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

“Falling business production and rising expense ratios areconcerns for both insurers and reinsurers,” said the New York-basedHolborn brokerage in its report, “2010 Reinsurance Outlook: ABalanced Market.”

Holborn added that depressed levels of employment and economicactivity are producing flat or declining exposure bases.

“Market premium volumes continue to shrink, both due to reducedexposures and increased levels of price competition amonginsurers,” according to Holborn.

The report said Holborn expects reinsurers to buy back shares,merge, or both to manage capital during the year ahead.

Holborn's study noted the reinsurance market showed “a fairamount of stress” at the start of 2009, stemming from large lossactivity 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 January2009, contracts with rate increases “significantly outnumbered”those with decreases. Rates increased again for second-quarterrenewals, according to the report, but then began to subside byJuly 1, 2009. By late 2009, “much of the pressures had eased,” saidthe broker.

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, while Transatlantic Re was successfully spun out ofAIG.

o Reduced anticipated catastrophe model estimates.

o Reduced premiums and less desire among ceding companies forlimit increases due to the recession.

o The 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. “Catastrophe experience has been benignthis year to the worldwide market, with no individual event costingreinsurers over $1 billion. Equity and currency markets haverecovered about half of their 2008 and early 2009 losses, and thecredit market has reopened for financial institutions.”