Despite intensified pricing competition, property-casualty companies with conservative investments should be able to perform well during the credit crunch, according to a Bank of America "P-C Industry Special Report."

Bank of America said p-c companies during the financial crisis are a good "port in a storm," noting that p-c companies currently have no liquidity, capital or investment issues, and that third-quarter mark-to-market losses should be manageable.

The analysis also said valuations are "compelling." Bank of America said that "Travelers and Chubb stand out on the large cap side as having low balance sheet risks, with Travelers being the most attractive stock at 75 percent of book value."

Multiline insurers, such as Allstate, AIG, Hartford, Horace Mann and XL Capital, are seen as more vulnerable, according to the analysis.

Bank of America said, "While prices are falling across most p-c lines, we expect ROEs (returns on equity) to remain relatively solid and above their historical averages through 2009, supported by reserve releases and share buybacks." Bank of America noted this is particularly the case for commercial lines and reinsurance.

The analysis added, "During the softening part of the last p-c insurance cycle (1989-2000), p-c stocks outperformed the S&P 500. We believe the quality of management is superior in this cycle and see lower interest rates and investment leverage offering little encouragement for undisciplined underwriting.

"With strong capital positions, conservative investment portfolios and balance sheets, we believe selected p-c stocks seem like an excellent port in a storm."

Bank of America also said the p-c insurers "have very little exposure to subprime, CMBS, or other volatile classes, along with shorter investment durations."

Higher than expected investment losses, price decreases, deterioration in terms and conditions, spikes in loss cost inflation, or severe catastrophe losses were cited as risks to Bank of America's call.

Special Reports /

Bank Calls P-C Stocks A Harbor In Rough Financial Seas

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