Professional Documents
Culture Documents
.
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 Trends
From 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 signifcant insured
natural disasters and improved equity
markets in the frst 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 refecting 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 refected 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.
Affliated 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 Trends
Our loss ratio for 2012 was 60.6 percent,
signifcantly 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 signifcantly, three of our largest
net aggregate natural disasters occurred
in 2011 and 2012. Superstorm Sandy was
predominantly a food event for our clients
affected by the powerful storm, and it oc-
curred in known food-prone areas. Based
on a review of our losses, our food 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 fre 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
and disproportionately outside of North
America. Working cooperatively with our
clients to achieve risk improvement re-
mains a top priority. This is matched by
our long-term goal of greater regulatory
recognition of the benefts of property
conservation and the role of fre sprin-
klers in building codes and standards.
Expense Trends
As a provider of knowledge-based ser-
vices in a commodity marketplace, we
make it a priority to deliver high-quality
services while carefully managing our
expense ratio. Our expense ratio of 25.1
percent remained fat from 2011 and was
slightly higher when 2011 is adjusted for
the membership credit issued that year.
2012 was the frst full year of our for-
mal companywide process improvement
effort, led by a dedicated business pro-
cess improvement team. The team was
successful in establishing a systematic
approach to evaluating and improving
important processes in the company. One
of the keys to this success was the active
involvement of all the key stakeholders
of the process under review. We are very
optimistic that this will result in tangible,
permanent productivity gains while im-
proving our effectiveness.
Employee Trends
In 2012, we conducted an all-employee
survey with a response rate of 88 percent,
up from 82 percent in 2007, and an ex-
cellent participation rate by any measure.
Most gratifying was the level of conf-
dence and optimism our employees have
about the future of FM Global, our busi-
ness environment and our approach with
our customers. As with the 2007 survey,
we will develop action plans to address
the issues raised in the survey.
Our strong employee survey participation
rate refected our low, stable turnover rate
of 6 percent, coupled with average em-
ployee tenure of 14 years. The key to our
success is a combination of a stable group
of motivated employees and the avail-
ability of specifc training programs. In
2012, employees completed 9,000 days
of classroom training at an average cost
of US$1,500 per employee. In addition,
employees completed more than 38,000
hours of online training.
8 FM Global Annual Report 2012
Shivan S. Subramaniam
Chairman and Chief Executive Ofcer
Investments and Surplus
Our investment portfolio performed very
well. Both our equity and fxed income
portfolios exceeded their respective
benchmarks. The total portfolio returned
10.11 percent versus the benchmark
of 9.45 percent. Asset allocation was
stable, with an emphasis on liquidity.
These investment results, coupled with
our underwriting results, helped to in-
crease the surplus by 14.9 percent to
US$7.9 billion. Both A.M. Best and
Fitch reaffrmed our ratings at A+
and AA, respectively.
Governance
As a mutual company owned by our
policyholders, we value the governance
by our directors, eight advisory boards
and fve risk management executive
councils. We are thankful for their loyal
support. Graham Spanier, retired presi-
dent of the Pennsylvania State University,
resigned from our board in July 2012. We
thank him for his contributions.
Looking Ahead
The majority of our mutual policyhold-
ers are growing largely in locations out-
side their home countries and espe-
cially in the Asia/Pacifc region. Since
2008, insured locations measured by
their insured values grew 30 percent in
that region versus less than 3 percent in
the rest of the world. To better support
this growth rate and the needs of our
policyholders, we have created an Asia/
Pacifc division based in Singapore,
similar to our operating structure in
Europe and North America. We will be
building on our capabilities and expertise
in that region.
Our focus continues to be on develop-
ing and delivering effcient and effective
risk improvement solutions to our
policyholders across the world, while
providing stable risk-transfer solutions
that are compliant with local regulatory
requirements.
The dedication of our employees and
their commitment to our policyhold-
ers across the world are integral to our
success. We are deeply grateful for their
efforts. In 2013, we will be celebrating
50 years of providing global capabilities
to our clients, and we look forward to
continuing this tradition for many years
to come.
Financially, we achieved all our objectives, both in our
insurance operations and in the performance of our investments.
Corporate executives are taking a more active role in property risk manage-
ment. Changes in the global business landscape, the sharp increase in natural
catastrophes and the magnitude of supply chain risk have captured the atten-
tion of governing boards and the investment community. Physical risk is now
embedded in a complex manufacturing and distribution web, where every
strand is likely to lead to another interdependency and greater vulnerability.
When a property loss event occurs, the result may be costly to a companys
reputation, to its competitive advantage and to shareholder and customer
condence. In the following pages, senior leaders from four multinational
corporations discuss this changing dynamic at their organizations. We thank
them and their companies for their participation.
10 FM Global Annual Report 2012
Featured Clients
As one of the world leaders in bearing technology for more than
a century, SKF has developed a unique understanding of rotat-
ing equipment and how machine components and industrial
processes are interrelated. Today, SKF provides a wide range
of technologies and products to original equipment manufactur-
ers and aftermarket customers around the world, in more than
40 industries. With its knowledge in bearings and units, seals,
mechatronics and lubrication systems, SKF helps its customers
improve productivity and energy effciency, optimize designs
and reduce maintenance costs and time to market. Headquar-
tered in Gothenburg, Sweden, SKF has more than 46,000 em-
ployees and operates 140 sites in 32 countries. Its 16 technical
centers around the world, as well as established collaborations
with major universities and research institutes, allow SKF to
continuously develop new technologies that offer competitive
advantages to its customers. The company reported net sales
revenues of US$9.9 billion in 2012.
Celestica is dedicated to building end-to-end product lifecycle
solutions that drive its customers success. Its expertise in design
and engineering, electronics manufacturing and supply chain
management services allows Celestica to develop customized
solutions that drive product innovation, cost savings, supply
chain effciencies and improved time to market. With more than
30,000 employees in 14 countries throughout North America,
Asia and Europe, Celestica offers its customers a global network
that gives them the fexibility they need to respond quickly to
changes in end-market demand. Celesticas customers include
more than 100 original equipment manufacturers and some
of the biggest names in communications, consumer products,
aerospace and defense, industrial, alternative energy and health
care. Headquartered in Toronto, Canada, Celesticas 2012 rev-
enue was US$6.5 billion.
FM Global Annual Report 2012 11
The Cooper Companies is a global medical device company.
Its CooperVision business unit is one of the worlds leading
manufacturers of soft contact lenses with a strong heritage
of solving the toughest vision challenges. CooperVision
produces a full array of contact lenses, all featuring
advanced technology, materials and cutting-edge science. Its
CooperSurgical business unit is dedicated to improving
the delivery of health care to women, offering over 600 prod-
ucts for use in hospitals, womens health clinics, OB/GYN
offces and fertility clinics. Growing and expanding since its
inception in 1990, CooperSurgical has completed over 30
acquisitions. Headquartered in Pleasanton, Calif., USA, The
Cooper Companies has approximately 7,800 employees, gener-
ated over US$1.4 billion in revenue in fscal year 2012 and sells
products in over 100 countries.
FedEx pioneered the express delivery industry in 1971 and
now delivers an average of 9 million shipments a day through
its express, ground and freight operations. Headquartered
in Memphis, Tenn., USA, FedEx operates in more than
220 countries and territories and serves every address in the
United States. It has more than 300,000 team members, 90,000
motor vehicles and 660 aircraft serving 375 airports worldwide.
FedEx is more than just an express delivery company, pro-
viding its customers and businesses with a broad portfolio of
transportation, e-commerce and business services. Its website
receives 32 million unique visitors a month and 6.5 million
package tracking requests a day. It is consistently ranked among
the worlds most admired and trusted employers, and its annual
revenue reached US$43 billion in 2012.
12 FM Global Annual Report 2012
SKF
The cost of risk
improvement is marginal
when compared with the
cost of an expected loss.
Per Thorn, Group Treasurer
FM Global Annual Report 2012 13
O
ne way we protect our business
continuity at SKF is through
oversight provided by our internal
loss prevention board, whose members
include senior managers from all our
business areas. Thanks to the efforts of
this group, we have made signifcant
gains in risk improvement.
Globally, our biggest challenge was to
build a common understanding of what
is an acceptable level of riskbecause
the interpretation of risk severity can vary
from one location to the next. We have ad-
dressed this by working with FM Global
to establish a companywide policy that
defnes our risk tolerance level.
Education is a main driver of the policy.
For instance, we are educating employ-
ees on what I call the zero-costor hu-
man elementissues that require very
little capital investment and strengthen
our risk management competency. Fur-
thermore, our risk management team has
codifed our loss prevention standards.
To ensure these standards are adopted
universally, we have dedicated an inter-
nal engineering consultant to oversee
risk quality of new construction, includ-
ing all greenfeld sites, whether we are
building in Shanghai, India or Korea. For
example, our policy clearly states that
every greenfeld site is to be sprinklered.
What we know, through such vehicles as
FM Globals business impact analysis,
is that the cost of risk improvement is
marginal when compared with the cost
of an expected loss, particularly when
assessing supply chain vulnerability. By
putting it in such transparent terms, we
create a true awareness of risk.
At SKF, we hold our strategic suppliers
to the same standards we apply to our-
selves. FM Global is helping us by con-
ducting engineering visits at key supplier
locations. We dont hesitate to insist our
major suppliers improve their risk qual-
ity if necessary. It is a pragmatic business
decision for us, and for them.
By the same measure, our customers are
interested in what we are doing to prevent
loss. Our larger customers visit our plants
to verify we are meeting their criteria.
They cannot afford to have an interrup-
tion in their stream of goods. Their busi-
ness continuity depends on our reliability.
The standards we have in place help to
ensure our reliability is never in doubt.
certainty
about the quality of risk worldwide
14 FM Global Annual Report 2012
Celestica
A
s a provider of innovative supply
chain solutions, we recognize that
our customers expect more today.
They want us to help them anticipate
problems and proactively propose cre-
ative solutions to solve them. They want
us to share our expertise to help them
increase their fexibility and ensure
on-time delivery. Our strategy to drive
speed, fexibility and responsiveness
through our supply chain is critical to
our business and enables us to meet our
customer commitments in the event of
a disruption.
To minimize the risk of supply chain dis-
ruption, we diligently assess risks and
take action. Our policies and procedures
refect best practices on how to protect
our global sites, monitor our business
partners and respond to emergencies.
There is value in highly protected risk
(HPR) sites. Maintaining HPR status is
a competitive differentiator and demon-
strates our commitment to fawless
execution.
There are two ways to manage risk: you
can adopt good risk management prin-
ciples and you can transfer risk through
insurance. We focus on the former to
minimize the size and cost of the latter.
The program we have with FM Global
contributes to the success of our strategy.
Not only does FM Global help us with
risk assessments and improvements at
our current facilities, but they also assist
us with site selection and in the construc-
tion of new facilities.
The FM Global platform helps Celestica
identify what and where the risks are,
how they can be improved and how we
can educate the people in our network
on managing risk. By following this
course, we have already avoided poten-
tially steep food losses at a key location,
while reassuring our customers that due
diligence has been done on all new sites,
and that we will meet their expectations
for on-time delivery.
certainty
about supply chain continuity
To minimize the risk of supply chain
disruption, we diligently assess
risks and take action.
Jeff McConaghy, Vice President, Corporate Treasurer
The Cooper Companies
Risk mitigation is built into
our planning process. We
need world-class facilities to
achieve our long-term goals.
Carol Kaufman, Executive Vice President,
Secretary and Chief Administrative Ofcer
FM Global Annual Report 2012 17
certainty
W
e cannot afford to have a long-
term disruptionits not an
option for a global company
operating in a very competitive market-
place. Thats why weve put together
comprehensive business continuity plans
for our major sites and business units. We
realize that lost production equates to lost
sales, and I am not aware of any company
that can afford lost sales.
At Cooper, risk mitigation is built into
our planning process. We need world-
class facilities to remain competitive and
meet our long-term goals. It wasnt always
viewed this way. For many years, deci-
sions about insurance and risk manage-
ment were made entirely at the corporate
level, with no input from the operations.
That all changed with a merger that
nearly doubled the size of our com-
pany in 2005. We forged our relationship
with FM Global that same year.
And in certain respects, FM Global was
a game changer for us because they
provide insight and guidance to ensure
we are protecting our assets to the best
of our ability.
The transition is now complete. The
concept of loss prevention is now part
of our DNA. Operations management
are thinking about risk mitigation when
theyre doing their planning. During the
last two years, we also created an inter-
nal risk committee that has helped our
various business units understand the
importance of a robust business continu-
ity plan and how it can be the most vital
document you turn to when placed in the
path of a hurricane or in the aftermath of
an earthquake. Our board of directors and
executives are equally committed to pro-
tecting our assets, and their support has
been tremendous.
about asset protection
There is a pervasive spirit of partner-
ship within our organization and with
FM Global. Among the advantages of
working with FM Global are its stabil-
ity as a mutual company and the vast
array of resources it brings to loss pro-
tection. We ask FM Global to put on our
business hat and view the risk from our
vantage point. They have gone to great
lengths to get to know our people and our
business. Its led to strong communica-
tion and the understanding that we are in
this together.
18 FM Global Annual Report 2012
FedEx
L
ongevity and reliability are the cor-
nerstones of our relationship with
FM Global. Our working relation-
ship began in 1981, when FedEx was
much smaller than the US$43 billion
multinational enterprise it is today. As
FedEx has grown and become more com-
plex, FM Globals ability to support and
grow along with us has been invaluable.
A main attribute we provide to our cus-
tomers is access to the global economy.
We participate in supply chain and in
logistics fulfllment all around the world.
Continuity and reliability are fundamen-
tal to the promise we make to customers.
Consistently delivering on that promise is
fundamental to our mission, and has made
FedEx one of the most admired compa-
nies in the world. For us, its a question of
how to plan in advance to mitigate the im-
pact of disruptionswhich, in our busi-
ness, are inevitableand how to react
and adapt effectively during the events.
At the macro level, were always design-
ing resiliency into our global networks.
FM Globals role is to help us make sure
we are less vulnerable in terms of the
impact an event may have on our facili-
ties, particularly the major hub and sort
facilities around the world. Thats where
you can see the real tangible results of
our relationship.
A visible example is our Asia/Pacifc hub
in Guangzhou, China, one of our larg-
est hubs outside the United States. That
facility, which opened in 2009, is the cen-
ter point of our operations in the region.
It is also a model facility for property
protection. Working collaboratively on
design aspects and construction planning
with FM Global, we were able to take
an approach in China that mirrored our
approach in the United States. The result
was the development of a highly pro-
tected risk facility that will help us to
protect our people, our assets and our
brand. That is the brand promise we make,
and FM Global helps us to keep it.
certainty
about enterprise resilience
Continuity and reliability are
fundamental to the promise
we make to customers.
Mike Lenz, Corporate Vice President and Treasurer
20 FM Global Annual Report 2012
FM Global products and services are available around the world.
The countries listed below represent those where we regularly serve our clients:
Bahamas
Canada
Costa Rica
Dominican
Republic
El Salvador
Guatemala
Honduras
Jamaica
Mexico
Nicaragua
Panama
Trinidad
and Tobago
United States
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Paraguay
Peru
Uruguay
Venezuela
Albania
Algeria
Angola
Armenia
Austria
Azerbaijan
Bahrain
Belgium
Bosnia and
Herzegovina
Botswana
Bulgaria
Burkina Faso
Cameroon
Croatia
Cyprus
Czech Republic
Denmark
Egypt
Estonia
Finland
France
Gabon
Georgia
Germany
Ghana
Greece
Hungary
Iceland
Ireland
Israel
Italy
Jordan
Kazakhstan
Kenya
Kuwait
Kyrgyzstan
Latvia
Lebanon
Liechtenstein
Lithuania
Luxembourg
Macedonia
Madagascar
Malta
Montenegro
Morocco
Mozambique
Nambia
Netherlands
Norway
Oman
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
Senegal
Serbia
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
Tanzania
Tunisia
Turkey
Ukraine
United Arab
Emirates
United Kingdom
Australia
Bangladesh
Brunei
Cambodia
China
Hong Kong
India
Indonesia
Japan
Laos
Macau
Malaysia
New Zealand
Pakistan
Philippines
Singapore
South Korea
Sri Lanka
Taiwan
Thailand
Vietnam
North America South America Europe, Middle East and Africa Asia/Pacic
FM Global Around the World
FM Global Annual Report 2012 21
FM Global Group
In addition to the large-risk property business, the FM Global Group includes
a number of other key business operations. Several of those are described in this section.
Affliated FM is focused on commer-
cial middle-market property clients. The
companys value proposition is to pro-
vide innovative products and services
designed to protect clients assets, help
improve their operating reliability, reduce
their overall cost of risk and maintain
their proft and market share. The com-
pany markets its products and services
worldwide through a select network of
agents and brokers, providing underwrit-
ing expertise and property loss control
engineering tailored to meet specifc cli-
ent needs.
Affliated FM is committed to developing
strong relationships with its brokers and
clients through:
n
Superior commercial property
underwriting knowledge, expertise
and products
n
Customized property loss
prevention engineering programs
n
Responsive and effcient services in
a highly automated environment
n
Prompt, professional, fexible and
fair claims service
The Affliated FM product line includes
the all-risk proVision
policy, as well as
market-specifc policies for commercial
real estate accounts, condominium asso-
ciations, educational institutions, health
care facilities, manufacturing risks and
retail operations. The company also of-
fers a number of unique endorsements to
provide market-leading coverage for our
brokers and clients. Some examples:
n
BI Selectscenario-based fex-
ible business interruption coverage
that helps clients maximize business
interruption recovery
n
Green Coverage Endorsement
added coverage for clients wishing
to enact or maintain sustainable,
environmentally friendly business
and building practices
n
Risk Improvement
Endorsementcoverage after a
loss for physical improvements to a
clients location in accordance with
FM Globals Property Loss Preven-
tion Data Sheets
Recognizing that middle-market clients
are increasingly expanding operations,
Affliated FM continues to focus on pro-
viding a market-leading international pro-
duct offering through the proVision 360
global master policy program. This of-
fering provides seamless coverage for
the international exposures of clients by
using the master policy concept in con-
junction with legally admitted underly-
ing coverage from either the companys
international licenses or by utilizing the
FM Global WorldReach
partner network.
Affliated FM provides international ex-
pertise with a local presence. The orga-
nization has offce locations in Australia,
Canada, France, Germany, the Nether-
lands, the United Kingdom and throughout
the United States, and it offers coverage
in 60 countries. Leveraging streamlined
processing systems and a global network,
Affliated FM provides consistent world-
wide delivery of coverage, underwriting
and engineering products and services,
and claims management.
22 FM Global Annual Report 2012
FM Global Group
Mutual Boiler Re has provided boiler and
machinery insurance in North America
for 135 years, specializing in mechani-
cal, electrical and pressure systems
breakdown treaty reinsurance and sup-
port services to the commercial property
insurance marketplace. Today, it works
with more than 200 insurance companies,
providing broader and more competitive
coverage to policyholders. To meet the
growing demand for sustainable solu-
tions, Mutual Boiler Re introduced the
industrys frst green equipment break-
down endorsement.
Mutual Boiler Re fosters long-term treaty
relationships that help partner companies
develop new business opportunities and
retain their clients, from Main Street
business and commercial property own-
ers to farm owners and homeowners. The
company provides tailor-made coverage,
rate development, fling, underwriting and
claims support, and customized manage-
ment reports. Integral to the treaty agree-
ment is the provision of boiler and pres-
sure vessel jurisdictional certifcation,
which is carried out by commissioned
inspectors from FM Global. Through the
creation of customized training programs,
Mutual Boiler Re helps broaden its partner
companies knowledge of risk exposures.
By fostering a value proposition that
promotes customer advocacy, fexibility
and competitiveness, Mutual Boiler Re
has a leadership position in the specialty
market it serves.
FM Approvals is a leader in third-party
certifcation of property loss prevention
products and services. Industrial and
commercial companies around the
world know that products bearing the
FM APPROVED certifcation mark,
backed by more than 100 years of scien-
tifc research and leading-edge product
testing, conform to high standards. The
companys globally recognized expertise
spans more than 500 categories of prod-
ucts and services, including roofng and
building material, cleanroom material, and
electrical and fre protection equipment.
FM Approvals offers complimentary on-
line resources dedicated to property loss
prevention.
FM Global Annual Report 2012 23
SM
FM Global Cargo provides innovative,
comprehensive and fexible cargo
insurance coverage, automated certif-
cate management, and risk engineering
services tailored to the international
trade and transportation needs of global
businesses. The all-risk cargo policy pro-
tects the full value of cargo throughout
a clients product distribution network.
Focused risk engineering services help
clients understand the hazards that threat-
en their supply chain or major project
shipments and determine cost-effective
loss prevention solutions.
Corporate Insurance Services (CIS) is
FM Globals wholly owned brokerage
operation, maintaining relationships with
a variety of U.S. domestic insurers,
Lloyds of London, excess and surplus
lines insurers, and specialty compa-
nies. CIS provides access to markets for
perils, coverage and/or capacity not
readily available through FM Global or
Affliated FM. (CIS coverage is tailored
to meet FM Global policyholders
insurance requirements.) CIS policy
options include all-risk, earthquake,
food, wind, MFL capacity, inland ma-
rine, ocean marine and other lines.
TSB Loss Control Consultants, LLC, is
an emergency services training organi-
zation providing comprehensive training
for emergency response personnel and
those responsible for organizing, manag-
ing and/or directing emergency response
activities. The company, founded in 1971
and based in Rome, Ga., USA, provides
specialized training at its own 328-acre
(132-hectare) loss control training center
and on-site to personnel from industrial
fre brigades, hazardous materials emer-
gency response teams, technical rescue
teams, emergency medical services,
municipal fre services and other pro-
fessionals responsible for emergency
response in industry and municipalities.
Investment Report ......................................................................................... page 26
Managements Statement on Internal Control
Over Financial Reporting ............................................................................... page 28
Report of Independent Auditors .................................................................... page 29
Consolidated Balance Sheets ........................................................................ page 30
Consolidated Statements of Operations ........................................................ page 31
Consolidated Statements of Comprehensive Income/(Loss) ......................... page 32
Consolidated Statements of Changes in Policyholders Surplus ................... page 32
Consolidated Statements of Cash Flows ....................................................... page 33
Notes to Consolidated Financial Statements ................................................ page 34
Financial Information
26 FM Global Annual Report 2012
All nancial gures in U.S. dollars.
Investment Report
Global stock and bond markets performed well in 2012, despite lackluster global economic expansion and
political uncertainties. Two primary factors drove the markets move higher. First, aggressively accommodative
monetary policy in the U.S. and Europe resulted in downward pressure on interest rates, beneting nancial
asset valuation and economic expansion potential. Second, corporate prots and cash ow have remained a
positive factor, enabled by productivity gains and effective management of costs. The primary challenge remains
the scal imbalances in the U.S. and Europe, with government debt levels generally viewed as unsustainably
high, and the need for tax increases/spending cuts a potential depressant to economic activity.
FM Globals investment positions and returns by asset class are shown on page 27. Return on total assets was
10.11 percent compared to the benchmark return of 9.45 percent. Relative outperformance was achieved in
both the stock and bond categories. There was some offset from a relatively high cash balance, held partly as a
conservative funding source for operating cash outows due to the high natural catastrophe losses experienced
in 2011.
Return on FM Globals equity portfolio was 17.05 percent, compared to a 16.00 percent return in the S&P 500 and a
16.10 percent return on the equity benchmark (a blend of 89 percent S&P 500 and 11 percent MSCI world ex. U.S.).
The outperformance was the result of moderate overweights in some of the less defensive sectors of the market
(a positioning which detracted from returns in the risk-averse market of 2011). Specically, results beneted from
overweighted positions in technology and in the banking sector, along with an underweighted position in defen-
sive electric utilities. The primary negative sector exposure was a moderate overweight to the energy sector,
which underperformed due to lower energy commodity prices, which in turn reected supply factors including
improved natural gas production technologies.
Turning to the debt securities portfolio, FM Globals internally managed high-grade debt portfolio returned 5.50
percent versus the Barclays index benchmark return of 4.40 percent. Outperformance was driven by an over-
weight to non-U.S. government debt sectors, which beneted from tighter interest rate spreads. Similar to
sentiment change in the equity market, investor sentiment in xed income also became somewhat more opportu-
nistic in 2012, compared to the very risk-averse attitude which characterized 2011. This shift is also apparent in the
16.48 percent return of the externally managed high-yield debt portfolio. As is generally the case, FM Globals xed
income duration was a neutral factor (with the internal portfolio duration at 4.1 years, very close to the benchmark
4.2 years), reecting the ongoing strategy of value added through bottom-up security and sector positioning.
In addition to providing functional support to FM Globals business operations, the real estate group manages
4.6 million ft. (430,000 m) of investment properties. These real property assets provide an additional element
of portfolio diversication. They also provide a cost-effective approach in meeting FM Globals ongoing real estate
needs, while enhancing the value of its properties. For 2012, commercial properties produced $86.7 million in
revenue and $25.1 million in cash ow.
FM Global Annual Report 2012 27
All nancial gures in U.S. dollars.
Rates of Return 2012 Portfolio Benchmark
Total portfolio 10.11% 9.45%
1
Debt securities
Investment-grade taxable bonds 5.50% 4.40%
2
Municipal bonds* 6.04% 5.65%
3
High-yield bonds 16.48% 15.55%
4
Equity securities total 17.05% 16.10%
5
Internal portfolio 16.76% 16.00%
6
External portfolios**
U.S. portfolios 15.72% N/A
International portfolios 20.23% 16.83%
7
1
Weighted S&P 500 Plus Global Stock Index, Barclays Index, T Bill
2
Custom Barclays Index
3
Barclays Muni 2-12 Year
4
Merrill Lynch U.S. High-Yield Master II Constrained Index
5
S&P 500 Index (89%) plus MSCI All World ex. U.S. (11%)
6
S&P 500
7
MSCI All World ex. U.S.
* Taxable equivalent return.
** Primarily smaller sized companies.
Pretax Contribution to Surplus (in millions)
2012 2011
Investment income $ 297.5 $ 292.3
Realized gains/(losses) 334.4 297.1
Unrealized gains/(losses) 389.2 (258.9)
$ 1,021.1 $ 330.5
As of December 31 2012 2011
Holdings (in millions)