OLDWICK, N.J.--(BUSINESS WIRE)--U.S. asbestos loss payouts grew by 9% to $3.2 billion in 2016, exceeding the long-term average of $2.4 billion, according to a new A.M. Best report. However, a 24% year-over-year drop in incurred asbestos losses fueled an overall 17% decline in asbestos and environmental (A&E) incurred losses in 2016. Overall, A.M. Best is maintaining its estimate for net asbestos losses for the U.S. property/casualty (P/C) industry at $100 billion, with net environmental losses estimated at $42 billion.
The Best’s Special Report, titled, “Asbestos Losses Continue to Rise; Environmental Losses Remain Stable,” notes that the industry paid out more in losses than it has incurred over the past five years, paying out $17.6 billion for asbestos and environmental claims while incurring $13.6 billion in losses. Industry funding of net A&E exposures of $142 billion has reached approximately $127 billion, broken down by $102 billion in cumulative paid-to-date losses and $25 billion in reserves set aside for future payments. This translates into a funding rate of 90% of ultimate A&E exposures, or approximately $87 billion of asbestos funding (87% funded) and $41 billion of environmental funding (97% funded).
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 (1991–2016) and three-year survival ratios. A.M. Best believes that at the current payout levels, all A&E reserves will be depleted in roughly seven years, barring additional reserve strengthening. Asbestos losses have shown no sign of subsiding, with the industry reporting an average of $2 billion in additional losses each year during the 2012-2016 period, and annual asbestos loss payments have exceeded $2 billion every year since 2002. Environmental losses have been more stable during the 2012-2016 timeframe, although the potential for larger settlements remains a risk as original sites are revisited and found to be more toxic than originally thought. However, the majority of mega-losses have been long since settled, and so the industry looks to have funded most of its environmental liabilities.
Quantifying the industry’s ultimate loss exposure is extremely difficult as the evolution of asbestos medical effectiveness through improved therapies, emerging drug combinations and early diagnosis continues. Additionally, A.M. Best believes the property/casualty industry’s asbestos losses will continue to be an issue given an unstable environment faced with evolving litigation. A.M. Best will continue to monitor asbestos litigation and losses and will periodically revisit its benchmarks as needed.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=268252.
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