Analyst: ACE Will Add $400M Asbestos Reserve

NU Online News Service, June 17, 3:54 p.m.EDT?An investment firm analyst is forecasting that acomprehensive asbestos study planned by Bermuda-based insurer ACELtd. will result in a $400 million reserve strengthening, pretax,by the company later this year.[@@]

The company had no immediate comment, but said they would have aresponse later.

Chris Winans, an equity analyst from New York-based LehmanBrothers, said he reached that conclusion by comparing the ACEupcoming study, which will be the company's second major review ofits asbestos reserve situation, with other similar studies alreadyundertaken by ACE's asbestos-exposed competitors.

"Our 2004 estimate assumes a $400 million addition to asbestosreserves later this year," Mr. Winans commented in his researchreport. "We expect the company will disclose the results of itsnext study later this year. Our estimated charge represents about14 percent of its existing gross asbestos reserves of about $2.9billion."

Mr. Winans acknowledged that as an outsider, he recognizes thedifficulty in estimating asbestos losses "when experts inside thecompanies have not been able to get it right themselves."

But he explained that his own forecast of the $400 millionasbestos hit was made by looking at comparable asbestos studiesalready conducted by ACE competitors: Chubb Corp. in Warren, N.J.;the Chicago-based CNA Financial Corporation; and The St. PaulCompanies, now part of The St. Paul Travelers Companies Inc. in St.Paul, Minn.

Mr. Winans said, "What we considered in arriving at our forecastwas what ACE's asbestos-exposed competitors did when they conductedtheir second major reviews of asbestos reserves, which is what ACEis undertaking this year."

In their second major asbestos reserve reviews, Mr. Winansobserved, Chubb and CNA Financial each added to reserves by morethan 20 percent of their existing gross reserves, while The St.Paul Companies increased its asbestos reserves by about 9 percentof its existing gross reserves.

Examining these results, Mr. Winans said, "We think ACE'sexposure lies somewhere in the middle, as St. Paul Travelers hadalready settled its largest asbestos exposure, while Chubb and CNAwere adding to much smaller bases of existing asbestos reservesthan ACE will be."

ACE took on an asbestos exposure with its purchase ofWestchester Specialty in 1998, as well as the property-casualtybusiness of CIGNA in 1999, with most of the asbestos liabilitiescoming from CIGNA's balance sheet. ACE had bought reinsuranceagainst asbestos losses from National Indemnity at the time of theacquisition, but it was exhausted with ACE's 2002 asbestos reserveboost.