AM Best has released a new report that shows the US property & casualty (P&C) industry has paid out $16.1 billion for asbestos and environmental (A&E) claims while incurring $11.3 billion in losses in the past five years.
The report, “AM Best’s A&E Loss Estimates Remain Unchanged,” states that AM Best is maintaining its estimate for net asbestos losses for the P&C industry at $100 billion, with net environmental losses estimated at $46 billion.
The P&C industry has funded approximately 91% of its aggregate A&E exposures, which translates into an unfunded liability of approximately $9 billion for asbestos and $4 billion for environmental.
The report explains that asbestos losses have started to show signs of subsiding slightly, with incurred losses down approximately 13% in 2019.
In the 2015-2019 period, the industry has incurred approximately $7.9 billion in asbestos losses, while paying out nearly $12.8 billion, and slightly more than $3.4 billion in environmental losses, while paying nearly $3.3 billion.
The report notes that at current payout levels, A&E reserves, which have declined over the past decade, will run off within seven years or so barring any additional reserve strengthening.
The top fifteen insurers account for 87% of the industry’s average annual A&E incurred losses, with Travelers Group at the top of the list, followed by Hartford Insurance Group and American International Group, Inc.
Overall asbestos loss payments have exceeded $2 billion a year since 2002, while annual environmental loss payments have declined since peaking at $2 billion in the late 1990s, although payouts still have averaged just under $800 million a year over the past 10 years.
AM Best utilises a combination of three approaches when evaluating an insurer’s A&E reserve adequacy: historic premium market share, post-1990 paid loss share (1992–2019) and three-year survival ratios.
AM Best recognises that fully funding ultimate estimates is extremely difficult, given the improvement in therapies, emerging drug combinations and early diagnosis, combined with ongoing litigation, but views the majority of insurers with material A&E exposures as well-capitalised and able to absorb any shortfalls.
