Investment gains are likely to boost valuations of U.S. property-casualty insurers when they report second-quarter results, after bruising investment losses marred recent quarters.

The gains could drive up stock prices by boosting the companies' book value, a closely watched accounting measure based on the value of a corporation's assets.

On the unrealized side, you are going to see a reversal of some of the losses that were taken in the fourth and first quarters, said Hexagon Securities analyst David Havens. These will be fairly substantial numbers.

Also helping insurers in the second quarter was the dearth of major disasters to trigger big underwriting losses.

Mother nature has cut property-casualty companies a break, Havens said. Losses in the second quarter were pretty light.

To be sure, other developments could crop up and rattle investors.

There is the headwind of likely realized losses from continued accounting impairments, which are more difficult to estimate than unrealized gains, Bernstein Research analyst Todd Bault wrote in an investor note.

Policy sales may also disappoint. Overall, we are expecting premiums to be close to flat, Keefe, Bruyette & Woods analyst Cliff Gallant wrote in a note earlier this month.

Among the insurers reporting second-quarter results this month are Chubb Corp on Thursday, and Ace Ltd , Travelers Cos Inc and XL Capital next week. Others, including Allstate and American International Group Inc , are not expected until early August.

Bault estimates unrealized investment gains could drive up book value by 40 percent at Hartford Financial Services Group Inc , a life and property insurer that took bailout funding from the U.S. government.

For similar reasons, he said, AIG, which has taken up to $180 billion in federal aid to avoid bankruptcy, will see as much as 55 percent growth in book value.

To be sure, investors who hold AIG after it lost $99 billion in 2008 may not put too much stock in book value alone.

Bault predicted safer names, including Travelers, Chubb Corp, Ace and RenaissanceRe , would also benefit from investment gains.

Stock prices have already reacted to some degree, but there may be some relative mispricings among the riskier names, Bault said.

The gains are much needed after net income for the U.S. property-casualty industry fell 87 percent in the first quarter alone, according to ratings firm A.M. Best, largely because of weak investment markets.

Still, unrealized gains -- as a noncash accounting measure -- and flat underwriting revenue could leave insurers with little extra to set aside in case of a major loss in the third quarter, generally the worst of the hurricane season.

A single major catastrophe can wipe billions of dollars from insurers' balance sheets. Hurricane Katrina, which battered the U.S. Gulf Coast in 2005, cost the industry more than $40 billion, for example.

Another loss of that size would deplete insurers' capital by nearly 10 percent. The industry's surplus declined more than 15 percent to $447.2 billion in the 12 months ended March 31, according to A.M. Best.

Higher prices could help alleviate such concerns. Investors will probably listen carefully for any hints insurers give about pricing trends, although with a few exceptions, higher rates have been slow to materialize.

Whether the hard market is actually being seen, or is a bunch of talk, is what people will be looking at, said Havens.

The Dow Jones Insurance Index <.DJUSIR> has risen 60 percent since March, but still lags more than 40 percent behind year-ago levels.

(Reporting by Lilla Zuill; Editing by Lisa Von Ahn)