London, England, March 30, 2006—Many insurance groups remain seriously underfunded to meet potential liabilities from long-tail asbestos and environmental claims, according to Lloyds List, citing a report from credit ratings agency AM Best.
The total shortfall stood at $34bn in most recent figures.
With information feeding through gradually, the agency has calculated that during 2004 US property-casualty insurers narrowed the funding gap in their asbestos and environmental loss reserves.
Most of this was on the asbestos side, but the total 2004 pre-tax charge in the accounts of insurance companies came to nearly $6bn.
Such losses incurred by the industry since 2000 have totalled more than $26bn, said AM Best, of which $24bn was for asbestos.
As a result, AM Best's year-end 2004 estimate of unfunded asbestos and environmental liabilities is $10bn and $24bn respectively.
While total funding levels have improved significantly from the $53bn shortfall of 2001, essentially all of this improvement has occurred on the asbestos side.
'Furthermore, a significant number of insurer groups remain underfunded by relatively wide margins,' said the agency.
Its view of industry funding levels continues to be centred on estimates of ultimate industry losses of $65bn and $56bn for asbestos and environmental, respectively.
Asbestos losses accelerated rapidly in the late 1990s and early 2000s, peaking at $8bn in 2002 before retreating to $6bn in 2003 and less than $4bn in 2004.
Loss payouts grew 23% during 2004, capping three years of extraordinary annual growth rates in excess of 20% per annum. Prior to 2001, asbestos payouts typically had been very close to $1.3 billion per year.
Reasons behind the escalating asbestos losses include a large number of bankruptcies among major asbestos producers, the spread of litigation to peripheral defendants and reclassification of some previously settled product liability cases, as policyholders seek to reopen otherwise exhausted sublimits for future product liability claims.
As of year-end 2004, AM Best estimated incurred-to-date losses for the industry of $55bn (asbestos) and $32bn (environmental).
International groups representing labor will meanwhile make calls for a global asbestos ban a priority on the April 28 International Workers' Memorial Day.
Demonstrations and petitions will be targeted at Canadian embassies to halt what the groups say is Ottawa's 'aggressive marketing and promotion of asbestos in developing countries such as India, Zimbabwe and Brazil.'
Lessons learned in the insurance industry's long struggle with asbestos claims may be inspiring significant changes in the way they evaluate and defend their policyholders in mass tort litigation, according to a new paper from GE Insurance Solutions.
Claims expert Bill Brauer said that, in some notable instances, insurers are changing their approach to claims involving injuries alleged to have been caused by workplace exposure to silica dusts and welding fumes.
Brauer said that the same type of evidence that led a federal judge to dismiss massive silica litigation in Texas is likely to threaten a similar action on behalf of welding fumes claimants in Cleveland.
He cited the cancellation of a trial after video surveillance conducted by the defence revealed a plaintiff was apparently functioning normally although he was portrayed in depositions as having a great deal of motor damage.
Brauer maintained that Judge Janice Jack's ruling on consolidated silica litigation has all but ensured that silica will not be another asbestos in terms of liability and payouts.
