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Asbestos - Legislative Update

Casualty Loss Reserve SeminarLas VegasSeptember 13, 2004

Jennifer L. Biggs, FCAS, MAAA

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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”

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Surge in Claim Filings

Manville Trust - Injury by Year Filed

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year Filed

Nu

mb

er o

f C

laim

s

(Denied) or Unknow n

Non-Malignant

Cancer

Mesothelioma

Note: Excludes Non-U.S. claims

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Evidence of Forum Shopping

1970–1987 1988–1993 1994–1997 1998–2000

100

80

60

40

20

0

Percent

Other states

NY

OH

TX

MS

IL

WV

MD

NJ

PA

CA

Source: RAND, January 2003

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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

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Number of Asbestos Related Bankruptciesper Year

Note: Graph excludes a bankruptcy in 1976.

3

2

1 1

4

3 3

4

2 2 2 2

0

1 1

0

3

2

7

10

12

5

3

0

2

4

6

8

10

12

14

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Nu

mb

er

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What Are Potential Federal Solutions?

Asbestos-Related Bills Introduced into the 108th 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)

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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

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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%

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Initial Quantification of the Economic Impactof 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

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Initial Quantification of the Economic Impactof 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

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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

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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

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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 …

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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

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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?

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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

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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

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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

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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

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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

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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