March 16, 2017 / 10:28 PM / 9 months ago

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

(The following statement was released by the rating agency) CHICAGO, March 16 (Fitch) 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 affirmation reflects FM Global's long-term underwriting profitability, very strong capitalization and 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 underwriting results improved in 2016 as the company's 2016 GAAP calendar-year combined ratio decreased to 83.2%, down from 85.3% in 2015. The company's long-term operating performance is very strong and supportive of the current rating level. The year-over-year improvement is partly the result of the absence of adverse reserve development from asbestos-related reserves which added 3.5 percentage points (pp) to the 2015 combined ratio. Results in 2016 include $407 million of membership credits paid to policyholders during the year, adding 8.4 pp to the company's calendar-year combined ratio. Capitalization for FM Global scored 'Very Strong' on Fitch's Prism capital model, consistent with the company's 'AA' IFS rating. Net earnings and unrealized investment gains led to an 8.0% increase in GAAP policyholders' surplus to approximately $11.9 billion at Dec. 31, 2016. The company continues to utilize operating leverage that is within targets for the current rating. As of Sept. 30, 2016, U.S. statutory operating and net leverage for FM Global were approximately 0.3x and 1.0x, respectively, 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. FM Global's business profile is characterized as 'Very Strong' by Fitch as FM Global has built a strong franchise in the commercial property market for highly protected risks. 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. In 2015, based on statutory data, 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. 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 reinsurance support from Factory Mutual as well as policy level guarantees. 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 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: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020691 Solicitation Status here Endorsement Policy 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 WEB SITE AT WWW.FITCHRATINGS.COM. 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