Although all three rating agencies have expressed confidence in the ability of the insurance and reinsurance industries to withstand the World Trade Center tragedy, the potential for credit downgrades, especially in the reinsurance arena, could impact the structured finance world.

If a reinsurer were to have its financial strength rating nicked, deals that it provides credit enhancement on would also suffer. Beyond insurance, reinsurers often participate in deals as liquidity providers or liquidity back-stops.

Although it's too early to tell, triple-A-rated Swiss Re was named by rating agency sources as a reinsurer active in the structured finance arena, that also has significant exposure to the World Trade Center tragedy.

Other companies with large known exposures include Munich Re, which along with Swiss Re, has losses expected to exceed more than $1.5 billion between the two companies. U.S.-based groups Berkshire Hathaway Inc., American International Group Inc. and General Electric Co. are also expecting to be dealt hard blows.

Fitch anticipated releasing a list of insurance companies on watch for possible downgrade by the end of last week, although it hadn't as of press time.

Currently, estimates of property and casualty (P&C) claims associated with the World Trade Center are in the $30 billion range, about half of which will come from the U.S. insurance industry, said Michael Barry, a director at Fitch. Subtracting primary insurance company net estimates from the gross estimate, it looks as if the reinsurance industry will bare about 60% of P&C loss, or $18 billion, if the $30 billion figure stands. On the life insurance claim side, the reinsurance industry is expected to absorb a higher percentage.

In terms of the viability of the insurance industry, Fitch's Barry said, "It's important to know how large a loss is as a percentage of surplus, and how the industry can fund that loss through earnings."

From the point of view of the U.S. insurance industry, a $15 billion loss would be less than 5% of the industry surplus.

In a teleconference last week, Moody's Investors Service warned of the potential for estimates to increase overtime, as seen in the 1992 Hurricane Andrew disaster, which is considered the most comparable catastrophic event in recent times. Andrew's destruction cost the insurance industry $12 billion.

Although most agree the incident was catastrophic, the collapse of the WTC will not impact any catastrophe (CAT) bonds, even if there happened to be geographic exposures, said Fitch's Barry.

"The CAT bonds we've rated specifically cover only weather and earthquake-related events," Barry said.

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