Annual Report 2005 - Chubb Group of Insurance Companies

(7) Unpaid Losses and Loss Expenses bodily injuries asserted by those who came in contact
with asbestos or products containing asbestos. Early
The process of establishing loss reserves is complex court cases established the ""continuous trigger'' theory
and imprecise as it must take into consideration many with respect to insurance coverage. Under this theory,
variables that are subject to the outcome of future events. insurance coverage is deemed to be triggered from the
As a result, informed subjective estimates and judgments time a claimant is Ñrst exposed to asbestos until the
as to the P&C Group's ultimate exposure to losses are an manifestation of any disease. This interpretation of a
integral component of the loss reserving process. policy trigger can involve insurance companies over
Most of the P&C Group's loss reserves relate to long many years and increases their exposure to liability.
tail liability classes of business. For many liability claims
New asbestos claims and new exposures on existing
signiÑcant periods of time, ranging up to several years or
claims have continued unabated despite the fact that usage
more, may elapse between the occurrence of the loss, the
of asbestos has declined since the mid-1970's. Each claim
reporting of the loss and the settlement of the claim. The
filing typically names dozens of defendants to ensure that
longer the time span between the incidence of a loss and
there is a solvent company left in the group to eventually
the settlement of the claim, the more the ultimate settlepay
claims. The plaintiffs' bar continues to solicit new
ment amount can vary.
claimants through extensive advertising and through asbestos
There are numerous factors that contribute to the
medical screenings. New asbestos cases are often filed in
inherent uncertainty in the process of establishing loss those jurisdictions with a reputation for judges and juries
reserves. Among these factors are changes in the inÖation that are extremely sympathetic to plaintiffs. A vast majority
rate for goods and services related to covered damages of asbestos bodily injury claims are filed by claimants who
such as medical care and home repair costs; changes in do not show any signs of asbestos related disease.
the judicial interpretation of policy provisions relating to
There have been several positive recent developments
the determination of coverage; changes in the general
in the asbestos environment. Various challenges to mass
attitude of juries in the determination of liability and
screening claimants have been mounted. Also, a number
damages; legislative changes; changes in the medical conof
key jurisdictions have adopted venue reform that
dition of claimants; changes in the estimates of the
requires plaintiÅs to have a connection to the jurisdiction
number and/or severity of claims that have been inin
order to Ñle a complaint. In addition, several states
curred but not reported as of the date of the Ñnancial
have enacted laws that set medical criteria that must be
statements; and changes in the P&C Group's underwritmet
for plaintiÅs to proceed with their claims and other
ing standards and/or claim handling procedures.
states have medical criteria bills pending.
In addition, the uncertain eÅects of emerging or potential
claims and coverage issues that arise as legal, judicial
To date, approximately 75 manufacturers and distribuand
social conditions change must be taken into considtection
as a result of asbestos related liabilities. Certain of
tors of asbestos products have Ñled for bankruptcy pro-
eration. These issues can have a negative eÅect on loss
reserves by either extending coverage beyond the original
these manufacturers and distributors have utilized a prac-
underwriting intent or by increasing the number or size
tice referred to as a prepackaged bankruptcy, which
of claims. As a result of such issues, the uncertainties
involves an agreement to a plan between the debtor and
inherent in estimating ultimate claim costs on the basis of
its creditors, including current and future asbestos claim-
past experience have grown, further complicating the
ants. Although the debtor is negotiating in part with its
already complex loss reserving process.
insurers' money, insurers are generally given only limited
opportunity to be heard. In recognition that many aspects
The future impact of the various factors that contribcertain
of prepackaged bankruptcy plans are unfair to
ute to the uncertainty in the loss reserving process and of
classes of claimants and to the insurance industry,
emerging or potential claims and coverage issues is excourts
these plans are beginning to be closely scrutinized by the
tremely hard to predict and cannot be quantiÑed.
and rejected when
appropriate.
The P&C Group's most signiÑcant individual asbestos
exposures involve products liability on the part of ""tradi-
tional'' defendants who were engaged in the manufac-
ture, distribution or installation of asbestos products.
The P&C Group wrote excess liability and/or general
liability coverages for these insureds. While these in-
sureds are relatively few in number, their exposure has
increased in recent years due to the increased volume of
claims, the erosion of much of the underlying limits and
the bankruptcies of target defendants.
The estimation of loss reserves relating to asbestos and
toxic waste claims on insurance policies written many
years ago is subject to greater uncertainty than other
types of claims due to inconsistent court decisions as well
as judicial interpretations and legislative actions that in
some cases have tended to broaden coverage beyond the
original intent of such policies and in others have expanded
theories of liability. The insurance industry as a
whole is engaged in extensive litigation over these coverage
and liability issues and is thus confronted with a
continuing uncertainty in its eÅorts to quantify these
exposures.
Asbestos remains the most signiÑcant and diÇcult mass
tort for the insurance industry in terms of claims volume
and dollar exposure. Asbestos claims relate primarily to
The P&C Group's other asbestos exposures involve
products and non-products liability on the part of ""peripheral''
defendants, including a mix of manufacturers,
distributors and installers of certain products that con-
tain asbestos in small quantities and owners or operators
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