- The Washington Times - Friday, May 17, 2002

Business insurers are coming under more financial pressure from an onslaught of asbestos-related litigation.

St. Paul Cos., the fourth-largest insurance company in the United States, revealed Wednesday in regulatory filings that it could face a "substantial" claim from Western MacArthur Co., once a major distributor and installer of asbestos, a material known to cause cancer and other serious lung diseases.

Meanwhile in London, the House of Lords reversed a previous ruling and allowed victims of asbestos-related illnesses to be compensated by insurance companies. The decision yesterday involved the Union of Construction, Allied Trades and Technicians, which brought the case in 1996 after the death of a union member from the lung disease mesthelioma. The decision is expected to allow about 500 similar cases to proceed.

Insurers including Zurich Financial Group, CGNU PLC and New York-based American International Group may face a total bill of more than $12 billion, the Association of British Insurers said.

The impact of both events is expected to have minimal effect on U.S. businesses, at least in the short term, analysts and observers said.

It is not known how much money St. Paul will be liable for, but filings with the Securities and Exchange Commission show the company set aside $463 million for asbestos claims. The company paid $52 million for such claims in 2001 and $42 million in 2000. Through March 31 of this year, it doled out $16 million.

"Saint Paul is probably more reserved than any other company out there," said Michael Paisan, an analyst with Williams Capital Group, a New York investment bank.

Insurers are increasingly becoming the targets of asbestos-related lawsuits, as many manufacturers have declared bankruptcy. Many analysts and investors say the suits have become too widespread, and have called for federal tort reform.

"The trial bar is continuing to come up with new ways to extract money from insurers and their policyholders," Eric Holmes, a money manager at Victory Capital Management, told Bloomberg News. "Clearly, we need tort reform. Even the Supreme Court has said the problem can't be solved by the courts and needs a legislative solution."

While some observers said the St. Paul disclosure was uncommon, analysts who cover the company said it was a shrewd move designed to make sure investors aren't surprised by possible losses in upcoming quarters.

Observers said the House of Lords ruling will have minimal effect on insurance companies based in the United States. Those with no operations in Britain will not be affected, and analysts said American companies with British operations will make up a fraction of those businesses potentially liable. Most companies maintained large reserves in anticipation of the ruling.

"Most of them were operating under the assumption this was going to happen anyway," said Julie Rochman, spokeswoman for the American Insurance Association.

American International Group, which was named by the Association of British Insurers as a potentially liable company, said it would be affected only minimally by the ruling.

Analysts said it is not clear what the long-term effect on insurance company earnings and rates for business will be.

"There's all kinds of estimates as to how bad it is and who's going to pay," said Gary Ransom, an analyst with Conning Corp. in Hartford, Conn. "This will happen over a long period of time."

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