MONTE CARLO, Monaco — Insurance-linked securities act as a check on reinsurance rate increases, holding back sharp rate hikes that historically have followed major catastrophes and reducing the profit potential of traditional reinsurers, observers say.

Unlike the renewal seasons that followed flood and earthquake losses in 2011, hurricane Katrina, Rita and Wilma in 2005, the Sept. 11, 2001, terrorist attacks and Hurricane Andrew in 1992, rate increases in 2018 were limited, and Jan. 1, 2019, renewals could see reductions or at best only marginal increases, they say.

Last month’s Hurricane Florence, where insured losses are expected to be less than $10 billion, is not expected to significantly affect pricing, and barring major catastrophe losses over the next few months, ceding insurers should expect stable renewals, they say.

The growth of ILS capacity over the past 10 years has changed the reinsurance industry, said Graham Coutts, a director at Fitch Ratings Ltd. in London.

“The returns that you can receive now from the reinsurance business are fundamentally lower than they might have been 10 years ago, but we do think the returns in the market are still viable, so there’s a new normal of lower returns, but we expect those lower returns will have lower volatility as well,” he said.

Property catastrophe reinsurance rates remain about 30% lower than five years ago, despite rate increases in 2018, Mr. Coutts said.

The ILS market allows traditional reinsurers to better manage their own balance sheets by transferring some of the risk to capital markets, he said.

Torsten Jeworrek, member of the board of management at Munich Reinsurance Co., said that price reductions halted after last year’s hurricane losses, but overall increases were moderate.

“What we cannot expect … is global price changes in all lines of business or all territories as a consequence of regional catastrophes,” he said.

Looking forward, the next renewal will likely be flat on average across all reinsurance lines globally, Mr. Jeworrek said.

Despite the price increases in 2018, reinsurance pricing remains competitive compared with previous pricing cycles, said Ulrich Wallin, CEO of Hannover Re SE.

There has been increased demand for reinsurance in 2018 with large reinsurers showing “healthy top-line growth,” Mr. Wallin said.

“We expect that 2019 will be a rather stable renewal because there are sufficient concerns in the market regarding the run-off of the 2017 cat losses, there were a number of relatively large risk losses in the market,” he said.

The moderate increases in 2018 marked an “inflection point” for the reinsurance market, said Edouard Schmid, group chief underwriting officer at Swiss Re Ltd. in Zurich.

However, property/casualty reinsurance underwriting margins need to increase 5% to 6% for the industry to return to historic profitability levels, he said.

While reinsurers are seeking moderate rate increases, market competition will likely lead to year-end renewals where rates fall by up to 5%, said Steve Hearn, CEO of Ed Broking Group Ltd. in London. “But it will depend on product and geography,” he said.