A&E Loss Payouts on the Rise; Reserves Will Run Off in 8 Years

A new AM Best segment report details asbestos and environmental (A&E) losses and reserve decline through the end of 2022.

AM Best maintains its estimate for net asbestos losses at $100 billion and environmental losses at $46 billion as of year-end 2022.

A&E loss reserves have declined for over a decade as loss payments have outpaced incurred losses. Payout levels have been volatile for the past five years, with 2022 payouts rising by 9% year over year. Based on current payout levels, A&E reserves will run off in about eight years, AM Best said.

The top 30 insurer groups accounted for 96% of all A&E paid losses in 2022 and were responsible for an equal percentage of the industry’s total A&E reserves. The commercial line segment holds 62% of the industry’s net A&E reserves, with reinsurers holding 23%.

Asbestos losses in 2022

AM Best’s estimated asbestos losses remained at $100 billion. Asbestos-paid losses were up 9%, to $1.8 billion in 2022, due to higher payments by several large carriers, with environmental-paid losses almost flat, at $0.7 billion. Asbestos reserves comprised 77% of total A&E reserves, reflecting the comparatively more aggressive funding of asbestos liabilities versus environmental. Asbestos loss payments as a percentage of total A&E loss payments have fluctuated between 65% and 84% over the past five years and were 72% in 2022. Asbestos incurred losses have declined steadily in the past five years and were down by approximately 18% in 2022. The drop in asbestos losses was driven by negative incurred losses reported by some of the larger groups, such as Berkshire Hathaway Group and Swiss Re, in 2022.

Environmental losses in 2022

Environmental losses stood at $46 billion as of year-end 2022. Environmental losses have fluctuated within a narrow range, rising by 50% in 2022, following a 27% decline in 2021. The increase in environmental losses was driven by Berkshire Hathaway Group, Travelers Group, and Chubb INA Group year over year.

The industry has funded 95% of its aggregate A&E exposures, translating into unfunded liabilities of approximately $6 billion for asbestos and $2 billion for environmental. The top 15 insurers account for 90% of the industry average annual A&E incurred losses. The top five alone (Travelers Group, Liberty Mutual, The Hartford, Berkshire Hathaway, and CNA) account for 57% of the five-year average annual incurred losses.

Determining ultimate funding tends to be extremely difficult, the report says, because the ultimate exposure cannot be known.

Click here to view a video with AM Best Associate Director Jieqiu Fan about this report.

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