James Hardie’s Asbestos Liabilities Rise to $1.47 Billion Amid Claims Surge

• Central estimate of liabilities at $1.472 billion as of March 2025
• 7.5% increase in mesothelioma claims reported in 2024/25
• Significant rise in cross claims, particularly in Victoria and NSW
• Average claim sizes vary by disease type and claimant age
• Sensitivity analysis highlights substantial uncertainty in future liabilities

Overview of the Valuation

KPMG has delivered its Annual Actuarial Report as of 31 March 2025, assessing the asbestos-related disease liabilities of former James Hardie entities to be met by the Asbestos Injuries Compensation Fund (AICF) Trust. The central estimate of these liabilities stands at $1.472 billion, a modest increase from $1.458 billion in 2024. This valuation reflects updated claims data, actuarial assumptions, and economic factors.

Claims Experience and Trends

The report highlights a 7.5% rise in mesothelioma claims in the 2024/25 financial year compared to the prior year, with 401 claims reported. Notably, cross claims, claims brought by other defendants involving James Hardie entities, rose sharply by 31%, driven largely by activity in Victoria and New South Wales. Direct claims, those initiated by claimants themselves, remained relatively stable but slightly above expectations.

Non-mesothelioma claims, including asbestosis and other asbestos-related diseases, also showed elevated reporting, particularly asbestosis claims which increased by 32%. The report separates assumptions for direct and cross claims in asbestosis for the first time, reflecting their differing characteristics and claim sizes.

Actuarial Assumptions and Methodology

KPMG’s valuation methodology incorporates detailed analysis of claim numbers, latency periods from exposure to claim notification, average claim sizes, legal costs, and settlement patterns. The report applies a central estimate approach without additional risk margins, consistent with the Amended Final Funding Agreement governing the funding arrangements.

Economic assumptions include a long-term wage inflation rate of 3.5% and a superimposed inflation rate of 1.0%, unchanged from the previous year. The discount rate used for present value calculations has increased from 4.75% to 5.60%, reflecting current Commonwealth Government bond yields.

Liability Changes and Sensitivity

The increase in liabilities since the prior valuation is primarily due to higher projected mesothelioma claim numbers and changes in the age mix and incidence patterns of claims. This is partially offset by favorable developments such as lower average claim sizes and legal costs, and a higher nil settlement rate (claims settled with no liability).

Sensitivity testing underscores the inherent uncertainty in asbestos liabilities, with the timing of mesothelioma claims being the most sensitive factor. A two-year shift in the incidence pattern could increase liabilities by approximately $279 million on a discounted basis. The overall range of potential liabilities spans from $1.184 billion to $2.183 billion, emphasizing the volatility of future outcomes.

Insurance Recoveries and Funding Implications

The report estimates insurance recoveries at a net present value of $43.2 million, factoring in expected collections from product and public liability policies. The Amended Final Funding Agreement specifies the funding framework, linking payments to the AICF Trust with James Hardie’s free cash flow and the actuarial estimates.

Historical cashflows show consistent payments around $176 million annually, with projections indicating a long-tail profile extending several decades into the future. The report cautions that actual liabilities may vary materially due to legal, medical, and social developments, as well as economic conditions.

Bottom Line?

Asbestos-related liabilities for James Hardie continue to evolve with rising mesothelioma claims, underscoring the need for vigilant monitoring of future claims trends and actuarial assumptions.

Questions in the middle?

• Will the recent surge in cross claims represent a sustained trend or a one-off spike?
• How might future legal or legislative changes impact the quantum and timing of liabilities?
• What are the implications of the sensitivity around the peak period of mesothelioma claims for James Hardie’s funding strategy?