Insurance companies are poised to report strong results in the first quarter, as higher policy pricing begins to take root to make up a shortfall from record catastrophe claims last year, a monthly industry report from Deutsche Bank predicts.

The report?s finding flies in the face of some other industry groups? earlier predictions that rate increases for insurance policy sales this year would not reach the expected highs after last year?s record hurricane losses.

Deutsche?s report, written by research analysts Alain Karaoglan and Darin Arita, predicted better fortunes for the property and casualty sector largely because of ?much improved? pricing.

And said that reinsurers should be one part of the sector to profit the most as prices rise.

The research division of Deutsche Bank tracks the stocks of 41 property and casualty insurers and reinsurers. Of those, the stocks of 28 are trading down while 13 have gained.

Since January, insurance stocks have lost ground while gains were made by the S&P 500 Index, a common bellwether of stock market activity.

Deutsche?s analysts said they were ?bullish? on the sector, adding that many companies now trading at prices that should be attractive to buyers.

(See sidebar for information on the Bermuda stocks Deutsche Bank is recommending)

?Our advice remains to buy reinsurers which are trading at attractive valuations, and the commercial lines companies,? the analysts wrote.

And they said that some of the trading volatility may have been driven by the larger than expected catastrophe losses recorded by Everest Re, and PXRe and Quanta Capital, putting the business models of the last two in peril.

?Prices in the property lines should continue to increase through the second and third quarters, and underlying results for the P&C sector remain extremely strong,? the report said.

Deutsche?s report said that the 101 percent combined ratio for the US property and catastrophe sector last year suggested ?that underlying fundamentals for the group remain extremely strong?.

A ratio above 100 percent indicates a loss from underwriting, an insurer?s main business. The greater the number above 100, the greater the loss. In March, P&C stocks declined 0.8 percent, compared with a 1.1 percent appreciation in the S&P 500 index. And year-to-date the sector has also performed below the S&P 500, which is up 3.7 percent since January, while sector stocks are down 1.2 percent.

?This led to second guessing about the fate and viability of other reinsurers,? Deutsche Bank?s report said. ?Most of them were fine, but their stocks did not fully recover.?

Catastrophe pricing is predicted to remain strong through the third quarter, and while casualty pricing was either the same as last year, or lower in some cases, the report said there were signs that legal developments could curb casualty losses.

Legislative reforms to transform how asbestos and medical malpractice cases are treated remain on the agenda, giving hope that tort costs could be reduced.

There was also little catastrophe activity in the first quarter, boosting prospects of strong quarterly results.

There were however concerns that the reserves held by insurers to pay for claims arising from asbestos lawsuits, as well as claims on policies sold in years past may still be inadequate.

The policies sold by insurers put them at risk of losses from a range of events. On the catastrophe side, claims generally come in as a result of natural catastrophes while casualty claims are filed as a result of legal claims for injury against the insured.

Bermuda?s insurers begin to report first quarter earnings towards the end of this month. (See Business Calendar every Monday for scheduled first quarter releases.)

Deutsche Bank?s Bermuda Property and Casualty insurance stock recommendations

Axis Capital: The company is the largest of the Bermuda start-ups formed after the September 11, 2001 terrorist attacks.

It benefits from a clean balance sheet and has so far executed very well, producing an average return on equity of 13.5 percent. In our view this is a remarkable achievement considering the past two years of record catastrophes.

Aspen Insurance Holdings: Deutsche Bank said this was the ?most attractive reinsurance stock?, with it trading at 1.2 times tangible equity for a 17 percent return on equity forecast for 2006. It was predicted that Aspen will likely experience strong growth opportunities in its sale of energy reinsurance, with this part of the sector constrained after the losses from hurricanes Katrina and Rita last year.

RenaissanceRe Holdings: Deutsche Bank said RenRe was best positioned to benefit from the improved pricing environment, including its ability to tap into the demand for property retrocessional reinsurance, or reinsurance for property reinsurers. It predicted a strong first quarter for RenRe. The stock is trading at 1.8 times tangible equity for an expected return on equity in excess of 25 percent this year.

Endurance and Montpelier Re: Deutsche Bank said there were ?attractive opportunities? with both companies able to fight back from last year?s losses to be in a position to take advantage of higher prices now.