NEW YORK (Reuters) ? Citadel Investment Group LLC and other major hedge funds that recently made big investments in reinsurance companies are facing hundreds of millions of dollars or more in claims due to Hurricane Katrina and possibly Rita, experts said.

But the losses are likely to be transitory, hedge fund executives say, because demand for insurance coverage typically gets stronger after such events, raising the value of those companies and offsetting any losses.

Citadel, the $12 billion Chicago-based fund, for instance last year set up CIG Re, a Bermuda-based reinsurance company with $450 million in capital, in a major move into the reinsurance market.

CIG Re alone could face an estimated $200 million in claims from Katrina, according to several people familiar with the situation. But the value of the privately held company has actually risen in recent weeks, based on comparable valuations of public companies, these people said.

Citadel officials declined to comment.

One of those public competitors is Max Re, a Bermuda-based company set up by hedge fund investors after Hurricane Andrew in 1992.

Shares in Max Re, which was backed by investor Louis Bacon through his $9 billion Moore Capital hedge fund, along with Tudor Investment Corp. and other hedge funds, have actually risen in value since Katrina struck a month ago.

Max Re closed at $22.60 on September 1 on Nasdaq just after Katrina, but closed today at $23.85, a nearly six percent gain in the month.

Over the past four years, hedge funds including Soros Fund Management LLC, Moore Capital, Tudor, Ritchie Capital Management LLC, Citadel and others have piled into the reinsurance market, which essentially provides disaster insurance for insurance companies.

After the September 11, 2001 attacks, such firms could offer lower priced premiums based on their lack of exposure to terror attack claims that strapped large established insurers. But they have found that while many faced claims from Hurricane Andrew and the four hurricanes that struck Florida last year, the businesses generally held up, due to rising premiums from demand for insurance coverage.

?There clearly have been losses in the reinsurance market with Katrina, just as there were post-9/11,? said one hedge fund executive who asked for anonymity because his firm invests in reinsurance. ?But premiums will go up dramatically, so investors are optimistic about future returns.?

While not all publicly traded reinsurers have posted stock gains in recent weeks, the payouts the industry faces isn?t going to be enough to drive hedge funds out of the business, this and other executives said.

?Disasters tend to be good for these companies,? said another executive whose firm invests in hedge funds that provide reinsurance. ?The stock may go down but they tend to rise again. In Florida, for instance, insurance companies will be able to charge any rate they want, because people and businesses have to have insurance.?