Fitch puts five insurers on Rating Watch

Fitch Ratings placed the ratings of five North American property/casualty insurance and reinsurance organizations on Rating Watch Negative today based on potential large loss exposures to Hurricane Katrina. Affected companies include the Allstate Corporation, Horace Mann Educators Corp., Montpelier Re Holdings, Ltd., PXRE Group Ltd., and State Farm Mutual Automobile Insurance Co.Fitch said it placed the above companies on Rating Watch based on its view that “there remains considerable uncertainty regarding ultimate losses, and that these organizations appear to have an exposure that likely represents a material percentage of their equity base.” Fitch believes that Hurricane Katrina will represent the largest insured loss in U.S. history, surpassing the Sept. 11, 2001 terrorist attack and Hurricane Andrew in 1992. The company said that given the nature of Katrina, “with widespread property devastation and flooding, it has been difficult to date for individual (re)insurers to produce credible loss estimates.”Nevertheless, Fitch has looked at its property/casualty rating universe regarding potential exposures to Hurricane Katrina. Individual company loss exposure estimates developed and published by the companies themselves were considered when available, but were adjusted by Fitch to calibrate to an assumed $50-billion industry loss event.To date, Fitch said it does not believe the exposure of equity capital to Katrina-related losses for any of these entities would warrant a Rating Watch action. It appears that for those reinsurers and insurers rated by Fitch, Katrina losses will likely be absorbed by current one-year earnings.Modeling firm Risk Management Solutions now estimates that insured losses from Hurricane Katrina are $40-$60 billion, of which $15-$25 billion are related to the New Orleans flooding. Prior industry-wide loss estimates generally fell at $35 billion or lower. Fitch compared these net loss estimates relative to each insurer’s capital levels and earnings. The company said it will continue to monitor events related to insured losses from Hurricane Katrina and it is possible additional companies will be placed on Rating Watch as more information becomes available.