Equitas in $245mn settlement with Travelers
Equitas has continued its policy of dealing with its largest (re)insurance exposures to asbestos and environmental claims by reaching a $245mn comprehensive settlement of all outstanding policies with US property casualty insurer Travelers.
The deal marks the reinsurer’s third major settlement of US liabilities in the current financial year, following a $472mn settlement with Honeywell last April, and the $575mn asbestos settlement with engineering firm Halliburton on 28 January 2004.
Lloyd’s set up Equitas in 1996 to manage the run-off of its pre-1993 non-life liabilities.
In today’s (22 March) announcement, Equitas said the payment, due on 31 March, “will resolve all current and future claims made both by Travelers against reinsured underwriters and by reinsured underwriters against Travelers”.i
Under terms of the agreement, which includes all policies involving Aetna companies bought by Travelers in 1996, $150mn of the payment will be placed in a trust. The amount relates to asbestos bodily injury claims and could be returned to Equitas in the event US federal asbestos reform legislation is passed in the current Congress.
Equitas claims director Glenn Brace said: “This is an encouraging result for Equitas. In January, we concluded an agreement with Halliburton that resolved our largest direct asbestos exposure. With this latest settlement, we resolve our largest reinsurance exposure.”
“While we recognise that some parties may need or prefer to deal with Equitas on a transaction by transaction basis, perhaps even over many years, we believe global agreements are better economically for both parties and we remain committed to agreeing global settlements with counter parties wherever we can,” he continued.
Morgan Stanley analysts in the US suggested that the deal was more favourable to Travelers than Equitas. Noting that at the year-end Travelers had $269.1mn recoverable from Equitas, Analyst William Wilt said: “The $250mn payment represents just a modest haircut on these liabilities - less than we might have expected considering the somewhat fragile state of Equitas’ financial health.”
He also pointed out that Travelers had an allowance for uncollectible reinsurance of $386mn. “We suspect a portion of this balance related to Equitas,” he said, adding: “If the reserve is not lowered, it will be intrinsically strengthened with this resolution.”
At the last year-end Equitas boosted asbestos reserves by £400mn. Asbestos liabilities made up more than half of the total exposures of the reinsurer at the start of the current financial year.