factory mutual 2012 annual report

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  • 1P13000 Printed in USA 2013 FM Global All rights reserved. www.fmglobal.com

    In the United Kingdom: FM Insurance Company Limited 1 Windsor Dials, Windsor, Berkshire, SL4 1RS Regulated by the Financial Services Authority.

    Annual Report 2012

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  • FM Global Annual Report 2012 3

    Report Contents

    Executive Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 5

    About Our Featured Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 10

    SKF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 12

    Celestica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 14

    The Cooper Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 16

    FedEx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 18

    FM Global Around the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 20

    FM Global Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 21

    Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 25

    Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 57

    Industry Ratings

    Rating Agency Financial Strength Rating Outlook

    A.M. Best A+ (Superior) Stable

    Fitch AA (Very Strong) Stable

    For additional ratings information, view Industry Ratings at www.fmglobal.com.

    FM Global is a leading commercial property insurance company that forms long-term

    partnerships with its clients to support risk management objectives through a unique

    combination of engineering, underwriting and claims services. We work to ensure our

    clients business continuity by safeguarding their properties with seamless, worldwide

    coverage and property loss prevention engineering solutions.

  • FM Global Annual Report 2012 5

    By all key measures, 2012 was a very successful year. Financially, we achieved all our objectives, both in our insurance operations and in the performance of our investments. Client retention remained very high, and 2012 was one of our best years yet for attract-ing new business. We accomplished all of this despite the impact of Superstorm Sandyour single largest net aggregate natural disaster loss to date.

    In simple terms, our in-force premium grew by 8.6 percent, our combined ratio was below 86 percent and our surplus grew 14.9 percent to US$7.9 billion. These outstanding results reinforce the strength of our mutual business model, our balance sheet and our unique focus on working with our clients to ensure the resiliency of their businesses.

    Review of 2012We continued to enhance our products and services to better serve our clients evolv-ing property risk management needs. At the same time, we focused on being more effective with our time and resources.

    We achieved significant risk improve-ment, a key to our long-term success. In cooperation with our policyholders, we exceeded our plans to implement human element and overall physical improve-ments. Most importantly, our policyhold-ers will have installed sprinklers in an additional 46 million square feet (4.3 mil-lion square meters) of existing facilities.

    Our response to Superstorm Sandy re-inforced the strength of our natural catastrophe readiness. In this single event, we responded to approximately 2,200 claims. Our claims and engineering teams acted quickly and efficiently to get our clients back into operation despite the extreme challenges associated with weather, lack of electrical power, trans-portation disruption and fuel shortage.

    We continued to perform well in the timely delivery of our insurance prod-uct. Despite the complexity of property insurance policies, 71 percent of our poli-cies were delivered before the effective date of the contract, and 95 percent within 40 days.

    A major achievement was the develop-ment of Affiliated FM Online, which will be introduced to our middle-market clients in 2013. This new extranet technology platform will strengthen our relationship with broker partners and clients, and it will serve as the foundation for the next genera-tion of FM Globals extranet, MyRisk.

    In another key initiative, we expanded the scope and use of the SimZone, our state-of-the-art training facility in Norwood, Mass., USA. In this unique setting, our en-gineers gain hands-on experience in a vari-ety of learning areas that simulate property hazards and real-world scenarios. In 2013, we plan to open the SimZone to our clients so that they also may take advantage of this powerful learn-by-doing method.

    Lastly, we have taken our knowledge, data and research expertise and combined it with current technologies, models and analytics. The results have led to major strides in risk assessment, risk improve-ment and client services. We believe this combination has tremendous potential for process improvement in the future.

    Executive Message

    Overall, our consolidated in-force premium grew by 8.6 percent

    to US$5.5 billion, the most growth weve attained since 2006.

  • 6 FM Global Annual Report 2012

    We also continued to receive third-party recognition of our products and services. The readers of Business Insurance maga-zine named FM Global the top commer-cial property insurer for service, expertise and overall performance. For the second consecutive year, Greenwich Associates ranked us number one for underwriting expertise, customer service and claims processing responsiveness. And, Global Finance magazine named us the worlds best supply chain risk insurance provider.

    2012 Premium TrendsFrom an industry perspective, after a string of extreme worldwide natural disasters, coupled with subpar investment returns in 2011, the insurance market-place fully expected pricing, terms and conditions of the commercial insurance marketplace to improve in 2012. How- ever, the lack of significant insured natural disasters and improved equity markets in the first half of the year damp-ened those expectations. Superstorm Sandy, which seemed to surprise the markets with the scope and breadth of

    its impact, caused the marketplace to re-vert to the environment that existed at the beginning of the year.

    Our consolidated gross in-force premium (excluding new business and net of lost business) grew by 2.1 percent, a favor-able result reflecting the strength of our client relationships. Given the relatively challenging economic conditions in Europe, premium growth from existing clients was greater in North America. The strength of our product offerings was reflected in our success with new business acquisitions. Premium in force from new client relationships grew by 6.5 percent, making this a standout year for new business. These results, too, were more successful in North America than in Europe. Overall, our consolidated in-force premium grew by 8.6 percent to US$5.5 billion, the most growth weve attained since 2006.

    Affiliated FM, positioned in the com-mercial property middle market, grew 9.7 percent to US$976 million. Correspond-

    ingly, our large commercial property business grew at a slightly slower rate, climbing 8.2 percent to US$4.3 billion. Combined, our middle market and large property lines represent 97 percent of our overall consolidated premium, with Mutual Boiler Re and FM Global Cargo representing the balance.

    Consolidated net premium earned grew to US$3.6 billion, or 5.2 percent, when compared with 2011 results that exclude the effect of the 2011 membership credit.

    Loss TrendsOur loss ratio for 2012 was 60.6 percent, significantly lower than our 95.9 percent loss ratio in 2011, but higher than in 2010 and 2009.

    The loss ratio from natural disasters and aggregations was 29.3 percent versus 52.3 percent in 2011, when we incurred one of the highest totals for both frequency and severity of insured losses from natu-ral disasters in our history. Nevertheless, Superstorm Sandy, accounting for 12.3

  • FM Global Annual Report 2012 7

    loss ratio points, has become our single largest aggregate net lossgreater than Hurricane Katrina in 2005 and the World Trade Center disaster on Sept. 11, 2001. More significantly, three of our largest net aggregate natural disasters occurred in 2011 and 2012. Superstorm Sandy was predominantly a flood event for our clients affected by the powerful storm, and it oc-curred in known flood-prone areas. Based on a review of our losses, our flood assess-ment, mitigation and risk-transfer process-es remain the same.

    Our risk loss ratio compared very favor-ably with last year at 27.7 percent versus 39.6 percent. Risk losses are predomi-nantly from fire and explosion. The fre-quency of large losses stayed the same, but the average size of the loss was less severe. The majority of risk losses con-tinue to occur at unsprinklered locations

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