The outlook for reinsurance providers—and their investors—in 2012 is perhaps best reflected in the title of Keefe, Bruyette & Woods' (KBW) third-quarter equity-research report: “The Not Totally Terrible Sector.”

Despite a lot of problems and pressures, including concern about reserves and interest rates, “things aren't falling apart” in the reinsurance sector, says Cliff Gallant, a KBW managing director whose equity research focuses on the P&C industry. Especially for those reinsurers without significant exposure to the more severe global catastrophes this year, “conditions are tough, but nothing terrible,” he says.

And after some lean times, reinsurers and their shareholders are happy to see the increases in U.S. property-reinsurance rates that occurred at many mid-year renewals—and which most observers expect to continue in treaties negotiated in January.

“But people are looking cautiously at the expected returns driven by cat-model changes,” Gallant says. While many reinsurers have increased their assessment of risks (and therefore rates), returns may not necessarily be better—if wind events prove the new models accurate in their damage predictions. “Prices are going up, but expected earnings are not necessarily going up,” he says.