NU Online News Service

Reinsurance rates have decreased by as much as 10 percent as ofthe Jan. 1 renewals, as two leading reinsurance brokers indicatedthere are reasons for concern in the marketplace.

In separate reports, Willis Re and Aon Benfield issued their views on the reinsurance market,saying that generally, reinsurance rates came in with an averagedecrease of 5 to 10 percent.

"Overcapitalization in the reinsurance market continues togradually push rates downward with price reductions at the Jan. 1,2011 reinsurance renewals averaging between 5 [percent] and 10[percent]," Willis Re said in a statement.

"Reinsurers are now lowering rates at the same, or faster, pacethan insurers are lowering rates," Aon Benfield said in itsreport.

The broker went on to say that both insurers and reinsurers haverecovered financially from the economic crisis, but their productshave "quite limited growth." Three consecutive years of declinesfor the United States, Germany, France and the United Kingdom meanthat insurers "need to turn their efforts to generating demand fromnew products or innovations on existing ones."

Willis Re said reinsurers' 2010 underwriting "results are lowerthan the exceptional ones achieved in comparatively loss-free 2009.However, the results are "better than initially feared after thedisastrous first quarter."

Reinsurance carriers may seek to "implement more aggressivecapital management strategies through share repurchases, dividendpayments and other similar measurers."

Among some of the factors influencing reinsurance supply,according to Aon Benfield:

o Extremely light hurricane losses.

o Growth in investor interest in catastrophe bonds.

o Continued favorable casualty reserved development.

o Declining quality of Florida homeowners insurers as theystruggle to profit with inadequate rates and survive sinkholes.

o Low exposure growth.

Dominic Christian, co-chief executive officer of Aon Benfield,said, "Whilst negotiations around the [$60 billion] of externallytransacted reinsurance premium renewing at Jan. 1 may be fairlydescribed as being reasoned and assured, there has been on occasionreal variability around program outcomes--treaty terms haveremained robust, but pricing is less homogeneous than for sometime."

"The global reinsurance industry faces tough prospects for2011," said Peter Hearn, chief executive officer of Willis Re, in astatement. "Thin investment returns and declining back-yearreleases provide little cover for declining underwriting returns.In such an environment, any shock to reinsurers' capital base,either through underwriting losses or other capital events, islikely to result in a sharper reaction from reinsurers than primarycompanies will find easy to bear."