The building materials maker James Hardie says compensation claims from its historical production of asbestos fibre are higher than expected and have dragged down its profits.
In its 2018 full year results, the company noted asbestos-related claims were almost $US200 million ($264 million) above original actuarial estimates.
The company's full-year profit dropped almost 50 per cent to $194 million, despite a 7 per cent increase in sales to $2.7 billion.
Based on a new report from the big accounting firm KPMG, James Hardie has had to ditch assumptions based on mesothelioma claims peaking in the period between 2014/15 and 2016/17.
"As claim numbers continue to be elevated, KPMG Australia has formed the view that the increases in mesothelioma claims reporting seen in recent years was a permanent effect, and therefore increased the projected number of future mesothelioma cases," the company said in a statement to the ASX.
While the number of claims are not falling a quickly as originally forecast, the average claim size is diminishing more rapidly due to the increasing proportion of claimants over the age of 80, while claims from the under-60s are decreasing.
| James Hardie related claims | FY 2018 | FY 2017 | Change |
| Claims received | 562 | 556 | -1pc |
| Average claim settlement | $253,000 | $224,000 | -13pc |
Source: James Hardie
Total liability still uncertain: KPMG
KPMG estimated James Hardie's liability to the Asbestos Injuries Compensation Fund will increase by $196m to $1.853 billion due to higher allowances for claims past 2025 and the increase in the current base level of mesothelioma cases.
The company has so far tipped in $1.055 billion to the fund, which was established in 2006 to cover asbestos-related illness such as mesothelioma and lung cancer.
James Hardie is obliged to pay 35 per cent of its cash flow into the AICF. This year the amount is expected be around $136 million.
However KPMG warned estimates of asbestos-related disease liabilities are subject to considerable uncertainty and it is expected that new liabilities could emerge.
"No assurance can be given that the actual liabilities … to meet the AICF Trust will not ultimately exceed the estimates [contained in the KMPG report]", KPMG said.
KPMG estimates for the total AICF liability range between $1.35 billion and $3.06 billion, with the $1.85 billion figure being the most likely outcome.
The unexpected rise in mesothelioma claims from the original 2006 actuaries' report can in large part be sheeted home to home renovators.
The KPMG report found there was a significant rise in claims from renovators between 2012 and 2015.
While that trend has moderated, the claims are still running at substantially higher levels than previously observed.
