Despite the chief executive's assurances of continued growth, Seattle-based insurer Safeco's stock dropped more than 5 percent by midday after the company reported net income for the third quarter dropped 24 percent.

Safeco reported its third-quarter combined ratio, impacted by increased claim severity, had deteriorated by 3.8 points to 92.5, when compared with the period last year.

During an analyst's conference call today, executives said the losses occurred from a combination of increased bodily injury claims in its auto line and weather-related losses in homeowners due to hail storms in the Midwest and Northwest regions.

For the third quarter, net income dropped $61 million to $194 million from $256 million for the same period last year. That translated into a 27 cent drop in earnings per share from $2.20 to $1.93. Consolidated revenues were down 1 percent, or $22 million, to $1.64 billion.

For the nine months, Safeco's combined ratio is up 3.3 points to 90.7. Net income also dropped 15 percent, or $100 million, to $563 million. Earnings per share were down 17 cents from $5.56 a share last year to $5.39.

Consolidated revenues were down 1.5 percent, or $73 million, to $4.68 billion from $4.76 billion.

During the company's investor analyst conference call, Paula R. Reynolds, Safeco's president and chief executive officer, emphasized that the company experienced strong earnings in the quarter and that it has several strong platforms in place for future growth and profitability.

She said the company has remained committed to its core businesses of auto, homeowners, small-to-midsize commercial, and surety--not straying into other areas, such as excess and surplus lines.

"With Safeco, this quarter, you are getting more of the same of what you should expect from us--consistent high returns on profitable underwriting and aggressive capital management," said Ms. Reynolds.

The company reported that in auto its combined ratio had added 9.3 points to 97.5 on increased severity. During the analyst's discussion, executives indicated this was in part driven by increases in costs for bodily injury claims. Some of that increase may have come from a backlog in claims that was cleared up in the third quarter.

For Safeco's property line, homeowners, landlord protection and related coverage, the combined ratio added 14.9 points to 91.7, primarily attributable to hailstorm losses in the Midwest.

The company has increased rates on the auto side of the ledger, despite competition, and executives said it is expected other carriers will do the same in the coming months. The increases, they believe, will run well into next year.

Mike Hughes, executive vice president of insurance operations, said the company will continue to work at getting the auto portion of the business back down to a 96 combined ratio with a combination of a rate increase around 3 percent which will continue into next year, better modeling and "tweaking" of unprofitable producers.

Analysts seemed to be disturbed by a revelation during the conference call that the company is reserving for a $16 million loss related to an internal errors and omissions claim. Safeco executives said it would be a one-time event but refused to give any additional details about the claim despite repeated questioning.

By noon, Safeco's stock dropped $2.97 a share from its close Monday at $60.09 to $57.12 a share. It rallied back slightly during the day closing down $2.61 to $57.48 a share.

(This story was updated at 4:38 p.m.)

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Safeco Stock Battered Despite Claims Of Strong Growth

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