Best Puts Fireman’s Fund Companies on Review/Negative; Affirms Ratings

December 20, 2011

A.M. Best Co. has placed under review with negative implications and has also affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a+” of Fireman’s Fund Insurance Companies, which includes Fireman’s Fund Insurance Co., headquartered in Novato, Calif. and its intercompany pool participants and reinsured affiliates.

Best said that its rating actions follow the downgrading of the ICR and the placing of the ratings under review with negative implications of the group’s ultimate parent company, Allianz Societas Europaea (Allianz SE).

The actions on Allianz SE’s ratings resulted from the company’s “exposure to investments in several peripheral euro zone economies, Italy in particular, as well as its investment exposure to eurozone banks.”

Best said that it has been monitoring the “continued deterioration of the sovereign creditworthiness of several euro zone countries and the negative economic outlook for the region.” The firm released reports on the insurance industry exposure to these events in September and November of this year.

“The perceived strain on the economies of these countries—most notably Italy and Spain—and companies operating within their borders is growing rapidly with very little evidence of a solution being formulated to address near-term concerns. The rationale for taking rating action at this point is largely attributable to the current level of credit and liquidity risk for insurers operating within these countries, including Allianz SE,” A.M. Best said.

Best said Fireman’s Fund’s ratings, as well as those of its parent company Allianz SE, will remain under review with negative implications while it examines these companies’ exposure to a “prolonged adverse economic environment” within the euro zone.

As it has previously indicated, Best said it is particularly concerned by the exposure to Italy and Spain’s sovereign bonds and the “potential for contagion into other asset classes, particularly holdings of European bank securities.”

In addition, Best said it will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations. The ratings agency said upward rating actions are unlikely at this point.

However, Best warned that negative rating actions could occur if there were a worsening of risk-adjusted capitalization at Allianz SE tied to investment losses or a deterioration of the operating environment in key territories.

Additionally, A.M. Best said negative rating action could be taken if Fireman’s Fund is deemed not sufficiently strategically important to the global operations of Allianz SE to receive continued rating enhancement.

The ratings placed under review with negative implications and those affirmed with the FSR of ‘A’ (Excellent) and ICR of “a+” include the Fireman’s Fund Insurance Companies and its intercompany pool participants and reinsured affiliates as follows:
Fireman’s Fund Insurance Company
American Automobile Insurance Company
National Surety Corporation
The American Insurance Company
American Standard Lloyd’s Insurance Company
Associated Indemnity Corporation
Chicago Insurance Company
Fireman’s Fund County Mutual Insurance Company
Fireman’s Fund Indemnity Corporation
Fireman’s Fund Insurance Company of Hawaii, Inc.
Fireman’s Fund Insurance Company of Louisiana
Fireman’s Fund Insurance Company of Ohio
Interstate Fire & Casualty Company

Source: A.M. Best

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