Asbestos Might Divide Insurers and Reinsurers 
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Published April 04, 2003

Asbestos exposure foreshadows a growing rift between insurers and the 
reinsurance companies that back them, according to a new report by Standard & 
Poor's Ratings Services.  "Disputes between insurers and reinsurers appear to 
be intensifying," commented Steve Dreyer, managing director.  "The tone is 
getting ugly."

He argues that the reinsurance community as a whole has not stepped up to shoulder 
the asbestos burden apparently expected of it, following massive increases in the 
reserves put up by leading property/casualty players for future payouts.

When, for instance, an insurer like ACE Ltd. announces a $2,200,000,000 addition 
to gross reserves for asbestos, as it did in January 2003, but only a $500,000,000 
boost to net reserves (after expected reinsurance has kicked in), it signals an 
overweening dependence on reinsurance for an exposure representing about 30% of 
ACE's capital base.

"Across the industry, the difference between net and gross numbers raises all 
sorts of questions about who's ceding what to whom," said John Iten, director.  
"It's smoke and mirrors.  The liabilities are disappearing into thin air, and 
nobody's capturing them."

Anticipated asbestos claims have prompted dizzying reserve increases at a 
number of other US insurers in the past year or two, with Travelers Property 
Casualty Corporation topping the list at $2,500,000,000 (fourth-quarter 2002), 
equivalent to almost all of its 2002 operating earnings.  Several other prominent 
players have stepped up with reserve additions of about $1,000,000,000, sometimes 
accompanied or even anticipated by Standard & Poor's rating actions.

However, reinsurers have not matched these exposures with commensurate increases 
in their own reserves, in part because of a natural lag in the process, but also 
because insurers are often failing to inform them about what level of reimbursement 
they are expected to come up with, even though the primary companies have built that 
anticipated income into their own numbers.

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