Best’s News & Research Service - November 29, 2018 02:17 PM (EST)
Best’s Market Segment Report: A.M. Best Increases Estimate for Net Ultimate U.S. Environmental Losses to $46 Billion
- November 29, 2018 02:17 PM (EST)
Oldwick //BestWire// - A.M. Best has raised its estimate of net ultimate environmental losses for the U.S. property/casualty (P/C) industry to $46 billion, up $4 billion over its previous estimate, according to a new A.M. Best report.
The Best’s Market Segment Report, titled, “No Slowdown in Asbestos and Environmental Claims,” states that the increase in the environmental estimate is due to the continued development on original sites that have been found to be more toxic than originally thought, and the associated increase in cleanup and defense costs. Additionally, the increase in the environmental estimate reflects that the industry continues to incur losses of approximately $750 million per year, while paying out $760 million. Previous expectations factored in a reduction in these patterns, but the pace has not yet declined in a meaningful way.
A.M. Best is maintaining its estimated net ultimate asbestos loss for the P/C industry at $100 billion. However, according to the report, asbestos losses have not slowed down, with an average $1.9 billion in additional losses reported each year in the most-recent five-year period.
A.M. Best’s estimate of the ultimate industry losses for asbestos and environmental (A&E) is now $146 billion. As of year-end 2017, the industry had funded approximately $130 billion, or 89%, of A&E exposures through a combination of paid losses and loss reserves. Losses incurred have been relatively steady over the past five years, as have A&E loss payments. From 2013 to 2017, the industry paid out more every year than it incurred, with payments of $17.8 billion for A&E claims and $13.3 billion in incurred losses. At year-end 2017, asbestos reserves had decreased by nearly 4% to $19.1 billion, and environmental reserves by 3.0% to $5.2 billion. The industry’s paid A&E losses remain concentrated, with the top 30 insurance groups generating nearly 95% of the total.
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 P/C industry’s losses will continue to be an issue given an unstable environment faced with evolving litigation (e.g., glyphosate litigation). Uncertainty also exists surrounding planned modifications to Department of Environmental Protection regulations under the current U.S. administration and the potential for any long-term health risks.
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 will continue to monitor asbestos litigation and losses, as well as environmental losses, and will periodically revisit these benchmarks as needed.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=280455 .
A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.