Equitas Reserve Boosted By $630 Million

Further, Equitas' accumulated surplus after tax decreased by ?152 million ($240.2 million) from ?670 million ($1.1 billion) to ?527 million ($832.7 million).

During the year ended March 31, Equitas' solvency margin (accumulated surplus stated as a percentage of net claims outstanding) decreased from 10.3 percent to 8.7 percent.

At the same time, the investment return produced a deficit of ?72 million ($113.8 million), compared to a surplus of ?95 million ($150.1 million) generated in the year ended March 31, 2002.

"Asbestos remains the single greatest threat to Equitas," said Chairman Hugh Stevenson in a statement discussing the annual results of Equitas, the London company that was formed to reinsure and runoff the 1992 and prior years' non-life liabilities of Lloyd's.

Nevertheless, Equitas said its "survival ratio" compares well to a sample of U.S. insurers.

Equitas said its "three-year asbestos survival ratio, gross of reinsurance recoveries and excluding payments in respect of commutations and policy buyouts, was 24.6 [compared with 23.6 in 2002]," the company said. "This means it would take 24 years before Equitas would exhaust its undiscounted asbestos reserves, assuming that asbestos claims continue to be paid at the same underlying rate as during the previous three years."

In comparison, Equitas estimated, the average three-year asbestos survival ratio for a representative sample of U.S. insurers (which are not allowed to discount claims reserves) was 11.0 at Dec. 31, 2002, compared with 6.1 in 2001. The company explained the ratio was calculated gross of reinsurance recoveries but included payments in respect of commutations and policy buyouts.

"The balance sheet of Equitas is weaker than it was a year ago, and we still face significant uncertainties arising from matters over which we have little or no control," said Mr. Stevenson.

Gross claims paid for all types of coverage, which includes claims resolved through commutation agreements as well as the group's operating costs, amounted to ?1.1 billion ($1.7 billion) for the year ended March 31, 2003. This figure is down from ?1.4 billion ($2.2 billion) in the previous year, Equitas said.

"In addition to the gradual reduction of claims activity over time, the decrease in claims paid reflects the fact that Equitas has by now closed out many of its largest claims, either through policy buyouts or commutations," the company continued.

Equitas said it continued to make good progress in nearly all areas of claims. For example, during the past year, Equitas closed 57, or 18 percent, of the 312 open direct pollution claims pending at April 1, 2002. The company said it has now resolved 45 of the largest pollution claims that were pending at its inception.

"When Equitas was created it faced over 600 open direct pollution claims," the company affirmed. "Today, after taking into account new claims, the number of open direct pollution claims stands at 299."

Equitas said it also has made progress in settling non-APH (asbestos, pollution and health hazard) claims, which are known as "balance of account" claims. "Non-APH claims represent 20 percent of net discounted liabilities, down from 25 percent at March 31, 2002, and compared to 60 percent when Equitas began operations."

Equitas said it continues to examine developments regarding previously identified health hazards, which has resulted in some revisions of ultimate claims estimates in a few reserve categories. "In the aggregate, these revisions are not material."

Tobacco-related exposure will not create a significant liability for Equitas, the company affirmed, nor has any previously unknown health hazard been identified over the past year that could lead to material liability.