Bloomberg ? Hurricane Rita, sparing Houston and Galveston, Texas, the brunt of its strength, may cost insurers such as Allstate Corp. less than some of last year?s Florida storms and a fraction of their estimated losses on Katrina.

Insurers may have to pay $4 billion to $7 billion in claims, according to Risk Management Solutions Inc., a Newark, California-based firm that uses computer models to gauge insurers? risks. Eqecat Inc., another modeller, estimated $3 billion to $6 billion, and AIR Worldwide Corp. projected $2.5 billion to $5 billion.

The estimates are a quarter to a third of what some insurance analysts had expected and far less than the $40 billion to $60 billion predicted for Katrina, which was probably the most expensive disaster in the industry?s history. Charley and Ivan, two of the record four hurricanes to hit Florida last year, each cost insurers more than $7 billion.

?Rita is not going to be a major factor,? said Paul Newsome, an analyst at A.G. Edwards & Sons Inc. in St. Louis who has a ?hold? rating on Allstate. ?The bigger issue is whether there is another significant storm.?

Shares of American International Group Inc., the largest US commercial insurer, climbed 82 cents, or 1.4 percent, to $60.88 at 10:44 a.m. in New York Stock Exchange composite trading. St. Paul Travelers Cos., the second-biggest, increased $1.51, or 3.5 percent, to $44.26. Allstate, the biggest publicly trade home and auto insurer in the US, rose three cents to $54.56.

With winds of 120 mph, Rita made landfall on September 24 as a Category 3 hurricane on the five-tier Saffir-Simpson scale, coming ashore in Louisiana, near the Texas border. It had been the maximum Category 5 days earlier, headed for Galveston and Houston?s oil refining hub. On September 23, it weakened and turned north, changing a course that could have been devastating for 12 percent of the nation?s refining capacity.

?It appears the industry escaped the worst-case scenario,? said Kurt Hallead, an oil analyst at RBC Capital Markets. ?There may be some minor damage at a couple of refineries in Port Arthur, Texas.?

Risk Management?s estimate includes $1 billion to $2 billion for offshore platform damage and loss of production and $3 billion to $5 billion for wind, storm surge, and rainfall-related flood hazards. Eqecat and AIR Worldwide excluded damages to oil platforms and some or all flooding damage.

Estimates are low for a storm of Rita?s strength because it came ashore over Louisiana?s sparsely populated western coast, the modellers said.

Oakland, California-based Eqecat estimated $9 billion to $18 billion of claims when Rita was still in the Gulf and investors had been valuing insurance stocks as if there would be $10 billion to $20 billion in insured losses from Rita, Wachovia Corp. analyst Susan Spivak said in a September 22 report.

?This is well within the size of event that we would expect to see in a given year,? said Bob Hartwig, chief economist of the Insurance Information Institute, an industry group in New York.

State Farm Mutual Automobile Insurance Co., owned by its policyholders, is the biggest insurer of homes in Texas, followed by Allstate, and Zurich Financial Services AG?s Farmers Insurance unit, according to a research report from Merrill Lynch & Co. St. Paul Travelers insures the most commercial properties in the state, followed by Zurich and Chubb Corp., Merrill said.

St. Paul Travelers said on September 23 that Katrina may cost the company about $800 million. That would deplete shareholders? equity by about 3.4 percent and trigger a third-quarter net loss of five cents a share, excluding investment gains and losses, said William Yankus, an analyst at Fox-Pitt Kelton Inc. Before the storms, he expected earnings of 95 cents a share on that basis.

Before Rita, AIG said Katrina and other third-quarter catastrophes may cost it $1.1 billion. That would eliminate about a third of AIG?s quarterly profit, said Mark Lane, an analyst at William Blair & Co. in Chicago.

Allstate and others haven?t yet made estimates for either storm. Should Katrina cost $40 billion, Allstate would incur an estimated $2.4 billion in costs, depleting shareholders? equity by about ten percent, according to Newsome?s estimates.

With two months left of the hurricane season, another storm may present challenges for insurers that have used up their reinsurance on Katrina and Rita, A.G. Edwards? Newsome said. Most reinsurance contracts include one to three reinstatements, in which insurers pay premiums to replenish coverage after a major catastrophe. Reinsurers share the claims and premiums of insurers.

?Primary insurers will have to renegotiate catastrophe reinsurance for the rest of the year or not have it,? Newsome said.

Katrina came ashore as a Category 4 storm on August 29, flooding 80 percent of New Orleans and devastating other parts of Louisiana and Mississippi. Risk Management has the highest estimate on Katrina, at $40 billion to $60 billion, followed by Eqecat, at between $26 billion and $43 billion. Boston-based AIR Worldwide projected $17 billion to $25 billion, excluding flooding damage.

The highest estimate would make Katrina two to three times as expensive as Hurricane Andrew in 1992 and would erase as much as 15 percent of the $402 billion that US property and casualty insurers have in surplus, or cushion, for unexpectedly high claims.

The hit to surplus is sure to stem declining insurance prices, said Thomas Upton, a debt analyst at Standard & Poor?s in New York. Investors are wary of competitive rate-cutting because claims can surface years after policies are sold, making them unprofitable.

?Rates will go up,? said Upton. ?It?s hard to say what the scope will be right now, but certainly in the medium to long term, that would be a positive result from all this.?

Insurance rates began falling last year after the September 2001 terrorist attacks and corporate scandals such as Enron Corp. fuelled three years of increases.

Katrina is already poised to raise reinsurance rates, according to Germany?s Munich Re, the world?s largest reinsurer, and insurers will follow with their own increases, Upton said. Shares of Munich Re rose 2.14 euros, or 2.4 percent, to 92.45 euros in Frankfurt. Swiss Re climbed 1.9 francs, or 2.3 percent, to 83.2, while Hannover Re rose 1.20 euros, or 4.3 percent, to 28.85 euros.

Still, Adam Klauber, an analyst at Cochran Caronia Securities in Chicago, said the storms won?t have more than a temporary effect.

?You may have a short-lived break from rate-cutting, but it?s not going to be long,? said Klauber. ?Most competitors have plenty of capital and they?ll be back at the table trying to get everyone else?s customer.?