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

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of Factory Mutual Insurance Company (Factory Mutual) and its affiliates (collectively FM Global) at 'AA'. 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 market position and size/scale is characterized as 'Large' by Fitch as FM Global has built a strong franchise in the commercial property market for highly protected risks. In 2015, based on statutory results, FM Global held the No. 1 market share position in the boiler and machinery line of business among all U.S. property/casualty groups based on direct premiums written, representing roughly one-quarter of industrywide premiums. FM Global was also the largest writer of allied lines and second largest writer of fire business in 2015.

FM Global's underwriting results remain at the upper end of the median guidelines for the 'AA' rating category within Fitch's sector credit factors. The company's 2015 underwriting results were strong as the company reported a GAAP combined ratio from continuing operations of 81.8%. Adverse development from asbestos-related reserves added 3.5 percentage points to the 2015 combined ratio. Results include $431 million of membership credits that were paid to policyholders during the year, which added 8.8 points to the company's calendar-year combined ratio. FM Global's 2015 calendar-year combined ratio including discontinued lines was 85.3%.

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 2015 were 88.5% and 83.3%, 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.

Capitalization for FM Global scored 'Very Strong' on Fitch's proprietary capital model, Prism, which is considered consistent with the company's 'AA' IFS rating. Underwriting income and unrealized investment gains led to a 3.8% increase in GAAP policyholders' surplus to over $11 billion in 2015. The company continues to utilize operating leverage that is within targets for the current rating. As of Dec. 31, 2015, U.S. statutory operating and net leverage for FM Global were approximately 0.3x and 1.0x, 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 underwriting results, to the point where the company no longer outperforms its peers;

--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 Prism 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 including a Prism capital model score of 'Extremely Strong';

--A material decline in common equity investments, reducing volatility in surplus.

FULL LIST OF RATING ACTIONS

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 Rating 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'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002025

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002025

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160405006520/en/

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA
Director
+1-312-368-3263
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Douglas L. Meyer, CFA
Managing Director
+1-312-368-2061
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Quest Diagnostics to Offer FDA-Cleared Roche pTau217 Blood Test to Assess Alzheimer's Disease Pathology
• Study Concludes Markdown is Ineffective for AI Citations
• Thread hosting 24-hour TikTok Live marathon to celebrate new Crescent Bag