As bank stocks weaken under the burden of credit-quality concerns and other financials soften, Wall Street is looking to some recent outcasts, the property and casualty insurance companies, as the new star pupils.

Commercial line property/-casualty insurers have already shown up on the radar screen of investors seeking refuge from the risky bank sector, according to analysts. And after years of dismal profitability, the group is expected to lead the financial services sector this year with anticipated growth rates of 30% per share this year, according to First Call/Thomson Financial.

If the turnaround represents the payoff for years of work aimed at restoring the fundamental health of property and casualty insurance as a business line, it could also usher in a period of consolidation activity among insurers. At first, analysts said, any such consolidation is likely to be contained within the group.

"I think the improved outlook will fuel the desire within the commercial industry," said Matthew Coyle, director of insurance ratings at Standard & Poor's, "because there is too much capacity. I am sure everyone is interested, including banks."

The property/casualty sector improved last year for the most basic of reasons - insurance rates finally reached levels where companies could profit from policies. The lag between the time when the policy is priced and the premium, if fully earned, shows up on the balance sheet, should provide the group with improving earnings for years to come, analysts say.

"Banks have nothing like that," said Michael G. Paisan, an insurance analyst at Keefe, Bruyette & Woods Inc.

Mr. Paisan doesn't expect nonlife insurers to hit the big numbers this year. Instead, he is projecting a more moderate 12% to 15% growth for them. However, he said that 2002 could bring 20% to 25% and 2003 even higher growth.

That could translate into stock price increases of 15% to 20% this year and somewhat slower appreciation after that, since share prices tend to rally in anticipation of profit improvements, he said.

Indeed, insurance stocks have been solid gainers in recent months.

The emergence of insurers as profit leaders marks a dramatic change. In recent years brokerages and monoline financial services companies have produced the strongest profit gains in the financial sector. Among insurers, life insurers were eyed as an island of stability in an otherwise tumultuous area.

No more.

"We think that the insurance companies in our universe have the potential to grow at a median rate of 16%," wrote Mark Fitzgibbon, a principal at Sandler O'Neill & Partners, in a report published Tuesday. The group is growing "faster than the banks, thrifts, and specialty finance companies under our coverage," he wrote.

Other brokerage firms are also pushing the sector, over the whole universe of financial stocks.

In a recent bulletin, A.G. Edwards & Sons of St. Louis suggested that investors should favor insurance companies, if only to be on the safe side.

The thinking is that bank and brokerage companies have yet to fully work through slower earnings and deteriorating credit quality. Also because insurance stocks are viewed as defensive in nature, they typically rally in economically harder times, even as they share the benefits with other financials from falling interest rates.

If that pattern holds true, the optimism could eventually provide the long-absent currency for insurance companies to engage in the kind of merger and acquisition activity that had been generally confined to banks and brokerages.

Diana Yates, an equity analyst with A.G. Edwards, said the improving fundamental picture for insurers could spark interest among banks for partnering with insurers on ventures that would allow them to diversify and strengthen their customer base.

"Banks consider customers as a liability," she said. "Insurance companies see them as an asset." With returns improving, nonlife insurance lines might appear an interesting extension of traditional banking services, she said. Additional reporting by David Reich-Hale.

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