FRANKFURT, Germany/LONDON (Reuters)—Global reinsurers are set to enjoy a moment in the sun as they gather in Monte Carlo this weekend, having come through the financial crisis singed rather than burned like their banking counterparts.

But as top executives gather for their annual meeting in the Mediterranean resort to discuss prices and conditions for renewing reinsurance contracts in 2010, they are bound to worry about clouds gathering on the horizon.

While reinsurers suffered painful writedowns on their investment portfolios last year, most steered clear of the complex structured finance instruments that brought many banks to their knees.

The financial market rebound over the last six months has brightened earnings prospects and the big profit-killers of recent years, hurricanes, have so far failed to make a mark on 2009. The situation has improved enough that the world's biggest reinsurer, Munich Reinsurance Co., has said it is considering resuming share buybacks during the course of this year.

But many observers worry the improvement is only temporary, saying that Munich Re and other reinsurers have been unable to push through the radically higher prices they promised last year for the risk cover they sell to their insurance company clients.

"Discussions between insurers and reinsurers at the upcoming Rendez-Vous de Monte Carlo are likely to point to disappointing reinsurance renewals in January 2010," said RBS analyst Jean-Francois Tremblay in a note to clients.

"There is little pricing momentum in lines other than property catastrophe, energy and D&O for financial institutions," he said.

Reinsurers had expected demand to surge in the wake of the financial crisis, as insurance companies sought to use reinsurance to protect their balance sheets as an alternative to raising fresh capital in volatile financial markets.

But the effect was not as strong as reinsurers expected, and the recession has depressed insurance sales worldwide.

"This renewal season is likely to highlight the lack of leverage the reinsurance industry has over its clients," said Collins Steward analyst Ben Cohen.

"Absent a very large catastrophe by the end of the year, we think property reinsurance pricing will stay flat at best in 2010," Mr. Cohen said.

Profitable stagnation

This leads to what insurance executives like PartnerRe Chief Executive Patrick Thiele call "profitable stagnation," where reinsurers see limited premium growth but remain in the black.

However, reinsurers do not have a good track record for maintaining discipline when faced with low premium growth and in the past have tried to grab market share by cutting prices.

Credit rating agency Moody's highlighted that risk on Friday in changing its outlook on the sector to negative from stable.

"Many signs point to greater price competition in 2010," Moody's said in its Global Reinsurance Outlook report.

"The industry is running with more capacity in the short term and demand appears flat," said Moody's analyst Kevin Lee.

Many insurers surveyed by Moody's said they did not plan to buy more reinsurance next year and some expected to buy less.

A surfeit of cash this year could also lead to more consolidation moves this year, analysts said, after PartnerRe agreed to acquire rival Paris Re two months ago.

Reinsurers are also expected to discuss the impact of low interest rates and the outlook for inflation, the drag on insurance premiums from the recession and how to breathe life back into the market for insurance-linked securities like hurricane catastrophe bonds.

But prices for basic reinsurance will be the main focus.

"With January 2010 renewals likely to disappoint, we are concerned that reinsurers could lag other insurance stocks," said RBS's Tremblay.

Munich Re's share price has fallen by more than 6% while that of the second-biggest player, Swiss Reinsurance Co., is down nearly 10% so far this year, compared with an 8% gain in the DJ Stoxx European insurance sector index.