EXHIBIT 99.1

Dear Sir/Madam

Attached is a report prepared by KPMG on the valuation of asbestos related disease liabilities arising from the manufacture or use of asbestos by the James Hardie former subsidiaries.

Yours faithfully

Pim Vlot
Company Scretary

Valuation of asbestos-related disease
liabilities arising from the manufacture or
use of asbestos by former James Hardie
entities (“The Liable Entities”)

Exclusive of cost savings resulting from
the NSW Government Review into Legal
and Administrative Costs of Dust Diseases
Compensation Claims

As at 31 March 2005

Prepared for James Hardie Industries NV

14 May 2005

14 May 2005

Mr Russell Chenu
Chief Financial Officer
James Hardie Industries NV
22 Pitt Street
Sydney NSW 2000

Dear Russell

Valuation of asbestos-related disease liabilities arising from the manufacture or use of asbestos by former James Hardie entities (“The Liable Entities”)

We are pleased to provide you with our actuarial valuation report relating to the asbestos-related disease liabilities of the Liable Entities. This report is effective as at 31 March 2005 and has taken into account claims data and information from The Medical Research and Compensation Foundation (“MRCF”) as at 31 March 2005.

The report does not yet make any allowance for the potential cost savings resulting from the NSW Government Review into legal and administrative costs of dust diseases compensation claims

If you have any questions with respect to the contents of this report, please do not hesitate to contact us.

Yours sincerely

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

EXECUTIVE SUMMARY

Introduction

We have been requested by James Hardie Industries NV (“James Hardie”) to provide our actuarial assessment of the
asbestos-related disease liabilities of the Liable Entities as at 31 March 2005 on a central estimate basis. The central estimate liability represents the present value of our actuarial estimate of the expected future asbestos-related claims payments and associated costs (including legal and settlement costs) of these claims.

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

We note that this liability assessment does not include any explicit allowance or risk margin for the uncertainty surrounding the assessment made. This is discussed further under the “Uncertainty” heading below.

For the purpose of this report, “The Liable Entities” have been assumed to include the following entities:

	•	Amaca Pty Ltd (formerly James Hardie & Coy);
	•	Amaba Pty Ltd (formerly Jsekarb);
	•	ABN60 Pty Ltd (formerly James Hardie Industries Ltd); and
	•	Asbestos Mines Pty Ltd.

Liability Assessment

At 31 March 2005, our central estimate of the net liabilities of the Liable Entities is $1,684.9m (30 June 2004: $1,536.0m). This figure is discounted and is net of insurance recoveries.

Table E.1: Comparison of costs: June 2004 to March 2005

The Workers Compensation liabilities insured with Allianz are not included in either the gross or insurance figures. This does not impact our net liability assessment. However, it is noted that

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

the gross liability before insurance, and the insured liability offset, are “technically” understated by the amount of these particular insured liabilities.

We have made no allowance within this valuation report for any potential savings resulting from the NSW Government Review into the legal and administrative costs of dust diseases compensation claims. This is because the Bill to amend legislation and the regulations has only been recently introduced into the NSW Parliament and has yet to be passed.

We have not allowed for any internal claims administration costs or the operational expenses of the MRCF or the SPF in the liability assessment.

Insurance and other recoveries

In determining our net liability above, we have assumed that the current insurance contracts of the Liable Entities will continue to respond to gross claims we have projected as they fall due. Other than making a general credit risk allowance in valuing these recoveries, we have assumed they will otherwise be fully recovered. Similarly, we have assumed other third-party recoveries under by-claims and subrogation recoveries will be realised in full.

To the extent that one or more significant insurers fail in future, dispute payments to the Liable Entities and/or negotiate commutations of their obligations for less than our valuation allowance, then the net liabilities of the Liable Entities would increase accordingly. For example, from the table above, an event resulting in a loss of 10% of the anticipated insurance recoveries included in our valuation would increase the net liability by approximately $21 million.

Areas of potential exposure not included

As set out in section 1.5, there are certain areas of potential exposure for which we have not made explicit additional allowance. Such areas include, but are not restricted to, “third wave” claims and claims from overseas including the US. Such areas of claim have been allowed for within our valuation to the extent that they have existed within the past. Therefore, we have allowed for them within our valuation based on their experience to date. However, we have not made any allowance for any speculative development in such claims; for example a surge in third wave claims.

Similarly we have not made specific allowance for substantial changes in average claims amounts resulting from future changes in legislation or the emergence of new heads of damage. Nonetheless, our allowance for superimposed inflation is intended to include some implicit allowance for these.

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

Comparison with 30 June 2004 Valuation

In the absence of any change to the claim projection assumptions from our 30 June 2004 valuation, but allowing for the change in the discount rate, we would have projected a central estimate liability of $1,629.4m as at 31 March 2005. Consequently, our revised assessment in this report represents an increase in the underlying projected liabilities of $55.5m.

The larger part of this increase in the underlying projected liabilities ($31m) is principally a consequence of:

	•	An increase in the projected future numbers of claims which we have adopted based on the recent emerging experience;
	•	A reduction in the proportion of claims which will settle for nil cost; and
	•	A lower assumed overall average cost per claim based on recent trends which partly offsets the increased numbers of claims.

In addition, we have:

	•	Included a specific additional provision for potential claims from Baryulgil in light of the recent visit by the DDB Lung Bus noting that to the extent such claims existed in past claims history they would already have had some allowance within our liability assessment; and
	•	Made other minor changes to settlement patterns and to expected insurance and subrogation recoveries.

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

Table E.2: Analysis of change: June 2004 to March 2005

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

Emerging Experience

There was a significant increase in the rate of mesothelioma claim notifications in the 2004/05 financial year (running from 1 April 2004 to 31 March 2005). These have risen from 182 in the 2003/04 year to 250 in 2004/05. This increase has mainly arisen from Victoria and Queensland, with the latter being a result of a filing of 18 mesothelioma claims in February and March relating to statutory recoveries claimed by Workcover Queensland.

These 18 mesothelioma claims relate, in the majority, to plaintiff settlements made a number of years ago for which Workcover Queensland is only now seeking compensation. Our understanding is that the filing of these claims includes a substantial element of “catch-up”.

Asbestosis has shown a similar trend with claims notifications increasing from 97 in 2003/04 to 117 in 2004/05. This trend has arisen across most States.

It is unclear as to the extent to which the substantial increase in the number of mesothelioma and asbestosis claims notified is a new sustained trend or a short-term aberration owing to:

	•	increased consumer awareness and association of James Hardie with asbestos, resulting from increasing publicity arising from the Special Commission of Inquiry which took place in 2004; and / or
	•	simply statistical variation.

The trend in average costs on these additional claims is not yet clear. This adds to the uncertainty about the impact of this aberration in the longer term.

We have assumed that they are part of a new emerging trend and have accordingly strengthened our assumption of the future number of claim notifications.

Superimposed inflation and legal costs

The legal costs components and the allowance for superimposed inflation are key drivers of the ultimate claims costs. Table E.3 below identifies the components these represent of the net liability.

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

Table E.3: Breakdown of components of liabilities

Based on the above figures, the liability for legal costs amounts to $436m.

This can be expressed as 29.9% of the gross cost of settlements by the Liable Entities to plaintiffs, being $436m / ($1,893m - $436m)

This can also be expressed as 34.9% of the net cost of settlements by the Liable Entities to plaintiffs, being $436m / ($1,685m - $436m)

Superimposed inflation contributes $254m to claim costs.

In aggregate, legal costs and superimposed inflation contribute $689m to the net cost to the Liable Entities, and this is 40.9% [= $689m / $1,685m] of the total costs and liabilities of the Liable Entities.

Uncertainty

Estimates of asbestos-related liabilities are subject to considerable uncertainty. This includes uncertainty due to:

	•	The lack of confidence as to the extent and pattern of past asbestos exposures and therefore the number and pattern of the ultimate number of lives that may be affected by asbestos-related diseases.
	•	The fact that the ultimate severity of the impact of the disease and the quantum of the claims that will be awarded will be subject to the outcome of events that have not yet occurred, including medical and epidemiological developments, jury decisions, court interpretations, legislative changes, public attitudes, potential third-wave exposures and social and economic conditions such as inflation.

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

It should therefore be expected that the actual emergence of the liabilities will vary, perhaps materially, from any estimate. Thus, no assurance can be given that the actual liabilities of the Liable Entities will not ultimately exceed the estimates contained in this report and that any such variation will not be significant.

To this extent, we provide the following sensitivity tests of the actuarial assessment of the liabilities to changes in some key assumptions.

Figure: E.1 Sensitivity testing results – Impact around the central
estimate (discounted) (in $m) at March 2005

* The superimposed inflation sensitivity tests are for 6% per annum for 5 years reducing to 2% per annum; and 2% per annum for 5 years reducing to –2% per annum

Whilst our combined sensitivity test of a number of factors (including superimposed inflation, average claim costs and numbers of claims) indicates a range around the central estimate of liabilities of -$600m to +$900m (equivalent to a range of liabilities of $1.1bn to $2.6bn), the actual cost of liabilities could fall outside that range depending on the out-turn of the actual experience.

On an undiscounted basis, the comparable figures for the range around our central estimate of $3.6bn are $2.0bn to $5.9bn.

The above chart may imply that the single most sensitive assumption is potentially the peak year of claims. This is related to the fact that the most substantial uncertainty is the ultimate number of claims that may eventuate against the Liable

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

Entities. Shifting the peak year by 5 years to 2015/2016 for mesothelioma would imply an increase in the future number of mesothelioma claims reported (both at a national level and to the Liable Entities) of around 50%.

Data, Reliances and Limitations

We have based our actuarial analysis and valuations on data and information provided by the MRCF and Amaca Claims Services (“ACS”). This included:

	•	MRCF claims database at 31 March 2005 with individual claims listings;
	•	MRCF accounting database at 31 March 2005 (which includes individual claims payment detail);
	•	MRCF Monthly Management Information Reports; and
	•	MRCF Home Renovator Report.

We have also considered the claims data listings at 18 October 2004 and 30 June 2003 which formed the basis of our previous valuation assessments.

While we have tested the consistency of the various data sets provided, as noted above we have not otherwise verified the data and have relied on the data provided as being reliable, complete and accurate in all material respects. Consequently, should there be material errors or incompleteness in the data, our assessment could be affected materially.

We have allowed for the benefits of the MRCF’s insurance arrangements based on our understanding of these. This has been based on a review of the insurance contract information submitted by various parties to the Special Commission of Inquiry and from recent information provided to us by Eakin McCaffrey Cox. We have assumed that these insurances will continue to respond to claims.

As noted in the main body of our report there are areas of potential asbestos-related liabilities that have not been included within our valuation. These principally related to events and exposures that, at this time, are unquantifiable and/or speculative in nature at this time, such as “third wave” claims, property or environmental remediation or unpredictable developments in judicial processes or avenues of claim. The implications of this limitation should be acknowledged in considering our valuation.

Executive Summary Not Report

Please note that this executive summary is intended as a brief overview of our report. To properly understand our analysis and the basis of our liability assessment requires examination of our report in full.

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

CONTENTS

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

TABLES

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

FIGURES

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

APPENDICES

		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

1. SCOPE AND PURPOSE

1.1	Introduction
	In February 2001, the Medical Research & Compensation Foundation (“MRCF”) was established as a charitable trust to meet the asbestos-related liabilities of two former subsidiaries of James Hardie Industries NV (“James Hardie”), namely Amaca Pty Ltd (formerly James Hardie & Coy) and Amaba Pty Ltd (formerly Jsekarb). We refer to these collectively as “the MRCF” even though this may not be strictly correct in some cases.

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

	In February 2004, the NSW Government established the Special Commission of Inquiry into the Establishment of the MRCF. In September 2004, one of the findings of the Inquiry was that the MRCF was under-funded insofar as it would not have sufficient assets to meet its expected future obligations.
	During the Special Commission of Inquiry, James Hardie made an offer to fund the liabilities subject to certain conditions and shareholder approval. Subsequent to the Special Commission of Inquiry’s findings, negotiations began to establish the basis on which the funding may take place.
	A “Heads of Agreement” was signed on 21 December 2004 between James Hardie, the ACTU, Mr Bernie Banton, Unions NSW and the NSW Government. This was a “non-binding” agreement which set out the principles upon which a legally binding agreement, the “Principal Deed”, would be based.
	KPMG Actuaries Pty Ltd (“KPMG Actuaries”) was retained during the Special Commission of Inquiry by James Hardie and Allens Arthur Robinson to provide an assessment of the asbestos-related liabilities of the MRCF at 30 June 2003.
	Within the valuation as at 30 June 2003, KPMG Actuaries estimated the discounted value of the quantifiable liabilities of the MRCF on a “central estimate” basis as $1,573.4m (equivalent to an undiscounted estimate of $3,403.1m), based on the then current economic and legal environment, net of insurance recoveries and after allowance for legal costs.
	KPMG Actuaries were retained by James Hardie during the negotiations of the Heads of Agreement to provide an updated assessment of the liabilities as at 30 June 2004. This was set out in our report dated 21 November 2004, based on data to 18 October 2004.
	Within that valuation, KPMG Actuaries estimated the discounted value of the quantifiable liabilities of the MRCF and ABN60 Pty Ltd on a “central estimate” basis as $1,536.0m (equivalent to an undiscounted estimate of $3,585.6m) as at 30 June 2004.
1.2	Purpose of this report
	Both the Heads of Agreement and the proposed Principal Deed envisage the completion of an Annual Actuarial Report evaluating the potential asbestos-related liabilities of the Liable Entities of the James Hardie Group of companies.
	For this purpose, the Liable Entities have been assumed to include the following entities:

•

Amaca Pty Ltd (formerly James Hardie & Coy);

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

	•	Amaba Pty Ltd (formerly Jsekarb);
	•	ABN60 Pty Ltd (formerly James Hardie Industries Ltd); and
	•	Asbestos Mines Pty Ltd.

	KPMG Actuaries has been retained by James Hardie to provide the first annual actuarial report in relation to the management, administration and settlement of asbestos related claims. The prior written consent of KPMG Actuaries is required for any other use of this report or the information contained in it.
	Our valuation is intended to be effective as at 31 March 2005 and has been based on the most recent emerging information to 31 March 2005.
	The Medical Research and Compensation Foundation, Amaca Pty Limited and Amaba Pty Limited are not responsible for, and did not request, the preparation of this report.
	Nonetheless, the MRCF have requested to see, and will be provided with, a copy of this report.
	We thank the MRCF for the provision of their data, the availability of their staff and for their general assistance and co-operation.
1.3	Scope of report
	We have been requested by James Hardie to provide an actuarial assessment of the estimated asbestos-related disease liabilities of the Liable Entities as at 31 March 2005 on a central estimate basis. This involves an estimate of the expected present value of the future claims and associated costs.
	It is of note that our liability assessment:

	•	Relates to the MRCF and its entities Amaca and Amaba.
	•	Considers the potential liability in relation to ABN60.
	•	Considers the potential liability in relation to Asbestos Mines Pty Ltd arising from the Baryulgil mine.
	•	Relates only to the future liability outworkings of liabilities of a type and character incurred by the Liable Entities to date. Our report covers those issues as envisaged under the proposed Principal Deed.
	•	Relates to a continuation of the existing legal environment.
	•	Makes no additional allowance within this liability valuation for the inherent uncertainty of the liability assessment. That is, no additional

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

		provision has been included in excess of the central estimate of the potential liabilities.
	•	Assumes that the insurance programme will continue to respond to claims as and when they fall due and that no future disputes arise.
	•	Makes no allowance, at this time, for the potential savings arising from the NSW Government Review into the Legal and Administrative Costs of Dust Diseases Compensation as released on 8 March 2005 or the Draft Regulations released on 12 April 2005.

	This report is an update and extension of the valuation performed by KPMG Actuaries dated 21 November 2004 and effective as at 30 June 2004 based on data to 18 October 2004.
	Readers of this report may refer to the previous report which is available at www.ir.jameshardie.com.au and www.asx.com.au, or to the report filed by Richard Wilkinson to the Special Commission of Inquiry and dated 7 June 2004 which is also available at www.ir.jameshardie.com.au.
1.3.1	Workers Compensation
	The scope of our valuation excludes the insured component of James Hardie’s employees’ Workers Compensation liabilities in relation to asbestos-related disease claims.
	It should be noted that employees of James Hardie are directly insured with Allianz Australia Limited (“Allianz”). Liability to James Hardie or the MRCF only arises insofar as the insurance indemnity limits do not cover the liability attaching to the claim.
	We have made allowance within our liability assessment for that component of the workers compensation claims by James Hardie’s employees which is not covered by Allianz. However, the data available from the MRCF does not include sufficient details for us to make an assessment of the insured component of these liabilities.
	This does not impact our net liability assessment as set out in this report. However, it is noted that the gross liability before insurance, and the insured liability offset, are “technically” understated by the amount of these particular insured liabilities.
1.3.2	ABN60 Liability
	Overall our current assessment is that the asbestos-related disease liabilities of ABN60 are not material. We have formed this view based on the following considerations.

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

	There have been 96 claims filed against ABN60 or James Hardie Industries Limited, of which 2 were filed in 2001, 1 filed in 2002 and 2 filed in 2004.
	We note that the claims against ABN60 have been in relation to:

	•	Claims by former employees of JHIL employed prior to 1937 (9);
	•	New Zealand claims (13);
	•	Cross-claims by Pacific Power (37);
	•	Claims from Baryulgil (9); and
	•	Other cross-claims (28)

	We understand many of these claims (particularly from New Zealand, Pacific Power and Baryulgil) have not been successful against ABN60 and that the level of cost arising from these claims has been relatively insubstantial. In terms of employee claims the latest date of exposure should be 1937.
	We have modelled ABN60’s liability as part of the Liable Entities, and have grouped ABN60 with Amaca and Amaba.
	Given the above, the remaining claims liability would seem unlikely to be material within the overall scope of the liability determination of this report.
	Nonetheless, we note press reports in November 2004 regarding CSR investigating the possibility of joining ABN60 on the grounds of owing a duty of care and the issuance of a subpoena for information.
	We have not attempted to quantify the potential impact of this as it is still subject to legal consideration, and in any event, it is not obvious the extent to which ABN60 could be joined and what share of any costs ABN60 would take, or from whom that share would be taken.
1.3.3  Asbestos Mines Pty Ltd and Baryulgil
	In light of the recent visit by the DDB Lung Bus to Baryulgil, we have reviewed separately the exposure arising from Baryulgil mine. We have made separate and explicit allowance for the potential future claims arising from Baryulgil mine and the non-workforce population of Baryulgil.
	Employees of James Hardie at the mine are directly insured with Allianz. Any liability to James Hardie or the MRCF from employees’ claims only arises insofar as the insurance indemnity limits do not cover the liability attaching to the claim.
1.3.4   Risk Margins
	It has been common practice for insurance companies, and in some cases non-insurance companies, to hold a provision at a level above the central

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KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

	estimate basis to reflect the uncertainty attaching to the liability assessment and to place a value on that uncertainty.
	A risk margin is an additional amount held, above the central estimate, which is held so as to increase the likelihood of adequacy of the provisions to meet the ultimate cost of settlement of those liabilities.
	We have not provided an assessment of any risk margins to supplement the central estimate of the liabilities.
	We have, however, provided sensitivity tests upon the central estimate of the liabilities based upon a range of different scenarios. This has been addressed in Section 13.
	We note the Heads of Agreement and the proposed Principal Deed envisage the ongoing financing of the Fund to be based on the central estimate of the liabilities and that they envisage the Annual Actuarial report to be for the purposes of providing a discounted central estimate valuation.
1.3.5	NSW Government Review
	We have not as yet made allowance for the potential savings we estimate to be achievable from the NSW Government review. This is because the Bill to amend legislation and the regulations has only been recently introduced into the NSW Parliament and has yet to be passed.
	We have been requested to separately estimate the financial impact of the NSW Government Review, consistent with our valuation estimate of the liabilities within this report, when the exact form of the legislation has been agreed upon.
1.4	Professional standards and compliance
	This report details a valuation of the outstanding claims liabilities of an entity which holds liabilities with similar features to general insurance liabilities as a self-insured entity, and which has purchased related insurance protection.
	This report complies with Professional Standard 300 of the Institute of Actuaries of Australia (“PS300”), “Actuarial Reports and Advice on General Insurance Technical Liabilities”. The effective date of the current version of PS300 is April 2002.
1.5	Areas of potential exposure not included
	As identified in Section 1.3, there are other potential sources of claims exposure beyond those directly considered within this report. However, while many of them are possible they are by no means certain and in a number of cases they are unquantifiable even if they have the potential to generate

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KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

	claims. This is especially the case for those sources of claim where there has been no evidence of claims to date.
	Areas of potential claims exposure we have not explicitly allowed for in our valuation include:

	•	US exposures;
	•	Further development in relation to NZ exposures and the rights of claims from NZ claimants in Australian courts;
	•	Future significant individual landmark and precedent-setting judicial decisions;
	•	Significant medical advancements;
	•	Property or site remediation costs;
	•	Unimpaired claims, i.e. claims for fear, stress or psychological illness;
	•	A proliferation of “third-wave” claims, i.e. claims arising as a result of indirect exposure such as home renovation, washing clothes of family members working with asbestos, or from workers involved in removal of asbestos or demolition of buildings containing asbestos;
	•	Potential statutory claw-back from the Dust Diseases Board or other Workers Compensation schemes;
	•	Changes in legislation, especially those relating to tort reform for asbestos sufferers;
	•	Introduction of new, or elimination of existing, heads of damage;
	•	Changes in the basis of apportionment of awards for asbestos-related diseases for claimants who have smoked;
	•	Any changes to GST or other taxes; and
	•	Future bankruptcies of other asbestos claim defendants (i.e. other liable manufacturers or distributors).

	Nonetheless, some implicit allowance is arguably made in respect of some of these items in the allowance for superimposed inflation included in our liability assessment and to the extent that some of these have emerged in past claims experience.
	We discuss these matters further in Section 3.
1.6	Data Reliance and limitations
	KPMG Actuaries has relied upon the reliability, accuracy and completeness of the data with which it has been provided. KPMG Actuaries has not verified

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	the reliability, accuracy or completeness of the data, although we have undertaken certain steps to ensure its consistency with data previously received. However, KPMG Actuaries has placed reliance on the data previously received, and currently provided, as being reliable, accurate and complete in all material respects.
	Limitations in relation to the scope, resulting from those areas of potential exposure which we have not included within our valuation, also exist. However, these are limitations which we have imposed upon the valuation given the unquantifiable nature of a number of these events. The approach we have taken is consistent with current standard Australian and International actuarial practice in this regard.
	Our assessment of the asbestos claims liabilities of the Liable Entities does not have regard to the way in which the liabilities may be funded by James Hardie. Depending on how the liabilities are funded or financed, including the earnings experience of any assets held to back the liabilities, the ultimate cost of meeting the liabilities may vary significantly from the liability amounts shown in this report.
1.7	Uncertainty
	It must be understood that estimates of asbestos-related liabilities are subject to considerable uncertainty, due to the fact that the ultimate disposition of claims incurred prior to the valuation date, whether reported or not, is subject to the outcome of events that have not yet occurred. Examples of these events include jury decisions, court interpretations, legislative changes, epidemiological developments, medical advancements, public attitudes, potential third-wave exposures and social and economic conditions such as inflation.
	It should therefore be expected that the actual emergence of the liabilities will vary, perhaps materially, from any estimate. Thus, no assurance can be given that the companies’ actual liabilities will not ultimately exceed the estimates contained herein and that any such variation will not be significant.
	Nonetheless, we provide our best estimates based on our current expectations of future such events.
1.8	Distribution and use
	The purpose of this report is as stated in Sections 1.2 and 1.3. This report should not be used for any purpose other than those specified.
	This report is provided to the Board of James Hardie. We also understand this report may be provided to other professional advisers to James Hardie, including Caliburn Partnership, Allens Arthur Robinson and Atanaskovic

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	Hartnell; and to PricewaterhouseCoopers in their capacity as auditors to James Hardie.
	KPMG Actuaries notes that this report may also be provided to the other parties to the negotiations, being the ACTU, Mr Bernie Banton, Unions NSW, Lazard, Gilbert & Tobin and the NSW Government representatives.
	KPMG Actuaries provide our consent for this report to be made available to all the above-mentioned parties.
	To the extent permitted by law, KPMG Actuaries will not be responsible to third parties for the consequences of any actions they take based upon the opinions expressed within this report, including any use of or purported reliance upon this report not contemplated in sections 1.2 and 1.3.
	Where distribution of this report is permitted by KPMG Actuaries, the report should only be distributed in its entirety and judgements about the conclusions and comments drawn from this report should only be made after considering the report in its entirety and with necessary consultation with KPMG Actuaries.
1.9	Author of the Report
	This report is signed by Richard Wilkinson, General Insurance Practice Leader of KPMG Actuaries, a Fellow of the Institute of Actuaries (London) and a Fellow of the Institute of Actuaries of Australia.
	This report is co-signed by Greg Martin, Managing Director of KPMG Actuaries and a Fellow of the Institute of Actuaries of Australia, in his capacity as Peer Reviewer.

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

2. EXPOSURE HISTORY OF JAMES HARDIE’S FORMER SUBSIDIARIES¹

2.1	Overview
	In 1916, James Hardie opened its first asbestos factory at Camellia in Sydney. Between 1916 and 1987, James Hardie and its subsidiaries produced and developed a variety of products including:

	•	Asbestos cement pipes;
	•	Asbestos cement sheeting and building products;
	•	Lagging and other insulation products; and
	•	Brake linings and other friction products.

2.2	Mining activities2
	Asbestos Mines Pty Limited owned and operated a small chrysotile (white asbestos) mine at Baryulgil NSW.
	We understand the history of the Baryulgil mine to be briefly as follows:

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KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

	It has been stated that the Baryulgil mine workforce was never more than approximately 40 people at any one time and that through the early 1940s to the closure of the mine in 1979 the employees included approximately 350 people in aggregate.
	The chart below shows the number of person years of exposure for workers in each year based on the data provided and agreed upon during the Parliamentary Inquiry in 1984.

Figure 2.1: Person years of exposure by year of exposure for Baryulgil
mine workers: 1944 to 1979

	It can be seen that there appears to be a spike in 1955. We believe this is due to some prior data in relation to the workers’ period of employment not being available and a dummy value of 1955 being adopted in the database of workers submitted to the Parliamentary Inquiry.
	What this means is that the number of workers in 1955 is over-stated and those in prior years is likely to be under-stated slightly.
	The chart shows that there were up to 40 people working in the mine each year, and an overall average of 20-25 people, which is consistent with the commentary provided by James Hardie. The database also shows that there were about 350 workers who ever worked at the mine. This implies that over the 35 year period, the average length of service was about 2 years per

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	individual. However, we note that there are some workers who worked at the mine for only a matter of weeks.
2.3	Asbestos cement
	Production of asbestos cement based products was James Hardie & Coy’s primary business. The products it produced came in the form of building products and asbestos cement pipes.
	Production of asbestos cement pipes began in 1926 but the use of asbestos cement pressure pipes for water and sewerage use did not become widespread until autoclaving of pipes was introduced in the early 1950s.
	Prior to the mid-1980s, James Hardie & Coy manufactured flat and corrugated asbestos cement sheets for internal and external wall cladding in buildings and for roofs, and asbestos cement water and sewer pipes.
	The major fibre used in the manufacture of asbestos cement products was chrysotile.
	Amosite (brown asbestos) was not used in James Hardie & Coy products until the 1950s, and small quantities of amosite continued to be used in asbestos cement products until about 1980.
	James Hardie & Coy also used crocidolite (blue asbestos) in pressure pipes and building products that were not able to be seen in detail, such as roofing products from the mid-1950s until about 1968. The crocidolite was sourced from the CSR mine at Wittenoom.
	Asbestos content of pipes was approximately 15% of which about 12% was chrysotile and the remainder amosite. During the period 1956–1968, crocidolite was also used (about 2%).
	The asbestos content of James Hardie & Coy’s asbestos cement sheet ranged from 8% to 15%, and was predominantly chrysotile with small amounts of amosite and crocidolite, with crocidolite only used up to 1968.
2.4	Insulation products
	Asbestos containing insulation products were first manufactured by James Hardie & Coy in the 1930s, and by the 1950s James Hardie & Coy had established itself in the market with a product called 85% Magnesia.
	In 1964 James Hardie & Coy formed a joint venture with CSR and Bradford Insulation known as Hardie-BI Company to make and market insulation products.
	Major products produced were 85% Magnesia and K-Lite. Both products contained about 15% amosite. The partnership was dissolved in 1974 and

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	James Hardie & Coy ceased production of asbestos thermal insulation products at that time.
2.5	Brake linings
	James Hardie & Coy had initially entered the brakes and friction products market in the early 1930s and had a well-established business by 1950 under the brand name “Five Star”.
	In 1963 James Hardie & Coy entered into the Hardie-Ferodo joint venture with Ferodo of the UK. Hardie-Ferodo carried out considerable product development work, particularly with regard to railway rolling stock brakes. The partnership dissolved in 1978 and the business was renamed Better Brakes (and later became known as Jsekarb).
	Jsekarb manufactured brake linings for motor vehicles, railway wagons and locomotives, and ceased using asbestos in their manufacturing process in 1987.
	The only asbestos used in friction products was chrysotile.

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3.	AREAS OF POTENTIAL EXPOSURE

3.1	Overview
	In Section 1.5, we identified some sources of exposure and uncertainty that may not explicitly, or implicitly, be factored into our valuation. The impact of the emergence of these might be to increase, or decrease, the future number of claims or the overall costs in relation to the liabilities of the Liable Entities.
3.2	Changes to the number of future claims
3.2.1	Overseas exposures
	Currently the vast majority of claims against James Hardie or the MRCF have emanated from Australia.
	US claims
	To date, there have been 23 claims arising from the US. The MRCF data appears to have increased by one claim since our previous report. However, the additional claim does not have a claim report date so when it was actually reported is unclear.
	The most recent claim reported date known was on 5 November 2001, almost 3.5 years ago and this has recently been closed with no liability or costs attaching.
	These 23 claims include 11 mesothelioma claims and 4 each of asbestosis, lung cancer and ARPD & Other.
	Of these, 20 claims have a settlement date shown on the MRCF’s system and only 2 have resulted in costs being borne by James Hardie or the MRCF – one resulted in legal costs being accrued in order to demonstrate (successfully) no liability to any of the James Hardie group of companies. The other claim has been settled although the settlement amount is subject to confidentiality.
	Investigations into the remaining 3 claims by staff of ACS and the MRCF indicate these claims, including the claim without a report date, have been closed and no further activity is anticipated on them.
	We understand that the vast majority of the claims brought in the US have been speculative claims against James Hardie’s US business and which have joined a number of James Hardie entities as parties to the claim. In all but one case liability has ultimately been denied.
	Our approach has been to not allow for any material potential claims emanating from the US. However, this is not to suggest there is no possibility

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	of such claims arising or that liability might not be attributed to a James Hardie entity in some cases in the future.
	In the absence of any substantial numbers of valid claims against James Hardie to date and the absence of any claims having been reported in the last three years any liability against James Hardie is currently perceived to be immaterial and in any event estimation of the potential exposure, or determination of a central estimate of liabilities, would be an impractical task.
	New Zealand claims
	There have been 48 claims reported to date which have either resulted from exposure in New Zealand, which have either been heard in New Zealand courts or which have been filed against James Hardie’s New Zealand operations.
	One claim was filed in 2004/05. There remain 6 claims open with almost $3m of case estimates (including legal costs) – one of these claims is for $1.5m.
	We note that New Zealand claimants have, in a number of cases, attempted to bring their claims into Australia, and especially the NSW Dust Diseases Tribunal, in order to seek common law damages. We note these have had little success to date and it should also be noted that the number of New Zealand claims filed to date is quite small.
	New Zealand claims have been modelled in aggregate with the Australian claims and exposures.
	Indonesia and Malaysia claims
	We understand that James Hardie was a joint venture investor in companies which manufactured products containing asbestos in Malaysia from 1966 and Indonesia from 1969 and that it divested its investments in Indonesia in 1985 and in Malaysia shortly thereafter.
	We have reviewed the database to identify any claims from this source. The database does not reveal any claims from this source at this time for mesothelioma or any other asbestos-related diseases.
	The absence of mesothelioma claims would not be unexpected given that exposure did not begin until 38 years ago and given the long latency period of mesothelioma.
	However, the absence of other asbestos-related diseases with much shorter latency periods is more unusual.
	Our approach has been to not allow for any material potential claims emanating from Indonesia and Malaysia. However, again this is not to

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	suggest there is no possibility of such claims arising or that liability might not be attributed to a James Hardie entity in some cases in the future.
	In the absence of any claims against James Hardie to date any liability against James Hardie is currently perceived to be immaterial and in any event estimation of the potential exposure, or determination of a central estimate of liabilities, would be an impractical task.
3.2.2	Third-wave claims
	We have made some implicit allowance for the so-called “third-wave” claims. These are claims arising from home renovations or to builders involved in such renovations. Such claims are allowed for within the projections to the extent to which they have arisen in the past and to the extent our exposure model factors in such tertiary exposures in its extrapolation.
	Nonetheless, we have not allowed for a surge in such claims in the future arising from renovations, but conversely we have not allowed for a tempering of those third-wave claims included within our projection as a result of improved education of individuals of the risks of such home renovations, or of any local Councils or State Governments passing laws in this regard.
3.2.3	Property or site remediation claims from product liability exposures
	We have not allowed for any costs associated with property or site remediation.
	The exposures from this source are as yet unknown and there has so far been an absence of claims emerging from this source. As such, the potential liabilities that may arise from this source are unquantifiable at this time.
3.2.4	Unimpaired claims
	We have not allowed for the admissibility of “unimpaired claims” within the Australian Court system, or for the admissibility of stress, psychological or fear claims. We recognise the current case of Thompson vs. CSR (NSWDDT 7/2003) where the estate of Mr Thompson made a retrospective claim for fear of contracting mesothelioma 14 years before onset. In this case, Judge O’Meally ruled that the fear was not compensable. This view was upheld by the NSW Court of Appeal ((2003) 59 NSWLR 77) and on another issue special leave was granted by the High Court on 16 December 2004.
	We note the case in Western Australia in October 2004 concerning Arturo Della Maddalena, a past employee of CSR at Wittenoom mine.
	Mr Della Maddalena worked at Wittenoom, owned by CSR, from 1961 until it closed in 1966. During this period he was exposed to blue asbestos dust.

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	An investigation of 42 of Mr Della Maddalena’s former workmates found 39 of them had died from asbestos-related disease.
	Mr Maddalena has successfully appealed for a claim for psychiatric illness resulting from his exposure, although he has not shown signs of having contracted a disease at present. It is understood that this is the first such case of an award for such illness without manifestation of the disease. However, this claim is not “unimpaired” given the nature of Mr Maddalena’s psychiatric illness.
	The WA District Court has yet to determine the level of compensation, although we note that reference to a settlement of “hundreds of thousands of dollars” are being sought for 13 years of pain and suffering and medical expenses.
	We have not seen or heard of similar such cases being brought since the Maddalena case, although we note a statement by Robert Vojakovic, President of the Asbestos Diseases Foundation of Australia, at the time of the Maddalena case that he was aware of another 10 claimants ready to take similar court actions.
	In many cases, any such claims will likely represent a bringing forward of some future eventual claims, rather than outright additional claims.
	We have assumed that stress or fear from potential exposure, which is not accompanied by a disease, will not result in material additional claims for compensation.
3.3	Changes to claims costs
3.3.1	Legal environment
	We have not explicitly allowed for significant new legal cases arising in the future. We have also not explicitly allowed for the emergence of new heads of damage or the significant extension of current heads of damage, or for any overturn or restriction of heads of damage.
	However, allowance for these is, in part, implicit within the rate of superimposed inflation.
3.3.2	Potential future reforms
	Our valuation assumes a continuation of the legal system (administratively and operationally) that is currently in place.
	We note the NSW Government Review into the legal and administrative costs of Dust Diseases compensation claims which announced its findings on 8 March 2005.

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	The NSW Government released draft legislation in relation to the new claims resolution process on 12 April 2005 for general consultation, with a closing date for submissions of 26 April 2005. The Bill (“Dust Diseases Tribunal Amendment (Claims Resolution) Bill 2005”) was introduced into Parliament on 5 May 2005 and has yet to be passed.
	Within this report, therefore, no allowance has yet been made for the potential cost savings arising from the NSW Government Review.
3.3.3	Dust Diseases Board Reimbursement
	We have not made any explicit additional allowance for the potential for the NSW Dust Disease Board (“DDB”) or any other Workers Compensation scheme in other jurisdictions, to recover costs from Common Law defendants.
	In respect of the NSW Dust Diseases Board, this is permissible under Section 8E (Reimbursement Provisions) of the Dust Diseases Act 1942.
	It is our understanding that there is some evidence of this to date, and that such occurrences may be on the increase. If such “claw-back” mechanisms are increasingly used in future by the DDB and other State Workers Compensation schemes, it could result in increased costs being incurred by the Liable Entities.
	We have allowed for this component of cost implicitly within our liability assessment as the claims awards made in recent periods and in recent settlements contain some allowance for DDB reimbursement where applicable.
	We have also allowed for a slight increasing use of these components by way of the average costs which we have selected within our liability assessment.
	Furthermore, currently reported open claims have explicit allowance within their case estimates for the costs of DDB reimbursement where relevant and applicable. We have included these components of costs within our liability assessment of such open claims.
3.3.4	Smoking-related diseases
	There have been some notable cases involving the emergence of lung cancers from people with asbestos exposure but who have also smoked cigarettes.
	There are two prevailing views:

•

That asbestosis is a necessary precursor to lung cancer (“the necessary precursor hypothesis” as put forward by Hans Weill amongst others).

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•

That providing there has been exposure to asbestos sufficient to cause asbestosis it is reasonable to attribute a causal contribution to the asbestos exposure (“the fibre burden hypothesis”).

	It is generally accepted that the risk of developing cancer after asbestos exposure is increased in the case of a smoker (see papers by Sir Richard Doll in 1985 amongst others).
	In McDonald v. State Rail Authority (1998) (16 NSWCCR 695), the judgement made by Judge O’Meally was that “carcinoma of the lung may be attributed to asbestos exposure in the absence of asbestosis where the exposure was sufficient to have caused asbestosis.”
	In this case, Judge O’Meally further opined that a carcinoma would be attributed to asbestos exposure when the exposure was sufficient to cause asbestosis, and the Helsinki Criteria set this at 25 fibre/mL-year.
	However, Judge O’Meally ruled for the defendants in relation to compensation owing to the absence of evidence that the 25 fibre/mL-year threshold had been exceeded.
	In Judd v. Amaca (2002) (NSWDDT 25, Case Number 341), there were further challenges by the defendants to the McDonald decisions as to the incidence of lung cancer being related to asbestos exposure even in the absence of asbestosis. They did not succeed in that regard.
	What minimum exposure is sufficient to cause asbestosis is not an issue that was decided. It will therefore be necessary for future plaintiffs to prove at hearings what exposure is capable of causing asbestosis
	We have continued to assume that the precedents set in Judd and McDonald will continue and also that thresholds required to attribute lung cancer to asbestos exposure will be maintained. In these circumstances we have assumed continuation of the current level of awards for lung cancer claims.
3.3.5	Future bankruptcies
	As bankruptcies amongst defendants occur, there is a concentration of the costs of claims amongst a decreasing pool of defendants. This would be expected to lead to an increase in the proportion of a claim borne by each of the remaining solvent defendants.
	Within our central estimate assessment, we have not allowed for the future failure of any of the substantial asbestos defendants, insurers or governments who bear a share of the asbestos-related liabilities of Australia.
	Allowance could be made for such bankruptcies by way of using general credit risk methods, or by reduction in the discount rate, but such allowance

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	would require a full model of the liabilities of Australia by entity and would also be inconsistent with the assessment being provided on a central estimate basis.
	Such allowance would be too speculative both in identifying who might fail, and when such a failure might arise; and would also depend on which companies are co-joined with the bankrupt defendant and the nature of the claims, as to whether they are “divisible” or “indivisible”.
3.3.6	Schultz / Forum Shopping
	On 7 December 2004, the High Court of Australia passed down its findings in relation to the matter of BHP vs. Schultz.
	Mr Schultz, who worked and resided in South Australia, had worked at BHP’s Whyalla shipyard from 1957 to 1964 and 1968 to 1977. He now suffers from asbestosis and ARPD.
	In 2002 he commenced proceedings in the NSW DDT against BHP in relation to his asbestosis and pleural disease.
	BHP unsuccessfully applied to the Supreme Court to move the matter from the DDT into the Supreme Court under the Cross-Vesting Act and to then transfer it into South Australia Supreme Court under Section 5 of the Act.
	Under section 5 of the Cross-Vesting Act, the court in which proceedings are to be determined is dictated by the interests of justice. BHP’s application was refused and they thereafter appealed to the High Court.
	The High Court unanimously allowed the appeal. It held that the emphasis given to Mr Schultz’s choice of State in which the claim was to be heard involved error in the application of section 5 of the Cross-Vesting Act. They ruled that Mr Schultz’s case should be removed from the DDT into the Supreme Court and then transferred to the South Australia Supreme Court as the appropriate State in which the claim should be heard.
	As such, the law of South Australia was deemed to be the substantive law which would govern Mr Schultz’s claim.
	One consequence of the Schultz case is that it is now expected that a number of cases which would currently be heard in the NSW DDT are likely in future to be heard in other jurisdictions.
	We would expect that the number of cases in other States would therefore show a disproportionate rise in future years and the occurrence of NSW as the prevalent Court in which cases are heard would diminish somewhat. We would not expect the Schultz case to give rise to more, or fewer, claims in itself but rather change the profile of the Courts in which claims are heard and

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	might potentially result in slight cost savings as, on average, settlement costs in NSW appear to be slightly higher than in other States.
3.4	Medical developments
	It should also be noted that in respect of some of these items, i.e. legal and medical developments, there is both an upside and downside potential in respect of claims costs, and in such cases we have taken what we believe to be a central estimate.
	For example, there may be drugs developed which increase cost and extend life without curing mesothelioma: this might increase overall costs. On the other hand, a total cure for mesothelioma would be more likely to reduce overall costs.
	Alimta treats mesothelioma and it was approved for use in Australia by the Therapeutic Drugs Administration on 7 July 2004. The drug has been increasingly mentioned over the last couple of years and its cost is unlikely to be transparent in any current statistics. It costs approximately $25,000 (about $6,250 per cycle) and is given to patients within a six week course of other chemotherapy.
	Although, it does not cure mesothelioma, it can reduce pain and symptoms and according to results produced by the producers of Alimta, it can extend life by approximately 3 months.
	Coramsine is currently in development by Solbec Pharmaceuticals in Western Australia. It is in the very early stages of testing for use in the treatment of mesothelioma, although we note that it is currently in a more developed stage of testing for other cancers. The research currently indicates that the treatment can cure or reduce the levels of mesothelioma in mice. The drug still requires significant research as of the four mice treated for mesothelioma in the tests only one actually survived and was cured of mesothelioma. Of the other three, one was cured but later died due to a Coramsine overdose. The other two died of mesothelioma but with a significantly increased survival time.
	We have not, at this valuation, allowed for the potential impact of any new blood tests or other diagnostic tests. An example is the announcement on 18 April 2005 of a blood test (SMRP serum) for potential early diagnosis of mesothelioma devised by Professor Bruce Robinson.
	Such tests have the potential to result in a change in the pattern of reporting of future claims by accelerating diagnosis of these claims. Furthermore depending on how the courts would treat claims settlement in relation to these

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	earlier diagnoses, it could also be associated with a change in the profile of claims payments.
	As Professor Robinson notes “evidence to date in our own and one other study suggest that serum SMRP measurements may have a useful the role in the diagnosis of mesothelioma and in monitoring disease progression.
	The role of SMRP in the early diagnosis of mesothelioma is yet to be proved and is currently the subject of several big studies. It is therefore not recommended for use in widespread screening of asbestos-exposed populations or in concerned individuals at this stage.”
	At this stage there is no evidence of the success of SMRP and that there is limited information on the extent to which acceleration of diagnosis might take place. Furthermore, there is no indication of how likely or when this test could be implemented in Australia.
	Accordingly, we have made no allowance for the potential impact of such diagnostic developments within the current valuation.

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4.

DATA

4.1	Data provided to KPMG Actuaries
	We have been provided with the following information by the Medical Research & Compensation Foundation (“MRCF”) and Amaca Claims Service (“ACS”):

	•	MRCF claims database at 31 March 2005 with individual claims listings;
	•	MRCF accounting database at 31 March 2005 (which includes individual claims payment detail);
	•	MRCF Monthly Management Information Reports; and
	•	MRCF Home Renovator Report.

	Additional to this, we have been granted access to the Operations Manager and the Information Officer of ACS; and the Managing Director of MRCF. They have made themselves available to provide insight into the data, answer questions that we have had in relation to the interpretation of the data, and to discuss trends in emerging experience and any matters of note arising during the most recent financial year which we have observed within the data.
	We have allowed for the benefits of the MRCF’s insurance arrangements based on our understanding of these. This has been based on a review of the insurance contract information submitted by various parties to the Special Commission of Inquiry. We have not independently examined the underlying contracts.
	We have also considered the claims data listing at 18 October 2004 and 30 June 2003 which formed the basis of our previous valuation assessments.
4.2	Data limitations
	Subject to the limitations described in Section 1.6, the data is generally of good quality and includes some useful fields that we often do not see collected within our wider experiences with other clients.
	Certain data that would be very valuable to our analysis and liability assessment is not readily available. This includes:

•

In relation to open claims, the payment and case estimate history collected is not sufficient to allow us to track the development, or otherwise, of historic case estimates. This would allow us to determine a “ground up” incurred claims assessment as a cross-check and input to our calculations.

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	•	The available history of James Hardie’s products, such as the number of products by type, the extent of asbestos content within them and the parties who then used those products is limited. Reliable history would provide assistance in assessing the pattern of future claims notifications arising from asbestos exposure and provide further support to the actuarial assessments.
	•	We do not have access to detailed information in regards to the timing and form of the Health and Safety Standards implemented by James Hardie or other companies which might go towards reducing the extent of claims in future periods. We are not aware of any studies which have as yet been able to quantify the impact of the changing standards upon future claims incidence.
	•	The claims cost data is not split by individual component of award, i.e. heads of damage, which would enable increased understanding of the drivers of claim costs and inflation to individual award components (e.g. Sullivan vs. Gordon).
	•	Some of the date fields (e.g. date of birth, date of death) are not complete for all claimants, These would allow better analysis for the actuarial valuation were they complete. However, the proportion of claims with complete data is increasing with time.
	•	In addition to these data restrictions, we note that the historic data changes from year to year. Sometimes this is due to re-designations, other times this is likely due to inherent operational processing delays which are common in all companies. We have undertaken investigations to understand these movements in order to satisfy ourselves as to the causation of the “moving data” and we address them in the body of this report.

4.3	Data verification
	While we have tested the consistency of the various data sets provided, we have not otherwise verified the data and have relied on the data provided as being reliable, complete and accurate in all material respects. We have relied upon the robustness of the MRCF’s and ACS’ operational processes and systems as to the completeness of the data provided.
	In our role as Valuation Actuary engaged by James Hardie, we are not able to perform an audit of the data, systems and processes of the MRCF and ACS. Consequently, should there be material errors or incompleteness in the data, our assessment could also be affected materially.

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	Our valuation needs to be interpreted in light of this assumption that the data is reliable, complete and accurate.
4.3.1	Reconciliation with previous year’s data
	We have performed a reconciliation of the current claims database as at 31 March 2005 with that provided as at 18 October 2004.
	We note that there are some movements in the data between valuations. For example, there are some movements in the notification date of claims, in the disease diagnosed and in the date of settlement of claims. However, the data has been updated over time, often as more information comes to light, or through the correcting of any data errors on the operations systems emerging, or through the re-opening and re-settling of individual claims. As such, changing data is not unexpected or to be considered as adverse.
	We have identified these changes and considered the extent of their impact on the data.
	We have reviewed the consistency of a number of key fields, on a claim-by- claim basis, including:

	•	Claim notification date
	•	Claim settlement dates
	•	Disease type
	•	Settlement amounts (award and legal costs separately).

	In aggregate, we regard the data as materially appropriate for its intended use.
4.3.2	Reconciliation between claims and accounting databases
	We have compared the claims awards, the legal costs and the recoveries amounts between the claims database and the accounting database from the earliest date to the current file position. Table 4.1 shows the results of this reconciliation for all claims to date.

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Table 4.1: Comparison of results from claims and accounting databases

	It can be seen that there are some differences in the values extracted from the accounting database and from the claims database.
	In relation to claims awards and legal fees, the claims database includes plaintiff legal costs in relation to exclusive claims and also the defendant legal costs.
	In relation to recoveries, the claims database does not include insurance recoveries. The accounting database shows recoveries and reimbursements. We have estimated the insurance recoveries by consideration of the named drawer of the cheque and the overlap with the insurance programme. We have also made use of a description field which refers to “insurance recovery” quite frequently.

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	This process could lead to a slight over-estimate of the amounts of payments made by insurers in relation to the insurance programme, but the amount of over-estimate is unlikely to be substantial.
	Overall, the data appears to reconcile reasonably well in aggregate.
	Our approach for each claim record has been to take the maximum value of the two databases for each claim record. This approach is likely to result in some minor prudence in our overall analysis.
4.4	Data interpretation and analysis
	Given that this report will become the basis of future reports as envisaged under the Principal Deed, we have discussed at some length below our approach to analysing the data and issues in relation to categorising and characterising the claims.
	Grouping of claims data
	We have split the claims into the following group:

	•	Product and Public Liability;
	•	Workers Compensation, being the retained amounts of the compensation which are not covered directly by the insurance cover placed with Allianz;
	•	Wharf claims; and
	•	Cross-claims.

	Categorising a disease
	For many claims, there are a number of diseases listed in the disease description.
	For the purposes of our analysis, we have allocated each claim once and therefore to one disease. We have selected the following order of priority, based on the relative severity of the disease:

	•	Mesothelioma;
	•	Lung cancer;
	•	Other cancer;
	•	Asbestosis; and then
	•	ARPD and Other.

This means that if a claim has mesothelioma as one of its listed diseases, it is automatically included as a mesothelioma claim. If a claim has lung cancer as one of its listed diseases (but not mesothelioma), it is included as a lung

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	cancer claim. If a claim has asbestosis as one of its listed diseases, it is only coded as asbestosis if it has no reference to mesothelioma, lung cancer or other cancer as one of its diseases.
	Claims included as reported claims
	The following claims have been excluded from the main claims file:

	•	Wharf claims. These are defined as claims where the occupation or the exposure fields include reference to “wharf”, “waterside” or “stevedore” or derivations thereof. These are analysed separately.
	•	Cross-claims issued by James Hardie or the MRCF to other entities for contribution to the claim. These are not claims, unless the cross-claim is on the master claim, but rather are operational actions stemming from a claim.
	•	Claims with a blank report year. These are in the nature of “provisional loss advices” and are only included once a date of notification has been allocated to the claims. There are two claims with no report date.

	We have included claims which arise as cross-claims against James Hardie or the MRCF, and have also included (as separate claims counts) multiple claims filed against James Hardie or the MRCF arising from the same event or individual’s exposure. As such, there can be multiple claims in relation to an individual claimant. We note that as a consequence the “number of claims” projected will exceed the number of individual people affected.
	Defining claim status
	A claim has three potential stages of settlement:

	•	The plaintiff settling their award (“plaintiff settlement date”);
	•	The defendant company settling their share of the award (“client settlement date”); and
	•	The defendant company finalising their legal costs (“client closure date”).

We have used the following terms to describe the advancement through these three stages:

	•	Open: none of the 3 settlement date fields have information in them.
	•	Unsettled: the plaintiff has settled their award, but James Hardie or the MRCF has not settled their share of the award and not finalised their legal costs. No aspect of the claim is settled or closed from the perspective of James Hardie or the MRCF. However, some

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		information is available as to the total settlement which acts as a maximum liability amount.
	•	Settled: the plaintiff has settled their award and James Hardie or the MRCF has settled their share of the award. James Hardie or the MRCF has not finalised their legal costs. Only legal costs remain to be finalised.
	•	Closed: the plaintiff has settled their award, James Hardie or the MRCF has settled their share of the award and finalised their legal costs. This claim is finalised in all respects.

	Settlement costs and average costs
	For those claims which are open, the case estimates provide an indication of the quantum for which such claims may settle. Where available, we make use of the case estimates but where none are available, we treat these claims in the same manner as IBNR claims in relation to the assumption of average costs.
	For unsettled claims, we use the overall settlement amount as an upper bound, and the case reserve as a further indicator. We add an assumed level of legal costs to these claims to arrive at the liability.
	For claims which have settled but not closed, we use the additional legal costs from the accounting database to estimate their closed value. These claims will be closed on the accounting database.
	For closed claims, there is no need for any liability.
	In determining the average historic claim settlements, the average award component is calculated as the total cost on closed or settled claims divided by the number of claims in these categories.
	For claims which are settled on a “costs inclusive” basis the averages will include the contribution to plaintiff legal costs whilst for those claims which are settled on a “costs exclusive” basis the averages will exclude the contribution to plaintiff legal costs which are then required to be allowed for separately.
	In determining the average historic defendant legal costs, we have calculated the total defendant legal cost on closed claims divided by the number of claims closed.
	We have, however, considered the results of each of the analyses on the three settlement year definitions as described in Section 5.6 in forming our view on the prospective average costs.

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	Insurance recoveries
	We have searched the description field in the accounting database for the incidence of the word “insurance” to allocate a recovery as an insurance recovery.
	As a consequence it may be that some insurance recoveries might have been over-stated or under-stated, if the description field does not refer to the word insurance but the payment is in fact an insurance payment. We have no way of identifying this based on the information we have available. This also affects the implied non-insurance recoveries derived from the accounting database.
	The financial impact of this potential discrepancy is likely to be small given that the total recoveries are of the order of $30m and that we allocated more than $24m to insurance and more than $5m to non-insurance recoveries (based on the use of the claims database for the non-insurance recoveries).
	Cross-claims
	A cross-claim can be made by another company against the MRCF (“against” cross claims) or by the MRCF against another company (“by” cross claims).
	A cross-claim recovery from a “by” cross-claim is already shown in the master claim. As such, we neither need to count “by” claims in the reported claim count nor their cost in the settlement.
	We have valued the average “by” claim recovery as a percentage of the award based on historic experience.

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		Valuation of the asbestos-related disease liabilities of the
KPMG Actuaries Pty Ltd		Liable Entities for James Hardie Industries NV

5.	VALUATION METHODOLOGY AND APPROACH

5.1	Previous valuation work and methodology changes
	In substance, we have maintained the methodology that we adopted in our most recent valuation as included within our report dated 21 November 2004. As such, the data and tables in this report are comparable with our previous report.
	A description of that methodology and the changes we had made relative to our advice effective as at 30 June 2003 which was filed with the Special Commission of Inquiry, is contained within our previous valuation report.
	We noted previously that the methodology effective at 30 June 2003 was modified considerably for the 21 November 2004 report. Comparison of tables and results from the 30 June 2003 analysis with the current report, or the previous valuation report dated 21 November 2004, may be misleading as they are not on a comparable basis and use different definitions.
5.2	Overview of current methodology
	The methodology we have used for valuing the Liable Entities’ asbestos- related liabilities is best described as an “average cost per claim method”. This method involves the derivation of the future number of notifications and settlements of claims and the average cost of those settlements, allowing for inflation, and multiplying the two together to arrive at an expected cashflow. This analysis is performed on data which is gross of insurance recoveries and gross of third-party or subrogation recoveries.
	We make an allowance for the subrogation recoveries from other defendants, i.e. the “by” cross claims. An allowance for insurance recoveries is then made to establish the net cashflows.
	The net cashflows are then discounted to current money terms to arrive at our net liability assessment.
	As discussed elsewhere, the liabilities are established on a central estimate basis.
	In all our analyses, the “year” we refer to runs from 1 April to 31 March, so that a 2004 reported claim would be a claim notified in the period 1 April 2004 to 31 March 2005. Similarly a 2003 settlement would be a claim settled in the period 1 April 2003 to 31 March 2004.

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5.3	Disease type and class subdivision
	It is critical when modelling the future liabilities to sub-divide the data into groups which exhibit similar characteristics, i.e. into homogeneous groups.
	As noted we have sub-divided the claims into:

	•	Product & Public Liability;
	•	Workers Compensation;
	•	Wharfside Workers; and
	•	Cross-claims

	We have separated out wharfside workers claims because of their significantly different claim sizes relative to other classes.
	We have separated the Workers Compensation claims because they arise from the payment of retained costs on claims relating to pre-1956 exposures (i.e. similar to a deductible). Furthermore, these payments are not subject to further insurance protection and in order to apply the insurance programme to the future cashflows, we need to segregate them from the product and public liability claims. We have not divided the workers compensation claims data further given the relatively low financial significance and credibility of the data if sub-divided by disease type.
	For Product and Public liability, we have separately considered the individual disease types. We have split the data by disease because it displays substantially different average claim sizes and because the incidence pattern of future notifications is also expected to vary considerably between the different disease types. As product and public liability claims are financially significant to the overall total of the liabilities, the sub-division by disease type is appropriate. We have sub-divided this portfolio into:

	•	Mesothelioma;
	•	Lung cancer and other cancer (hereafter referred to as “lung cancer”);
	•	Asbestosis; and
	•	Asbestos-Related Pleural Disease and Other (“ARPD”), including Pleural Plaques.

	We have considered the claim settlement and legal cost components separately within each of these sub-divisions.
	As noted in Section 1.3.1, we have not considered the Workers Compensation claims arising from the MRCF which have been insured. We

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	have assumed that the insurance contracts will continue to respond to future claim notifications arising out of past exposures.
5.4	Numbers of future claims notifications
	We begin by first estimating the incidence of future notifications of claims.
	We have based this on the use of what we have termed an “exposure model”, which we have constructed in relation to Australian usage of asbestos.
	We do not have detailed individual exposure information for James Hardie, its products or where the products were used and how many people were exposed. However, given the market share of James Hardie over the years and its relative stability, we have used a national pattern of usage as a reasonable proxy.
	We start by constructing an index from the annual consumption of asbestos by Australia from 1900-2000. 3 We split this between the various asbestos types and by year of consumption.
	We have not allowed for multiple exposures with respect to James Hardie from each unit of asbestos consumed, e.g. where James Hardie was both mining and milling the same asbestos. Our understanding is that there was some (moderate) mining at Baryulgil, but in relative terms it is not significant. Nonetheless, we have made separate allowance for Baryulgil within our liability assessment.
	With the exposure index that we have derived, we then need to allow for the latency period from average date of exposure to claims notification.
	The latency curve for mesothelioma is assumed to be normally distributed with an average latency of 35 years and a standard deviation of 10 years. This appears to be generally supported by analyses by Professor Berry et al4, by Jim Leigh et al5 and a paper by Yeung et al6.
	From the exposure index and the latency distribution, we produce an index of the number of notifications. This provides the basis for the pattern of claims notifications for mesothelioma and the implied peak year of notifications.

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	For the other claim types, we adjust the curve for different assumed peak years, consistent with those diseases having different average latency periods to that of mesothelioma.
	These curves provide an index, or “shape”, not the actual numbers of claims.
	We project the future number of notifications by taking into account the actual notifications in recent years and projecting the annual future claims by reference to the claims notification index.
5.5	Numbers of claim settlements from future claim notifications
	We derive a settlement pattern by considering triangulations of the numbers of settlements by delay from the year of notification.
	From this settlement pattern, we can project the pace at which claims notified in the future will settle, and use this to project the future number of settlements in each financial year.
	We apply a “nil settlement rate” to the overall number of settlements to estimate the number of claims which will be settled for nil claim cost and those which will be settled for a non-nil claim cost.
	The prospective nil settlement rate is estimated by reference to past trends in the rate of nil settlements.
5.6	Average claim costs of IBNR claims
	We need to separately consider average settlement costs in respect of future claims and average legal costs of the defendants.
	In essence there are the following five components to the average cost assessment:

	•	Average award (sometimes including plaintiff legal costs) of a non-nil “attritional” claim.
	•	Average plaintiff legal costs of a non-nil “attritional” claim.
	•	Average defendant legal costs of a non-nil “attritional” claim.
	•	Average defendant legal costs of a nil “attritional” claim.
	•	Large claim awards and legal cost allowances.

	We define a large claim as those for which the award is greater than or equal to $1m in current money terms. We define an attritional claim as a non-nil, non-large claim. We define a nil claim as one for which the award payable by the relevant Liable Entity is zero.
	The data provided to us has three settlement year definitions:

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	•	Plaintiff settlement year;
	•	Client settlement year; and
	•	Client closure year.

	We have analysed the average settlement cost by each of the three settlement year definitions in arriving at our assessment of the prospective average settlement cost.
	All of our analyses have been constructed using past average awards, which have been inflated to current money terms using an earnings (wage) inflation index. This compensates for basic inflation effects when identifying trends in historic average settlements. We then determine a prospective average cost in current money terms.
	We perform the same exercise for the plaintiff’s legal costs and the defendant’s legal costs.
	This process is repeated for nil claims’ related legal costs.
	We have not allowed for any internal claims administration costs or the operational expenses of the MRCF or the SPF in the liability assessment.
	In relation to the large claims loading, we analyse the historic incidence rate of large claims, and the average claim and legal costs of these claims. We have determined a prospective incidence rate and average cost in current money terms to arrive at a loading per claim (being the average cost multiplied by the incidence rate per claim). This “per claim” loading is then added to the attritional average cost to arrive at an overall average allowing for the infrequent incidence of large claims.
	Allowance for future claim cost inflation is made. This is modelled as the sum of base inflation (AWE) plus superimposed inflation. This enables us to project future average settlement costs in each future year, which can then be applied to the IBNR claims as they settle in each future year.
5.7	Pending claims
	We have considered all claims not closed at 31 March 2005 as having some potential to have future costs assigned against them, be it legal costs or further award payments.
	As we have previously indicated, we have adopted 3 definitions of settlement status.
	When there is no closure date but the claim has a settlement date, there is a possibility of further emerging defendant legal costs, even though the claim award has been settled.

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	When there is no settlement date, there is a possibility of award, plaintiff legal costs and defendant legal costs still being incurred.
	Understanding this process means that we can model, for each claim not yet closed, sources where further costs could be incurred. Combining this with case estimate history or total award settlement information, where known, allows us to more directly model the liability for pending claims.
	The excess amount of the liability for pending claims, over the case estimates held, is what the insurance industry term Incurred But Not Enough Reported (“IBNER”).
	Based on certain information provided to us by the MRCF, it would appear that during the last four years there has generally been some level of redundancy in the case estimates, i.e. that claims have ultimately settled for less than the estimates placed on them. At this time, we have not taken any credit for this potential margin as we cannot validate it by reference to the databases with which were provided.
	Over time, we expect to be able to build a history of data that will enable us to validate this.
5.8	Insurance recoveries and bad debt provision
	We project the cashflows on a gross basis and then apply the insurance programme to these cashflows.
	We make no allowance for the Workers Compensation cashflows in estimating the insurance recoveries, as the insurance programme provides protection on product and public liability exposures only.
	We identify the insurance recoveries with respect to each future settlement year on each treaty (exposure) year and thereby estimate the extent to which amounts are recoverable from each insurer and reinsurer.
	We have used the Standard & Poor’s credit ratings, as shown in Appendix A, to identify the credit risk for each of the insurers and reinsurers who underwrote James Hardie’s insurance contracts.
	We assume that Lloyd’s of London and Equitas companies will have 100% recoverability. For the remaining companies, we apply default rates to the cashflow recoveries where the default rates are separately derived by credit rating group and duration to payment.
5.9	Cross-claims recoveries
	We have analysed the past rate of cross-claim recoveries being made by the MRCF and James Hardie as a result of issuing cross-claims for contribution.

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	We have valued these recoveries assuming that they become payable at the time of the claim.
	We have estimated that the level of subrogation, factoring in the proportion of claims for which no subrogation is possible and the proportion of claims subrogated when cross-claims are made, is around 1.4% of the gross award.
5.10	Discounting cashflows
	Cashflows are discounted on the basis of yields available on Commonwealth government bonds of varying coupon rates and durations to maturity (matched to the liability cashflows).
	While we have not reviewed the balance sheet of the MRCF in detail, we note that the MRCF does not appear to have sufficient assets to generate the investment income implicit in the discounting of the liabilities.
	If such assets are not available then the investment income generated may be insufficient to support the unwinding of the discount on the liabilities. In this case the current shortfall would increase in the future.
	It should also be recognised that the yield curves and therefore the discount rates applied can vary considerably between valuations and can, and do, contribute significant volatility to the reported discounted central estimates within this report.

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KPMG Actuaries Pty Ltd		Valuation of the asbestos-related disease liabilities of the Liable Entities for James Hardie Industries NV

6.	ECONOMIC ASSUMPTIONS

6.1	Overview
	The two main economic assumptions required for our valuation are:

	•	The discount rate adopted for the present value determinations.
	•	The underlying claims inflation assumptions adopted to project the future claims settlements and related costs.

	These are considered in turn below.
6.2	Discount rates: Commonwealth bond zero coupon yields

We have adopted the zero coupon yield curve at 31 March 2005, underlying the prices, coupons and durations of certain Australian government bonds for the purpose of discounting the liabilities for this report.

The use of such discount rates is consistent with standard Australian actuarial practice for such liabilities, is in accordance with Professional Standard PS300 and is also consistent with our understanding of the accounting standards in this regard.

Table 6.1 shows the zero coupon yields adopted for each duration of cashflows.

Table 6.1: Zero coupon yield curve by duration at 31 March 2005 and 30 June 2004

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KPMG Actuaries Pty Ltd		Valuation of the asbestos-related disease liabilities of the Liable Entities for James Hardie Industries NV

The equivalent single uniform discount rate, based on cashflows weighted by term, is 5.77% per annum (30 June 2004: 6.12% per annum).

It is important to note that the discount rate can vary, perhaps significantly, between valuations (even quarterly valuations), and can thus cause fluctuations in the perceived liability. This has been seen at this valuation where yields at longer durations have reduced from 6.35% at the June 2004 valuation to 5.82% at this valuation, a change of 0.53% per annum. The change in present value does not necessarily involve a change in the underlying projected cashflows.

It is also important to understand that if assets actually held to back the liabilities are not matched to those assumed (by type and/or amount), the future investment earnings earned may deviate from those implicitly allowed for within the actuarial valuation. This might generate either excess profit or additional losses.

6.3	Claims inflation

We are required to make assumptions about the future rate of inflation of claims costs. We have adopted a standard Australian actuarial claims inflation model for liabilities of the type considered in this report that is based on:

	•	An underlying, or base, rate of general economic inflation relevant to the liabilities, in this case based on wage/salary (earnings) inflation; and
	•	A rate of superimposed inflation, i.e. the rate at which claims costs inflation exceeds earnings inflation.

6.3.1

Base (wage) inflation basis

Ideally, we would aim to derive our long term base (wage) inflation assumptions based on observable market indicators or other economic benchmarks. Unfortunately, such indicators and benchmarks typically focus on inflation measures such as CPI (e.g. CPI index bond yields and RBA inflation targets).

We have therefore derived our base (wage) inflation assumption from CPI based indicators and long term CPI / AWOTE relativities.

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KPMG Actuaries Pty Ltd		Valuation of the asbestos-related disease liabilities of the Liable Entities for James Hardie Industries NV

6.3.2

CPI assumption

We have considered two indicators for our CPI assumption.

	•	Market implied CPI measures.
	•	RBA CPI inflation targets.

We have measured the financial market implied expectations longer-term rate of CPI by reference to the gap between the yield on government bonds and the real yield on government CPI index-linked bonds.

The effective annual yield on long-term government bonds as at 31 March 2005 was approximately 5.8% p.a. and the equivalent effective real yields on long index-linked bonds was approximately 2.8%. This would imply current market expectations for the long-term rate of CPI were of the order of 3.0% per annum as at 31 March 2005.

In considering this result we note that:

	•	This implied CPI rate has increased significantly in recent months (e.g. from around 2.6% as at 30 June 2004).
	•	The yields on both nominal and CPI-linked government bonds are driven by supply and demand, and both are in increasing short supply in the market. The yields on both, and their relativities, are subject to some volatility and likely some short term distortion.
	•	A CPI rate of 3.0% is at the upper bound of the RBA’s long term target for CPI to be maintained between 2% and 3% per annum.

Weighing this evidence together, we have adopted a long term CPI inflation benchmark assumption of 2.75% per annum.

6.3.3

Wages (AWOTE) / CPI relativity

The following table summarises the average annualised rates of AWOTE and CPI inflation, and their relativities, for various historic periods:

Table 6.2: Annualised rates of CPI and AWOTE

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KPMG Actuaries Pty Ltd		Valuation of the asbestos-related disease liabilities of the Liable Entities for James Hardie Industries NV

Figure 6.1 shows these yearly results, graphically, for the 1970 to 2005 period.

Figure 6.1: Trends in CPI and AWOTE: 1970 - 2004

In considering the above, we note:

	•	The last period from 1995 reflects largely a continuous period of economic growth which may not be reflective of longer term trends.
	•	The longer periods cover a range of business cycles, albeit that the period from 1970 includes the unique events of the early 1970’s.

Allowing for these factors, the historic data suggests a CPI / AWOTE relativity, or gap, of 1.5% to 1.7%.

On this bases, given a longer term CPI benchmark of 2.75%, suggests a longer term base (wage) inflation assumption of 4.25% to 4.5% p.a.

We note that such an assumption is not inconsistent with actual wage inflation over recent years (see Table 6.2 above) which has arisen during economic condition not dissimilar to those reflected in the current market interest rates looking forward.

6.3.4

Impact of claimant ageing

We note the observation made elsewhere in this report that the overall age profile of claimants is expected to rise over the years with the consequent impact that, other factors held constant, claims amounts should tend to increase more slowly that pure average wage inflation. This is due to both

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reduced compensation for years of income or life lost and a tendency for post retirement age benefits to possibly increase closer to CPI than AWOTE.

Furthermore, we note that some heads of damage would be expected to rise at CPI or lower, such as general damages and compensation for loss of expectation of life. Other heads of damage, including loss of earnings, would be expected to rise at AWOTE; whilst medical expenses and care costs would be expected to rise in line with medical cost inflation which is in excess of AWOTE.

Taking these factors into account, we have reduced our base inflation assumption by 0.25% to 0.50% p.a. from the rate indicated above, and adopted a base (wage) inflation assumption of 4.00% p.a.

6.4	Superimposed inflation
	As discussed later in Section 8, recent actual claims inflation has been approximately 6% per annum. This is against corresponding general wage inflation (making some minor allowance for aging effects as above) over the same period of approximately 4%. This implies average superimposed inflation of about 2% per annum.
	Given our future based inflation assumption looking forward of 4% per annum, adopting a 2% superimposed inflation would indicate a longer term overall claims cost inflation assumption of 6% per annum. This overall result, as with the base inflation above, aligns with recent actual experience which has arisen during economic condition not dissimilar to those reflected in the current market interest rates looking forward.
	In addition, the 2% superimposed inflation allowance is not inconsistent with superimposed inflation experience we have seen under other relevant liability portfolios.
	We discuss the claims inflation assumptions further in Section 8.
6.5	Consistency of economic assumptions
	An important consideration to bear in mind when setting economic assumptions is the consistency of the various assumptions. For a valuation involving the long-term inflating of cashflows and then discounting these cashflows to current money terms, the key is the relativity between the assumptions.
	Whilst future investment yields on government bonds will change, so too will the rate of future earnings inflation and consequently also the overall rate of claims inflation. The key factor is that the gap between the two factors remains reasonable.

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KPMG Actuaries Pty Ltd		Valuation of the asbestos-related disease liabilities of the Liable Entities for James Hardie Industries NV

Within our current valuation, we have allowed for earnings inflation at 4% per annum and average yields at 31 March 2005 of 5.77% per annum. As such, the gap is 1.77% per annum relative to earnings inflation.

We have also allowed for superimposed inflation at 2% per annum, so that the overall gap between claims inflation and the yield is 0.31% per annum (being 1.04 x 1.02 – 1 – 5.77%). In other words, we are effectively inflating future cashflows in today’s money terms by 0.31% per annum.

This compares to our previous valuation when, conversely, we were discounting future cashflows in today’s money terms by 0.07%.

As such, there has been a moderate strengthening in the valuation basis resulting from the change in economic assumptions.

This is not inconsistent with the narrowing of the real yields on CPI index-linked bonds since 30 June 2004, which have reduced by approximately 0.5% over this same period.

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KPMG Actuaries Pty Ltd		Valuation of the asbestos-related disease liabilities of the Liable Entities for James Hardie Industries NV

7.	ANALYSIS OF CLAIMS EXPERIENCE – CLAIM NUMBERS

7.1	Overview
	We have begun by analysing the pattern of notifications of claims as shown in Table 7.1. It shows the claim notifications by year since 1991/92 and all prior claim notifications in aggregate.

Table 7.1: Number of claims reported annually