Best’s Special Report: Asbestos & Environmental Reserves Decline Along with Incurred Losses

NOVEMBER 19, 2024 08:04 AM (EST)

Best's Special Report: Asbestos & Environmental Reserves Decline Along with Incurred Losses

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OLDWICK - NOVEMBER 19, 2024 08:04 AM (EST)
AM Best's estimate for ultimate net asbestos losses is being maintained at $100 billion, with environmental losses also holding steady for another year at $46 billion, as of year-end 2023 data, according to a newly issued report.

A new Best's Special Report notes that incurred losses did creep slightly higher in 2023, while paid losses declined significantly. The industry has now funded 96% of its aggregate asbestos & environmental (A&E) exposures, which translates into unfunded liabilities of approximately $5 billion for asbestos and $1 billion for environmental costs.

A&E loss reserves have declined for more than a decade, as loss payments have outpaced incurred losses. Since 2018, insurers have paid out approximately $13 billion for A&E claims, while incurring a bit less than $9 billion in losses. In 2023, asbestos reserves declined 3.5%, to $14.8 billion, while environmental reserves remained at $4.6 billion, unchanged from 2021 and 2022 levels.

According to the report, industry funding of the estimated $146 billion net A&E exposures is approximately $140 billion, comprising $121 billion in cumulative paid-to-date losses and $19 billion in reserves for future payments. This translates into a funding rate of approximately 96% of ultimate A&E exposures. The $140 billion total funding comprises $95 billion in asbestos funding (95% funded) and $45 billion in environmental funding (97% funded),

"The split of asbestos versus environmental reported losses has been changing over time, with asbestos accounting for a declining percentage of the total A&E reported losses," said Jieqiu Fan, associate director, AM Best.

Environmental losses have been in the $500 million to $700 million per year range for the past five years.

AM Best believes that its $46 billion estimate for ultimate environmental liability is still reasonable. However, environmental litigation continues to evolve, particularly with the presence of polyfluoroalkyl substances, known more commonly as PFAS. Two PFAS compounds (PFOS and PFOA) were classified as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) by the U.S. Environmental Protection Agency, similar to asbestos. This was a significant action because for years, business leaders, environmentalists, and regulators had talked about the dangers of PFAS without taking formal action.

The report also notes that the commercial lines segment holds 62% of the industry's net A&E reserves, with reinsurers holding 24%. In 2023, 30 groups held 94% of the industry's total net A&E reserves; the top 10 alone held 71%.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=348819.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.