In its recent Market Segment Report, AM Best has maintained its estimate for ultimate net asbestos losses at $100 billion, with environmental losses holding steady at $46 billion as of year-end 2022 data.
The report, titled “Asbestos & Environmental Loss Reserves Declined Along with Incurred Losses,” reveals that the industry has funded 95% of its aggregate asbestos and environmental (A&E) exposures, leaving unfunded liabilities at approximately $6 billion for asbestos and $2 billion for environmental.
Over the past decade, A&E loss reserves have consistently declined, with loss payments outpacing incurred losses.
In the last five years alone, insurers paid out approximately $13 billion for A&E claims, while incurring just under $9 billion in losses.
As of 2022, asbestos reserves declined by 4.9% to $15.4 billion, while environmental reserves remained unchanged at $4.6 billion from the previous year.
AM Best’s estimate of ultimate losses remains at $100 billion, despite declining incurred losses and higher levels of paid losses.
Jieqiu Fan, associate director at AM Best, notes, “Given the declining incurred losses but higher levels of paid losses, AM Best’s estimate of ultimate losses remains on target. We will continue to monitor the state of A&E losses.”
Annual incurred A&E losses have seen an overall decline since 2018, dropping by 4% in 2022 after a larger 16% decrease in 2021.
Asbestos incurred losses have steadily declined over the past five years, down approximately 18% in 2022. Environmental losses, on the other hand, fluctuated within a narrow range, rising by 50% in 2022 following a 27% decline in 2021.
The decrease in asbestos losses is attributed to reduced losses from major groups such as Berkshire Hathaway Group and Swiss Re in 2022, while the increase in environmental losses is driven by Berkshire Hathaway Group, Travelers Group, and Chubb INA Group year over year.
Brian O’Larte, director at AM Best, projects that at current payout levels, A&E reserves will run off in about eight years, assuming no additional reserve strengthening.
The report highlights the volatility in payout levels over the past five years, with a 9% year-over-year increase in payouts observed in 2022.
As of 2022, 30 groups held almost 96% of the industry’s total net A&E reserves, with five groups recording net incurred A&E losses of $100 million or more. Of these, four posted asbestos losses exceeding $100 million each, while one recorded environmental losses exceeding $100 million.
Asbestos reserves comprised 77% of total A&E reserves, reflecting the comparatively more aggressive funding of asbestos liabilities compared to environmental.
Asbestos loss payments as a percentage of total A&E loss payments fluctuated between 65% and 84% over the past five years, standing at 72% in 2022.
