NEW YORK (Reuters) - Hoping that the new year will offer a fresh start for initial public offerings, Wall Street bankers are homing in on one of the few sectors to show promise.

Insurance and reinsurance companies have been the closest thing to a trend in this year's IPO market - one of the worst for raising money in recent memory.

Insurance heavyweights like American International Group Inc. (AIG) and Aon Corp. (AOC), along with buyout funds like The Blackstone Group and J.P. Morgan Partners, created a string of Bermuda-based insurers late last year to take advantage of soaring premiums for property insurance after the September 11 attacks.

Industry trackers say the idea was always to take them public.

"It's not a question of if but a question of when," said Tim Gould, the head of US syndicate desk for investment bank Lehman Brothers (LEH). "There's a capital-raising need that's very relevant." Two Bermuda reinsurers have been among the year's top performers since launching IPOs in October. Shares in Montpelier Re Insurance Holdings (MRH) , part-owned by White Mountains Insurance Group (WTM), have risen by 45 percent since its debut, while Platinum Underwriters Holdings Ltd (PTP), the former reinsurance unit of St. Paul Cos. (SPC), is up 16 percent.

Such double-digit returns stand out in a stock market that is on track to chalk up its third straight decline this year, and could help set the stage for companies like AXIS Specialty Ltd., a Bermuda insurer formed a year ago by broker Marsh & McLennan Cos. Inc. (MMC) AXIS and the other Bermuda start-ups have not said they will launch IPOs, but industry watchers say a desire for finance growth would drive companies like AXIS to the market.

Many of the investors have been down the road before. Marsh, for example, was the guiding force in the creation of ACE Ltd. (ACE) and XL Capital Ltd. (XL), which went public in the early 1990s. They are now Bermuda's largest insurers.

Other financial backers may want to cash out sooner rather than later. Buyout funds like those that invested in AXIS J.P. Morgan Partners, Thomas H. Lee Partners and The Blackstone Group - have a shorter time horizon than their insurance industry partners.

Wall Street investors are looking for 20 percent to 30 percent return on their investments, one industry player told Reuters, whereas insurance at the moment is yielding only about 5 percent return on equity.

Those investors may soon want to deploy their money elsewhere.

Launching an IPO would create a ready outlet for early stage investors to sell their stakes.

"They are waiting for a window," ACE Chief Executive Brian Duperreault told reporters at a recent briefing, when asked about the likelihood of IPOs.

As soon as the stock market starts to look up, he said, offerings are likely.

Insurers and Wall Street firms funnelled investments into insurance after the destruction of the World Trade Center caused up to $50 billion in claims.

That forced some insurers to exit the property and casualty business and led to a spike in premium rates.

Looking to take advantage of the soaring rates, more than $20 billion of new capital was pumped into the industry during the tail end of 2001, much of it going to tax-free Bermuda.

The rush of capital to Bermuda start-ups is a well-tried formula.

ACE and XL were set up during the US liability insurance crisis in the mid-1980s, and a handful of catastrophe reinsurers were set up after 1992's Hurricane Andrew sent rates spiralling.

The same mix of established insurance names and Wall Street financiers is behind the latest crop of start-ups.

Allied World Assurance Co. Ltd. (AWAC) was created by AIG, Chubb Corp. (CB) and GS Capital Partners 2000, an investment fund run by Goldman Sachs Group (GS) .

Arch Re was founded by Arch Capital Group (ACGL), with money from investment funds Warburg Pincus LLC and Hellman & Friedman LLC.

Endurance Specialty Insurance Ltd. was created by broker Aon with Zurich Financial Services, which later sold its stake in the new firm.

While property and casualty premiums have risen, shares of insurance providers in general have languished along with the rest of the market. New insurers like Montpelier have managed to attract demand because they don't come loaded with liabilities like old asbestos claims, which have hampered the industry in general.

Montpelier only began underwriting insurance early this year, while Platinum's parent St. Paul stripped the reinsurer of its pre-2002 liabilities before vending shares to the public.

The fact that a slow-growth industry like insurance has been prominent in the IPO market underscores how far the pendulum has swung from the heady days of the technology boom.

The sale of new shares in insurers and insurance brokers raised more proceeds than any other industry this year.

Driven by the $4.3 billion sale of shares in Citigroup's Travelers Property Casualty Corp. (TAPA) in March, five insurance companies have raised $5.4 billion this year.

That tops the $5.3 billion raised from nine financial IPOs or the $4.6 billion raised from 16 health care companies.