Equitas Cites Asbestos 'Threat'
London Editor
London
While asbestos claims continue to threaten the long-term stability of Equitas, further reserve strengthening was not required during the year ended March 31, 2002, according to the financial results released by the company.
"Asbestos claims continue to be the greatest single threat to the stability of Equitas," said Equitas Chairman Hugh Stevenson. In the two years ended March 31, 2001, the London-based Equitas increased gross undiscounted provisions for future asbestos claims (undiscounted asbestos reserves) by a total of 3.2 billion ($4.6 billion at current exchange rates). Equitas was set up to reinsure and run off pre-1993 non-life liabilities of Lloyds of London.
However, both positive and negative developments during the year ended March 31, 2002, led the company to determine that it was not necessary "to make any further overall increase in the gross discounted provisions for future asbestos claims payments," Mr. Stevenson said in a statement.
Michael Crall, Equitas chief executive officer, said the year had seen a continuing stream of asbestos bankruptcies, a large number of high-profile court awards, and no relief from the level of new claims filings (see related story on page 9).
Nevertheless, the impact of the companys claims management strategy and a more favorable assessment of inward reinsurance estimates "led us to conclude that it was not necessary to adjust the level of discounted asbestos reserves at the year end," he said.
In its annual financial results for the year ended March 31, 2002, Equitas announced that accumulated surplus after tax decreased by 21 million ($30 million) from 700 million ($1 billion) to 679 million ($971 million). Accumulated surplus was 588 million ($840.8 million) when Equitas was set up in September 1996.
Its solvency margin (which is accumulated surplus stated as a percentage of net claims outstanding) increased from 9.5 percent to 10.3 percent. When Equitas began operations, its solvency margin was 5.6 percent.
"The decrease in surplus is primarily due to technical additions to reserves for a number of categories of business, including a re-estimation of future reinsurance recoveries," said Mr. Stevenson. "Notwithstanding the decrease in surplus, however, the solvency margin has risen as a result of the significant fall in net claims outstanding during the year."
Gross claims paid for all types of coverage, which includes claims resolved through commutation agreements, amounted to 1.4 billion ($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 gradual reduction in Equitas claims activity over time but also the fact that many of the largest claims managed by Equitas have been closed," the company said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 1, 2002. Copyright 2002 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.
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