Olympus Re, a Bermuda-based reinsurance company, saw its financial strength rating cut last night by AM Best Co., one of the most widely followed insurance rating agencies, because of concerns Katrina-related losses could undermine the company?s financial stability.

Under the action, Olympus? financial strength rating of A- (Excellent) was dropped to B+ (very good), and its issuer credit rating was downgraded to ?bbb -? from ?a -?.

A.M. Best senior analyst John Laubach said information from Olympus on the losses it expected to sustain gave rise to concerns that the company?s capital position could come under threat.

Olympus, a privately-held company, is not expected to publicly disclose what losses it will take from the August 29 storm that wreaked havoc across four Gulf Coast states. ?We are a privately-held company, we don?t have to and we won?t? disclose our losses, said Olympus president Sheila Nicoll in a telephone interview last night.

Mr. Laubach said A.M. Best officials expected to meet with Olympus management and its board within the next four to six weeks.Olympus has two staff, Ms Nicoll and one other. Joseph Steinberg, president of US conglomerate Leucadia National Corp., is its chairman.

A.M. Best will want to meet with company officials as Olympus? ratings are under watch with negative implications, meaning a further downgrade is possible.

The company, which sells retrocessional reinsurance policies to two White Mountains reinsurance units, posted loss estimates between $80 million and $90 million last year from a wave of hurricanes that hit Florida, according to A.M. Best. The ratings agency, at the time, put Olympus? financial strength rating under review, indicating concerns. Its A- rating was reaffirmed after the 2004 hurricane season closed.

Olympus, which earned its A.M. Best rating in late 2002, is not rated by any of the other ratings agencies that track the financial stability of insurance and reinsurance companies.

Olympus? financial strength downgrade last night could signal that Hurricane Katrina claims may take a significant bite from the company?s capital.

Ms Nicoll declined to comment on whether the ratings downgrade would force the company to raise capital. At the end of 2004, Olympus Re was capitalised with $650 million.

A weakened capital position would likely dampen the company?s business prospects, as reinsurers are only allowed by regulators to sell policies if they have enough capital to support possible claims. As well, financial strength downgrades, can see a company?s policy sales fall off.

Insurers cringe at even the prospect of a ratings downgrade as even policies already sold may be revoked by buyers, with most insurance contracts carrying a clause that amounts to an exit visa when ratings fall out of the ?A? range.

?We?ve just heard [about the downgrade, I really don?t want to comment?, Ms Nicoll said when asked about what impact the action could have on the business.

The company?s investors, which include Leucadia National Corp., Gilbert Global Equity Capital LLC, Franklin Mutual Advisors LLC, Fairholme Capital Management, Third Avenue Funds and personal investments from White Mountains Re chief executive Steven Fass and former chief executive and chairman Jack Byrne, could face a decision on whether to hold their Olympus investment. Each of the investors has a ?put option? allowing it to reduce its stake in the company, pending board approval.

Olympus does not buy reinsurance protection, meaning it will be on the hook for 100 percent of the claims that come in from White Mountains Re. Mr. Fass was not immediately reached for comment.

Most of the policies Olympus sold last year, 92 percent, were to provide coverage against property damage, while the balance were marine and aviation policies.

Reinsurers that specialise in selling property coverage, and energy policies, are expected to take the biggest hit after Katrina,

because of the widespread damage to homes and offices, and the loss or damage to oil rigs and refineries in the Gulf of Mexico.Katrina is likely to be the costliest ever insured disaster with a bill up to as much as $60 billion, likely triggering losses for retrocessional reinsurers such as Olympus.

Retrocessional reinsurance is purchased by reinsurers looking to spread risks they?ve taken on from primary insurance companies, effectively reinsurance for reinsurers. This type of reinsurance is rarely triggered because claims don?t reach into the multi-million, and billion, dollar layers that these kinds of policies cover. But with Katrina retrocessional reinsurers are expected to be badly hit, according to a report in the days after the storm from analysts at Fox-Pitt, Kelton.