Best’s Market Segment Report: Asbestos and Environmental Payouts Continue to Outpace Incurred Losses

OLDWICK, N.J.--(BUSINESS WIRE)-- The U.S. property/casualty industry (P/C) has paid out $16.8 billion for asbestos and environmental (A&E) claims in the last five years, while incurring $12.0 billion in losses. As a result, according to a new AM Best report, A&E loss reserves have declined by 15% during this timeframe.

A new Best’s Market Segment Report, titled, “Asbestos and Environmental Payouts Continue to Outpace Incurred Losses,” states that AM Best is maintaining its estimate for net asbestos losses for the P/C industry at $100 billion, with net environmental losses estimated at $46 billion. In the 2014-2018 period, the industry has incurred approximately $8.6 billion in asbestos losses, while paying out nearly $13.5 billion, and more than $3.4 billion in environmental losses, while paying nearly $3.3 billion. Asbestos losses have started to show signs of subsiding, with the industry reporting an average of $1.7 billion in losses per year over the last five years. Asbestos accounts for slightly less than 80% of the industry’s A&E liabilities.

The P/C industry has funded approximately 90% of the aggregate $146 billion in A&E exposures, which translates into unfunded liabilities of $10 billion for asbestos and $4 billion for environmental. AM Best recognizes that fully funding ultimate estimates is extremely difficult, given that ultimate exposures cannot be known. AM Best believes losses will continue to be an issue given an unstable environment faced with evolving litigation (e.g., Johnson & Johnson talcum powder lawsuits). AM Best views the majority of insurers with material A&E exposures as well-capitalized and able to absorb any shortfalls.

In 2018, asbestos paid losses declined by 14% to $2.1 billion, while on the environmental side, paid losses were down nearly 50% to approximately $400 million. Asbestos reserves declined by 3.7% year over year to $18.4 billion, while environmental reserves rose 2.6% to $5.3 billion.

AM 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 (1991–2018) and three-year survival ratios. AM Best believes that at the current payout levels, A&E reserves will be depleted in roughly seven years, barring additional reserve strengthening.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=290972.

AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Samiksha Gupta

Financial Analyst

+1 908 439 2200, ext. 5658

samiksha.gupta@ambest.com



Brian O’Larte

Director

+1 908 439 2200, ext. 5138

brian.o'larte@ambest.com



Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com



Jim Peavy
Director, Public Relations

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best