Although lobbyists on Capitol Hill remain optimistic that the asbestos liability malignancy can be resolved through legislation, it appears unlikely that the gaps in current talks toward an alternative dispute resolution mechanism for asbestos claims can be bridged this year.Indeed, even if the considerable differences between the private parties can be resolved, two key barriers remain toward a resolution: There's no sense that asbestos liability is a crisis, and, given the optimism Democrats have for winning the White House this fall, they appear unlikely to allow Republicans to take credit for major legislation that the Senate Republican legislation leadership is already dubbing a "jobs creation" bill.
On that front, Senate Majority leader William Frist, R-Tenn., says he will introduce an asbestos liability bill sometime in March. However, the parties that have been grappling in Congress over asbestos believe a more important decision coming in March is whether the Major Donor Group-the major property/casualty companies that have been funding the industry lobbying effort for the past two years-will agree to sustain funding for another year.
Given the opposition of such key players as AIG, Chubb and the National Association of Mutual Insurance Cos.-who believe legislation allowing the industry to declare its asbestos liability at an end is impossible-it's possible that the key support mechanism between the industry and the Congress could dismantle. A more likely scenario, however, is for reduced, maintenance funding this year.
The reason legislation is more likely next year, experts say, is that the election will be over and legislators will have more to force all parties involved to compromise. A key here is for industrial companies to own up to more of the asbestos liability than they currently desire to assume.
On top of that, carriers are concerned that a crisis is building. Chubb Group's decision in early February to increase its asbestos liability reserves $250 million, on top of putting aside $625 million the third quarter of 2002, sent shock waves through the industry and through the analysts who cover the P&C industry.
Chubb officials say they increased the reserves after finding that the prospects for legislation that would effectively reduce their fees for asbestos litigation had created "a rush to the courthouse door" by plaintiff's lawyers. The phenomenon was occurring "to avoid the administrative process incorporated into the proposed trust fund," according to Chubb Vice Chairman John Degnan, who spoke to analysts during the company's earnings conference call.
Degnan added that another factor in the increase in asbestos reserves was Chubb's "pessimism about passage of the trust fund," and the fact that its outside actuaries indicated the "rush to the courthouse" was a "clear industry trend."
According to several industry sources, Degnan's comments surprised Wall Street analysts, who are now evaluating whether such companies as Travelers, St. Paul, ACE, the Hartford and others have set reserves appropriately to reflect this new phenomenon.
Degnan told an analyst during a post-conference call that the decision reflected Chubb's institutional conservatism as it relates to reserves, but also because, "It was a particularly dynamic year in the legal environment in asbestos, a lot of things going on, so, yes, in the end when they came back to us we were surprised by the number.
"It was larger than anything I would have guessed personally, but . . . as we went through and we spent dozens of hours going through this with the (actuaries) I'm convinced that their best estimate was the number that we should put up, and that's what John Finnegan, Chubb chairman and CEO, said we were going to do."
Arthur D. Postal is Washington, D.C.-based bureau chief for Insurance Chronicle, a Thomson Media publication.
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