Mr. Sklow said that regulators require that employers get their coverage with insurers admitted to operate within their states, which have the backing of their state guarantee funds.

S&P made inquiries to five states concerning the use of surplus lines non-admitted insurers for workers' comp coverage. Mr. Sklow related that the response "across the board was, ?no, you have to stick with the admitted market.'"

S&P reported that since last September's attack on the World Trade Center, premium increases have ranged from 30 percent to 50 percent, and those who suffered terrorism loss are being hit with rate hikes from 50 percent to 100 percent as the norm.

Don Watson, director of S&P's financial services ratings, said the coverage employers need might be provided by new startup companies in Bermuda who "have an appetite for workers' comp." With $7 billion in capital on hand they are looking for business, he said.

In the report he noted that they are unencumbered by poor underwriting experience from previous years, and are getting "an incredible price" for providing coverage.

"If you avoid the supertrophy buildings like the Sears Tower or the Empire State Building, maybe it's not such a bad risk," he speculated in the analysis.

For many employers who have groups of 1,000 or more employees, he said, the policies they obtain will include deductible risk amounts that "are going to be huge." Many employers may decide to self-insure, he said.

Mr. Watson said the problem is not just for urban employers, but also major firms located in suburbia, where insurers calculate they will still be vulnerable to nuclear, biological or chemical attacks.

Both Mr. Watson and Mr. Sklow noted that the new element in workers' comp pricing is a realization of the high losses that can be sustained with high concentration of employees in job categories with a low risk factor.

The concentration factor, Sklow said, is one with which underwriters and actuaries must now grapple. S&P's analysis said the insurer reaction will probably be an avoidance of concentrated risk in any one geographic area.

Mr. Watson said the potential for a big loss from events such as an earthquake has been there, but insurers had ignored it. California's Northridge earthquake could have caused major death and injury to workers, he suggested, but it luckily occurred in the early hours of the morning when people were not at their job sites.

S&P's study noted that monoline insurers that specialize in workers' comp and those that write in only one state are at greatest risk from the increasing threat of terrorism.

S&P noted that, unlike other types of coverage, workers' comp insurers are not permitted to exclude losses caused by terrorism in their underwriting contracts.

Workers' comp writers are therefore trapped between ongoing exposure to potentially devastating payouts, on the one hand, and the removal of their own protection against losses to terrorism through reinsurance, on the other hand. That safeguard lapsed with the Jan. 1, 2002 renewal period for reinsurance contracts.

Mr. Sklow noted that in the past, most workers' comp pricing decisions depended on the insured company's payroll, the type of industry, the workers' job functions, the head count, and historical experience for the company.

S&P said that in the long-term, prudent risk management should make workers' comp a profitable insurance line. The analysts also forecast that the current surge of premium increases will probably not continue into next year, because prices will be cut as competition for business arises.