Peter Drucker said: "You won't get what you expect…unless you inspect."

This very much applies to reinsurers facing a continuing escalation of claims from US ceding companies arising from asbestos settlements. A.M. Best estimates that the US insurance industry is under-reserved by $10,000,000,000. Although proponents vow to resurrect the FAIR Act, creating an asbestos fund to pay all claims, no present legislative action has been scheduled.

Huge settlements continue to be announced with US insureds. The most recent was Owens Corning - $5,000,000,000. Many less sizeable settlements are occurring every month, which accumulate to significant amounts each year. Less publicised are the substantial claims ceded by US primary and excess insurers to reinsurers after these major settlements with policyholders are concluded.

A careful review of claims presentations is essential to understanding the underlying settlement and how reinsurance was applied. Gaining a working knowledge of cedents' practices before presentation of large settlements is increasingly important as the value of these claims continues to increase. This has become a critical part of managing and reserving these large exposures.

This Viewpoint item appeared in issue 106 of JTW News - June 2006

Author: Gary Nelson - Devonshire Group