UPDATE 1-Fireman's Fund turnaround may take up to 5 yrs-Allianz

Thu Dec 13, 2012 11:38am EST

* Need 3-5 years to reach consistent profit

* To become niche insurer with focus on 6 sectors

* U.S. manufacturing renaissance to boost growth

FRANKFURT, Dec 13 (Reuters) - Allianz will need at least three years to turn its troubled U.S. unit Fireman's Fund into a dependably profitable niche insurer, an Allianz board member said.

The U.S. property-casualty unit has been a headache for Europe's biggest insurer, which has repeatedly had to build up loss buffers at the unit, while seeing it slide to an operating loss last year.

It has also reported a widening underwriting loss for the first three quarters of this year and was forced to bolster its reserves for potential claims by over $400 million.

"It will take 3-5 years to get this company to where it is making a sustainable, consistent profit," Gary Bhojwani, Allianz board member responsible for the U.S. insurance business, told Reuters.

"We've begun the process in 2012, so I believe you will see the first signs of real progress here in the latter part of 2013."

Bhojwani, 44, who joined Allianz's board in January, is working to keep underwriters focused on ensuring policies are profitable and is turning Fireman's Fund back into a niche player, concentrating on six industrial sectors comprising 17 sub-sectors.

"We are going back to focus on dedicated industries and build up expertise where we know we can get the right rate," he said.

The broad categories are healthcare, hospitality, real estate, manufacturing, professional services, and Technology-Media-Telecoms.

"There is a fair bit of granularity where we have identified our ability to compete and where we like the market attributes," Bhojwani said of the sub-segments.

Allianz would be willing to maintain existing business outside its target areas, provided it was profitable and trouble free, but it would not be adding to those positions, he said.

Staying consistent and focused are qualities Bhojwani said he admires in the insurance operations at Berkshire Hathaway and particularly at Chubb Corp.

SHORTER TAIL

Aside from improving underwriting and targeting niches, Fireman's also needs to cut the proportion of premiums coming from long-tail business, so-called because losses take three or more years to develop.

This would help avoid future unwelcome surprises in reserving, after the company had to plump its buffers for professional liability, workers' compensation, asbestos and other environmental claims, mostly linked to long-tail risks.

"We've taken significant charges in 2012 and we need to break that cycle," Bhojwani said, pointing out that the company now brings in outside advisors to help review reserves.

Bhojwani said no headcount reductions were planned.

"Our expense ratio is high but our bigger problem is our loss ratio," he said. "I am most focused on that."

Favourable growth and demographic developments will keep the U.S., the world's biggest insurance market, attractive to Allianz, Bhojwani said.

"Over the next 5-10 years, we will see a manufacturing renaissance in the U.S. driven primarily by the country's new found energy independence," he predicted, adding that focused, non-generalist property and casualty underwriters could be well-positioned to make a profit in that market.

The long-term prospects for Allianz are good, he said.

"There are certainly going to be some bumps in the road over the next 1-3 years but on the 5-10 year horizon, the future is very bright."