Fireman’s Fund Downgraded

S&P lowered its counterparty and financial strength ratings on Fireman’s Fund Insurance Co. (FFIC) and some of its rated subsidiaries, as well as its financial strength ratings on other units to “A” from “A+.” The rating outlook remains negative.

The ratings were lowered because of S&P’s incremental concern regarding the long-term strategic importance of FFIC to parent company Allianz AG. Purchased in 1991 by Allianz AG, FFIC has experienced significant strategic and financial challenges over time. Although the insurer’s current financial performance is good and continues to rebound after substantial losses in 2001 and 2002, S&P views FFIC as incrementally less strategically important to its parent group.

The ratings on FFIC are based on the continued financial flexibility afforded to it by being a member of the Allianz AG group, improving operating earnings, and a strong amount of capital. Partially offsetting these strengths is a lack of market leadership in the U.S. property and casualty marketplace, increased competitive pricing in the marketplace, and below-average quality of capital.

The continued negative outlook reflects S&P’s desire to see a further improved and sustainable earnings track record under new chief executive officer Charles Kavitsky, lack of material adverse reserve development into 2005, and improvements in the quality of the capital structure before considering a stable rating outlook.

S&P expects FFIC to report improved earnings in 2004 and 2005. Net income of at least $475 million is expected in 2004 with continued income growth in 2005. FFIC is expected to generate a combined loss and expense ratio of about 96-97 percent in 2004, and again in 2005 and maintain a capital adequacy ratio of at least 135 percent.