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Companies with strong physical risk management deliver more stable earnings

Businesses with stronger risk management practices than their peers enjoy more stable financial performance over the long term, including much lower earnings volatility, according to the findings of a new study of more than 500 large multinational companies.

Commissioned by FM Global and conducted by Oxford Metrica, the Risk/Earnings Ratio Study found that companies with best-practice property risk management programs produced earnings that were, on average, 40 percent less volatile than companies with less advanced risk management practices.

The study, available for download at www.fmglobal.com/study, presents evidence of a clear correlation between earnings volatility and physical risk management. Businesses with strong physical risk management programs produced earnings that fluctuated an average of 18 percent, compared with an average earnings volatility of more than 30 percent among companies with weak physical risk management practices.

"The key take-away from this study is clear: good risk management practices have the potential to improve earnings stability, which is a key driver of shareholder value," said Ruud Bosman, vice chair, FM Global.

The study findings are further supported by FM Global's internal quantitative research. According to extensive property loss data analyzed by FM Global, the average risk of property loss for companies with weak physical risk management practices is 20 times greater than for those with strong physical risk management practices. Companies with inferior practices were more than twice as likely to experience a property loss and related business disruption.

Large businesses with weak risk management practices, compared with those with strong risk management programs, experience on average:
- 55 times greater risk of property loss due to fire
- Fire losses that are four times more costly, an average US$3.2
million per loss, compared with US$725,000
- 29 times greater risk of property loss caused by hurricanes,
earthquakes and other natural hazards
- Natural catastrophe losses that are seven times more costly: an
average of US$3.4 million per loss compared with US$478,000.

The study compared the physical risk management practices of 520 large multinational companies with more than US$1 billion in annual revenue over a period of three years.

www.fmglobal.com
www.oxfordmetrica.com

•Date: 11th June 2010 • Region: US/World •Type: Article •Topic: BC facilities


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