Fitch Affirms FM Global's 'AA-' IFS Rating; Rtg Outlook Stable.Business Editors CHICAGO--(BUSINESS WIRE)--Feb. 13, 2004 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. its 'AA-' insurer financial strength ratings on Factory Mutual Insurance Company, Affiliated FM Insurance Company, and Appalachian Insurance Co. (collectively referred to as FM Global). The Rating Outlook is Stable. Rationale for the ratings include FM Global's strong competitive position in the highly protected risk (HPR (High-Performance Routing) Extensions to IBM's APPN networking that enable SNA data to be sent over frame-based (Ethernet, etc.) and cell-based (ATM) networks. ) market, sound underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. practices and risk control, recent strong earnings, and solid balance sheet. Partially offsetting these positives is the company's exposure to surplus volatility derived from its focus on insuring the HPR market and from its consistent strategy of investing a relatively large portion of its invested assets in equity investments. Fitch believes that FM Global has gained market share in the HPR market in recent years by continuing to focus on providing consistent high-loss limit capacity and extensive engineering and loss prevention capabilities during a period in which many of the company's competitors were reducing capacity. Fitch also believes that the size and expertise of FM Global's engineering staff provides the company with competitive marketing advantages and advantages in risk selection and loss prevention, that over-time generate favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. underwriting results. These factors coupled with hard market conditions in the property insurance market have contributed to the company's strong premium growth and underwriting results in recent years. Fitch anticipates that FM Global's GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis combined ratio for 2003 will approximate 65%, significantly outperforming the commercial lines industry. Fitch views FM Global's underwriting results as inherently volatile and as a result, considers cumulative three and five year average combined ratios when evaluating the company's underwriting profitability. Under these criteria, Fitch considers FM Global's underwriting profitability as very good with a three and five year cumulative combined ratios approximating 90% and 100% respectively. Due to 2003's strong underwriting results and improving equity market conditions, Fitch anticipates that FM Global will report a significant increase in year-end 2003 surplus and notes that through the first nine months of 2003 the company's statutory surplus had increased 35% to $2.6 billion. Fitch believes that the quality of FM Global's surplus is good and is characterized char·ac·ter·ize tr.v. character·ized, character·iz·ing, character·iz·es 1. To describe the qualities or peculiarities of: characterized the warden as ruthless. 2. by relatively short duration, and thus more predictable, reserves, very strong reserve survival ratios for asbestos-related claims, and high-quality reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. . Fitch's view of FM Global's surplus quality is adversely impacted by the company's allocation to equity investments which generates surplus exposure to equity investments that is approximately two times the industry average and exposes the company's surplus to higher than industry average exposure to short-term equity market volatility. FM Global has disclosed that it will pay a $325 million membership credit in 2004 to policyholders that meet pre-defined conditions. From an analytical perspective, Fitch views such membership credits as having similarities to both policyholder Policyholder An individual who owns an insurance policy. dividends, which are typically considered a component of underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. , and shareholder dividends, which are excluded from underwriting income but included as a reduction of surplus or equity. As a result, Fitch has considered the impact of FM Global's membership credit from both perspectives. Affiliated FM Insurance Company (Affiliated) and Appalachian Insurance Company (Appalachian) are wholly owned subsidiaries Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of Factory Mutual Insurance Company (Factory Mutual) and the three companies participate in a reinsurance pooling agreement. As a result, Fitch has applied a group rating methodology and its ratings on Affiliated and Appalachian reflect the benefit of Factory Mutual's financial strength. Entity/Issue/Type Action Rating/Outlook Factory Mutual Insurance Company -- Insurer financial strength Affirmed 'AA-'/Stable. FM Global's Appalachian Insurance Co. -- Insurer financial strength Affirmed 'AA-'/Stable. Affiliated FM Insurance Company -- Insurer financial strength Affirmed 'AA-'/Stable. |
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