The U.S. insurance industry is capitalized to levels that will allow it to meet claims arising from the September 11 attacks without threatening credit ratings in the industry assuming there are no substantial increases in loss estimates, according to Standard & Poors’s.

Speaking on Wednesday, Steve Dreyer, managing director, Standard & Poor’s Insurance Ratings said this assessment assumes insured losses will not rise to more than US$50 billion.

“At the US$50 billion level, we would expect to see some systemic problems,” Dreyer said, “including ratings lowered by more than one or two notches and possible insolvencies of midsize reinsurers.”

S&P is continuing its surveillance of the impact of the event on the insurance industry and is working to resolve insurers’ CreditWatch status as companies finalize their loss estimates, Dreyer said.

“Interestingly, we’re beginning to see some slight downward revisions of loss estimates by insurance companies which might indicate a topping off of loss estimates,” he said.

Dreyer also discussed the larger impact of current proposals for a federal government program to assist the industry in the event of a future terrorist strike. “Insurers need a backstop from Washington if they are expected to cover terrorism losses,” Dreyer said.

Insurers have committed themselves to covering the losses incurred on Sept. 11, but they might invoke an act of war exclusion on further events. Without support from Washington, he said, the industry would almost certainly insert terrorism exclusions into policies they will write for 2002 and beyond.

Dreyer said insurance product pricing may increase in the next year, especially in the commercial property/casualty lines and for reinsurance. However, he noted that a number of large commercial lines insurers had not written any coverage at the World Trade Center or the Pentagon and are not being affected. These insurers would be positioned to price policies to maintain market share, Dreyer said.