S&P Warns of Negative Rating Implications

Standard & Poor’s said it is likely to put on CreditWatch with negative implications the ratings of many insurers and reinsurers with exposures to the tragic loss at the World Trade Center on Sept. 11.

Net aggregate insured losses of $14 billion have been accumulated from 55 leading insurers and reinsurers, based both on confidential information provided to S&P and publicly available information. This figure is likely to rise significantly once better estimates become available. In its first comment last Friday, S&P said that once losses exceed $15 billion, it would expect to see a significant impact on balance sheets of individual insurers.

Rob Jones, director at S&P’s Financial Services group in London, said totals would have to exceed $50 billion before S&P would begin to worry about the insurance system.

In the next few days, S&P will further investigate the available claims estimates from these leading insurers. Many of these companies have substantial financial flexibility and capital strength and are expected to have their ratings affirmed. Given some initial estimates of loss, however, S&P believes a significant number of these companies are not as well positioned to absorb these exposures and are likely to receive ratings downgrades.

Jones said that S&P is likely to follow these investigations by placing on CreditWatch with negative implications those insurers whose financial strength is likely to be weakened following the momentous events of last week.

Having reviewed the initial loss estimates of these companies, S&P does not believe that any of the leading insurers and reinsurers that it rates interactively face solvency threatening levels of claims from this catastrophe.