Asbestos Threat Receding?

The worst of asbestos reserving and claims activity may be over for the property-casualty industry, but concerns still remain, said Standard & Poor's in a new report.

"Asbestos reserving and claims activity has slowed for the past three years, as judges and state legislators crack down on some of the more aggressively egregious tactics of plaintiff's attorneys," the report said.

The New York-based rating agency added that recent favorable legal and legislative trends portend that the trend should continue.

On the state front, medical criteria standards for plaintiffs have been enacted in eight states: Texas, Ohio, Georgia, Florida, Kansas, South Carolina, Tennessee and Louisiana.

S&P analyst John Iten noted that federal and state laws restricting forum shopping now exist for asbestos class action lawsuits.

"As a result, class action lawsuit activity that was largely responsible for the surge in claims has been curbed, and at least for now, the creation of the bankruptcy trusts that insurer defendants were required to fund have been halted," he said.

The report said the main concern around the issue remains the amounts ceded by primary companies to reinsurers.

"The concern is not about the ability of reinsurers to pay their losses, but their willingness," the report said.

Reinsurers have demanded documentation as to the time the claimants' exposure occurred, which can be difficult to pinpoint in the case of asbestos-related illnesses.

A slowdown in new claims activity started in 2004. While no comprehensive industrywide data are available, the trend can be detected from among the companies that disclose the information.

For 2005, for example, ACE Ltd. reported a 41 percent drop in claims, while CNA reported an 83 percent drop.

Despite the spate of good news, the report cautions there remain some threats to solvency from the asbestos issue.

"For many large primary insurers, levels of exposure relative to capital remain substantial," the report said.

One reason for the continued concern is that the disease has a 40-year incubation period, which would bring it past its widespread use in the 1960s. The issue is complicated because the substance was not banned until 1989 and was legalized again two years later, which means more cases could emerge.

"And any deterioration in the legislative or legal environment could lead to another round of reserve increase," the report warned.