Asbestos Rita Zona, Deloitte Consulting LLP September 13, 2004

Copyright © 2004 Deloitte Development LLC. All rights reserved. 2 What is Asbestos? Asbestos Defined – Natural fibrous silicate mineral formed through crystal development Types of Asbestos Amphibole Mineral Group Long thin rod fibers with a chain-like structure Types Include: Amosite (Brown Asbestos) – 2nd most common type found in buildings Crocidolite (Blue Asbestos) – Found in specialized high temperature applications Anthophyllite Tremolite - Rare and found primarily in other minerals Actinolite Serpentine Mineral Group Layered tubular crystal structure Chrysotile (White Asbestos) – Accounts for 90-95% of asbestos in buildings

Copyright © 2004 Deloitte Development LLC. All rights reserved. 3 Where is Asbestos Found? Asbestos Historically Considered “Miracle Mineral” Resistant to fire, heat and corrosion Strong and flexible Easily separated into filaments Abundant in nature Relative ease of extraction

Copyright © 2004 Deloitte Development LLC. All rights reserved. 4 Asbestos Applications Used historically in a wide variety of products, including: Insulation (Pipe, boiler, corrugated air-cell, breaching, and block insulation; HVAC duct insulation; sprayed-in insulation; blown-in insulation; thermal paper products; electrical wiring insulation) Fireproofing/Acoustical Texture Products (includes acoustical plaster, decorative plaster, textured paint or coatings, fire blankets, fire curtains, fire doors) Textile and Cloth Products (includes blankets, protective cloth coverings, garments, asbestos gloves, threads, cords, yarns, braids) Spackling, Patching & Taping Compounds (includes caulking, putties, joint compounds, adhesives, tapes, thermal taping compounds) Gaskets and Packing (includes high temperature gaskets, packings for industrial products, high pressure packing, asbestos packing reinforced with steel or copper wire) Tiles, Wallboard, Siding and Roofing (includes roofing shingles, roofing felt, base flashing, cement wallboard, cement siding, ceiling tiles and lay-in panels, asphalt floor tile, vinyl floor tile, vinyl sheet flooring, flooring backing, vinyl wall coverings) Friction Materials (Automotive and railroad brakes and clutches)

Copyright © 2004 Deloitte Development LLC. All rights reserved. 5 Why is Asbestos a Problem? Impairments Caused from Exposure to Asbestos “Disease Types” Pleural Plaques or Pleural Thickening Accumulation of scare-like tissue in the membranes that surround the lung Rarely causes functional impairment Asbestosis Characterized by shortness of breath and coughing May lead to severe respiratory impairment and possibly death Lung & Other Cancers Tumors in bronchi, throat, larynx, esophagus, stomach, colon and lymph nodes Mesothelioma Rare cancer of the thin membranes lining the abdominal cavity including lungs, diaphragm and heart

Copyright © 2004 Deloitte Development LLC. All rights reserved. 6 Why is Asbestos an Insurance Issue? Workers Compensation Asbestos claims were initially filed under WC WC is a system of incomplete compensation Provides Indemnity, Medical, and Expense coverage No coverage for Pain & Suffering, Punitive Damages, etc. General Liability (including CMP, XS Liability, etc.) Attorneys began suing asbestos defendants (manufacturers, distributors, installers, etc.) through the tort system Defendants were found liable for not warning of the dangers Product Liability vs. Premises & Operations Liability Bodily Injury vs. Property Damage claims

Copyright © 2004 Deloitte Development LLC. All rights reserved. 7 Why is Asbestos an Insurance Issue? Reasons Why Insurers Struggle to Establish Accurate Reserves Uncertain dates of loss (“gradual & continuous exposure”) The nature of asbestos data confounds typically accident year (read: triangular) analysis Long latency periods Difficulty in establishing cost allocation among insurers Often involve mass tort suits, including class actions Large damages and punitive damages are often involved Increasing number of asbestos company bankruptcies The number of asbestos-related claims continues to rise The types of defendants is expanding Unfavorable coverage interpretations (i.e., Prem/Ops claims)

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