Perhaps you've seen the headlines or half-listened to the stories in the news about the financial crisis in the Eurozone. Maybe you've thought, "That's a European problem; it doesn't affect me." If so, you're wrong.
A.M. Best Places Ratings of Fireman's Fund Insurance Companies Under Review with Negative Implications
OLDWICK, N.J., DECEMBER 19, 2011
A.M. Best Co. has placed under review with negative implications and affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a+" of Fireman's Fund Insurance Companies (Fireman's Fund), which includes Fireman's Fund Insurance Company(Novato, CA) and its intercompany pool participants and reinsured affiliates. (See below for a detailed list of the companies and ratings.)
These 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 eurozone economies, Italy in particular, as well as its investment exposure to eurozone banks.
A.M. Best has been actively monitoring the continued deterioration of the sovereign creditworthiness of several eurozone countries and the negative economic outlook for the region and 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.
The ratings for Fireman's Fund and its parent, Allianz SE, will remain under review with negative implications while A.M. Best examines these companies' exposure to a prolonged adverse economic environment within the eurozone. Of particular concern to A.M. Best is 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, A.M. Best will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers' market position and ongoing business operations.
Upward rating actions are unlikely at this point.
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, 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.
Fireman's Fund is a major provider of insurance in this country, and an important source of errors and omissions liability insurance to IIABNY member agents and brokers. This news should make all of us in the industry feel a little less comfortable about how removed we are from the problems in Europe.