Fireman's Fund Insurance Co. said Thursday that it has agreed to be bought for $3.3 billion in cash by Allianz AG of Munich, West Germany, already Europe's largest insurer and a company long intent on expanding in the lucrative U.S. market.
Fireman's Fund, based north of San Francisco in Novato, Calif., is the main subsidiary of Fund American Cos. of Greenwich, Conn. Last year, Fireman's Fund ranked 15th among U.S. insurers in terms of domestic property and casualty premium volume, with revenue of $3.2 billion.
News of the deal, which caught much of the insurance industry by surprise, prompted shares in Fund American to rise $11.625, or 30.5%, to $49.75 in New York Stock Exchange trading Thursday. The company recorded the day's top percentage gain on the Big Board.
"What Fireman's Fund needed . . . was the power and reach of a world-class ally in the insurance industry," John J. (Jack) Byrne, chairman of Fireman's Fund and Fund American, said in a statement. Byrne described it as "a perfect match (between) an American firm with the expertise and a well-respected European parent who understands insurance and is eager for expansion."
Allianz in the past decade embarked on an ambitious acquisition program in Europe. It operates worldwide through 223 subsidiaries in 45 countries. Last month, it bought a 51% interest in East Germany's state insurance monopoly. The company had 1989 premium volume of $20 billion, about 9% of that from U.S. business.
As part of the deal, Fund American will pay $2.2 billion in cash for the common stock portfolio of Fireman's Fund, a mortgage subsidiary and several oil and gas and other long-term investments. The total value of Fireman's Fund's investments was $7.7 billion as of May 31.
Industry observers generally agreed that the $3.3-billion price for Fireman's Fund is a fairly rich one, especially considering the depressed condition of the U.S. insurance industry.
"It's a wonderful price," said Allerton Cushman Jr., an analyst with the Morgan Stanley investment firm in New York. "Mr. Byrne's shareholders should be very pleased."
At Thursday's closing price, Byrne's own holding of 2.6 million shares showed a paper gain of about $30 million over Thursday's Fund American share price of about $38, noted analyst Carol Manning with Smith Barney, Harris Upham in New York.
Byrne, who as chairman gets much of the credit for Fireman's Fund's strong balance sheet, will leave Fireman's Fund but remain with Fund American.
Fund American's vice president and controller, Allan Waters, said Fund American will spend the next three to five years figuring out how to dispose of its remaining assets "in an orderly fashion" so that shareholders get the most benefit.
Allianz has for more than five years been seeking a U.S. insurer with strength in commercial and specialty insurance. About 85% of Fireman's Fund's business is commercial, with the rest coming from private customers, primarily homeowners, according to spokesman John Kozero.
Fireman's Fund began in 1864 as Home Mutual Insurance Co. The company was bought by American Express Co. in 1968 but was spun off in 1985. It has 10,500 employees and 60 offices nationwide.
Frederick V. Hill, a San Francisco-based analyst with Firemark Consultants Inc., said Fireman's Fund in recent years has had poor earnings. This is in part because the company, unlike many competitors, has declined to write new policies at low premiums to win market share.
"But I think the cycle is going to turn in a year or two," Hill said, adding that the strategy of disciplined policy writing "will stand them in good stead."
Given the friendly nature of the deal, analysts said, they expect it to win the necessary regulatory approvals without trouble. They contrasted this deal with the British firm BAT Industries' hostile bid for Farmers' Group. That purchase went through only after BAT agreed to raise its buyout price after months of wrangling with regulators.
The Fireman's Fund purchase is expected to take effect early next year.
FIREMAN'S FUND AT A GLANCE REVENUE in million of dollars 1985: 3,339 1986: 3.799 1987: 4,307 1988: 3,539 1989: 1989 NET INCONE in million of dollars 1985: -48 1986: 244 1987: 404 1988: 279 1989: 116 Source: Associated Press