OREANDA-NEWS. Fitch Ratings has affirmed the 'AA' Insurer Financial Strength (IFS) ratings of Factory Mutual Insurance Company (Factory Mutual) and its affiliates (collectively FM Global). 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 results in 2014 were strong as the company reported a GAAP combined ratio of 79.4%. Results include \$437 million of membership credits that were paid to policyholders during the year, which added 8.5 percentage points to the company's calendar year combined ratio. These reported underwriting results drove the company's strong reported net earnings of \$956 million, producing a 9.4% net return on surplus for the year.

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 2014 were 87.1% and 82.4%, 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.

FM Global's capital position is very strong. Underwriting gains and unrealized investment gains led to a 9.5% increase in GAAP policyholders' surplus to \$10.6 billion as of year-end 2014. The company continues to utilize operating leverage that is within targets for the current rating. As of Dec. 31, 2014, 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.

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'.