EQUITAS gave warning yesterday that a US senator’s attempt to cap the soaring cost of asbestos-related compensation claims is expected to fail and that it had raised its reserves against such claims by £296 million.

The reinsurer, set up by Lloyd's of London in 1996 to cover the market's pre-1992 non-life liabilities, has now set aside £4 billion against asbestos-related claims, as legal cases in the US mount.

Royal & SunAlliance, the other UK player with a significant exposure to US asbestos claims, agreed with Equitas’s fears that the US Government would fail to find a solution.

Scott Moser, chief executive of Equitas, said that the chances of success for Senator Orin Hatch’s plan to create a central fund to deal with future asbestos claims “now seems remote”. An asbestos Bill that would have forced insurers and manufacturers to pay $114 billion into a central fund reached the US Senate two months ago, but stalled amid wrangles over whether that amount was sufficient.

Insurers have been vocal in support for the idea, as 50 per cent of asbestos compensation awards are absorbed by legal costs. Under such a central fund, victims of asbestos-related diseases would receive a maximum compensation of $1 million without the courts becoming involved.

The industry, however, has been lobbying furiously against the detail of the plan.

Mr Moser said Equitas had been “at the forefront of efforts to achieve fair and affordable federal legislation”. He said that under the terms of the Bill, Equitas was the only affected insurer not protected against insolvency as a result of the imposition of the levy.

R&SA was forced to pump £100 million into its asbestos reserves at the end of March, six months after it had earmarked £500 million of a £960 million rights issue to bolster its provisions for US claims. A spokesman for the group said it would welcome a solution to the problem of escalating asbestos litigation.