S&P Cuts Fireman’s Fund Insurance Co. Ratings

October 11, 2002

Standard & Poor’s Ratings Services said that it lowered its counterparty credit and financial strength ratings on Fireman’s Fund Insurance Co. and related entities (FFIC) to single-‘A’-plus from double-‘A’ minus because of concerns about FFIC’s continued weak operating performance and likely constraints on future capital adequacy.

S&P’s also said that these ratings remain on CreditWatch with negative implications, where they were placed on Aug. 26, 2002, pending the capital contribution by ultimate parent, Allianz AG, to bring FFIC’s capital adequacy ratio to 135 percent and execution of risk-management strategies to limit prospective adverse reserve development on FFIC’s asbestos and environmental liabilities.

Also affecting the ratings are prospective operational and capital-management risks that Allianz AG inherited from its acquisition of Dresdner Bank AG in 2001. Offsetting these issues are Allianz AG’s continued explicit support of—and its capital contributions to—FFIC and the noticeable effects of improving managerial interaction with FFIC and its North American affiliates.

“An improved pricing environment, a restructured organization, and newly marketed brand equity should enhance FFIC’s prospective financial strength and market position in its targeted strategic niches,” noted S&P’s credit analyst Frederick Loeloff. “However, increasing competition, transition execution, and earnings uncertainty with discontinued operations could hamper FFIC’s progress over the next two to three years.”

Expectations are that barring a large loss event, FFIC’s underwriting and earnings will improve modestly. If these expectations are met, S&P’s will remove the ratings from CreditWatch and affirm them with a stable outlook. If the expectations are not met, S&P’s will consider FFIC and its related entities non-strategically important to Allianz AG and will lower the ratings further, perhaps significantly.

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