The reinsurance industry appears strong heading into the worstof the hurricane season, and the group should remain solid into2008, according to an investment bank analysis.

In a research report for Bank of America, analyst KevinO'Donoghue observed that, historically, catastrophes have notaffected the long-term stock performance of reinsurers but haveincreased the short-term volatility of the companies.

He noted that while losses impede the book-value per-sharegrowth, they also increase growth and “return-on-equityexpectations, resulting in higher multiples for the stock.”

Over a seven-year stretch, Mr. O'Donoghue noted reinsurers havebounded back from losses. Most notable was the 2005 hit fromhurricanes and other losses of $83 billion, 70 percent higher thanprevious years. However, strong performance followed in 2006 as aresult of the hard property market. He also added that thelikelihood of a repeat of 2005 “is low.”

Current market conditions “afford reinsurers the opportunity towrite business at targeted returns above the long-term average”despite declining premium rates, he continued. Reserves are alsostrong, and the “possibility of reserve releases outweighs thepotential for adverse development” presently. Reinsurers are alsobenefiting from investment income growth, which adds to theirearnings.

“We have a positive view of the reinsurance group,” he wrote,adding that strong underwriting margins on property and casualtyreinsurance and improved risk management “should drive book-valuegrowth.”