Rating agencies are now starting to take a look at what companies could face financial peril from Hurricane Katrina losses.
Standard & Poor's this morning raised a red flag on 10 insurance groups facing unusual financial strain from the storm losses in the Gulf region.
Also today, Moody's issued a report that did not specify any companies but asserted carriers "with outsized exposures to the affected region could face ratings downgrades, particularly if they do not recapitalize quickly."
Companies put on Credit Watch with negative implications by S&P include: ACE Ltd., Bermuda; Allmerica Financial Corp., Worcester, Mass.; Allstate Corp., Northbrook Ill.; Lloyd's, London; Montpelier Re Holdings Ltd., Bermuda; PXRE Corp., Bermuda; State Farm, Bloomington, Ill.; Swiss Re, Zurich; United Fire Group, Cedar Rapids, Iowa.; Oil Casualty Insurance Ltd., Bermuda.
S&P analyst Steven Ader said the companies put on Credit Watch have sufficient skills and capital to accommodate losses likely to occur. "However, an unusually high degree of uncertainty exists in assessing the magnitude of the claims the companies might be facing," he said. "And so, the standard models used in the industry for predicting catastrophic losses from hurricane scenarios might not have captured all of the related risks now in play."
Mr. Ader stressed, however, that "downgrades are not inevitable," but the nature of the event will make the status of many companies difficult to resolve in the near future.
In its report, Moody's said that estimating losses from Katrina for both the primary and secondary industries will present unique challenges. "The New Orleans flood, in particular, creates serious challenges for insurers attempting to gauge the extent and causes of the losses," the report said.
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