Equitas Mulls Asbestos Reserve Strength
NU Online News Service, Dec. 7, 3:22 p.m. EST?Equitas, which reinsures and is running off liabilities of Lloyd's syndicates prior to 1993, said it needs more study before it decides if asbestos reserves will need strengthening.
"It is too early to say whether, following our detailed review, we will need to increase our asbestos reserves at the year-end," said Hugh Stevenson, Reinsured Names chairman, in a statement.
For the six-month period ended Sept. 30, Equitas reported paid claims amounted to ?353 million ($684 million at current exchange rates), compared with ?357 million ($692 million) in the first half of last year.
Mr. Stevenson said that asbestos remains the principal threat to Equitas' stability.
The reinsurance group said during the first half of the year, significant asbestos claims were made. "However, on the basis of Equitas' past experience, many of these claims are expected to prove to be invalid or overstated," he said, adding in a letter to individual Lloyd's investors, known as "names," that the group has settled with a number of significant insureds in the past six months.
In the six-month period, Equitas said reinsurers' share of claims paid amounted to ?64 million ($124 million), compared with ?112 million ($217 million) in the first half of last year. This decrease, according to Equitas, in part reflects the prior realization of reinsurance assets through commutations of outward reinsurance contracts.
Equitas' investment return dropped to ?38 million ($73.6 million), compared with ?184 ($356.7 million) last year because "we had less money to invest," Equitas said, noting that bond values fell slightly while equities maintained their values.
Last year investment return was better "as our income was higher, equity markets rose and the value of our bond portfolio hardly changed. Importantly, in both periods, investment return exceeded the ?unwinding' of the discount applied to net claims liabilities," Equitas said.
Operating costs, which are included in claims paid, amounted to ?37 million ($71.7 million), compared with ?42 million ($81.4 million) in the first half of last year, and are below budget, according to Equitas.
Exchange gains amounted to ?3 million ($5.8 million), compared with a ?7 million ($13.6 million) exchange loss in the first half of last year, Equitas noted.
The value of the portion of the group's surplus held in U.S. dollars increased in the first half of this year when translated into British pounds sterling, Equitas said, due to the small strengthening of the U.S. dollar since last March.
Equitas reports summary financial information because the group undertakes a comprehensive review of claims liabilities and future reinsurance recoveries only at the end of the financial year, the results of which are reflected in its "Annual Report & Accounts" issued each June.
Equitas auditors qualified the group's accounts for the year ended March 31, 2004, as they have every year since the formation of Equitas, "in light of fundamental uncertainties relating to the net claims provisions," the group said.
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