Insurers To Pay $1.7B In Asbestos Deal

By Susanne Sclafane

NU Online News Service, May 15, 2:00 p.m. EST--More than three dozen property-casualty insurers will contribute $1.7 billion to a $2.7 billion asbestos liability settlement, representatives of Pittsburgh-based PPG Industries have announced.

PPG said that the company, most of its insurers, and representatives of asbestos claimants reached an agreement to settle all current and future personal injury claims against PPG and Pittsburgh Corning for asbestos products manufactured, distributed or sold by the companies.

PPG's exposure arises as a 50 percent shareholder in Pittsburgh Corning, which manufactured asbestos-containing, high-temperature pipe insulation from 1962 to 1972, and filed for bankruptcy in 2000 as a result of asbestos claims.

Separately, Travelers Property Casualty and The Hartford Financial Services Group announced their participation in the settlement. Travelers said the present value of its exposure is $240 million, while Hartford put its exposure at $120-to-$150 million, net of discounting and reinsurance.

During a conference call, Raymond W. LeBoeuf, chairman and chief executive officer of PPG, said that more than three dozen insurers are participating in the settlement, while somewhere between five and seven of its insurers will not participate. Those that are not participating "were not big players," he said, noting that some of the non-participants are themselves in liquidation. Travelers and Hartford are the two "primary guys and they are full players," he said.

Terms of the settlement allow PPG and each of its insurers, separately, to opt to pay their portions of the settlement either in a lump sum in 2004, or over a 21-year period to begin next year. Each participant--all of which independently signed memorandums of agreement with the asbestos creditors committee created in the bankruptcy of Pittsburgh Corning--will make payments to a trust fund set up for this purpose.

Because each participant has signed a separate agreement, the failure of any one individual participant to fulfill its obligations does not impact the others, Mr. LeBeouf said.

He also said that all participants are using a 5.5 percent interest rate to arrive at discounted values of the present value of their contributions. Using that discount rate, for example, PPG said the present value of its exposure is $500 million, but that the ultimate payments that it will make into the trust will accumulate to $1 billion of the $2.7 billion.

Mr. LeBoeuf said no filings have yet been made revealing the names of the other insurance company participants. "It's going to be 30 days or so before court filings will be made with a listing of full participants," he said. "Given the present situation, I think you're going to have to wait for that," he added, noting that the settlement is subject to a number of contingencies, including approval by the bankruptcy court supervising the reorganization of Pittsburgh Corning.

In a research note released last week, Brian Meredith, a research analyst for Banc of America Securities in New York, estimated that the present value of the exposure for the remaining insurers at roughly $340 million.

Travelers said that its contribution to the proposed settlement will be covered by reserves and additional charges. The Hartford-based insurer added that it expects to recover all or a substantial portion of any additional charges under an existing indemnification agreement with Citigroup Inc. with respect to asbestos claims and related litigation.

The Hartford Financial Services Group said that its portion will be drawn from the company's existing reserves for asbestos claims, and that the company would not incur an earnings charge for this exposure.

Responding to the question of whether this settlement would indeed be final, or whether it could face challenges, PPG General Counsel James Diggs pointed to a specific provision of the bankruptcy code--Section 524 (g)--passed in 1994. That provision, allowing a debtor company and its shareholders to participate in a settlement that deals with both pending and future liabilities, wasn't available for bankrupt companies proposing settlements in prior years, he noted.

He also pointed out that Pittsburgh Corning by itself had assets of only $150 million and insurance of $250 million. Taking Pittsburgh Corning through a direct bankruptcy process would result in $400 million being available to the creditors, he said, noting that the additional $2.7 billion was "compelling" enough to get the full support of the asbestos creditors committee in the bankruptcy. "Others [asbestos defendants] may not have this option. It's a bankruptcy-related issue that has to do with shareholder interests," Mr. LeBeouf said.

Mr. LeBeouf also responded to an analyst who suggested that the settlement, which covers liabilities for 116,000 existing claims, seemed to produce a high per-claim value of $23,000. "You're neglecting new claims," he said, noting that while the bankruptcy of Pittsburgh Corning had put a stay on new claim filings, other companies have faced "a feeding frenzy."

"You're talking hundreds of thousands of claims in addition to the numbers we had at the point Pittsburgh Corning went into bankruptcy," he added, stressing that the settlement will cover those additional claims that will be filed in future years.

Michael Paisan, an insurance analyst for Williams Capital Group, told NU in an interview that he saw the PPG settlement as an encouraging sign for insurers, predicting that other asbestos defendants and their insurers would try to put the issue behind them with similar settlements. He noted, however, that while Hartford and Travelers had already reserved for their exposures, not all p-c insurers are in a similar position.

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Insurers To Pay $1.7B In Asbestos Deal

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