Ratings Recap: FM Global (UK), Tapiola

September 26, 2011

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of ‘aa’ of UK-based FM Insurance Company Limited (FMI). The outlook for both ratings remains stable. The affirmation of the ratings reflects FMI’s “excellent stand-alone risk-adjusted capitalization, as well as the explicit and implicit support the company receives from its parent, Factory Mutual Insurance Company and the wider FM Global Group,” Best explained. “FMI is expected to maintain excellent stand-alone risk-adjusted capitalization, in spite of its volatile performance. The company’s parent has a track record of providing capital support, most recently demonstrated by a £30 million [$46.3 million] capital injection in August 2011. In addition, FMI benefits from the support of the FM Global Group in the form of extensive reinsurance protection and a policy level financial guarantee.” However, Best also indicated that for 2011, “FMI is expected to report an underwriting loss, reflecting exposure to natural catastrophes in Japan, New Zealand and Australia. In recent years the company’s technical results and investment returns have been volatile, due to its exposure to high severity low frequency underwriting losses and the high proportion of equities in its investment portfolio (65 percent of total investments as at year-end 2010). Through its membership in the FM Global Group, FMI has a distinctive business profile as a leading insurer of highly protected risks within the commercial property market. FMI is an important part of the FM Global Group as it serves the group’s clients outside of North America. FM Global Group’s competitive position in its core markets is supported by the professional property engineering expertise and loss prevention services it provides to its clients.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of ‘aa’ of UK-based FM Insurance Company Limited (FMI). The outlook for both ratings remains stable. The affirmation of the ratings reflects FMI’s “excellent stand-alone risk-adjusted capitalization, as well as the explicit and implicit support the company receives from its parent, Factory Mutual Insurance Company and the wider FM Global Group,” Best explained. “FMI is expected to maintain excellent stand-alone risk-adjusted capitalization, in spite of its volatile performance. The company’s parent has a track record of providing capital support, most recently demonstrated by a £30 million [$46.3 million] capital injection in August 2011. In addition, FMI benefits from the support of the FM Global Group in the form of extensive reinsurance protection and a policy level financial guarantee.” However, Best also indicated that for 2011, “FMI is expected to report an underwriting loss, reflecting exposure to natural catastrophes in Japan, New Zealand and Australia. In recent years the company’s technical results and investment returns have been volatile, due to its exposure to high severity low frequency underwriting losses and the high proportion of equities in its investment portfolio (65 percent of total investments as at year-end 2010). Through its membership in the FM Global Group, FMI has a distinctive business profile as a leading insurer of highly protected risks within the commercial property market. FMI is an important part of the FM Global Group as it serves the group’s clients outside of North America. FM Global Group’s competitive position in its core markets is supported by the professional property engineering expertise and loss prevention services it provides to its clients.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of ‘a’ of Finland’s Tapiola General Mutual Insurance Company (also known as Keskinainen Vakuutusyhtio Tapiola. The outlook for both ratings is stable. In addition Best noted that “despite its recent weak technical performance in 2010, Tapiola General is expected to maintain an excellent stand-alone risk-adjusted capitalization in 2011. The company’s balance sheet strength is enhanced by its substantial claims equalization reserve (€532 million [$719 million] at year-end 2010), which Tapiola General is required to keep at a level consistent with its risk profile and solvency requirements, in accordance with Finnish insurance regulations.” Best also indicated that Tapiola General “reported a technical loss of €89.7 million [$121.2 million]” in 2010 “owing to a sharp increase in the frequency and the severity of claims across its major lines of business. For the first six months of the year, Tapiola General made a profit of approximately €10 million [$13.52 million]. The company’s half-year 2011 results have shown some improvement from 2010 supported by more favorable loss experience across most lines of business.” In addition Best said the company “anticipates a profit in excess of €20 million [$27 million] for year-end 2011.”The report also pointed out that Tapiola General “continues to take measures to improve its risk selection process and technical performance; nevertheless, rating conditions remain competitive within the Finnish non-life insurance market. Tapiola General maintains an excellent business profile as the largest mutual insurer in Finland. The company has a market share of approximately 20 percent in Finland, corresponding to gross written premiums of €692 million [$935 million] in 2010.” Best also said it expects Tapiola General’s premium income “to remain stable in 2011 as the company focuses on maintaining underwriting discipline and improving its technical performance. Tapiola General continues to benefit from additional revenues and cross-selling opportunities offered by its banking subsidiary, Tapiola Bank Ltd, which specializes in retail banking services and housing mortgage lending.”

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