Fireman’s Fund Affirmed

A.M. Best Co. affirmed “A” (Excellent) the financial strength ratings of the pool members of the Fireman’s Fund Insurance Companies (FFIC). The ratings are being removed from under review and the outlook remains negative. FFIC is a wholly-owned subsidiary of Allianz AG, which has a financial strength rating of “A+” (Superior).

FFIC’s ratings reflect its strategic importance within Allianz’s global insurance operations, demonstrated through Allianz’s historical tangible support and commitment to FFIC. Allianz has recently provided FFIC with Keep Well Agreements affording its surplus substantial protection against loss emergence from 2002 and prior accident years, as well as any slippage in FFIC’s planned combined ratios for 2003. The agreements are effective through Dec. 31, 2005. Allianz has the option of extending them further after that date.

In 2002, Allianz contributed almost $1.8 billion of capital to FFIC and provided inter-company reinsurance for the company’s asbestos and environmental exposures. Allianz charged FFIC almost $1.3 billion for this cover.

The ratings also consider the underlying improvement in more recent accident year underwriting trends and FFIC’s prospective earnings capability. FFIC has taken steps to improve underwriting results and maintain its leadership position within the specialty commercial and upscale personal lines markets. It continues to maintain strong brand name recognition, well-established agency relationships and substantial service capabilities.

Offsetting factors include FFIC’s protracted record of reporting poor operating results that culminated in 2002 with the emergence of approximately $1 billion in prior year losses, $750 million of which related to strengthening of A&E liabilities with the remainder driven by discontinued lines of business. The company’s 2002 GAAP combined ratio was 141.4 percent and included 33.3 points relating to adverse reserve development and discontinued lines. The company’s ongoing books of business generated a GAAP combined ratio for the 2002 accident year of 108.1 percent reflecting the improved underwriting trends cited above.

FFIC’s risk adjusted surplus position, excluding the support provided by the aforementioned agreements, has deteriorated in recent years to a level below A.M. Best’s expectations for an Excellent rated company. The negative outlook assignment indicates that despite Allianz’s support, FFIC’s sustainability of the ratings is contingent upon its ability to take full advantage of improved market conditions and to execute its business strategy in accordance with expectations.

Topics Allianz