March 7, 2013 / 6:53 PM / 5 years ago

Fitch Affirms FM Global's IFS Rating at 'AA'

(The following statement was released by the rating agency) CHICAGO, March 07 (Fitch) Fitch Ratings has affirmed the 'AA' Insurer Financial Strength (IFS) ratings of Factory Mutual Insurance Company (Factory Mutual) and its affiliates (collectively FM Global). The Rating Outlook is Stable. KEY RATING DRIVERS The ratings continue to reflect FM Global's strong capital and long-term underwriting profitability, competitive advantages derived from the company's engineering expertise and global presence in specialty commercial property insurance markets, as well as benefits drawn from the company's mutual company status. Partially offsetting these positives is the effect of year-to-year capital volatility derived from the company's underwriting activities and long-held common equity investment allocation. FM Global's results in 2012 were significantly improved over the prior year period and despite material losses related to Superstorm Sandy in the fourth quarter, reported catastrophe losses declined from the record levels endured in 2011. The company reported a combined ratio on a GAAP basis of 85.7% in 2012, compared with 121% in 2011. The company's long-term operating performance continues to be strong and supportive of the current rating level. FM Global's cumulative five- and 10-year calendar-year combined ratios on a statutory basis through 2012 were 89.5% and 81.5%, respectively. Fitch believes that FM Global's favorable long-term underwriting performance is due in large part to the company's ability to incorporate engineering expertise into the risk selection and underwriting processes. Fitch views the company's engineering capabilities and loss prevention services as key advantages that are difficult for competitors to replicate, and believes this expertise will result in future underwriting results that are consistently better than peers. FM Global's capital position is very strong. Underwriting gains and unrealized investment gains led to a 17% increase in statutory policyholders' surplus to $7.5 billion at year-end 2012. The company continues to utilize operating leverage that is within targets for the current rating. As of Dec. 31, 2012, U.S. statutory operating and net leverage for FM Global were 0.45x and 1.38x, which Fitch considers to be conservative and supportive of the current rating level. FM Global has no outstanding debt, which Fitch regards as a positive credit factor relative to other 'AA' rated companies. RATING SENSITIVITIES Key rating triggers for FM Global's ratings that could lead to a downgrade include: --Severe deterioration in long-term results, to the point where the 10.0 point margin in combined ratio outperformance relative to peers no longer existed; --Consolidated U.S. operating and net leverage approaching 0.75x and 1.75x, respectively; --A sustained period of net losses or catastrophe losses out of proportion with market share. --A significant deterioration in FM Global's capitalization as measured by Fitch's capital model. Fitch considers an upgrade of FM Global's ratings unlikely; however, key rating triggers that could, in time, lead to positive rating movement include: --Consistent levels of strong capital associated with higher rating levels over a multi-year period; --A material decline in common equity investments, reducing volatility in surplus. Fitch's ratings on Factory Mutual's subsidiaries, Affiliated FM Insurance Company, Appalachian Insurance Company, the U.K. domiciled FM Insurance Company Limited and the Mexico domiciled FM Global de Mexico, S.A. de C.V. reflect explicit and implicit financial support from Factory Mutual. Fitch affirms the following ratings with a Stable Outlook: Factory Mutual Insurance Company --IFS at 'AA'. Appalachian Insurance Company --IFS at 'AA'. Affiliated FM Insurance Company --IFS at 'AA'. FM Insurance Company Limited --IFS at 'AA'. FM Global de Mexico, S.A. de C.V. --IFS at 'AA'. Contact: Primary Analyst Christopher A. Grimes, CFA Associate Director +1-312-368-3263 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst James B. Auden, CFA Managing Director +1-312-368-3146 Committee Chairperson Douglas L. Meyer, CFA Managing Director +1-312-368-2061 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Jan. 11, 2013). Applicable Criteria and Related Research Insurance Rating Methodology — Amended here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

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