The failure of just one insurance giant would overwhelm the state funds designed to protect policyholders. The result could be another taxpayer bailout on the model of the savings and loan industry. - Joan Claybrook, president of Public Citizen. Five of the nation's top 20 property and casualty insurance companies are so financially shaky that they could go broke in the event of a severe economic downturn, the consumer group Public Citizen said Monday.

Public Citizen said Aetna, American International Group, Hartford Insurance Group, Liberty Mutual and United States Fidelity & Guaranty each triggered four of six factors that, according to the group's analysis, would make them vulnerable to insolvency.Spokesmen for some of the firms took issue with the report and said their companies are healthy.

The consumer group said none of the five companies is on the edge of insolvency but "the underlying weakness in their financial condition is clearly evident."

The 124-page report said a combination of low premium volume, high claims and weak return on investment could mean potential financial trouble for the companies. It said all of these factors occur during an insurance cycle downturn.

"The failure of just one insurance giant would overwhelm the state funds designed to protect policyholders," said Joan Claybrook, president of the consumer group. "The result could be another taxpayer bailout on the model of the savings and loan industry."

Public Citizen made its analysis in part by examining shrinking surpluses, the ratio of surplus to losses and unusually wide premium swings over the years 1969 to 1988.

It also examined three short-term factors: the amount of risk the company insures compared with the size of its cushion against unexpected losses, the degree to which its investments could be converted into cash, and the extent of its investment in high-risk junk bonds.

Among its findings:

-Aetna, Hartford and USF&G held less in surplus in 1982 than in 1972.

-AIG, Liberty Mutual and USF&G all had surplus that was less than 50 percent of their losses for three or more years since 1980.

-Aetna, AIG, Hartford, Liberty Mutual and USF&G all had wide swings in their net premium.

-Aetna, AIG, Hartford and Liberty Mutual all had low liquidity rates and an excessive ratio of risk to cushion, known as the leverage ratio.

-USF&G held more than 15 percent of its surplus in non-investment grade, or junk, bonds in 1988.

Howard Smith, senior vice president and comptroller for AIG, said he was "flabbergasted" that his institution would be considered vulnerable. "They either used the wrong facts or they got the wrong numbers," he said.

Smith said AIG had a 17 percent return on equity in last year's annual report plus the highest premium volume of any commercial writer in the country, and "our cash flow continues to be exceptionally strong."

Joyce Willis, a spokeswoman for the Hartford Insurance Group, said she questioned the credibility of the assessment. "The credible rating agencies rate the Hartford very high. It would surprise me that suddenly someone else could come in and use what appear to be similar criteria and announce that we are vulnerable," she said.

Comment from the other companies deemed to be potentially at risk was not immediately available.

Other firms included in the survey were CignaINA, Chubb, CNA, Continental, Crum & Forster, Farmers, Fireman's Fund, Kemper, Lincoln, Nationwide, St. Paul, Travelers and USAA.

Public Citizen said the danger of insurance insolvency has been heightened by the McCarran-Ferguson Act, which exempts insurers from antitrust laws, and by what it called overburdened and under-funded state regulatory systems.

The report recommended repeal of the McCarran-Ferguson Act, use of the Racketeer Influence and Corrupt Organizations law to prosecute fraud and wrongdoing by insurance executives, increasing from 5 cents to at least 25 cents the share of insurance tax dollars that go for regulation, creation of state and federal citizen watchdog groups and a yearly federal report on property and casualty companies and the effectiveness of state regulation.