Property-casualty insurance stocks are a relatively safe havenfor investors, with balance sheets “in the strongest shape inhistory,” stock analysts at an investment bank reported today.

Bank of America's Equity research said that in a time offinancial and economic concern, most p-c insurers haveinsignificant exposure from the subprime mortgage marketinvestments collapse.

Property insurers have returns on equity that are independent ofthe economy in the medium term, with strong balance sheets, and aregenerating excess capital, the bank said.

According to its analysts, price declines in the insurancemarket are expected to continue and terms and conditions will startto deteriorate. Still, they said p-c firms supported by capitalmanagement look poised to deliver midteens ROEs in 2008 and2009.

Merger and acquisitions in the sector should pick up, the banksaid.

The analysts said they favor reinsurance and commercial linesstocks, which have higher excess margin cushions and moreattractive valuations than personal lines. They listed as their toppicks: Travelers, XL Capital, Aspen and Everest Re.

Their report found p-c insurers' financial fundamentals strongin spite of price decreases and said 2007 should be the third yearof underwriting profitability since 1978 with a 93.8 combined ratiofor the first nine months of 2007. The fourth quarter should bestrong despite some catastrophes.

Bank of America said favorable loss cost trends will helpcommercial lines results in 2008, offsetting some of the pricedecreases.

It found Bermuda reinsurance stocks were the best performers,with AXIS up 17 percent. The best-performing large caps were Chubb,up 3.2 percent; ACE, up 2 percent; and Travelers, flat.

The analysts said they believe management at p-c companies ismore thoughtful and disciplined than in the past, but their truetest will come in the next few years as prices decline and termsand conditions deteriorate.

They noted that in 2007 large capital firms through sharebuybacks and dividends have given shareholders 10 percent of theirmarket capitalization and said they expect that trend to continuethis year.

Giving back excess capital to shareholders “is vastly superiorto reinvesting it in the business at unattractive prices or makingill-conceived or expensive acquisitions,” Bank of America said.