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Effects of recent changes in asbestos and environmental liability estimates and environmental liability estimates on companies

Christopher Diamantoukos, FCAS, MAAA

Seminar on Reinsurance Casualty Actuarial Society May 6-7, 2010

(2)

Agenda

► Elements driving change

► Asbestos allocations

► Asbestos allocations

► Non-products asbestos

► Environmental effects

(3)

Underlying causes of change from

A.M. Best Dec 7, 2009 Special Report

,

p

p

► Asbestos – elevated levels of annual incurred losses.

► Asbestos – growing proportion of more serious cases such as

► Asbestos growing proportion of more serious cases such as mesothelioma.

► Environmental – steady decline in incurred losses.

► Environmental “mega” losses have been settled

(4)

Asbestos incurred losses – where are they

coming from?

g

► Primary companies are still incurring claims.

► Excess coverages and reinsurers are incurring ever-increasing share

► Excess coverages and reinsurers are incurring ever increasing share of total losses.

► Some new defendants identified in recent years have had significant asbestos claims reported and settled

asbestos claims reported and settled.

► Products asbestos losses driven by exposure from workers in several types of industries.

► A li i l t d ti t d l t i d f 35 t 40

► A clinical study estimated an average latency period of 35 to 40 years.

(5)

Asbestos incurred losses – where are they

coming from? (cont’d)

g

(

)

8000

Employees in Thousands

6000 7000 4000 5000 1000 2000 3000

Source: U S Bureau of Labor Dept Statistics for Construction industry 0

1000

(6)

Asbestos incurred losses – where are they

coming from? (cont’d)

g

(

)

800 Nicholson Secondary Construction 20000 Manville

600 700 14000 16000 18000 400 500 10000 12000 200 300 4000 6000 8000 0 100 967 970 973 976 979 982 985 988 991 994 997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 0 2000 990 993 996 999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 D eath s D eath s 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

(7)

Asbestos incurred losses – where are they

coming from? (cont’d)

g

(

)

► Combine date of first exposure or active workers in an industry, with

► Distribution that is Normal (or close to it)

► Distribution that is Normal (or close to it)

(8)

Asbestos incurred losses – where are they

(9)

Asbestos incurred losses – where are they

(10)

Asbestos incurred losses – where are they

going?

g

g

It depends on:

► Which layers the insurer or reinsurer is involved

► Which layers the insurer or reinsurer is involved.

► Which years the insurer or reinsurer is involved.

(11)

Asbestos products coverage

► The volume of losses settled, paid and incurred is the most important element.

► Large claims, such as mesothelioma claims, will normally not create greater insured products coverage than the same amount of total loss from many claims.y

(12)

Asbestos non-products losses

► Prior to 1986, premises coverage was referred to as general liability sublines – (a) owners, landlords and tenants; (b) manufacturers and ( ) , ; ( ) contractors.

► Some of these defendants have recently arrived on the scene:

► Latency period is an important part of the emergence

► Latency period is an important part of the emergence.

► Asbestos is mined, used to create products, used in other products and is eventually used.

► Defendants enter at different points in this timeline

► Defendants enter at different points in this timeline. ► Some are not new:

► There have been successful reallocations of past asbestos claims from products to non-products

products to non-products.

► Involves potential increase to industry liabilities from past as well as future claims.

(13)

Asbestos non-products losses (cont’d)

► How does coverage chart affect a company’s non-products asbestos?

► It doesn’t.

► Non-products asbestos losses are individual events by claimant:

► They are allocated across time

► They are allocated across time.

► They do not aggregate like products.

► Expectation of losses in excess layer may be non-existent.

► Will ff t l ti l i t ti th t i l d

► Will affect pools or proportional reinsurance treaties that include those written for protection of many smaller insurers.

(14)

Environmental liabilities and excess

coverages

g

► The largest remediation sites exposed direct casualty excess of loss coverage and corresponding reinsurance.g p g

► These losses contributed to insolvencies of some direct excess writers in the 1980s as well as Lloyds.

► Recent environmental losses are not of the same scale as those

► Recent environmental losses are not of the same scale as those more than ten years ago.

► Expected average might be higher but expectation above significant excess threshold is much lower.

excess threshold is much lower.

► Excess coverage and reinsurance of casualty excess coverage have seen incurred losses reduce to a trickle in some portfolios.

(15)

Asbestos and environmental comparisons

► Asbestos losses in the future are expected to remain with excess layers and reinsurers.y

► Any asbestos increases in the future from non-products coverage should have little effect on excess layers and some effect of

proportional reinsurance of lower layers.

p p y

► Environmental should show an overall decrease, but excess layers and reinsurers should show a greater decrease.

(16)

Lessons for the future

► Latent claims, continual causation claims and mass torts will arise from time to time.

► Some of those already identified will start to affect more recent insurance coverages.

► Evidence of asbestos claims with a date of first exposure beyond 1986

► Evidence of asbestos claims with a date of first exposure beyond 1986 and the introduction of an absolute exclusion clause.

► Litigation continues on other latent claims with ongoing products in use exposure.

► Analyses by exposure and coverage period and layer of loss, will still be needed

(17)

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