A recent report by AM Best maintains its estimate of ultimate net asbestos losses at $100 billion and environmental losses at $46 billion, based on year-end 2023 data.
AM Best observed that while incurred losses rose slightly in 2023, paid losses decreased significantly. The industry has now funded 96% of its aggregate asbestos & environmental (A&E) exposures, leaving unfunded liabilities of about $5 billion for asbestos and $1 billion for environmental costs.
A&E loss reserves have been declining for more than a decade as payments have consistently outpaced incurred losses. Insurers have paid roughly $13 billion in A&E claims while incurring just under $9 billion in losses since 2018. In 2023, asbestos reserves fell by 3.5%, to $14.8 billion, while environmental reserves remained steady at $4.6 billion, unchanged from 2021 and 2022.
The report also highlights that the industry has funded approximately $140 billion of its estimated $146 billion in net A&E exposures. This total includes $121 billion in cumulative paid losses and $19 billion in reserves for future payments, resulting in a funding rate of 96%. Of the total funding, $95 billion covers asbestos liabilities (95% funded) and $45 billion covers environmental liabilities (97% funded).
Jieqiu Fan, associate director at AM Best, stated, “The split of asbestos versus environmental reported losses has been changing over time, with asbestos accounting for a declining percentage of the total A&E reported losses.”
Environmental losses have remained between $500 million and $700 million annually over the past five years. AM Best believes its $46 billion estimate for environmental liabilities remains accurate, though ongoing litigation, particularly concerning polyfluoroalkyl substances (PFAS), continues to evolve.
Two PFAS compounds, PFOS and PFOA, were recently classified as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) by the U.S. Environmental Protection Agency, similar to asbestos. This action is notable, as the risks of PFAS had been discussed for years without formal regulatory measures.
The report also highlights that the commercial lines segment holds 62% of the industry’s net A&E reserves, with reinsurers holding 24%. In 2023, 30 groups held 94% of the industry’s total net A&E reserves; the top 10 alone held 71%.
