COLORADO SPRINGS, Colo.—U.S. reinsurers face ongoing rate softening for January renewals, particularly in property catastrophe lines.

Meanwhile, prospects for an overall turn in the market likely are at least a year away, reinsurance officials said during the Property Casualty Insurers Assn. of America's annual meeting (see story, page 26). They noted, however, that reinsurers continue

to maintain underwriting discipline despite the softening market, and the renewal

season is expected to be a smooth one (see story).

Other trends include a push by insurers for multiyear contracts, to which reinsurers are reacting cautiously (see story, page 28). To a degree, this reflects insurers' and reinsurers' emphasis in developing long-term relationships. Meanwhile, the trend toward increased retentions is ongoing (see story, page 27).

Joseph M. Fedor, executive vp and director at Pearl River, N.Y.-based U.S. Re Corp., said the reinsurance market is “going to remain competitive,” with a high likelihood that rates “will be flat to down, even for accounts that experience losses.”

“From the reinsurer's perspective, it will probably be a relatively poor renewal season,” Mr. Fedor said during the Oct. 24-27 PCIA conference in Colorado Springs, Colo.

Hugo Crawley, chairman of London-based BMS Group Ltd., said the outlook is “relatively bleak in terms of an industry that is creeping towards losing money,” with low to zero investment returns, cash flows that are drying up and debate about whether market participants are taking down reserves.

“All in all, it's adding up to a more difficult soft market, and I don't see the light at the end of the tunnel in terms of predicting whether the market is going to change in a short space of time,” Mr. Crawley said. “Personally, I don't see it.”

Pina Albo, president of the reinsurance division at Princeton, N.J.-based Munich Reinsurance America Inc., said, “This is a fairly challenging market environment and, from a reinsurance perspective, we're aware of that and we're approaching the renewals with that in mind.”

Munich Re is looking at its overall portfolio, “determining what accounts don't look supportable anymore and having those conversations earlier to see what we can do to make it more attractive and to ensure our support,” Ms. Albo said.

“Right now, everybody's struggling to maintain profitability in a difficult environment,” said James M. Hinchley, chief operating officer of Liberty Mutual Reinsurance, a unit of Boston-based Liberty Mutual Group Inc. “I think that's the single challenge facing everybody. It's a difficult market out there,” he said. “How do you exercise underwriting discipline? Everybody's fighting tough these days,” he said.

“Most reinsurers are holding onto business that is adequately profitable, so you have to question when opportunities do arise. You have to really do your homework and due diligence as to why” these new opportunities have risen. At times, he said, there is “winner's remorse” for taking on poor business they later regret. New business opportunities “present a challenge,” said Mr. Hinchley.

Robert DeRose, vp, at Oldwick, N.J.-based A.M. Best Co. Inc., said “casualty across the board is pretty much soft, and property is becoming increasingly more competitive.”

William H. Eyre Jr., Philadelphia-based managing director of Towers Watson & Co.'s reinsurance brokerage business, said, “Reinsurers are in general agreement about providing pricing relief for insurers on property business, subject to companies' exposure management and experience in 2010 and we do have to keep in mind that there were a number of storms in the U.S.”

Observers estimated that property lines will drop 10% to 15% at renewals while casualty lines' rates will range from flat to 10% lower.

“Reinsurers are all sending messages that they're trying to hold the line, but we're pretty confident we're going to see a drop, I think more on the property side than certainly on the casualty side,” said Mike Schnur, a Chicago-based a partner with TigerRisk Partners L.L.C.

There, however, have been limited reinsurance rate hikes.

Damien Magarelli, a director at New York-based rating agency Standard & Poor's Corp., said losses include earthquakes in Chile and New Zealand as well as the Deepwater Horizon oil rig in the Gulf of Mexico. “All of these areas could see rate increases of 30% or more,” Mr. Magarelli said.

He also noted that the directors and officers liability and workers compensation reinsurance market is offering less capacity than previously. While the lines still are seeing rate declines, they are not as great as in the primary market. “So (reinsurers are) being a little more selective at this point in time,” he said.

However, John Andre, A.M. Best Co. Inc. group vp of global reinsurance and alternative markets, said that while D&O and errors and omissions lines had hardened, “I think it's losing momentum because they haven't seen the loss emergence that everyone was anticipating.”

For financial institutions, Stephen Mildenhall, Chicago-based CEO of Aon Benfield Analytics, said “there's been less claim emergence out of the financial crisis than maybe some people expected.”

Meanwhile, Mr. Eyre said he expects “a fairly orderly renewal season, barring any disasters in the next two months, and there's certainly plenty of capacity for all lines of business.”

The trend has been “to get into the market earlier,” said James H. Bradshaw, CEO of Willis Re Inc. in New York. “I think clients have been just getting better” at improving their access to data and brokers “are working harder to present that data in an organized and logical format, so I would think that trend should continue.”

Another trend, said Mr. Magarelli, is a modest increase in asbestos and environmental charges by reinsurers. “We don't believe that's a fundamental shift in the risk of A&E, but you are seeing some companies taking some charges,” usually in the range of $200 million to $400 million.

While this is “nothing as dramatic as the multibillion-dollar charges of the earlier part of the decade,” a bit more volatility has returned to the A&E market, Mr. Magarelli said. “At this point in time it seems more sporadic, based on certain legal cases in court rulings, nothing that's broad to the market.”

Meanwhile, some observers said an increased emphasis has been placed on reinsurers' credit quality.

“We don't see any immediate change in the marketplace, so clients are looking more for protection of earnings, looking at protection of their own franchises; and reinsurers are more interested in finding alternative solutions in the reinsurance market, so they're willing to provide broader products for the right clients,” Mr. Crawley said.

Kelly R. Superczynski, senior managing director at Chicago-based Aon Benfield Analytics' rating agency advisory unit, said the issue of reinsurer credit quality “has definitely received a lot of focus lately.”