FM Global 2011 Annual Report - [PDF Document] (2024)

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prepare. protect. restore. are. protect. restore. prep t. prepare. restore. prepar otect. prepare. protect. re re. protect. restore. prepa pare. restore. prepare. pr prepare. protect. restore. protect. restore. prepare. restore. prepare. protect.

P12000 Printed in USA © 2012 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 2011

Nearly 80 percent of this book is made from alternative fiber choice paper that is derived from cotton, bamboo or sugarcane bagasse, rather than from trees. A percentage of paper from this report is recycled and certified elemental chlorine-free.

PLEASE RECYCLE

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Report Contents

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

Reducing Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 11

Protecting Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 15

Restoring Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 19

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 23

The FM Global Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 24

FM Global Around the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 26

Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 27

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .page 59

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.

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The unprecedented losses from natural disasters that occurred throughout the world in 2011 had a significant impact on our industry, our company and our clients. Virtually every natural disaster occurred in urban areas, and our clients had loca-tions in every one of them. On an aggregate basis, 2011 losses incurred from these disasters were the largest in our history,

exceeding our 2001 loss experience resulting from the World Trade Center attacks and other disasters, and our losses in 2005 from Hurricanes Katrina, Rita and Wilma.

These events have reinforced the strength of our promise to policyholders: to be a stable market, provide unique services and respond quickly when they have a loss, with a focus on helping them to resume business operations as swiftly as possible. De-spite a very challenging year, we kept our promise, thanks to our dedicated claims and engineering colleagues who responded to these events worldwide. Amidst our worst loss year on record, we also had the highest client retention rate in more than a decade, a solid indicator of the strength of our business approach to our policyholder owners.

Driven by the natural disasters, our 2011 combined ratio reached 121 percent. Surplus declined by 5.5 percent to US$6.9 billion. Pretax investment portfolio returns of 3.1 percent helped offset the financial impact of underwriting losses on surplus.

Review of 2011Our plans for 2011 assumed the continuation of a very compet- itive market with reduced rates and abundant underwriting ca-pacity. Given that environment, our activities were focused on improving our products and services, becoming more efficient, expanding our global capabilities, and working with our cli-ents to achieve significant risk improvement at their properties.

Our 2011 FM Global Advantage® policy included new cover-age and enhancements. The new form provides greater clarity, with additional wording confirming our underwriting position and longstanding loss-adjustment practices—all to improve contract certainty. These changes have been well received by our policyholders.

Already considered a leader in timely policy delivery, we pro- gressed even further in 2011 by issuing 70 percent of national policies prior to their effective dates. We continued to stream-line the collection of insured values, a very challenging process, because our clients are multinational with locations world- wide and sophisticated interdependencies among facilities.

Risk improvement is a cornerstone of our value proposition. Working cooperatively with our clients, we helped improve the risk profile of their facilities by implementing human ele-ment recommendations and achieving physical improvements at large locations. This marked a significant accomplishment in a very difficult environment and demonstrated our clients’ ongoing commitment to securing their businesses.

Executive message

The unprecedented catastrophic events of 2011 have reinforced the strength of our promise to policyholders: to be a stable market, provide unique services and respond quickly when they have a loss.

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Based on our historical experience, we have developed catas-trophe response plans that enable us to manage multiple disas-ters across various continents at any given time. In 2011, our clients were exposed to 20 large insured natural disasters. Our claims and engineering staff responded with pre-established catastrophe teams and resources in each of the areas affected to support our clients and help mitigate their losses as quickly as possible.

These natural disasters illustrated the need to develop supply chain resiliency by avoiding or minimizing potential expo-sures within a client’s supply chain. In addition, these events reaffirmed both the strength of our engineering services to help manage supply chain risks, and the value of the broad coverage provided by our insurance product—specifically via the contingent time element cover for both direct and indirect customers and suppliers.

We continued in 2011 to receive highly favorable third-party recognition. We were named the “Best for Service” in Business Insurance magazine’s Buyers Choice awards; we were rated first choice for commercial property, business interruption and terrorism insurance in National Underwriter’s Risk Manager Choice Awards; and lastly, Greenwich Associates again named us best in claims processing and customer service, and ranked us number one for underwriting expertise. All of these surveys were statistically significant, with participation from large groups of risk managers, treasurers and chief financial officers.

2011 Premium TrendsEntering 2011, we expected price levels to continue to fall for the fourth year with ample underwriting capacity available in the marketplace. That situation continued through the first half of the year; it was not until the third and fourth quarters that we could conclude that the trend had reversed itself in the United States and Australia, with Europe, Canada and South America showing signs of firming.

Overall, our gross premium in force, excluding new business, remained flat—an excellent result, given that it includes lost business and changes to existing arrangements. Despite more challenging market conditions in Europe compared with North America, both FM lines and Affiliated FM did well in Europe when compared with performance in 2010. We attribute this favorable response to increased brand awareness and the strength of our product and client relationships.

Overall, including new business, our gross premium in force grew by 5.4 percent to US$5.1 billion, a significant milestone for a specialized carrier like FM Global. Affiliated FM, with US$890 million, grew by 11 percent, while FM lines grew by 4.1 percent, even with the difficult marketplace in Europe. These increases are good results, given our relative market share, and they validate the strength of our business model and the demand for value-added products in a commodity market. FM lines and Affiliated FM represent about 97 percent of our revenue, with Mutual Boiler Re and FM Global Cargo repre-senting the balance.

5,052.4

2007 2008 2009 2010 2011

Total Gross Premium in forcein US$ millions

4,693.24,460.3

4,709.5 4,792.3 1,316.9 1,350.21,463.3

2007 2008 2009 2010 2011

Non-North America Gross Premium in forcein US$ millions

1,201.21,266.4

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Net earned premium grew by 5 percent to US$3.2 billion. This included US$208 million in membership credit, which was in effect through June 2011. Since 2001, we have re-duced the premium charged to eligible policyholders by approximately US$1.7 billion through membership credit.

Loss TrendsOur loss ratio for 2011 was 95.9 percent, the highest in more than a decade. Comparable loss ratios for 2010 and 2009 were 54.2 and 43.4 percent, respectively.

Natural disasters and aggregations were the principal contrib- utors to the sharp increase, with a loss ratio of 52.3 percent—more than one-and-a-half times greater than the average ex-pected losses. In 2005, the year of Hurricanes Katrina, Rita and Wilma, the comparable loss ratio from disasters was 22.2 percent. Of the 20 natural disasters and aggregations in 2011, losses from 11 of the disasters were greater than US$20 million, and six of the events generated losses greater than US$100 million. The six largest losses were from the floods in Thailand, and Brisbane, Australia; tornadoes in Joplin, Mis-souri, USA, and Tuscaloosa, Alabama, USA; and the earth-quakes in Honshu, Japan, and Christchurch, New Zealand. Of these large losses, four occurred outside of the Americas and Europe. Our net losses incurred from disasters in 2011 exceeded losses incurred in 2010 by more than US$1 billion.

Although the frequency and severity of the natural disaster losses are our highest on record, we didn’t find it necessary to modify our risk assessment and risk improvement practices at the policy level, or suggest a redesign of our reinsurance practices.

Risk losses, or losses not attributed to natural disasters or ag-gregations, generated a loss ratio of 39.6 percent vs. 28.9 per-cent in 2010. The principal driver of the risk loss ratio is losses at non-sprinklered locations, which tend to be outside North America. Economic losses from fires at non-sprinklered loca-tions are often five times costlier than a loss at a sprinklered location. Working cooperatively with our clients to accelerate risk improvement continues to be very important.

Expense RatioOur expense ratio dropped to 25.1 percent from 28.6 percent, due in part to our companywide focus on efficiency and process improvement. To continue this positive trend, we established a formal process-improvement team. This group is equipped with a range of tools to examine our key business processes to make them more efficient without altering our fundamental business model. Preliminary results of their efforts are very encouraging.

2007

2008

2009

2010

2011 25.1%

28.6%

26.2%

20.4%

25.6%

Expense Ratio

50%

2007

2008

2009

2010

2011 95.9%

54.2%

43.4%

78.9%

47.8%

Loss Ratio*

100%

* includes additional reserves for discontinued lines of business

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Employee TrendsOur worldwide headcount continues to be flat, with a shift in staffing from North America to Asia and South America reflecting our clients’ expansion into these emerging markets.

The key to our ongoing success is based on employees who are committed to seeing our clients and our business succeed; they have established long-term careers at FM Global because they value our rewards systems, work environment and train-ing programs. Employee turnover worldwide was 6 percent vs. 5.4 percent last year—low by most standards. Average tenure is approximately 14 years.

We continue to enhance the strength of our workforce as we encourage and require employees to complete specific training programs. Our employees completed 9,000 days of classroom training at an average direct cost of US$1,200 per employee. In addition, they completed 17,000 hours of online training.

In July, we unveiled the newest addition to our Center for Property Risk Solutions: a 12,000 square-foot (1,115 square-meter) laboratory called the “SimZone.” This major training advancement allows both our newly hired and experienced en-gineers to gain hands-on experience with the loss prevention and control systems they will encounter at our client facili-ties. The SimZone environment accelerates their learning and makes them more effective. The laboratory also enables us to develop specifically targeted, video-based training programs for online use by our clients. The “Know More Risk” video series is already generating client interest and is available via MyRisk®, our secure client interface.

Investments and SurplusInvested assets fell by two-tenths of 1 percent, even though cash flow from operations was positive. The drop was driven by lower equity valuations. Overall, we had a pretax total re-turn of 3.1 percent, reflecting our 45-percent asset allocation to equity securities and balance in debt securities and cash. Compared with our benchmarks, our debt security assets out-performed, while our equity securities did not.

Overall, asset allocation was stable, with a higher emphasis on cash and short-term securities. Both A.M. Best and Fitch reaf-firmed our ratings at A+ and AA, respectively.

GovernanceAs a mutual company owned by its policyholders, we value the governance of our directors, eight advisory boards and five risk management executive councils. We are very thankful for their loyal support.

Ruud Bosman, vice chairman, retired after 40 years of service with FM Global. He successfully led our international opera-tions and planning initiatives. We will miss his wisdom and guidance.

Mary Howell, retired executive vice president, Textron, retired from our board in April 2011. Mary was one of our original directors when FM Global was formed in 1999; we are grate-ful to her for her counsel and insight.

We welcomed Frank Connor, executive vice president and chief financial officer from Textron, to our board, and look forward to his participation.

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Shivan S. Subramaniam Chairman and Chief executive officer

Looking AheadA significant part of our premium growth comes from our existing policyholders. For the most part, our policyholders are multinational companies and they are growing outside of North America and Western Europe. In order to successfully continue to provide cost-effective, value-added products and services, we must focus on two sets of challenges. First, our clients’ growth is in areas where local risk management practices, codes and standards result in less resilient properties, leading to a significantly higher risk profile. Second, although local, legal and regulatory requirements are different and complicated in all new territories, we are committed to full compliance. Our goal has been to overcome these challenges and deliver all of our products and services via a single, cost-effective and seamless global platform. We have been working on these issues over the last several years, and they will remain our focus into the future.

2011 was a very difficult year. Our employees did a remarkable job of supporting our policyholders, especially those who were affected by the disasters. We are deeply grateful for their commitment and the support provided by our board of directors to ensure that we continue to deliver a market-leading product that resonates with our clients and meets their ever-evolving needs on a worldwide basis.

2011 was a very difficult year. Our employees did a remarkable job of supporting our policyholders, especially those who were affected by the disasters. We are deeply grateful for their commitment.

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prepare. protect. restore.

Some saw catastrophe. We saw opportunity in managing the risk.

These three action verbs—prepare, protect, restore—describe the value of the relationship between FM Global and its mutual clients in a year of un-precedented catastrophe losses caused by natural hazards. 2011 is already being recognized as the costliest year yet for natural disaster losses, entail-ing an estimated total global economic cost (including uninsured losses) of more than US$380 billion.

Year after year, FM Global urges its clients to think ahead, look at the catas-trophe risk, and decide what can be done about it. This was the year when those efforts proved critical.

Around the globe, our clients performed a multitude of improvements to reduce their risk: fastening roof covers to withstand severe wind, activating flood emergency response plans to help keep the water out, and installing seismic gas shutoff valves and fortified bracing in facilities where the risk of earthquake is prominent. We worked with them to take those measures because we believe in the value of loss prevention.

Through our commitment to engineering and research, we’ve learned that the majority of property loss is preventable. Fortunately, years like 2011 do not come often. But when they do, they validate our approach to provid-ing commercial property insurance—prevent losses, protect our clients and respond when needed.

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catastrophe trophe

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Reducing risk

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Reducing risk

Mohawk Fine Papers, Inc., the largest privately held premium paper manufacturer in North America, op-erates two mills, the older of which was built more

than 100 years ago on the banks of the Mohawk River in Wa-terford, N.Y., USA. With such close proximity to the river, the threat of flood is one of Mohawk’s greatest concerns. Many at the facility vividly remember 1996, when the river rose rapid-ly. The flooding caused devastation when water penetrated the building, ruining motors, lubrication and hydraulic systems, causing the mill to shut down for more than two weeks.

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“In Hurricane Irene, we followed our flood plan. Among other action steps, we removed more than 140 motors to

make sure they didn’t get damaged. And in fact, the water did hit levels in the areas where those motors would

have been. By being proactive, we didn’t incur repair costs. We were only down for five days in terms of lost

manufacturing time. With five days of inventory in stock, we could satisfy our customers’ needs.

Gordon Proskine, Vice President and Treasurer, Mohawk Fine Papers, Inc.

After the 1996 flood, Mohawk manage- ment insisted on reducing its flood exposure. Mohawk’s two mills, in con- tinuous operation, produce more than 175,000 tons (158,757 metric tons) of paper products every year. Productivity at the mill was too important, and reloca-tion of the mill was not a feasible option.

For Mohawk, the best solution was to develop a comprehensive flood emer-gency response plan. Mohawk manage-ment worked closely with FM Global engineers to develop a plan; and once it was in place, they made it a policy to review and update the plan annually.

In August 2011, as Hurricane Irene ap- proached and turned inland, the plan and its procedures were put to the first real test. The decision was made to shut down the paper mill operation, including the facility’s two large paper-making machines. Meanwhile, staff members physically removed pumps and motors in low-lying areas and put partitions and sandbags in place.

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Protecting Value

“At Mohawk, we think of risk management as an investment in the future

and an investment in continued revenue. As long as these machines are

running we are creating dollars, and it’s important for us to minimize the

risk that the machines could go down. If you’re in risk management and

you truly care about minimizing losses, then FM Global is a great partner

because of the tools that they can bring to help you do that.”

Gordon Proskine, Vice President and Treasurer, Mohawk Fine Papers, Inc.

Fortunately, the plan was designed to defend against a flood that could be worse than the 1996 event. In the 2011 storm, river elevations rose by more than 1 foot (.3 meters) above what most of Mohawk’s employees had ever seen. But, this time, disaster was avoided. No motors were lost and there were no issues with lubrication or hydraulic systems. Nor was any product damaged. Although the paper machines were shut down for several days, the rest of the mill remained up and running.

Mohawk’s plan has come to be seen as a model for other companies in the forest products industry, particularly for those with older mills. “By following our plan and being proactive in our approach we were able to save a significant amount of money in terms of repairs,” said Gordon Proskine, vice president and treasurer at Mohawk. “But also, we were up and running much faster than we ordinarily would have been.

“Irene was a learning experience for us,” he continued. “We were only down for five days in terms of lost manufacturing time. With five days of inventory in stock, we could satisfy our customers’ needs.”

Ed Corlew, manager, safety, health and security, needs only to look back to the losses of 1996. “If you don’t look at risk and prepare for it,” he said, “the ramifica-tions can be great. It can greatly impact your business…to the point where you may not have a business.”

go to fmglobal.com/annualreport to watch a video that captures the full story.

www.fmglobal.com/annualreport

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tastrophe catastrop

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Protecting Value

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Protecting Value

It would be hard for anyone in or around the city of Binghamton, N.Y., USA, to imagine life without Our Lady of Lourdes Memorial Hospital, a main provider of care in the region for close to 90 years. Yet, for a 12-day period in 2006, Lourdes,

a vital community resource, was evacuated and shut down, the result of severe flood-ing. For the hospital’s management team, that experience was the catalyst for what was to become a remarkable achievement in risk management.

Prior to the flood, the hospital, part of Ascension Health, the largest Catholic and nonprofit health system in the United States, had taken precautions by building an earthen berm to protect itself against flooding that could result if and when the neigh-boring Susquehanna River flows over its banks. But, when the storm arrived, the river rose and water covered the paved parking lots. Protection could not keep up and wa-ter entered the hospital, rising about 18 inches (46 centimeters) on the ground floor.

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The flood forced the immediate evacu-ation of all patients. It caused extensive damage to critical departments that were essential to keep the hospital functioning; and without that support, the emergency department had no choice but to close.

Ultimately, the hospital was shut down for 12 days. For an organization dedicat-ed to serving the community, with spe-cial attention to those who are poor and vulnerable, the inability to deliver criti-cal services was a psychological blow—in addition to the financial implications that accompanied the physical hit.

“The official completion of the flood wall was in June, and here we were in September, watching the river crest,

confident that we would be OK. We’ve proven that the flood wall design works, and that we can sustain a major

flood with minimal damage.”

David Patak, President and CEO, Our Lady of Lourdes Memorial Hospital

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“When you have an event like this, you quickly realize it’s not just about the physical loss and the interruption to the organiza-tion,” says Anne Wolanski, the hospital’s vice president of risk management and home health services/corporate responsibili-ty officer. “This takes a tremendous emotional toll, and you say to yourself, we don’t want to ever have this experience again.”

As services were being restored, the management team faced the realization that another flood of this magnitude was entire-ly possible. That’s when the long process of building a flood wall began to take shape. For the next few years, the risk man-agement staff at Ascension Health and Our Lady of Lourdes Memorial Hospital worked with the Federal Emergency Man-agement Agency (FEMA) and FM Global to plan and build a wall that would surround and protect the facility. The wall was finished in June 2011, and not a moment too soon.

In late August, Hurricane Irene raced up the U.S. East Coast. At one point a Category 3 hurricane, Irene was still a dan- gerous tropical storm with heavy rain and wind when it blew into upstate New York. On its heels was Tropical Storm Lee. Indeed, the two-fisted attack caused the river to overflow. The parking lots were completely submerged and the water level rose dangerously high, at one point approaching the top of the flood wall. But the wall protected the main buildings, the storm gates held, and Our Lady of Lourdes Memorial Hos-pital continued to provide patient care and emergency services throughout the storm.

Thoughtful planning and an innovative design, combined with engineering experience and open collaboration, helped Our Lady of Lourdes Memorial Hospital protect its facility and carry out its primary mission—to deliver quality health care to the community. Defending against Irene and Lee proved that the flood wall design works, that the hospital can sustain a major flood with minimal damage on its campus, and that the hospital will be there to serve the community.

ophe catastrophe

catastroph catastrophe

“An essential lesson we learned is that no two floods are the same. No matter how prepared you are, you always

need to be thinking ahead. More can happen, and you need to think about other opportunities to protect yourself.

The community needs us. The people here have suffered physically and emotionally, and it’s important for us to

be here for them.”

Anne Wolanski,Vice President Risk Management and Home Health Services/Corporate Responsibility Officer Our Lady of Lourdes Memorial Hospital

go to fmglobal.com/annualreport to watch a video that captures the full story.

www.fmglobal.com/annualreport

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ophe catastrophe

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catastropheatastrophe

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Restoring productivity

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Restoring productivity

Iron Mountain, a company whose name is synonymous with world-class records storage and informa-

tion management, is a global leader in its industry and holds a major share of the market in Chile, one of 35 countries where Iron Mountain has operations. On Feb. 27, 2010, a massive earthquake occurred off the Chilean coast, causing several billions of dollars in property damages. Iron Mountain’s facilities in Santiago were not spared.

Several company buildings, along with racking systems, were damaged; but, to local management’s relief, the informa-tion Iron Mountain stored for its cus-tomers remained unharmed. Access to many of those records, however, would be difficult.

Iron Mountain needed to minimize the impact of the quake and act quick-ly to restore operations. Fortunately, the company had a detailed disaster- response plan. On the morning after the earthquake, the extent of damage was assessed. Shortly after, a team of recovery specialists from Iron Mountain was assembled to begin the recovery ef-fort, working alongside the FM Global catastrophe adjustment team dispatched to the area.

The combined team moved quickly to meet two primary recovery goals. “The first target was logical: to avoid any new damage,” says Gonzalo Hevia, general manager of the Iron Mountain facility in Chile. “The second, of equal importance, was to rebuild the service. Customers rely on us because of the service, and to re-establish it was a very big priority.”

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“The dialogue that took place well before any loss was anticipated

included a word-for-word review of the policy. That, in itself, gave us a

clear understanding of how the policy would respond—which ended up

saving us a tremendous amount of time and expense. After the quake, the

response from FM Global and from our own team was so fantastic that,

quite frankly, we ended up adding new customers.”

Geof Smith, Vice President, Risk Management, Iron Mountain

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“The first target was logical: to avoid any new damage. The second,

of equal importance, was to rebuild the service. Customers rely on us

because of the service, and to re-establish it was a very big priority.

Remember, our clients had warehouses that had collapsed, and they

wanted to bring the records to us for safe storage. Thankfully, we got back

into operation quickly.”

Gonzalo Hevia, General Manager, Iron Mountain, Santiago, Chile

With the help of advance payments from FM Global, Iron Mountain leased out-side warehouses, equipped them with proper security, established the neces-sary systems to operate and then began relocating thousands of boxes. Speed was of the essence because many Iron Mountain clients suffered damages, in-cluding banks and other financial insti-tutions that were in sudden need of large storage space for their records. Iron Mountain was able to meet their needs.

When a natural catastrophe strikes, it creates a moment of truth between a company and its insurance carrier—par-ticularly when that disaster strikes far from the company’s home soil. The in-terruption of business operations places a company’s profits, market share, repu-tation and shareholder value at risk.

In this case, Iron Mountain’s ability to react swiftly enhanced its already strong reputation in the market. “We actually ended up adding customers by virtue of the fact that we were back up in op-eration faster than our competitors,” said Geof Smith, vice president of risk management at Iron Mountain. “Many of our customers, and many of our com-petitors’ customers, looked at us and said, ‘Wow, Iron Mountain responded and recovered faster. That’s the kind of company we want to do business with.’”

The rapid response was the result of pre-loss planning that had taken place soon after Iron Mountain became an FM Global client in 2007. At one-on- one meetings and policyholders’ work-shops, Iron Mountain gained a clear un-derstanding of the coverage provided, leading to greater contract certainty; and FM Global learned more about Iron Mountain’s business priorities.

This pre-loss activity helped to foster a solid working relationship that proved to be critical in the days following the earthquake. “The key was that they were here together with us,” Hevia says of Iron Mountain’s earthquake experience with FM Global. “It was like they were from our company. This is the kind of partnership we built.”

go to fmglobal.com/annualreport to watch a video that captures the full story.

www.fmglobal.com/annualreport

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Mohawk Fine Papers Inc., an FM Global client for 37 years, is the largest premi-um paper manufacturer in North Amer-ica. Its product line includes some of the best-known brands in the industry—among them Strathmore, Beckett and Mohawk Superfine. A privately owned company founded in 1931 near Albany, N.Y., USA, Mohawk distributes its pa-per products in more than 50 countries worldwide.

Recognized for its technical innovation and environmental focus, Mohawk of-fers a product line of writing, text, cover and digital papers that are used for cor-porate reports, corporate identity sys-tems, brochures, packaging, on-demand photo books, personalized direct mail, custom packaging, and everyday com-munication for businesses of all types and sizes.

Mohawk works with 400 distributors in 40 countries to provide customers with plenty of inventory and prompt delivery through wholesale, retail and e-com-merce services throughout the world.

Ascension Health, an FM Global client since 1986, is the largest Catholic and nonprofit health system in the United States. The organization’s mission-focused health ministries employ more than 121,000 associates serving in more than 1,400 locations in 21 states and the District of Columbia.

Ascension Health, whose System Office is in St. Louis, Mo., USA, includes 70 general acute care hospitals along with a dozen long-term care, acute care, re-habilitation, and psychiatric hospitals (combined, more than 17,500 beds); plus nursing homes, community clinics, and other health care services.

Our Lady of Lourdes Memorial Hospital, located in Binghamton, N.Y., USA, is a member of Ascension Health. The hospital opened as a 25-bed facility in 1925. Today, with a new ambulatory care center, a regional cancer center, and a thriving family birthing center, the hospital employs nearly 2,500 people and is a leading health care services pro-vider to Binghamton and surrounding communities.

Iron Mountain is a world leader in infor- mation management services, assisting more than 140,000 organizations in 35 countries with storing, protecting and managing information. Iron Mountain, based in Boston, Mass., USA, and an FM Global client since 2007, stores pa-per and digital data, such as computer backup media, microfilm and microfiche, audio and video files, film and X-rays. It provides such services as records management, offsite data protection and secure shredding.

Publicly traded on the New York Stock Exchange, Iron Mountain is an S&P 500 company and a member of the Fortune 1000. Organizations in every major in-dustry and of all sizes—including more than 97 percent of the Fortune 1000—rely on Iron Mountain as their informa-tion management partner.

Iron Mountain employs nearly 20,000 professionals and boasts an infrastruc-ture that includes more than 1,000 facili-ties, 10 data centers and 3,500 vehicles.

About our featured Clients

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Affiliated FM is a wholly owned stock subsidiary of Factory Mutual Insurance Com-pany and is focused on commercial middle-market property clients. The company’s value proposition is to provide innovative products and services designed to protect clients’ assets, help improve their operating reliability, reduce their overall cost of risk and maintain their profit and market share. The company markets its products and services worldwide through a select network of agents and brokers, providing underwriting expertise and property loss control engineering tailored to meet spe-cific client needs.

Affiliated FM is committed to developing strong relationships with its brokers and clients through:n Superior commercial property underwriting knowledge, expertise and productsn Customized property loss prevention engineering programsn Responsive and efficient services in a highly automated environmentn Prompt, professional, flexible and fair claims service

The Affiliated FM product line includes the all-risk proVisionSM policy, as well as market-specific policies for commercial real estate accounts, condominium associa-tions, educational institutions, health care facilities, manufacturing risks and retail operations. The company also offers a number of unique endorsem*nts to provide market-leading coverage for our brokers and clients. Some examples:n BI Select™—scenario-based flexible business interruption coverage that helps clients maximize business interruption recoveryn Green Coverage Endorsem*nt—added coverage for clients wishing to enact or maintain sustainable, environmentally friendly business and building practicesn Risk Improvement Endorsem*nt—coverage after a loss for physical improve- ments to a client’s location in accordance with FM Global’s Property Loss Prevention Data Sheets

Recognizing that middle-market clients are increasingly expanding operations, Affiliated FM continues to focus on providing a market-leading international product offering through the proVision 360 global master policy program. This offering provides seamless coverage for the international exposures of clients by us-ing the master policy concept in conjunction with legally admitted underlying cover-age from either the company’s international licenses or by utilizing the FM Global WorldReach® partner network.

Affiliated FM provides international expertise with a local presence. The organi-zation has office locations in Australia, Canada, France, Germany, the Nether-lands, the United Kingdom and throughout the United States, and offers coverage in 56 countries. Leveraging streamlined processing systems and a global network, Affiliated FM provides consistent worldwide delivery of coverage, underwriting and engineering products and services, and claims management.

The 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.

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Mutual Boiler Re has provided boiler and machinery insurance in North America for 135 years, specializing in mechanical, electrical and pressure systems breakdown treaty reinsurance and support services to the commercial property insurance mar-ketplace. Today, it works with nearly 200 insurance companies, providing broader and more competitive coverage to policyholders. To meet the growing demand for sustainable solutions, Mutual Boiler Re introduced the industry’s first green equip-ment breakdown endorsem*nt.

Mutual Boiler Re fosters long-term treaty relationships that help partner compa-nies develop new business opportunities and retain their clients, from “Main Street” business and commercial property owners to farm owners and homeowners. The company provides tailor-made coverage, rate development, filing, underwriting and claims support, and customized management reports. Integral to the treaty agree-ment is the provision of boiler and pressure vessel jurisdictional certification, which is carried out by commissioned inspectors from FM Global. Through the creation of customized training programs, Mutual Boiler Re helps broaden its partner compa-nies’ knowledge of risk exposures. By fostering a value proposition that promotes customer advocacy, flexibility and competitiveness, Mutual Boiler Re has a leader-ship position in the specialty market it serves.

FM Approvals is a leader in third-party certification of property loss prevention products and services. Industrial and commercial companies around the world know that products bearing the FM APPROVED certification mark, backed by more than 100 years of scientific research and leading-edge product testing, conform to high standards. The company’s globally recognized expertise spans more than 500 categories of products and services, including roofing and building material, cleanroom material, and electrical and fire protection equipment. FM Approvals offers complimentary online resources dedicated to property loss prevention.

FM Global Cargo provides innovative, comprehensive and flexible cargo insurance coverage, automated certificate management, and risk engineering services tailored to the international trade and transportation needs of global businesses. The all-risk cargo policy protects the full value of cargo throughout a client’s product distribu-tion network. Focused risk engineering services help clients understand the hazards that threaten their supply chain or major project shipments and determine cost- effective loss prevention solutions.

Corporate Insurance Services (CIS) is FM Global’s wholly owned brokerage op-eration, maintaining relationships with a variety of U.S. domestic insurers, Lloyd’s of London, excess and surplus lines insurers and specialty companies. CIS provides access to markets for perils, coverage and/or capacity not readily available through FM Global or Affiliated FM. (CIS coverage is tailored to meet FM Global policy-holders’ insurance requirements.) CIS policy options include all-risk, earthquake, flood, wind, MFL capacity, inland marine, ocean marine and other lines.

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BahamasCanadaCosta RicaDominican RepublicEl SalvadorGuatemalaHondurasJamaicaMexicoNicaraguaPanamaTrinidad and TobagoUnited States

ArgentinaBoliviaBrazilChileColombiaEcuadorParaguayPeruUruguayVenezuela

Algeria ArmeniaAustriaAzerbaijanBahrainBelgiumBosniaBotswanaBulgariaBurkina FasoCameroonCroatiaCzech RepublicDenmarkEgyptEstoniaFinlandFranceGermanyGhanaGreeceHungary

IcelandIsraelItalyJordanKazakhstanKenyaKuwaitKyrgyzstanLatviaLebanonLiechtensteinLithuaniaLuxembourgMacedoniaMadagascarMoroccoMozambiqueNambia NetherlandsNorwayOmanPoland

PortugalQatarRepublic of IrelandRomaniaRussiaSaudi ArabiaSenegal SerbiaSlovakiaSloveniaSouth AfricaSpainSwedenSwitzerlandTanzania TunisiaTurkeyUkraineUnited Arab EmiratesUnited Kingdom

Australia BangladeshBruneiCambodiaChinaHong KongIndiaIndonesiaJapanLaosMacauMalaysiaNew ZealandPakistanPhilippinesSingapore South KoreaSri LankaTaiwanThailandVietnam

FM Global products and services are available around the world. The countries listed below represent those where we regularly serve our clients:

north america South america europe, middle east and africa asia pacific

FM Global around the World

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Investment Report ....................................................................................... page 28

Management’s Statement on Internal Control Over Financial Reporting ............................................................................. page 30

Report of Independent Auditors .................................................................. page 31

Consolidated Balance Sheets ...................................................................... page 32

Consolidated Statements of Operations ...................................................... page 33

Consolidated Statements of Changes in Policyholders’ Surplus ................. page 34

Consolidated Statements of Cash Flows ..................................................... page 35

Notes to Consolidated Financial Statements .............................................. page 36

Financial Information

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† All financial figures in U.S. dollars.

Investment Report

Global financial markets were particularly volatile in 2011, with lower-risk asset classes outperforming more cyclical sectors. This reflected uncertain economic conditions that, most notably, focused on the sovereign debt problems in Europe. Related low confidence by businesses and consumers resulted in subpar spending growth, which restrained GDP progress on a global basis. A notable bright spot was corporate earnings and cash flow, as many of the larger companies that dominate stock indices have managed through the lackluster environment with productivity gains and global repositioning.

FM Global’s investment positions and returns by asset class are shown on page 29. Return on total assets was 3.08 percent compared with the 3.75 percent benchmark. The shortfall was due to underperformance in equity securities, offset somewhat by a positive contribution from municipal bond holdings.

Focusing first on equity securities, the internally managed portfolio (which is predominantly U.S.-based equity securities) returned 0.28 percent versus the benchmark S&P 500 at 2.11 percent. Mutual fund data and other statistics indicate most active managers fell short of the S&P index for the year, primarily due to underweighting the most defensive sectors of the market, which outperformed as economic concerns increased. FM Global’s return on total equity securities including outside managed international positions was -1.13 percent versus the benchmark (S&P 500 plus MSCI international stock index) at -0.05 percent. The results for both the portfolio and the total stock index were negatively impacted by overseas equity securities returns, with the MSCI ex. U.S. index down 13.71 percent for the year. Here, too, investors preferred the relative defensiveness of U.S. equities over both European and emerging country stocks.

Turning to the debt securities portfolio, FM Global’s internally managed portfolio of high-grade taxable debt securities returned 7.02 percent, very close to the 7.01 percent benchmark return. Returns benefited from the further decline in interest rates for the year, particularly in the safest sectors, including U.S. Treasury bonds. The municipal debt securities portfolio returned 11.15 percent for the year, as higher-grade municipalities showed greater financial stability than some had feared. The high-yield portfolio returned 4.24 percent, restrained by economic concerns.

Regarding real estate, in addition to providing functional support to FM Global’s business operations, the real estate group manages 3.7 million square feet (344,000 square meters) of investment properties. These real property assets provide an additional element of portfolio diversification. They also provide a cost-effective approach in meeting FM Global’s ongoing real estate needs, while enhancing the value of its properties. For 2011, commercial properties produced $69.5 million† in revenue and $16.1 million in cash flow.

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† All financial figures in U.S. dollars.

rates of return – 2011 portfolio benchmark

Total portfolio 3.08% 3.75%1

Debt securities

Investment-grade taxable bonds 7.02% 7.01%2

Municipal bonds* 11.15% 10.33%3

High-yield bonds 4.24% 4.37%4

Equity securities – total (1.13)% (0.05)%5

Internal portfolio 0.28% 2.11%6

External portfolios** U.S. portfolios (5.03)% N/A International portfolios (16.44)% (13.71)%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 (87%) plus MSCI All World ex. U.S. (13%) 6 S&P 500 7 MSCI All World ex. U.S.

* Taxable equivalent return. ** Primarily smaller sized companies.

pretax Contribution to Surplus (in millions) † 2011 2010

Investment income $ 292.3 $ 284.4Realized gains/(losses) 297.1 196.1Unrealized gains/(losses) (258.9) 482.6 $ 330.5 $ 963.1

as of December 31 2011 2010Holdings (in millions) † total percentage total percentage

Equity securities $ 4,417 42.0% $ 4,841 45.8%Taxable debt securities 3,259 31.0 3,285 31.1Municipal debt securities 1,504 14.3 1,431 13.5Short-term funds 796 7.6 579 5.5Partnerships and alternative investments 537 5.1 439 4.1Total $ 10,513 100.0% $ 10,575 100.0%

Investment Report

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Management’s Statement on Internal Control Over Financial Reporting

The management of FM Global is responsible for establishing and maintaining adequate internal control over financial reporting and for the preparation and integrity of the accompanying financial statements and other related information in this report. The consolidated financial statements of the Company and its subsidiaries, in-cluding the footnotes, were prepared in accordance with accounting principles generally accepted in the United States of America and include judgments and estimates, which, in the opinion of management, are applied on an appropriately conservative basis. The Company maintains a system of internal and disclosure controls intend-ed to provide reasonable assurance that assets are safeguarded from loss or material misuse, that transactions are authorized and recorded properly, and that the accounting records may be relied upon for the preparation of the financial statements. This system is tested and evaluated regularly for adherence and effectiveness by the Company’s staff of internal auditors.

The audit committee of the Board of Directors, which comprises directors who are not employees of the Company, meets regularly with management and the internal auditors to review the Company’s financial policies and procedures, its internal control structure, the objectivity of its financial reporting, and the independence of the Company’s independent public accounting firm. The internal auditors have free and direct access to the audit committee, and they meet periodically, without management present, to discuss appropriate matters.

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation.

These consolidated financial statements are subject to an evaluation of internal control over financial reporting conducted under the supervision and with the participation of management, including the chief executive officer and chief financial officer. Based on that evaluation, conducted under the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that its internal control over financial reporting was effective as of December 31, 2011.

Shivan S. Subramaniam

Chairman and Chief Executive Officer

Jeffrey a. burchill

Senior Vice President – Finance Chief Financial Officer

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Report of Independent Auditors

The Board of Directors and Policyholders ofFactory Mutual Insurance Company and Subsidiaries

We have audited the accompanying consolidated balance sheets of Factory Mutual Insurance Company and Subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in policyholders’ surplus, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circ*mstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Factory Mutual Insurance Company and Subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Boston, MassachusettsFebruary 17, 2012

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See accompanying notes.

Consolidated Balance Sheets (in thousands)

December 31 2011 2010

Assets Investments:

Debt securities (including $261,100 and $440,900 of securities on loan under a securities lending program) $ 5,104,500 $ 5,053,100

Equity securities: Common 4,416,900 4,834,600 Other securities 533,500 438,800 Real estate 376,200 348,800 Total investments 10,431,100 10,675,300

Cash and cash equivalents 611,200 357,100Recoverable from reinsurers 2,011,400 1,209,700Premium receivable 678,800 570,300Prepaid reinsurance premium 325,900 243,100Premises and equipment 344,400 354,500Other assets 925,900 848,200

Total assets $ 15,328,700 $ 14,258,200

Liabilities Unpaid losses and loss adjustment expenses $ 5,176,500 $ 3,693,400 Reserve for unearned premium 2,263,800 2,044,700 Current and deferred income taxes 267,200 456,500 Other liabilities 738,400 782,500Total liabilities 8,445,900 6,977,100

Policyholders’ surplus Accumulated other comprehensive income 582,200 939,000 Retained earnings 6,300,600 6,342,100Total policyholders’ surplus 6,882,800 7,281,100

Total liabilities and policyholders’ surplus $ 15,328,700 $ 14,258,200

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See accompanying notes.

Consolidated Statements of Operations (in thousands)

Year ended December 31 2011 2010

Gross premium earned $ 4,945,000 $ 4,686,800Ceded premium earned (1,503,000) (1,434,500)Net premium earned 3,442,000 3,252,300Membership credit (208,000) (182,800)Net premium earned after membership credit 3,234,000 3,069,500 Investment-related income 364,900 348,000Fee-related income 48,400 44,800Total revenue 3,647,300 3,462,300 Net losses and loss adjustment expenses 3,099,100 1,661,700Insurance-related expenses 777,700 852,800Investment-related expenses 135,300 119,000Fee-related expenses 43,400 46,500Total losses, loss adjustment and other expenses 4,055,500 2,680,000 Net (loss)/income from operations (408,200) 782,300Net realized investment gains 368,200 221,600Other than temporary impairment losses (71,100) (25,500) Net (loss)/income before income taxes (111,100) 978,400 Income tax (benefit)/expense (69,600) 291,800 Net (loss)/income $ (41,500) $ 686,600

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See accompanying notes.

Consolidated Statements of Changes in Policyholders’ Surplus (in thousands)

Year ended December 31 2011 2010

Policyholders’ surplus at beginning of year $ 7,281,100 $ 6,262,100

Comprehensive (loss)/income: Net (loss)/income (41,500) 686,600

Other comprehensive income: (Decrease)/increase in net unrealized appreciation on investments in debt and equity securities, net of income tax benefit of $87,200 for 2011 and net of income tax expense of $164,400 for 2010 (171,700) 318,200

Change in benefit plan assets and liabilities, net of income tax benefit of $92,900 for 2011 and net of income tax expense of $5,200 for 2010 (172,500) 7,000

(Decrease)/increase in foreign currency translation adjustment, net of income tax expense of $1,600 for 2011 and $3,000 for 2010 (12,600) 7,200

Total comprehensive (loss)/income (398,300) 1,019,000

Policyholders’ surplus at end of year $ 6,882,800 $ 7,281,100

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See accompanying notes.

Consolidated Statements of Cash Flows (in thousands)

Year ended December 31 2011 2010

Operating activities Net (loss)/income $ (41,500) $ 686,600Adjustments to reconcile net (loss)/income to net cash provided by operating activities: (Increase)/decrease in premium receivable (108,500) 107,300 Increase/(decrease) in reserves for unearned premium 219,100 (18,800) Increase in unpaid losses and loss adjustment expenses 1,483,100 158,100 Increase in recoverable from reinsurers (801,700) (49,600) Change in current and deferred income taxes (146,200) 268,000 Net realized investment gains (297,100) (196,100) (Increase)/decrease in prepaid reinsurance premium (82,800) 58,700 Other (152,400) (228,100)Net cash provided by operating activities 72,000 786,100 Investing activities Net sales/(purchases) of short-term investments 14,300 (38,800)Purchases of debt and equity securities (2,928,500) (3,095,600)Sales and maturities of debt and equity securities 3,202,200 2,244,500Capital expenditures (71,600) (22,800)Other (34,300) 19,700Net cash provided by/(used in) investing activities 182,100 (893,000) Increase/(decrease) in cash and cash equivalents 254,100 (106,900)Cash and cash equivalents at beginning of year 357,100 464,000 Cash and cash equivalents at end of year $ 611,200 $ 357,100

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 1. Significant Accounting Policies

Basis of PresentationThe consolidated financial statements are stated in U.S. dollars and have been prepared on the basis of accounting principles generally accepted in the United States, which differ in some respects from statutory accounting prac-tices prescribed or permitted by the State of Rhode Island and Providence Plantations, Department of Business Regulation, Insurance Division. On the basis of statutory accounting practices, consolidated policyholders’ surplus was $6,431,600 and $6,961,900 at December 31, 2011 and 2010, respectively; net (loss)/income for the respective years then ended was $(32,100) and $767,300.

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States requires the use of management’s estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

The Company provides comprehensive lines of property coverage and supporting services for industrial and institutional properties throughout the world.

Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

Cash EquivalentsCash equivalents consist of various sweep accounts with a maturity of less than 90 days at acquisition.

InvestmentsManagement determines the appropriate classification of debt securities at the time of purchase. All common stock and debt securities are classified as available-for-sale and are stated at fair value.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage and asset-backed securities, over the estimated life of the security adjusted for anticipated prepayments. This amortization and accretion is included in investment-related income. For mortgage and asset-backed fixed maturity securities, the Company recognizes income using a constant effective yield based on anticipated prepayments over the economic life of the security. The mortgage and asset-backed portfolio is accounted for under the retrospective method and prepayment assumptions are based on market expectations. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments, and any resulting adjustment is included in investment-related income.

Other securities consist primarily of partnerships and alternative investments, which are accounted for under the equity method. As a result of the timing of the receipt of valuation data from the investment managers, these investments are reported on up to a three-month lag. Changes in the Company’s equity in the net assets of these investments are included in income as realized investment gains/(losses).

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 1. Significant Accounting Policies (continued)

The cost of securities sold is based upon the specific identification method. Unrealized appreciation or depreciation of available-for-sale debt and equity securities, net of tax, is reported directly in policyholders’ surplus.

Impairments in equity securities deemed to be other than temporary are reported as a component of income/(loss) before income taxes. Impairments in debt securities deemed to be other than temporary are segregated into credit risk and non-credit risk impairments. Credit risk impairments are reported as a component of net income/(loss) before income taxes. Non-credit risk impairments are recognized in other comprehensive income. Securities are reviewed for both quantitative and qualitative considerations in the calculation of impairments.

Under a securities lending program with an agent, the Company has temporarily loaned certain debt securities. Borrowers of these securities must deposit with the agent an amount of cash and/or securities equal to 102 percent of the loaned securities’ fair value for U.S. currency-denominated securities or 105 percent of the loaned securities’ fair value for foreign-denominated securities. The portion of collateral received in securities is held in trust by the agent. The portion of collateral received in cash is invested by the agent in high-quality, short-term investments. The Company continues to receive the interest on the loaned debt securities as a beneficial owner, and the loaned debt securities are included in the investment portfolio of the Company. The cash collateral and the obligation to return that collateral are included in other assets and other liabilities, respectively, on the Consolidated Balance Sheets.

Income TaxesThe Company files consolidated U.S. and foreign income tax returns as required by law. The income tax expense is based upon pretax income reported in the consolidated financial statements. Deferred income taxes are provided, when appropriate, for the effects of temporary differences in reporting income and expenses for tax and financial re-porting purposes. Deferred income taxes are also provided for unrealized appreciation or depreciation of investments, for pension and postretirement liabilities and for foreign currency translations.

The Internal Revenue Service (IRS) has reviewed the Company’s federal tax returns for the 2004 through 2007 tax years and some issues remain unsettled. Additionally, the IRS is currently reviewing the Company’s federal tax returns for the 2008 and 2009 tax years. Any adjustments that might result from the IRS examination of these income tax returns are not expected to have a material impact on the financial position, liquidity or results of operations of the Company.

Deferred CostsPremium taxes and commissions, the principal business acquisition costs, are deferred to the extent recoverable and are amortized over the period during which the related premium is earned. Deferred costs are included in other assets.

Certain pre-rental and other expenses incurred by the Company’s real estate limited liability corporation subsidiaries are deferred and amortized over the lives of the various tenant leases.

Real estate and Premises and equipmentPremises and equipment are stated at cost, and depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets. Upon retirement or sale, the cost of the asset disposed of and its related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in net real-ized investment gains. The net book value of the Company’s investments in land and buildings is included in Real estate, whereas the remaining net book value of the Company’s occupied land and buildings, furniture, fixtures and equipment is included in Premises and equipment.

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Note 1. Significant Accounting Policies (continued)

Unpaid Losses and Loss Adjustment ExpensesLiabilities for unpaid losses and loss adjustment expenses are based on case estimates or reports from ceding companies. Estimates of incurred-but-not-reported (IBNR) reserves are based on historical experience and management analysis.

Although the above-described amounts are based on estimates, management believes recorded liabilities for un-paid losses and loss adjustment expenses are adequate to cover the ultimate settlement cost of losses incurred. These estimates are continually reviewed and adjustments to such estimates are reflected in current operations.

PremiumsThe Company issues term premium policies. The term premium is earned on a pro-rata basis over the life of the policy.

New Guidance on Existing Accounting StandardsIn 2010, the Company adopted the Financial Accounting Standards Board’s (FASB’s) new guidance (ASU 2010-06) on Fair Value Measurements and Disclosures (Topic 820) and on Compensation—Retirement Benefits (Subtopic 715-20), which provides guidance on additional disclosures for fair value measurement of assets. The additional disclosures required by this guidance are included in Note 3 and Note 10.

In October 2010, the FASB issued Accounting Standards Update No. 2010-26, Financial Services—Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, which prescribes how costs incurred in the acquisition of new and renewal contracts should be capitalized. The required implemen-tation date of the Update was for fiscal years beginning after December 15, 2011. The Company early adopted the Update and determined there is no impact on its deferral policy or the financial statements.

Recent Accounting PronouncementsIn May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. The required implementation date of the Update for non-public entities is fiscal years beginning after December 15, 2011. The Company has determined that this update will have no impact on its financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which prescribes that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous Statement of Comprehensive Income or in two separate but consecutive statements. The required implementation date of the Update for non-public entities is fiscal years ending after December 15, 2012. The adoption of this Update will change the way the Company presents comprehensive income in its financial statements, however the Company has not yet determined which of the acceptable presentation approaches it will utilize.

Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 1. Significant Accounting Policies (continued)

In December 2011, the FASB issued Accounting Standards Update No. 2011-12 Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The Update defers the requirement for entities to present reclassification adjustments, by component, on the face of the financial statements where net income and other comprehensive income are presented. The Company will monitor future updates related to this deferral.

ReinsuranceIn the normal course of business, the Company seeks to reduce losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises. Reinsurance premium and losses and loss adjustment expenses ceded under these arrangements are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract.

Retirement Income Plans and Postretirement Benefit Plans Other than PensionsNoncontributory retirement income plans cover the vast majority of employees. The Company’s funding policy is generally to contribute the net periodic pension cost each year, as determined pursuant to the guidance on Compensation – Employee Benefits. However, the contribution for any year will not be less than the minimum required contribution, nor greater than the maximum tax-deductible contribution.

The Company provides certain health care and life insurance benefits for retired employees and their dependents. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features, such as deductibles and coinsurance. Current service and interest costs of postretirement health care and life insurance benefits are expensed on an accrual basis.

Investment- and Fee-Related IncomeInvestment-related income primarily consists of interest and dividends from the Company’s investment portfolio and income from leased office space, which is earned as services are provided, or over the term of applicable leases. Fee-related income primarily consists of fees for ancillary services.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 2. Investments

Debt and equity SecuritiesThe following is a summary of securities at December 31, 2011:

Cost or gross gross amortized unrealized unrealized fair Cost gains losses Value

Debt securities: U.S. Treasury securities and obligations

of U.S. government agencies $ 279,300 $ 36,600 $ — $ 315,900 Obligations of states and political subdivisions 1,384,100 92,000 (900) 1,475,200 Mortgage and asset-backed securities Agency 763,500 51,900 — 815,400 Commercial 151,200 12,400 — 163,600 Residential 9,700 3,000 (200) 12,500 Other mortgage and asset-backed securities 172,400 8,700 (100) 181,000 U.S. corporate securities 1,279,700 69,900 (8,400) 1,341,200 Foreign government securities 520,900 38,600 — 559,500 Other debt securities 229,200 11,600 (600) 240,200Total debt securities 4,790,000 324,700 (10,200) 5,104,500Equity securities

Information Technology 398,300 382,300 (7,400) 773,200Consumer Staples 387,000 242,300 (4,600) 624,700Financials 562,500 68,000 (16,000) 614,500Energy 329,600 245,500 (5,200) 569,900Industrials 288,200 141,300 (4,100) 425,400Health Care 288,500 137,100 (700) 424,900Mutual Funds (International and Emerging Markets) 325,700 92,200 (2,300) 415,600All other sectors 358,300 221,100 (10,700) 568,700

Total equity securities 2,938,100 1,529,800 (51,000) 4,416,900Total debt and equity securities $ 7,728,100 $ 1,854,500 $ (61,200) $ 9,521,400

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 2. Investments (continued)

The following is a summary of securities at December 31, 2010:

Cost or gross gross amortized unrealized unrealized fair Cost gains losses Value

Debt securities U.S. Treasury securities and obligations

of U.S. government agencies $ 330,100 $ 15,300 $ (1,300) $ 344,100 Obligations of states and political subdivisions 1,377,400 37,200 (8,500) 1,406,100 Mortgage and asset-backed securities Agency 793,300 40,700 (3,000) 831,000 Commercial 140,600 10,000 (200) 150,400 Residential 12,000 2,000 (100) 13,900 Other mortgage and asset-backed securities 194,400 11,000 (200) 205,200U.S. corporate securities 1,266,000 80,200 (3,400) 1,342,800Foreign government securities 528,500 14,200 (900) 541,800

Other debt securities 207,800 11,300 (1,300) 217,800 Total debt securities 4,850,100 221,900 (18,900) 5,053,100

Equity securities Information Technology 376,100 418,300 (1,000) 793,400 Consumer Staples 440,600 228,600 (300) 668,900 Financials 503,000 160,300 (1,300) 662,000 Mutual Funds (International and Emerging Markets) 372,300 187,900 — 560,200 Energy 288,200 246,700 (100) 534,800 Health Care 374,100 137,200 (3,500) 507,800 Industrials 294,800 198,900 (300) 493,400 All other sectors 336,300 278,400 (600) 614,100

Total equity securities 2,985,400 1,856,300 (7,100) 4,834,600 Total debt and equity securities $ 7,835,500 $ 2,078,200 $ (26,000) $ 9,887,700

During the years ended December 31, 2011 and 2010, proceeds from the sale of debt and equity securities were $3,135,900 and $2,163,200, respectively. The gross realized gains and (losses) on such sales totaled $392,900 and $(51,300), and $201,100 and $(26,400), in 2011 and 2010, respectively.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2010 and 2009

Note 2. Investments (continued)

The amortized cost and fair value of debt securities at December 31, 2011, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

amortized Cost fair Value

Due in one year or less $ 512,400 $ 516,300Due after one year through five years 1,207,500 1,269,500Due after five years through 10 years 1,622,100 1,761,400Due after 10 years 351,200 384,800 3,693,200 3,932,000Mortgage and asset-backed securities 1,096,800 1,172,500Total debt securities $ 4,790,000 $ 5,104,500

Under a securities lending program with an agent, the Company has temporarily loaned certain debt securities with a fair value of $261,100 and $440,900 at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, the Company held total collateral values of $266,700 and $450,100 related to the securities lending program.

Included in the Company’s debt security portfolio are securities with unrealized losses deemed to be temporary. The total unrealized loss on these securities was $10,200 (fair value of $325,400) at December 31, 2011, and $18,900 (fair value of $787,700) at December 31, 2010. The amount of loss that existed for 12 months or more was immaterial for both 2011 and 2010. In reaching its conclusion that these impairments are temporary, the Company considered issuer specific circ*mstances as well as the fact that the Company has the intent and ability to hold these securities until they recover in value or mature, and it is not more likely than not that the Company will be required to sell before that time.

Included in the Company’s equity security portfolio are securities with unrealized losses deemed to be temporary. The total unrealized loss on these securities was $51,000 (fair value of $470,000) at December 31, 2011, and $7,100 (fair value of $181,000) at December 31, 2010. The amount of loss that existed for 12 months or more was immaterial for both 2011 and 2010. In reaching its conclusion that these impairments are temporary, the Company considered the duration and severity of the decline as well as the near term prospects of the issuer. The Company believes these securities will appreciate over time, and the Company has the ability and intent to hold these securities until such time.

Credit RiskAll investment transactions have credit exposure to the extent that a counterparty may default on an obligation to the Company. Credit risk is a consequence of carrying investment positions. To manage credit risk, the Company focuses on high-quality fixed-income securities, reviews the credit strength of all companies in which it invests, limits its exposure in any one investment and monitors the portfolio quality, taking into account credit ratings assigned by recognized credit-rating organizations.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 3. Fair Value

The valuation techniques required by the Fair Value Measurements guidance are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions.

These two types of inputs create the following fair value hierarchy:

level 1 Quoted prices for identical instruments in active markets.

level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

level 3 Significant inputs to the valuation model are unobservable.

The Company retains independent pricing vendors to assist in valuing invested assets. In compliance with the Fair Value Measurements guidance, the Company conducted a review of the primary pricing vendor, validating that the inputs used in that vendor’s pricing process are deemed to be market-observable as defined in the standard.

When available, the Company uses quoted market prices to determine the fair value of investment securities, and they are included in Level 1.

When quoted market prices are unavailable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant information. Fixed income securities are priced by an independent vendor using evaluated market pricing models that vary by asset class. These models incorporate available trade, bid and other market information, and for structured securities also incorporate cash flow and, when available, loan perfor-mance data. The pricing models apply available market information through processes such as benchmark curves, benchmarking of similar securities, and sector groupings. The vendors also integrate observed market movements, sector news and relevant credit information into the evaluated pricing applications and models. These investments are included in Level 2 and are primarily comprised of the fixed income securities.

In infrequent circ*mstances, the pricing is not available from the pricing vendor, and is based on significant unob-servable inputs. In those circ*mstances, the investment security is classified in Level 3.

The following table presents the Company’s invested assets measured at fair value as of December 31, 2011:

Quoted prices in active markets for Significant other Significant Identical assets observable Inputs unobservable InputsInvested assets, at fair Value total (level 1) (level 2) (level 3)

Debt securities, available for sale $ 5,104,500 $ 366,600 $ 4,737,900 $ –Equity securities, available for sale 4,416,900 4,313,900 103,000 –Total $ 9,521,400 $ 4,680,500 $ 4,840,900 $ –

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 3. Fair Value (continued)

The following table presents the Company’s invested assets measured at fair value as of December 31, 2010:

Quoted prices in active markets for Significant other Significant Identical assets observable Inputs unobservable InputsInvested assets, at fair Value total (level 1) (level 2) (level 3)

Debt securities, available for sale $ 5,053,100 $ 382,200 $ 4,670,900 $ – Equity securities, available for sale 4,834,600 4,687,700 146,900 –Total $ 9,887,700 $ 5,069,900 $ 4,817,800 $ –

All debt securities are measured at fair value and are classified as Level 2 with the exception of short-term securities which are priced using quoted market prices and therefore classified as Level 1. See Note 2 for breakout of debt securities by category.

All equity securities are priced using quoted market prices and classified as Level 1 with the exception of certain mutual funds which are priced by the manager using other observable inputs and therefore classified as Level 2. See Note 2 for breakout of equity securities by category.

There were no transfers of securities between Levels 1 and 2 in 2011 or 2010.

Securities lending collateral in 2011 and 2010 consists of highly liquid investments, which would be classified as Level 1 in the fair value hierarchy.

Note 4. Membership Credit

The Company’s Board of Directors approved a membership credit to policyholders for 2011 and 2010. Policyholders were eligible for the membership credit upon renewal of their policies with inception dates between June 30, 2010 and June 29, 2011. The membership credit was recorded as a reduction of net premium earned.

Note 5. Reinsurance

The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies. While such evaluations minimize the Company’s exposure, the ultimate collection of reinsurance recoverables depends on the financial soundness of the individual reinsurers. Gen-erally, the reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible.

The effect of reinsurance on written premium is as follows: Year ended December 31

2011 2010

Gross written premium $ 5,164,100 $ 4,668,000Ceded written premium (1,614,800) (1,380,900)Net written premium $ 3,549,300 $ 3,287,100

Ceded losses incurred for the years ended December 31, 2011 and 2010, were $1,484,800 and $419,300, respectively.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 6. Unpaid Losses and Loss Adjustment Expenses

Activity in the net liability for unpaid losses and loss adjustment expenses is summarized as follows: Year ended December 31

2011 2010

Net balance at January 1 $ 2,615,900 $ 2,478,200Net incurred related to: Current year 3,373,300 1,974,600 Prior year (274,200) (312,900)Total incurred 3,099,100 1,661,700Paid related to: Current year 1,410,000 811,900 Prior year 982,800 712,100Total paid 2,392,800 1,524,000 Net balance at December 31 $ 3,322,200 $ 2,615,900

As a result of changes in estimates of insured events related to prior years, the provision for losses and loss adjustment expenses decreased by $274,200 and $312,900 in 2011 and 2010, respectively. The decreases in both years were due to reductions of incurred-but-not-reported (IBNR) reserves based on actual experience, and decreases on a small number of individual losses. In establishing reserves for property losses there is some uncertainty in management’s estimates that cause these estimates to differ from ultimate payments.

In establishing the liability for unpaid losses and loss adjustment expenses related to asbestos, environmental and other mass tort-related claims, which applies only to business that is now in runoff, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy and management can reasonably estimate the Company’s liability. Liabilities have also been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed continuously. Developed case law and adequate claim history do not exist for such claims, primarily because significant uncertainty exists about the outcomes of coverage litigation and whether past claim experience will be representative of future claim experience.

The Company is the subject of various asserted and unasserted claims and lawsuits covering a wide variety of issues that arise out of the normal course of its business activities. Contingent liabilities arising from litigation and other matters are not considered material in relation to the financial position or operations of the Company.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 7. Real estate and Premises and equipment

Real estate and Premises and equipment at December 31, 2011 and 2010 are summarized as follows:

2011 2010

Land and buildings $ 916,600 $ 867,600Furniture, fixtures and equipment 304,900 289,200Accumulated depreciation (500,900) (453,500)Total $ 720,600 $ 703,300

Note 8. Leases

In connection with its various operating offices throughout Asia, Australia, Europe, North America and South America, the Company leases office space, automobiles, and equipment. These leases are classified as operating leases.

Future minimum lease payments at December 31, 2011, under operating leases with terms of one year or more, are in aggregate $142,700. The future minimum lease payments for each of the five succeeding years from 2012 to 2016 are $36,600, $30,900, $23,100, $13,900 and $12,100, respectively.

During 2011 and 2010, rent expense for all operating leases was $47,600 and $40,100, respectively.

Note 9. Income Taxes

Current income taxes primarily represent the U.S. federal and foreign tax expense/(benefit). The most significant components of deferred tax liabilities relate to net unrealized gains on investment securities, benefit plans expense and depreciation. Deferred tax assets primarily represent the U.S. tax effects of temporary differences relating principally to discounting of unpaid losses and loss adjustment expenses, adjustments to the net reserve for unearned premium, the write-down of other than temporarily impaired investments and the pension and postretirement surplus adjustment. The Company has established a valuation allowance for its foreign subsidiary’s unrelieved foreign tax.

The components of the net deferred tax liability at December 31, 2011 and 2010, are as follows:

2011 2010

Total deferred tax liabilities $ (998,000) $ (1,012,200)

Total deferred tax assets 755,800 614,900Valuation allowance (25,000) (23,000)Net deferred tax assets 730,800 591,900

Net deferred tax liability $ (267,200) $ (420,300)

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 9. Income Taxes (continued)

The following is the current and deferred income tax (benefit)/expense for the years ended December 31, 2011 and 2010:

2011 2010

Current income tax (benefit)/expense $ (94,300) $ 174,300Deferred income tax expense 24,700 117,500Total income tax (benefit)/expense $ (69,600) $ 291,800

The Company has not recognized a deferred tax liability for the undistributed earnings of certain of its wholly owned foreign subsidiaries that arose in 2011 and prior years, because the Company does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investment. As of December 31, 2011, the undistributed earnings of these subsidiaries were approximately $13,600.

In 2011, effective income tax rates differed from current U.S. statutory rates primarily as a result of the dividends received deduction, tax exempt income and the effect of foreign operations.

Income tax paid during 2011 and 2010 was $102,000 and $173,000, respectively. In addition, the Company received income tax refunds of $24,000 and $150,000 during 2011 and 2010, respectively.

The Company’s unrecognized tax benefits are immaterial and it does not expect any material changes within 12 months of the reporting date.

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions

The Company sponsors a noncontributory retirement income plan covering the vast majority of employees. The benefits are generally based on years of service and the average of the highest consecutive 60 months of the employee’s compensation within the 120 months prior to retirement. Generally, the Company’s funding policy is to maintain a sufficiently funded level to ensure benefit security and to vary contribution levels as appropriate to business conditions. The Company also has supplemental retirement plans that are noncontributory defined benefit plans covering certain employees.

The Company provides health care and life insurance benefits for certain retired employees and their dependents. Employees not eligible for benefits under pre-merger plan provisions, under age 30 as of January 1, 2000, or hired after January 1, 2000, are ineligible for benefits. Other employees may become eligible if they meet certain age and service requirements. The plan is generally contributory, with retiree contributions adjusted annually, and contains other cost-sharing features, including deductibles and coinsurance.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

Obligations and funded status are as follows:

pension and Supplemental benefits other benefits Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

Fair value of plan assets $ 1,833,100 $ 1,611,800 $ 110,200 $ 114,100Benefit obligations 1,782,800 1,527,500 159,300 155,500Funded status, end of year $ 50,300 $ 84,300 $ (49,100) $ (41,400)

The accumulated benefit obligation for the pension and supplemental benefits plans were $1,537,100 and $1,306,900, for December 31, 2011 and December 31, 2010, respectively.

Amounts recognized in the statement of financial position are as follows:

pension and Supplemental benefits other benefits Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

Asset $ 165,200 $ 177,400 $ – $ –Liability (114,900) (93,100) (49,100) (41,400)Total $ 50,300 $ 84,300 $ (49,100) $ (41,400)

Pretax amounts included in accumulated other comprehensive income are as follows:

pension and Supplemental benefits other benefits Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

Net actuarial loss $ 816,400 $ 559,900 $ 69,800 $ 57,400Prior service cost/(credit) 5,400 7,600 (300) (300)Transition obligation – – 1,000 2,300Total $ 821,800 $ 567,500 $ 70,500 $ 59,400

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets are as follows:

Dec. 31, 2011 Dec. 31, 2010

Projected benefit obligation, end of year $ 131,700 $ 85,000Accumulated benefit obligation, end of year 115,300 74,000Fair value of plan assets, end of year 29,700 –

The projected benefit obligation and fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets are as follows:

Dec. 31, 2011 Dec. 31, 2010

Projected benefit obligation, end of year $ 131,700 $ 115,800Fair value of plan assets, end of year 29,700 30,300

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

pension and Supplemental benefits other benefits Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

Current year actuarial loss $ 283,500 $ 6,500 $ 16,800 $ 9,200Amortization of actuarial loss (27,000) (20,500) (4,400) (3,900)Current year service cost – – – –Amortization of prior service cost (2,200) (2,300) – – Amortization of transition obligation – – (1,300) (1,200)Total recognized in other comprehensive income 254,300 (16,300) 11,100 4,100Net periodic benefit cost 20,600 30,400 8,400 8,200Total recognized in net periodic benefit cost

and other comprehensive income $ 274,900 $ 14,100 $ 19,500 $ 12,300

The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2012 are as follows:

pension and Supplemental benefits other benefits

Actuarial loss $ 46,100 $ 6,200Prior service cost 2,200 –Transition obligation – 1,000Total $ 48,300 $ 7,200

assumptions

Weighted-average assumptions used to determine benefit obligations are as follows:

pension and Supplemental benefits other benefits Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

Discount rate 4.53% 5.27% 4.48% 5.25%Expected return on plan assets 7.52 7.67 6.00 6.00Rate of compensation increase 4.52 4.54 4.47 4.47

Assumed health care cost trend rates:

other benefits Dec. 31, 2011 Dec. 31, 2010

Initial rate 8.03% 8.50%Ultimate rate 5.00% 5.00%Years to ultimate 6 years 7 years

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

Weighted-average assumptions used to determine net periodic cost are as follows:

pension and Supplemental benefits other benefits Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

Discount rate 5.19% 5.73% 5.25% 5.76%Expected long-term return on plan assets 7.53 7.67 6.00 6.00Rate of compensation increase 4.55 5.01 4.47 4.97

Assumed health care cost trend rates:

other benefits Dec. 31, 2011 Dec. 31, 2010

Initial rate 8.53% 9.00%Ultimate rate 5.00% 5.00%Years to ultimate 7 years 8 years

pension and Supplemental benefit plan assetsThe Company’s pension plan asset allocation and target allocation are as follows:

target allocation percentage of plan assets Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2010

asset Class

Equity securities 65% 66% 68%Debt securities 27 18 21Cash equivalents 4 12 7Other 4 4 4Total 100% 100% 100%

The maturities of debt securities are as follows:

Dec. 31, 2011 Dec. 31, 2010

Maturity range 0-50 years 0-50 yearsWeighted-average maturity 9.52 years 9.15 years

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

The fair value measurements of pension and supplemental benefit plan assets at December 31, 2011, are as follows (refer to Note 3 for the valuation techniques):

Quoted prices in active markets Significant other Significant for Identical assets observable Inputs unobservable Inputs asset Class total (level 1) (level 2) (level 3)

Equity securities (a): Mutual Funds $ 263,400 $ 132,300 $ 131,100 $ – Information Technology 175,700 175,700 – – Energy 139,000 139,000 – – Industrials 118,500 118,500 – – Health Care 114,400 114,400 – – Consumer Staples 106,900 106,900 – – Financials 90,500 90,500 – – All other sectors 198,200 198,200 – – Total equity securities 1,206,600 1,075,500 $ 131,100 –Debt securities (b): U.S. Treasury securities

and obligations of U.S. government agencies 48,300 – 48,300 –

Mortgage and asset-backed securities Agency 82,000 – 82,000 – Commercial 19,300 – 19,300 – Residential 5,900 – 5,900 – Other mortgage and

asset-backed securities 13,300 – 13,300 –U.S. corporate securities 83,400 – 83,400 –Mutual funds 70,400 – 70,400 –Other debt securities 7,900 – 7,900 – Total debt securities 330,500 – 330,500 –Cash equivalents 220,000 220,000 – –Other (c) 76,000 – – 76,000Total $ 1,833,100 $ 1,295,500 $ 461,600 $ 76,000

(a) Includes common stocks and equity mutual funds of which $94,800 were on loan under a securities lending

program as of December 31, 2011.

(b) Includes $46,200 of debt securities that were on loan under a securities lending program as of December 31, 2011.

The total collateralized value of these loaned securities for both items (a) and (b) was $144,400 and consisted of

$122,800 in Level 1 short-term and money market investments and $21,600 in Level 2 government agency fixed

income securities.

(c) Includes private equity partnerships.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

The change in the fair value of the Level 3 Plan investments during 2011 was as follows:

other Investments

Balance at January 1, 2011 $ 58,000Realized loss 500Unrealized gain relating to instruments still held at the reporting date 3,300Purchases, sales, issuances and settlements (net) 14,200Balance at December 31, 2011 $ 76,000

The fair value measurements of pension and supplemental benefit plan assets at December 31, 2010, are as follows (refer to Note 3 for the valuation techniques):

Quoted prices in active markets Significant other Significant for Identical assets observable Inputs unobservable Inputs asset Class total (level 1) (level 2) (level 3)

Equity securities (a): Mutual Funds $ 260,900 $ 142,100 $ 118,800 $ –Information Technology 171,700 171,700 – –Energy 118,000 118,000 – –Industrials 107,800 107,800 – –Health Care 105,800 105,800 – –Consumer Staples 94,800 94,800 – –Financials 91,100 91,100 – –All other sectors 145,400 145,400 – –Total equity securities 1,095,500 976,700 118,800 –Debt securities (b): U.S. Treasury securities and obligations

of U.S. government agencies 46,400 – 46,400 –Mortgage and asset-backed securities Agency 88,400 – 88,400 – Commercial 19,100 – 19,100 – Residential 5,900 – 5,900 – Other mortgage and

asset-backed securities 18,100 – 18,100 –U.S. corporate securities 82,000 – 82,000 –Foreign government securities 1,000 – 1,000 –Mutual funds 64,900 – 64,900 –Other debt securities 9,900 – 9,900 –Total debt securities 335,700 – 335,700 –Cash equivalents 122,600 122,600 – –Other (c) 58,000 – – 58,000Total $ 1,611,800 $ 1,099,300 $ 454,500 $ 58,000

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

(a) Includes common stocks and equity mutual funds of which $89,200 were on loan under a securities

lending program as of December 31, 2010.

Includes $118,800 of equity securities reclassified from Level 1 to Level 2 based on additional information

(b) Includes $56,800 of debt securities that were on loan under a securities lending program as of December

31, 2010. The total collateralized value of these loaned securities for both items (a) and (b) was $149,500 and

consisted of $116,400 in Level 1 short-term and money market investments and $33,100 in Level 2 government

agency fixed income securities.

(c) Includes private equity partnerships.

The change in the fair value of the Level 3 Plan investments during 2010 was as follows:

other Investments

Balance at January 1, 2010 $ 46,600Realized loss (3,000)Unrealized gain relating to instruments still held at the reporting date 5,800Purchases, sales, issuances and settlements (net) 8,600Balance at December 31, 2010 $ 58,000

other postretirement benefit plan assetsThe Company’s other postretirement benefit plan asset allocation and target allocations are as follows:

target allocation percentage of plan assets Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2010

asset Class

Equity securities 90% 86% 88%Debt securities – – –Cash equivalents 10 13 11Other – 1 1Total 100% 100% 100%

The maturities of debt securities are as follows:

Dec. 31, 2011 Dec. 31, 2010

Maturity range 1-3 years 1-4 yearsWeighted-average maturity 2.80 years 2.95 years

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

The fair value measurements of other postretirement benefit plan assets at December 31, 2011, are as follows (refer to Note 3 for the valuation techniques):

Quoted prices in active markets Significant other Significant for Identical assets observable Inputs unobservable Inputsasset Class total (level 1) (level 2) (level 3)

Equity securities: Mutual Funds $ 9,600 $ 9,600 $ – $ – Information Technology 18,500 18,500 – – Energy 12,900 12,900 – – Industrials 10,500 10,500 – – Healthcare 10,000 10,000 – – Consumer Staples 11,200 11,200 – – Financials 8,200 8,200 – – All other sectors 13,500 13,500 – –Total equity securities 94,400 94,400 – –Debt securities: U.S. corporate securities 200 – 200 –Total debt securities 200 – 200 –Cash equivalents 14,800 14,800 – –Other (a) 800 – – 800Total $ 110,200 $ 109,200 $ 200 $ 800

(a) Includes private equity partnership.

The fair value of the Level 3 Plan investments for the year ended December 31, 2011 is immaterial.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

The fair value measurements of other postretirement benefit plan assets at December 31, 2010, are as follows (refer to Note 3 for the valuation techniques):

Quoted prices in active markets Significant other Significant for Identical assets observable Inputs unobservable Inputsasset Class total (level 1) (level 2) (level 3)

Equity securities: Mutual Funds $ 12,000 $ 12,000 $ – $ – Information Technology 20,800 20,800 – – Energy 12,500 12,500 – – Industrials 9,300 9,300 – – Healthcare 11,800 11,800 – – Consumer Staples 11,000 11,000 – – Financials 10,500 10,500 – – All other sectors 12,100 12,100 – –Total equity securities 100,000 100,000 – –Debt securities: U.S. corporate securities 200 – 200 –Total debt securities 200 – 200 –Cash equivalents 13,000 13,000 – Other (a) 900 – – 900Total $ 114,100 $ 113,000 $ 200 $ 900

(a) Includes private equity partnership.

The fair value of the Level 3 Plan investments for the year ended December 31, 2010 is immaterial.

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Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

Pension and Postretirement Plan Asset Investment NarrativeThe investment policy of the Pension Plan specifies the type of securities that may be used, limits on the amount of the asset classes and subclasses, and general principles used in managing the plan’s assets. The overriding objective is to maximize long-term total return of plan assets within constraints established to control risk and volatility. Three primary asset classes represent the first layer of asset allocation, these being equity securities, debt securities, and cash equivalents. Since equity securities are expected to provide the highest long-term total return, exposure to equities is emphasized. Current approved ranges for the three asset classes are as follows:

asset Class range

Equity securities 50-80%Debt securities 20-50%Cash equivalents 0-10%

Equity securities include individual common stocks as well as equity mutual funds and private equity partnerships. All common stock investments are based on fundamental analysis of investment variables, including earning pros-pects, cash flow, balance sheet strength, competitive positioning and other factors. Diversification is emphasized, with specific size limits on individual stocks, international-oriented mutual funds, small capitalization-oriented funds and private equity. Investment returns are benchmarked against standard indices including the S&P 500 and MSCI global stock indices. In the taxable Postretirement Plan, equities are more heavily weighted based partly on favor-able tax considerations.

Debt securities include individual securities, primarily in the high-grade taxable subcategory, as well as an outside managed portfolio of U.S. high-yield bonds. Debt securities are actively managed, using many of the same investment disciplines as in the Company’s general account. These disciplines include an intermediate-term duration, diversifica-tion of securities, and ongoing analysis of the fundamental and valuation factors underlying the securities owned.

Short-term investments, defined as debt securities with maturity of less than one year, are held primarily for liquidity purposes. Safety of principal is the primary consideration of investment in this asset class, and so only the highest quality investments are used. This will principally be money market funds and commercial paper carrying the highest quality ratings.

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fm global annual report 2011 57

Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 10. Retirement Income Plans and Postretirement Benefit Plans Other than Pensions (continued)

Expected rate of return assumptions are created based on assessments of future behavior of asset classes. As part of the process, historical relationships are considered. Using a three- to five-year outlook, estimates of numerous variables have been combined to gauge economic growth potential. Corporate cash flows are correlated with economic growth but also reflect productivity trends, with positive cash flow trends driving favorable return to equity owners. Debt security returns are expected to approximate their historical relationship with equity securities and produce somewhat lower returns with a lower level of volatility.

Cash flowsemployer Contributions pension and Supplemental benefits other benefits

2010 $ 246,000 $ 11,7002011 250,200 11,8002012 (expected) 14,100 11,800

Contributions by participants to the other benefit plans were $2,700 and $2,600 for the years ending December 31, 2011 and 2010, respectively.

pension and other benefits Supplemental other (government benefit payments benefits benefits Subsidy)

2010 $ 54,300 $ 12,800 $ 1,2002011 56,400 13,000 1,200

pension and other benefits Supplemental other (government estimated future payments benefits benefits Subsidy)

2012 $ 64,700 $ 13,100 $ 1,3002013 67,600 13,300 1,4002014 73,400 13,500 1,5002015 76,400 13,400 1,6002016 80,300 13,400 1,6002017-2021 480,300 64,000 9,300

The Company also sponsors a 401(k) savings plan whereby eligible employees may elect annually to contribute from 1 percent to 50 percent of their base pay on a pretax or after-tax basis. Employee contributions are restricted to Internal Revenue Service limits. The Company matches pretax contributions up to 6 percent of the employee’s base pay. Company contributions to the plan were $17,200 in 2011 and $15,500 in 2010.

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58 fm global annual report 2011

Notes to Consolidated Financial Statements (in thousands) December 31, 2011 and 2010

Note 11. Debt

Total bank lines of credit amounted to $2,400 and $102,400 at December 31, 2011 and 2010, respectively. The 2010 lines included a $100,000 five year line that expired April 3, 2011. The remaining lines are renewable each year. There were no outstanding balances on these lines at December 31, 2011 and 2010. The Company complied with the line of credit covenant requirements during 2011 and 2010.

Note 12. Components of Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income at December 31, 2011 and 2010, are as follows:

2011 2010

Net unrealized appreciation in investments in debt and equity securities, net of income tax expense of $618,800 for 2011 and $706,000 for 2010 $ 1,174,500 $ 1,346,200

Pension adjustment for defined benefit pension and other postretirement plans, net of income tax benefit of $308,800 for 2011 and $215,900 for 2010 (583,500) (411,000)

Net foreign currency translation, net of income tax expense of $35,200 for 2011 and $33,600 for 2010 (8,800) 3,800

Accumulated other comprehensive income $ 582,200 $ 939,000

The reclassification adjustments for gains recognized in net income are $269,800 and $149,800 for 2011 and 2010, respectively.

Note 13. Subsequent Events

Subsequent events were evaluated through February 17, 2012, the date the financial statements were available to be issued. No material transactions occurred after the balance sheet date that would impact the financial statements.

FM Global 2011 Annual Report - [PDF Document] (57)

Management ............................................................................................... page 60

Risk Management Executive Councils ......................................................... page 61

Advisory Boards .......................................................................................... page 64

Board of Directors........................................................................................ page 68

Corporate Governance

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60 fm Global annual report 2011

Management

Shivan S. SubramaniamChairman andChief Executive Officer

Jonathan W. HallExecutive Vice President

thomas a. lawsonExecutive Vice President

bret n. ahnellSenior Vice PresidentWestern Division

Gerardo l. alonsoSenior Vice PresidentClaims

Jeffrey a. burchillSenior Vice PresidentFinance

brion e. CalloriSenior Vice PresidentEngineering and Research

Kenneth W. DaveySenior Vice PresidentEMEA/Asia Pacific Division

rodney C. fisherSenior Vice PresidentUnderwriting and Reinsurance

James r. GallowaySenior Vice PresidentCentral Division

Chris JohnsonSenior Vice PresidentMarketing andEnterprise Learning

paul e. laflecheSenior Vice PresidentInvestments

Kenneth V. lavigneSenior Vice PresidentCanada Division

michael C. lebovitzSenior Vice PresidentDivision ManagerAffiliated FM

Jeanne r. liebSenior Vice PresidentInformation Services

John J. pomeroySenior Vice PresidentLaw and Governmental Affairs

enzo rebulaSenior Vice PresidentHuman Resources

michael r. turnerSenior Vice PresidentEastern Division

Ian bergVice PresidentAustralia Operations

Dennis J. bessantVice PresidentAsia Operations

Kevin l. bradshawVice PresidentForest Products Operations

benoit CharbonneauVice PresidentMontreal Operations

Carmen D’angeloVice PresidentChemical Operations

thomas m. DuselVice PresidentReal Estate

richard m. GillenVice PresidentMutual Boiler Re

achim HillgrafVice PresidentCentral Europe Operations

Kevin S. IngramVice PresidentFinancial Services

James t. JohnsonVice PresidentSan Francisco Operations

Gervais landryVice PresidentAffiliated FM

William m. loncharVice PresidentAtlanta Operations

David l. mackinVice PresidentAffiliated FM

William a. mekrutVice PresidentTreasury

brian m. nyquistVice PresidentCleveland Operations

paul J. pendolinoVice PresidentAffiliated FM

ray K. phillipsVice PresidentBoston Operations

George J. plesceVice PresidentWashington D.C., Operations

marc e. ragazziVice PresidentLatin America Operations

Vincent a. reydaVice PresidentNew York Operations

malcolm C. robertsVice PresidentDallas Operations

Denis C. ShineVice PresidentSt. Louis Operations

alex S. tadmouryVice PresidentSouthern Europe Operations

David r. thomanVice PresidentLos Angeles Operations

David m. thompsonVice PresidentToronto Operations

Stefano tranquilloVice PresidentNorthern Europe Operations

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fm Global annual report 2011 61

Risk Management executive Councils

Canada DivisionCarol a. CampbellVice PresidentRisk ManagementEmpire Company Limited

anne J. ChalmersVice PresidentRisk and SecurityTeck Resources Limited

Joe GianniniDirector Risk ManagementFuture Electronics Inc.

terry HendersonGlobal Insurance ManagerShawCor Ltd.

Suzanne HoffertManager, InsuranceATCO Ltd.

John D. KerrDirector, Corporate Riskand InsuranceBank of Montreal

Drew KilbackDirector, Risk and EnvironmentCatalyst Paper Corporation

marilyn p. leonardManagerCorporate Risk and InsuranceNALCOR Energy Inc.

Véronick marcotteVice President,Risk Management and InsuranceTembec Industries Inc.

Cynthia mathewsRisk ManagerRoyal Utilities Income Fund

robert patzeltVice PresidentRisk Management and General CounselScotia Investments Limited

Kim rogersonSenior ManagerRisk Management and InsuranceDomtar Corporation et Al

adib SamaanDirector – Risk ManagementJ.D. Irving, Limited

Webb StanleyDirectorRisk Management and InsuranceAbitibiBowater Inc.

David r. StewartVice President, Property Taxand InsuranceIvanhoe Cambridge

linda StojcevskiDirectorGlobal Risk ManagementMagna International Inc.

Central DivisionJames r. averittDirector, Risk ManagementVulcan Materials Company

lara baughDirector, Risk ManagementDeere & Company

brian W. beeghlyExecutive Director, Risk ManagementJohnson Controls, Inc.

Julie DavisDirector, Global Risk ManagementThe Goodyear Tire & Rubber Company

Stephen S. DiGiacintoDirectorRisk Management ServicesHallmark Cards, Inc.

philip l. fosterSenior Vice President and Chief Risk OfficerCatholic Health Initiatives

robert D. GarsideDirector, Credit and RiskBall Corporation

Karen J. GoldenSenior Vice PresidentRisk Management and Real EstateRR Donnelley

Chad C. JacksonStaff Director, Risk ManagementFedEx Corporation

Steve JaegerSenior Director, Risk Management and InsuranceStryker Corporation

Hal D. larsonVice President, Risk ManagerMuscatine Foods Corporation

Gail m. meyerManager, Corporate Propertyand Casualty DivisionCaterpillar Inc.

mark meyerManager, Corporate RiskSteelcase Inc.

rob milliganDirector, Risk ManagementTRW Automotive Inc.

paul e. morrisonDirector – Risk ManagementEmerson Electric Co.

marc H. SalmVice PresidentRisk ManagementPublix Super Markets, Inc.

Karen H. SullivanVice PresidentRisk Management and InsuranceCommunity Health Systems

Claudia p. templeAssistant TreasurerGlobal Risk Management and InsuranceKraft Foods Inc.

Douglas a. troupeDirector, Insurance andRisk ManagementTenaska Inc.

bill WhitmireDirector – Corporate Risk ManagementShaw Industries, Inc.

Eastern Divisionronald allenDirector of Risk ManagementAltria Client Services Inc.

anthony avitabileDirector of IndustryRisk ManagementMajor League Baseball

Scott p. borupDirectorCorporate Risk ManagementJohnson & Johnson

James a. breedingDirector of Risk Managementand InsuranceRutgers, The State Universityof New Jersey

maria C. DiazDirector Global Risk ManagementXerox Corporation

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62 fm Global annual report 2011

Risk Management executive Councils

Jason DuffyVice PresidentInsurance and Risk ManagementFMR LLC

maryanne franciscoDirector, Risk ManagementNovartis Corporation

Donald J. HatcherDirector of Risk ManagementUnited States EnrichmentCorporation

Kathleen m. IrelandDirector, Global Risk andInsurance ManagementInternational Business MachinesCorporation

Christopher I. JohnsonAssistant TreasurerRisk ManagementTextron Inc.

Kevin p. langDirector ofRisk ManagementIngersoll-Rand Company

Gary W. langsdaleUniversity Risk OfficerThe PennsylvaniaState University

meredith leeDirector, Risk ManagementCovidien PLC

David H. mcClainDirector, Insurance and Fleet ServicesPPG Industries, Inc.

r. Scott mcCurdyManager – Insurance ProgramsGeneral Electric Company

brian W. merkleyGlobal Director,Corporate Risk ManagementHuntsman Corporation

William milaschewskiDirector, Risk ManagementCabot Corporation

edward J. molloyDirector, Insuranceand Risk FinancingAetna Inc.

terry novatnackDirector – Corporate Riskand InsurancePPL Corporation

thomas patchelDirector of Risk ManagementTE Connectivity Ltd.

J. Jeffrey purdyCorporate Risk DirectorComputer Sciences Corporation

peter f rouecheManager - Enterprise Risk and InsuranceEastman Chemical Company

theodore a. SchlertVice President,Risk Services and Chief Risk OfficerCatholic Health East

Charles W. Scott, Jr.Director, Risk ManagementFMC Corporation

Steven t. WilkingSenior Director ofGlobal Risk and Insurance Tishman Speyer Properties, L.P.

richard a. YostDirector – Risk ManagementCampbell Soup Company

EMEA/Asia Pacific Divisionrobert ashmoreGroup Insurance DirectorReckitt Benckiser plc

nicholas baileyGroup Risk ManagerBBA Aviation Plc

Klaus braukmannGroup Insurance ManagerConti Versicherungsdienst

andy brysonDirector, Propertyand Loss PreventionGlaxoSmithKline Plc

anders DahlströmGroup Risk ManagerSandvik AB

richard ealeyGroup Insuranceand Risk ManagerCobham Plc

martina fernández portoRisk Management DirectorINDITEX, S.A.

tim GuyGroup Insurance ManagerImperial Tobacco Group Plc

Carine Habay bonyCorporate Insurance DirectorGroup Danone

Wilhelm HaufHead of Accountingand Financial ReportingSGL Carbon SE

David HowellsDirector, Group Risk Management and InsuranceTetra Laval International

udo KappesSenior Manager PropertyEADS IRM GmbH

adrian latimerRisk and Insurance ManagerSchlumberger Oilfield Services

Kate loadesGroup Insurance and Risk ManagerPearson Plc

rené a. martinezDirector of Risk ManagementCEMEX, Global Funding S.á.r.l.

Chris mcCormackHead of Group Insurance and RiskReed Elsevier

Sunil mehraHead ofCorporate Insurance Dubai Aluminium Co Ltd

len mooreSenior Director, Property InsuranceDeutsche Post AG

Krister nymanPresidentAB Volvo Group

andré J. oude HergelinkGroup Risk and Insurance Manager TEN CATE ASSURANTIëN BV

björn-erik pagelsDirector, Group Fundingand InsuranceAhlstrom Corporation

FM Global 2011 Annual Report - [PDF Document] (61)

fm Global annual report 2011 63

pawel pietruchaDirectorGlobal Risk Management and InsurancePhilip Morris International Inc.

Isabella pöchmannManaging Director, InsuranceBehr Versicherungsdienst GmbH

peter rehbergDirector Corporate InsuranceMahle GmbH

Sabine SegorHead of Insurance/ Risk ManagementHugo Boss AG

lou VerstraetenVice PresidentCorporate Risk and InsuranceThe Nielsen Company B.V.

Johan WillaertCorporate Risk ManagerAgfa Gevaert N.V.

Western DivisionStephen andersonVice President and TreasurerSimpson Lumber Company, LLC

David e. arickAssistant TreasurerGlobal Risk ManagementInternational Paper Company

Douglas a. bachmanDirector of Risk ManagementRockTenn

tom bandoniSenior Manager, TreasuryCisco Systems, Inc.

anthony m. blackDirector, Risk ManagementCameron InternationalCorporation

timothy J. buntSenior Vice Presidentand Chief Risk OfficerCB Richard Ellis, Inc.

Kristen r. CarnevaliTreasury/Risk ManagerEsterline Corporation

andrea DudekDirector, Risk ManagementDell Inc.

lanette a. frostestadSenior Director ofRisk ManagementMcKesson Corporation

renee n. GarbusVice President,Assistant TreasurerPepsiCo, Inc.

Jackie HairExecutive DirectorRisk Management – CorporateIngram Micro Inc.

franc HangarterManaging Director – Corporate Insurance and Risk ManagementAmerican Airlines

richard e. HearnGeneral Manager Enterprise RiskMinerals & Metals Group (MMG)

Diane r. labradorAssistant Treasurer,Risk ManagementIntel Corporation

John W. lambdinAssistant Treasurer and Director of InsuranceWeyerhaeuser Company

rodrigo levyCorporate Business ControllerEmpresas CMPC

todd e. marumotoDirector,Risk ManagementMattel, Inc.

Kevin p. mcGinnisDirector of Risk Management/Benefits AdministrationThe Texas A&M University System

robert moussaidDirector,Risk and InsuranceEnergy Future Holdings Corp.

Drew porterRisk ManagerCinemark USA, Inc.

Ken rizviVice President and TreasurerON Semiconductor

paul D. ryttingDirector,Risk Management DivisionThe Church of Jesus Christof Latter-Day Saints

marty SimmonsenRisk ManagerBoise Inc.

John VinskiDirector, Corporate Insurance and ERMNV Energy

toni a. ViscontiCorporate Risk ManagerPrecision Castparts Corp.

Stephen m. WilderVice President,Risk ManagementThe Walt Disney Company

Soraya WrightDirector – CorporateRisk ManagementThe Clorox Company

Risk Management executive Councils

FM Global 2011 Annual Report - [PDF Document] (62)

Advisory boards

64 fm Global annual report 2011

Canadabrian r. baleSenior Vice President and Chief Financial OfficerATCO Ltd.

George J. bunzeVice Chairman and DirectorKruger Inc.

Doreen ColeSenior Vice PresidentElectricity ServicesEPCOR Utilities Inc.

robert m. DavisChairman andChief Executive OfficerThe Innovak Group

michel J. DumasExecutive Vice President, Financeand Chief Financial OfficerTembec Inc.

todd D. ebyVice President, Finance and Chief Financial OfficerHood Packaging Corporation

Gary J. fisherCorporate Vice PresidentFinance and AdministrationSamuel, Son & Co., Limited

William C. macleanChief Financial OfficerJ.D. Irving, Limited

andre martelPresident andChief Executive OfficerAluminerie Alouette Inc.

Kelvin l. nelsonExecutive Vice PresidentChief Financial Officer and SecretaryHigh Liner Foods Incorporated

peter C. rozeeSenior Vice PresidentCommercial and Legal AffairsTeck Resources Limited

D. todd SmithTreasurerTorstar Corporation

Derrick SturgeVice President, Finance and Chief Financial OfficerNALCOR Energy Inc.

peter G. WongChief Financial OfficerAlterra Power Corp.

EuropeDr. annette bellerDeputy Member of the BoardChief Financial OfficerB. Braun Melsungen AG

Stephen benadéCompany SecretaryComputacenter

oswald bubelFinance DirectorHager Electro GmbH

Jerome Cottin-bizonneVice PresidentDirector, Audit and DevelopmentPernod Ricard

Geoff D. CruikshanksDirector Legal AffairsDHL Worldwide Express

bernard de laguicheMember of theExecutive CommitteeChief Financial OfficerSolvay

michel DeCorteChief Financial OfficerIndaver

eric DrapéExecutive Vice President,Manufacturing andSupply OrganizationIpsen Pharma

Christopher m. GreenFinance DirectorNorthumbrian Water Limited

poul Hartvig nielsenGeneral Counsel,Senior Vice PresidentKIRKBI & LEGO Group

Jean-Jacques JegouChief Financial OfficerZodiac

Jean larmandeDeputy Chief Executive OfficerGroupe Soparind Bongrain

pierre-Xavier lemaireChief Financial OfficerRoquette Freres

andrea minguzziVice President, Finance and Chief Financial OfficerLecta Europe

tim murrayChief Financial OfficerAluminium Bahrain B.S.C. (c)

Denis mussonGroup General Counsel and Company SecretaryImerys

patrick noonanSenior Corporate Vice President,General Counsel and Secretary Nexans SA

Xavier roy-ContancinChief Financial OfficerSequana

Dr. oliver SchumyMember of the Management Board and Chief Financial OfficerThe Mayr-Melnhof Group

per thorénGroup TreasurerAB SKF

olle WallénGeneral CounselHusqvarna AB

United States Atlanta/DallasKenneth r. allenVice President, Finance and Chief Financial OfficerTexas Industries, Inc.

mario arreguínExecutive Vice PresidentFinance and Information SystemsServicios Administrativos Peñoles

frank H. boykinChief Financial OfficerMohawk Industries, Inc.

Jo ann fullerChief Financial OfficerEntegra Power Group, LLC

patrick GaussentChief Financial OfficerIPR-GDF SUEZ North America, Inc.

John W. GeeraertsAssistant General Manager and Chief Financial OfficerSeminole Electric Cooperative, Inc.

brian W. HobbsVice PresidentLegal and Corporate ServicesWestern Farmers ElectricCooperative

Kenneth G. JacksonExecutive Vice President and Chief Financial OfficerShaw Industries Group, Inc.

ralph e. lawsonExecutive Vice President and Chief Financial OfficerBaptist Health South Florida

patrick C. lynchSenior Vice President and Chief Financial OfficerInterface, Inc.

John o. museExecutive Vice PresidentFinance and AdministrationDarling International

FM Global 2011 Annual Report - [PDF Document] (63)

Advisory boards

fm Global annual report 2011 65

terry l. richardsonSenior Vice President Administration and SecretaryRiceland Foods, Inc.

Van l. richeyPresident andChief Executive OfficerAmerican Cast Iron Pipe Company

W. Clay robbinsSenior Vice President andChief Administrative OfficerOglethorpe Power Corporation

Daniel f. SansoneSenior Vice President and Chief Financial OfficerVulcan Materials Company

Judy a. SchmelingExecutive Vice President and Chief Financial OfficerHSN, Inc.

Dellmer b. Seitter, IIIVice President and Chief Financial OfficerPrintpack, Inc.

Steven C. VoorheesExecutive Vice PresidentChief Financial Officer andChief Administrative OfficerRockTenn

f. ferrell WaltonVice President and Chief Financial OfficerPowerSouth Energy Cooperative

mark WatkinsSenior Vice PresidentTechnology and ForestryMeadWestvaco Corporation

Chicago/St. Louispatrick e. allenSenior Vice President and Chief Financial OfficerRockwell Collins, Inc.

David a. bergPresidentAmerican Crystal Sugar Company

michael DeHavenSenior Vice President and General CounselBJC HealthCare

David a. DohnalekVice President of Finance and TreasurerThe Boeing Company

John t. DrexlerSenior Vice President and Chief Financial OfficerArch Coal, Inc.

Sheri H. edisonVice President, General Counsel and SecretaryBemis Company, Inc.

John C. fowlerExecutive Vice President and Chief Financial OfficerQuad/Graphics

matthew W. GeekieSenior Vice PresidentSecretary and General CounselGraybar Electric Company, Inc.

margaret C. KelseyVice President,Corporate Development,General Counsel and SecretaryModine Manufacturing Company

John J. KitaExecutive Vice President and Chief Financial OfficerA.O. Smith Corporation

Karen l. leetsVice President and TreasurerUSG Corporation

George C. mooreExecutive Vice PresidentRexnord Holdings, Inc.

bradley W. oachsChief Operating OfficerMinnesota Power

ronald n. QuinnExecutive Vice President andChief Strategy and Legal OfficerTenaska, Inc.

David J. rabeVice President and TreasurerEmerson

larry SchmidVice President and Chief Financial OfficerGreat River Energy

edward J. ScottCorporate TreasurerCaterpillar Inc.

Daniel J. SescleiferExecutive Vice President,Chief Financial OfficerEnergizer Holdings, Inc.

adam J. WatsonChief Financial OfficerBlueScope Steel North AmericaCorporation

Clevelandmark r. belgyaSenior Vice President and Chief Financial OfficerThe J.M. Smucker Company

Glenn a. eisenbergExecutive Vice PresidentFinance and AdministrationThe Timken Company

albert e. ferrara Jr.Vice President, Finance and Chief Financial OfficerAK Steel Corporation

William C. GaleSenior Vice President and Chief Financial OfficerCintas Corporation

bentraum D. HuffmanExecutive Vice President and Chief Financial OfficerEllwood Group, Inc.

Jeff maddoxChief Financial OfficerU.S. OperationsGordon Food Service

James m. milinskiSenior Vice President of Finance and TreasurerMTD Products Inc.

mark J. minnaughExecutive Vice PresidentChief Administrative OfficerGiant Eagle, Inc.

Vincent K. petrellaSenior Vice PresidentChief Financial Officer and TreasurerLincoln Electric Holdings, Inc.

William a. robertsVice President, Finance and Chief Financial OfficerBuckeye Power, Inc.

frank J. roddyChief Financial OfficerSwagelok Company

robert f. SchneiderExecutive Vice President and Chief Financial OfficerKimball International, Inc.

timothy p. SlottowExecutive Vice President and Chief Financial OfficerRegents of the University of Michigan

Stephen J. SmithSenior Vice PresidentChief Financial OfficerAmerican Greetings

nickolas a. VitaleExecutive Vice President and Chief Financial OfficerBeaumont Hospitals

FM Global 2011 Annual Report - [PDF Document] (64)

Advisory boards

66 fm Global annual report 2011

New Yorkthomas f. ackermanExecutive Vice President and Chief Financial OfficerCharles River Laboratories International, Inc.

laurence f. ChaplinAdministrative Vice PresidentSouthern Wine & Spirits of America

martin S. DorphSenior Vice President for Finance and BudgetNew York University

James n. fernandezExecutive Vice President and Chief Financial OfficerTiffany & Co.

James f. flynnSenior Vice PresidentFinance and AdministrationKing Kullen Grocery Co., Inc.

Kyle f. GendreauChief Financial Officer and Executive DirectorSamsonite International SA

Susan e. GonzalezVice President and General CounselInterGen N.V.

Craig C. HarnettSenior Executive Vice President and Chief Financial OfficerNational Hockey League

Stephen HoeyPartner, Administration and Chief Financial OfficerKPS Capital Partners, LP

russell makowskySenior Managing Director and Chief Financial OfficerTishman Speyer Properties

John a. papaTreasurerJohnson & Johnson

thomas H. peckChief Financial OfficerDaily News, L.P.

larry SchiffmanChief Financial OfficerSudler Management Corp.

michael a. ShafferExecutive Vice President and Chief Financial OfficerPVH

matthew m. WalshSenior Vice PresidentChief Financial OfficerCatalent Pharma Solutions

San FranciscoHoward ansonVice President of FinanceTriple Five Group of Companies

patricia m. bedientExecutive Vice President and Chief Financial OfficerWeyerhaeuser Company

michael a. blessExecutive Vice President and Chief Financial OfficerCentury Aluminum Company

thomas e. CarlileChief Executive OfficerBoise Cascade, LLC

Steve CondiottiVice President of Finance and Chief Accounting OfficerLucasfilm Ltd.

Charles n. eldredExecutive Vice President and Chief Financial OfficerPNM Resources

Vincent l. GranatoDirector of Financial andAdministrative Services andChief Financial OfficerPort of Portland

Kimball Hall Vice President of Corporate ManufacturingAmgen Inc.

Carol r. KaufmanExecutive Vice President, Secretary and Chief Administrative OfficerThe Cooper Companies

Dana m. KelleyVice President andChief Financial OfficerAmerican Pacific Corporation

Gary l. laveyVice President Internal Audit and Chief Risk OfficerNV Energy

richard J. martinExecutive Vice President,Finance and Administration and Chief Financial OfficerUnified Grocers, Inc.

Susan C. millerSenior Vice President,General Counsel and SecretaryAvery Dennison Corporation

maria m. popeSenior Vice President, Finance, Chief Financial Officer and TreasurerPortland General Electric

erik rasmussenSenior Vice PresidentCorporate General CounselMultiCare Health Systems

allan f. trinkwaldPresidentSimpson Investment Company

roger e. von tingVice President andChief Financial OfficerWatson Land Company

anthony l. YougaChief Financial OfficerE & J Gallo Winery

Washington, D.C./ PhiladelphiaHumberto p. alfonsoExecutive Vice President,Chief Financial Officer andChief Administration OfficerThe Hershey Company

Jonathan D. fainPresident and Chief Executive OfficerTeknor Apex Company

paul a. farrExecutive Vice President and Chief Financial OfficerPPL Corporation

robert e. fenzaExecutive Vice President and Chief Operating OfficerLiberty Property Trust

W. Kim fosterExecutive Vice President and Chief Financial OfficerFMC Corporation

bruce a. HeugelSenior Vice PresidentChief Financial OfficerB. Braun of America Inc.

John p. JacunskiSenior Vice President and Chief Financial OfficerGlatfelter

Hal S. JonesSenior Vice President – Finance and Chief Financial OfficerThe Washington Post Company

m. David KornblattExecutive Vice President,Chief Financial Officer and TreasurerTriumph Group, Inc.

John J. molinelliExecutive Vice President and Chief Financial OfficerAMETEK, Inc.

FM Global 2011 Annual Report - [PDF Document] (65)

Advisory boards

fm Global annual report 2011 67

francis J. norrisSenior Vice President,Treasury, Risk and AdministrationMannington Mills, Inc.

Daniel t. o’ConnellExecutive Vice President and Chief Financial OfficerQVC

James radinVice President –Global Supply Chain OperationsMcCormick & Company, Inc.

Joseph m. SavageExecutive Vice President and Chief Financial OfficerVictaulic Company

anthony e. WagnerExecutive Vice PresidentChief Financial Officer and TreasurerTemple University

lawrence H. Wilt Jr.Vice President andChief Financial OfficerTitan America LLC

FM Global 2011 Annual Report - [PDF Document] (66)

68 fm Global annual report 2011

frank t. Connor FExecutive Vice President andChief Financial OfficerTextron Inc.

Walter J. Galvin E FVice ChairmanEmerson Electric Co.

John a. luke Jr. C EChairman andChief Executive OfficerMeadWestvaco Corporation

Jonathan D. mariner AExecutive Vice President, Finance andChief Financial OfficerMajor League Baseball

Gracia C. martore FPresident andChief Executive OfficerGannett Co., Inc.

Christine m. mcCarthy AExecutive Vice PresidentCorporate Real Estate, Sourcing,Alliances and TreasurerThe Walt Disney Company

robert J. o’toole A C EDirector and Retired Chairman andChief Executive OfficerA.O. Smith Corporation

John r. paloian FChief Operating OfficerRR Donnelley

David pulman CPresidentGlobal Manufacturing and SupplyGlaxoSmithKline

edward J. rapp AGroup President andChief Financial OfficerCaterpillar Inc.

Graham b. Spanier APresident EmeritusThe Pennsylvania State University

Shivan S. Subramaniam E FChairman andChief Executive OfficerFactory Mutual Insurance Company

James C. thyen CPresident andChief Executive OfficerKimball International, Inc.

alfred J. Verrecchia CChairman of the BoardHasbro, Inc.

A audit Committee C Compensation Committee E executive Committee F finance Committee

Board of Directors

FM Global 2011 Annual Report - [PDF Document] (67)

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P12000 Printed in USA © 2012 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 2011

Nearly 80 percent of this book is made from alternative fiber choice paper that is derived from cotton, bamboo or sugarcane bagasse, rather than from trees. A percentage of paper from this report is recycled and certified elemental chlorine-free.

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