Equitas cheers with claims freeze

Anthony Hilton12 April 2012

INSURANCE company Equitas, which is sorting out the liabilities of Lloyd's of London up to 1992, has given the London insurance market a big boost after revealing that it is not increasing its reserves against asbestosis claims.

The company, which only a year ago set aside more than £3bn extra against such claims, has decided no further increase in reserves is necessary in its results for the financial year to March - depite a huge upsurge in potential court actions in the US, some hostile court settlements and the bankruptcy of many defending companies.

Equitas is acknowledged as one of the most experienced in dealing with asbestos claims, and its confidence in its numbers signals that it sees some topping-out of the biggest compensation movement in the world.

The major change in claims for asbestosis in the US is that most of the new litigants have no trace of the disease but have lodged claims because they were once exposed to asbestos and worry that they might one day become ill. Lawyers are contracted to receive up to half of any settlement awarded to claimants.

The cost of defending such actions on such a vast scale - one company was named in 50,000 lawsuits - has forced many companies to settle, and many more to go into bankruptcy.

But Equitas has made it clear that it will not pay claims where there is no evidence of illness and says its stance is supported by the wording of its original policy documents. So far it has been able to hold this line and is willing to go to court to defend its interpretation of the policies while remaining willing to pay out awards in cases of proven illness.

Equitas chairman Hugh Stevenson reports that elsewhere the business continues to make steady progress. Pollution-once seen as a major threat, is being successfully dealt with and all areas of the company's operations - claims management, reinsurance management, investment management - all showed improvement. The accumulated surplus in the company as a percentage of outstanding claims - a measure of what would be left if all claims were settled tomorrow - increased from 9.5% to 10.3%. When Equitas was launched in the mid-1990s the solvency margin was only 5.6%.

Despite difficult markets, Equitas's investment performance has been satisfactory. The value of the reserves it has invested has increased faster than the value of claims against those reserves, improving the company's overall position.

On the negative side, after paying out £1.4 billion of claims, down from £2.1 billion the previous year, Equitas's accumulated surplus has fallen by £21 million to £679 million.

Reserves for various lines of business have been increased and the company has adjusted the amount it expects to get back from reinsurance.

This is described by chief executive Michael Crall as a generally neutral outcome, considered alongside the improvement in the solvency margin.

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