Alternative reinsurance, they said, frequently are pegged to industry losses and carry significant basis risk for buyers. The bank analysts said they believe the surge in issuance of alternative forms of reinsurance is more like filling a gap left by reinsurers than competing directly with them.

The sharp increase in reinsurance capacity from catastrophe bonds and other nontraditional forms of reinsurance, such as sidecars and industry loss warranties, “is a response to what we believe is an approximate $50 billion shortfall in capacity to write peak-zone catastrophe insurance,” the equity analysts said.

The shortfall, according to Bank of America's analysis, is the result of:

o The 2005 hurricane losses.

o Increases to modeled loss forecasts.

o Stiffened rating agency capital requirements.

o Unwillingness on the part of property insurers and reinsurers to expose a significant part of their capital bases to catastrophic losses in any one zone.

A shortfall in capacity to write property and property-catastrophe insurance, and the steep premium rate increases that have resulted, most directly benefits those companies for which property insurance makes up a significant portion of their books of business, Bank of America said.

The firm's analysts' coverage of companies includes Axis Capital, Aspen Insurance Holdings and Everest Re.