Asbestos Claims Threat Haunts Europe's Insurers
Tuesday February 5, 341 am Eastern Time
By Simon Challis, European Insurance Correspondent
LONDON, Feb 5 (Reuters) - Asbestos, the product once known as a ""magic mineral'' because of its heat-proof qualities, is set to become an increasing curse for Europeans who worked with it and a multi-billion dollar problem for the insurance industry.
Concerns are growing that a United States-style explosion in asbestos-related claims could hit European firms that manufactured and installed asbestos products, and well as insurers who covered the health of those firms' employees.
The issue -- highlighted last week in a warning of asbestos losses from engineering group ABB -- came to the fore again on Tuesday, as Britain's Royal & Sun Alliance Plc (quote from Yahoo! UK & IrelandRSA.L) said it would take provisions of 371 million pounds ($525.9 million) in its 2001 results to cover possible asbestos claims.
According to accounting firm PriceWaterhouseCoopers (PwC), asbestos-related claims could cost the European insurance industry as much as 80 billion euros ($70 billion), depressing profits for years to come.
"The worst is still to come for European insurers,'' said Nylesh Shah, a director at PwC, who co-authored the report.
Many have not given the potential European asbestos claims crisis the attention it deserves, Shah said. "We've already seen (UK insurer) Chester Street go out of business, but some companies still have not evaluated their ultimate exposure to this problem.''
Asbestos is the ancient Greek word for ""unending''. Certainly those who breathe it in find it impossible to shake off the effects. Medical studies have found that inhaling it can cause a range of killer respiratory diseases, including mesothelioma, a fatal lung cancer.
A sharp increase in new claims in the United States has already become a severe financial drain on companies' resources. Rating agency A.M. Best believes insurers -- including European companies -- need to find $65 billion to fully compensate U.S. workers.
U.S. asbestos claims have already severely hit the share prices of some corporate clients. Austrian fireproof materials maker RHI and Swiss-Swedish group ABB plunged after their 2001 results went into the red because of asbestos claims charges they were forced to take.
PROBLEMS WORSEN IN EUROPE
Although asbestos was never mined in western Europe, its use here was as widespread as in North America until the 1980s and the number of victims is set to rise.
A study from the UK Cancer Research Campaign, quoted in the PwC report, predicts that the number of men dying from mesothelioma in western Europe over the next 20 years will almost double to around 9,000 a year by 2018.
The medical study predicts mesethelioma will kill 250,000 western Europeans over the next 35 years. Worst countries affected will be Britain, Italy, France, Germany and Switzerland.
With each British mesothelioma claim costing as much as 250,000 pounds, the prospect of thousands of new claims each year is another piece of bad news from the past for European insurers, according to PwC's Shah.
Worse still for the industry, the epidemic is likely to take hold at a time when it is becoming easier for European workers to seek compensation through the courts, said Shah.
Europe's largest reinsurers Munich Re and Swiss Re -- who could ultimately pay significant proportions of these insurance claims -- both said they were keeping a close eye on the issue, but had already set aside sums they believed were enough to cover the likely level of asbestos-related claims for the forseeable future.
"We do not expect a harmonisation of the European employment laws in the near future and, with this, the possibility of class actions as they exist in the U.S.,'' a Munich Re spokeswoman said. ""In this respect the exposure for the insurance industry from asbestos in Europe is not comparable to that in the U.S.''
A Swiss Re spokeswoman said""The PwC report looks 20 years ahead, which is too far away to predict what will happen.''
Those insurers likely to be hardest hit, said Shah, are those that were big underwriters of industrial risks in their home markets, such as Eagle Star in the UK -- now part of Zurich Financial Services -- Generali in Italy and Allianz in Germany.
None of these companies were available for comment.
"The industry will be paying 2 billion or 3 billion euros out each year over perhaps 30 years. The issue will lead to a steady erosion in their profit margins and capital,'' said Shah.
UK HIT HARDEST
In Britain a surge in asbestos claims has already claimed some insurance industry victims.
The UK's Chester Street Insurance went out of business in January 2001, with assets of just 200 million pounds against overall liabilities that could be 10 times that figure or more.
As a result of Chester Street's collapse -- and the previous failure of Builders Accident Insurance -- the UK's financial watchdog the Financial Services Authority last year questioned some insurers it thought had large asbestos exposures, aiming to find out how well prepared they were to deal with the problem.
"Clearly this is an issue'', said a spokesman, who said the FSA did not rule out requiring UK insurers to state the level of their asbestos exposures separately in their accounts.
UK workers who were exposed at more than one workplace by more than one employer have been refused compensation for asbestos-related diseases recently by the country's courts.
But, in spite of this, the asbestos problem in Europe is still likely to worsen in coming years.
"The crippling claims and spate of bankruptcies that have marked the mounting asbestos epidemic in the U.S. offer a stark warning for insurers on this side of the Atlantic,'' the PwC report concluded.
*** POSTED FEBRUARY 5, 2002 ***