In a new report, Moody’s Investors Service says that reinsurers are likely to absorb a larger share of total insured losses from Hurricane Katrina than from other hurricanes.

“We expect that most large reinsurers have managed their Gulf Coast exposures prudently, enabling them to absorb losses from Katrina and sustain their ratings,” says Bruce Ballentine, a Moody’s insurance analyst and co-author of the report. “However, reinsurers with outsized exposure to the affected region, or to hard-hit industries such as energy or gaming, could face rating downgrades, particularly if they do not recapitalize quickly.”

The rating agency says that the hurricane will almost certainly cause an unprecedented level of losses for the insurance industry. Ballentine notes that “a majority of losses in New Orleans may be in commercial lines, which are generally more heavily reinsured than personal lines. This points toward a relatively large share of Katrina’s losses being borne by reinsurers.” The report says that catastrophe reinsurance and retrocessional covers are likely to be triggered as well.

Moody’s adds that it expects the New Orleans flood to delay and complicate the determination of Hurricane Katrina’s insured losses because of: delayed access to properties, damage to the city’s infrastructure, unusual cleanup and repair needs, large additional living expenses on personal policies, large business interruption costs on commercial policies, and likely coverage disputes on personal and commercial policies.

“The challenge of estimating losses is compounded for reinsurers,” says Ballentine, “because they are generally a step removed from the underlying risks.”

Moody’s says it recognizes that catastrophes are integral to the insurance business and often self correcting. Major events often lead to higher prices and/or tighter terms in the affected locations and business lines, helping insurers and reinsurers to recoup their losses, it notes. Moreover, the rating agency believes that a well-positioned reinsurer should be able to raise fresh capital, if necessary, to shore up its balance sheet and fund new business. “Nevertheless, firms that post substantial losses and fail to recapitalize may be vulnerable to downgrades,” concludes Ballentine.