Survival ratio (asbestos and environmental)

An asbestos reserve of 840 million dollars and payments running around 100 million a year: the insurer has reserved 8.4 years of payments. The survival ratio divides the reserves for a latent exposure, asbestos or pollution, by average annual payments over the last three years, and answers in years. Rating agencies and analysts made it standard in the United States, where property and casualty insurers disclose their asbestos and environmental (A&E) reserves separately. That lets analysts compare balance sheets that nothing else makes comparable. Triangles are of little use on these exposures: claims are reported decades after exposure, and coverage case law (trigger, allocation across successive policies) has reshaped the cost several times. The ratio is computed gross or net of reinsurance, and the gap between the two already says a good deal about expected recoveries. It is read as a trend and against peers: a ratio that falls while payments do not signals a reserve that is not keeping up. Its weaknesses are well known. It assumes stable payments, while a commutation or a global settlement with a policyholder inflates one year and drags the ratio down at the very moment the exposure is being closed. It ignores the shape of the tail, and ten years of flat payments do not call for the same reserve as ten years of declining ones. In France, asbestos compensation runs mostly through the occupational injury and disease branch of social security and through FIVA, which is subrogated to victims' rights against employers. Not to be confused with the survival period of a warranty in a sale agreement, which has nothing actuarial about it, nor with the tail factor, which extrapolates a triangle.