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That is all that last week's wild stock market gyrations amounted to on property/casualty insurers' financial screens. Even a far more precipitous and sustained fall in stock values would not have imperiled the industry, analysts say.

The stock market would have to lose almost six times more of its value than it did Oct. 27 before the insurance industry would be forced to react by, among other things, boosting rates because of reduced capacity, according to analysts.

Last Monday, the Dow Jones Industrial Average fell a record 554.26 points. But, in percentage terms, the 7.18% decline ranked as only the 12th-worst in history. The decline was about one-third as steep as the 22.6% record drop on Oct. 19, 1987.

The same day, the Business Insurance Index fell 94.85 points, or 6.7%, to 1416.47 from 1511.31 at its Friday, Oct. 24, closing.

Stocks began to rebound the next day, though they suffered additional declines on Thursday and had not fully recovered by late in the week.

The stock market's gyrations, however, did not faze insurer rating agencies.

"We use a 15% charge on equity investments when we look at an insurer's capital. So even if there's a 15% decline in the stock market, we're confident a company's capital position is secure," said Alan M. Levin, managing director of insurance ratings at Standard & Poor's Corp. in New York.

A.M. Best Co. of Oldwick, N.J., keeps a "hit list" of insurers susceptible to a stock market downturn, but there are a "very limited number" of such insurers, said Eric Simpson, a senior vp in the rating agency's property/casualty insurance division.

Even if stocks had not rebounded or if another and more long-term stock market correction lies ahead, the impact on the insurance industry would be minimal for a couple reasons.

One is that the industry has a relatively small equities exposure, analysts said.

At year-end 1996, the insurance industry's common stock holdings were valued at about $104.2 billion, or 12.6% of its $825.28 billion of total assets, according to the Insurance Information Institute of New York. The industry's total surplus was $265.29 billion, which means 39.3% of the surplus was exposed to equities.

But, even if an insurer's surplus was 50% exposed to equities and the company's equities portfolio's performance mirrored the Dow's Oct. 27 decline, the net effect would have been a 3.5% hit to surplus, said Claude Fongemie, vp of insurance research and publications at Hartford, Conn.-based Conning & Co., an insurance asset management and research firm.

Even a 20% stock market correction would translate into only an 8% hit to the insurance industry's surplus, Best's Mr. Simpson said. Such a correction would be "a non-event," especially considering the industry's gross underwriting leverage ratio has fallen 25% over the past four years, he said.

That ratio measures the industry's exposure to errors in pricing, liability estimates and ceded reinsurance estimates. Falling ratios mean a declining susceptibility to such errors.

The industry's investment strategy has not always been as conservative, however.

For example, in 1974, about 75% of the industry's surplus was exposed to equities, Mr. Fongemie noted.

The 1974 stock market correction was one of the forces that precipitated the mid-1970s hard insurance market, said Mr. Fongemie, noting that the S&P 500 Index fell more than 20% for the year.

With dividends reinvested, the S&P 500 index fell 26.39% that year, according to S&P.

The Oct. 27 correction does not come close in significance for the insurance industry, according to Mr. Fongemie. After the correction, the Dow Jones Average still was up 11% for the year, he pointed out.

The insurance industry had reduced its surplus' exposure to equities by the time the stock market crashed in 1987.

However, by then, the tightest insurance market in history already was well under way because of the industry's capacity problems.

Today, the insurance market is significantly overcapitalized, which further buffers it from instability in the equities market, analysts agree.

Many analysts estimated that a 40% stock market plunge would have to occur to gobble up the insurance industry's excess capital and end the industry's longest-ever soft market.

Such a stock market downturn would erase about $41.68 billion of the industry's equities holdings at year-end 1996.

If the stock market remains flat for the remainder of the year, and if second-half income mirrors the first half's, the industry's capital should grow by about $35.36 billion, estimated Sean Mooney, a senior vp and economist with the III in New York.

"So, to have a severe decline in capital, you would need a decline of at least as big as the industry's income for the year and a little more to provide the shock value to change the insurance market's psychology," Mr. Mooney said.

But, that dire scenario is unlikely, Conning's Mr. Fongemie asserted. "Logic would tell you the Fed would step in to inject liquidity into the system as it did in 1987 and stop the drop-off."

Mr. Fongemie said the Federal Reserve, as it did a decade ago, likely would purchase Treasury securities from institutional investors. Under that strategy, the investors would then have more capital and their reinvestment strategy could trigger broad new reinvestment in equities.

Another reason a steep drop in the stock market should not significantly hurt insurers is that fixed securities account for a major portion of most insurers' investment portfolios. Those securities increased in value when the bond market rallied in response to the stock market's fall.

"Therefore, the movement in bonds most likely offset the drop in stock values," said Gloria Vogel, senior vp with Advest Inc. in New York.

Among individual companies, though, the exposure of surplus to equities can vary widely.

For example, assets representing more than 100% of the surplus of the property/casualty insurance operations of Cincinnati Financial Corp. of Fairfield, Ohio, are exposed to equities. Of the insurance operations' $5.17 billion of total assets on Sept. 30, the value of its common and preferred stocks represented $2.9 billion. The insurance company's surplus totaled $2.3 billion.

Still, Cincinnati Financial is found on the Ward's 50 Benchmark list, the 50 insurers that Cincinnati-based insurer management consultant Ward Financial Group says best balance solvency and financial performance (BI, Aug. 25).

Ted Elchynski, chief financial officer for Cincinnati Financial, explained that the company is comfortable with its investment strategy, which is designed to generate appreciation as well as income.

"It's been so successful that it's built up a great deal of unrealized appreciation," he said. About $1.19 billion, or 41%, of the insurance operations' equities holding represents unrealized appreciation, Mr. Elchynski said.

He also noted that the company holds large stakes in relatively few companies-about 25 to 30-that historically are strong performers.

Insurers in court-ordered liquidation have even less exposure to equities, liquidators said.

Liquidators quickly try to convert insolvent insurers' equities holdings into fixed securities and match those securities' maturity dates to the time they need money, explained Karl Rubinstein, a partner at Rubinstein & Perry P.C. in Los Angeles. Mr. Rubinstein represents California regulators in insurer rehabilitations and liquidations.

As with active insurers, the value of insolvent insurers' fixed securities may rise in the short term as equities investors flee to the fixed income market, said Peter Gallanis, special deputy receiver for the Illinois Insurance Department in Chicago.

"But, since most receivers don't really play the bond market-they really buy and hold-any gains we might get as a result of a downswing in the equities market are gains we never really realize, because we don't dump our bonds at a high point and then try to get back in," he said.

Insurers in voluntary runoff, including CIGNA Corp.'s runoff facility and International Insurance Co., which is running off the business of former Xerox Corp. insurance units, have no equities holdings, representatives said.

While a market turn is not expected in the wake of the stock market's upheaval, there may be some changes in how insurer mergers and acquisitions are structured, analysts said.

But, "For those buyers who are buying for strategic purposes, I don't know that a deal will go kaput because the price changes," Ms. Vogel said.

S&P's Mr. Levin agreed. A volatile stock market would not necessarily change the "strategic value" of a deal, he said. So, a seller may not be willing to renegotiate a deal, even if the per share value of its property has fallen

But, only some sellers-those with little of their authorized shares held by the public-can strongly argue that point, said John L. Ward, chairman of Ward Financial. When 20% or less of a company's stock is in the public's hands, "it's tough to know what the stock's worth, so the market trades it more conservatively," Mr. Ward said.

Mark A. Hofmann in Washington contributed to this report.