A.M. Best Special Report: Asbestos & Environmental Losses Drop Sharply in 2014, But Funding Level Concerns Remain

OLDWICK, N.J.--(BUSINESS WIRE)-- Incurred losses for U.S. asbestos and environmental (A&E) losses declined 33% in 2014, driven by a 38% drop in asbestos losses and a 15% decrease in environmental losses, according to a new A.M. Best report. Overall, A.M. Best is maintaining its estimate for net asbestos losses for the U.S. property/casualty (P/C) industry at $85 billion, with net environmental losses estimated at $42 billion. The Best’s Special Report, titled, “Asbestos & Environmental Losses Drop Sharply in 2014, But Funding Level Concerns Remain,” notes that given the consistent and high level of paid and incurred losses, this unfunded estimate may be low.

According to the report, the industry has paid out a cumulative $91.1 billion in combined A&E losses and maintains a reserve of an additional $27.3 billion to fund future payments of legacy liabilities. This brings the total funded liability to 93% of A.M. Best’s aggregate of $127 billion of ultimate liabilities.

A.M. Best utilizes a combination of three approaches when evaluating an insurer’s A&E reserve adequacy: historic premium market share, post-1990 paid loss share (1991–2014) and three-year survival ratios. Consistent with historical trends, the industry has continued to pay out more losses than it has incurred (funded) since 2006, paying out $3.5 billion for A&E claims in 2014, while incurring $2.1 billion in losses.

Over the last five years, incurred losses have averaged 85% of paid losses with total A&E reserves decreasing by just 8% over the same time period. While reserves have not declined by a significant amount, they have come down in eight of the past nine years, including a 5% fall in 2014, due to a decrease in the much larger asbestos reserves.

The industry has incurred $10.7 billion in asbestos losses since 2010 while paying out $12.3 billion. During the same time period, environmental funding totaled $3.4 billion compared with paid losses of $4.2 billion. The largest five-year percentage decline in reserves comes from the environmental side as reserves have declined 14% to $5.1 billion, while asbestos reserves have declined nearly 7% over the last five years, to $22.2 billion.

With more than 80% of total industry A&E liabilities composed of asbestos losses, asbestos continues to be the “main event” when discussing A&E exposures. A.M. Best continues to monitor issues related to asbestos litigation and insured exposures with an eye toward a possible re-visiting of its $85 billion estimate of ultimate industry losses during 2016.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=243102.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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Source: A.M. Best Company, Inc.