TEXT-S&P downgrades Fireman's Fund, affiliates to 'A'

Overview
-- FFIC's operating performance through Sept. 30, 2012, was significantly
weaker than historical levels, primarily because of large adverse reserve
developments.
-- We have lowered our ratings on FFIC to 'A' from 'A+'. The outlook is
stable.
-- We continue to view FFIC as strategically important to its wholly
owned parent.

Rating Action
On Dec. 4, 2012, Standard & Poor's Ratings Services lowered its long-term
counterparty credit and financial strength ratings on Fireman's Fund Insurance
Co. and its affiliates (collectively FFIC) to 'A' from 'A+'. The outlook is
stable.

Rationale
The rating actions are based on FFIC's significantly worse operating
performance and overall financial profile through Sept. 30, 2012, compared
with historical levels. FFIC's statutory combined ratio averaged 104.9% during
the past five years (2007-2011), but deteriorated in the past three years,
primarily because of frequent large adverse reserve developments. In addition,
the company's capital adequacy deteriorated as of Sept. 30, 2012, from
year-end 2011, though it still supports the rating. The decline in capital
adequacy was caused mainly by a $189 million drop in statutory surplus as of
Sept. 30, 2012, from year-end 2011, and a keep-well surplus adjustment we made
in our capital adequacy model.

The company receives these keep-well receivables from its parent, Allianz
Group, under current and past keep-well commitments in the form of a long-term
receivable rather than cash. These receivables are given full surplus credits
based on two statutory accounting practices permitted by the California Dept.
of Insurance that do not conform to standard statutory accounting practice.
The keep-well portion of the statutory surplus was 22.8% as of Sept. 30, 2012,
and has been growing in recent years. To adjust for the quality of capital, we
cap these keep-well surplus credits up to 15% of reported statutory surplus.
We deduct any amounts in excess of that from the reported surplus in
evaluating the company's capital adequacy.

We continue to feel the company has a good competitive position, albeit
slightly diminished from prior levels. The company had a 50% quota share
reinsurance agreement with Rural Community Insurance Co. (RCIC) until 2012,
which will be reduced to 20% beginning in 2013. This will cause a sizable drop
in the company's already declining premium volume as seen in recent years.
However, the company is making progress in getting some rate increases across
most lines, which will alleviate the lower premium volume somewhat.

As of Sept. 30, 2012, the company reported a statutory combined ratio of
123.5% compared with 119.4% for the same period in 2011. Prior-year reserves
contributed 18.4 points to 2012 results, compared with 13.3 points in 2011.
Catastrophe loss through the first nine months of 2012 contributed 4.1 points
to the 2012 results, in contrast to 9.5 points in 2011.

Outlook
The stable outlook reflects our expectation that FFIC will continue to improve
the quality of risks in its overall business portfolio through careful risk
selection and good pricing discipline. We expect FFIC's statutory combined
ratio excluding Hurricane Sandy to be 125%-130% in 2012 assuming no further
major catastrophe losses in the fourth quarter. We expect Hurricane Sandy
losses to add several percentage points to this combined ratio. We expect the
company to make gradual improvements in underwriting results in the next few
years as it goes through its current restructuring plan to identify and target
profitable business. Beginning with 2013, we expect to see a gradual
improvement in the statutory combined ratio to about 104%-106%, including
about 4-5 percentage points for catastrophe losses and no material adverse
reserve development. A gradual firming of commercial-lines pricing should also
benefit underwriting results and slow the decline in commercial-lines premiums.

With stable net investment income from its conservative fixed-income portfolio
the company will likely generate good returns as determined by a statutory ROR
of 4%-6% in the next two years. In addition, we expect the company to maintain
its capital adequacy at a level appropriate for the current rating, and we do
not expect capital quality to improve significantly in the next one to two
years.

Failure to meet these expectations and any material adverse reserve
developments or decline in capital adequacy as determined by our capital model
in the next couple of years could result in negative rating actions. At the
same time, it's very unlikely that we would raise the ratings in the next two
years because we believe the company's competitive position is somewhat
limited in terms of product lines and that its performance has to be in line
with its peers'.

Related Criteria And Research
Interactive Ratings Methodology, April 22, 2009

Ratings List
Downgraded
To From
Fireman's Fund Insurance Co.
National Surety Corp.
Interstate Fire & Casualty Co.
Fireman's Fund Insurance Co. of Ohio
Fireman's Fund Indemnity Corp.
Chicago Insurance Co.
Associated Indemnity Corp.
American Insurance Co.
American Automobile Insurance Co.
Counterparty Credit Rating
Local Currency A/Stable/-- A+/Stable/--

Fireman's Fund Insurance Co.
National Surety Corp.
Interstate Fire & Casualty Co.
Fireman's Fund Insurance Co. of Ohio
Fireman's Fund Insurance Co. of Hawaii Inc.
Fireman's Fund Indemnity Corp.
Fireman's Fund County Mutual Insurance Co.
Chicago Insurance Co.
Associated Indemnity Corp.
American Insurance Co.
American Automobile Insurance Co.
Financial Strength Rating
Local Currency A/Stable/-- A+/Stable/--

Rating Withdrawn
To From
American Standard Lloyds Insurance Co.
Fireman's Fund Insurance Co. of Louisiana
Fireman's Fund Insurance Co. of Georgia
Financial Strength Rating
Local Currency NR/-- A+/Stable/--

Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.