The companies have an estimated 2-3 per cent share of the total insurance industry exposure, which relates to policies written before 1986 and principally those covering the period from the end of the Second World War to 1969.
The clean-up bill would mean big off-balance sheet liabilities for both insurers, particularly for policies before 1970, after which insurance companies introduced a pollution exclusion clause in general liability policies.
Estimations of the insurers' exposure are contained in a report by analysts at James Capel, the stockbroker. The report claims that CU and Royal could face a bill of at least £469m each on a "best-case" scenario.
This represents 12.3 per cent and 15.5 per cent respectively of each company's current stock market value.
On a "medium-case" scenario the figure soars to £2.5bn each; 66 per cent and 136 per cent of market capitalisation. Capel calls these figures alarming. No worst-case scenario was provided.
The bills relate to legal, third-party damages and natural recourses damages as well as clean-up costs.
Paul Found, group financial controller for CU, said yesterday that the high degree of uncertainty in this area made it almost impossible to quantify what the exposure might be, but that the company was happy with the undisclosed level of provision it had made.
Royal has had a dedicated unit in the US since 1980 which handles its claims, and existing reserves of £3.5bn for environmental exposure.
However, Royal would not reveal its total reserves for exposure but said that the broad-brush approach adopted by Capel was not an accurate way to measure liability.
The report estimates there are 147 policy-holders linked to Royal, and 67 to CU, which have already been named as potential responsible parties - those identified by Superfund, the US law that governs clean-up of polluted sites.
Any action on the clean-up of sites is co-ordinated by the Environmental Protection Agency. Both companies are also said to be involved with policy- holders named at three or more listed sites, known as multi-site insureds.
The EPA estimates that the average cost of cleaning up one site stands at $30.7m.
Alan Levine, managing director of Standard & Poor's rating agency in New York, suggested yesterday that the estimates were too high. S&P estimates the total environmental exposure to be nearer a present value estimate of $42bn.
On those grounds Mr Levine did not think that CU or Royal could have such large exposures, but he pointed out that it was always possible that a company could have an unfortunately large exposure through just one policy-holder.Reuse content