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Fireman's Fund aims for 2014 underwriting profit: Allianz

Posted On: Mar. 5, 2014 12:00 AM CST

(Reuters) — Allianz S.E.'s U.S. property/casualty insurer unit, Fireman's Fund Insurance Co., is aiming to make a profit in 2014 for the first time in years as efforts to turn the business around begin to pay off.

Fireman's Fund has been a headache for Europe's biggest insurer, reporting operating losses in both 2011 and 2012 and prompting calls by some analysts for a sale of the business.

The U.S. insurer aims to return to profit partly by turning itself into a niche player concentrating on six industrial sectors and 17 subsectors, and cleaning its books of less profitable business.

"Our aim is to turn an underwriting profit this year, and I expect to achieve our plan," Allianz board member Gary Bhojwani told Reuters in an interview, adding the caveat that the outlook depended on payouts for big natural catastrophes such as earthquakes or hurricanes staying within projected bounds.

An underwriting profit means Allianz would have made money just by selling insurance and then paying costs and claims, an important measure that excludes earnings from investments.

It did not make that goal in 2013, although Fireman's Fund did manage to reduce its underwriting loss, cutting its combined ratio, which measures costs and claims as percentage of premiums, to around 104% from 130% in 2012.

"We need to stay the course. We have actions planned to get us below the 100% combined ratio so we have an underwriting profit," Mr. Bhojwani told Reuters.


Mr. Bhojwani, 46, had given himself three to five years to bring Fireman's Fund into sustainable profit when he took up board responsibility for U.S. insurance business in January 2012. Fireman's Fund is on track to meet that goal, he said.

"I'm pleased with the progress but not yet satisfied with the results," he said.

Fireman's Fund has benefited from light natural catastrophe payouts of $71 million last year, after a $300 million hit for Hurricane Sandy alone in the previous year.

Other reforms at Fireman's Fund, which sells personal insurance as well as commercial coverage focused on small and medium-sized U.S. businesses, have proven successful. The company achieved operating profit of $203 million last year, which was $32 million ahead of plan, reversing a $700 million loss the year earlier.

The widening losses had been a focus for investor concerns in the past, but analysts posed few questions about the business when Allianz reported 2013 results last week.

"I'm perfectly happy that we're not in the cross-hairs," Mr. Bhojwani joked.

Fireman's Fund has also been working to cut the proportion of premium earned by writing "long-tail" insurance business, such as workers compensation or environmental claims, where losses may take years or decades to develop.

Fireman's Fund aims to cut its share of long-tail down to 20% to 30% from as much as 40% to 50% in the past.

"It's a way of insuring that five or 10 years from now, we won't have losses emerging from prior periods because we won't have written as much of it," Mr. Bhojwani said.


Those protective moves are needed given expectations that the U.S. insurance market will remain fiercely competitive, even as stronger economic growth supports insurance demand.

"In the United States, the ability of insurers to increase prices has slowed a bit," Mr. Bhojwani said, pointing out that rising investment yields are removing some of the pressure on insurers to clinch underwriting profit by raising prices.

For its part, Fireman's Fund still sees room to push through price increases, particularly in commercial business.

"We've identified the lines of business and the states where we need to increase rates and we will do so," Mr. Bhojwani said.