Equitas faces £4bn 'asbestos threat'

EQUITAS, the company formed to pay off all the liabilities of Lloyd's reinsurance syndicates for policies written before 1993, admitted today that the cost of meeting the cost of asbestos claims remains its 'greatest threat'.

The company said it increased reserves for asbestos claims by £296m to £4bn but admitted that this may still not be enough to meet claims.

The admission comes despite legal moves in several US states that could cap the extent of asbestos-related claims by people who have not yet fallen ill.

Chairman Hugh Stevenson said Equitas had completed agreements to close out claims for three of its five largest direct asbestos exposures but acknowledged that they remained a serious problem.

Chief executive Scott Moser added that Equitas' track record gave him confidence that reserves would support agreements. But, he said:

'Asbestos is the greatest single threat to Equitas and this remains the case. Asbestos reserves have been increased, primarily due to a greater trend of higher payouts to mesothelioma victims and a worsening of claims for some key assureds.'

Moser was speaking after unveiling annual results showing an accumulated surplus after tax of £460m, down from £527m a year ago.

Although Equitas was set up to reinsure the non-life liabilities of Lloyd's syndicates, mostly incurred during the 1980s from a series of man-made and natural disasters, the asbestos-related claims go back much further, some to the 1960s.

Since it was set up, Equitas has paid claims of over £15bn. However, legal estimates put the cost to insurers of settling asbestos-related claims as high as £45bn.

Moser said that although Equitas had suffered a loss in the year of £67m the solvency margin had improved from 8.7% to 9.8%.

He added that the US picture looked brighter, particularly as the prospects for a Federal asbestos reform bill now seem remote. The common position of both the Republican and Democratic parties, which is to condemn the flow of money to those who are not ill and to call for a comprehensive solution to the problem, is also a positive sign for Equitas.

Several US states have signalled that they won't just accept unchecked asbestos litigation and reforms in Mississippi, Texas and Ohio now appear to question the rationale of allowing massive claims by people who are not ill against those who did them no harm.