Analyst sees buying opportunity for reinsurers

Analyst sees buying opportunity for property-casualty reinsurers as hurricane season peaks

• By Mark Jewell, AP Business Writer
• On 1:41 pm EDT, Wednesday August 26, 2009

BOSTON (AP) -- A Barclays Capital analyst on Wednesday said he sees a short-term buying opportunity in stocks of property-casualty reinsurers, which tend to outperform the broader market during the typical peak of hurricane season in September.

Analyst Jay Gelb also noted that forecasters expect a below-average Atlantic hurricane season this year.

Gelb said he believes "investors should buy a basket of P&C reinsurance stocks in September as the stocks historically outperform" once hurricane season peaks.

Gelb said that over the last seven years, an index of property-casualty reinsurers with exposure to catastrophes has outperformed the Standard & Poor's 500 index by an average of more than 5 percent during September. While those stocks have returned an average 3 percent in September during those seven years, the S&P has averaged a loss of more than 2 percent.

However, Gelb said that 2005 -- when hurricanes Katrina and Rita caused widespread damage and triggered losses for reinsurers -- was "a notable exception."

Government forecasters have said this year's hurricane season is likely to be less active than previously predicted because of the occurrence of a warmer weather pattern called an El Nino over the Pacific Ocean. That pattern has lately been acting as a damper to tropical storms in the Caribbean and neighboring Atlantic. However, the forecasters warned people to remain vigilant because the peak period for hurricanes runs from August through October, while the overall season lasts from June through November.

The fortunes of property-casualty reinsurers that insure insurance policies are heavily tied to the severity of hurricanes.

In a research note, Gelb said he sees a "near-term positive" for several reinsurers if predictions for a below-average season pan out. Among that group, he included RenaissanceRe Holdings Ltd., Montpelier Re Holdings Ltd., Flagstone Reinsurance Holdings Ltd., PartnerRe Ltd., Everest Re Group Ltd., Aspen Insurance Holdings Ltd., XL Capital Ltd., Allied World Assurance Company Holdings Ltd., Arch Capital Group Ltd. and ACE Ltd.

However, Gelb said in the longer-term, a below-average hurricane season this year "could put downward pressure on property catastrophe reinsurance prices."

On Wednesday, markets didn't appear to be taking Gelb's report as a cue to buy up reinsurer stocks, which were mixed and little changed in afternoon trading.

Shares of RenaissanceRe rose 15 cents to $53.05; Montpelier Re fell 2 cents to $16.30; Flagstone fell 1 cent to $10.87; PartnerRe rose 45 cents to $73.05; Everest fell 57 cents to $83.31; Aspen fell 23 cents to $24.90; XL Capital rose 10 cents to $16.97; Allied World rose $1.10 to $45.64; Arch Capital fell 38 cents to $63.78; and Ace rose 19 cents to $51.

Buzz up!