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NEW YORK-A 47.1% drop in property/casualty insurers' incurred losses and loss adjustment expenses for environmental and asbestos liabilities in 1996 likely signals a trend for the next several years, an insurer rating agency official says.

Because of new reporting requirements and improvements in actuarial methods for estimating such liabilities, the half dozen insurers with the greatest exposures boosted their reserves substantially in 1995, according to Eric Simpson, a senior vp with insurer rating agency A.M. Best Co. of Oldwick, N.J.

Those insurers beefed up reserves either to their ultimate liabilities or enough to bring them in line with the prevailing 9- or 10-to-1 survival ratio in the insurance market, he said. The survival ratio, which Mr. Simpson called "crude," measures how long an insurer's reserves will last based on the company's claims payment history.

In addition, insurers' cleanup liability estimates for sites on the national priority cleanup list have stabilized because the number of sites has remained constant at about 1,300 during recent years, Mr. Simpson said.

Even though Best estimates that insurers remain at least $40 billion to $50 billion underreserved for their environmental and asbestos liabilities, those factors mean the single biggest round of reserve boosting likely is over for awhile, Mr. Simpson said.

As a result, the industry's annual incurred losses and loss adjustment expenses, which represent additions to reserves as well as the losses insurers paid during the year, likely will continue to decrease even as the amount of paid losses rise.

Both occurred in 1996, according to the Insurance Services Office Inc. of New York.

Insurers' total incurred losses and loss adjustment expenses for environmental and asbestos liability claims in 1996 plunged to $5.8 billion from a restated $11 billion in 1995, according to ISO. ISO's 1995 study, which comprised a slightly smaller sampling of insurers, found that the industry's losses that year totaled $10 billion.

The 1996 figures mark the first time those losses have fallen for the past six calendar years, according to ISO.

Beginning with the 1995 annual statements, regulators have required insurers to report their incurred losses and loss adjustment expenses for environmental and asbestos liabilities over a rolling five-year period. In 1995, the period was 1991 through 1995. Insurers in their 1996 annual reports included the loss figures for 1992 through 1996.

The $5.8 billion loss figure represents $3.5 billion of environmental losses and $2.3 billion of asbestos losses. Insurers' environmental losses fell 56% from $7.9 billion in 1995, and their asbestos losses dropped 26% from $3.2 billion a year earlier.

The 1996 drop is fully attributable to a 79.2% reduction in reserve increases for environmental and asbestos liabilities. Insurers last year added $1.6 billion to those reserves, compared with $7.7 billion in 1995.

The bulk-81%-of the 1996 reserve increase was for environmental claims.

Insurers added $1.3 billion to reserves for those claims. The remaining $300 million reserve increase was for asbestos claims.

The 1996 increase brings total reserves for reported and incurred-but-not-reported claims to $28.4 billion-$17.4 billion for environmental claims and $11 million for asbestos claims.

At the same time, paid losses jumped 29% to $4.2 billion from $3.3 billion a year earlier. Paid environmental losses rose 11% to $2.2 billion from about $2 billion. Paid asbestos losses jumped 58% to $2 billion from $1.3 billion.

ISO estimates that 2.3 points of the industry's 105.9% combined ratio in 1996 was attributable to incurred losses and loss adjustment expenses for environmental and asbestos claims. From 1991 through 1996, those losses have increased insurers' combined ratio annually by 2.5 points on average, according to ISO.

Best estimates that those losses will total about $4 billion in 1997. That would contribute about 1.8 points to the 108.8% combined ratio the rating agency projects for the industry this year.

The environmental and asbestos loss information is contained in ISO's most recent quarterly report on property/casualty insurers' financial results.