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Current Issues and Trends with Asbestos. Michael E. Angelina Tillinghast - Towers Perrin Casualty Loss Reserve Seminar September 19, 2000 Minneapolis, Minnesota. Asbestos in the News. “Asbestos and Pollution Losses nearly doubled in 1999” - Best’s Review (July 2000) - PowerPoint PPT Presentation
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Current Issues and Trends with Asbestos
Michael E. Angelina
Tillinghast - Towers Perrin
Casualty Loss Reserve Seminar
September 19, 2000
Minneapolis, Minnesota
Asbestos in the News
“Asbestos and Pollution Losses nearly doubled in 1999” - Best’s 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 Corning
Armstrong posts $345 million charge to 1999 earnings (January 2000)
Agenda
Background Information
popularity, diseases, prior litigation
Current Status
Where we were
Where we are now
Modeling Process
Pricing Issues with Finite Covers
Tobacco
Questions / Comments
Background
“Miracle Mineral”
fire resistant, great insulator, flexible, strong
abundant quantities
Used everywhere
shipbuilding, construction, boilers, insulation, brakes, roofing material, Etc
Usage peaked in early 70s
virtually eliminated in the early 80s
People exposed - anyone who worked from 1930 to 1980
Background - Diseases
Lung Cancer
Asbestosis *
Pleural Thickening
Mesothelioma *
* Signature diseases
virtually all known cases relate to asbestos exposure.
Background - Litigation
Why so much litigation?
Signature disease
Large percentage of population exposed
Potential for large jury awards
Economies of scale for plaintiff attorneys
Insurance recoverables
Prior Defendant Activity
Generally level filing patterns
some surges in various jurisdictions (TX, MS)
driven by mass consolidations, tort reform
bouquet approach
lump meso and cancer high dollar cases with non malignants high frequency
Settlements vary by disease and jurisdiction
little variation by attorney
some upward trend on settlement amounts
Outside legal defense costs as a percentage of indemnity have decreased relative to prior levels
Prior Activity - Filings 1991-1995
0.0
10.0
20.0
30.0
40.0
50.0
1991 1992 1993 1994 1995
CCR 1 CCR 2 NonCCR 1 NonCCR 2
Prior Activity - Settlements by Disease
Countrywide State 1 State 2 State 3
Mesothelioma Lung Cancer Non Malignant
Prior Defendant Activity
Effect on cost to insurers and reinsurers
settlements paid by defendant (insured)
defendant recovers from insurers
insurers recover from reinsurers
Insurance Recoveries
previously agreed upon allocation procedures
based on years exposed, policy periods, and coverage terms
losses capped by products aggregates
procedures known as:
“rising water” allocation and “spillage” (no coverage)
Example of Coverage Chart
0
25,000
50,000
75,000
1970 1971 1972 1973 1974 1975 1976
Do
llars
(00
0s)
Primary Carrier 1 Primary Carrier 2 Excess Carrier 1 Insolvency
Excess Carrier 2 Non Insured Excess Carrier 3
Current Status
Considerable increases among US insurers in 1999
Equitas 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 insurers
Increased awareness at the federal level
HR Bill 1283 (S758) - spin-off of Georgine decision
“cries for legislative solution” -Justice Ginsburg
US Asbestos Reported Net Ultimate Losses (Note 27)
0.0
10.0
20.0
30.0
40.0
50.0
1992 1993 1994 1995 1996 1997 1998 1999
Cumulative Incurred Cumulative Net Paid
US Asbestos Reported Net Ultimate Losses (Note 27)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1993 1994 1995 1996 1997 1998 1999
Incremental Net Incurred Incremental Net Paid
Current ActivitiesPotential Causes for Increase
Surge in claim filings against defendants
began in 95 for non CCR members
hit the CCR in 98 (Georgine decision)
Bankruptcy / Coverage Exhaustion of defendants
causes need for new defendants or current defendants to make up the difference
Roll forward of initial coverage blocks
extension of previously agreed terms
Products reclassification
Current Activity - Non CCR Filings 1991-1999
0.0
10.0
20.0
30.0
40.0
50.0
1991 1992 1993 1994 1995 1996 1997 1998 1999
Avg 91-94 NonCCR 1 NonCCR 2
Current Activity - CCR Filings 1991-1999
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
1991 1992 1993 1994 1995 1996 1997 1998 1999
Avg CCR 1(91-95 CCR 1 Avg CCR 2(91-95 CCR 2
Current Status-Surge in Filings
Causes
Tort reform accelerating time frame for claim filings
implies less filings later on
“catch up” of CCR defendants post Georgine
aggressive plaintiff attorneys
union hall screenings, Sunday sports page advertisements, Internet, doctors.
Effects
Increased costs to all parties!!
change in disease mix mitigates the increase
Current Activity - Average Annual Filings
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
1991-93 1993-95 1996-97 1998-99
Non-CCR Filings CCR Filings
Current Activity - Average Annual Filings
Distribution of Filings by disease (1998)
Meso Lung Cancer Non Malignant
Distribution of Filings by disease (1994)
Meso Lung Cancer Non Malignant
Current Status-Reclassification of Filings
Some 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 products
Allows for more coverage under Prem/Ops
No Aggregates under prem/ops
– unless Wellington Signatory
Current StatusRecap
Significant deterioration in liabilities at all levels
defendants, insurers, and reinsurers
Generated by filing activities
mitigated by shift in disease mix to claims with lower settlement values
Continue to see more bankruptcies or finite deals
May see increased attention to what the defendants are carrying on their balance sheets
current focus has been from financial analysts, not auditors.
Current StatusRecap (con’t)
25 years after peak usage, we still see significant activity on the claims side.
It’s the “energizer bunny” of toxic torts
it just keeps going and going and going …