EXECUTIVE TRANSITION SERVICES AGREEMENT

Exhibit 10.1

EXECUTIVE TRANSITION SERVICES AGREEMENT

SAFECO CORPORATION

and

MICHAEL S. McGAVICK

Dated as of December 6, 2005

EXECUTIVE TRANSITION SERVICES AGREEMENT

This Executive Transition Services Agreement (this “Agreement”), dated as of December 6, 2005 (“Effective Date”), is made between Safeco Corporation, a Washington corporation (“Safeco”), and Michael S. McGavick (“Executive”).

Recitals

A. Executive has been employed as Safeco’s Chairman, President and Chief Executive Officer. Executive voluntarily announced his resignation as President and Chief Executive Officer effective August 31, 2005, but following that announcement he agreed to remain in those positions until a new President and Chief Executive Officer was named. Executive also agreed to provide transition services as an employee of Safeco until February 28, 2006.

B. Executive and Safeco have voluntarily agreed to enter into this Agreement, which sets forth the complete understanding between Executive and Safeco regarding Executive’s voluntary resignation as Safeco’s President and Chief Executive Officer, Executive’s provision of transition services until his termination of employment effective February 28, 2006, and the commitments and obligations arising out of the termination of the employment relationship between Executive and Safeco.

Agreement

In consideration of the foregoing premises and for other good and valuable consideration, the sufficiency and receipt of which are acknowledged, Safeco and Executive agree as follows:

Executive resigned his positions as Safeco’s and its subsidiaries President and Chief Executive Officer effective December 31, 2005. Executive will resign as Chairman of the Board and as a director of Safeco and its subsidiaries effective December 31, 2005. Executive has agreed to provide executive transition services until February 28, 2006 (“Separation Date”).

Executive will remain an employee of Safeco and will provide such transitional support to the successor Chief Executive Officer as the Safeco Board of Directors deems appropriate.

Until the Separation Date, Safeco agrees to pay or cause to be paid to Executive, and Executive agrees to accept in exchange for the services rendered by him, the following compensation:

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3.1 Base Salary

Executive’s annual base salary is reduced to Seven Hundred Fifty Thousand Dollars ($750,000) before all customary payroll deductions effective as of December 1, 2005, and further reduced to One Hundred Thousand Dollars ($100,000) before all customary payroll deductions effective as of January 1, 2006. Such annual base salary shall be paid in substantially equal installments and at the same intervals as other officers of Safeco are paid.

3.2 Bonus

Executive may also be entitled to receive, in addition to the base salary described above, an annual bonus for 2005 in an amount to be determined by the Board of Directors of Safeco or under the Board’s delegated authority by the Compensation Committee of the Board (the “Committee”), in its or their sole discretion. Executive’s bonus will be based on (i) a smooth and orderly transition of the responsibilities of the Chief Executive Officer, (ii) the Executive’s commitment to remain with Safeco until the Separation Date, (iii) the performance of Executive’s duties as described in Section 2 above, and (iv) Safeco’s financial and operating performance for fiscal year 2005.

3.3 Equity Grants

(a) Vested Options . Executive shall be considered an “employee” of Safeco through the Separation Date for compensation purposes and under all employee benefit plans, programs, and arrangements, including without limitation the Safeco Long-Term Incentive Plan of 1997, as amended (the “LTIP”). All stock options granted to Executive under the LTIP, which are fully vested and non-forfeitable as of the Separation Date will be exercisable for three (3) months from the Separation Date.

(b) Unvested Options . In consideration of Executive (i) remaining employed as Safeco’s President and CEO until December 31, 2005, (ii) providing transition services through the Separation Date and (iii) agreeing not to compete with Safeco or solicit its employees as set forth in Sections 7.2 and 7.3 of this Agreement, Safeco shall accelerate and fully vest, on the Separation Date, the following stock options (the “Options”):

The terms and conditions of the LTIP and Executive’s award agreements, pursuant to which the Options were granted, will continue to govern such Options. Except for the Options, all equity awards granted to Executive that are not fully vested on the Separation Date shall be deemed to have expired without vesting. Executive acknowledges that accelerated stock options may not qualify for preferential income tax treatment as an incentive stock option under the Internal Revenue Code.

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4.1 Retirement and Savings Plans

Until the Separation Date, Executive shall be entitled to continue to participate in all defined contribution plans and defined benefit plans, including excess benefit or supplemental retirement plans or agreements, maintained by Safeco, as now or hereinafter in effect, that are applicable to Safeco’s employees generally or to its executive officers, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, programs and arrangements. Benefits payable under such plans shall commence pursuant to the terms of such plans.

4.2 Other Benefit Programs

Until the Separation Date, Executive will be entitled to continue to participate, subject to and in accordance with applicable eligibility requirements, in all other employee benefit plans, programs and arrangements of Safeco, as now or hereinafter in effect, that are applicable to Safeco’s employees generally or to its executive officers, as the case may be, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, programs and arrangements, and subject to Section 4.1.

4.3 Housing Loan

In connection with Executive’s relocation to Seattle in 2001 Safeco provided Executive with a home purchase loan in an amount of $1,275,000. The principal amount will be due one (1) year after the Separation Date. This is consistent with the original loan terms and nothing contained in this Agreement or otherwise amends this loan in any manner.

4.4 Vacation and Other Leaves

Executive shall be entitled to use any accrued but unused vacation and other paid absences during this calendar year and for unused vacation carried over from the previous calendar year, whether for holidays, illness, or any similar purposes, in accordance with policies applicable generally to executive officers of Safeco. After the Separation Date, no vacation or other paid absences shall accrue.

4.5 Expenses

Executive shall be entitled to receive reimbursement for all reasonable and customary expenses incurred by him in performing services under this Agreement, including all expenses of travel and accommodations while away from his residence on business or at the request of and in the service of Safeco; provided, however, that such expenses are incurred, accounted for and approved in accordance with the policies and procedures established from time-to-time by Safeco.

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This Agreement and Executive’s employment hereunder shall terminate automatically upon the death or total disability of Executive. The term “ total disability ” as used herein shall mean Executive’s inability to perform the duties set forth in Section 2 hereof for a period of sixty (60) consecutive days as a result of physical or mental illness, loss of legal capacity or any other cause beyond Executive’s control. Executive and Safeco acknowledge that Executive’s ability to perform the duties specified in Section 2 is of the essence of this Agreement. Termination hereunder shall be deemed to be effective (a) on the day in which Executive’s death occurs or (b) immediately upon a determination by the Board of Directors of Safeco of Executive’s total disability, as defined herein. At the Separation Date, all compensation and benefits set forth in this Agreement shall cease.

In consideration of the acceleration of the Options pursuant to Section 3.3(b) and other consideration and benefits provided to Executive under this Agreement, Executive agrees to sign a general release and settlement agreement on the Separation Date in a form that is satisfactory to Safeco.

7.1 Applicability

This Section 7 shall survive the termination of Executive’s employment with Safeco.

7.2 Scope of Competition

Executive agrees that he will not, directly or indirectly, during his employment and for a period of three (3) years from the Separation Date, be employed by, consult with, be a director of or otherwise perform services for, own, manage, operate, join, control or participate in the ownership, management, operation or control of or be connected with, in any manner, any Competitor. A “ Competitor ” shall include any entity that writes a line of direct personal insura