AM Best is maintaining its estimate for net asbestos losses at $100 billion and environmental losses at $46 billion as of year-end 2021, adding that given the relatively high but declining level of both paid and incurred losses, its estimate of ultimate losses remains on target.
The firm states that the industry has funded 94% of its aggregate asbestos & environmental (A&E) exposures, which translates into an unfunded liability of approximately $7 billion for asbestos and $2 billion for environmental.
Brian O’Larte, Director at AM Best, said, “Determining ultimate funding tends to be extremely difficult, given that the ultimate exposure cannot be known.”
Meanwhile, A&E loss reserves have declined for more than a decade as loss payments continue to outpace incurred losses, says Best. It notes that over the past five years, insurers have paid out approximately $14bn for A&E claims, while incurring just shy of $10bn in losses.
Asbestos reserves declined by approximately 3.3% to $16.2bn in 2021, while environmental reserves declined by approximately 4.2% to $4.6bn for the same period, suggests the report.
Jieqiu Fan, senior financial analyst at AM Best, added, “At current payout levels, A&E reserves will run off in about eight years, barring any additional reserve strengthening.”
AM Best observes that annual incurred A&E losses have declined since 2017, with a drop of almost 16% in 2021 following three years’ of relatively flat movement. Incurred losses for asbestos have also declined in the past five years and were down approximately 10% in 2021.
AM Best notes that environmental losses have fluctuated within a narrow range and then dropped by a steep 27% in 2021, while the decrease in asbestos losses was driven by some of the larger insurer groups, which reported much lower asbestos incurred losses in 2021 than in 2020.
Those paid losses remain concentrated, says AM Best, with the top 30 insurer groups accounting for 96% of all A&E paid losses in 2021. It adds that as in the past, these insurer groups were also responsible for 96% of the industry’s total A&E reserves.