Has reinsurance lost its allure among private equity investors? Not entirely, but the timing of Wilbur Ross' recent exit from Montpelier Re Holdings Ltd. (NYSE:MRH) suggests that if any returns are to be made from the flurry of reinsurance bets in the wake of Hurricane Katrina, now may not be a bad time for harvesting.

Reinsurers act as insurers to insurance companies, underwriting policies to help spread the risk. Bermuda, a self-governing British colony with zero income tax, became a popular domicile for reinsurers after Hurricane Andrew wreaked about $26 billion in damages in 1992. Andrew was the costliest hurricane ever -- until Katrina, which in 2005 produced nearly $90 billion in property damage.

This prompted something of a mini-deluge of investments in reinsurance. At least a dozen Bermuda startups alighted on the scene with private equity backing. Some have done better than others. In 2006, Stone Point Capital LLC and a slew of private equity co-investors bought French reinsurer Axa Re, a $1.5 billion business that became Paris Re Holdings Ltd. Last year Paris Re was acquired by another Bermuda reinsurer, PartnerRe Ltd. (NYSE:PRE).

The sector has since hit a rough spot, apparently saddled with overcapacity on top of uncertainty over the ability to fund capital needs with earnings amid the global financial crisis. Moody's Investors Service, for one, believes that demand remains soft and competition tight, leading to declining premiums for the casualty business and, in turn, weak equity values.

Recent consolidation moves among reinsurers -- the mergers of Max Capital Group Ltd. (NASDAQ:MXGL) with private equity-backed Harbor Point Ltd. and Validus Holdings Ltd. (NYSE:VR) with IPC Holdings Ltd. -- suggest that firms may be seeking heft to gain an edge while giving financial sponsors access to liquidity.

Montpelier Re's stock had taken a beating but its business has picked up of late. Its book value rose by nearly 38% in 2009, after declining 9.2% in 2008, filings show. Ross, who also owns a piece of bond insurer Assured Guaranty Ltd. (NYSE:AGO), invested $98.6 million in Montpelier in 2006, paying $14.50 per share for an 8.9% stake. As the stock recovered in recent months, Ross found a window and in late February sold back shares at $19 per share. The implied $32.5 million gain wasn't one of Ross' blockbusters, but it's not a bad outcome for a bet on a business that trades on disasters.