A&E reserve shortfall at US$38 billion in U.S.: A.M. Best

U.S. insurers currently have a US$38 billion shortfall in funding for asbestos & environmental (A&E) liabilities, according to a new report by A.M. Best.
A surprising amount of this, US$24 billion, relates to environmental liabilities, with US$14 billion related to asbestos. A.M. Best puts total A&E payouts since 1999 at US$23 billion with US$22 billion for asbestos alone. In 2003 alone, the industry took a pre-tax charge of US$7 billion for A&E losses.
The issue of unfunded liabilities has improved since 2001, the rater notes, when the figure stood at US$53 billion, but most of this improvement has been aimed at asbestos, resulting in the huge environmental shortfall still existing.
Overall, A.M. Best expects industry losses of US$121 billion for A&E, with US$65 billion alone for asbestos. Incurred-to-date losses stand at US$52 billion for asbestos and US$30 billion for environmental.
The rater notes that while insurers have continued to boost reserves for asbestos liability exposure, they have not kept up the pace when it comes to environmental reserves. Since 1999, the total industry has taken reserve charges of just US$1.5 billion for environmental.
“Environmental losses are expected to grow as more states push to collect natural-resource damages and the judicial branch increasingly finds coverage despite absolute pollution exclusions,” the report notes. “Further pressure may come to bear if the Environmental Protection Agency takes a more aggressive stance on targeting insurers of bankrupt polluters directly.”