Asbestos exposures and resulting differences between insurers and reinsurers in the US are “getting ugly”, according to Standard & Poor’s (S&P). MD Steve Dreyer says reinsurers aren’t “stepping up to shoulder the asbestos burden apparently expected of them” following massive increases in leading insurers’ reserves.

S&P highlighted the January decision by Ace to raise its gross asbestos reserves to $3.6 billion while only boosting net reserves by $828 million after reinsurance. This “represents an overweening dependence on reinsurance for an exposure representing about 30% of Ace’s capital base”, S&P said.

Director John Iten said liabilities are “disappearing into thin air, and nobody’s capturing them – it’s like smoke and mirrors. Across the industry the difference between gross and net numbers raises all sorts of questions about who’s ceding what to whom.”

Ace isn’t the only insurer to boost its reserves – Travelers almost equalled all its 2002 earnings when it raised its reserves by $4.14 billion last year, and several others have added more than $1.6 billion to their reserves.

But S&P says reinsurers haven’t matched these exposures with increases in their own reserves. That’s in part due to a natural lag in the process, “but also because insurers are often failing to inform them about what level of reimbursement they are expected to come up with, even though the [insurers] have built that anticipated income into their own numbers.”