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Equitas optimistic despite asbestos boost

Despite boosting asbestos reserves by £167mn, Lloyd’s pre-1993 run-off vehicle Equitas heralded a year of progress which has left it in a stronger financial condition as it announced its financial results for the year ended 31 March 2005 today (7 June).

Surplus at the year-end had risen by £16mn from £460mn to £476mn, solvency margin was up from 9.8 percent to 12.2 percent, and claims liabilities on the balance sheet had been cut by £1bn from £5.4bn to £4.4bn.

And during the year Equitas successfully settled asbestos claims relating to three of the five largest direct asbestos exposures it started the financial year with.

Chairman Hugh Stevenson commented: “Equitas still faces considerable uncertainties. However, we have made good progress in the year. We have again been successful in resolving a substantial number of claims by reaching settlements on acceptable terms.”

According to the run-off reinsurer, the result was accomplished through settling claims, successful collection of reinsurance both traditionally and through commutations, beating investment return targets, and cutting costs.

Through the year, Equitas completed policy buyouts from 25 policyholders, and has now completed almost 200 buyouts in total.

Since it was set up in 1996, the reinsurer has paid claims of more than £16bn, reducing its undiscounted liabilities by 70 percent.

In its report, Equitas once again identified asbestos as its biggest single threat, adding that reserves had to be increased for claims submitted by insurers and for non-US claims.

It also detailed the latest political developments in the US, as opposing sides try to reach a compromise to push through legislation to set up an asbestos trust fund to compensate victims, paid for by companies and their (re)insurers.

Equitas won an important victory earlier this year when it persuaded the Senate Judiciary Committee considering the legislation to remove a discriminatory measure preventing the run-off company from seeking relief in the event its solvency was threatened by its contributions to the fund.

The victory means that Equitas will be entitled to the same relief as any other insurance company in the world.

Equitas CEO Scott Moser continued: “Prospects for a trust fund bill remain decidedly uncertain. Whether such a bill would be good or bad for Equitas depends on how much Equitas is assessed by the commission contemplated by the bill. However, we believe our reserves are appropriate and that a fair minded commission will seek from Equitas no more, and possibly less, than we have available for such claims.”

He added that Equitas would “do all that we can to prevent a discriminatory bill, to be assigned a share that is fair and to oppose imposition of any share that is not”.

Moser also commented on progress at State level to enact asbestos reforms, with two reform bills passed in Ohio in 2004 requiring proof of exposure and injury for asbestos and silica claims and, since the year-end, further statutes introduced in Florida, Georgia and Texas to limit claims to those with specific symptoms.

“These reforms demonstrate that the United States litigation culture as to asbestos claims is changing to prevent the entrepreneurial practice of rounding up thousands of unimpaired claimants, packaging those claims into a few cases, and extracting significant settlements through blackmail litigation,” said Moser.

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