Firms May Be Put On Credit Watch
S&P expresses concern about large and small companies
By Derek DeCloet
Standard & Poor's Corp. may begin putting insurance companies on credit watch today as it sifts through the financial wreckage of last week's terrorist attacks.
The rating agency said yesterday its estimates of insured losses are likely to rise further once companies gain a better grasp of their exposure to the catastrophe.
S&P surveyed 55 insurers and reinsurers and found they expect to face estimated losses totalling US $14 billion. But the figure could easily top US $20 billion, said Rob Jones, a director with the agency's financial services group in London.
"We're concerned about a large number of reinsurance companies-some big-some small- and insurers that are active in North America," he said.
Other analysts have put estimates of insured losses even higher - above US $ 30 billion.
Moody's, another credit agency, has warned that insurers have probably underestimated the damage from the attacks.
If the losses reach US $ 50 billion, S&P will start to worry about the viability of the insurance system, Mr. Jones said.
One Canadian investor in insurance stocks argued the disaster will be good for the sector-in the long run.
John Zemanovich, chief executive officer of Raven Investment Management Ltd. and an investor in Berkshire Hathaway Inc. and Toronto-based Fairfax Financial Holdings Ltd., said the disaster will reduce competition in the sector by reducing some weaker insurers. *(editor's note: Mr. Zemanovich's exact comments to Mr. DeCloet can be found at the end of this article)
It will also cause companies everywhere to look at their current insurance policies, said Mr. Zemanovich, who believes many will now beef up their coverage. Insurers will be able to raise premiums and make those increases stick, he said.
Odyssey Re Holdings Corp., a partially owned subsidiary of Fairfax, is likely to be one of the insurers facing a downgrade, said Peter Streit, an analyst with UBS Warburg.
The true cost to insurers may not be known for years, Mr. Jones said. Long legal battles between insurers and clients, and between insurers and reinsurers, are likely, he said.
S&P was more sanguine about the prospects for banks and investment dealers.
With financial systems operating smoothly again, any credit changes will be based on longer-term issues, such as whether capital markets activity continues to slow, S&P said.
Barry Hancock, a managing director at Standard & Poor's, said the agency is keeping a particularly close eye on firms that earn much of their revenue ffrom investment banking activity, such as Merrill Lynch & Co., Morgan Stanley Dean Witter & Co. and Deutsche Bank AG.
"Clearly investment banking businesses are going through a difficult time already, and the tragedy is not going to help that," Mr. Hancock said.
Brokerage firms that serve individual investors, such as Charles Schwab Corp., are also being monitored. |
