Best's Market Segment Report: Asbestos & Environmental Loss Estimate Holds Steady, Reserves Continue Their Decline

AM Best is maintaining its annual estimate for net asbestos losses at $100 billion, with environmental losses also holding steady for another year at $46 billion, as of year-end 2021 data, according to a newly issued report.

A new Best's Special Report, titled, "Asbestos & Environmental Loss Reserves Continue Their Decline," states that the industry has funded 94% of its aggregate asbestos & environmental (A&E) exposures, which translates into an unfunded liability of approximately $7 billion for asbestos and $2 billion for environmental.

"Determining ultimate funding tends to be extremely difficult, given that the ultimate exposure cannot be known," said Brian O'Larte, director, AM Best.

A&E loss reserves have declined for more than a decade as loss payments continue to outpace incurred losses. Over the past five years, insurers have paid out approximately $14 billion for A&E claims, while incurring a bit less than $10 billion in losses. In 2021, asbestos reserves declined approximately 3.3% to $16.2 billion, while environmental reserves declined by approximately 4.2% to $4.6 billion for the same period, according to the report.

"At current payout levels, A&E reserves will run off in about eight years, barring any additional reserve strengthening," said Jieqiu Fan, senior financial analyst, AM Best. "Payout levels have declined over the past five years."

Annual incurred A&E losses have declined since 2017. In 2021, the drop was nearly 16%, following three years' of relatively flat movement. Incurred losses for asbestos have also declined in the past five years and were down approximately 10% in 2021. Environmental losses have fluctuated within a narrow range and then dropped by a steep 27% in 2021. The decrease in asbestos losses was driven by some of the larger insurer groups, which reported much lower asbestos incurred losses in 2021 than in 2020.

Those paid losses remain concentrated, with the top 30 insurer groups accounting for 96% of all A&E paid losses in 2021. These insurer groups were also responsible for 96% of the industry's total A&E reserves, as in the past. AM Best's evaluation of an insurer's A&E reserve adequacy is based on a three-pronged approach: historic premium market share, post-1990 paid loss share (1991-2021), and three-year survival ratios.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=325856.

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. For more information, visit www.ambest.com.

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