NEW YORK (Bloomberg) Insurance company bonds gained more than any other corporate debt as the hurricane season passed without damaging the US Gulf Coast.

Bonds of American International Group Inc., St. Paul Travelers Cos. and other US insurers returned 3.5 percent in August and September, the most among 15 industries tracked by Merrill Lynch & Co. Insurance firms also had the biggest gains in Europe, led by Swiss Reinsurance Co.

Hurricanes, which cost insurers $59.7 billion during 2005, have done no damage this year, surprising forecasters at the National Oceanic and Atmospheric Administration who had said storms in 2006 would be among the worst ever. Insurers charged 9.3 percent more to renew property policies in the second quarter and raised premiums for coastal properties as much as 500 percent, according to the Council of Insurance Agents and Brokers.

?We had a bet in place that it wouldn?t be that bad this year,? said John de Garis, who helps manage more than 25 billion euros ($31.5 billion) of bonds at Credit Suisse Asset Management in London. ?Last year was an exception for hurricanes in terms of history.?

US insurance debt beat an average return of 2.9 percent for all investment-grade securities during August and September, according to Merrill data. In September 2005 insurance bonds lost 2.02 percent. In Europe, insurers? bonds increased 1.64 percent in the last two months, topping the 1.33 percent average for all investment-grade debt.

Bonds considered investment grade are rated at least Baa3 by Moody?s Investors Service and BBB- by Standard & Poor?s.

The forecasts for more damage this year helped insurers justify higher premiums that have boosted profits and provided more safety for bond investors. AIG, the world?s biggest insurer, raised prices at its biggest US commercial property unit by an average of 50 percent after last year?s storms. Hannover Re, the world?s fourth-largest reinsurer, has more than doubled rates in storm-affected areas of the US.

?The relatively benign claims environment is going to be very good for the reinsurance names? when they report earnings for the third quarter, said Manish Bakhda, a credit analyst at Barclays Capital in London, which recommends investors hold more re-insurance bonds than the amount indicated by indexes they use to help measure performance.

In June, Lehman Brothers Holdings Inc. and UBS AG were among banks recommending clients sell insurance company securities as US government and private forecasters predicted one of the most damaging storm seasons ever a year after Hurricane Katrina.

Insurers may find it difficult to justify the premiums next year, said John Raymond, an analyst at CreditSights Inc. in London. Raymond has a neutral outlook for the debt.

?If the hurricane season is as benign as so far has been the case insurance companies will have less pricing power,? said Raymond.

St. Paul Travelers, the second-largest US commercial insurer, had some of the highest returns for bondholders. The company?s $400 million 6.75 percent bonds due in 2036 rose as much as 6.6 percent since the start of August. The yield premium over similar-maturity US Treasury notes fell by 18 basis points to 128 basis points.

New York-based AIG?s $945 million of 4.25 percent securities due in 2013 gained 1.02 percent in the past two months, reducing the yield spread by 6 basis points to 75 basis points, near the lowest in three months. AIG said Aug. 10 that its income from underwriting property and casualty coverage surged 93 percent to a record $1.37 billion.

Swiss Re, which overtook Munich Re in June as the world?s largest reinsurer, said on August 4 that profit rose 16 percent in the first half of the year, partly because of fewer claims linked to natural disasters.

The Zurich-based company?s 1 billion euros of 5.252 percent notes that have no fixed maturity, sold by its ELM BV financing unit, gained 2.2 percent in the past month, reducing the yield to 5.42 percent on October 5, the lowest since the securities were sold in May. A basis point is 0.01 percentage point.

?The hurricane season is almost over and we haven?t had a big impact like last year,? said Jan Van Parys, who holds the bonds of insurance companies among $18 billion of fixed-income securities he helps manage at KBC Conseil-Service in Luxembourg. ?That?s clearly positive.?

Investors consider insurance companies, including AIG and Swiss Re, to be less risky than at any time in the last four years, according to traders betting on the creditworthiness of companies in the credit-default swaps market. Contracts based on $10 million of AIG?s debt fell to a record $10,185 on Sept. 14 from as much as $19,310 six months ago, Bloomberg data show.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company?s ability to repay debt. A drop in the price of a credit-default swap signals improvement in the credit quality of the company issuing bonds. The agreements are typically for five years.

The hurricane season ending November 30 is likely to finish without any major disaster, according to forecasters at Colorado State University in Fort Collins, Colorado. In May, the researchers predicted nine hurricanes.

?There is quite a bit of relief,? said Franz Rudolf, a Munich-based credit analyst at HVB Group in Munich. ?When you look at forecasts in May they predicted a very active hurricane season in the US and that has not been fulfilled.?