“The best time to buy an insurance policy is before disaster strikes. Does it make sense to buy insurance stocks now, after what is shaping up to be the worst disaster in the industry’s history?” asks Christopher Oster in today’s Wall Street Journal.

“Already some investors are betting that beaten-down insurance stocks — many of which tumbled in response to the companies’ own early estimates of their exposure — are poised for a comeback. Other investors and analysts suggest, however, that the wise strategy may be to sit tight, as property-casualty insurers are almost certain to boost estimates of their exposure to last week’s terrorist attacks.”

” ‘We’ll have to see how the loss estimates change from here,’ says Jeff Morris, manager of Invesco Financial Services Fund. Some companies may wind up benefiting from the attacks by pushing through premium-rate increases and by taking business from weaker insurers hurt financially by their exposure to the attacks, he says. ‘But I’m not sure you need to run out today and buy the stocks based on a better pricing cycle that will produce higher profitability.’ “

“Mr. Morris says he has rotated his fund ‘into some of the stronger names,’ including New York-based American International Group, the biggest property-casualty insurer in the U.S.”

“What unnerves some potential buyers of the stocks is this: So far, loss estimates issued by insurers after the attacks total about $15 billion, while total insured losses stemming from the attacks have been projected at $30 billion and higher by analysts and industry executives. That means many insurers are likely to raise their estimates. Part of the reason for the difference is that firms like Chubb, Warren, N.J., and Chicago-based CNA Financial issued estimates excluding certain coverage, such as business interruption or workers’ compensation.”

“Even in their first-look estimates, though, some companies have admitted to big hits. In this camp are many reinsurers, companies that assume much of the risk of policies sold by other insurers.”

“Bermuda-based reinsurer PartnerRe, for instance, estimated losses of $350 million to $400 million, or about 18% of the company’s book value. XL Capital, also of Bermuda, estimated that it would lose $600 million to $700 million, about 11% of book value. Not surprisingly, investors punished the stocks. On Monday, PartnerRe’s shares fell 22% and XL’s shares were down 13%. Other reinsurers took even deeper dives, with Bermuda-based Trenwick Group down 34% Monday. As of the end of trading Wednesday, XL was down 21% from its preattack price, PartnerRe was off 27%, and Trenwick was down 38%.”

“CNA shares have fallen 10% since before the attacks. Analysts say the company’s loss projection from the attacks — as much as $350 million pretax — comes at a bad time. Just last month, CNA stunned investors with a $1.7 billion boost to its claims reserves, contributing to a $1.76 billion second-quarter loss.”

“Other insurance stocks saw less precipitous declines — and some even climbed. AIG is off 6.4% since before the attacks. New York-based Marsh & McLennan, the world’s largest broker, which has said that 315 of its 1,900 World Trade Center-based employees are missing or dead in the attack, has seen its share price fall a relatively modest 5.2% since the market reopened, as investors predicted that middlemen like Marsh would benefit from higher prices and an increased need for advice about more complex coverages. Meanwhile, W.R. Berkley, Greenwich, Conn., which said it has limited exposure to the attacks, is up 5.2%.”

“For more than a year, property-casualty insurers have been pushing through rate increases in almost all commercial coverage lines, following nearly a decade of flat or declining rates. Some see the current situation as giving the industry even more reason to push for increases, as companies recapitalize after paying claims.”