On June 21, 2005 Equitas, the entity set up to reinsure and run off the 1992 and earlier non-life liabilities of Lloyds of London syndicates, issued its Report and Accounts for the year ended March 31, 2005. The results are mixed. On the positive side, Equitas’ accumulated surplus increased £16 million, from £460 million to £476 million; its solvency margin thus rose from 9.8% to 12.2%; it settled three of its largest five remaining direct asbestos exposures; and it had the financial ability to strengthen gross discounted asbestos reserves by £167 million.
However, Equitas’ future is far from rosy. Equitas paid fewer claims (£1.0 billion as compared to £1.4 billion the year before); it has only £5.0 billion in total assets remaining to pay its future direct and reinsurance obligations (compared to £15.9 billion when Equitas was formed in 1996); it has relatively little remaining reinsurance asset (under £1.0 billion as compared to a starting total of over £7.0 billion); its results reflect a change in the discount rates used to reserve for future claims (from 3.65% to 4.1%), increasing the value of claim reserves without the infusion of additional funds; and, as a relatively new phenomenon, it was forced to post reserves for asbestos claims arising outside of the United States (which now account for 14% of gross discounted asbestos reserves).
Once again, asbestos was identified as "the greatest single threat to Equitas". Despite the generally upbeat tone of its year-end financial results, Equitas’ management used strong words to characterize its asbestos risk. Equitas’ Chief Executive Officer acknowledged that the trust fund regulation recently voted out of the Judiciary Committee in Congress, if passed by the full Congress, could bankrupt Equitas: "We cannot guarantee that the [Congressional] commission will not seek more than we can pay." Equitas’s Claims Director characterized asbestos as "a huge and potentially fatal risk to Equitas."
Should you have any questions or require any further analysis on this matter and its potential impact on your business, please contact Mark J. Plumer of Swidler Berlin LLP.
This article merely summarizes the law or rules discussed and should not be relied upon as legal advice.
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