Fitch Ratings boosted its maximum estimate of asbestos exposure ultimate industry insured losses to $90 billion, a $5 billion hike.
“Incurred losses continue to materialize, tied partly to losses from mesothelioma claims and rising legal defense costs, and have only been partly offset by lower new claim filings,” Fitch explained in its 2015 Asbestos Reserves Dashboard report.
At the same time, Fitch estimated that U.S. property/casualty industry statutory asbestos reserves continued to be deficient by between $5 billion and $12 billion at the end of 2014. According to Fitch, the industry asbestos survival ratio was 8.8x in 2014, versus Fitch’s targeted survival ratio of 11x-14x. The industry survival ratio dropped because of a 20 percent increase in paid losses, to $2.4 billion. At the same time, incurred losses declined, leaving a modest reduction in total reserves, Fitch said. The ratings entity added that a regular decline in new incurred losses would lead to a reduction in Fitch’s survival ratio targets.
Fitch said that industry asbestos reserves are at $22 billion right now, reflecting about 4 percent of industry loss reserves.
Of note: Berkshire Hathway remains at the top of 15 P/C companies in terms of asbestos exposures. According to Fitch, the carrier has about $14 billion in asbestos reserves, and assumed $12 billion of asbestos by way of reinsurance transactions with other insurers. Berkshire Hathaway also has the highest survival ratio of insurers with large asbestos exposures.
Fitch said it expects “losses to continue to bleed through [insurers’ and reinsurers’] earnings rather than resulting in severe capital shocks.”
Fitch said that the industry continues to focus on strengthening reserves as claims are paid, keeping reserve levels pretty flat. Along those lines, Fitch said that any earnings drag from asbestos losses for insurers who have the biggest exposures comes in at nearly 1 percentage point to the group’s combined ratio over the previous 5 years.
Source: Fitch Ratings