Taking aim at smaller prey: companies that used products containing asbestos are the newest targets of litigation. (Briefing).

With most of the major manufacturers of asbestos products no longer in business, the attention of the plaintiffs' bar has shifted to peripheral defendants--those companies that used products containing asbestos or otherwise had asbestos on their premises--as a source of lawsuits, one analyst said.

The recently announced $2.7 billion settlement with PPG Industries Inc. won't open the floodgates for similar suits, said Gerard Altonji, a senior analyst with A.M. Best Co. "While big settlements, such as the PPG and Fibreboard losses, will occasionally occur, the vast majority of asbestos-claim dollars will be and are directed at a large number of peripheral defendants. The focus will now be on those companies who had or have asbestos materials at their various company sites or in their products, where employees or others may have been exposed either knowingly or unknowingly."

PPG said it's reached an agreement in principle with the 34 insurance companies that hold the liability coverage for Pittsburgh Corning, the now-bankrupt maker of asbestos insulation products in the 1980s. Under the proposed settlement, the insurers would have the option of making a single $2.7 billion payment in 2004 or as many as 20 annual payments ending in 2023, the company said. In both options, the payments would be made to a trust fund to be established for this purpose.

The asbestos situation has been in the works for some time, and companies have been setting aside reserves in anticipation of settlements and claims, Altonji said. "The bigger companies involved in this settlement have either already held reserves sufficient to cover their share or else will be able to absorb the additional liability with little effect on their earnings," he said.

Last year, A.M. Best analysts estimated that the insurance industry would see $65 billion in liability as a result of asbestos-related claims.

Following the PPG settlement announcement, A.M. Best analysts stated that the $2.7 billion global settlement of asbestos liabilities is unlikely to have a direct impact on the financial strength or credit ratings of the participating insurers. Travelers Property Casualty Corp., Hartford Financial Services Group and Chubb Corp. have all publicly announced their respective shares of the settlement, and their financial strength and credit ratings are unaffected, A.M. Best said in a statement released May 16.

RELATED ARTICLE: Asbestos Funded Liabilities-1993-2000

"Given that the insured portion of this settlement is spread among more than 30 insurers, and a number of them are sizable, well-capitalized entities, the amount of liability for most of these companies will likely be negligible relative to their surplus," Altonji said. "In addition, because at least a portion of the PPG loss had previously been reserved, the impact on earnings may not be as significant."

Ace Group is the most recent company to make a statement on its liability in the PPG asbestos settlement, but Ace said its share of the settlement would not affect future earnings, as reserves had already been established for this exposure.

Some insurance industry observers believed the June 1999 Supreme Court decision to overturn a global asbestos settlement of personal-injury claims against Fibreboard Corp. would make it more difficult for judges, defendants and their insurers to reach large settlements in the future. The court returned the case to a lower federal court, rejecting a $1.5 billion class-action settlement worked out by Fibreboard, a subsidiary of Dow Corning, and insurers Pacific Indemnity, a subsidiary of Chubb, and Continental Casualty Co., a subsidiary of CNA Financial Corp.

In June 2001, a study from consulting firm Tillinghast-Towers Perrin said asbestos-related claims for individuals ultimately would top $200 billion in the United States, saddling the U.S. insurance industry with about 30% of that total, or $55 billion to $65 billion. Overseas insurers were forecast to bear another 31%. Asbestos defendants, such as manufacturers, distributors and premises owners, were expected to retain the remaining costs.

Four Insurers Share PPG Industries Asbestos Liability.

In addition to Ace Group, three other insurance companies have announced liabilities from the PPG settlement.

* Travelers Property Casualty Corp.'s $240 million liability would be covered by reserves and additional charges that would be taken if the settlement contingencies are met, it said. Travelers expects to recover all or a substantial portion of any additional charges related to this proposed settlement under its existing indemnification agreement with Citigroup Inc. with respect to asbestos claims and related litigation, the company said.

* Hartford Financial Services Group said its liability would be between $120 million and $150 million, net of anticipated reinsurance recoveries, with no immediate impact on the company's asbestos survival ratios.

* Chubb Corp. said its share would reach $34 million, which already was reserved by the company, and it would have no material impact on future earnings.

St. Paul Unveils $1 Billion Asbestos Settlement

St. Paul Cos. said it has settled an asbestos-claims lawsuit with Western MacArthur Cos., and while industry observers expected the settlement, they were surprised at the funds St. Paul said it would add to reserves to cover related claims--$380 million.

The $1 billion settlement agreement covers claims related to a pre. 1961 insurance arrangement between Western Asbestos Co., certain assets of which were acquired by Western MacArthur in 1967, and USF&G Co., which was acquired by St. Paul in 1998. Parties to the settlement include Western MacArthur entities, Western Asbestos, and representatives of most current asbestos claimants and holders of default judgments against Western MacArthur, St. Paul said.

Jay S. Fishman, St. Paul's chairman and chief executive officer, said in a conference call that the settlement is intended to put the bulk of the insurer's asbestos liabilities to rest. "We believe that the decision is the best course we have to resolve this outstanding litigation," he said.

St. Paul first disclosed its asbestos exposure to Western MacArthur in a Form 10-Q quarterly filing with the U.S. Securities and Exchange Commission. In that filing, the company said its total gross environmental and asbestos reserves at March 31, 2002, were $1.03 billion, representing about 5% of gross consolidated reserves of $22.1 billion. The company said it paid gross asbestos and environmental losses of $16 million in the first quarter, $52 million in 2001 and $42 million in 2000.

Data from A.M. Best Co. show that, at year-end 2000, St. Paul had the 11th-largest reserve for asbestos and environmental exposure, at $851 million. The top three companies in terms of reserves at the time were Berkshire Hathaway, with $1.5 billion; Nationwide Group, with $1.46 billion, and Travelers, with $1.36 billion.

A.M. Best to present technology award. (Briefing)

A.M. Best Co. said it will unveil a new award, designed to highlight "outstanding, resourceful uses of technology," at its 14th annual E-Fusion 2002 Internet technology conference in Washington, D.C.

"In hosting this conference over the years, we have been impressed by the creativity evidenced by the many initiatives to which we've been exposed," said Paul C. Tinnirello, A.M. Best executive vice president and conference chairman. "We believe that the E-Fusion Award will help the entire insurance industry by showcasing best-of-class examples of this important area of development."

A.M. Best will gather entries from insurance companies, reinsurers, third-party technology providers that work with an insurer or brokerage, or related financial-services providers engaged in insurance. The candidate project, product or services must have been introduced or redeveloped within the past 18 months and must be related directly to the business of insurance, said Tinnirello.

Judges will base their decisions on creativity, resourcefulness and whether a project succeeds in meeting its business mission and furthers the business of insurance.

The winner of the E-Fusion Award will be announced at a reception at the National Press Club on Sept. 30. The E-Fusion conference will be held from Sept. 29 to Oct. 1 at the J.W. Marriott Hotel in downtown Washington, D.C. Details, registration material and entry forms are available at www.efusion.com.

By the Numbers

Insurers Take On More of Rising Prescription-Drug Costs

Although not the largest category of health services spending, prescription-drug spending is the fastest rising. From 1995 to 2000, drug-spending increases were two to five times larger than spending increases for hospital care and physician services. At the same time, private insurers have paid an increasingly larger share of total drug expenditures; their share rose from 24% to 46% between 1990 and 2000. More than three-quarters of the population under age 65 have prescription-drug coverage, mostly provided by employers.

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Insurance Coverage for Prescription Drugs For Nonelderly Population,
1996

Employer-Sponsored                  61%
No Coverage                         23%
Medicaid                            11%
Private Nongroup and Other Private   4%
All Other                            1%

Source: The Henry J. Kaiser Family Foundation, Trends and Indicators in
the Changing Health Care Marketplace, 2002

Note: Table made from pie chart