Estimating a Reinsurer’s Liabilities for Asbestos and Environmental Losses

The process presented provides an approach to estimate a reinsurer’s potential liabilities for asbestos and environmental losses. It can also be used for any other latent losses which cannot be accurately portrayed by history due to uncertainty surrounding coverage, size of loss and trigger issues. It is designed for reinsurers who are dependent on the claim information received from their ceding companies. The dependency is reduced through the establishment of claim level Exposure Reserves. It would also be effective for excess and surplus lines carriers who participate on the higher layers of coverage and are dependent on the insured to communicate the relevant facts of the claims. The process uses report year loss development triangles along with scenarios of future reportings to estimate the ultimate losses for treaty excess of loss and facultative. A relationship between the development of losses for treaty prorata and treaty excess is used to determine the ultimate losses for treaty prorata.