S&P Lowers Fireman’s Fund Ratings to ‘A+’ from ‘AA-‘; Outlook Stable

Standard & Poor’s Ratings Services has lowered its counterparty credit and financial strength ratings on Novato, Calif.-based Fireman’s Fund Insurance Co. and its affiliates (collectively referred to as FFIC) to ‘A+’ from ‘AA-‘. The outlook on the ratings is stable.

“The rating action reflects a decline in FFIC’s overall competitive position, weak underwriting results, and deterioration in the quality of the company’s capital base,” explained credit analyst John Iten. “Partly offsetting these factors is the company’s strategic importance to its ultimate parent, Allianz SE; its strong presence in certain market niches; and its conservative investment strategy.”

S&P noted: “FFIC has established strong niches in providing commercial coverage to the entertainment industry, and personal lines products to affluent individuals. Also, it is a major participant in the federal crop insurance program.

“However, the transfer of AGCS Marine to parent AGRUS, effective Jan. 1, 2010, will reduce FFIC’s profitability. Another concern is the above-average decline in commercial lines premium volume, which has accelerated in 2010. The company’s personal lines business is also shrinking, despite generally favorable pricing and overall premium growth for the U.S. personal lines sector.”

However, the rating agency also indicated that FFIC’s underwriting performance, as measured by the combined ratio, “improved somewhat in 2009, but continued to underperform the U.S. industry average combined ratios. The company’s capitalization, as measured by Standard & Poor’s proprietary capital adequacy model, improved in 2009 and at year-end was consistent with the rating level. However, quality of capital has been weakening.”

Iten added: “We may lower the rating if the company materially underperforms our expectations. Conversely, we could raise the rating if the company achieves a return to profitable growth and once again performs favorably relative to its peers.”

Source: Standard & Poor’s