Current Issues and Trends with Asbestos

Michael E. AngelinaTillinghast - Towers PerrinCasualty Loss Reserve SeminarSeptember 19, 2000Minneapolis, Minnesota

Asbestos in the NewsAsbestos and Pollution Losses nearly doubled in 1999 - Bests Review (July 2000)Equitas significantly increases reserves for asbestos liabilities - The Review (August 2000)Major Bankruptcies in last 12 months:McDermott (Babcock and Wilcox)Pittsburgh CorningArmstrong posts $345 million charge to 1999 earnings (January 2000)

AgendaBackground Informationpopularity, diseases, prior litigation Current StatusWhere we wereWhere we are nowModeling ProcessPricing Issues with Finite CoversTobaccoQuestions / Comments

BackgroundMiracle Mineralfire resistant, great insulator, flexible, strongabundant quantitiesUsed everywhereshipbuilding, construction, boilers, insulation, brakes, roofing material, EtcUsage peaked in early 70svirtually eliminated in the early 80sPeople exposed - anyone who worked from 1930 to 1980

Background - DiseasesLung CancerAsbestosis *Pleural ThickeningMesothelioma *

* Signature diseasesvirtually all known cases relate to asbestos exposure.

Background - LitigationWhy so much litigation?Signature diseaseLarge percentage of population exposedPotential for large jury awardsEconomies of scale for plaintiff attorneysInsurance recoverables

Prior Defendant ActivityGenerally level filing patternssome surges in various jurisdictions (TX, MS)driven by mass consolidations, tort reformbouquet approachlump meso and cancer high dollar cases with non malignants high frequencySettlements vary by disease and jurisdictionlittle variation by attorneysome upward trend on settlement amountsOutside legal defense costs as a percentage of indemnity have decreased relative to prior levels

Prior Activity - Filings 1991-1995

Prior Activity - Settlements by Disease

Prior Defendant ActivityEffect on cost to insurers and reinsurerssettlements paid by defendant (insured)defendant recovers from insurersinsurers recover from reinsurersInsurance Recoveriespreviously agreed upon allocation proceduresbased on years exposed, policy periods, and coverage termslosses capped by products aggregatesprocedures known as:rising water allocation and spillage (no coverage)

Example of Coverage Chart

Current StatusConsiderable increases among US insurers in 1999Equitas strengthened in 2000; more to come in US (gross of reinsurance)Significant activity in the placement of finite products for asbestos defendants (Turner and Newall) and insurersIncreased awareness at the federal levelHR Bill 1283 (S758) - spin-off of Georgine decisioncries for legislative solution -Justice Ginsburg

US Asbestos Reported Net Ultimate Losses (Note 27)

US Asbestos Reported Net Ultimate Losses (Note 27)

Current ActivitiesPotential Causes for IncreaseSurge in claim filings against defendantsbegan in 95 for non CCR membershit the CCR in 98 (Georgine decision)Bankruptcy / Coverage Exhaustion of defendantscauses need for new defendants or current defendants to make up the differenceRoll forward of initial coverage blocksextension of previously agreed termsProducts reclassification

Current Activity - Non CCR Filings 1991-1999

Current Activity - CCR Filings 1991-1999

Current Status-Surge in FilingsCausesTort reform accelerating time frame for claim filingsimplies less filings later oncatch up of CCR defendants post Georgineaggressive plaintiff attorneysunion hall screenings, Sunday sports page advertisements, Internet, doctors.EffectsIncreased costs to all parties!!change in disease mix mitigates the increase

Current Activity - Average Annual Filings

Current Activity - Average Annual Filings

Current Status-Reclassification of FilingsSome defendants with exhausted (or nearly exhausted) products coverage and insulation contractors are attempting to reclassify past, present and future claims from products to prem/ops claims.Reinstates exhausted coverage under productsAllows for more coverage under Prem/OpsNo Aggregates under prem/opsunless Wellington Signatory

Current StatusRecapSignificant deterioration in liabilities at all levelsdefendants, insurers, and reinsurersGenerated by filing activitiesmitigated by shift in disease mix to claims with lower settlement valuesContinue to see more bankruptcies or finite dealsMay see increased attention to what the defendants are carrying on their balance sheetscurrent focus has been from financial analysts, not auditors.

Current StatusRecap (cont)25 years after peak usage, we still see significant activity on the claims side.Its the energizer bunny of toxic tortsit just keeps going and going and going