Reinsurance rates declined in four of the last five years, according to the Guy Carpenter World Property Catastrophe Rate on Line Index, which tracks prices on a worldwide basis. During that period, the industry escaped natural disasters on the scale of Hurricane Katrina, which flooded New Orleans and caused $62.2 billion of insured losses in 2005.

 
'Better Profitability'
"The underlying issue is that the industry needs better profitability," said Clemens von Weichs, chief executive officer of Allianz Re, the reinsurance unit of Munich-based Allianz SE, Europe's biggest insurer. "The extremely low market capitalization of our industry at the moment signals that investors think we don't earn enough on capital provided."

Damages from the events in Japan, an earthquake in New Zealand, floods in Australia and other catastrophes led to a first-half loss of 211 million euros ($298 million) at Munich Re, the world's biggest reinsurer, and a 70 percent plunge in net income to $295 million at Zurich-based Swiss Re, the second largest.

Munich Re shares dropped 26 percent this year, and Swiss Re slid 20 percent, compared with a 21 percent decline in the 28- company Bloomberg Europe 500 Insurance Index.

 
Stable Rates
Some industry forecasters say rates are unlikely to increase much, if at all. Slowing economic growth in the world's largest economies will probably reduce demand for primary insurance, making it less likely that reinsurers will be able to raise rates, said Chris Waterman, head of insurance ratings for Europe, the Middle East and Africa at Fitch Ratings. Reinsurers' ability to boost rates will depend on the level of catastrophe- related losses in the rest of this year, he said.

Irene, which made landfall Aug. 27 as a Category 1 hurricane in North Carolina before striking New York the next day as a tropical storm, may result in insured damages of $2.6 billion, less than initial estimates, according to Kinetic Analysis Corp., a firm that predicts the effects of disasters. The Atlantic hurricane season runs from June through the end of November.

"The first part of the year was very active with natural catastrophes," said Jacopo D'Antonio, president and chief underwriting officer at Aspen Re Europe. "At the same time, the low-interest-rate environment seems to continue. We and our clients have to realize we have to end this denial of price adequacy."

 
'Modest Increase'
Munich Re and Swiss Re typically renew about two-thirds of their annual property and casualty contracts in January, and the remainder in April and July. The renewals on April 1 focus on the Asia-Pacific region. Both reinsurers have said that rates will have to climb as a result this year's disaster bill.

"There is a much better opportunity this year to make our point that we need price increases," said Karl Mayr, CEO and president of the European reinsurance unit of Bermuda-based Axis Capital Holdings Ltd. "It's a modest increase that we can get and that we will get in large parts of the business in the renewals in January."

 
'Not Adequate'
"For January, my expectation would be a bottom out and slow start but that there would be an agreement that we won't see double digits," said Peter Schmidt, head of European reinsurance at Catlin Group Ltd.

In 2008, writedowns on equity investments and losses related to the financial crisis hurt earnings at reinsurers worldwide. The firms were able to use to use those losses as an argument to increase prices in the January 2009 renewals. Rates declined again in the following two years, mostly because of an absence of major natural catastrophes.

"Prices are not adequate anymore," said Hans-Joachim Guenther, chief underwriting officer and head of reinsurance for Europe and Asia at Bermuda-based Endurance Specialty Holdings, Ltd. "I would expect the turning point to happen. However, it is a very softish growth in pricing, so it's at an early stage, but at least it goes in the right direction."

Swiss Re's Gray agrees. "The accumulated pressure is likely to turn the sporadic increases we've seen so far into a much broader, if modest, upswing over the next 18 months, including January."

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