The September 11 terrorist attacks have had a huge impact on both property and casualty and life insurance companies, financial weekly Barron's reported recently.

With thousands of lives lost and hundreds of companies suffering severe dislocations, Barron's said, the insurance industry stands to lose billions of dollars, according to various estimates. And when insurance companies have to pay out, they ask their own insurance companies, called reinsurers, to pay up.

Barron's reported:"The small reinsurance industry had it rough in the 1990s, when insurers couldn't raise prices in a cutthroat competitive environment. That kept earnings growth in check.

"However last year, the industry hit the bottom of its ten-year premium pricing cycle, and had nowhere to go but north. Prices began to creep back up and investors snapped up shares of these companies while technology and Internet stocks crumbled.

Now, heavy demand in the wake of the terrorist attacks could prompt reinsurers to raise rates by as much as 30 percent, some analysts and fund managers report."

Barron's said that while some will have to make big payouts, others are well-positioned because of their limited exposure to the World Trade Center tragedy, as well as their diversified and disciplined underwriting practices.

"One such reinsurer is Bermuda-based RenaissanceRe Holdings, which announced this week the formation of DaVinci Re, which would handle global property catastrophe reinsurance," the weekly said.

"Bulls on the stock include analyst Michael Hallett of Fox-Pitt Kelton, who upgraded it to Buy from Hold on September 20.

" 'We expect leading property catastrophe reinsurers will report average rate increases of at least 20 percent in 2002,' Hallett says in a report.

"And he upped his estimate of RenRe's premium growth to 32 percent from a previous projection of 12 percent, because he thinks the firmer market and stronger demand will give firms the green light to raise rates.

"Hallett also expects investors to once again take positions in quality stocks such as RenRe that have solid balance sheets and minimal loss exposure to major events such as the World Trade Center tragedy. (The company apparently paid only $7 million in claims in the second quarter out of $74 million in reserves.) Fans of RenRe include Paul Weisman, portfolio manager with J.L. Kaplan Associates, who points out that RenRe is trading at half the P/E of the Standard & Poor's 500 (which is at about 20 times forward earnings).

" 'They have better financial characteristics than most S&P companies,' Weisman says. 'You get a better company at half the price.' (Kaplan Associates is one of the largest shareholders of RenRe and has been buying more recently.) RenRe has solid ratings from agencies such as Moody's Investor Service and untapped lines of bank credit that can be used to expand business initiatives, such as its recent launch of DaVinci Re, which is being done with a $200-million capital contribution from State Farm Mutual Automobile Insurance Co.

"RenRe also isn't exposed to the insurance lines most affected by the terrorist attacks, such as aviation, workers' compensation, and event cancellation. And historically it has avoided being overexposed to other major tragedies that have hit some of its competitors hard, such as 1998's Hurricane George and this year's Hurricane Allison.

"At a recent 95.51, close to its 52-week high of 101 reached last week, Renaissance Re is still trading at less than ten times Thomson Financial/First Call's 2002 consensus earnings estimate of $9.68 per share, roughly in line with its ten percent projected long-term growth rate.

"While analysts expect earnings to fall this year by three percent to $6.58 per share, they're looking for earnings to jump by 47 percent in 2002.

"On October 2, RenRe said it expects 2001 EPS to be between $6.50 and $7 and that it is "comfortable" with EPS projections of $9.50 to $10 for 2002. But management suggests the company can earn as much as $10 and $12 per share next year, estimates that analysts such as Hanlet say are conservative.

"Any prolonged bear market would hurt RenRe, and governmental authorities are warning there may be more terrorist attacks in the near future. That could punish reinsurers such as RenRe, which didn't suffer that much this time around.