Hurricane Katrina, expected to be the costliest catastrophe to ever hit the insurance sector, is likely to wash in excess of $5 billion out of the Bermuda market, based on loss estimates issued so far by 16 of the Island?s insurance and reinsurance companies.

That amounts to ten percent of the estimated $50 billion in capital backing insurers and reinsurers in this market, according to Government?s 2004 Economic Review.

Katrina is likely to be the costliest ever insured disaster with estimates that the insurance bill could be in the $40 billion to $60 billion range.

Based on estimates so far, Bermuda companies could be footing the bill for between eight and 12.5 percent of the total industry loss.

And the bill paid by Bermuda companies could end up higher with several of the Island?s highly capitalised insurance and reinsurance companies ? including IPC Re, AXIS Capital, Quanta Capital and Allied World Assurance Company ? yet to announce what losses they might sustain from Katrina.

Mutual insurer Oil Insurance Ltd. has also not said what it will pay out in Katrina claims on behalf of its 85 members. At a maximum, OIL could pay out $1 billion, which would exceed shareholders? equity of $994 million at year end.

Another consideration that could push insured losses higher is whether or not commercial insurers end up covering claims from flood damage.

Ratings agency AM Best, one of the most closely followed insurance rating agencies, said on Friday: ?The insured losses from Hurricane Katrina have had a significant impact on some insurers, leaving potential capital shortfalls relative to their current rating level and also calling into question the risk management capabilities of some insurers.?

AM Best has issued rating warnings to 11 Bermuda insurance and reinsurance companies, and downgraded one, Olympus Re, because of concerns about Katrina claims.

Despite its concerns AM Best said it expected all rated companies ?will be able to meet their current loss obligations?.

Another leading rating agency, Standard&Poor?s on September 9 put nine companies, and their units, on CreditWatch negative because of similar Katrina concerns.

On the list from Bermuda were ACE Limited and numerous units, Montpelier Re Holdings Ltd., Oil Casualty Insurance Ltd., PXRe and units, and Top Layer Reinsurance Ltd., a RenaissanceRe company.

Yesterday, S&P added XL Capital was to its list. XL forecast on September 12 that it would shoulder 1.75 percent of the industry?s losses, suggesting it could face as much as $1.05 billion.

Storm modeler Risk Management Solutions earlier this month raised its estimate of Katrina losses to between $40 billion and $60 billion, up from a maximum of $35 billion. Reinsurers including Swiss Reinsurance Co. and PXRE Group Ltd. also have raised their forecasts, saying the unprecedented nature of Katrina makes it more likely those numbers will change again.

Of the Bermuda companies that have reported loss estimates, there is a wide range in relation to capital. Some have said they expect claims from Katrina as low as three percent of shareholders? equity. Others have estimated losses from Katrina as high as 40 percent of shareholders? equity.

Two of the company?s worst hit by Katrina?s claims ? Montpelier Re and PXRE ? moved quickly to shore up capital, as their stock prices slumped and rating agency concerns were made public. Montpelier raised $600 million in capital through a secondary share offering that closed on Friday. PXRE has filed a shelf registration to offer up to $300 million in securities.

Montpelier said previously that it expects to sustain losses from Katrina of $450 million up to $675 million.

The $600 million capital raising effectively addressed concerns that Montpelier?s Katrina claims would have cut shareholders? equity of $1.46 billion at June 30 by between 30 percent and 45 percent. The capital raising was completed less than 24 hours after rating concerns were publicly aired by AM Best.

PXRE?s loss estimate of between $235 million and $250 million accounts for between 30 percent and 40 percent of $763 million in shareholders? equity at June 30.

While companies may raise capital because of the size of expected Katrina claims, capital injections will also enable more companies to sell more policies if the demand and price for property-catastrophe insurance and reinsurance rises after Katrina.