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Capital Markets

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Categorized | Insurance

Insurers likely face extra $15bn bill for new asbestos claims

Posted on November 29, 2016

More than 25 years after asbestos-
related claims contributed to the near collapse of the Lloyd’s of London market, insurers face an additional $15bn of losses related to the cancer-causing substance.

A new study by insurance credit rating agency AM Best finds that claims linked to asbestos on historic policies “show no sign of abating”. The latest increase brings the total forecast bill for companies including Berkshire Hathaway, Swiss Re and Munich Re to about $100bn.

The industry has paid out about $64bn for asbestos exposure, making it easily among the most costly causes of insurance losses in history, and set aside $21bn in reserve for future claims.

But costlier treatment, rising life expectancy and creeping litigation bills are still pushing up expenses more than expected — prompting AM Best, which raised its estimate in 2012, to do so again.

A new generation of claimants is also emerging, said Brian O’Larte, an analyst with AM Best. The offspring of workers who had in their childhoods been exposed to asbestos through their parents are ageing.

Once extolled for its strength, versatility and heat resistance, asbestos was widely used in construction before the mid-1970s. If inhaled, however, its particles can cause diseases including mesothelioma, a cancer, and asbestosis, a scarring of lung tissues.

Today the toxic properties of asbestos are well known. But the conditions it triggers can take decades to manifest and new victims are still emerging. Insurers are paying out about $2.5bn a year on historic policies, sometimes on legacy books of companies they acquired.

In absolute terms, the additional forecast expenses are comparable to the most costly recent US catastrophes. Hurricane Sandy caused less than $20bn in insured property damage when it devastated chunks of the east coast four years ago.

The asbestos payouts are to be made over several years, however, and should be easily absorbed by the well-capitalised and diversified global insurance industry, analysts said.

AM Best says asbestos and environmental claims have added an average of only 0.6 basis points over the past five years to the industry’s “combined ratio” of claims paid and expenses incurred as a proportion of premium income.