(Bloomberg) -- The world’s largest reinsurers are anticipating even bigger price declines when policies are renewed in 2016 than envisaged a month ago as a flurry of takeovers in the industry fails to absorb some of the excess capital.

Reinsurers and brokers including Guy Carpenter, owned by Marsh & McLennan Cos., flew into the German town of Baden-Baden this weekend to continue negotiating terms and conditions for contracts due for renewal in January. It follows discussions that were held in Monte Carlo in September, which suggested the price slump may be slowing.

“In Monte Carlo, we were certainly suggesting that rate reductions will be in the region of between 5 to 7.5 percent to maybe 10 percent,” said Nick Frankland, chief executive officer of Guy Carpenter’s operations in Europe and the Middle East. “They may be more than that. The market is struggling to understand how to quote in this environment.”

Rates fell this year because of the record $425 billion of surplus capital that was available to underwrite risk, coupled with one of the quietest years for catastrophe losses in the past decade. The pressure on pricing, combined with record-low interest rates, has spurred a string of deals in both the Lloyd’s and Bermuda insurance markets, culminating in Amlin Plc’s record $5.3 billion takeover by a Japanese competitor.

Abundant capacity

Mergers and acquisitions “haven’t impacted capacity,” Frankland said in a telephone interview before flying to Baden-Baden. “Capacity is still abundant and that is naturally having a continued effect on the pricing environment.”

Frankland expects the current wave of insurance deals to continue, driven by Chinese and Japanese companies seeking to expand outside Asia or by insurers in Europe and the U.S. markets looking to build scale or expand into new territories.

“There are a lot of companies in insurance and the reinsurance space that could easily complement each other, a long list of them,” he said. “These deals have proved that any deal of any size in a market that is so awash with capital and funding is possible. You could see a bigger one yet.”

Special Reports /

Reinsurers brace for double-digit price declines amid M&A frenzy

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