2. Casualty Loss Reserve Seminar New perspectives on asbestos Paul Jardine Chief Actuary, Equitas Limited 10 September 2001

3. Contents u Asbestos  background and fact pattern  Equitas reserving approach  recent experience  survival ratios  market estimates  US industry reserves

4. Asbestos - background u Number of filings has emerged significantly above expectations u Claims severity has shown some volatile movement u Claimants believed to be filing against more defendants u Large number of assured bankruptcies u Demise of CCR u Introduction of DR’s and other initiatives by London Market u Revised market level estimates u Potential emergence of non-products claims

5. Asbestos - fact pattern StatisticTrendEvidence Number of filings Up sharplyDefendant reports Number of claimants ?Anecdotal Number of diseases SteadyMesothelioma, cancer incidence Cost per claim by type Upward biasSettlements and court decisions Cash outflows:  DefendantsSome increaseDefendant reports  Other insurersSome increaseA M Best  EquitasSlight increase, but belowAccounting records actuarial expectations

6. Asbestos - Equitas approach u Monthly asbestos Board reports u Extensive underlying research u Specific assured level projections - no “tier” assumptions u Combination of expected future numbers and amounts u Claims filings need to be adjusted for other factors u Scenario approach together with sensitivity testing u Extrapolation to assured and insured universe u Benchmarking to market - A M Best, Milliman, Tillinghast, survival ratios

7. Asbestos - recent experience at Equitas u Very few if any new defendants have emerged in last few years (although IBNER development has been significant) u Real issue has been numbers of claims being filed against defendants - vast increase and expected to continue u Disease incidence is tracking projections - impact of unimpaireds is significant distortion u Chapter 11’s slow claims reporting to insurers and defer payment for foreseeable future. u Bankruptcies may have led to increased filings on other defendants

8. Asbestos - survival ratios

9. Asbestos - market estimates

10. Market level estimates u Broad consistency across commentators for US insurance industry share u Significant divergence in views on non-US exposure and retained amounts u What does the Tillinghast figure for non-US represent or imply? u Total paid to date is $22bn US industry and $8bn non-US I.e. $30bn. u Future liability is $38bn US vs $54bn non-US u Past shares are 73% US, 27% non-US with the future split 41%, 59%!

11. Largest US reserves * excluding Berkshire Hathaway

12. How has the industry fared over time? u 1997 AAA survey of CFO’s and consulting actuaries:  most support discounted mid-point of reasonable range  claims horizon of at least 10 years  over 70% of respondents believed that asbestos liabilities were “reasonably estimable”  over 70% of respondents thought that the US industry exposure was less than $70bn u A M Best state:  “that reserving to ultimate will become more commonplace over the longer term” (1996)  “the industry needs to turn its attention to building its asbestos reserve base” (2000)

13. Casualty Loss Reserve Seminar New perspectives on asbestos Glenn Brace Head of APH Claims, Equitas Limited 10 September 2001

14. 1.A London Action: Documentation Requirements 2.Asbestos Bankruptcies: Problems and Opportunities CONTENTS

15. A LONDON ACTION: DOCUMENTATION REQUIREMENTS u London Market insurers have issued “Documentation Requirements” (DR’s) designed to reimburse only claims supported by:  Adequate medical evidence of a claimant’s impairment  Appropriate identification of the product responsible for that impairment

16. THE DOCUMENTATION REQUIREMENTS General Documentation  Claimant’s name and social security number  Copy of complaint (or other writing making claim)  Amounts received from other parties (if discoverable) Medical Documentation  Different documentation for each disease type  In all cases, a specific diagnosis that claimant’s condition was caused “in substantial part” by asbestos  Pleural plaques only reimbursed if governing law allows recovery

17. THE DOCUMENTATION REQUIREMENTS Product Identification and Exposure Documentation  Separate product identification requirements for products and premises/operations claims  A sworn statement that describes specific circumstances of exposure (unless claimant employed in one of designated occupations)  A comprehensive work history 10

18. THE DOCUMENTATION REQUIREMENTS Other Provisions  Assured may request an opportunity to demonstrate sufficient evidence of injury and causation despite non-compliance with Documentation Requirements  Documentation Requirements may be modified if a different standard of proof applies in any particular jurisdiction

19. THE DOCUMENTATION REQUIREMENTS: 5 FAQ’s 1. Do the DR’s change the terms of policies or coverage-in-place agreements? 2. Are the DR’s consistent with governing law? 3. Do the DR’s change past practice? 4. Were policyholders involved in the issuance of the DR’s? 5. How can the DR’s benefit asbestos claimants?

20. ASBESTOS BANKRUPTCIES: PROBLEMS AND OPPORTUNITIES Look for:  Active involvement by insurers to ensure sound trust procedures  Adoption of Documentation Requirements by bankruptcy trusts  Vigorous fights against application of UNR  Efforts to negotiation final deals: »Bankruptcy Code raises this possibility  Possible legislative action?