1. ©Towers Perrin Asbestos - Legislative Update Casualty Loss Reserve Seminar Las Vegas September 13, 2004 Jennifer L. Biggs, FCAS, MAAA

2. ©Towers Perrin 2 Concerns in the Current System (1) Plaintiffs should demonstrate injury to file a claim The number of claim filings has increased dramatically  2003 claim filings against the Manville Trust exceeded 100,000 Fewer than 10% of claims are malignant Per RAND, ⅔ to ¾ are unimpaired The right to seek recovery if/when an injury manifests should not be limited Each claim should stand on its own merit Restrictions on mass consolidations Venue should be controlled Avoid forum shopping in “magic jurisdictions”

3. ©Towers Perrin 3 Surge in Claim Filings Note: Excludes Non-U.S. claims

4. ©Towers Perrin 4 Evidence of Forum Shopping 100 80 60 40 20 0 Percent Other states NY OH TX MS IL WV MD NJ PA CA Source: RAND, January 2003

5. ©Towers Perrin 5 Concerns in the Current System (2) A low percentage of total payments have reached the claimants. Per RAND: 30% - defense transaction costs 29% - plaintiff attorney fees and legal costs 41% - to claimants Resources are limited 74 defendant companies have sought bankruptcy protection But defendant pool has increased to ~8,400 Future sick may not be compensated

6. ©Towers Perrin 6 Number of Asbestos Related Bankruptcies per Year Note: Graph excludes a bankruptcy in 1976.

7. ©Towers Perrin 7 What Are Potential Federal Solutions? Asbestos-Related Bills Introduced into the 108 th Congress: 6 relating to asbestos reform HR1114 – Kirk (R-IL) – office of Asb. Comp./court HR1586 – Cannon (R-UT) – court HR1737 – Dooley (D-CA) – court S413 – Nickels (R-OK) – court S1125 / S2290 – Hatch (R-UT) – trust 2 to ban the use of asbestos HR2277 – Waxman (D-CA) S1115 – Murray (D-WA) 1 to change the tax code, such that asbestos-related settlement funds would be exempt from tax HR2503 – Collins (R-GA)

8. ©Towers Perrin 8 Senate Bill 1125 Introduced May 2003 No Fault System Initially called for a privately funded trust totaling $108 billion comprised of: Insurers - $45B Defendant companies - $45B Current bankruptcy - $4B Voluntary contributions - $14B Funding contribution Insurers still negotiating; subject to insurer commission Defendants grouped to tiers based on historical payments  Separated into sub-tiers based on revenues

9. ©Towers Perrin 9 Potential Insurer Allocation Insurers include U.S. and Non-U.S. companies Insurer funding is net of third party reinsurance Gross of financial cover Initial discussions based on a blended approach Market share – premium and paid losses Future exposure – carried reserves More recent discussions focused on an industry-wide ground-up study Insurer funding is concentrated 12 insurers likely to contribute 75% 20 insurers likely to contribute 90%

10. ©Towers Perrin 10 Initial Quantification of the Economic Impact of S1125 – 6/4/2003 Hearing Is proposed Trust Fund of $108B adequate? Tillinghast Projections Released May 2001: $200B Ultimate Loss & Expense Less $70B paid as of 12/31/2002 (est. by RAND) Equals $130B of future payments Reduced for frictional costs $61B expected to reach claimants Conclusion is consistent with RAND: transaction costs have consumed more than half of total spending

11. ©Towers Perrin 11 Initial Quantification of the Economic Impact of S1125 – 6/4/2003 Hearing Reflect specific indemnity awards under S1125 Future claims to be be filed from 2003 - 2049 Pending claims to be re-filed Initially eight Disease Levels consistent with the Manville 2002 TDP Specific awards by Disease Level  $0 for Levels I-II to  $750,000 for Level VIII (meso) Tested various scenarios - all at or below $108B

12. ©Towers Perrin 12 Senate Bill 1125 - Compromises S1125 passed out Senate Judiciary Committee on July 10, 2003 (10-8) with significant compromises Revised medical criteria – 10 Disease Levels Revised awards ($20,000 for Level II to $1 million for Level X) Department of Labor to process claims Remaining deal-breakers: Size of the fund Start-up / pending claims Finality / sunset provisions

13. ©Towers Perrin 13 Progression of Trust Fund (S1125 / S2290) S2290 is an updated version of S1125 Introduced April 7, 2004 Frist funding - $124B Specter process agreements  Administrative structure  Expedited start-up  Expedited judicial review Modified sunset  Moratorium  Return to federal court

14. ©Towers Perrin 14 Outcome of S2290 4/22/2004 – Senate did not obtain 60 votes needed to invoke cloture for debate before the full Senate 50 Yea / 47 Nay 5/6/2004 – Further negotiations mediated by Chief Judge Emeritus Edward Becker of the Third Circuit U.S. Court of Appeals ended without agreement Defendants / Insurers offer $116B + $12B contingency = $128B Demand by AFL-CIO remains at $134B + $15B contingency = $149B However, Frist / Daschle still committed to continuing to work to determine whether a compromise can be reached …

15. ©Towers Perrin 15 Most Significant Outstanding Issues Compensation levels and projections of claim filings April CBO estimate = $140B over 50 years Daschle late-June proposal of $141B (+$4B from existing trusts = $145B) Frist mid-July proposal of $140B (=$136B + $4B from existing bankruptcy trusts) Demand by AFL-CIO remains at $149B Insurers remain at 2003 offer of $46B

16. ©Towers Perrin 16 Most Significant Outstanding Issues Start -Up Daschle would allow cases with a trial date to proceed in court Frist would have all existing claims revert to the fund, except where there has been a final judgment Finality?

17. ©Towers Perrin 17 Senator Feinstein’s Draft Proposal Draft Proposal $144B Fund (including existing trusts) Would require pending cases to be funneled into the trust fund  Except those with verdicts or enforceable settlements  Sickest could return to court if not operational in 90 days Non-starter for defendants / insurers Accelerated contributions No workers compensation carveout No finality - claims revert to court if trust runs out

18. ©Towers Perrin 18 Is Federal Legislation Dead? Factors to consider Specter still pushing, but little time  9/11 commission, budget / appropriations Elections  Any greater likelihood next year? Defendant / insurer commitment?  Other priorities (e.g., TRIA)  Resources More bankruptcies State tort reform

19. ©Towers Perrin 19 State Reform Efforts Efforts at federal reform have drawn attention to abuses in the current system (e.g., claims by the unimpaired) Several states aren’t waiting for a federal solution and recently have enacted various reforms Mississippi New York Ohio Texas West Virginia

20. ©Towers Perrin 20 State Reform Efforts Focus on medical criteria / statute of limitations Medical criteria established in Ohio Inactive dockets being considered / created in several jurisdictions (e.g., Boston, NYC, Syracuse, Seattle, Madison County, IL) Penalties for frivolous lawsuits (e.g., MS, TX) Focus on forum shopping / consolidations (e.g., MS, TX, WV) Focus on joint and several liability (e.g., NY) Other issues: innocent sellers, successor liability, caps on non-economic and punitive damages

21. ©Towers Perrin 21 How Will It End? Reform Federal vs. one jurisdiction at a time  Will Ohio hold, Texas be enforced, ….?  How portable are the claims? Judicial System Elections Getting back to the basics Adequate discovery Trying cases

22. ©Towers Perrin 22 Jennifer L. Biggs Ms. Biggs is a co-author of Tillinghast’s study regarding the asbestos “universe,” first presented on May 30, 2001 to the RAA Education Conference and the Casualty Actuaries of the Mid-Atlantic Region (CAMAR). She is a consulting actuary with the Tillinghast business of Towers Perrin in its St. Louis office. She is a principal of the firm. Ms. Biggs is a member of Tillinghast’s asbestos and environmental practice area. She coordinates research and development activities relating to asbestos and has quantified reserve needs for asbestos, pollution, and breast implant liabilities for insurance and reinsurance companies. Ms. Biggs has also been active in the firm’s asbestos and environmental reinsurance placement initiative. Under her direction as Chairperson, the American Academy of Actuaries Mass Tort Work Group created a Public Policy Monograph: Overview of Asbestos Issues and Trends, which was released in December 2001. Ms. Biggs is a frequent speaker and has testified before the United States Senate Committee on the Judiciary and the National Conference of Insurance Legislators (NCOIL) regarding asbestos issues. Ms. Biggs also has significant experience in the professional liability area. Her work includes analyses of funding requirements, self-insured retention limits, and allocation systems for self-insured trust funds of several hospitals. She also performs reserve evaluations, opining on year-end statutory reserve levels for physician insurers. Additionally, she has assisted insurers by analyzing rate levels and preparing filing materials for entry into new states. Prior to relocating to Tillinghast’s St. Louis office in 1988, Ms. Biggs spent almost four years in Tillinghast’s Bermuda office. There she gained considerable experience in financial reinsurance, performing pricing analyses for loss portfolio transfers. Most other assignments were related to loss reserving for reinsurance and captive insurance companies. Ms. Biggs is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. Ms. Biggs graduated with college honors from Washington University in St. Louis with a B.A. in mathematics and a business minor. jenni.biggs@towersperrin.com (314) 719-5843