Asbestos Still Unfunded By $45B: Best

A study by A.M. Best Co. says the amount of asbestos risk unfunded by carriers has dropped, but a wave of new litigation threatens existing reserves and insurers need to do more to pump up reserves.

In a report titled “Asbestos Wave Rises; Crest Yet to Come,” the Oldwick, N.J.-based insurance rating firm painted a worrisome picture of the future of asbestos and environmental related risks. The 14-page report said there remains $45 billion in unfunded asbestos and environment risk ($20 billion for asbestos; $25 billion for environmental), in spite of the asbestos reserve hikes some carriers have made since Best published its 2001 estimates.

In 2001, Best said it estimated the property-casualty industry would ultimately pay out a total of $121 billion in asbestos and environment losses. It then estimated that $53 billion of that total was unfunded, as of year-end 2001.

While there were $8 billion in charges made by various p-c carriers during 2002, Best said that more insurers need to strengthen their reserves. The firm said in its opinion, based on analysis of its data and data disclosed under requirements of the National Association of Insurance Commissioners (in Note 29 of insurer annual statements), that the p-c industry, “principally commercial insurers, and to a lesser extent professional reinsurers,” remains underfunded by nearly 40 percent.

Best said incurred losses (paid losses plus reserve changes) have “surged” from a three-year average of $1.7 billion from 1998 to 2000, to $4 billion in 2001. An additional $8 billion in asbestos losses were incurred in 2002.

The rating agency said it expects to see sizeable charges to take place during 2003.

Best said some of the root causes for this surge in claims include:

The spread of litigation to peripheral defendants.

The collapse of payment plans to settle claims.

The packaging of plaintiff cases to leverage against defendants and their insurers.

A rise in the number of asbestos practices among plaintiff attorneys.

Best also said that some companies are subject to downward rating pressurein particular, companies with greater uncertain and unfunded exposures in relation to surplus and future earnings. Best added that the ability of these companies to come to terms with their asbestos and environment exposures remains questionable because of the current economic climate, diminished investment opportunities and weaknesses in non-A&E reserves.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.