NEW YORK ( TheStreet) -- For the week ended Aug. 26, the S&P 500 Insurance Index gained 2.9%, while the KBW Insurance Index was up 3.4%. In comparison, the broader S&P 500 Index rose 4.7%. Meanwhile, at close yesterday, the S&P 500 Insurance Index ended 4.8% higher, while KBW Insurance Index moved up 5.7%. The S&P 500 rose 2.8%.

Insurance stocks are on a relief rally as estimates that show Hurricane Irene's cost to insurers was less than expected. Catastrophe modelers expected insurers to pay almost $14 billion towards Irene's damages. However, a ballpark estimate is loss of only $2.6 billion. Industry analysts say that insurers have not been able to raise rates during the past three years amid strong competition and readily available supply. Now, even a small storm could be the catalyst to trigger across-the-board premium increases. Analysts believe that this latest storm could lead to significant firming in the insurance industry, after years of weakness.

These eight insurance stocks are adequately capitalized with more than $1.4 billion. Based on the hurricane damage, latest quarterly results and analysts' buy and hold ratings for attractive future returns, these stocks have potential upsides ranging from 7% to 25%. On average, analysts' surveyed by Bloomberg have buy recommendation of 56% and hold rating of 35% for these stocks.

We have listed these stocks in ascending order of upside implied by average analyst price target.

8. Mercury General ( MCY), operating through its subsidiaries, engages in writing automobile insurance in the U.S., primarily California. The company also writes homeowners, mechanical breakdown, fire, umbrella, and commercial automobile and property insurance.

Net income for the second quarter of 2011 was $57.3 million, or $1.04 per share, compared to $17.8 million, or 32 cents per share, for the same period prior year. Total revenue increased to $706.5 million from $653.7 million in the year-ago quarter. Operating income increased 16.7%. Net premiums written were $636.3 million, up 0.8% from the second quarter 2010. Combined ratio for the quarter stood at 98.

The company recently declared a quarterly dividend of 60 cents per share payable on Sep. 30, 2011, compared to 59 cents per share in the second quarter of 2010. Currently, the company has a dividend yield of 6.1%.

Of the six analysts covering the stock, one recommends a buy and three rate a hold. Data from Bloomberg has analysts forecasting the stock gaining 7.5% to $42.33 in the upcoming 12 months.

7. Chubb ( CB) is a holding company for a family of property and casualty insurance companies known as the Chubb Group of Insurance Companies (the P&C Group). The P&C Group is divided into three business units: Chubb Personal Insurance, Chubb Commercial Insurance and Chubb Specialty Insurance.

The company reported net income of $419 million, or $1.42 per share for the second quarter of 2011. The combined ratio for the quarter stood at 94.9, including catastrophe impact of 11.3%. Net written premiums for the quarter increased 6% to $3.1 billion, growing 3% in the U.S. and 14% outside the U.S. Property and casualty investment income after taxes increased 2% for the second quarter.

The company paid its regular quarterly dividend of 39 cents per share for the quarter and has a dividend yield of 2.4%. The company has increased its full-year 2011 operating income guidance to a range of $5.55 to $5.85 from the earlier $5.35 to $5.75. With net written premiums expected to increase by 4% to 6%, Chubb estimates combined ratio between 92 and 94 for full-year 2011.

Of the 24 analysts covering the stock, 46% recommend a buy and 46% rate a hold. Analysts polled by Bloomberg foresee the stock gaining 11.7% to $69.38 over the next 12 months.

6. Arch Capital Group ( ACGL) provides insurance and reinsurance products worldwide. It conducts insurance operations in Bermuda, the U.S., Europe, Canada, Australia and South Africa, and reinsurance operations worldwide.

The company recorded net income of $91.9 million, or 67 cents per share, in the second quarter of 2011. By the end of June 2011, book value per share stood at $31, increasing 2.2% from $30.34 per share at March 2011. Net premiums written increased to $706.5 million from $624.3 million in the year-ago quarter, while net premiums earned rose to $642.9 million from $623.0 million for the same period. Combined ratio for the quarter stood at 99.6.

Fitch Ratings recently affirmed the Issuer Default Rating (IDR) for ACGL at "A" and the Insurer Financial Strength (IFS) rating of ACGL's subsidiaries at "A+" with a stable outlook. The ratings reflect the company's consistent profitability, low financial leverage, historically strong coverage ratios and well managed reserve risk.

Of the 18 analysts covering the stock, 56% recommend a buy and 39% rate a hold. A Bloomberg poll expects the stock to gain an average 12.6% to $38.25 over the next 12 months.

5. ProAssurance ( PRA) is an insurance holding company for property and casualty insurance companies that provide professional liability insurance products. Operating as a single unit within the U.S., the company wholly owns eight operating insurance companies.

The company reported net income of $55.10 million for the second quarter of 2011, vs. $40.38 million in the year-ago quarter. Net income per share rose to $1.79 from $1.23 in the same quarter 2010. Total revenue increased to $174.8 million from $161.5 million in the prior-year period. Operating income increased 27% to $53.6 million.

Net premiums written during the quarter were 20.4% higher at $107.01 million, while net premiums earned grew 9.3% to $137.1 million in the same quarter a year ago. The combined ratio was 71, vs. 79.1 in the year-ago period. The net loss ratio dropped to 47% from 54.6% in the 2010 second quarter. Return on equity for the second quarter increased to 11.4% from 9.1% earlier.

Of the eight analysts covering the stock, seven recommend a buy and the rest rate a hold. There are no sell ratings on the stock. Analysts surveyed by Bloomberg expect the stock to gain 13% to $81.67 over the next 12 months.

4. Amtrust Financial Services ( AFSI) is a multinational specialty property and casualty insurance company operating in three segments: Small Commercial Business, Specialty Risk and Extended Warranty and Specialty Middle Market Business. The company conducts its business through eight insurance subsidiaries.

Net income for the second quarter of 2011 was reported at $50.2 million, up 62.7% from $30.8 million in the same quarter prior year. Earnings per diluted share totaled to 81 cents from 51 cents in the year ago-quarter. Total revenue grew 30.6% to $322.02 million. Net written premium was $375.7 million, vs $196.34 million in the same period last year. The combined ratio for the quarter totaled to 90.3. Return on equity expanded 550 basis points to 25.2%.

In the last week of July, the company's board of directors raised its common stock quarterly cash dividend from 8 cents to 9 cents per share, increasing 12.5% from the earlier payout and payable on Oct. 17, 2011. The company has a dividend yield of 1.3%

Of the eight analysts covering the stock, seven recommend a buy and the rest rate a hold. There are no sell ratings on the stock. Data from Bloomberg has analysts forecasting the stock gaining 13.4% to $26.83 in the upcoming 12 months.

3. HCC Insurance Holding ( HCC) is a specialty insurer underwriting a variety of relatively non-correlated lines of business including property and casualty, accident and health, surety, credit and aviation in 180 countries. With offices in the U.S., U.K, Spain and Ireland, the company offers 100 classes of specialty insurance.

Net earnings were $83.4 million, or 61 cents per share, for the second quarter of 2011. The GAAP combined ratio was 89.2 for the quarter. Net written premium increased 10% to $1.1 billion, while net earned premium was up 4% to $524.3 million from the year-ago quarter. Investment income increased to $52.4 million compared to $50.2 million in the same quarter of 2010. For the quarter, return on equity stood at 8.4%.

The company recently declared a regular cash dividend of 15.5 cents per share on its common stock, par value $1 per share. Dividend increased 6.9% from the previous payout and is payable on Oct. 17, 2011. Currently, the company has a dividend yield of 2.5%. Mid-August, A.M.Best upgraded the company's issuer credit ratings to "AA" from "AA-" with a stable outlook, and has affirmed financial strength rating at "A+" with a stable outlook.

Of the ten analysts covering the stock, six recommend a buy and three rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 20.5% to $35.14 over the next 12 months.

2. The Travelers Companies ( TRV), a holding company, engages in providing a range of commercial, personal property and casualty insurance products and services to businesses, government units, associations and individuals. It operates in three segments: business insurance; financial, professional and international insurance; and personal insurance.

Total revenues increased 3% to $6.4 billion during the second quarter of 2011, from the year-ago quarter. Net written premiums grew 2% to $5.8 billion. Net realized investment gains were $19 million, vs. $31 million in the same quarter of 2010.

Extraordinary tornado activity during April and May resulted in a net loss of $364 million, or 88 cents per share. The combined ratio for the quarter totaled 125. Book value per share increased 7% to $59.62 at the end of June 2011, vs. $55.67 per share as of June 2010.

The company recently declared a regular quarterly dividend of 41 cents per common share payable on Sep. 30, 2011. During the first quarter of 2011, TRV paid a dividend of 36 cents per common share. The company has a dividend yield of 2.9%.

Of the 25 analysts covering the stock, 44% recommend a buy and 44% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 24.4% to $63.14 in the upcoming 12 months.

1. The Allstate ( ALL), a holding company, conducts its business through Allstate Insurance Company and Allstate Life Insurance Company. Allstate operates in four business segments: Allstate Protection, Allstate Financial, Discontinued Lines and Coverage, and Corporate and other. It provides personal property and casualty insurance business, life insurance, retirement and investment products.

Consolidated revenue for the second quarter of 2011 was $8.08 billion, an increase of 5.6% from the year-ago quarter. Total portfolio yield was 4.5% higher than the same quarter in 2010. Total realized capital gains were recorded at $57 million, vs. a loss of $451 million in the second quarter prior year. The combined ratio for the quarter totaled 123.3. At the end of June 2011, book value per share rose 8.2% to $35.95 from $33.24 per share as of June 2010.

Mid-July, the company declared a quarterly cash dividend of 21 cents per share on each outstanding share payable Oct. 3, 2011. In the year-ago quarter, the company paid a dividend of 20 cents per share. The company has a current dividend yield of 3.1%.

Of the 27 analysts covering the stock, 48% assign a buy rating and 44% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 25.2% to $32.93 in the upcoming 12 months.

To see these stocks in action visit the 8 Insurance Stocks Flying High portfolio on Stockpickr.