Munich Re played down the threat to its reinsurance portfoliofrom insurance investors like pension funds, saying it expected astable outcome when it renews contracts with its insurance companyclients in the coming months.

The world's biggest reinsurer on Sunday said it was seeingincreasing price competition from institutional investors, who arebuying into the securitisation of insurance risks such as hurricanedamage in the United States, in direct competition with traditionalreinsurers like Munich Re.

These investors pumped around $44 billion into the lucrativemarket for natural catastrophe risk cover last year, representingabout 17 percent of worldwide reinsurance capacity for thoserisks.

But the figure is expected to grow to $75 billion in 2016, orabout 25 percent of global capacity, Munich Re board member TorstenJeworrek told a news conference at the annual meeting of thereinsurance industry in Monaco.

This new supply of reinsurance was putting continuous butmoderate pressure on the price of traditional reinsurance,particularly in catastrophe markets, Jeworrek said.

“We have a concern. We take a very serious approach here,particularly when the new capacity undermines current pricelevels,” Jeworrek said, adding that the company was activelymanaging its book to keep it profitable.

However, the natural catastrophe segment makes up only 1.5billion euros in premiums or less than 10 percent of Munich Re's 17billion euro property and casualty book, Jeworrek said.

“The general impact is manageable and one should notexaggerate,” he said.

Institutional investors hungry for yield have been increasinglyattracted to insurance “catastrophe bonds” because they pay highreturns compared with other bonds available in the market.

The downside of the bonds for investors is that they risk losingsome or all of their capital to pay damage claims in the event of abig storm or earthquake.

Jeworrek said it was unclear how long traditional reinsurers,who help insurance companies shoulder the risk of big damage claimsin exchange for part of the premium, would have to face thecompetitive threat from pension funds.

Institutional investor interest in catastrophe bonds mightdiminish if general interest rates start to rise, and the “catbond” investors have yet to face big losses, which might one daydampen their enthusiasm, Jeworrek said.

Big reinsurers like Munich, Swiss Re or Hannover Re can alsodiversify their risk through other lines of business, rather thanconcentrate on catastrophe risk.

Jeworrek said there was no clear trend for the market whenreinsurers renew annual contracts with insurance companies for riskcover starting on Jan. 1, 2014.

“All in all, we expect still very fragmented and heterogeneousmarkets and profitability levels,” he said.

The effect of third-party investors on reinsurers' prospects isa major theme of the industry gathering.

Broker Willis Re said the new money may “crowd out” traditionalreinsurers.

“The influx of third-party capital into the reinsurance marketmay displace up to $40 billion of traditional equity capital, whichcould either be returned to shareholders or redeployed elsewhere inthe reinsurance market,” Willis Re said in a statement onSunday.

Munich Re has already said it is contemplating buying back itsown shares.