Three Bermuda insurers hardest hit by September 11's terrorist attacks - ACE, parterre and XL Capital - have been put on credit watch or had their estimates reduced by US ratings agencies as question marks hang over the extent of their exposure.

The agencies have put a halt to their ratings, which are used by investors as a guide for which stocks to buy, because it is feared that claims will be higher than the companies forecast.

Fitch has placed the ratings of ACE Ltd. and ACE INA Holdings and XL Capital Ltd. on Rating Watch Negative, while Morgan Stanley cut its price target for parterre, but put it in the "strong buy" category.

XL Capital's exposure is between $600 million and $700 million and the company reported consolidated GAAP assets of $18.7 billion and shareholders equity of $5.7 billion at June 30, 2001.

ACE's last estimate of $400 million represents approximately 7.25 percent of its June 30, 2001 equity, which was $5,524 million. ACE reported strong earnings of $250 million for the six months ended June 30, 2001.

PartnerRe's claims are expected to be $400 million.

All three company's stock prices have fallen as a result of the atrocities in the United States as markets slump around the world.

Fitch has put ACE on credit watch because it said it has "concerns that losses from the terrorists attacks in the United States last week as a percent of capital may ultimately prove to be higher than is consistent with expectations for the current rating category".

It said if ultimate losses remain consistent with ACE's current estimates of $400 million, the ratings will likely be affirmed and removed from rating watch.

It added: "If losses were to grow significantly higher than current estimates, Fitch may downgrade the insurer financial strength and debt ratings by one notch (to 'A' for the strength ratings, 'A-' for the long-term/senior debt ratings and 'BBB+' for the preferred/trust preferred ratings), which still implies a strong ability to meet claim and debt obligations."

Fitch said it will monitor the development of losses, as well as ACE's plans to raise capital or take other offsetting actions, and expects to resolve the rating watch within the next several months.

Fitch said it considers ACE's financial flexibility to be very good and its earnings capacity and ability to access the capital markets will allow it to quickly replace capital lost as the result of the terrorist attacks.

Fitch also has placed the A plus senior debt rating of XL on rating watch negative after "concerns that losses from the terrorists attacks in the US last week as a percent of capital may ultimately prove to be higher than is consistent with expectations for the current rating category."

But it said if ultimate losses remain consistent with XL's current estimates of $600-$700 million, the rating will likely be affirmed and removed from Rating Watch. If losses grow higher than current estimates, Fitch may downgrade the ratings to a level that is likely no less than a", which still implies high credit quality, and a strong capacity for timely payment of debt obligations.

Fitch said it will monitor the development of losses, as well as XL's plans to raise capital or take other offsetting actions, and also expects to resolve the Rating Watch within the next several months.

Morgan Stanley said on Wednesday it cut its price target on parterre Ltd. to $52 from $62, in the wake of the World Trade Center attack, which is likely to cost parterre up to $400 million in claims.

But there is good news as the company raised the rating on PartnerRe to "strong buy'" from "buy" on recent declines in the reinsurer's stock price.