FIREMAN'S FUND INSURANCE COMPANY History

Company History:

Fireman's Fund Insurance Company offers a wide range of property and casualty insurance nationwide. In addition to fire insurance, Fireman's offers homeowner policies, automobile insurance, entertainment-industry coverage, inland marine, marine, workers' compensation, and a variety of commercial insurance products through some 6,000 independent agents. In 1991 Fireman's Fund became the U.S. arm of Allianz AG Holding, a German insurer.

Originally a goldrush town, by the 1860s San Francisco, California, boasted an economy whose growth was hampered by the frequent fires that swept through its wooden buildings. Volunteer firefighters worked at will, with no remuneration for their risks. Both these factors made well-established insurance companies wary of offering coverage to San Francisco-based businesses. In 1863 a ship's captain named William Holdredge conceived and created Fireman's Fund Insurance Company to insure San Franciscans against fire. Holdredge knew the success of his company would depend on his ability to reassure customers that their property could survive a fire. Thus, in order to motivate San Francisco's fire-fighters, Holdredge established a retirement fund for the firemen and financed it with 10% of his company's annual net profit. Holdredge underscored his business philosophy by calling his new firm the Fireman's Fund Insurance Company.

The young company grew apace and soon began to look for growth opportunities. In 1866 a state regulation allowing fire insurance companies to include marine underwriting was passed. Fireman's participated in this new activity eagerly. When in the autumn of 1871, 32 New England whaleships lingered too long in the inhospitable Arctic Ocean and were crushed by the ice, Fireman's Fund made its move. Bankruptcy followed for several whaling concerns, and many Atlantic coast insurance companies refused further coverage for this industry. Fireman's Fund agreed to cover the whalers, simply stipulating that all whaling ships leave the Arctic area by September 15. This requirement assured the marine division a healthy profit from grateful whalers desperate for insurance.

Also in 1871 the Great Chicago Fire resulted in over half a million dollars in claims, which wiped out Fireman's Fund's capital. A $250,000 assessment was leveled on company stockholders, and the company paid all claims within 60 days. This was the first of three devastating fires. At the end of 1872 a massive fire ravaged Boston, causing $189,589 in losses to Fireman's Fund. The ashes blew away 32 less-stable insurance companies, but Fireman's survived by reorganizing and reducing its capital. Yet another test came in 1875, when the entire mining town of Virginia City, Nevada, burned to the ground and Fireman's was left with more claims to pay.

Despite these liabilities, insurance remained a profitable business. By 1882, the company had gross assets of $1.32 million and had paid $4 million in claims. It also had a fine reputation, which helped it to absorb 11 competitors more seriously damaged by the catastrophic losses of this period, between 1889 and 1900. This growth also led the company to open offices in New York, Georgia, Hong Kong, Shanghai, and the Philippines. By the end of 1905, Fireman's Fund had 6,000 independent agents, and by January 1906 it was offering the country's first nationwide auto insurance.

In April 1906, San Francisco was hit by an earthquake that took hundreds of lives and leveled thousands of acres. Fireman's headquarters and records were destroyed. Estimates completed a week after the disaster put client claims at $11.2 million; the company had assets of approximately $7 million.

The shortfall was covered by assessing stockholders $300 per share. Because all records were destroyed, Fireman's Fund simply took each claimant's word as evidence of coverage. The company settled 8,600 claims without litigation by paying half in cash and half in new stock.

As part of the plan, after all earthquake claims had been paid, Fireman's Fund Insurance Company distributed its remaining assets to stockholders and went out of business. It was succeeded immediately by Fireman's Corporation, a newly formed company whose leadership was identical to that of Fireman's Fund Insurance Company. The corporation, whose debt-free status allowed it to handle all business not connected with the earthquake, took over all of its predecessor's ongoing business and its agency network.

The new Fireman's Fund prospered, taking on many patriotic activities during World War I. Company executives worked actively with government officials, giving fire-prevention advice for possible enemy targets such as bridges, factories, railways, and warehouses. The firm took all the war-risk business available, receiving appropriately high premiums for the high-risk business. As a result, company assets more than doubled between 1914 and 1919.

The postwar years saw many new developments. Among them was a burgeoning movie industry that brought opportunity fairly pounding at the insurance industry's door. The company began to underwrite film productions, whose paper, wood, and fabric sets made fire a real danger. As the movie industry became more sophisticated, the escalating costs of delays, contract disputes, and possible injuries to personnel made insurance indispensable. Props became more elaborate, with a corresponding rise in their replacement value. Some, like a full-size replica of the H.M.S. Bounty, sailed through movies unscathed, but the insurance company paid dearly for others, like the Los Angeles-born polar bear that ambled from the edge of an ice floe and vanished during filming in Alaska.

In addition to fire and entertainment-industry insurance, the company issued marine, tornado, war-risk, explosion, earthquake, automobile, luggage, sprinkler-leakage, and use and occupancy coverage during the 1920s. Fireman's also underwrote more unusual ventures, like the 1927 construction of Charles Lindbergh's Spirit of St. Louis.

Corporate expansion was also a feature of the late 1920s, when Fireman's Fund formed three new subsidiaries. The Occidental Indemnity Company was organized in 1927, to provide workers' compensation for longshoremen. Next came the Occidental Insurance Company, and in 1930, the Fireman's Fund Indemnity Company.

In 1929 the company increased its capital by the issue of 100,000 shares, to be sold at $50 per share. This issue added $2.5 million, bringing net capital to $7.5 million.

Despite the stock market crash in October, Fireman's Fund's California income for 1929 was $4 million. Although the years between 1930 and 1934 were lean ones, total assets by the end of 1936 were $3.7 million, and the company had 1,500 employees and 10,000 agents. Between 1933 and 1937 Fireman's Fund insured part of the Golden Gate Bridge construction, against the advice of critics, who predicted imminent collapse.

World War II did not disrupt Fireman's Fund's progress. Fireman's Fund President James Crafts led the company into the 1950s capably, and in 1954 the company showed a net profit of $18 million before taxes. A year later things began to change; in 1956 the industry as a whole had a total underwriting loss of $4.8 billion.

Partly at fault were stock market changes that affected insurance company portfolios. Spiraling inflation also played its part. The major factor, however, was a series of unforeseen disasters: several tornadoes and hurricanes; a marine collision off Nantucket, Massachusetts, involving the ships Andrea Doria and Stockholm; and an air collision in which two aircraft went down over the Grand Canyon in Arizona. Each of these tragedies brought heavy underwriting losses in its wake.

During the 1950s an increasing number of vehicles appeared on the roads, with a concomitant rise in the number of accidents. This situation had spurred the states of Massachusetts and New York to make auto insurance compulsory. Almost 30 other states were considering the same law. At the same time, new direct-writing auto insurance companies, profiting through both the rise in auto ownership and new antitrust legislation, were offering less expensive coverage by eliminating agents, who acted as middlemen. The amount of agent-handled auto insurance business was cut by almost a quarter during the mid-1950s.

To meet inflation and decreasing business, insurers raised rates. Customers of the company's 128 district offices around the country were cautioned that the value of their property had risen, and that premiums must rise accordingly. In 1957 Fireman's Fund moved to a new headquarters, which soon housed a new data processing system designed to streamline operations.

Buttressed by a cautious investment strategy, these measures helped the company get back on track. By the end of 1962 the number of premiums written in all divisions came to a total of $306 million. The company also made several profitable additions to its business during the early 1960s, including the Fireman's Fund Insurance Company of Texas, incorporated in 1962, and the American Insurance Company plus its two subsidiaries, American Automobile Insurance Company and The Associated Indemnity Company, acquired in 1963.

President James F. Crafts became chairman of the board in 1962, handing the presidency to Fred H. Merrill. By this time, Fireman's Fund's coverage included disability; individual, group, and franchises; accident and health programs; and hospital, surgical, and other benfits. More unusual ventures included insuring Michelangelo's Pieta during its journey from Rome to the New York World's Fair and the Apollo XI command module used in the first moon landing, on its tour of all 50 state capitals.

In 1966 Fireman's Fund Insurance Company became a holding company called Fund American Companies, passing its former name on to a California subsidiary of Fund American. In November 1968 Fund American Companies and its subsidiaries were acquired by American Express Company through an exchange of stock valued at about $500 million. The Fund American Companies was dissolved and Fund American president Merrill and chairman Crafts were elected directors of American Express; Merrill also served as chairman of its executive committee.

Known as Fireman's Fund American Insurance Companies after the merger, and eventually as Fireman's Fund again, the American Express subsidiary allowed customers to pay for their insurance with their American Express cards. In 1975 Fireman's Fund became a 7% partner in a lucrative new Saudi Arabian insurance company, the Red Sea Insurance Company. Two years later Fireman's insurance premiums reached $2 billion.

In 1977 the company became the subject of a sex-bias suit filed by ten present and past women employees. The class-action suit affected 20,000 women workers. Settlement, reached in 1979, ordered the company to pay legal fees and $19,500 to each of seven original claimants. The court's decree also specified that certain percentages of graded job vacancies were to be filled by qualified women for five years.

The late 1970s were so lucrative for the insurance industry that many new competitors appeared, and Fireman's Fund was forced to cut premium prices in order to keep its market share. The result was an industry underwriting loss of $34 billion between 1979 and 1983. Fireman's Fund suffered along with the rest. A 1982 decision to strengthen market share by cutting prices proved to be a costly mistake; profits plunged from $244 million in 1982 to $30 million in 1983. In 1983, American Express removed Fireman's Fund's two top executives, replacing them with William M. McCormick and American Express president Sanford I. Weill. McCormick and Weill laid off 1,600 employees and sold unprofitable businesses in Canada and Singapore.

The ABC television network chose Fireman's Fund to insure its participation in the 1984 Olympics. The cost of ABC's $200 million worth of protection against political boycotts was not disclosed.

The price-cutting debacle and subsequent losses led American Express to contribute $230 million to Fireman's Fund's reserves in December 1983, but this was not enough; a capital contribution of $200 million the following November did not remedy the situation either. By the end of 1984 the company had sold seven real estate properties to a European investment group. The $145 million sale, which included the company's headquarters building in Novato, California, specified ten-year lease-back agreements in all cases, with options for further 15-year leases.

These measures were not enough to keep the merger between Fireman's Fund and American Express afloat. In 1985 Fireman's Fund had a net loss of $87 million on revenue, and American Express--whose own earnings were being siphoned off by Fireman's Fund--decided to offer Fireman's Fund's shares to the public. American Express replaced the retiring Weill--who had been chairman and CEO of Fireman's Fund Company's holding company, Fireman's Fund Corporation--with GEICO Corporation Chairman John J. Byrne in 1985. McCormick remained at Fireman's Fund as chairman and CEO. In the 1985 transactions, Fireman's Fund Corporation, with its subsidiaries Fireman's Fund Insurance Companies was spun off as an independent company.

In September 1985, American Express offered 49% of its Fireman's Fund shares, after selling Fireman's Fund's life, accident, and health lines to American Express Travel Related Services for $330 million. A further 6% of its holdings was to go to a newly formed Fireman's Fund employee stock-ownership company, and the remaining 45% was to be held by American Express for a year, giving Fireman's Fund a chance to buy them back. These shares, however, were actually held until 1989, when Fireman's Fund exchanged a new issue of preferred stock, valued at $342 million, for 9.5 million common shares held by American Express.

In 1986 Fireman's Fund bought the third-largest U.S. mortgage banker, Manufacturers Hanover Mortgage Corporation. To provide additional taxable income for any loss by underwriting activities, Fireman's bought the Michigan-based company for $260 million, renaming it the Fireman's Fund Mortgage Corporation.

Also a product of the mid-1980s was a decision to leave the state of Massachusetts, in 1987. The company's auto insurance operation in that state had been only marginally profitable since the 1950s. Terms of the agreement included a payment to the state's auto pool for hard-to-insure motorists of $45 million for the year, plus another similar payment for 1988. In 1987, McCormick left the company, and Byrne became CEO of both the parent and Fireman's Fund Insurance Companies.

In 1989 Hurricane Hugo, an earthquake in California, and an oil refinery fire in Texas all proved expensive for the insurance industry. Fireman's annual financial summary reflected these heavy drains: $2.7 billion in earned premiums, showing a downturn from almost $3 billion only a year earlier.

At the end of 1989, company interests in investments and in commercial insurance led to a name change. The holding company once again became Fund American Companies, Inc., a title last used in 1966. The insurance subsidiary kept the name Fireman's Fund Insurance Companies.

In 1990 sale of the company to Europe's largest insurer, Allianz AG Holding, of Germany, for $3.3 billion, was announced. The sale was completed on January 2, 1991. The price, which analysts called about 175% of Fireman's Fund's book value, allowed Allianz large-scale entry into the lucrative U.S. insurance market. Terms of the transaction included Allianz's acquisition of all Fireman's Fund Insurance stock, plus its portfolio of bonds and short-term investments. Fireman's common stock portfolio was repurchased by Fund American for $2.2 billion. In 1991, stockholders approved the dissolution of Fund American over the next three to five years.

Principal Subsidiaries: Fireman's Fund Corporation; Fireman's Fund Insurance Company; The American Insurance Company; American Automobile Insurance Company; Associated Indemnity Corporation; Fireman's Fund Insurance Company of Georgia; Fireman's Fund Insurance Company of Hawaii; Fireman's Fund Insurance Company of Iowa; Fireman's Fund Insurance Company of Louisiana; Fireman's Fund Insurance Company of Ohio; Fireman's Fund Insurance Company of Wisconsin; Interstate National Corporation; Interstate Fire and Casualty Company; Chicago Insurance Company; Interstate Indemnity Company; Fireman's Fund Insurance Company of Texas; National Surety Corporation; Fireman's Fund Indemnity Corporation; Fireman's Fund Insurance Company of New Jersey; Warner Insurance Company; San Francisco Reinsurance Company; San Francisco Insurance Company (UK) Limited; Southern Fund Insurance Corporation; Standard General Agency, Incorporated; Fireman's Fund Mutual Insurance Company; American Standard Lloyd's Insurance Company.

Further Reading:

• Todd, Frank Morton, A Romance of Insurance: Being a History of the Fireman's Fund Insurance Company of San Francisco, San Francisco, Fireman's Fund Insurance Company, 1929.
• Crafts, James F., "A Romance of Insurance," New York, Newcomen Society in North America, 1951.
• Bronson, William, Still Flying and Nailed to the Mast: The First Hundred Years of the Fireman's Fund Insurance Company, Garden City, New York, Doubleday & Company, 1963.

Source: International Directory of Company Histories, Vol. 3. St. James Press, 1991.

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