Increasing Cost Effective Insurance And Risk Relocate Resolution

Published Date: 02 Nov 2017

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Background and History

FM Global provides inclusive global marketable and business possessions insurance, engineering-driven endorsement and risk management resolutions, revolutionary property thrashing anticipation investigate and punctual, specialized claims management. As a shared company our goods and services straight sustain our clients generally risk management objectives throughout:

Considerate the environment and certainty of their explicit risks.

Creating sound loss avoidance resolution that uphold alongside loss.

Increasing cost-effective insurance and risk relocate resolutions reversed by great, steady capacity.

Provide the claims and loss alleviation sustains to diminish business commotion.

Mission

We strive to develop cost-effective insurance and risk financing solutions that protect the value created by our clients’ businesses worldwide through: 1. Risk identification and Assessment 2. Risk Avoidance and Reduction 3. Risk Acceptance and Transfer.

Business

FM Global provides insurance solutions and property loss prevention engineering for worldwide property exposures through a single point of contract. FM Global offers products and services that can overcome global risk management challenges and accommodate all commercial property insurance and protection needs.

Introduction

FM Global has been on the forefront of innovation since 1835, paving the way for many industry firsts. The milestones displayed here have helped established FM Global as a market-leading property insurance company with office all over the world.

1835: Led by Zachariah Allen, a group of mill owners form their own mutual fire insurance company known today as Factory Mutual Insurance Company, which conducts business as FM Global. The first policy is issued for US$2,500. The cost of coverage is 84¢ per US$ 100 of insurance.

1836: The first loss is incurred – US$36 at a cotton manufacturing facility.

1862: A dividend of 100 percent is paid to policyholders.

1877: The first insured in Canada and outside the United States is acquired.

1881: FM Global launches the blanket policy, which combines coverage for buildings with coverage for contents in a single policy, per each location. More, importantly, it ensures adequate coverage evolves into the total insured value (TIV) approach, still used today.

1884: The first important tests on automatic sprinklers mark the beginning of applied fire research and the milling industry embraces the value of automatic sprinkler systems.

1886: Formalized product testing begins to take shape when the first laboratory in the United States and possibly the world devoted to the study of fire protection devices is developed. Today, these efforts continue in the work performed by FM Approvals.

1890: Pamphlets containing recommended fire protection engineering guidelines are sold to the public. Today, G\FM Global Property Loss Prevention Data Sheets help prevent property loss due to fire, weather and equipment failure, and are available online at no charge to the public. Recorded weekly inspections for every mill insured by the company are begun. In addition, valves are sealed open and the use of post indicator valves is recommended.

1897: Approved Electrical Fittings is published and eventually into the Approval Guide, an online resource of more than 50,000 FM Approved products.

1910: Thanks to the introduction of the automatic sprinkler, insurance costs just 10¢ per US$100 of coverage 74¢ less than in 1835.

1913: The Red Tag Permit System is introduced to combat the problem of improperly closed sprinkler valves. This system is still used today.

1916: FM Global’s first research facility designated for fire testing is established on the grounds of a farm in Woburn, Mass., USA.

1920: Policy coverage is consolidated, eventually leading to the introduction of a single policy in 1933 that covers all of an insured’s locations for fire and extended coverage.

1922: FM Global’s fire test facility is moved to a client site in Everett, Mass., USA.

1937: The first cutting and welding safety campaign is launched, introducing a welding permit for use by clients. The system, with some modifications, continues today as the FM Global Hot Work Permit System.

1944: Replacement value insurance is pioneered, providing insured’s with coverage for the cost of rebuilding, rather than just the actual cash value.

1949: Affiliated FM Insurance Company is formed to write insurance on policyholder property that is not considered highly protected risk (HPR). Initially, the company writes just fire and extended coverage, but later moves into multiples peril lines, including inland marine, manufacturer’s output, ocean cargo, personal lines and casually business, which also comprise boiler and machinery.

1953: The spray or standard, sprinkler is introduced the greatest advance in fire protection in 50 years.

1963: FM Insurance Company Limited is established in England to service policyholders based in Canada and the United States who also have facilities in other parts of the world. Later, insurance and loss prevention services are provided to property owners based outside North America as the company continues to expand its network of insurance licenses and service offices around the world. Today, a World Reach partner network established to meet the needs of a growing base of multinational clients helps ensure seamless service delivery worldwide.

1964: FM Global develops a single policy for fire, boiler and machinery and other extended coverage. This is the first time boiler and machinery insurance is provided together with fire and extended coverage in the FM Global policy. Since then, FM Global has become the largest underwriter of boiler and machinery coverage in Canada and the United States, and is a leader in the field of boiler and machinery loss control.

1967: The Test Center opens in West Glocester, R.I., USA, allowing for realistic testing, including rack-storage fires, for the first time. These full-scale testing capabilities ultimately lead to many new property loss prevention breakthroughs, such as the development of in rack sprinklers, which are still influential today.

1977: In response to a growing threat facing clients, FM Global establishes a fund to fight arson. This effort continues today through the FM Global Fire Prevention Grant Program.

1979: A dedicated site is established at the Test Center to further the advancement of gas-phase explosion research. In 2010, a series of improvements enhances capabilities, resulting in the unique ability to perform real-scale testing of explosion protection systems.

1981: The fire products collector, the first method of measuring large fire characteristics in the world, is introduced and validated at the Test Center.

1982: FM Global introduces the first all-risk policy, providing even more comprehensive property coverage for policyholders. Today, the FM Global all-risk policy is known as the FM Global Advantage.

1983: From 1983 to 1989, the early suppression, fast-response (ESPR) sprinkler is developed and FM Approved. ESPR sprinklers allow for more cost-effective protection of high-hazard material and for higher storage of material.

1995: A water-mist system is FM Approved for protection of combustion turbines in certain enclosures. Water-mist systems have since been FM Approved for widespread applications.

1997: Approval Standard 4910 for clean room material is developed and released. As a result, the hazards at semiconductor fabrication facilities are dramatically reduced through the use of FM Approved material.

1999: The remaining three Factory Mutual System insurance companies, along with their jointly owned engineering and research operation join together to form Factory Mutual Insurance Company which does business as FM Global.

2001: The first membership credit results in an unprecedented collective reduction of premium in the amount of US$237.5 million to policyholders.

2003: FM Global Research Campus opens. It is the world’s most sophisticated center for advancing the science of property loss prevention and houses the first test volume calorimeter with the ability to accurately characteristics the energy output of a full-scale sprinkle red fire. The campus comprises four distinct laboratories. Electrical Hazards, Fire Technology, Hydraulics and Natural Hazards.

2004: FM Global becomes the first property insurer to receive the United Kingdome’s prestigious Queen’s Award for Enterprise in recognition of outstanding achievement in the area of international trade.

2006: New methods are developed and applied in hurricane catastrophe models that use engineering data for improved risk assessment and to reflect risk improvement.

2008: A large-scale scientific computer capable of 2.7 trillion calculations per second is acquired to perform calculations of coastal flooding and fire dynamics as part of an international collaboration with universities and government research labs.

2009: Continuing to respond to the needs of its global clients. FM Global strategically positions itself in emerging markets around the world by strengthening its long-standing presence in two countries – first by establishing an insurance subsidiary, FM Global de Mexico, and then opening a representative office in China. FM Global de Mexico is the first insurance subsidiary established since FM Insurance Company Limited in 1963. FM Global relocates to its new Leadership in Energy and Environmental Design (LEED) Gold Corporate offices, dedicated Sept. 17, 2009.

2010: FM Global celebrates 175 years of innovation, partnership and risk management.

2. Cash Flow Statement

The cash flow statement reports the cash produces and used during the time interval particular in its caption. The period of time that the declaration covers selected by the company. The cash flow statements organize and reports the cash generated and used in the following categories:

Operating activities – translates the items detailed on the income statement from the increase source of secretarial to cash.

Investing activities – reports the buy and sale of long-term investments and goods, plant and tools.

Financing activities – reports the issuance and repurchase of the company’s own bonds and stock and the payment of dividends.

Formula

2010

2011

2012

0.070669

0.119737

0.154726

0.051182

0.072366

0.098017

CASH FLOW STATEMENT:

2012

2011

2010

Operating Activities

Net Income

$ 774,400

$ (41,500)

$ 686,600

Adjustment to reconcile net income to net cash provided by operating activities:

Decrease/(increase0 in reserves in premium receivable

40,000

(108,500)

107,300

(Decrease)/increase in reserves for unearned premium

107,400

219,100

(18,800)

Increase/decrease in unpaid losses and loss adjustment expenses

(431,700)

1,483,100

158,100

(Increase)/decrease in recoverable from reinsurers

(115,200)

(801,700)

(49,600)

Change in current and deferred income taxes

229,900

(146,200)

268,000

Net realized investment gains

(334,400)

(297,100)

(196,100)

Decrease/(increase) in prepaid reinsurance premium

10,500

(82,800)

58,700

Other

183,900

(152,400)

(228,100)

Net cash provided by operating activities

464,800

72,000

786,100

Investing activities

Net (purchases)/sales of short-term investments

123,400

14,300

(38,800)

Purchases of debt and equity securities

(3,533,700)

(2,928,500)

(3,095,600)

Sales and maturities of debt and equity securities

3,212,700

3,202,200

2,244,500

Capital expenditures

(98,800)

(71,600)

(22,800)

Other

52,100

(34,300)

19,700

Net cash used in investing activities

(244,300)

182,100

(893,000)

Decrease in cash and cash equivalents

220,500

254,100

(106,900)

Cash and cash equivalents at beginning of year

611,200

357,100

464,000

Cash and cash equivalent at end of the year

$ 831,700

$ 611,200

$ 357,100

Life Cycle

The product life cycle is defined as the period that creates with the opening manufactured goods design and trimmings with the extraction of the product from the market. It is characterize by precise stages, counting research, expansion, foreword, development, refuse and lastly obsolescence as the produce is indifferent from the market (terminated). Each phase is often associated with transforms in the flows of raw materials, divisions and allocation to markets as invention is accustomed to face growing opposition. Conservatively, four main stages create a product’s life cycle:

Introduction: This stage largely concerns the growth of a new product, from the time is to begin with conceptualized to the position it is initiated on the market. The huge mainstreams of thoughts do not achieve the support stage. The business having an inventive idea first will often have a period of domination until participants create to copy and advance the product. Normally, connected freight flows take place within industrial countries and secure to markets where to product is probable to be approved.

Growth: If the new manufactured goods is successful, sales will create to produce and new participants will enter the market (by replicating the manufactured goods or increasing new features on their own), gradually corroding the market share of the modern firm. The produce starts to be sell abroad to other markets and considerable hard work are completed to progress its allocation because rivalry mostly takes place further on the pioneering abilities of the product than on its worth. This stage tends to be related by high levels of profits and a fast dissemination of the product.

Maturity: At this stage, the manufactured goods have been consistent, is broadly accessible on the market and its allocation is well recognized. Rivalry more and more takes place over cost and an increasing share of the manufacture is enthused to low cost locations, mainly for labor concentrated parts. Related freight flows are accordingly customized to contain a greater international measurement.

Decline: As the product is attractive outmoded, manufacture fundamentally takes place in low costs locations. Production and allocation economies are energetically required as profit margins refuse. Ultimately, the product will be leaved, an affair that characters the finish of its life cycle.

The fact engineers and managers at FM Approvals have demonstrated to us a very deep level of technical competency and expertise, and that a commitment has been made by FM Approvals at the highest levels are what really matter.

3. PROFITABILITY ANALYSIS

Profitability analysis is an element of enterprise resource planning (ERP) that tolerates managers to project the productivity of a suggestion or optimize the effectiveness of an obtainable project. Profitability analysis can expect sales and profit possible precise to features of the marketplace such as customer age groups, geographic areas or product types.

 In thousands

EQUATION

2010

2011

2012

Net Profit Margin %

Net Income/ Revenue in %

19.83%

1.14%

19.06%

 

 

Return on Assets

Net Income / Total Assets in %

4.82%

0.27%

4.72%

 

 

Return on Equity

Net Income / Total Equity in %

6.43%

0.40%

6.77%

 

 

Earning Power

EBIT / Total Assets

0.068

0.007

0.069

 

Leverage

Total Assets / Equity

1.33

1.47

1.434

 

 

Assets Turnover

Revenue / Total Assets

0.048

0.24

0.2478

 

 

 

 

 

HORIZONTAL ANALYSIS

Horizontal analysis focuses on trends and changes in financial statement items over time. Beside with the dollar amounts accessible in the financial statements, horizontal analysis can assist a financial statement customer to see qualified changes over time and recognize encouraging or possibly disturbing trends.

We will use the income statement shown on below figure to explain how one might prepare a three year horizontal analysis:

Horizontal Analysis

Comparative Income Statement of FM GLOBAL

(in thousands of US dollars, except earnings per share data)

 

2010

2011

2012

Revenue

$3,462,300

$3,647,300

$4,061,700

Cost of Goods Sold

2,680,000

3,239,100

3,265,000

Gross Profit

782,300

408,200

796,700

Operating Expenses

95,700

366,700

22,300

Net Income/Loss

686,600

41,500

774,400

In one horizontal analysis approach, a base year is selected and the dollar amount of each financial statement item in subsequent years is converted to a percentage of the base year dollar amount.

Horizontal Analysis of Income statement

(in thousands of US dollars, except earnings per share data)

 

2010

2011

2012

Revenue

$3,462,300

100%

$3,647,300

5%

$4,061,700

10%

Cost of Goods Sold

2,680,000

100%

3,239,100

17%

3,265,000

1%

Gross Profit

782,300

100%

408,200

-91%

796,700

49%

Operating Expenses

95,700

100%

366,700

74%

22,300

-15%

Net Income/Loss

686,600

100%

41,500

-16%

774,400

95%

Some interesting trends can be noted from this analysis. The dollar amounts and percentages for each financial statement item in each year, but the trends for each item differed.

VERTICAL ANALYSIS:

Vertical analysis sometimes is referred to as "common-size analysis" because all of the amounts for a given year are converted into percentages of a key financial statement constituent.

Vertical or common-size analysis allows one to see the composition of each of the financial statements and determine if significant changes have occurred. We will use the balance sheet information here to explain how one might prepare a three year vertical analysis.

After each year’s total asset amount is set as 100 percent (or total liabilities plus stockholders’ equity, since the amounts must balance), the various account’s dollar amounts are converted to a percentage of the total assets.

Vertical Analysis

BALANCE SHEET AS ON DECEMBER 31 OF FM GLOBAL

(In thousands of US dollars, except share amounts)

 

2010

2011

2012

Investments

$5,053,100

$5,104,500

$5,375,300

Equity Securities

4,834,600

4,416,900

4,989,900

Other Securities

438,800

533,500

611,000

Real Estate

348,800

376,200

453,000

Total Investments

10,675,300

10,431,100

11,429,200

Cash and cash equivalents

357,100

611,200

831,700

Recoverable from reinsurers

1,209,700

2,011,400

2,126,600

Premium receivable

570,300

678,800

638,800

Prepaid reinsurance premium

243,100

325,900

315,400

Premises and equipment

354,500

344,400

323,700

Other Assets

848,200

925,900

726,700

Total assets

14,258,200

15,328,700

16,392,100

 

Unpaid losses and loss adjustment expenses

3,693,400

5,176,500

4,744,800

Reserve for unearned premium

2,044,700

2,263,800

2,371,200

Current and deferred income taxes

456,500

267,200

488,800

Other liabilities

782,500

738,400

880,500

Total liabilities

6,977,100

8,445,900

8,485,300

Accumulated other comprehensive income

939,000

582,200

831,800

Retained earnings

6,342,100

6,300,600

7,075,000

Total policyholders' surplus

7,281,100

6,882,800

7,906,800

Total liabilities and shareholders' equity

14,258,200

15,328,700

16,392,100

When the calculation is complete, the sum of the percentages for the individual asset accounts must equal 100 percent. The sum of the percentages for the various liability and equity accounts also will equal 100 percent (see below figure):

VERTICAL ANALYSIS OF BALANCE SHEET AS OF DECEMBER 31

(in thousands of US dollars, except share amounts)

 

2010

%

2011

%

2012

%

Investments

$5,053,100

35.44

$5,104,500

33.3

$5,375,300

32.79

Equity Securities

4,834,600

33.908

4,416,900

28.81

4,989,900

30.44

Other Securities

438,800

3.0775

533,500

3.48

611,000

3.727

Real Estate

348,800

2.4463

376,200

2.454

453,000

9.547

Total Investments

10,675,300

 

10,431,100

 

11,429,200

 

Cash and cash equivalents

357,100

2.5045

611,200

3.987

831,700

5.074

Recoverable from reinsurers

1,209,700

8.4842

2,011,400

13.12

2,126,600

12.97

Premium receivable

570,300

3.9998

678,800

4.428

638,800

3.897

Prepaid reinsurance premium

243,100

1.705

325,900

2.126

315,400

1.924

Premises and equipment

354,500

2.4863

344,400

2.247

323,700

1.975

Other Assets

848,200

5.9489

925,900

6.04

726,700

4.433

Total assets

14,258,200

100

15,328,700

100

16,392,100

100

 

Unpaid losses and loss adjustment expenses

3,693,400

25.904

5,176,500

33.77

4,744,800

28.95

Reserve for unearned premium

2,044,700

14.341

2,263,800

14.77

2,371,200

14.47

Current and deferred income taxes

456,500

3.2017

267,200

1.743

488,800

2.982

Other liabilities

782,500

5.4881

738,400

4.817

880,500

5.371

Total liabilities

6,977,100

 

8,445,900

 

8,485,300

 

Accumulated other comprehensive income

939,000

6.5857

582,200

3.798

831,800

5.074

Retained earnings

6,342,100

44.48

6,300,600

41.1

7,075,000

43.16

Total policyholders' surplus

7,281,100

 

6,882,800

44.9

7,906,800

48.24

Total liabilities and shareholders' equity

14,258,200

100

15,328,700

100

16,392,100

100

Since total revenues usually are set at 100 percent, vertical analysis of the income statement essentially shows how many cents of each sales dollar are absorbed by the various expenses.

The analysis is more meaningful when the percentages are compared with competitors’ or industry averages or for a long period of time for one company. However, if some unreasonable fluctuations are noted for one company over time and/or the percentages are significantly different from industry averages, the possibility of fraudulent financial reporting should be considered.

4. Analysis of debt with ratios

 

Formula

2010

2011

2012

Gearing Ratio

Long-term Debt/(Long-term Debt+Equity)

0.489333

0.536108

0.518591

Interest Coverage Ratio

EBIT / Interest Expense

3.352981

1.596264

3.171012

5. Liquidity analysis

 

Formula

2010

2011

2012

Current Ratio =

Current Assets / Current Liabilities

2.043571

1.814928

1.931823

Acid-Test Ratio =

(Current Assets - Inventory) / Current Liabilities

0.513523

0.579879

0.584882

6. All analysis to conclude it is good to invest or not

It may be impossible to eradicate all risk, but it is possible to manage it. When it come to investment of capital, decisions need to be made been challenging for most organizations. Challenges on the basis of facts and defensible logic rooted in reliable and consistent analysis like the recession, currency and sovereign debt have FM Global’s role is to assist in making these business decisions to put the risk management most multinational companies. Insurer is to ensure that whelming and they certainly put intense pressure on our client gets the biggest bang for their risk management buck capital expenditure budgets.

From a high level, risk management is about make face of many capital demands, to assist us inning good business decisions, and the key to making a decision to expand capital is to base prioritizing where to spend most effectively that decision on real business needs. That means either developing new income or preserving. Some risk executives often go right to existing income or preserving. FM Global’s desire is to part cost-effective with our clients risk management to implement our services in tailored way that allows them to make great business decisions commanding risk.

7. Conclusion:

Effective understanding and management of the most critical risks allows FM Global to make large capacity available to satisfy our clients property insurance coverage needs.

The global consistency of loss prevention advice and insurance services reflects the experience employees have acquired, the knowledge they have retained and their ability to apply this knowledge for the benefit of our clients.

The Company considered the duration and severity of the decline as well as the near term prospects of the insurer. The Company believes these securities will appreciate over time and the Company has the ability and intent to hold these securities until such time.

8. Forecast, Estimate and Expect

The exclusive research and testing abilities of FM Global make certain constant and up-to-date loss anticipation engineering standards. Regular on-site evaluations, collective with our risk analysis knowledge, supply a perfect measurement of possible loss and its impact.

The Company loss prevention and control knowledge offers trustworthy, systematically based resolutions that go outside insurance to force the cost of risk equation. We help customers select the best options perform them and manage change.

A clear appraisal of fundamental risk will help conclude whether to believe or relocate risk. When relocating risk, FM Global is the perfect hauler because of its financial strength, enthusiasm to pay maintains and capability to offer a capacity obligation with proven reliability.

The driving force behind all the products and services is the innovative research and testing accomplished by our world well-known scientists and property loss anticipation engineers. They frequently proceeds loss prevention practices and set up new industry standards through state of the art research and testing enabling FM Global to create modified loss-prevention resolutions and strategies that meet risk acceptance levels and production needs.