Asbestos Threat Remains: Equitas

By Lisa S. Howard, London Editor

NU Online News Service, June 21, 11:07 a.m. EST,London?Equitas in disclosing its latest financial resultssaid while asbestos claims continue to threaten long?termstability, further reserve strengthening was not immediatelyrequired.

Commenting on its report for the year ended March 31, 2002,Equitas Chairman Hugh Stevenson said, "Asbestos claims continue tobe the greatest single threat to the stability of Equitas."

In the two years ended March 31, 2001, the London-based Equitasincreased gross undiscounted provisions for future asbestos claims(undiscounted asbestos reserves) by a total of ?3.2 billion ($4.6billion).

Equitas was set up to reinsure and run off the 1992 and prioryears' non-life liabilities of Lloyd's of London.

However, both positive and negative developments during the yearended March 31, 2002, led the company to determine that it was notnecessary "to make any further overall increase in the grossdiscounted provisions for future asbestos claims payments," Mr.Stevenson said in a statement.

Michael Crall, Equitas' chief executive officer, said the yearhad seen a continuing stream of asbestos bankruptcies, a largenumber of high profile court awards and no relief from the level ofnew claims filings.

Nevertheless, the impact of the company's claims managementstrategy and a more favorable assessment of inward reinsuranceestimates "led us to conclude that it was not necessary to adjustthe level of discounted asbestos reserves at the year end," hesaid.

In its annual financial results for the year ended March 31,2002, Equitas announced that accumulated surplus after taxdecreased by ?21 million ($30 million), from ?700 million ($1billion) to ?679 million ($971 million).

Since Equitas was set up in September 1996, accumulated surplushas increased from ?588 million ($840.8 million) to ?679 million($971 million).

Equitas' solvency margin, which is accumulated surplus stated asa percentage of net claims outstanding, increased from 9.5 percentto 10.3 percent. Since Equitas began operations, the solvencymargin has increased from 5.6 percent to 10.3 percent.

Mr. Stevenson said, "The decrease in surplus is primarily due totechnical additions to reserves for a number of categories ofbusiness, including a re-estimation of future reinsurancerecoveries.

"Notwithstanding the decrease in surplus, however, the solvencymargin has risen as a result of the significant fall in net claimsoutstanding during the year."

Gross claims paid for all types of coverage, which includesclaims resolved through commutation agreements, amounted to ?1.4billion ($2 billion) in the year ended March 31, which dropped from?2.1 billion ($3 billion) in the previous year.

"The decrease in claims paid reflects not only the gradualreduction in Equitas' claims activity over time, but also the factthat many of the largest claims managed by Equitas have beenclosed," the company said.