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S&P: Corporate Scandals May Hit Insurers Hard

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NU Online News Service, July 10, 1:19 p.m. – The recent wave of corporate accounting scandals could eventually lead to downgrades of insurers, according to insurance rating analysts at Standard & Poor’s, New York.

S&P analysts estimate in a new report that U.S. insurers had $14 billion invested in just two of the troubled companies, WorldCom Inc., Clinton, Miss., and Tyco International Ltd., Pembroke, Bermuda, at the end of 2001.

Although no insurer has enough exposure to either WorldCom or Tyco to warrant a rating downgrade, many other large, prominent public companies have filed for bankruptcy or found themselves at the center of scandals in the past year, the analysts write.

“There’s potential for death by a thousand cuts,” Jack Reichman, an S&P director, says of the industry’s possible cumulative exposure.

Property-casualty insurers could also suffer, from a combination of decreased investment earnings and increased payouts on the liability policies that protect the troubled companies’ officers and directors, S&P analysts warn.