Retroactive insurance analysis

The 24 June 2002 issue of Business Insurance carries detailed analysis of the use of retroactive insurance (a form of finite risk insurance) by insurers to bolster asbestos reserves for past losses. The mechanism is similar to the innovative programme introduced for former broker Frank B Hall for MGM Grand when underinsured for liability from a 1980 Las Vegas hotel fire. In that case the insurer and reinsurers counted on high interest rates and lengthy litigation to cushion an eventual payment of US$170mn, but were scuppered when payment was ordered after two years. Despite this unfortunate start, retroactive insurance appears to be continuing to gain popularity.