Insurers assessing their losses from Hurricane Katrina (search) are now saying damages could be be worse than previously expected and Standard & Poor's (search) threatened to downgrade 10 large insurance groups.

Swiss Re (search) Monday doubled its expected bill from the disaster to $1.2 billion, while rival reinsurer Munich Re (search) said Sunday its claims bill would rise above initial estimates.

"If the storm breaches the $40 billion mark for insurance losses it becomes a more prominent event for the industry," warned Adam Klauber, an analyst with Cochran, Caronia & Co.

Current estimates on covered losses range from about $25 billion by two of the risk modeling agencies to as high as $60 billion by Risk Management Services (search).

Disaster modelers don't actually assess damages, but use past catastrophes to predict future losses. Insurers say that with New Orleans still under water it is too early to assess total damages.

"Everyone's relying on the modelers because there's no firm data," said S&P analyst Steven Adler. "The largest catastrophe to date was 1992's Hurricane Andrew, which cost $20 billion to $23 billion. This is highly likely to be bigger, but how much bigger? No one knows."

Montpelier Re Holdings estimated Monday the preliminary impact of its hurricane losses will be in the range of $450 million to $675 million, pushing its shares down more than 14 percent in U.S. trading.

"This is a significant net loss for us," said Anthony Taylor, Chairman, President and Chief Executive of Montpelier.

Montpelier is among the companies that S&P said could be downgraded. Others include Allstate Corp. (ALL), Allmerica Financial Corp. (AFC) and Swiss Re.

"However, downgrades are not inevitable," said Adler.

Also Monday, mortgage lender Countrywide Financial Corp. (CFC) said Katrina losses related to its insurance operations and some of its loans will be significant and likely exceed the $70 million loss from hurricanes in 2004.

In Europe on Sunday, Munich Re, the world's number one reinsurer, said its estimate of Katrina claims, currently about 400 million euros ($493 million) is probably too low.

Hannover Re said it may have to lower its earnings forecast further if its share of claims from Katrina, which it currently estimates at 250 million euros before taxes, increases, though it said it saw no need to do so now.

It may take a long time to put a price on the final cost of the clean-up, reinsurers warned. But the reverberations from Katrina are already being felt throughout that market.

"(Katrina) will be a loss of an enormity that will change the basis on which we do business in the industry," deputy chairman Charles Cantlay of reinsurance broker Aon Re UK, part of Aon Corp., told reporters at an industry conference in Monte Carlo.

Peter Streit, an insurance analyst with Williams Capital Group, warned against overreaction.

"At this point insured loss estimates vary widely," Streit said. "But even if they rise to $40 billion, that's still only 10 percent of the U.S. industry's capital. The insurance companies are well-positioned to make this a manageable event.