According to Moody’s Investors Service, recent disclosures by three insurance companies regarding increased asbestos claims are a “warning flag” for those companies and the U.S. property and casualty industry as a whole.
Moody’s in its Weekly Credit Outlook, notes that The Hartford, MetLife and American Financial Group have all said asbestos claims increased over the last two weeks. The Hartford reports a pre-tax charge of $290 million due to increased asbestos reserves, and American Financial reports a pre-tax charge of $28 million. MetLife did not disclose the impact on its reserve estimates, Moody’s says, but the company did say that new asbestos claims increased by around 14 percent during the 2011 first half relative to the same time period in 2010.
“Increases in both the frequency and severity of mesothelioma and other cancer claims, increased legal costs, and an expansion of defendants to smaller, more peripheral insureds were cited as the primary drivers of the increase in expected losses,” Moody’s explains.
Moody’s adds, “For the industry generally, the resurgence of asbestos concerns is brought on, in particular, by higher mesothelioma/personal-injury awards and an aggressive plaintiff’s bar.” The rating agency also cites a higher proportion of financially strained defendants in asbestos-related settlements, increasing severity in claimants’ health conditions and greater medical diagnoses of mesothelioma cases as underlying factors.
Moody’s notes that, until recently, asbestos claims “had been on the back burner for most commercial insurers,” as tort reform measures from the early 2000s resulted in declining losses.
“The recent announcements of asbestos losses, however, are reminders that these liabilities remain a significant credit risk for the industry,”
Moody’s says, adding that the ongoing stream of reserve additions, the long duration of the liabilities, and uncertainties regarding future claim emergences and settlement costs suggest that the issue will “remain an earnings drag for some time to come.”