Oil Insurance Ltd., a Bermuda mutual insurer, could face a downgrade warned ratings agency Standard & Poor?s on Wednesday, acting on concerns that exposure to Hurricane Katrina-related losses could undermine the company?s financial state, which is already under pressure from a string of losses last year.

S&P analyst Damien Magarelli said OIL was, so far, the only insurer where the potential for Katrina-related losses, in relation to the company?s capitalisation, raised concerns.

The industry, as a whole, is still a long way from a solid estimate for what Hurricane Katrina?s devastation of the Gulf Coast earlier this week could cost, with estimates of $9 billion up to $30 billion having been made.

More and more, expectations are that Katrina ? which left much of Mississippi and Louisiana and some parts of Alabama, torn up and under water ? could outstrip 1992?s Hurricane Andrew as the costliest storm ever.

Serious storm damage occurred both on-land and offshore, with the Gulf being home to oil rigs and refineries.

OIL, a company that insures the risks of its 85 member companies as well as offering some reinsurance to member owned captives, currently has an ?A+? counterparty credit and financial strength rating from S&P, and an ?A-1? short-term and ?A-? subordinated debt ratings. Captives are set up by companies to insure their own risks, either as a single-company captive or mutual captive. OIL falls into the latter category.

OIL?s ratings have been added to S&P?s negative CreditWatch list, it said pending a meeting between agency officials and OIL management, slated to take place within the month.

?This action reflects Standard & Poor?s concern with OIL?s potential exposure to Hurricane Katrina, which is believed to have caused substantial damage to oil, gas, and energy operations in the areas affected by the hurricane, particularly in Louisiana and Mississippi,? said S&P credit analyst Laline Carvalho, in a statement yesterday.

She said that concerns about OIL?s financial state were heightened because the potential losses are on top of 2004 being ?one of OIL?s worse operating years?.

OIL posted $397 million in losses from last year?s Hurricane Ivan, as well as a total limit-loss of $250 million due to an explosion of a large gas platform in the Mediterranean Sea. As well, OIL had to prop up its loss reserve for prior-year claims, leading the company to to report a net loss of $548 million in 2004.

The poor results pushed OIL?s capital adequacy below S&P?s long-term expectations, it said, with shareholders? equity falling at year end to $994 million from $1.5 billion at December 31, 2003.

OIL senior vice president and chief operating officer Doug Kline told The Royal Gazette: ?We do expect to have members sustain losses that could result in claims.?

But he said it would be premature to make any attempt to put a number on what those claims could be, saying it could be weeks, even months, before its member companies that may have been affected complete their own assessments.

Ratings agency A.M. Best, in a separate statement, said it expected ?virtually all rated companies will be able to meet their commitments, despite the projected magnitude of the potential losses.? Best said there could be ratings downgrades.

Insurers and reinsurers are both expected to pay out billions in claims from the damage that Katrina left in her wake.

S&P said it expects to make a decision on OIL?s rating within six weeks. OIL?s ratings are unlikely to be lowered by more than one category.

Mr. Kline said claims of up to $1 billion would be the ?worst case scenario? because the company has a cap of $1 billion on what it has to pay out for any one event that results in multiple claims. While it is not clear what its loss will be, if it reached the $1 billion maximum, that would outsrip the company?s total shareholders? equity.

However, Mr. Kline said under Bermuda regulatory requirements, OIL has statutory capital in the range of $1.8 billion, counting in some $800 million in additional funds that are not counted under the generally accepted accounting principles (GAAP) shareholders? equity figure.

Mr. Kline confirmed OIL management plan to meet with S&P officials in the ?near future to discuss the impact of Katrina on our financial affairs?.

As a mutual insurer, OIL?s members are obligated to pay their own losses, over a five-year period, on an interest-free basis.

S&P said it recognised that OIL?s members ultimately paid the losses from its own claims, but said its concerns about the company?s capital adequacy and liquidity remained.