NU Online News Service, Jan. 7, 2:23 p.m.EST

Most reinsurers have far more capital than a year ago, capacityis abundant, but problems lie ahead for the marketplace, Holbornreinsurance brokerage predicted.

In a report titled "2010 Reinsurance Outlook: A BalancedMarket," New York-based Holborn said "falling business productionand rising expense ratios are concerns for both insurers andreinsurers," this year.

It added that the depressed levels of employment and economicactivity are producing flat or declining exposure bases. "Marketpremium volumes continue to shrink, both due to reduced exposures,and increased levels of price competition among insurers," Holbornreported.

The report said to manage capital it expects reinsurers to buyback shares, merge, or both during the year ahead.

Holborn's study noted the reinsurance market showed "a fairamount of stress" at the beginning of 2009, stemming from largeloss activity and the financial meltdown in 2008.

"There were several large losses in the market, includingHurricane Ike, which we estimate as one of the three largest lossesto the market ever," the report said.

In the U.S. reinsurance market, Holborn noted that in Jan. 2009,contracts with rate increases "significantly out-numbered" thosewith decreases. Rates increased again for second quarter renewals,according to the report, but then began to subside by July 1, 2009.By late 2009, "much of the pressures had eased," said thereport.

Some factors leading to the reversal, according to Holborn,were:

o Strong half-year earnings for many reinsurers.

o Improvements in financial results stabilized ratings for XLand Swiss Re. Transatlantic Re was successfully spun out ofAIG.

oReduced anticipated catastrophe model estimates.

oReduced premiums and reduced desire among ceding companies forlimit increases due to the recession.

oThe weakening dollar and relative strength of the euro, Swissfranc and British pound.

Now, most reinsurers have "far more capital than a year ago,"according to the report.

It said, "Catastrophe experience has been benign this year tothe worldwide market, with no individual event costing reinsurersover $1 billion. Equity and currency markets have recovered abouthalf of their 2008 and early 2009 losses, and the credit market hasreopened for financial institutions."