Fitch raises US asbestos loss estimate total

Fitch has raised its projection for ultimate all-time US industry incurred asbestos losses from its previous estimate of $90 billion to $100 billion.

Asbestos claims came close to causing the collapse of the Lloyd’s insurance market in the 1990’s, with losses reported all over the world and insurance companies struggling to deal with the resulting asbestos-related claims.

The revision comes in the wake of a review of recent years' asbestos related claims and litigation activity and insurers' paid and incurred loss experience.

The industry's 2017 survival ratio was up modestly to 7.8x versus the prior year. Based on these survival ratio targets, Fitch estimates the US industry's asbestos reserve deficiency is in the range of $8 billion-$16 billion at year-end 2017.

“Overall, the industry reserves remain deficient, but Fitch believes insurers, in aggregate, rated entities will absorb the deficiency over time without adversely effecting capital adequacy or ratings over the long term," said Doug Pawlowski, senior director at Fitch.

According to Fitch calendar year incurred losses for asbestos have been relatively stable at approximately $1.6 billion from 2014-2017. Continued reported loss stability along with demonstration that higher paid loss and settlement activity are mitigating exposures could support a modest reduction in Fitch's survival ratio targets.

Fitch also said that asbestos losses continue to create a modest earnings drag for the industry and insurers with meaningful asbestos exposures. For a group of 25 insurers with the largest US asbestos exposures, continued asbestos incurred losses have added 70 basis points to the group's aggregate combined ratio over the past five years.