Fitch: Adjusted Asbestos Survival Ratio Remains Below 8 Years

Following a review of recent years’ asbestos related claims and litigation activity and insurers’ paid and incurred loss experience, Fitch has raised projection for ultimate all-time U.S. industry incurred losses to $100 billion compared with a previous estimate of $90 billion. Consideration of several future loss payment scenarios for this level of ultimate incurred losses leads to a continued range of target asbestos survival ratios of 11.0x-14.0x.

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 U.S. 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.

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.

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 U.S. asbestos exposures, continued asbestos incurred losses have added 70 basis points to the group’s aggregate combined ratio over the past five years.

The “Asbestos Liability Dashboard” is available on Fitch’s website at www.fitchratings.com.

Source: Fitch Ratings