A.M. Best: A&E Losses To Hit $121 Billion

The figure is based on A.M.Best proprietary data combined with data disclosed under the National Association of Insurance Commissioners' "Footnote 29″ reporting requirements for year-end 2001.

Best noted that there have been a number of financially significant developments recently. Best cited PPG Industries' announcement in May of a tentative settlement of $2.7 billion, before taxes and discounting, for all current and future asbestos claims related to its 50 percent ownership in the bankrupt Pittsburgh Corning affiliate.

It also mentioned that more than 30 insurers are expected to fund two-thirds of this settlement, with Travelers Property Casualty Group taking a $240 million share; Hartford Insurance Group taking a $120 million-to-$150 million share; and Chubb Group of Insurance Companies taking a $34 million share, all after taxes.

The company cited the July announcement by St. Paul Companies of a $1 billion settlement in a suit against its USF&G subsidiary that insured Western MacArthur Companies, incurring a $585 million pretax loss this year.

Best listed as its other "key findings for 2001″ as:

? Of the total $4.4 billion in asbestos and environmental incurred losses, nearly $4.1 billion was related to asbestos exposures alone.

? Overall asbestos and environmental payouts increased 2 percent, reversing a two-year decline.

Best said that until recently, the "Manville model" was the only practical response to the growing number of claims. It was explained that the model–based on the Johns-Manville bankruptcy in 1982–involved filing for bankruptcy, setting up a trust fund and then attempting to emerge from bankruptcy.

Best mentioned that several new approaches for mitigating potential losses have been developed in response to the continuing claims:

?Babcock & Wilcox, which filed for bankruptcy protection in 2000, Best said, is challenging the validity and value of asbestos claims in the court system, while W.R. Grace & Company and USG Corp. also are using this method to help identify valid asbestos claims.

? Honeywell International and Halliburton are attaching asbestos claims to companies already in Chapter 11.

? CSX Transportation, Norfolk Southern Railway and Conrail, Best said, have reportedly persuaded the U.S. Supreme Court to hear arguments against paying otherwise-healthy claimants who are worried about getting asbestos-related illnesses.

? Insurers, Best said, have begun to tighten their claims documentation requirements by requiring a minimum level of proof before making payments.

Despite these efforts, Best said its outlook for the insurance industry's exposure to accelerating asbestos losses remains negative, based on the belief that the industry's unfunded asbestos position is roughly $28 billion and its unfunded environmental exposures at approximately $25 billion.