Casualty Loss Reserve Seminar New perspectives on asbestos

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Casualty Loss Reserve SeminarNew perspectives on
asbestos

• Paul Jardine
• Chief Actuary, Equitas Limited
• 10 September 2001

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Contents

• Asbestos
• background and fact pattern
• Equitas reserving approach
• recent experience
• survival ratios
• market estimates
• US industry reserves

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Asbestos - background

• Number of filings has emerged significantly above
  expectations
• Claims severity has shown some volatile movement
• Claimants believed to be filing against more
  defendants
• Large number of assured bankruptcies
• Demise of CCR
• Introduction of DRs and other initiatives by
  London Market
• Revised market level estimates
• Potential emergence of non-products claims

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Asbestos - fact pattern
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Asbestos - Equitas approach

• Monthly asbestos Board reports
• Extensive underlying research
• Specific assured level projections - no tier
  assumptions
• Combination of expected future numbers and
  amounts
• Claims filings need to be adjusted for other
  factors
• Scenario approach together with sensitivity
  testing
• Extrapolation to assured and insured universe
• Benchmarking to market - A M Best, Milliman,
  Tillinghast, survival ratios

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Asbestos - recent experience at Equitas

• Very few if any new defendants have emerged in
  last few years (although IBNER development has
  been significant)
• Real issue has been numbers of claims being filed
  against defendants - vast increase and expected
  to continue
• Disease incidence is tracking projections -
  impact of unimpaireds is significant distortion
• Chapter 11s slow claims reporting to insurers
  and defer payment for foreseeable future.
• Bankruptcies may have led to increased filings on
  other defendants

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Asbestos - survival ratios
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Asbestos - market estimates
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Market level estimates

• Broad consistency across commentators for US
  insurance industry share
• Significant divergence in views on non-US
  exposure and retained amounts
• What does the Tillinghast figure for non-US
  represent or imply?
• Total paid to date is 22bn US industry and 8bn
  non-US I.e. 30bn.
• Future liability is 38bn US vs 54bn non-US
• Past shares are 73 US, 27 non-US with the
  future split 41, 59!

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Largest US reserves
excluding Berkshire Hathaway
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How has the industry fared over time?

• 1997 AAA survey of CFOs and consulting
  actuaries
• most support discounted mid-point of reasonable
  range
• claims horizon of at least 10 years
• over 70 of respondents believed that asbestos
  liabilities were reasonably estimable
• over 70 of respondents thought that the US
  industry exposure was less than 70bn
• A M Best state
• that reserving to ultimate will become more
  commonplace over the longer term (1996)
• the industry needs to turn its attention to
  building its asbestos reserve base (2000)

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Casualty Loss Reserve SeminarNew perspectives on
asbestos

• Glenn Brace
• Head of APH Claims, Equitas Limited
• 10 September 2001

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1. A London Action Documentation
Requirements2. Asbestos Bankruptcies
Problems and Opportunities
CONTENTS
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A LONDON ACTION DOCUMENTATION REQUIREMENTS

• London Market insurers have issued Documentation
  Requirements (DRs) designed to reimburse only
  claims supported by
• Adequate medical evidence of a claimants
  impairment
• Appropriate identification of the product
  responsible for that impairment

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THE DOCUMENTATION REQUIREMENTS

• General Documentation
• Claimants name and social security number
• Copy of complaint (or other writing making claim)
• Amounts received from other parties (if
  discoverable)
• Medical Documentation
• Different documentation for each disease type
• In all cases, a specific diagnosis that
  claimants condition was caused in substantial
  part by asbestos
• Pleural plaques only reimbursed if governing law
  allows recovery

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THE DOCUMENTATION REQUIREMENTS

• Product Identification and Exposure Documentation
• Separate product identification requirements for
  products and premises/operations claims
• A sworn statement that describes specific
  circumstances of exposure (unless claimant
  employed in one of designated occupations)
• A comprehensive work history

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THE DOCUMENTATION REQUIREMENTS

• Other Provisions
• Assured may request an opportunity to demonstrate
  sufficient evidence of injury and causation
  despite non-compliance with Documentation
  Requirements
• Documentation Requirements may be modified if a
  different standard of proof applies in any
  particular jurisdiction

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THE DOCUMENTATION REQUIREMENTS 5 FAQs

• 1. Do the DRs change the terms of policies
  or coverage-in-place agreements?
• 2. Are the DRs consistent with governing law?
• 3. Do the DRs change past practice?
• 4. Were policyholders involved in the issuance of
  the DRs?
• 5. How can the DRs benefit asbestos
  claimants?

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ASBESTOS BANKRUPTCIES PROBLEMS AND OPPORTUNITIES

• Look for
• Active involvement by insurers to ensure sound
  trust procedures
• Adoption of Documentation Requirements by
  bankruptcy trusts
• Vigorous fights against application of UNR
• Efforts to negotiation final deals
• Bankruptcy Code raises this possibility
• Possible legislative action?