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Transcript of Asbestos – The Perfect Storm Michael E. Angelina, ACAS, MAAA – Consulting Actuary Tillinghast...
Asbestos – The Perfect Storm
Michael E. Angelina, ACAS, MAAA – Consulting ActuaryTillinghast – Towers Perrin
CAS Annual Meeting- BostonNovember 11-12, 2002
2
Why So Much Litigation?
Large percentage of populationexposed
Signature diseases
Potential for large jury awards
Economies of scale for plaintiffattorneys
Insurance recoverables
3
The Asbestos Litigation Environment Has Changed
Increasing costs to defendants... Surge in claim filings Rescission of previous settlement agreements
between plaintiffs attorneys and defendants Bankruptcies
...and increasing costs to insurers and reinsurers Increased costs for existing defendants Additional costs for new defendants Additional coverage accessed
4
Surge in Filings
Causes “catch up” for CCR defendants post Georgine acceleration of claim filings
anticipation of tort reform; bankruptcy creditor lists; statute of limitations
aggressive plaintiff attorneys asbestos specialty firms, union hall screenings,
Sunday sports page advertisements, Internet, doctors, new claims
Effects Increased costs to all parties!!
change in disease mix mitigates the increase continued ability to bundle claims will drive costs
5
Change in Disease Mix
Manville Trust - Injury by Year Filed
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Year Filed
Nu
mb
er o
f C
laim
s
(Denied) or Unknown
Non-Malignant
Cancer
Mesothelioma
6
Change in Disease Mix
Manville Trust - Injury by Year Filed
0%
20%
40%
60%
80%
100%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Year Filed
Per
cen
t o
f C
laim
s F
iled
by
Cat
ego
ry
Non-Malignant
Cancer
Mesothelioma
10% 6% 5% 4% 5% 4% 3% 6% 4% 5% 3% 2%
4%6%
8%7%10%
6%9%9%
7%11%
12%
13%
93%91%87%89%84%91%86%85%89%83%82%77%
7
Increasing Numbers of Claimants Are Unimpaired
1982 4% of claims showed no manifest asbestos-related injury(RAND)
1993 Up to one-half of all asbestos claims have little or no physical impairment (Harvard Journal of Legislation)
1998 No evidence of disease in 57% of asbestos claims(Manville Trust)
2001
74% of pending claims are unimpaired(confidential report prepared for a defendant)
Two-thirds of claims show no evidence of impairment(Babcock & Wilcox)
Vast majority of claims provide no evidence of impairment(W.R. Grace)
Source: RAND
8
Bankruptcy of Defendants
Currently at least 60 bankruptcies of companies with asbestos-related problems according to the December 2001, American Academy of Actuaries Public Policy Monograph at www.actuary.org
Bankruptcy cited as “legislative solution” by Babcock & Wilcox
New bankruptcies may: Increase costs for remaining defendants
Several defendants cited higher settlement demands as a cause of bankruptcy
Cause need for additional defendants Approximately 300 asbestos defendants in early 1980s Estimates of ~2,000 published a few years ago Over 6,000 today according to RAND
9
Number of Bankruptcies per Year
Number of Asbestos Related Bankruptcies
3
1 1 1
4
3
0
3 3
2 2
3
0
1 1
0
5
2
6
9
7
0
1
2
3
4
5
6
7
8
9
10
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Nu
mb
er
10
Expansion of Defendant List
Defendant list continues to expand since asbestos was used historically in a wide variety of products, including: yarn, thread, felt, rope packing, flame resistant cloth steam gaskets and packings, plain and corrugated paper, rollboard,
millboard, high temperature insulation, movie props World War II Ship Building molded brake linings, brake blocks, filler in plastics, flooring, pottery,
insulated wire, pipe covering brake shoes, clutch facings, cement, plaster, stucco, shingles, siding,
tile, sewer pipes, blocks corrugated roofing, roof sheathing, roofing cement boiler insulation; insulation of walls, floors, mattresses paints, varnishes, filter fibers, filter pads
According to RAND Study Firms in current list of defendants span 77 of 82 possible 2-digit SIC
codes/industries Over 60% of expenditures are now from non-traditional defendants
11
How to Quantify Asbestos Liabilities?
Actuaries typically like to use past experience to predict the future
However, for asbestos we can’t use traditional actuarial methods (e.g., accident year loss development projections) Long latency from exposure to disease
manifestation Potential involvement of multiple policy
periods for individual claims
12
How to Quantify Asbestos Liabilities?
Many use benchmarks or rules of thumb Market share techniques
For example, 5% of GL premium volume for affected years translates to 5% share of ultimate liabilities
Survival ratio techniques equals ratio of total reserves divided by average annual
payments U.S. net asbestos survival ratio was 7.6 (excluding
Fibreboard) as of 12/31/2000 A.M. Best now using a survival ratio of 18.0
Comparisons to peer companies (e.g., significant reserve additions) $5 - $10 billion in U.S. insurer reserve additions during
2001 estimated by Standard & Poors Aggregate development
multiples of paid losses, case reserves, or reported losses
13
How to Quantify Asbestos Liabilities?
Exposure-based modeling will improve understanding of ultimate A&E liabilities
For an insurer or reinsurer, it considers Mix of insureds Types of coverage
Policy wording Attachment points and limits Years of coverage Claims handling and settlement activities
Greater understanding equips the defendant, insurer, or reinsurer to deal strategically with its exposure
14
Recent Estimates of Ultimate Liability
Tillinghast estimates ultimate loss & ALAE relating to U.S. exposure will be $200 billion
Two approaches:
Focused on total awards to plaintiffs
Estimated # future filings by disease
Estimated indemnity cost and trended by disease
Loaded for expense
Top-Down Focused on amounts paid by defendants
Assigned defendants to tier
Estimated # future filings, indemnity, and expense by tier
Allocated ultimates to year and compared to insurance coverage
Bottom-Up
15
Estimation of Ultimate Personal Injury Claim Filings
Tillinghast Projection of Asbestos Related Filings
1995
- 19
99
2000
- 20
04
2005
- 20
09
2010
- 20
14
2015
- 20
19
2020
- 20
24
2025
- 20
29
2030
- 20
34
2035
- 20
39
2040
- 20
44
2045
- 20
49
Calendar Year
Nu
mb
er o
f F
ilin
gs
Meso Lung Cancer Non-Malignant
16
Estimation of Ultimate Loss and Expense
Tillinghast Projection of Asbestos Related Ultimate Losses
1995
- 19
99
2000
- 20
04
2005
- 20
09
2010
- 20
14
2015
- 20
19
2020
- 20
24
2025
- 20
29
2030
- 20
34
2035
- 20
39
2040
- 20
44
2045
- 20
49
Filed Year
$ E
xpec
ted
Lo
ss
Meso Lung Cancer Non-Malignant
17
Allocate Ultimate Loss and ExpenseAmong Multiple Payers
Defendant Cost
Retained
Insured
Direct – U.S.
Retained – U.S. Ceded
U.S. London Other U.S. London Other
Direct – London
Retained – London Ceded
18
Coverage Expansion
Roll-forward of coverage blocks
Reclassification of products claims as non-products claims by traditional products defendants with installation activities with exhausted (or nearly exhausted) products coverages reinstates previously exhausted products
coverages opens up previously “untapped” non-products
coverages non-products coverages may not have
aggregate limits
19
Portion of $200 billion Ultimate Loss and Expense – Retained, Net Insured U.S., Net Non-U.S.**
Net U.S. Insured30%*
Retained by
Defendants39%
Net Non-U.S.
Insured31%
*$60 billion mid-point of $55 – $65 billion range of the “Universe” of net liabilities to the U.S. P/C market.**Additional details available in Emphasis 2001/3, “Sizing Up Asbestos Exposure,” a publication of Tillinghast – Towers Perrin, at www.towers.com.
20
Paid and Reported Loss and Expense Compared to Estimates of Net U.S. Ultimate Liability
0
10
20
30
40
50
60
70
80
1994 1995 1996 1997 1998 1999 2000
$ B
illi
on
s
0
10
20
30
40
50
60
70
80
Tillinghast 12/1996 Ultimate ($38-43 billion) Tillinghast 2001 Ultimate ($55-65 billion)
A.M. Best 1997 Ultimate ($40 billion) A.M. Best 2001 Ultimate ($65 billion)
Cumulative Paid ($22 billion) Outstanding Case & IBNR ($10 billion)
21
Recent Increases in Recognized Liabilities
In the U.S.: Allmerica – $33 million pre-tax per A.M. Best
(February 2002) American Financial – $136 million pre-tax per A.M.
Best; $81.3 million after tax to cover asbestos, pollution and September 11 losses
CNA – $1 billion pre-tax per A.M. Best; $750 million after tax (August 3, 2001)
ECRA – $1 billion pre-tax estimated by A.M. Best (February 2002)
GE Global – $99 million pre-tax per A.M. Best(February 2002)
Safeco – $70 million pre-tax per A.M. Best(February 2002)
22
Recent Increases in Recognized Liabilities
And around the world: Chester Street
placed in provisional liquidation (January 2001) entered a “Scheme of Arrangement”
(March 5, 2001) Equitas
£1.5 billion as initially undisclosed portion of total strengthening as of March 31, 2000
£1.7 billion ($2.4 million) as of March 31, 2001 (announced July 2001)
Royal & Sun Alliance – $538 million for U.S. and U.K. (February 2002) U.S. pre-tax charge of $241 million estimated by A.M.
Best
23
Where Do We Go From Here?Recent Changes in Claims Handling
Asbestos claims handled differently than other torts volume/docket pressure bundling
Center for Claims Resolution (CCR) changes its procedures abandons practice of routinely settling cases on a
group basis and requiring members to share settlement costs (February 2001)
stops settling new asbestos claims for remaining 14 members effective August 1, 2001; in run-off
Equitas leads London insurers, requiring evidence of injury and product identification effective June 1, 2001
24
The Coalition for Asbestos Justice
Formed in 2000 as a nonprofit association to address and improve the asbestos litigation environment
Currently has eight members: Ace, Argonaut, Chubb, CNA, Fireman’s Fund, The Hartford, Liberty Mutual, and St. Paul
Mission: To encourage fair and prompt compensation to deserving current and future asbestos litigants by seeking to reduce or eliminate the abuses and inequities that exist under the current civil justice system
Coalition is not involved with insurance coverage issues
Working to effect change through public education (including the judiciary), amicus briefs, and jurisdictional litigation efforts
25
Public Education
A primary mission of the Coalition is to foster a better understanding of the current asbestos litigation environment Research and Studies (e.g., RAND Study update at
www.rand.org)
Academic Scholarship Victor E. Schwartz & Leah Lorber, “A Letter to the
Nation’s Trial Judges: How the Focus on Efficiency Is Hurting You and Innocent Victims in Asbestos Liability Cases” 24 Am. J. Trial Advoc. 247 (2000)
Mark D. Plevin & Paul Kalish, “Where Are They Now? A History of the Companies That Have Sought Bankruptcy Protection Due to Asbestos Claims” Vol. 1, No. 1 Mealey’s Asbestos Bankr. Rep., Aug. 2001
“This is NOT your father’s asbestos defendant”
26
Jurisdictional Litigation Efforts
Identifying jurisdictions that pose the biggest challenges for asbestos defendants and truly sick claimants Key states: CA, IL, LA, MD, MA, MS, NJ, NY, PA,
TX, WV
Meeting with counsel from these states to understand the current case management orders and identifying other due process issues
Advancing inactive dockets / pleural registries
Challenging consolidations and joinder rules
27
Changes in the Wind?
There are a few signs in the asbestos litigation environment that business may not be as usual A split in the asbestos plaintiff’s bar between
those representing “real” cases versus those representing the non-impaired
Judge Weiner’s ruling in the Federal MDL dismissing all cases that were initiated through mass screenings
Efforts in current bankruptcies to establish medical criteria and the consolidation before U.S. District Judge Alfred M. Wolin
Hearing held by Judges Weinstein and Lifland in the Johns Manville bankruptcy proceeding
28
Changes in the Wind?
There are a few signs in the asbestos litigation environment that business may not be as usual Judge Pickard’s ruling in Mississippi that he
will no longer allow out of state plaintiffs to file suit in Mississippi
Various challenges to the West Virginia mass trial scheduled for June 2002
Pennsylvania Asbestos Litigation (SB 216) dealing with asbestos-related liabilities acquired via merger or consolidation
Many more articles in the business press and from investment analysts advocating the need for an asbestos solution
29
Recent Headlines
“Asbestos & Environmental Losses Nearly Doubled in ‘99” – BestWeek (July 10, 2000)
“Asbestos Claims Still Killing” – The Economist (August 19, 2000)
“Equitas significantly increases reserves for asbestos liabilities” – The Review (September 4, 2000)
“Insurer Asbestos Woes Grow” – National Underwriter (October 16, 2000)
“How Plaintiffs Lawyers Have Turned Asbestos Into a Court Perennial” – The Wall Street Journal (March 5, 2001)
“The Energizer Bunny of Toxic Torts” – Emphasis (First Quarter 2001)
“Asbestos Claims Surge Set to Dampen Earnings for Commercial Insurers” – A.M. Best Special Report (May 7, 2001)
“Asbestos Litigation in the US: A New Look at an Old Issue”- RAND Institute for Civil Justice (August 2001)
“The $200 Billion Miscarriage of Justice” – Fortune (March 4, 2002)
“The Asbestos Pit” – Time (March 5, 2002)
30
Possible Federal Legislation
The Fairness in Compensation Act (H.R. 1283/S758) did not advance would have established the Asbestos Resolution
Corp. opposed by President Clinton and the plaintiff’s bar
Likely prospective proposals supported by the Asbestos Alliance (led by the American Insurance Association and the National Association of Manufacturers) will focus legislation on four areas establishing objective medical criteria of asbestos-
related impairment liberalizing statues of limitations eliminating consolidations eliminating forum shopping
31
Quotes from Clients and Colleagues “The claims are continuing.”
“We have more open accounts today then we did ten years ago. We’re seeing more claims against Main Street America – distributions, hardware, HVAC.”
“Claim filings have remained steady; we expected a decrease by now.”
“Asbestos is the energizer bunny of toxic torts; it keeps going and going and going...”
“We are seeing operations claims from new defendants (contractors, distributors)”
We’ve been approached by producers seeking finite cover. The cover might be a positive influence on financial analyst opinions … The defendants must anticipate that filings will continue … A small number of deals are being done.”
“I expect to see at least five more bankruptcies of asbestos defendants in the next 12 to 18 months.” (This was stated in September 2000; since then, numerous defendants have declared bankruptcy …)
“…endless search for a solvent bystander…”
“The life of HR1283 hinges upon the outcome of the presidential election.”
“Asbestos litigation is a profit-driven industry.”
“Don’t think of them as lawyers, think of them as venture capitalists.”
“… factories (be they lawyers) generating paper … Here’s the form, fill in the blanks … won’t end by when I die, even when my kids die …”
32
Current Status Recap
Significant deterioration in liabilities at all levels Defendants, insurers, and reinsurers
Generated by filing activities Mitigated by shift in disease mix to claims with
lower settlement values
Continue to see more bankruptcies or finite deals
May see increased attention to what the defendants are carrying on their balance sheets Current focus has been from financial analysts,
not auditors
More scrutiny from insurance regulators
33
Current Status Recap (cont’d)
More than 25 years after peak usage, we still see significant activity on the claims side
It’s the “Energizer Bunny” of toxic torts It just keeps going and going and going ...
34
Michael E. AngelinaMr. Angelina is a co-author of Tillinghast’s study regarding the asbestos “universe,” first presented on May 30, 2001 to the RAA Education Conference and the Casualty Actuaries of the Mid-Atlantic Region (CAMAR). He is a principal of Tillinghast – Towers Perrin in its Philadelphia office.
Mr. Angelina is a member of Tillinghast’s asbestos and environmental practice area, and currently coordinates research and development activities relating to the contingent liabilities of corporate asbestos defendants assisting clients with asbestos-related operational strategies. He has quantified reserve needs for asbestos, pollution, and other health hazards (APH) for both domestic and international insurers and reinsurers. He has also written for Emphasis on asbestos issues, and has participated on various industry forums, trade press, and meetings regarding asbestos liabilities. Mr. Angelina is also active in the firm’s placement initiative for these types of exposures.
Prior to rejoining Tillinghast in January 2000, Mr. Angelina was Vice President and Actuary with Reliance Reinsurance Corp. (RRC). He also served as the Actuarial Officer of the Finite Risk unit. His responsibilities in the financial actuarial role included: modeling outwards reinsurance transactions, providing actuarial support and guidance for areas which had problematic implications to RRC’s financial results, and identifying new opportunities for growth. In the Finite Risk unit, Mr. Angelina’s responsibilities included: performing actuarial and underwriting analyses of loss portfolio transfers; developing the financial structure of potential deals; and performing due diligence reviews of target books of business.
Incorporating his 11 years at Tillinghast prior to rejoining the firm, Mr. Angelina has been involved in a number of client assignments including: ratemaking for personal automobile business; reserve reviews for insurers, reinsurers, excess and surplus carriers, and self insured entities; valuations of insurance operations in support of mergers and acquisitions; financial modeling; quantification of asbestos and pollution liabilities; and the development of pricing systems and size of loss distributions for multinational excess insurance coverages. He is a developer of RPIL, Tillinghast’s excess of loss pricing system, and part of the Global Loss Distributions (GLD) initiative.
Mr. Angelina is a frequent speaker at the Casualty Actuarial Society seminars on pricing and reserving for US and international exposures and has written on risk financing costs for Captive Insurance Company Reports, as well as asbestos-related issues. Prior to joining Tillinghast in 1988, Mr. Angelina worked for CIGNA in the workers compensation and the actuarial research units.
Mr. Angelina is an associate of the Casualty Actuarial Society and a Member of the American Academy ofActuaries. Mr. Angelina is a graduate of Drexel University with a B.S. degree in Mathematics.
[email protected](215) 656-2345
35
Jennifer L. Biggs
Ms. Biggs is a co-author of Tillinghast’s study regarding the asbestos “universe,” first presented on May 30, 2001 to the RAA Education Conference and the Casualty Actuaries of the Mid-Atlantic Region (CAMAR). She is a principal of Tillinghast – Towers Perrin in its St. Louis office.
Ms. Biggs is a member of Tillinghast’s asbestos and environmental practice area. She coordinates research and development activities relating to asbestos and has quantified reserve needs for asbestos, pollution, and breast implant liabilities for insurance and reinsurance companies. Ms. Biggs has also been active in the firm’s asbestos and environmental reinsurance placement initiative.
Ms. Biggs has spoken at Annual Meetings of the Casualty Actuaries in Reinsurance and the Casualty Actuarial Society regarding asbestos liabilities. Under her direction as Chairperson of the American Academy of Actuaries Mass Tort Work Group a Public Policy Monograph: Overview of Asbestos Issues and Trends was released in December 2001.
Ms. Biggs also has significant experience in the professional liability area. Her work includes analyses of funding requirements, self-insured retention limits, and allocation systems for self-insured trust funds of several hospitals. She also performs reserve evaluations, opining on year-end statutory reserve levels for physician insurers. Additionally, she has assisted insurers by analyzing rate levels and preparing filing materials for entry into new states.
Prior to relocating to Tillinghast’s St. Louis office in 1988, Ms. Biggs spent almost four years in Tillinghast’s Bermuda office. There she gained considerable experience in financial reinsurance, performing pricing analyses for loss portfolio transfers. Most other assignments were related to loss reserving for reinsurance and captive insurance companies.
Ms. Biggs is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. Ms. Biggs graduated with college honors from Washington University in St. Louis with a B.A. in mathematics and a business minor.
[email protected](314) 719-5843