Analyst: ACE Will Add $400M Asbestos Reserve

Analyst: ACE Will Add $400M Asbestos Reserve

NU Online News Service, June 17, 3:54 p.m. EDT?An investment firm analyst is forecasting that a comprehensive asbestos study planned by Bermuda-based insurer ACE Ltd. will result in a $400 million reserve strengthening, pretax, by the company later this year.[@@]

The company had no immediate comment, but said they would have a response later.

Chris Winans, an equity analyst from New York-based Lehman Brothers, said he reached that conclusion by comparing the ACE upcoming study, which will be the company's second major review of its asbestos reserve situation, with other similar studies already undertaken by ACE's asbestos-exposed competitors.

"Our 2004 estimate assumes a $400 million addition to asbestos reserves later this year," Mr. Winans commented in his research report. "We expect the company will disclose the results of its next study later this year. Our estimated charge represents about 14 percent of its existing gross asbestos reserves of about $2.9 billion."

Mr. Winans acknowledged that as an outsider, he recognizes the difficulty in estimating asbestos losses "when experts inside the companies have not been able to get it right themselves."

But he explained that his own forecast of the $400 million asbestos hit was made by looking at comparable asbestos studies already conducted by ACE competitors: Chubb Corp. in Warren, N.J.; the Chicago-based CNA Financial Corporation; and The St. Paul Companies, now part of The St. Paul Travelers Companies Inc. in St. Paul, Minn.

Mr. Winans said, "What we considered in arriving at our forecast was what ACE's asbestos-exposed competitors did when they conducted their second major reviews of asbestos reserves, which is what ACE is undertaking this year."

In their second major asbestos reserve reviews, Mr. Winans observed, Chubb and CNA Financial each added to reserves by more than 20 percent of their existing gross reserves, while The St. Paul Companies increased its asbestos reserves by about 9 percent of its existing gross reserves.

Examining these results, Mr. Winans said, "We think ACE's exposure lies somewhere in the middle, as St. Paul Travelers had already settled its largest asbestos exposure, while Chubb and CNA were adding to much smaller bases of existing asbestos reserves than ACE will be."

ACE took on an asbestos exposure with its purchase of Westchester Specialty in 1998, as well as the property-casualty business of CIGNA in 1999, with most of the asbestos liabilities coming from CIGNA's balance sheet. ACE had bought reinsurance against asbestos losses from National Indemnity at the time of the acquisition, but it was exhausted with ACE's 2002 asbestos reserve boost.