MONACO (Reuters) - Reinsurers, largely spared by the credit crunch and euro zone crisis, will be pondering why their good fortune has not been rewarded by the stock market as they hold their annual get-together this week in the Mediterranean resort of Monte Carlo.The reinsurance industry, which takes on some of the risks underwritten by insurers, has enjoyed relative stability during the last four years of financial turmoil, reflecting broadly recession-proof demand as businesses and consumers feel unable to forego protection against mishaps.Swiss Re, the No. 2 player, had to raise emergency funding after taking heavy losses on credit derivatives in 2008, but the industry as a whole had minimal exposure to toxic assets during the credit crunch, and has also so far avoided major hits from distressed euro zone debt.Moreover, reinsurers in 2011 comfortably weathered their second-costliest natural catastrophe year on record after a spate of disasters including Japan’s Tohoku earthquake generated a claims bill of $116 billion.And yet the sector remains stubbornly unpopular among equity investors, with the shares in most publicly-quoted reinsurers trading at a discount of between 10 and 20 percent to the value of their assets.This disenchantment partly reflects a cautious attitude by investors towards all financial institutions because of lingering worries over the health of the banking system, exacerbated by the crisis in the euro area.“Relative to the broader financial services industry, we’ve proven ourselves to be more resilient for now, but there are some macroeconomic risks which would be significant in our world as well,” said Steve Hearn, Chief Executive of reinsurance broker Willis’ Willis Global unit.“If there’s a euro zone collapse, we won’t be isolated for long.”Equity investors’ distaste is also driven by concerns over persistent weakness in global reinsurance prices amid intense competition, just as rock-bottom interest rates aimed at propping up the faltering economy erode the income they generate from investments.“Traditionally the investment yield has been a major source of earnings for reinsurers,” said Martyn Street, a director at ratings agency Fitch.“(Low interest rates) make it more challenging to sustain earnings, which is why we believe insurers should be, and to some extent are, focusing more on underwriting.”Reinsurance prices will likely be flat when European insurers renew their policies in January, sector leader Munich Re, said on Sunday, echoing analysts’ view that a long-awaited upturn in response to last year’s record claims bill is already running out of steam.But another factor behind investor reluctance to buy reinsurance shares is the rise of the insurance-linked securities (ILS) market, according to James Quin, a partner at PricewaterhouseCoopers.Insurance-linked securities are innovative but increasingly popular instruments such as catastrophe bonds that give investors an income in exchange for promising to pay some claims if a natural catastrophe occurs. ILS sales have burgeoned this year thanks to a growing perception that they are insulated from mainstream financial and economic shocks.For investors, ILS investment is often preferable to buying reinsurance shares as it avoids the danger that company management teams will try to boost subdued earnings growth through ill-fated transactions such as takeovers, Quin said.“There’s probably more enthusiasm for some types of ILS than there is for investing in the pure reinsurance sector, and one component of that disconnect is there is concern about whether there is a close alignment of interests between investors and management,” he told Reuters.“Reinsurers can give themselves one cheer because they’re not in bad shape, but they can’t give themselves three cheers because there’s a lot more they could be doing to improve the proposition to investors.”Paradoxically, one development that could transform the sector’s fortunes overnight would be a natural disaster big enough to convincingly boost prices across the board.Reinsurance shares typically rise in the wake of major natural disasters in the anticipation of big price increases, even though a surge in claims can wipe out earnings in the near term.However, a catastrophe generating insured losses of between $50 billion and $60 billion would be required, according to Willis Global’s Hearn, far exceeding the inflation-adjusted $46.6 billion hit inflicted in 2005 by Hurricane Katrina, the most destructive windstorm on record.