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April 15, 2024
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Insurance companies are bracing themselves for asbestos-related liability claims. This past week the business news services were all over this subject, like asbestos in houses built before 1980. Insurance companies in America were aware of asbestos dangers and stopped insuring asbestos workers as early as 1918. In its attempt early on to reduce liabilities pertaining to asbestos, insurance companies are suffering from what exposure they did have relating to insureds living or working around the material.

The asbestos problem facing insurance companies is washing out in the laundry of second-quarter financial results. One of the biggest hit was CNA Financial Corp., which surprised investors Aug. 7 when it posted a $1.7 billion second-quarter loss, including an $800 million charge to increase reserves to address a surge in asbestos-related claims.

Standard & Poor's report studies showed the US insurance industry short $20-40 billion of the total it will have to pay out on asbestos-related claims. A.M. Best Co. in May estimated that property and casualty companies could face as much as $65 billion in asbestos-related costs.

Other large insurance companies with asbestos exposure are AIG, Hartford Financial Services Inc., units of Berkshire Hathaway Inc. and Travelers Property Casualty Corp. S&P predicts that US insurers will increase asbestos reserves this year by $5-10 billion.

The need to increase asbestos-related reserves is for a couple of reasons. One is that insurance companies are picking up compensation payments paid by firms on old liability policies. Since 2000, approximately eight companies named in asbestos lawsuits have filed bankruptcy, which now moves the target to companies that only used asbestos products.

The other reason is in response to a new a surge in claimants that have been exposed to asbestos but don't show any signs of illness. Discerning the validity of claims filed in which there are no signs of an illness is difficult and could skew loss estimates. This type of "front-loading" is being instigated by attorneys rushing to beat pending tort reform, according to S&P.

S&P views the problem of asbestos liability claims as significant, but not catastrophic to the US insurance industry.