In a review quarterly earnings, Keefe, Bruyette and Woods found the property/casualty space performed very well in the first quarter of 2012.

KBW’s “1Q12: Surprising Strength in P&C” found exactly that in a review of 55 non-life insurance stocks, although the company says that strength is unlikely to be repeated. KBW also expects mixed results for the rest of the year and a “wide divergence between winners and losers.”

Property/casualty insurers solidly outperformed KBW’s estimates, and two-thirds of them beat KBW’s earnings per share estimates. In addition to better weather, reserve releases were strong and underlying loss ratios also were good.

Top-line growth was not the driver of share price outperformance. Rather, stock performance followed the earnings per share (EPS) strength. KBW projects an annualized return on equity (ROE) of 9.74 percent.

KBW also observed that the good weather during the first quarter is unlikely to continue, and would pressure from slowing reserve releases and weak investment yields could depress returns.

Among the underwriters, KBW will focus on ROE and reserve strength as the basis of their recommendations; top picks include Axis Capital Holdings Limited (AXS), Maiden Holdings Ltd. (MHLD) and ProAssurance Corporation (PRA).

Combined ratios were also strong for the quarter. Nearly all 55 insurers reviewed were under the critical 100 percent line.

Organic growth continues among insurance brokers and service providers, which experienced gains of 4.3 percent on average. However, companies such as AON and Willis Group Holdings PLC (WSH) experienced declines. KBW recommends Marsh & McLennan (MMC) as the “high quality leader of an improving sector,” Willis Group Holdings as a “turnaround,” and National Financial Partners Corp. (NFP), because of “robust organic growth opportunities.”

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