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| | Fireman’s Fund Prepared For the Financial Fire Season By Robert Warne - August 29, 2002Even though its workers’ compensation operation is on ice, Fireman’s Fund Insurance Co. management can still feel the heat from parent Allianz AG Holdings. Under the gun to make a buck and under the microscopes of rating agencies, management is fighting financial fire with financial fire.
To bring down its 33 percent expense ratio and hit its minimum 12 percent return on equity rate, Allianz is investing heavily in Fireman’s Fund infrastructure and technology.
Fireman’s Fund CFO Helmut Perlet told A.M. Best that the hundreds of millions of dollars they were investing into the organization should dispel any notion that Allianz would sell the company. He also said the financial commitment “clearly indicates that we are likely to hold onto Fireman’s Fund forever.”
Along with a change in management last year, Fireman’s Fund also received an infusion of $166 million from Allianz.
But Standard and Poor’s reported Aug. 29 that Fireman’s Fund’s “capital adequacy has been marred by large underwriting and investment losses over the last eight quarters and continues to hamper the group's financial strength and earnings capacity despite any past capital contributions received from Allianz.”
Even though Standard and Poor’s has Fireman’s Fund and Allianz on CreditWatch, because they are related entities they benefit by one rating category than if they were rated on their stand-alone performance.
But the group methodology works both ways. If Allianz were to drop two notches, Fireman’s Fund would drop a notch. Standard and Poor’s doesn’t see this happening though in the near future.
Now that internal operations humming towards increased efficiency with a little luck, external forces will start to kick in, such as a stock market turnaround and both companies will rise with the tide.
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