Higher than expected fourth-quarter losses could force insurer Quanta Capital Holdings Ltd. to shut down parts of its business, or go up on the sales block, after a downgrade to its financial strength rating this week.

Ratings firm A.M. Best downgraded Quanta?s financial strength to ?B++? from ?A-? on the heels of Quanta, a Bermuda-based insurance group that also provides risk consulting services, posting a preliminary estimate of between $40 million and $45 million in fourth-quarter losses.

The downgrade puts Quanta at risk of losing customers, with some insurance contracts having an exit clause triggered by a downgrade. Attracting new business could also prove difficult. Best?s ratings are widely followed by insurance buyers, and most shy away from buying from an insurer rated lower than ?A-?.

Chief financial officer Jonathan Dodd told investors yesterday the fourth-quarter numbers took the company by ?surprise?.

Companies that track Quanta as an investment for clients were also taken off guard, expecting the company to post more modest losses of between $13 million and $16 million.

BB&T Capital Markets downgraded the stock to ?underweight? from ?buy? saying it expected $13 million in losses. A.M. Best said it continues to have Quanta on a negative watch, signalling another downgrade has not been ruled out.

Quanta, which trades on the Nasdaq, saw its shares fall sharply. Investors sent the stock down 40 percent to $2.83 in 4 p.m. composite trading. Shares traded as low as $2.20 during the day, more than a dollar off its previous 52-week low of $3.55. The company?s shares were sold at $11 when it listed in 2004.

In the fourth quarter, Hurricane Wilma cost the company $12 million, and an additional $10.2 million in losses from Katrina and Rita were added in the fourth quarter, Quanta said.

And a bigger than expected environmental loss cost the company $5.5 million, and up to $13 million is being added to reserves the company holds in the event of claims on policies sold.

The company also paid out more than $5 million to departing executives, including Quanta?s chief executive, chief financial officer and chief claims officer, as severance pay. Of the $96.1 million in policies sold by the company in the fourth quarter, all but $3.8 million was passed on to reinsurers. The company?s net written premiums a year ago were $107.1 million.

Quanta is the second Bermuda insurance company in as many weeks to face an uncertain future after a ratings downgrade. PXRe, a Bermuda reinsurer, last month posted bigger than expected fourth quarter losses and was also downgraded into the ?B? range.

Quanta said it had hired Friedman Billings Ramsey, an investment bank closely aligned with Quanta since it was formed in 2003, to advise on ?strategic alternatives? including a possible sale of the company, or units.

PXRe is one of several insurers ahead of Quanta on the sales block, dimming the company?s prospects of finding a buyer.

Fox Pitt Kelton analyst Chris Wenzel said Quanta is more likely to shut down than be sold, predicting buyers will be wary even if the company is offered at a discount.

?Keep in mind that Quanta would have to get in line behind three companies: PXRE Group, Alea Group and Rosemont Re/Goshawk, that have faced similar rating downgrades recently and have not found buyers,? Mr. Wenzel wrote in an investor note.

All three companies are Bermuda based insurers hit by downgrades after capital adequacy concerns, largely from heavy 2005 hurricane losses.

?The AM Best downgrade will likely force the company to exit the majority of its business lines and creates, in our view, a strong likelihood of a managed run off outcome,? wrote Mr. Wenzel.

An insurer in run-off closes to new business while staying open with a skeleton staff to handle claims that come in on policies already sold. Quanta was under threat of a downgrade after hurricane losses in the third quarter but held on to its ?A-? by tapping investors in December for $134.8 million. The company has kept its ?A? rating for its Lloyd?s syndicate, a unit that holds about one-fifth of the company?s total $520 million in capital.