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Asbestos Liabilities – The Continuing Saga
Casualty Actuarial SocietyThe 2004 Seminar on Ratemaking
Jennifer L. Biggs, FCAS, MAAATowers PerrinTillinghast
March 11, 2004
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 Elevated settlement demands against individual
defendants Bankruptcies
...and increasing costs to insurers and reinsurers Higher costs for existing defendants Additional costs for new defendants Additional coverage accessed
4
Surge in Claim Filings
Manville Trust - Injury by Year Filed
0
20,000
40,000
60,000
80,000
100,000
120,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year Filed
Nu
mb
er o
f C
laim
s
(Denied) or Unknow n
Non-Malignant
Cancer
Mesothelioma
5
Change in Disease Mix
Manville Trust - Injury by Year Filed
12%6% 5% 5% 5% 5% 4%
13%
12%11%
7%9% 9%
6%
10%
7%8%
6% 6% 7%
75%
84%
89%85% 86%
91%
84%89% 87%
91% 93%90% 89%
3%4% 4% 4% 3% 2% 4%
4%
82%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year Filed
Per
cen
t o
f C
laim
s F
iled
by
Cat
ego
ry
Non-Malignant
Cancer
Mesothelioma
6
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
7
Percent of
filings in
federal courts
Other Trends in Claim Filing Activities
Filings Moved from Federalto State Courts
0
10
20
30
40
50
Pre-1988 1988–1993 1994–1997 1998–2000
Source: RAND, January 2003
8
Other Trends in Claim Filing Activities
1970–1987 1988–1993 1994–1997 1998–2000
100
80
60
40
20
0
Percent
Other states
NY
OH
TX
MS
IL
WV
MD
NJ
PA
CA
Source: RAND, January 2003
…and from some states to others
9
Observations –Average Settlements by State
1 2 3 4 5 6 7 8 9 10 11 CW
States
$U
.S.
10
Observations – Disease Mix by State
1 2 3 4 5 6 7 8 9 10 11 CW
States
%
Mesothelioma Cancer Non-Malignant
11
Individual Claim Costs Also Increased
Mean verdicts to plaintiffs increased dramatically from 1998 to 2001 (RAND) Mesothelioma: ~$2M to ~$6.5M Other cancer: ~$1M to ~ $2.5M Asbestosis: ~$2.5M to ~$5M
Damages paid by many individual defendants also increased dramatically, reflecting increase in plaintiff awards higher shares for remaining defendants
12
Frictional Costs in the System are High
According to RAND, transaction costs have consumed more than half of total spending
And they are likely to go back up in next decade
Plaintiff Compensation
0
20
40
60
80
100
1980sLitigation
1990sLitigation
Percent Plaintiff Expenses
Defense Expenses
13
Bankruptcy of Defendants
Currently approximately 72 bankruptcies of companies with asbestos-related problems, based on comparison of lists maintained by RAND, the American Academy of Actuaries and the Asbestos Alliance
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 RAND estimates over 8,400 today
Firms in current list of defendants span 75 of 83 possible 2-digit SIC industry codes
14
Number of Asbestos Related Bankruptciesper Year
Note: Graph excludes a bankruptcy in 1976 and one bankruptcy for which no date is available.
3
2
1 1
4
3
2
4
2 2 2 2
0
1 1
0
4
1
7
10
12
5
1
0
2
4
6
8
10
12
14
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Nu
mb
er
15
Chapter 11 Bankruptcy
Re-organization by “debtor-in-possession” Creditors’ committee(s) represent creditors in plan negotiation Can seek court approval to prosecute claims of the estate (e.g., insurance
coverage disputes) Goal to agree upon a plan of reorganization that pays a fair portion of pre-
petition claims and preserves the going concern value of the debtor Insurance policies may be viewed as the most important asset of the debtor’s
estate Automatic stay bars all actions to obtain property of the estate
Where the debtor has a shared interest in a policy, claims against other insureds should also be stayed
Stay can be extended to related parties Unaffiliated co-defendants have generally been unsuccessful in
transferring their claims to the bankruptcy court Under Code 524(g) Asbestos Trusts are established to pay current and future
claimants Can require >50% of debtor’s equity Injunction channels all present and future claims to the trust for payment Futures representative has no right to vote on the plan, but must be
protected The plan must be approved by a supermajority of 75% of current claimants
Source: Mark D. Plevin/Crowell & Moring LLP
16
Differences Between Traditional and Pre-Packaged Bankruptcies
Can take years to complete1
File petition Negotiate with creditors File reorganization plan File disclosure statement Solicit votes Confirmation hearing
Intended to be completed within a few months of filing Negotiated and voted on before filing Combined hearing to confirm Plan and
Disclosure
Traditional Pre-Packaged
1 Johns Manville filed bankruptcy in 1982 and its plan was not confirmed until 1988; Babcock & Wilcox filed bankruptcy in 2000 and its plan has not yet been confirmed.
Insurance coverage generally exhausted or settled, or insurers included in negotiations
Court appoints claimant representatives Future’s Rep involved in negotiation for
>50% equity
Plaintiff attorneys with large inventories negotiate terms that benefit their own clients, but do not owe a duty to all claimants
Commonly include a pre-petition trust to pay near full value on current claims Matrix agreements with various plaintiff
firms Significant portion of equity can be
secured (therefore not available to bankruptcy trust)
Insurers interests are not represented in pre-petition negotiations
17
Pending “Pre-Packaged” Bankruptcies
Shook & Fletcher – 4/8/2002
J.T. Thorpe Company – 10/1/2002 Initially confirmed, but under appeal by two of J.T.
Thorpe’s insurers
Combustion Engineering – 2/17/2003 Objections filed by Century Indemnity (CIGNA) and
Stonewall
Plan assigned rights to insurance policies to the trust
Congoleum Corp – 12/2003
18
Pending “Pre-Packaged” Bankruptcies
Halliburton subsidiaries – 12/16/2003 Objections filed by several insurers including Ace, OneBeacon, Unigard, Stonewall, TIG,
Hartford, Everest Re, Federal, Allianz Plan caps the payments that healthy companies would make to future claimants Designed to boost stock price by making Halliburton “asbestos free” Global settlements of $4.25 B (PV)
Significantly increases compensation (7X) Accelerates payment to current claimants Intended to secure 75% approval Negotiated without input from insurers, whose coverage will be called upon to
pay most of the cost Liberal, generous TDPs
Inadequate exposure requirements Inadequate diagnostic requirements
– No S/NS distribution Do not require impairment for Level I-II claimants
– Would not be compensable under laws of most states or federal common law
Futures representative, Professor Green Selected by Halliburton and attorneys representing current claimants Paid $9,000 “per diem”
2/11/2004 – Judge Judith Fitzgerald denied insurers standing in the case and scheduled confirmation hearings for May 10-12, 2004
19
AC&S
Exemplifies several issues central to asbestos litigation today Coverage disputes Non-products claims Bankruptcy proceedings Findings of “self-dealing” plaintiff attorneys
20
AC&S
Background Formed in 1958 Installed asbestos-containing insulation in commercial and
industrial settings until 1985 First asbestos claims received in late 1970s Insurance through at least 1980 did not contain asbestos
exclusions Primary coverage with Travelers and Aetna Products coverage contained aggregate limits Application of aggregate limits to non-products claims is
disputed Coverage disputes over last 20+ years
Ongoing between AC&S and Travelers AC&S has settled with its other insurers 300,000 claims valued at $3 billion remain at issue
21
AC&S
Pre-petition activities During 2001, AC&S began to explore pre-packaged
bankruptcy with Travelers and a “Pre-petition Asbestos Plaintiffs Committee”
AC&S represented by Gilbert Heintz and Sullivan (GHR)
Pre-petition committee chaired by Joseph Rice / Ness Motley
Late 2001, Travelers withdrew from negotiations December 2001, GHR also took over claim settlements Late 2001/early 2002, AC&S attempted to settle trial-listed and
other asbestos BI claims for an assignment of insurance limits April 2002, Travelers informed AC&S it would no longer
provide coverage for asbestos claims
22
AC&S
Pre-petition activities AC&S executed pre-petition trust agreement – April 2002 Pre-petition committee selected trustee, Dan B. Lain Agreed to five categories of secured claimants
A – paid prior to bankruptcy filing Bx – partial payments; fully secured By – partial payments; fully secured C – fully secured D – 75% secured; entitled to 50% of insurance proceeds
Remaining and future claimants unsecured; entitled to 50% of insurance proceeds Without victory in Travelers coverage dispute, unsecured category
unlikely to receive any compensation Note: Per Judge Newsome’s brief, “…, no cogent explanation or
rationale has ever been given for these categories or how claims held in certain law firms “inventories” were categorized. Notably, members of the pre-petition committee appear prominently in all of the secured categories.”
23
Independence vs. Conflicts of Interest?
From appointment of Kenesis (5/2002) until pre-package bankruptcy filed (9/16/2003), AC&S settled more than $2 billion of claims Settlements over prior 20 years totaled $600 million
Pre-packaged plan stipulated that these settlements could not be challenged by the asbestos trust or AC&S
GHR
Joseph Rice/Ness MotleyPre-petition Committee
Pre-petitionTrust
– Categories A, Bx, By, C, D
Kenesis
AC&S’ counsel for pre-packaged bankruptcy
Also negotiating AC&S claim settlements
70% Ownership
ClearingHouse
AC&S
“Independent” claim reviewer Paid $3M to review documentation
of 250,000 Category D claimants Purchased Clearing House in June
2003
Paid $2M as subcontractor of Kenesis
Sole proprietor, J. Benee Wallace, paralegal of Ness Motley
24
AC&S Plan Denied Confirmation
Travelers filed an objection to the AC&S plan on 11/26/2003 Presented objections at a contentions 12/15/2003 confirmation
hearing On 1/23/04 Judge Newsome (Delaware federal bankruptcy court) denied
confirmation of the AC&S pre-packaged bankruptcy plan, finding that the plan Was not proposed in good faith
Unjustly prejudiced by plaintiff attorneys Largely drafted by and for the benefit of the pre-petition committee
through various pre-petition settlements Unfairly favors one plaintiff over another
Fundamentally unfair that one claimant with non-symptomatic pleural plaques will be paid in full, while someone with mesothelioma runs the substantial risk of receiving nothing
Both should be compensated based on the nature of their injuries, not based on the influence and cunning of their lawyers
“The court is informed that other judges have confirmed plans with such discriminatory classifications. This judge
cannot do so in good conscience.”
25
Problems with Pre-Packaged Bankruptcies
Negotiated in secret by a select group of lawyers, whose clients receive preferential treatment relative to other claimants with similar disease
Future’s Representative bound by pre-petition settlements
Debtor is negotiating with insurers’ money
Conflicts of interest are abundant
Source: Mark D. Plevin/Crowell & Moring LLP
26
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
27
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 8.8 as of 12/31/2001
and 11.6 as of 12/31/2002 (excluding Fibreboard) A.M. Best now using an undiscounted survival ratio of 18 -
20. Aggregate development
multiples of paid losses, case reserves, or reported losses Comparisons to peer companies (e.g., significant
reserve additions)
28
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
29
Tillinghast – Towers Perrin Estimates of Ultimate Personal Injury Claim Costs
Tillinghast estimates ultimate loss & expense 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
30
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
31
Portion of $200 billion Ultimate Loss and Expense – Retained, Net Insured U.S., Net Non-U.S.**
Net U.S.
Insured
30%*
Retained by
Defendants
39%
Net Non-
U.S. Insured
31%
*$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.
32
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 2001 2002 2003
$ B
illi
on
s
0
10
20
30
40
50
60
70
80
Tillinghast 2001 Ultimate ($55-65 billion) Cumulative Paid ($26.0 billion at 2002)
Outstanding Case & IBNR ($19.0 billion at 2002) Estimated Reported ($52.0 billion at 2003)
33
Recent Insurer Disclosures
There were several sizeable reserve increases during 2001-2002: CNA – $1 billion pre-tax per A.M. Best; $750 million
after tax (8/3/2001) ECRA – $1 billion pre-tax estimated by A.M. Best
(Feb. 2002) The Hartford – reallocation of $540 million “all other”
run-off reserves to asbestos (July 2002) Chubb – $590 million by 12/31/2002 St. Paul – $987.5 million settlement with Western
MacArthur
34
Recent Insurer Disclosures
And the trend continues in 2003: Travelers increased asbestos reserves (1/14/2003)
$3.22 billion gross, $2.55 billion net (exhausting remainder of Citigroup indemnification agreement)
disclosed major results of the study (policyholders with settlements, other policyholders, assumed reinsurance, unallocated IBNR)
ACE USA increased A&E reserves (1/27/2003)
$2.18 billion gross; $1.86 billion ceded
$354 million after-tax charge Argonaut increased asbestos reserves by $52.8 million
(March 2003)
35
Recent Insurer Disclosures
The Hartford increased asbestos reserves by $4.0 billion gross, $2.6 billion net ($1.7 billion after-tax) (5/12/2003)
Allstate: Q2&Q3 2003 net increase of $514M Liberty Mutual: Q3 2003 increase of $405M gross,
$331M net CNA: Q3 2003 net increase of $517M for A&E and
mass torts AIG: Q4 2003 net increase of $440 - $450M Chubb: Q4 2003 net increase of $250M
Increased pressure on peer companies to make similar disclosures
36
Recent Increases in Recognized Liabilities
And around the world: Chester Street
placed in provisional liquidation (Jan. 2001) entered a “Scheme of Arrangement” (3/5/2001)
Equitas £1.5 billion (gross-undiscounted) as initially undisclosed
portion of total strengthening as of Q1 2000 £1.7 billion (gross-undiscounted) as of Q1 2001 (July 2001) No change as of Q1 2002 (July 2002) £ 0.4 billion (gross-discounted) as of Q1 2003 (June 2003)
Royal & Sun Alliance $538 million for U.S. and U.K. (Feb. 2002) £150 million for U.S. and U.K. (Sept. 2003)
37
Rating Agency View
A.M. Best Standard & Poors Fitch
Estimate of US P/C Ultimate Asbestos Liabilities
$65B Standard & Poors believes the insurance industry’s incremental reserve needs are at the lower end of the range (on a PV basis)
Range: $49B – $62B – $74B
Methods to Evaluate Individual Insurer Potential Liabilities
Formula Approach• A.M. Best Indications• Exposure Based Reviews
One-on-One Approach• Review methodology• Review historical data
Step 1:• SR Target based on a risk-
adjusted rate (3%)• 16 x industry aggregate• Unique targets at
company level
Step 2:• Interpretation/discuss
internal methodology
Discounting 20 years for BCAR• longer than other LOB
Use risk-adjusted rate for highly uncertain payments
Prognosis • Generally not a solvency issue
• Downward pressure on ratings
• Expects modest number of downgrades
• Asbestos not a catastrophic-loss event for the industry, but another example of why tort reform is needed
• Credibility issue; how do CEOs/CFOs sign off?
• Moderately negative impact on ratings
• Downgrades for shock losses weakening capital or unchecked growing deficiencies/earnings drag
• Increasingly prospective view
38
A.M. Best – Evaluation of Insurers’ Potential Asbestos Liabilities
Unfunded Liabilities determined by
Market share indications premium share or paid loss share (5 yr, 10 yr) Indicated deficiency = Share x $65B – Cumulative Reported Losses
Cumulative Reported Losses = Cumulative Paid Losses (estimated pre-1992 + Note 29 1992 – 2002) + year-end 2002 Note 29 reserve
Three year survival ratio Indicated Deficiency = (Target S.R. (20) – Actual S.R.) / Actual S.R. x
net reserve
Final A.M. Best indication is judgmentally selected
If insurer has conducted a credible ground-up exposure based analysis 20% weight to A.M. Best indication 80% to high end of range from exposure-based review
Details of calculations available to individual insurers
39
And the costs extend beyond personal injury claims costs paid by defendants and their insurers...
“The Impact of Asbestos Liabilities on Workers in Bankrupt Firms” by Joseph E. Stiglitz, Jonathan M. Orszag, Detr R. Orszag – December 2002 Bankruptcies across the nation
headquarters in 19 states
facilities in 47 states Pre-bankruptcy, 200,000 workers employed by bankrupt firms Loss of 52,000 – 60,000 jobs with each displaced worker
losing an average of $25,000 – $50,000 in wages Average 25% reduction to their 401(K) account (approx.
$8,300 each) Direct cost of bankruptcy: $850M – $1.7B
40
And the costs extend to the overall economy…
“The Secondary Impacts of Asbestos Liabilities,” NERA, 2002 $2 billion of secondary impacts on the economy For every 10 jobs lost due to an asbestos bankruptcy, the
surrounding community will lose an additional 8 jobs
“Reducing the Asbestos Litigation Penalty: An Economic Benefit of Asbestos Reform Legislation,” Navigant Consulting Group, 2003 Asbestos defendants pay an “asbestos litigation penalty,”
increasing their borrowing costs and making it difficult/impossible for some firms to raise capital
Failure to enact legislation could reduce economic growth by $2.4 billion per year, costing 30,770 jobs annually
Extended over the 27 year timeframe contemplated by S1125 could mean 830,000 jobs will not be created and $64.8 billion in economic growth will be lost
41
Possible Federal Legislation
The Fairness in Compensation Act (H.R. 1283/S758) did not advance (1999–2000) Would have established the Asbestos Resolution Corp. Was 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
42
Asbestos-Related Bills Introduced into the 108th Congress
5 relating to asbestos reform HR1114 – Kirk (R-IL) – office of Asb. Comp./court HR1586 – Cannon (R-UT) – court HR1737 – Dooley (D-CA) – court S413 – Nickels (R-OK) – court S1125 – Hatch (R-UT) – trust
2 to ban the use of asbestos HR2277 – Waxman (D-CA) S1115 – Murray (D-WA)
1 to change the tax code, such that asbestos-related settlement funds would be exempt from tax HR2503 – Collins (R-GA)
43
Senate Bill 1125
Preliminary negotiations involved insurers, defendants, and labor
Initially called for a privately funded trust totaling $108 billion comprised of: Insurers - $45B Defendant companies - $45B Current bankruptcy - $4B Voluntary contributions - $14B
Funding contribution Insurers still negotiating; subject to insurer commission Defendants grouped to tiers based on historical payments
Separated into sub-tiers based on revenues
44
Potential Insurer Allocation
Insurers include U.S. and Non-U.S. companies
Insurer funding is net of third party reinsurance Gross of financial cover
Initial discussions based on a blended approach Market share – premium and paid losses Future exposure – carried reserves
Current discussions focused on an industry-wide ground-up study
Insurer funding is concentrated 12 insurers likely to contribute 75% 20 insurers likely to contribute 90%
45
Initial Quantification of the Economic Impactof S 1125 – 6/4/2003 Hearing
Is proposed Trust Fund of $108B adequate? Tillinghast Projections Released May 2001:
$200B Ultimate Loss & Expense
Less $70B paid as of 12/31/2002 (est. by RAND)
Equals $130B of future payments Reduced for frictional costs
$28B defense costs (21.5%)
$41B plaintiff attorney fees (40%)
$61B expected to reach claimants
Conclusion is consistent with RAND: transaction costs have consumed more than half of total spending
46
Initial Quantification of the Economic Impactof S 1125 – 6/4/2003 Hearing
Indemnity Awards under S 1125 = estimated claim filings x specific awards
Future claims to be be filed from 2003 - 2049
Pending claims to be re-filed
Initially eight Disease Levels consistent with the Manville 2002 TDP
Specific awards by Disease Level
$0 for Levels I-II to
$750,000 for Level VIII (meso)
Collateral Offset ($0)
Medical Monitoring ($0.4 billion) Tested various scenarios - all at or below $108B
47
Senate Bill 1125 - Compromises
S 1125 passed out Senate Judiciary Committee on July 10, 2003 (10-8) with significant compromises Revised medical criteria – 10 Disease Levels Revised awards ($20,000 for Level II to $1 million for Level X) Increased funding
Demands of up to $153 billion = $135 billion from defendants and insurers plus $18 billion from existing trusts and other sources
Latest offer by business group and insurers is $114 billion Defendant companies - $57.5B
Additional contingency fund - $10B Insurers - $46B
Department of Labor to process claims
48
Is S 1125 a Good Deal for U.S. Insurers?
U.S. direct insurers could be allocated $28B* – undiscounted U.S. vs. other (U.S. reinsurers and non-U.S.) allocation
could change If paid over 25 years, NPV ~ $17B – $20B
Indicated unpaid liabilities total $34B, implying $6B + savings $34B = $60B projected ultimate less $26B paid at
12/31/2002 Assumes all reinsurance is collectible Without reform, $60B estimate could increase
Year-End 2002 carried net reserves were $19B Estimate ~$24B, reflecting reserve increases through
Q4 2003
*U.S. insurers originally discussed funding of $27.3B/$45B
49
Potential Savings for an Individual Insurer
Savings results from: Elimination of payments to the unimpaired Specified awards by disease type Reduction in frictional costs
Savings to individual insurers dependent on the allocation Industry-wide ground-up study?
Savings would be proportional for an individual insurer if Individual insurer reserves based on a ground-up
exposure-based analysis Consistent with results of an industry-wide ground-up
study
Savings of 18% (= 100% – 28 / 34) Assumes industry indicated liabilities of $34B
50
Current Status of S 1125
Unresolved issues Insurer allocation Non-U.S. funding Transition issues Reinsurance pipeline Solvency / Finality Negotiations with labor
Days are numbered Frist: Vows to bring legislation to the Senate floor
last week of March or first week of April 2004 Hatch: Proposes a 2-day negotiating session in
mid-to-late March to focus on remaining issues
51
State Reform Efforts
Focus on medical criteria / statute of limitations Inactive dockets being considered / created in
several states Penalize frivolous lawsuits (e.g., MS, TX)
Focus on forum shopping / consolidations E.g., reforms in MS, TX
Focus on joint and several liability E.g., NY
52
Notable Quotes
“The claims are continuing.” “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 seemed to be a bold statement in September 2000; little did we know what was to come …)
“…endless search for a solvent bystander…” “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 …” “It borders on fraud and in some cases is fraudulent.” “The elephantine mass of asbestos cases … defies customary judicial administration and
calls for national legislation.” “If my friends on the other side of the aisle want to do something about jobs, let us get serious
about asbestos reform.” and “… this bill would do more to create jobs and solidify our economy than any other bill we can pass this year.”
53
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
Continued scrutiny from insurance regulators
54
Current Status Recap (cont’d)
Approximately 30 years after peak usage, we still see significant activity on the claims side
No major legislative reform has yet been enacted
It’s the “Energizer Bunny” of toxic torts It just keeps going and going and going ...
55
Michael E. Angelina
Mr. 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 consulting actuary with the Tillinghast business of Towers Perrin in its Philadelphia office. He is a principal of the firm.
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
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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 consulting actuary with the Tillinghast business of Towers Perrin in its St. Louis office. She is a principal of the firm.
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.
Under her direction as Chairperson, the American Academy of Actuaries Mass Tort Work Group created a Public Policy Monograph: Overview of Asbestos Issues and Trends, which was released in December 2001. Ms. Biggs is a frequent speaker and has testified before the United States Senate Committee on the Judiciary and the National Conference of Insurance Legislators (NCOIL) regarding asbestos issues.
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
