FM Global Affirmed

Fitch Ratings affirmed its “AA-” insurer financial strength ratings on Factory Mutual Insurance Company, Affiliated FM Insurance Company, and Appalachian Insurance Co. collectively (FM Global). The outlook is stable.

FM Global’s strong competitive position in the highly protected risk (HPR) market, sound underwriting practices and risk control, and solid balance sheet were all considered in the ratings rationale. Partially offsetting these positives is the company’s increase in operating leverage, lower risk-adjusted capitalization, and the underwriting volatility inherent in the HPR market.

Fitch believes that FM Global has built a strong competitive position in the HPR market by focusing on providing consistent high-loss limit capacity and extensive engineering and loss prevention capabilities. Fitch also believes that the size and expertise of FM Global’s engineering staff provides the company with competitive advantages in risk selection and loss prevention, that over-time generate favorable underwriting results.

FM Global is a mutual company and its underwriting practices are designed in part to try to ensure that new insured’s commitment to loss prevention practices are as strong as its existing policyholder’s commitment. The company’s underwriting process includes a detailed engineering review that prospective insureds must undergo before insurance is bound.

The company’s strong balance sheet is characterized by solid loss reserves, good reinsurance protection and a strong surplus position.

FM Global utilizes a significant amount of excess of loss and facultative reinsurance to manage its loss exposure and uses sophisticated engineering and modeling techniques to simulate its maximum foreseeable loss from catastrophic events. It purchases reinsurance to limit its net per-risk losses to approximately $70 million. Fitch considers the overall credit-quality of FM Global’s reinsurance recoverable to be good.

The company’s premium base grew rapidly in the first nine months of 2002 continuing a trend that started in 2001 as premium rates in the property market hardened. This rapid premium growth coupled with the company’s surplus declines has resulted in an increase in operating leverage.

FM Global’s underwriting results through the first nine months of 2002 were very strong and its 65.7 percent combined ratio through Sept. 30, 2002 was significantly better than the industry average. Fitch believes that FM Global’s strong results reflect the company’s focus on the property market and its favorable pricing environment, coupled with the strong expense control and underwriting discipline.

Topics Underwriting Reinsurance