types of rumors “about whether or not Safecowas going to survive” that had swirled around the companyfour-and-a-half years ago when he took the helm, Mr. McGavick saidthe decision to step down was difficult after having been part ofthe management team credited with turning the company around.

He said he had “fulfilled the mission that I had been hired totake on–to get Safeco back to being one of the top performers.”

Mr. McGavick is no stranger to the world of politics. Beforetaking his previous position in insurance–as head of Agency Marketoperations for Chicago-based CNA–in 1995, he was director of theSuperfund Improvement Project for the American InsuranceAssociation, serving as lead negotiator in working to transform thenation's Superfund cleanup laws.

Mr. McGavick's background includes a stint in 1988 as chief ofstaff for former GOP Sen. Slade Gordon, who Ms. Cantwell defeatedby a razor-thin margin in 2000.

As chief of staff, “the job was all-around communications and,in essence, what we now tend to call 'brand,'” he said in a 2001interview with National Underwriter, drawing a parallel to theworld of personal lines insurance, where “it's very important howyou handle your brand.”

Infobox, with McGavick mug:

At A Glance

Who Is Mike McGavick?

Mike McGavick, leaving Safeco to perhaps run for the U.S. Senateout of Washington State, has had a varied background in insuranceand politics–sometimes at the same time. Among the highlights:

o Since 2001: Chairman, president and CEO of Safeco Corp.

o 1995-2001: Held a number of executive positions at CNA,including president and chief operating officer of the company'slargest operating unit.

o 1992-95: Began his insurance career as director of the AIA'sSuperfund Improvement Project.

o 1989-91: Served as chief of staff for U.S. Senator SladeGorton, after running Sen. Gorton's successful campaign in1988.