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Insurance companies, wary of asbestos claims, are bolstering reserve funds

Three of the country’s largest insurance companies reported a rise in asbestos-related claims in the first half of 2011, reflecting a rise in the frequency and severity of lawsuits by victims of mesothelioma and other cancers.


American Financial Group, Inc. reported earlier this month that strengthening reserves for asbestos and environmental claims would cut into second-quarter earnings by 49 percent. The company reported a pre-tax charge of $28 million. The Hartford also increased its asbestos reserves, reporting a pre-tax charge of $290 million.


In a quarterly filing with the Securities and Exchange Commission, MetLife, the largest U.S. life insurer, did not offer details on the potential size of its claims. But the comp[any indicated that the number rose 14 percent in the first half of the year, to 2,306 claims from 2,076 in the same period of 2010.


According to the Insurance Information Institute, reserves set aside for asbestos claims have been shrinking every year since through 2009. Meanwhile, according to the American Cancer Society, new cases of malignant mesothelioma, a deadly lung disease caused only by asbestos exposure, declined at an annual rate of 1.8 percent from 1999 to 2008.


Nonetheless, ratings agency A.M. Best says some companies are still not fully reserved for future claims, which could eventually total $75 billion.


The insurance industry accuses plaintiff’s attorneys of increasingly targeting defendants who are only peripherally connected to asbestos victims, like contractors who worked on projects in which asbestos was used. But other experts say a new wave of asbestos-related suits is possible given the latency of mesothelioma, which doesn’t emerge until decades after exposure.


Moody’s Investors Service this week called the recent financial disclosures a “warning flag” that reflect concerns over higher personal injury awards to mesothelioma victims and an “increasing severity in claimants’ health conditions.”


“Increases in both the frequency and severity of mesothelioma and other cancer claims, increased legal costs, and an expansion of defendants to smaller, more peripheral insureds were cited as the primary drivers of the increase in expected losses,” Moody’s said.