In addition to catastrophe losses, the Company began to experience asbestos and environmental losses and responded by increasing its estimate of ultimate loss levels by $3.8 million, $61.2 million and $12.4 million for 1996, 1995 and 1994, respectively. See "--Loss and Loss Adjustment Expense Reserves" and "--1995 Third Quarter Charge--Environmental Reserves (Including Asbestos)" below.
For the year ended December 31, 1996, the Company's loss and loss adjustment expense reserves were reviewed by external independent actuaries in order to establish the Company's reserve position.
of the Company's insureds do, however, have environmental and asbestos loss exposure, even if not as a "target" defendant. One result of insuring potential secondary defendants is that the likely exposure with regard to environmental claims for these insureds takes longer to assess, because claimants often exhaust the potential for recovery from "target" defendants before actively pressing claims from defendants involved to a lesser degree in the alleged pollution. The Company believes this to be true, particularly for asbestos claims. The current adjustment to reserves for unreported losses for asbestos claims relating to primary general liability operations recognizes that the Company may experience a somewhat slower reporting pattern on these claims due to the nature of the Company's exposure on policies written for insureds that have been to date predominantly secondary defendants. The overall increase to primary general liability reserves for environmental claims was $8.0 million ($40.8 million before deducting reinsurance).
The information on these contracts currently provided to the Company by the ceding companies varies substantially. Some companies provide individual claim detail with clear identification of environmental claims as well as actuarial estimates of ultimate loss levels. For other companies, very little (if any) detail regarding individual claims is provided to the Company and environmental claims are not separately identified. Some of the ceding companies are no longer in business and the loss information is now provided by a third-party that was not originally involved in the reinsurance placement.
In past evaluations, reserves for U.S. assumed reinsurance contracts were aggregated and the Company made no specific estimation or segregation of reserves for environmental claims. During the first nine months of 1995, the Company reviewed the individual treaties with the intent to segregate these treaties into relevant groups for actuarial analysis, identified environmental claims to the extent possible with existing information, compiled
In the insurance industry, liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations, including from its investment portfolio, in order to meet its financial commitments, which are principally obligations under the insurance policies it has written. Liquidity requirements of insurance companies are influenced significantly by product mix. Future catastrophe claims, the timing and amount of which are inherently unpredictable, may create increased liquidity requirements for the Insurance Subsidiaries.