Best Maintains Industry Asbestos and Environmental Loss Estimates

A.M. Best is maintaining its estimate for ultimate net asbestos losses at $100 billion, with environmental losses also holding steady at $46 billion, according to a new report based on year-end 2022 data.

According to the report, Asbestos & Environmental Loss Reserves Declined Along with Incurred Losses, the industry has funded 95 percent of its aggregate asbestos and environmental (A&E) exposures. That translates into unfunded liabilities of approximately $6 billion for asbestos and $2 billion for environmental losses, Best said.

The industry's A&E loss reserves have declined for more than a decade as loss payments have outpaced incurred losses, the Best report said. Best noted that over the past 5 years, insurers have paid out approximately $13 billion for A&E claims while incurring slightly less than $9 billion in losses.

In 2022, the industry's asbestos reserves declined 4.9 percent to $15.4 billion, the rating agency said, while environmental reserves were unchanged from 2021 at $4.6 billion. Best noted that determining ultimate funding tends to be difficult, given that the ultimate exposure cannot be known.

"Given the declining incurred losses but higher levels of paid losses, A.M. Best's estimate of ultimate losses remains on target," Jieqiu Fan, associate director at A.M. Best, said in a statement. "We will continue to monitor the state of A&E losses."

The industry's annual incurred A&E losses have declined overall since 2018, Best said. In 2022, the decline was 4 percent, following a larger drop of 16 percent in 2021. Those declines came after incurred A&E losses were relatively flat for 2 years.

Asbestos incurred losses have declined steadily in the past 5 years and were down approximately 18 percent in 2022, Best said. Environmental losses have fluctuated, increasing by 50 percent in 2022, following a 27 percent drop in 2021, the Best report said.

"At current payout levels, A&E reserves will run off in about eight years, assuming no additional reserve strengthening," Brian O'Larte, director at A.M. Best, said in the statement. "Payout levels have been volatile the past 5 years, with 2022 payouts rising by 9 percent year over year."

In 2022, 30 groups held almost 96 percent of the industry's total net A&E reserves, Best said, with five groups recording net incurred A&E losses of $100 million or more in 2022.